avatar Constellation Brands, Inc. Manufacturing
  • Location: New York 
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    AGILITY VALUES MOMENTUM EXECUTION THOUGHT LEADERSHIP PREMIUMIZATION STELLAR PORTFOLIO CUSTOMER FOCUS FISCAL YEAR 2018 ANNUAL REPORT COLLABORATION PASSION HIGH-END WINNING STRATEGY INNOVATION ICONIC BRANDS GROWTH INSIGHT


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    Our growth leadership in the Total Beverage Alcohol category is shaped by our unmatched vision, strategy and portfolio of brands. Our momentum is driven by our culture of innovation, our operational excellence and the commitment of our employees.


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    If there’s one word to describe what Constellation Brands achieved in fiscal 2018, it’s “momentum.” Our powerhouse portfolio of brands extended our Total Beverage Alcohol (TBA) growth leadership position, won an impressively long list of awards and accolades, and delivered record EPS and operating cash flow for fiscal 2018. Our winning strategy delivers for our shareholders today, and we’re confident it will continue to deliver well into the future. Our dynamic yet disciplined approach to growth made Constellation Brands one of the best performers among S&P 500® consumer staples stocks for fiscal 2018(1) and our consistent focus on premiumization and category leading innovation has resulted in our company driving the most growth among TBA competitors(2). But we know that nothing stands still. Consumers change. The market changes. The world around us evolves. So we’re never complacent. We’re continuously sharpening our focus and building our capabilities, leveraging data and advanced analytics, and capitalizing on our entrepreneurial culture. The results? Synergies across our portfolio, accelerated innovation, and advancement of our growth leadership position. We’ve built organizational agility to challenge the status quo, and we’re making bold, meaningful investments to gain first-mover advantage where we see potential market opportunity. And we’ve developed the expertise, capacity, and technology necessary to enhance our operations, facilitate and expedite our product development, and support our retail and distributor partners in a relentless drive to grow our business. We want to thank our almost 10,000 employees for their stellar contributions to our success, and for once again demonstrating such outstanding corporate citizenship on behalf of our company for fiscal 2018. And, we thank you, our shareholders, for your support, confidence and trust in Constellation Brands. Momentum: we’re certainly feeling it right now, and we’re working hard to carry it forward. We know that change is inevitable, and we’re committed to continuously refining and building an industry-leading product portfolio that hits all the right notes. But in the midst of all that change, we never forget that our business is built on one fundamental truth: that people love to share moments that matter with the people who matter to them. And we’re honored our brands are part of their lives. We invite you to explore our interactive profile at www.cbrands.com/story to learn more about what sets Constellation Brands apart, and to join us in exploring what comes next. Cheers. Richard Sands Rob Sands Bill Newlands Chairman of the Board Chief Executive Officer President & Chief Operating Officer (1) Bloomberg; Total Shareholder Return (TSR) based on closing price as of 2/28/2017 to 2/28/2018, assuming reinvestment of dividends (2) IRI and NABCA Channels, 2017


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    FISC AL 2 01 8 HI GHLIGHTS 36 % CO N ST E LLATION B R A N D S 16 % S& P 500 ST OCK PRI CE IN CREASE (1) Constellation’s stock price increased 36%, versus the S&P 500 which grew less than 20% for fiscal 2018. 42 INC REASED % 29 COMPARABLE BA S IS % $ 1.9 OPERATING B DIVIDEND EPS GR OWTH (2) CASH FLOW Constellation Brands declared Constellation Brands reported Constellation Brands reported quarterly cash dividend of $0.74 comparable basis EPS growth record operating cash flow of more per share Class A and $0.67 per of 29% for fiscal 2018. than $1.9 billion for fiscal 2018. share Class B common stock, an increase of approximately 42%. (1) Bloomberg; TSR based on closing price as of 2/28/2017 to 2/28/2018, assuming reinvestment of dividends (2) EPS growth on a reported basis is up 54% over fiscal 2017. The comparable basis EPS growth amount contained in this letter is a non-GAAP financial measure. See the reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure in a table following the Form 10-K incorporated in this Annual Report.


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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 2018 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-08495 CONSTELLATION BRANDS, INC. (Exact name of registrant as specified in its charter) Delaware 16-0716709 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 207 High Point Drive, Building 100 Victor, New York 14564 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (585) 678-7100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class A Common Stock (par value $.01 per share) New York Stock Exchange Class B Common Stock (par value $.01 per share) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


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    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing sales prices of the registrant’s Class A and Class B Common Stock as reported on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter was $32,990,201,563. The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April 17, 2018, is set forth below: Class Number of Shares Outstanding Class A Common Stock, par value $.01 per share 168,057,947 Class B Common Stock, par value $.01 per share 23,326,443 Class 1 Common Stock, par value $.01 per share 7,088 DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement of Constellation Brands, Inc. to be issued for the Annual Meeting of Stockholders which is expected to be held July 17, 2018 is incorporated by reference in Part III to the extent described therein.


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    TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 10 Item 1B. Unresolved Staff Comments 19 Item 2. Properties 20 Item 3. Legal Proceedings 21 Item 4. Mine Safety Disclosures 21 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22 Item 6. Selected Financial Data 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48 Item 8. Financial Statements and Supplementary Data 51 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 108 Item 9A. Controls and Procedures 109 Item 9B. Other Information 109 PART III Item 10. Directors, Executive Officers and Corporate Governance 109 Item 11. Executive Compensation 110 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 110 Item 13. Certain Relationships and Related Transactions, and Director Independence 111 Item 14. Principal Accounting Fees and Services 111 PART IV Item 15. Exhibits, Financial Statement Schedules 112 Item 16. Form 10-K Summary 112


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    This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. All statements other than statements of historical fact included in this Annual Report on Form 10-K, including without limitation (I) the statements under Item 1 “Business” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding (i) our business strategy, future operations, future financial position, expected effective tax rates and anticipated tax liabilities and adjustments to recorded provisional income tax amounts, prospects, plans and objectives of management, (ii) information concerning expected or potential actions of third parties, including insurance carrier reimbursements or potential changes to international trade agreements, tariffs, taxes and other governmental rules and regulations, (iii) information concerning the future expected balance of supply and demand for our products, (iv) timing and source of funds for operating activities, (v) the manner, timing and duration of the share repurchase program and source of funds for share repurchases, (vi) the amount and timing of future dividends, and (vii) the volatility of the fair value of the Canopy Investment and the Canopy Warrants, (II) the statements regarding our beer operations expansion activities, including Mexicali Brewery construction, and the expansions of the Nava and Obregon breweries and glass plant, including anticipated costs and timeframes for completion, and (III) the projections regarding the expected gain on the sale of a retained interest are forward-looking statements. When used in this Annual Report on Form 10-K, the words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and markets in which we compete, our forward-looking statements contained in this Annual Report on Form 10-K are also subject to the risk and uncertainty that (i) the actual balance of supply and demand for our products will vary from current expectations due to, among other reasons, actual raw material supply, actual shipments to distributors and actual consumer demand, (ii) the actual demand for our products will vary from current expectations due to, among other reasons, actual shipments to distributors and actual consumer demand, (iii) the amount and timing of and source of funds for any share repurchases may vary due to market conditions, our cash and debt position, the impact of the beer operations expansion activities, and other factors as determined by management from time to time, (iv) the amount and timing of future dividends may differ from our current expectations if our ability to use cash flow to fund dividends is affected by unanticipated increases in total net debt, we are unable to generate cash flow at anticipated levels, or we fail to generate expected earnings, (v) the fair value of the Canopy Investment and Canopy Warrants may vary due to market and economic conditions in Canopy Growth Corporation’s locations, (vi) the sale of a retained interest is subject to certain closing conditions and the receipt of any required regulatory approvals, and (vii) the timeframe and actual costs associated with the beer operations expansion activities may vary from management’s current expectations due to market conditions, our cash and debt position, receipt of all required regulatory approvals by the expected dates and on the expected terms and other factors as determined by management. Additional important factors that could cause actual results to differ materially from those set forth in or implied by our forward-looking statements contained in this Annual Report on Form 10-K are those described in Item 1A “Risk Factors” and elsewhere in this report and in our other filings with the Securities and Exchange Commission. Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. All references to “net sales” refer to gross sales less promotions, returns and allowances, and excise taxes consistent with the Company’s method of classification. All references to “Fiscal 2018,” “Fiscal 2017” and “Fiscal 2016” refer to the Company’s fiscal year ended the last day of February of the indicated year. All references to “Fiscal 2019” refer to our fiscal year ending February 28, 2019. All references to “$” are to U.S. dollars, all references to “C$” are to Canadian dollars and all references to “A$” are to Australian dollars. Unless otherwise defined herein, refer to the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for the definition of capitalized terms used herein. Market positions and industry data discussed in this Annual Report on Form 10-K are as of calendar 2017 and have been obtained or derived from industry and government publications and our estimates. The industry and government publications include: Beer Marketers Insights; Beverage Information Group; Growers Network; Impact Databank Review and Forecast; International Wine and Spirits Research (IWSR); IRI; and National Alcohol Beverage Control Association. We have not independently verified the data from the industry and government publications. Unless otherwise noted, all references to market positions are based on equivalent unit volume.


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    PART I Item 1. Business. Introduction We are an international producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy and Canada and more than 100 brands in our portfolio. In the U.S., we are the largest multi- category supplier (beer, wine and spirits) (“Multi-category Supplier”) of beverage alcohol. We are the third-largest beer company in the U.S. market and the world’s leading premium wine company. Many of our products are recognized as leaders in their respective categories. This, combined with our strong market positions, makes us a supplier of choice to many of our customers, who include wholesale distributors, retailers and on-premise locations. Our vision is to elevate life with every glass raised and our mission is to build brands that people love. We are committed to brand building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Our key values are: people; customer focus; entrepreneurship; quality; and integrity. The Company is a Delaware corporation incorporated on December 4, 1972, as the successor to a business founded in 1945. We have approximately 9,600 employees located primarily in the U.S. and Mexico, with our corporate headquarters located in Victor, New York. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities. Strategy Our overall strategy is to create industry-leading growth and shareholder value by building premium brands that people love. We position our portfolio to benefit from industry premiumization trends, which we believe will continue to result in faster growth rates in the high-end of the beer, wine and spirits categories. Certain key U.S. industry trends include: high-end beer (led by imported, craft and domestic super premium) growing faster than total beer; growth in U.S. per capita consumption of wine and spirits and volume of premium and above wine and spirits growing faster than value-priced wine and spirits; and consolidation of suppliers, wholesalers and retailers. To capitalize on these trends, become more competitive and grow our business, we have generally employed a strategy focused on a combination of organic growth and acquisitions, with an increasing focus on the higher-growth, higher-margin premium and above categories of the beverage alcohol industry. Key elements of our strategy include: leveraging our leading position in total beverage alcohol and our scale with wholesalers and retailers to expand distribution of our product portfolio and cross promotional opportunities; strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol insights; investing in brand building activities; positioning ourselves for success with consumer-led innovation capabilities that identify, meet and stay ahead of evolving consumer trends and market dynamics; realizing operating efficiencies through expanding and enhancing production capabilities and maximizing asset utilization; and developing employees to enhance performance in the marketplace. 1


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    In the beer business, we completed the acquisition of the imported beer business in June 2013, which solidified our position in the U.S. beer market over the long-term; diversified our profit base and enhanced our margins, results of operations and operating cash flow; and provided new avenues for growth. Since completing this transformational acquisition, we have made capital investments and acquisitions to increase beer production capacity to secure independence from a supply standpoint and to support the growth of the business. We enhanced our position in the high-end segment of the U.S. beer market with the acquisition of Ballast Point, a highly-awarded craft brewer, which provided us with a premium platform to compete in the growing craft beer category. In our wine and spirits business, we have acquired higher-growth, higher-margin premium and above wine brands including Meiomi, Prisoner and Charles Smith wine brands, and divested the lower-margin Canadian wine business, as part of our efforts to increase our mix of premium and above brands, improve margins and create operating efficiencies. In addition, we have added high-end brands to our spirits portfolio through the acquisitions of Casa Noble and High West. For further information on our strategy, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this Annual Report on Form 10-K (“MD&A”). Acquisitions, Investments and Divestitures As part of our strategy to improve margins, enhance production capabilities and keep an increased focus on the higher-growth, higher-margin premium and above categories of the beverage alcohol industry, we have completed the following acquisitions, investments and divestitures: Transaction Date Strategic Contribution Beer Segment Funky Buddha acquisition August Portfolio of high-quality, Florida-based craft beers; strengthened our position 2017 in the high-end segment of the U.S. beer market. Obregon Brewery December Provided immediate functioning brewery capacity to support our fast- acquisition 2016 growing, high-end Mexican beer portfolio; provided flexibility for future innovation initiatives; enabled us to become fully independent from an interim supply agreement with Modelo. Ballast Point acquisition December Provided a premium platform to compete in the growing craft beer category; 2015 further strengthened our position in the high-end segment of the U.S. beer market. Glass production plant December State-of-the-art glass production plant located adjacent to our Nava Brewery acquisition through joint 2014 in Mexico; solidified our long-term glass sourcing strategy under favorable venture with Owens-Illinois terms. Imported beer business June Provided complete, independent control of our U.S. commercial beer acquisition 2013 business, the state-of-the-art Nava Brewery and the exclusive perpetual brand rights to import, market and sell Corona and certain other Mexican beer brands in the U.S. market; solidified our position in the U.S. beer market for the long term; made us the third-largest brewer and seller of beer for the U.S. market; combined with our strong position in wine and spirits, solidified us as the largest Multi-category Supplier of beverage alcohol in the U.S. Wine and Spirits Segment Schrader Cellars acquisition June Collection of highly-rated, limited-production fine wines; aligned with our 2017 portfolio premiumization strategy; strengthened our position in the fine wine category. Canadian Divestiture December Divestiture of the lower-margin Canadian wine business. 2016 Charles Smith acquisition October Collection of five fast-growing, high-quality super and ultra-premium 2016 Washington State wine brands; strong consumer affinity and demand. High West acquisition October Portfolio of distinctive, award-winning, fast-growing and high-end craft 2016 whiskeys and other select spirits. Prisoner acquisition April Portfolio of five fast-growing, higher-margin, super-luxury wine brands; 2016 strengthened our position in the super-luxury wine category. 2


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    Transaction Date Strategic Contribution Meiomi acquisition August Higher-margin, luxury growth brand; further strengthened our position in the 2015 U.S. pinot noir category. Casa Noble acquisition September Higher-margin, super-premium tequila business; complemented our Mexican 2014 beer portfolio; further strengthened both our on and off-premise presence as tequila and Mexican beer share similar target consumers and drinking occasions. Corporate Operations and Other Segment Canopy Growth Corporation November Investment in Ontario, Canada-based public company; leading provider of investment 2017 medicinal cannabis products; supported our long-term strategy to identify, meet and stay ahead of evolving consumer trends and market dynamics. For further information about our Fiscal 2018, Fiscal 2017 and Fiscal 2016 transactions, refer to (i) MD&A and (ii) Note 2 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K (“Notes to the Financial Statements”). Business Segments We report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate Operations and Other. 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. We report net sales in two reportable segments, as follows: For the Year For the Year For the Year Ended Ended Ended February 28, % of February 28, % of February 29, % of 2018 Net Sales 2017 Net Sales 2016 Net Sales (in millions) Beer $ 4,658.5 61.4% $ 4,229.3 57.7% $ 3,622.6 55.3% Wine and Spirits: Wine 2,559.5 33.8% 2,739.3 37.4% 2,591.4 39.6% Spirits 367.0 4.8% 362.9 4.9% 334.4 5.1% Total Wine and Spirits 2,926.5 38.6% 3,102.2 42.3% 2,925.8 44.7% Consolidated Net Sales $ 7,585.0 $ 7,331.5 $ 6,548.4 Beer Segment We are the leader in the high-end segment of the U.S. beer market. We sell a number of brands in the imported and craft beer categories. Within the imported beer category, we have the exclusive right to import, market and sell these Mexican beer brands in all 50 states of the U.S.: Corona Extra Corona Light Modelo Especial Modelo Negra Modelo Chelada Pacifico Victoria In the U.S., we are the leading imported beer company and have six of the 15 top-selling imported beer brands. Corona Extra is the best-selling imported beer and the fifth best-selling beer overall in the U.S.; Corona Light is the leading imported light beer; and Modelo Especial is the second-largest and the fastest-growing major imported beer brand. 3


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    Since the acquisition of the imported beer business, we have increased our production capacity in Mexico from 10 million to approximately 31.5 million hectoliters. Our current production capacity provides us the opportunity to further expand our leadership position in the high-end segment of the U.S. beer market by increasing our investment behind on-trend innovation. As part of these efforts, we’re launching Corona Premier, a lower- calorie, lower-carbohydrate offering in the high-end U.S. beer market segment. Additionally, we are continuing efforts focused on increasing sales penetration of products in can, draft and larger package size formats. Expansion and construction efforts continue under our Mexico Beer Expansion Projects. Since the acquisition of the imported beer business, we have invested approximately $2.9 billion for the Mexico Beer Expansion Projects, with approximately $800 million during Fiscal 2018. To align with our anticipated future growth expectations, we’re targeting an additional 12.5 million hectoliters of production capacity expansion activities to be completed over the next five fiscal years. Prior to the acquisition of the imported beer business, we and Modelo, indirectly, each had an equal interest in Crown Imports LLC, which had the exclusive right to import, market and sell primarily Modelo’s Mexican beer portfolio in the U.S. as of the date of the acquisition. Our craft beer products are primarily sold under the Ballast Point brand. Ballast Point is led by its popular Sculpin IPA and has excellent innovation capabilities. The Funky Buddha acquisition allows us to leverage our craft beer platform, capitalizing on the growth of high-quality, regional craft beer brands. Wine and Spirits Segment We are the world’s leading premium wine company. We sell a large number of wine brands across all categories – table wine, sparkling wine and dessert wine – and across all price points – popular, premium and luxury categories, primarily within the $5 to $25 price range at U.S. retail – and we have a leading market position in the U.S. Our wine portfolio is supported by grapes purchased from independent growers, primarily in the U.S., New Zealand and Chile, and vineyard holdings in the U.S., New Zealand and Italy. Our wine produced in the U.S., New Zealand and Italy is primarily marketed in the U.S. In addition, we export our wine products to Canada and other major world markets. In our spirits business, SVEDKA Vodka is imported from Sweden and is the largest imported vodka brand in the U.S. Black Velvet Canadian Whisky is the second-largest Canadian whisky brand in the U.S. Our high-end spirits brands include Casa Noble tequila and High West craft whiskeys. In the U.S., we sell 19 of the 100 top-selling wine brands and are a leading premium wine company. Some of our well-known wine and spirits brands sold in the U.S., which comprised our Fiscal 2018 U.S. Focus Brands (“Focus Brands”), included: Wine Brands Spirits Brands 7 Moons Kung Fu Girl Robert Mondavi Casa Noble Black Box Mark West Ruffino High West Clos du Bois Meiomi Simi SVEDKA Vodka Estancia Mount Veeder The Dreaming Tree Franciscan Estate Nobilo The Prisoner Kim Crawford Ravage The Velvet Devil We dedicate a large share of sales and marketing resources to our Focus Brands as they represent a majority of our U.S. wine and spirits revenue and profitability, and generally have strong positions in their respective price categories. 4


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    We have been increasing resources in support of on-trend product innovation as we believe this is one of the key drivers of overall beverage alcohol category growth. In wine, we have launched varietal line extensions behind many of our Focus Brands, such as Bourbon Barrel Aged Robert Mondavi Private Selection and Meiomi Rosé, and we have introduced newer brands like Derange, 7 Moons and Cooper & Thief. In spirits, we are leveraging our existing brand equity established with Black Box Wines with the introduction of Black Box Spirits, initially offered in whiskey, tequila and vodka formats. In addition, as part of our efforts to increase focus on higher-growth, higher-margin premium and above brands, we continue to rationalize lower-growth, lower-margin products mostly within the popular price category. Corporate Operations and Other The Corporate Operations and Other segment includes traditional corporate-related items including executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations and information technology. Further information regarding net sales, operating income and total assets of each of our business segments and information regarding geographic areas is set forth in Note 21 of the Notes to the Financial Statements. Marketing and Distribution To focus on their respective product categories, build brand equity and increase sales, our segments employ full-time, in-house marketing, sales and customer service functions. These functions engage in a range of marketing activities and strategies, including market research, consumer and trade advertising, price promotions, point-of-sale materials, event sponsorship, on-premise promotions and public relations. Where opportunities exist, particularly with national accounts in the U.S., we leverage our sales and marketing skills across the organization. In the U.S., our products are primarily distributed by wholesale distributors, with separate distribution networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio, as well as state alcohol beverage control agencies. As is the case with all other beverage alcohol companies, products sold through these agencies are subject to obtaining and maintaining listings to sell our products in that agency’s state. State governments can affect prices paid by consumers of our products through the imposition of taxes or, in states in which the government acts as the distributor of our products through an alcohol beverage control agency, by directly setting the retail prices. Trademarks and Distribution Agreements Trademarks are an important aspect of our business. We sell products under a number of trademarks, which we own or use under license. Throughout our segments, we also have various licenses and distribution agreements for the sale, or the production and sale, of our products and products of third parties. These licenses and distribution agreements have varying terms and durations. Within the Beer segment, we have an exclusive sub-license to use trademarks related to our Mexican beer brands in the U.S. This sub-license agreement is perpetual. Prior to our acquisition of the imported beer business, Crown Imports had exclusive importation agreements with the suppliers of certain imported beer products and had an exclusive renewable sub-license to use certain trademarks related to the imported beer brands in the U.S. 5


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    Competition The beverage alcohol industry is highly competitive. We compete on the basis of quality, price, brand recognition and distribution strength. Our beverage alcohol products compete with other alcoholic and non- alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant presence and wholesaler attention. We compete with numerous multinational producers and distributors of beverage alcohol products, some of which have greater resources than we do. Our principal competitors include: Beer Anheuser-Busch InBev, Molson Coors, Heineken, Pabst Brewing Company, The Boston Beer Company Wine E&J Gallo Winery, The Wine Group, Trinchero Family Estates, Treasury Wine Estates, Ste. Michelle Wine Estates, Deutsch Family Wine & Spirits, Jackson Family Wines Spirits Diageo, Beam Suntory, Brown-Forman, Sazerac Company, Pernod Ricard Production Our current production capacity in Mexico at our Nava and Obregon breweries is approximately 31.5 million hectoliters. Prior to the acquisition of the Obregon Brewery, we entered into a three-year interim supply agreement with Modelo in June 2013, which was initially extended for one additional year through June 2017. However, the purchase of the Obregon Brewery enabled us to become fully independent from this interim supply agreement, which was terminated at the time of this acquisition. In addition, we are constructing the Mexicali Brewery, located near California, which is our largest imported beer market in the U.S. Based on our anticipated future growth expectations, we intend to expand our production capacity in Mexico to approximately 44 million hectoliters over the next five fiscal years. Our craft beer production requirements are primarily fulfilled by our Miramar and Daleville facilities, located in the greater San Diego, California, and Roanoke, Virginia, areas, respectively. These facilities can be expanded to accommodate future growth. We also operate multiple tap rooms with smaller scale production and innovation capabilities. In the U.S., we operate 18 wineries using many varieties of grapes grown principally in the Napa, Sonoma, Monterey and San Joaquin regions of California. We also operate three wineries in New Zealand and five wineries in Italy. Grapes are crushed at most of our wineries and stored as wine until packaged for sale under our brand names or sold in bulk. The inventories of wine are usually at their highest levels during and after the crush of each year’s grape harvest, and are reduced prior to the subsequent year’s crush. Wine inventories are usually at their highest levels in September through November in the U.S. and Italy, and in March through May in New Zealand. Our Canadian whisky requirements are produced and aged at our Canadian distillery in Lethbridge, Alberta. We currently operate two facilities in the U.S. for the production of our High West whiskey brand. The requirements for grains and bulk spirits used in the production of our spirits are purchased from various suppliers. Certain of our wines and spirits must be aged for more than one year up to multiple years. Therefore, our inventories of wines and spirits may be larger in relation to sales and total assets than in many other businesses. Sources and Availability of Production Materials The principal components in the production of our Mexican and craft beer brands include water; agricultural products, such as yeast and grains; and packaging materials, which include glass, aluminum and cardboard. For our Mexican beer brands, packaging materials represent the largest cost component of production, with glass bottles representing the largest cost component of our packaging materials. For Fiscal 2018, the package format mix of our Mexican beer volume sold in the U.S. was 70% glass bottles, 27% aluminum cans and 3% in stainless steel kegs. 6


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    The Nava and Obregon breweries receive water originating from aquifers. We believe we have adequate access to water to support the breweries’ on-going requirements, as well as future requirements after the completion of planned expansion activities. As part of our efforts to solidify our beer glass sourcing strategy over the long-term, we formed an equally- owned joint venture with Owens-Illinois, the world’s largest glass container manufacturer. The joint venture acquired a state-of-the-art glass production plant that is located adjacent to our Nava Brewery in Mexico, in December 2014. The glass plant currently has four operational glass furnaces and the joint venture intends to increase it to five furnaces by the end of calendar 2019. When fully operational with five furnaces, the glass plant is expected to supply approximately 60% – 65% of our glass requirements for the Nava Brewery. We also have long- term glass supply agreements with other glass producers. The principal components in the production of our wine and spirits products are agricultural products, such as grapes and grain, and packaging materials (primarily glass). Most of our annual grape requirements are satisfied by purchases from each year’s harvest which normally begins in August and runs through October in the U.S. and Italy, and begins in February and runs through May in New Zealand. We receive grapes from approximately 910 independent growers in the U.S. and approximately 170 independent growers located primarily in New Zealand and Chile. We enter into purchase agreements with a majority of these growers with pricing that generally varies year-to-year and is largely based on then-current market prices. As of February 28, 2018, we owned or leased approximately 21,300 acres of land and vineyards, either fully bearing or under development, in the U.S., New Zealand and Italy. This acreage supplies only a small percentage of our overall total grape needs for wine production. However, most of this acreage is used to supply a large portion of the grapes used for the production of certain of our higher-end wines. We continue to consider the purchase or lease of additional vineyards, and additional land for vineyard plantings, to supplement our grape supply. We believe that we have adequate sources of grape supplies to meet our sales expectations. However, when demand for certain wine products exceeds expectations, we look to source the extra requirements from the bulk wine markets around the world. The distilled spirits manufactured and imported by us require various agricultural products, neutral grain spirits and bulk spirits which we fulfill through purchases from various sources by contractual arrangement and through purchases on the open market. We believe that adequate supplies of the aforementioned products are available at the present time. We utilize glass and polyethylene terephthalate (“PET”) bottles and other materials such as caps, corks, capsules, labels, wine bags and cardboard cartons in the bottling and packaging of our wine and spirits products. After grape purchases, glass bottle costs are the largest component of our cost of product sold. In the U.S., the glass bottle industry is highly concentrated with only a small number of producers. We have traditionally obtained, and continue to obtain, our glass requirements from a limited number of producers under long-term supply arrangements. Currently, one producer supplies most of our glass container requirements for our U.S. operations. We have been able to satisfy our requirements with respect to the foregoing and consider our sources of supply to be adequate at this time. Government Regulation We are subject to a range of laws and regulations in the countries in which we operate. Where we produce products, we are subject to environmental laws and regulations, and may be required to obtain environmental and alcohol beverage permits and licenses to operate our facilities. Where we market and sell products, we may be subject to laws and regulations on brand registration, packaging and labeling, distribution methods and relationships, pricing and price changes, sales promotions, advertising and public relations. We are also subject to rules and regulations relating to changes in officers or directors, ownership or control. 7


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    We believe we are in compliance in all material respects with all applicable governmental laws and regulations in the countries in which we operate. We also believe that the cost of administration and compliance with, and liability under, such laws and regulations does not have, and is not expected to have, a material adverse impact on our financial condition, results of operations or cash flows. Seasonality The beverage alcohol industry is subject to seasonality in each major category. As a result, in response to wholesaler and retailer demand which precedes consumer purchases, our beer sales are typically highest during the first and second quarters of our fiscal year, which correspond to the Spring and Summer periods in the U.S. Our wine and spirits sales are typically highest during the third quarter of our fiscal year, primarily due to seasonal holiday buying. Employees As of February 28, 2018, we had approximately 9,600 employees. Approximately 4,800 employees were in the U.S. and approximately 4,800 employees were outside of the U.S., primarily in Mexico. We may employ additional workers during the grape crushing seasons. Approximately 23% of our employees are covered by collective bargaining agreements. There are no collective bargaining agreements expiring within one year. We consider our employee relations generally to be good. Executive Officers of the Company Information with respect to our current executive officers is as follows: NAME AGE OFFICE OR POSITION HELD Richard Sands 67 Chairman of the Board Robert Sands 59 Chief Executive Officer William A. Newlands 59 President and Chief Operating Officer James O. Bourdeau 53 Executive Vice President, General Counsel and Secretary F. Paul Hetterich 55 Executive Vice President and President, Beer Division Thomas M. Kane 57 Executive Vice President and Chief Human Resources Officer David Klein 54 Executive Vice President and Chief Financial Officer Christopher Stenzel 50 Executive Vice President and President, Wine & Spirits Division Richard Sands, Ph.D., is the Chairman of the Board of the Company. He has been employed by the Company in various capacities since 1979. He has served as a director since 1982. In September 1999, Mr. Sands was elected Chairman of the Board. He served as Chief Executive Officer from October 1993 to July 2007, as Executive Vice President from 1982 to May 1986, as President from May 1986 to December 2002 and as Chief Operating Officer from May 1986 to October 1993. He is the brother of Robert Sands. Robert Sands has served as Chief Executive Officer of the Company since July 2007 and as a director since January 1990. Mr. Sands also served as President from December 2002 to February 2018, as Chief Operating Officer from December 2002 to July 2007, as Group President from April 2000 through December 2002, as Chief Executive Officer, International from December 1998 through April 2000, as Executive Vice President from October 1993 through April 2000, as General Counsel from June 1986 through May 2000 and as Vice President from June 1990 through October 1993. He is the brother of Richard Sands. William A. Newlands is President and Chief Operating Officer of the Company. He was appointed President in February 2018 and has served as Chief Operating Officer since January 2017. He served as Executive Vice President of the Company from January 2015 until February 2018. From January 2016 to January 2017 he performed the role of President, Wine & Spirits Division and from January 2015 through January 2016 he performed the role of Chief Growth Officer. Mr. Newlands joined the Company in January 2015. Prior to that he served from October 2011 until August 2014 as Senior Vice President and President, North America of Beam Inc., 8


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    as Senior Vice President and President, North America of Beam Global Spirits & Wine, Inc. from December 2010 to October 2011 and as Senior Vice President and President, USA of Beam Global Spirits & Wine, Inc. from February 2008 to December 2010. Beam Inc., a producer and seller of branded distilled spirits products, merged with a subsidiary of Suntory Holding Limited, a Japanese company, in 2014. Prior to October 2011, Beam Global Spirits & Wine, Inc. was the spirits operating segment of Fortune Brands, Inc., which was a leading consumer products company that made and sold branded consumer products worldwide in the distilled spirits, home and security, and golf markets. James O. Bourdeau has served as the Company’s Executive Vice President and General Counsel since December 2017 and as the Company’s Secretary since April 2017. Prior to that, Mr. Bourdeau was the Company’s Senior Vice President and General Counsel, Corporate Development, having performed that role from September 2014 until December 2017. Before joining the Company in September 2014, Mr. Bourdeau was an attorney with the law firm of Nixon Peabody LLP from July 2000 through September 2014, and a partner from February 2005 through September 2014. Mr. Bourdeau was associated with another law firm from 1995 to 2000. F. Paul Hetterich has been an Executive Vice President of the Company since June 2003. Since January 2016 Mr. Hetterich has performed the role of President, Beer Division and President of Crown Imports LLC, a wholly-owned indirect subsidiary of the Company. From January 2015 through January 2016 he performed the role of Executive Vice President, Corporate Development & Beer Operations. From June 2011 until January 2015 he served as Executive Vice President, Business Development and Corporate Strategy, from July 2009 until June 2011 he served as Executive Vice President, Business Development, Corporate Strategy and International and from June 2003 until July 2009 he served as Executive Vice President, Business Development and Corporate Strategy. From April 2001 to June 2003 Mr. Hetterich served as the Company’s Senior Vice President, Corporate Development. Prior to that, Mr. Hetterich held several increasingly senior positions in the Company’s marketing and business development groups. Mr. Hetterich has been with the Company since 1986. Thomas M. Kane joined the Company in May 2013 as Executive Vice President and Chief Human Resources Officer. Mr. Kane previously served as Senior Vice President, Human Resources and Government Relations of Armstrong World Industries, Inc., a global producer of flooring products and ceiling systems, from February 2012 to May 2013, he served as its Senior Vice President, Human Resources from August 2010 to February 2012 and served as its Chief Compliance Officer from February 2011 to February 2012. Prior to that, Mr. Kane served as Global Vice President, Human Resources for Black & Decker Power Tools, a manufacturer of power and hand tools, from 2002 to 2010. From 1999 to 2002 Mr. Kane served as Global HR leader of GE Specialty Materials, a large manufacturer of silicone products. David Klein has been the Company’s Executive Vice President and Chief Financial Officer since June 2015. Prior to that, Mr. Klein served as the Company’s Senior Vice President Finance, Beer Division, having held that position from May 2014 until June 2015. He served as the Company’s Senior Vice President and Treasurer from April 2009 to July 2014 and assumed the additional responsibilities of Controller in October 2013, also serving in that role to July 2014. From March 2007 to March 2009 Mr. Klein served as chief financial officer for the Company’s former United Kingdom operations. Mr. Klein joined the Company in 2004 as Vice President of Business Development. Christopher Stenzel has been the Company’s Executive Vice President and President, Wine & Spirits Division since January 2017. Prior to that, Mr. Stenzel was Senior Vice President-Finance of the Company’s Beer Division, having performed that role from July 2015 through January 2017, and was the Company’s Senior Vice President, Treasurer and Controller from July 2014 through July 2015. Mr. Stenzel joined the Company with the Company’s acquisition of Beam Wine Estates, Inc. in December 2007, serving as a Senior Vice President-Finance in the Company’s Wine Division until July 2014. Before that, he held various financial positions of increasing responsibility with other beverage alcohol companies. Executive officers of the Company are generally chosen or elected to their positions annually and hold office until the earlier of their removal or resignation or until their successors are chosen and qualified. 9


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    Company Information Our Internet website is https://www.cbrands.com. Our filings with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible free of charge at https://www.cbrands.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, such as ourselves, that file electronically with the SEC. The Internet address of the SEC’s site is https://www.sec.gov. Also, the public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. We have adopted a Chief Executive Officer and Senior Financial Executive Code of Ethics that specifically applies to our chief executive officer, our principal financial officer and our controller, and is available on our Internet site at https://www.cbrands.com/investors. This Chief Executive Officer and Senior Financial Executive Code of Ethics meets the requirements as set forth in the Securities Exchange Act of 1934, Item 406 of Regulation S-K. We also have adopted a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including each person who is subject to the Chief Executive Officer and Senior Financial Executive Code of Ethics. The Code of Business Conduct and Ethics is available on our Internet website, together with our Global Code of Responsible Practices for Beverage Alcohol Advertising and Marketing at https://www.cbrands.com/story/ policies. Our Board of Directors Corporate Governance Guidelines and the Charters of the Board’s Audit Committee, Human Resources Committee (which serves as the Board’s compensation committee) and Corporate Governance Committee (which serves as the Board’s nominating committee) are accessible on our Internet website at https://www.cbrands.com/investors. Amendments to, and waivers granted to our directors and executive officers under our codes of ethics, if any, will be posted in this area of our website. Copies of these materials are available in print to any shareholder who requests them. Shareholders should direct such requests in writing to Investor Relations Department, Constellation Brands, Inc., 207 High Point Drive, Building 100, Victor, New York 14564, or by telephoning our Investor Center at 1-888-922-2150. The information regarding our website and its content is for your convenience only. The content of our website is not deemed to be incorporated by reference in this report or filed with the SEC. Item 1A. Risk Factors. In addition to information discussed elsewhere in this report, you should carefully consider the following factors which could materially affect our business, liquidity, financial condition and/or results of operations. The risks described below are not the only risks we face. Additional factors not presently known to us or that we currently deem to be immaterial may also have a material adverse effect on our business, liquidity, financial condition and/or results of operations in future periods. Operational Risks International operations, worldwide and domestic economic trends and financial market conditions, geopolitical uncertainty, or changes to international trade agreements and tariffs, import and excise duties, other taxes, or other governmental rules and regulations Our products are produced and sold in numerous countries, we have employees in various countries and we have production facilities currently in the U.S., Mexico, New Zealand, Italy and Canada. 10


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    Risks associated with international operations, any of which could have a material adverse effect on our business, liquidity, financial condition and/or results of operations, include: changes in local political, economic, social and labor conditions; potential disruption from socio-economic violence, including terrorism and drug-related violence; restrictions on foreign ownership and investments or on repatriation of cash earned in countries outside the U.S.; import and export requirements; currency exchange rate fluctuations; a less developed and less certain legal and regulatory environment in some countries, which, among other things, can create uncertainty regarding contract enforcement, intellectual property rights and liability issues; and inadequate levels of compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act. Unfavorable global or regional economic conditions, including economic slowdown, inflation, and the disruption, volatility and tightening of credit and capital markets, as well as unemployment, tax increases, governmental spending cuts or a return of high levels of inflation, could affect consumer spending patterns and purchases of our products. These could also create or exacerbate credit issues, cash flow issues and other financial hardships for us and our suppliers, distributors, retailers and consumers. The inability of suppliers, distributors and retailers to access liquidity could impact our ability to produce and distribute our products. We are also exposed to risks associated with interest rate fluctuations. We could experience changes in our ability to manage fluctuations in interest rates and, accordingly, there can be no assurance that we will be successful in reducing those risks. We could also be affected by nationalization of our international operations, unstable governments, unfamiliar or biased legal systems or intergovernmental disputes. Any determination that our operations or activities did not comply with applicable U.S. or foreign laws or regulations could result in the imposition of fines and penalties, interruptions of business, terminations of necessary licenses and permits, and other legal and equitable sanctions. The U.S. and other countries in which we operate impose import and excise duties, tariffs, and other taxes on beverage alcohol products in varying amounts. The U.S. federal government or other governmental bodies may propose changes to international trade agreements, tariffs, taxes and other government rules and regulations. Significant increases in import and excise duties or other taxes on beverage alcohol products could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. In addition, federal, state, provincial, local and foreign governmental agencies extensively regulate the beverage alcohol products industry concerning such matters as licensing, warehousing, trade and pricing practices, permitted and required labeling, advertising and relations with wholesalers and retailers. Certain federal, state or local regulations also require warning labels and signage. New or revised regulations or increased licensing fees, requirements or taxes could have a material adverse effect on our business, liquidity, financial condition or results of operations. Additionally, various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the marketing or sale of our products because of what our products contain or allegations that our products cause adverse health effects. If these types of requirements become applicable to one or more of our major products under current or future environmental or health laws or regulations, they may inhibit sales of such products. These international, economic and political uncertainties and regulatory changes could have a material adverse effect on our business, liquidity, financial condition and/or results of operations, especially to the extent these matters, or the decisions, policies or economic strength of our suppliers and distributors, affect our business, liquidity, financial condition and/or results of operations. 11


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    Dependence on limited facilities for production of our Mexican beer brands, and expansion and construction issues We are dependent on our Nava and Obregon breweries as our sole sources of supply to fulfill our Mexican beer brands product requirements, both now as well as for the near term. We are currently expanding our Nava and Obregon breweries and constructing our Mexicali Brewery, and our joint venture with Owens-Illinois is expanding its glass plant. While these multi-million-dollar expansion and construction activities are progressing consistent with our plans, there is always the potential risk of completion delays and cost overruns. Expansion of current production facilities and construction of new production facilities are subject to various regulatory and developmental risks, including but not limited to: (i) our ability to obtain timely certificate authorizations, necessary approvals and permits from regulatory agencies and on terms that are acceptable to us; (ii) potential changes in federal, state and local statutes and regulations, including environmental requirements, that prevent a project from proceeding or increase the anticipated cost of the project; (iii) inability to acquire rights-of- way or land or water rights on a timely basis on terms that are acceptable to us; and (iv) inability to acquire the necessary energy supplies, including electricity, natural gas and diesel fuel. Any of these events could delay the expansion or construction of our production facilities. We may not be able to satisfy our product supply requirements for the Mexican beer brands in the event of a significant disruption, partial destruction or total destruction of the Nava or Obregon breweries or the glass plant. Also, if the contemplated expansions of the Nava and Obregon breweries and glass plant and construction of the Mexicali Brewery are not completed by their targeted completion dates, we may not be able to produce sufficient quantities of our Mexican beer to satisfy our needs. Under such circumstances, we may be unable to obtain our Mexican beer at a reasonable price from another source, if at all. A significant disruption at our Nava or Obregon breweries, or the glass plant, even on a short-term basis, could impair our ability to produce and ship products to market on a timely basis. Alternative facilities with sufficient capacity or capabilities may not readily be available, may cost substantially more or may take a significant time to start production, any of which could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. Operational disruptions or catastrophic loss to breweries, wineries, other production facilities or distribution systems All of our Mexican beer brands product supply is currently produced at our breweries in Nava, Coahuila, Mexico and Obregon, Sonora, Mexico. Many of the workers at these breweries are covered by collective bargaining agreements. In addition, three of our largest wineries in the U.S. produce approximately 60% of our total annual wine and spirits product volume globally. The glass plant currently produces approximately 40% of the total annual glass bottle supply for our Mexican beer brands. Several of our vineyards and production and distribution facilities, including certain California wineries and breweries and our planned Mexicali Brewery, are in areas prone to seismic activity. Additionally, we have various vineyards, wineries and breweries in the state of California which has recently experienced wildfires and landslides. If any of these or other of our properties and production facilities were to experience a significant operational disruption or catastrophic loss, it could delay or disrupt production, shipments and revenue, and result in potentially significant expenses to repair or replace these properties. Also, our production facilities are asset intensive. As our operations are concentrated in a limited number of production and distribution facilities, we are more likely to experience a significant operational disruption or catastrophic loss in any one location from acts of war or terrorism, fires, floods, earthquakes, hurricanes, labor strike or other labor activities, cyber-attacks and other attempts to penetrate our information technology systems, unavailability of raw or packaging materials, or other natural or man-made events. If a significant operational disruption or catastrophic loss were to occur, we could breach agreements, our reputation could be harmed, and our business, liquidity, financial condition and/or results of operations could be adversely affected due to higher maintenance charges, unexpected capital spending or product supply constraints. 12


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    Our insurance policies do not cover certain types of catastrophes. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain property damage and business interruption insurance. If our insurance coverage is adversely affected, or to the extent we have elected to self-insure, we may be at greater risk that we may experience an adverse impact to our business, liquidity, financial condition and/or results of operations. If one or more significant uninsured or under-insured events occur, we could suffer a major financial loss. Supply of quality water, agricultural and other raw materials, certain raw materials and packaging materials purchased under short-term supply contracts, limited group of suppliers of glass bottles The quality and quantity of water available for use is important to the supply of our agricultural raw materials and our ability to operate our business. Water is a limited resource in many parts of the world and if climate patterns change and droughts become more severe, there may be a scarcity of water or poor water quality which may affect our production costs or impose capacity constraints. We are dependent on sufficient amounts of quality water for operation of our breweries, our wineries and our distilleries, as well as to irrigate our vineyards and conduct our other operations. The suppliers of the agricultural raw materials we purchase are also dependent upon sufficient supplies of quality water for their vineyards and fields. If water available to our operations or the operations of our suppliers becomes scarcer or the quality of that water deteriorates, we may incur increased production costs or face manufacturing constraints. In addition, water purification and waste treatment infrastructure limitations could increase costs or constrain operation of our production facilities and vineyards. A substantial reduction in water supplies could result in material losses of grape crops and vines or other crops, such as barley or hops, which could lead to a shortage of our product supply. We have substantial wine operations as well as brewery operations in the state of California and substantial brewery operations in the country of Mexico. Although certain areas in California recently experienced flooding, the state had endured an extended period of drought and instituted restrictions on water usage. A recurrence of severe drought conditions in California could have an adverse effect upon those operations, which effect could become more significant depending upon actual future drought conditions. Our Nava Brewery and glass plant receive water originating from a mountain aquifer. Our Obregon Brewery receives its allocation of water originating from an aquifer and we expect our Mexicali Brewery will receive an allocation of water originating from an aquifer. Although we anticipate our operations will have adequate sources of water to support their on-going requirements, there is no guarantee that the sources of water, methods of water delivery, or water requirements will not change materially in the future. Our breweries, the glass plant, our wineries and our distilleries use a large volume of agricultural and other raw materials to produce their products. These include corn starch and sugars, malt, hops, fruits, yeast and water for our breweries; soda ash and silica sand for the glass plant; grapes and water for our wineries; and grain and water for our distilleries. Our breweries, wineries and distilleries all use large amounts of various packaging materials, including glass, aluminum, cardboard and other paper products. Our production facilities also use electricity, natural gas and diesel fuel in their operations. Certain raw materials and packaging materials are purchased under contracts of varying maturities. The supply and price of raw materials, packaging materials and energy can be affected by many factors beyond our control, including market demand, global geopolitical events (especially as to their impact on crude oil prices), droughts and other weather conditions or natural or man-made events, economic factors affecting growth decisions, inflation, plant diseases and theft. Our breweries, wineries and distilleries are also dependent upon an adequate supply of glass bottles. Glass bottle costs are one of our largest components of cost of product sold. We currently have a small number of suppliers of glass bottles for our Mexican beer brands. In the U.S., glass bottles have only a small number of producers. Currently, one producer supplies most of our glass container requirements for our U.S. wine and spirits operations and two producers supply our glass bottles for our craft beer. To the extent any of the foregoing factors increases the costs of our finished products or lead to a shortage of our product supply, we could experience a material adverse effect on our business, liquidity, financial condition and/or results of operations. 13


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    Reliance on wholesale distributors, major retailers and government agencies Local market structures and distribution channels vary worldwide. Within our primary market in the U.S., we offer a range of beverage alcohol products across the beer, wine and spirits categories, with separate distribution networks utilized for our beer portfolio and our wine and spirits portfolio. In the U.S., we sell our products principally to wholesalers for resale to retail outlets and directly to government agencies, and we have entered into exclusive arrangements with certain wholesalers that generate a large portion of our U.S. wine and spirits net sales. Wholesalers and retailers of our products offer products which compete directly with our products for retail shelf space, promotional support and consumer purchases, and wholesalers or retailers may give higher priority to products of our competitors. The replacement or poor performance of our major wholesalers, retailers or government agencies could result in temporary or longer-term sales disruptions or could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. Reliance upon complex information systems and third party global networks, cyber-attacks, and design or implementation of our new global enterprise resource planning system (ERP) We depend on information technology to enable us to operate efficiently and interface with customers and suppliers, as well as maintain financial accuracy and efficiency and effect accurate and timely governmental reporting. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, the loss of or damage to intellectual property through security breach, or penalties associated with the failure to timely file governmental reports. We recognize that many groups on a world-wide basis have experienced increases in security breaches, cyber-attacks, and other hacking activities such as denial of service, malware, and ransomware. As with all large information technology systems, our systems could be penetrated by increasingly sophisticated outside parties’ intent on extracting confidential or proprietary information, corrupting our information, disrupting our business processes, or engaging in the unauthorized use of strategic information about us or our employees, customers or consumers. Such unauthorized access could disrupt our operations and could result in the loss of assets or revenues, litigation, remediation costs, damage to our reputation, or the failure by us to retain or attract customers following such an event. We have outsourced various functions to third-party service providers and may outsource other functions in the future. We rely on those third-party service providers to provide services on a timely and effective basis. However, we do not ultimately control their performance. Their failure to perform as expected or as required by contract could result in significant disruptions and costs to our operations. We are in the process of a multi-year implementation of a new ERP system which we intend to replace our existing operating and financial systems. We are designing the ERP system to accurately maintain our financial records, enhance operational functionality and provide timely information to our management team related to the operation of the business. We expect the implementation process will require the investment of significant personnel and financial resources. Companies which implement new ERP systems may experience delays, increased costs and other difficulties. If we are not successful in designing and implementing our ERP system as planned or if it does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected, or our ability to assess those controls adequately could be delayed. To the extent any of the foregoing factors result in significant disruptions and costs to our operations, or reduce the effectiveness of our internal control over financial reporting, we could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. Contamination and degradation of product quality from diseases, pests and weather conditions Our success depends upon the positive image that consumers have of our brands and of the safety and quality of our products. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could adversely affect their sales. Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the quality and quantity of barley, hops, grapes and other agricultural raw materials available, decreasing the supply and quality of our products. We cannot guarantee that our grape suppliers or our suppliers of other agricultural raw materials will 14


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    succeed in preventing contamination in existing vineyards or fields or that we will succeed in preventing contamination in our existing vineyards or future vineyards we may acquire. Future government restrictions regarding the use of certain materials used in growing grapes or other agricultural raw materials may increase vineyard costs and/or reduce production of grapes or other crops. It is also possible that a supplier may not provide materials or product components which meet our required standards or may falsify documentation associated with the fulfillment of those requirements. Product contamination or tampering or the failure to maintain our standards for product quality, safety and integrity, including with respect to raw materials, naturally occurring compounds, packaging materials or product components obtained from suppliers, may also reduce demand for our products or cause production and delivery disruptions. Contaminants or other defects in raw materials, packaging materials or product components purchased from third parties and used in the production of our beer, wine or spirits products or defects in the fermentation or distillation process could lead to low beverage quality as well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand or all our brands. If any of our products become unsafe or unfit for consumption, are misbranded, or cause injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall, multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a period, which could further reduce consumer demand and brand equity. Climate change and environmental regulatory compliance Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. Severe weather events, such as drought or flooding in California or a prolonged cold winter in New York, and climate change may negatively affect agricultural productivity in the regions from which we presently source our various agricultural raw materials. Decreased availability of our raw materials may increase the cost of goods for our products. Severe weather events or changes in the frequency or intensity of weather events can also disrupt our supply chain, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers and consumers. Natural disasters such as floods and earthquakes may also negatively impact the ability of consumers to purchase our products. We may experience significant future increases in the costs associated with environmental regulatory compliance, including fees, licenses, and the cost of capital improvements for our operating facilities to meet environmental regulatory requirements. In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or relating to historical activities of businesses we acquire. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants in our current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs that we have estimated. We may incur costs associated with environmental compliance arising from events we cannot control, such as unusually severe floods, hurricanes, earthquakes or fires. We cannot assure you that our costs in relation to these matters will not exceed our projections or otherwise have a material adverse effect upon our business, liquidity, financial condition or results of operations. Strategic Risks Competition We are in a highly competitive industry and our sales could be negatively affected by numerous factors including: our inability to maintain or increase prices; new entrants in our market or categories; the decision of wholesalers, retailers or consumers to purchase competitors’ products instead of ours; or a general decline in beverage alcohol consumption due to consumer dietary preference changes or consumers substituting legalized marijuana or other similar products in lieu of beverage alcohol. 15


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    Sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and other local agencies, and retailers which could affect their supply of, or consumer demand for, our products. We could also experience higher than expected selling, general and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons. We cannot guarantee that we will be able to increase our prices to pass along to our customers any increased costs we incur. Potential decline in the consumption of products we sell; dependence on sales of our Mexican beer brands Our business depends upon consumers’ consumption of our beer, wine and spirits brands, and sales of our Mexican beer brands in the U.S. are a significant portion of our business. Accordingly, a decline in the growth rate, amount or profitability of our sales of the Mexican beer brands in the U.S. could adversely affect our business. Further, consumer preferences and tastes may shift due to, among other reasons, changing taste preferences, demographics or perceived value. Consequently, any material shift in consumer preferences and taste in our major markets away from our premium beer, wine and spirits brands, and our Mexican beer brands in particular, from the categories in which they compete could have a negative impact on our business, liquidity, financial condition and/or results of operations. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and beverage consumption patterns. A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including: a general decline in economic or geopolitical conditions; concern about the health consequences of consuming beverage alcohol products and about drinking and driving; a general decline in the consumption of beverage alcohol products in on-premise establishments, such as may result from stricter laws relating to driving while under the influence of alcohol; the increased activity of anti-alcohol groups; increased federal, state, provincial and foreign excise or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing; increased regulation placing restrictions on the purchase or consumption of beverage alcohol products or increasing prices due to the imposition of duties or excise tax or changes to international trade agreements or tariffs; inflation; and wars, pandemics, weather and natural or man-made disasters. Acquisition, divestiture, investment, and new product development strategies From time to time, we acquire businesses, assets or securities of companies that we believe will provide a strategic fit with our business. We integrate acquired businesses with our existing operations; our overall internal control over financial reporting processes; and our financial, operations and information systems. If the financial performance of our business, as supplemented by the assets and businesses acquired, does not meet our expectations, it may make it more difficult for us to service our debt obligations and our results of operations may fail to meet market expectations. We may not effectively assimilate the business or product offerings of acquired companies into our business or within the anticipated costs or timeframes, retain key customers and suppliers or key employees of acquired businesses, or successfully implement our business plan for the combined business. In addition, our final determinations and appraisals of the estimated fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates and we may fail to realize fully anticipated cost savings, growth opportunities or other potential synergies. We cannot assure you that the fair value of acquired businesses or investments will remain constant. We may also divest ourselves of businesses, assets or securities of companies that we believe no longer provide a strategic fit with our business. We may provide various indemnifications in connection with the divestiture of businesses or assets. 16


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    We have also acquired or retained ownership interests in companies which we do not control, such as our joint venture to operate a glass plant adjacent to our Nava Brewery and investments recently made through our Constellation Ventures function. Our joint venture partners or the other parties that hold the remaining ownership interests in companies which we do not control may at any time have economic, business or legal interests or goals that are inconsistent with our goals or the goals of the joint ventures or those companies. Our joint venture arrangements and the arrangements through which we acquired or hold our other equity or membership interests may require us, among other matters, to pay certain costs, to make capital investments, to fulfill alone our joint venture partners’ obligations, or to purchase other parties’ interests. We have also recently invested in a Canadian company that manufactures and supplies medicinal cannabis. While we will not develop, distribute, manufacture or sell cannabis products in the U.S., or anywhere else in the world, unless it is legally permissible to do so at all governmental levels in the particular jurisdiction, this investment could affect consumer perception of our existing brands and our reputation with various constituencies. In addition, our continued success depends, in part, on our ability to develop new products. The launch and ongoing success of new products are inherently uncertain, especially with respect to consumer appeal. The launch of a new product can give rise to a variety of costs and an unsuccessful launch, among other things, can affect consumer perception of existing brands and our reputation. Unsuccessful implementation or short-lived popularity of our product innovations may result in inventory write-offs and other costs. We cannot assure you that we will realize the expected benefits of acquisitions, divestitures or investments. We also cannot assure you that our acquisitions, investments or joint ventures will be profitable or that forecasts regarding acquisition, divestiture or investment activities will be accurate. Our failure to adequately manage the risks associated with acquisitions or divestitures, or the failure of an entity in which we have an equity or membership interest, could have a material adverse effect on our business, liquidity, financial condition or results of operations. Dependence upon trademarks and proprietary rights, failure to protect our intellectual property rights Our future success depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property rights. We have been granted numerous trademark registrations covering our brands and products and have filed, and expect to continue to file, trademark applications seeking to protect newly- developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of our trademark applications. We could also, by omission, fail to timely renew or protect a trademark and our competitors could challenge, invalidate or circumvent any existing or future trademarks issued to, or licensed by, us. Financial Risks Indebtedness We have incurred indebtedness to finance acquisitions, fund beer operations expansion and construction activities and repurchase shares of our common stock. In the future, we may continue to incur additional indebtedness to finance acquisitions, repurchase shares of our stock and fund other general corporate purposes, including beer operations expansion and construction activities. We cannot assure you that our business will generate sufficient cash flow from operations to meet all our debt service requirements, pay dividends, repurchase shares of our common stock, and fund our general corporate and capital requirements. Our current and future debt service obligations and covenants could have important consequences. These consequences include, or may include, the following: our ability to obtain financing for future working capital needs or acquisitions or other purposes may be limited; our funds available for operations, expansions and construction, dividends or other distributions, or stock repurchases may be reduced because we dedicate a significant portion of our cash flow from operations to the payment of principal and interest on our indebtedness; 17


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    our ability to conduct our business could be limited by restrictive covenants; and our vulnerability to adverse economic conditions may be greater than less leveraged competitors and, thus, our ability to withstand competitive pressures may be limited. Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in the instruments governing our debt, could result in an event of default under the terms of those instruments and a downgrade to our credit ratings. A downgrade in our credit ratings would increase our borrowing costs and could affect our ability to issue commercial paper. Certain of our debt facilities also contain change of control provisions which, if triggered, may result in an acceleration of our obligation to repay the debt. If we fail to comply with the obligations contained in our senior credit facility, our existing or future indentures, or other loan agreements, we could be in default under such debt facilities or agreements. In the event of a default, the holders of our debt could elect to declare all amounts outstanding under such instrument to be due and payable. A default could also require the immediate repayment of outstanding obligations under other debt facilities or agreements that contain cross-acceleration or cross-default provisions. If that were to occur, we might not have available funds to satisfy such repayment obligations. Intangible assets, such as goodwill and trademarks We have a significant amount of intangible assets such as goodwill and trademarks and may acquire more intangible assets in the future. Intangible assets are subject to a periodic impairment evaluation under applicable accounting standards. The write-down of any of these intangible assets could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. Changes to tax laws, fluctuations in our effective tax rate, accounting for tax positions and the resolution of tax disputes, and changes to accounting standards, elections or assertions The U.S. federal budget and individual state, provincial, local municipal budget deficits, or deficits in other governmental entities, could result in increased taxes on our products, business, customers or consumers. Various proposals to increase taxes on beverage alcohol products have been made at the federal and state levels or at other governmental bodies in recent years. Federal, state, provincial, local or foreign governmental entities may consider increasing taxes upon beverage alcohol products as they explore available alternatives for raising funds. On December 22, 2017, the TCJ Act was signed into law in the United States. The changes in the TCJ Act are broad and complex and we continue to examine the impact the TCJ Act may have on our business and financial results. We recorded a provisional net income tax benefit in the fourth quarter of fiscal 2018 associated with the enactment of the TCJ Act. This provisional benefit is subject to change, possibly materially, due to, among other things, changes in estimates, interpretations and assumptions we have made, and additional guidance and interpretations from the U.S. Treasury Department, the IRS or other standard-setting bodies, legislative actions, changes in accounting standards or related interpretations in response to the TCJ Act, and future actions by states within the United States that have not currently adopted the TCJ Act. In addition, significant judgment is required to determine our effective tax rate and evaluate our tax positions. Our provision for income taxes includes a provision for uncertain tax positions. Fluctuations in federal, state, local and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and our financial results. When tax matters arise, several years may elapse before such matters are audited and finally resolved. Unfavorable resolution of any tax matter could increase our effective tax rate and resolution of a tax issue may require the use of cash in the year of resolution. Additional U.S. tax changes or in how international corporations are taxed, including changes in how existing tax laws are interpreted or enforced, or changes to accounting standards, elections or assertions could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. 18


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    Other Risks Damage to our reputation The success of our brands depends upon the positive image that consumers have of those brands and maintaining a good reputation is critical to selling our branded products. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could adversely affect their sales and our reputation. Our reputation could also be impacted negatively by public perception, adverse publicity (whether or not valid), negative comments in social media, or our responses relating to: a perceived failure to maintain high ethical, social and environmental standards for all our operations and activities; a perceived failure to address concerns relating to the quality, safety or integrity of our products; allegations that we, or persons associated with us or formerly associated with us, have violated applicable laws or regulations, including but not limited to those related to safety, employment, discrimination, harassment, whistle-blowing, privacy, or cyber-security; our environmental impact, including use of agricultural materials, packaging, water and energy use, and waste management; or efforts that are perceived as insufficient to promote the responsible use of alcohol or cannabis. Failure to comply with federal, state, or local laws and regulations, maintain an effective system of internal controls, provide accurate and timely financial statement information, or protect our information systems against service interruptions, misappropriation of data or breaches of security, could also hurt our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, liquidity, financial condition and/or results of operations, as well as require additional resources to rebuild our reputation, competitive position and brand equity. Class action or other litigation relating to abuse of our products, the misuse of our products, product liability, or marketing or sales practices There has been public attention directed at the beverage alcohol industry, which we believe is due to concern over problems related to harmful use of alcohol, including drinking and driving, underage drinking and health consequences from the misuse of alcohol. We could be exposed to lawsuits relating to product liability or marketing or sales practices. Adverse developments in lawsuits concerning these types of matters or a significant decline in the social acceptability of beverage alcohol products that may result from lawsuits could have a material adverse effect on our business, liquidity, financial condition and/or results of operations. Control by the Sands Family Our Class B Common Stock is principally held by members of the Sands family, either directly or through entities controlled by members of the Sands family. Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to 10 votes per share. Holders of Class 1 Common Stock generally do not have voting rights. The stock ownership of the Sands family and entities controlled by members of the Sands family represents a majority of the combined voting power of all classes of our common stock as of April 17, 2018, voting as a single class. Consequently, the Sands family has the power to elect a majority of our directors and approve actions requiring the approval of the stockholders of the Company voting as a single class. Item 1B. Unresolved Staff Comments. Not Applicable. 19


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    Item 2. Properties. We operate breweries, wineries, distilling plants and bottling plants, many of which include warehousing and distribution facilities on the premises, and through a joint venture, we operate a glass production plant. In addition to our properties described below, certain of our businesses maintain office space for sales and similar activities and offsite warehouse and distribution facilities in a variety of geographic locations. Our corporate headquarters are located in leased offices in Victor, New York. Our segments also maintain leased office spaces in other locations in the U.S. and internationally. We believe that our facilities, taken as a whole, are in good condition and working order. Within the Wine and Spirits segment, we have adequate capacity to meet our needs for the foreseeable future. Within the Beer segment, we have adequate capacity to meet our current needs and we have undertaken activities to increase our production capacity to address our anticipated future needs. As of February 28, 2018, our properties include the following: Owned Leased Beer Segment Breweries U.S. 1 6 Mexico 2 Total breweries 3 6 Glass production plant (1) Mexico 1 Warehouse, distribution and other production facilities U.S. 35 Mexico 1 5 Total warehouse, distribution and other production facilities 1 40 Total Beer Segment 5 46 Wine and Spirits Segment Wineries U.S. California 15 1 New York 1 Washington 1 New Zealand 3 Italy 5 Total wineries 20 6 Distilleries U.S. 1 1 Canada 1 Total distilleries 2 1 Warehouse, distribution and other production facilities U.S. 6 Canada 1 Italy 1 8 Total warehouse, distribution and other production facilities 1 15 Total Wine and Spirits Segment 23 22 (1) The glass production plant in Nava, Coahuila, Mexico is owned and operated by an equally-owned joint venture with Owens-Illinois and is located adjacent to our Nava Brewery. 20


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    Within our Wine and Spirits segment, as of February 28, 2018, we owned, leased or had interests in approximately 13,700 acres of vineyards in California (U.S.), 6,700 acres of vineyards in New Zealand and 900 acres of vineyards in Italy. As of February 28, 2018, our principal facilities, all of which are owned, consist of: the Nava Brewery in Nava, Coahuila, Mexico; the Obregon Brewery in Obregon, Sonora, Mexico; the glass production plant in Nava, Coahuila, Mexico; two wineries in California: the Woodbridge Winery in Acampo and the Mission Bell winery in Madera; the Canandaigua winery in Canandaigua, New York; and the distillery in Lethbridge, Alberta, Canada. Item 3. Legal Proceedings. In the ordinary course of their business, the Company and its subsidiaries are subject to lawsuits, arbitrations, claims and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Management believes that the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and that the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome of these matters. Regulatory Matters – The Company and its subsidiaries are in discussions with various governmental agencies concerning matters raised during regulatory examinations or otherwise subject to such agencies’ inquiry. These matters could result in censures, fines or other sanctions. Management believes the outcome of any pending regulatory matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. However, the Company is unable to predict the outcome of these matters. As previously reported in the Company’s Form 10-K for the fiscal year ended February 28, 2014, the United States District Court for the District of Columbia (“District Court”) signed the Stipulation and Order filed by the Antitrust Division of the United States Department of Justice (“DOJ”), permitting the Company and Anheuser- Busch InBev SA/NV to consummate our acquisition of the imported beer business. After expiration of the 60-day public comment period as required under the Antitrust Procedures and Penalties Act, the DOJ moved the District Court for entry of the Final Judgment. The Final Judgment was signed on October 21, 2013, and entered into the District Court’s docket on October 24, 2013, without modification to the terms included in the Proposed Final Judgment. The Company is operating in accordance with the requirements of the Final Judgment. Item 4. Mine Safety Disclosures. Not Applicable. 21


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    PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our Class A Common Stock and Class B Common Stock trade on the New York Stock Exchange® (“NYSE”) under the symbols STZ and STZ.B, respectively. There is no public trading market for our Class 1 Common Stock. The following table sets forth, for the periods indicated, the high and low sales prices of our Class A Common Stock and Class B Common Stock as reported on the NYSE, and cash dividends declared for those classes of common stock. For all periods presented, the cash dividends declared for our Class 1 Common Stock are the same as those declared for our Class B Common Stock. Fiscal 2018 Fiscal 2017 High Low Dividends High Low Dividends Class A Common Stock 1st Quarter $ 186.06 $ 155.11 $ 0.52 $ 165.81 $ 137.85 $ 0.40 2nd Quarter $ 200.64 $ 176.21 $ 0.52 $ 168.68 $ 149.26 $ 0.40 3rd Quarter $ 227.20 $ 197.32 $ 0.52 $ 173.55 $ 146.90 $ 0.40 4th Quarter $ 229.50 $ 204.60 $ 0.52 $ 162.48 $ 144.00 $ 0.40 Class B Common Stock 1st Quarter $ 182.10 $ 156.97 $ 0.47 $ 162.68 $ 140.00 $ 0.36 2nd Quarter $ 199.16 $ 180.00 $ 0.47 $ 171.00 $ 151.60 $ 0.36 3rd Quarter $ 221.28 $ 198.11 $ 0.47 $ 175.50 $ 150.91 $ 0.36 4th Quarter $ 229.27 $ 205.48 $ 0.47 $ 161.91 $ 147.95 $ 0.36 At April 17, 2018, the number of holders of record of our Class A Common Stock, Class B Common Stock and Class 1 Common Stock were 553, 100 and 4, respectively. In April 2015, our Board of Directors approved the initiation of a dividend program under which we paid quarterly cash dividends during Fiscal 2018, Fiscal 2017 and Fiscal 2016. Prior to Fiscal 2016, we had not paid any cash dividends on our common stock since our initial public offering in 1973 as we had retained all earnings to finance the development and expansion of our business. On March 28, 2018, we declared an increased regular quarterly cash dividend of $0.74 per share of Class A Common Stock, $0.67 per share of Class B Common Stock and $0.67 per share of Class 1 Common Stock payable on May 24, 2018, to stockholders of record of each class on May 10, 2018. We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our common stock in the future, but such payments are subject to approval of our Board of Directors and are dependent upon our financial condition, results of operations, capital requirements and other factors, including those set forth under Item 1A “Risk Factors” of this Annual Report on Form 10-K. In addition, the terms of our 2017 Credit Agreement may restrict the payment of cash dividends on our common stock under certain circumstances. Any indentures for debt securities issued in the future, the terms of any preferred stock issued in the future and any credit agreements entered into in the future may also restrict or prohibit the payment of cash dividends on our common stock. 22


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    ISSUER PURCHASES OF EQUITY SECURITIES Total Number Approximate of Shares Dollar Value Purchased as of Shares that Part of a May Yet Be Total Number Average Publicly Purchased of Shares Price Paid Announced Under the Period Purchased Per Share Program Program (1) (2) (3) December 1 – 31, 2017 — $ — — $ 307,696,518 January 1 – 31, 2018 1,854,109 $ 219.30 1,854,109 $ 2,901,088,168 February 1 – 28, 2018 1,832,468 $ 214.31 1,832,468 $ 2,508,369,668 Total 3,686,577 $ 216.82 3,686,577 (1) In November 2016, we announced that our Board of Directors authorized the repurchase of up to an aggregate amount of $1.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2017 Authorization. The Board of Directors did not specify a date upon which the 2017 Authorization would expire. In January 2018, we utilized the remaining $307.7 million available under the 2017 Authorization to repurchase 1,406,710 shares of Class A Common Stock at an average cost of $218.73 per share, through open market transactions, thereby completing the 2017 Authorization. (2) In January 2018, we announced that our Board of Directors authorized the repurchase of up to an aggregate amount of $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2018 Authorization. The Board of Directors did not specify a date upon which the 2018 Authorization would expire. (3) Subsequent to February 28, 2018, we repurchased 93,287 shares of Class A Common Stock pursuant to the 2018 Authorization at an average cost of $227.06 per share through open market transactions. 23


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    Item 6. Selected Financial Data. The following selected financial data should be read in conjunction with MD&A and our consolidated financial statements and notes thereto under Item 8 of this Annual Report on Form 10-K (the “Financial Statements”). For the Years Ended February 28, February 28, February 29, February 28, February 28, 2018 2017 (1) 2016 2015 2014 (2) (in millions, except per share data) Sales $ 8,326.8 $ 8,061.6 $ 7,223.8 $ 6,672.1 $ 5,411.0 Excise taxes (741.8) (730.1) (675.4) (644.1) (543.3) Net sales 7,585.0 7,331.5 6,548.4 6,028.0 4,867.7 Cost of product sold (3,767.8) (3,802.1) (3,606.1) (3,449.4) (2,876.0) Gross profit 3,817.2 3,529.4 2,942.3 2,578.6 1,991.7 Selling, general and administrative expenses (3) (1,532.7) (1,392.4) (1,177.2) (1,078.4) (1,196.0) Gain on sale of business — 262.4 — — — Gain on remeasurement to fair value of equity method investment — — — — 1,642.0 Operating income 2,284.5 2,399.4 1,765.1 1,500.2 2,437.7 Income from unconsolidated investments (4) 487.2 27.3 51.1 21.5 87.8 Interest expense (332.0) (333.3) (313.9) (337.7) (323.2) Loss on extinguishment of debt (5) (97.0) — (1.1) (4.4) — Income before income taxes 2,342.7 2,093.4 1,501.2 1,179.6 2,202.3 Provision for income taxes (6) (11.9) (554.2) (440.6) (343.4) (259.2) Net income 2,330.8 1,539.2 1,060.6 836.2 1,943.1 Net (income) loss attributable to noncontrolling interests (11.9) (4.1) (5.7) 3.1 — Net income attributable to CBI $ 2,318.9 $ 1,535.1 $ 1,054.9 $ 839.3 $ 1,943.1 Net income per common share attributable to CBI: Basic – Class A Common Stock $ 12.04 $ 7.79 $ 5.42 $ 4.40 $ 10.45 Basic – Class B Convertible Common Stock $ 10.93 $ 7.07 $ 4.92 $ 4.00 $ 9.50 Diluted – Class A Common Stock $ 11.55 $ 7.52 $ 5.18 $ 4.17 $ 9.83 Diluted – Class B Convertible Common Stock $ 10.66 $ 6.93 $ 4.79 $ 3.83 $ 9.04 Cash dividends declared per common share: Class A Common Stock $ 2.08 $ 1.60 $ 1.24 $ — $ — Class B Convertible Common Stock $ 1.88 $ 1.44 $ 1.12 $ — $ — Total assets $ 20,538.7 $ 18,602.4 $ 16,965.0 $ 15,093.0 $ 14,302.1 Long-term debt, including current maturities $ 9,439.9 $ 8,631.6 $ 7,672.9 $ 7,244.1 $ 6,963.3 (1) In December 2016, we completed the Canadian Divestiture and recognized a gain on sale of business (refer to Note 2 of the Notes to the Financial Statements for additional discussion). 24


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    (2) In June 2013, we completed the acquisition of the imported beer business. In connection with this acquisition, our preexisting 50% equity interest in Crown Imports LLC was remeasured to its estimated fair value based upon the estimated fair value of the acquired 50% equity interest, and a gain was recognized. (3) Includes impairment of intangible assets of $86.8 million and $46.0 million for the years ended February 28, 2018, and February 28, 2017, respectively (refer to Note 7 of the Notes to the Financial Statements for additional discussion). Includes impairment of goodwill and intangible assets of $300.9 million for the year ended February 28, 2014, representing impairment losses recorded for certain goodwill and trademarks associated with our Wine and Spirits segment. (4) Includes an unrealized gain from the changes in fair value of the Canopy Investment and the Canopy Warrants, net of losses from hedging activities to reduce the associated foreign currency risk, of $452.6 million for the year ended February 28, 2018 (refer to Note 7 of the Notes to the Financial Statements for additional discussion). (5) Includes a make-whole payment in connection with the early redemption of our April 2012 Senior Notes and the write-off of debt issuance costs in connection with prior-to-maturity repayments of various debt obligations (refer to Note 12 of the Notes to the Financial Statements for additional discussion). (6) Includes a provisional net income tax benefit of $363.0 million for the year ended February 28, 2018, associated with the December 2017 enactment of the TCJ Act (refer to Note 13 of the Notes to the Financial Statements for additional discussion). Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Introduction This MD&A, which should be read in conjunction with our Financial Statements, provides additional information on our businesses, current developments, financial condition, cash flows and results of operations. It is organized as follows: Overview. This section provides a general description of our business, which we believe is important in understanding the results of our operations, financial condition and potential future trends. Strategy. This section provides a description of our strategy and a discussion of acquisitions, divestitures and investments. 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 transactions and other items that affect the comparability of the results is provided. Financial liquidity and capital resources. This section provides an analysis of our cash flows and our outstanding debt and commitments. Included in the analysis of outstanding debt is a discussion of the amount of financial capacity available to fund our ongoing operations and future commitments, as well as a discussion of other financing arrangements. Critical accounting estimates. This section identifies those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 1 of the Notes to the Financial Statements. Overview We are an international beverage alcohol company with a broad portfolio of consumer-preferred high-end imported and craft beer brands, and premium wine and spirits brands. We are the third-largest producer and marketer of beer for the U.S. market and the world’s leading premium wine company. We are the largest multi- category supplier (beer, wine and spirits) of beverage alcohol in the U.S., and a leading supplier of wine from New Zealand and Italy to North America. 25


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    Our internal management financial reporting consists of two business divisions: (i) Beer and (ii) Wine and Spirits, and we report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate Operations and Other. In the Beer segment, our portfolio consists of high-end imported and craft beer brands. We have an exclusive perpetual brand license to import, market and sell in the U.S. our Mexican beer portfolio. In the Wine and Spirits segment, we sell a large number of wine brands across all categories – table wine, sparkling wine and dessert wine – and across all price points – popular, premium and luxury categories, primarily within the $5 to $25 price range at U.S. retail – complemented by certain premium spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations and information technology. The amounts 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 chief operating decision maker’s evaluation of the operating income 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. Strategy Our overall strategy is to create industry-leading growth and shareholder value by building premium brands that people love. We position our portfolio to benefit from industry premiumization trends, which we believe will continue to result in faster growth rates in the high-end of the beer, wine and spirits categories. We focus on developing our expertise in consumer insights and category management as well as our strong distributor network, which provides an effective route-to-market. Additionally, we leverage our scale across the total beverage alcohol market and our level of diversification hedges our portfolio risk. In addition to growing our existing business, we seek targeted acquisitions of businesses that are premium, growing, high-margin, consumer-led, have a low integration risk and/or fill a gap in our portfolio. We also strive to identify, meet and stay ahead of evolving consumer trends and market dynamics. We strive to strengthen our portfolio of premium beer, wine and spirits brands and differentiate ourselves through: leveraging our leading position in total beverage alcohol and our scale with wholesalers and retailers to expand distribution of our product portfolio and cross promotional opportunities; strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol insights; investing in brand building activities; positioning ourselves for success with consumer-led innovation capabilities that identify, meet and stay ahead of evolving consumer trends and market dynamics; realizing operating efficiencies through expanding and enhancing production capabilities and maximizing asset utilization; and developing employees to enhance performance in the marketplace. Our business strategy in the Beer segment focuses on leading the high-end segment of the U.S. beer market and includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, as well as new product development and innovation within the existing portfolio of brands, and continued expansion and construction activities for our Mexico beer operations. In an effort to capitalize on one of the growth segments within the U.S. beer market, we established the high-end craft and specialty beer platform in order to fully leverage our craft beer expertise with that of the capabilities and infrastructure of our broader Beer segment. In connection with this strategy, we have almost tripled the production capacity of our Nava Brewery since its June 2013 acquisition. In addition, construction of the Mexicali Brewery is underway and we are continuing to invest to increase the output from the Obregon Brewery, which was acquired in December 2016. Expansion and 26


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    construction efforts continue under our previously-announced Mexico Beer Expansion Projects to align with our anticipated future growth expectations. Refer to “Capital Expenditures” below for additional discussion. Our business strategy in the Wine and Spirits segment is to build an industry-leading portfolio of premium wine and spirits brands. We are investing to meet the evolving needs of consumers and building brands through consumer insights, sensory expertise, innovation and refreshing existing brands as we continue to focus on the premiumization of our branded wine and spirits portfolio. We dedicate a large share of our sales and marketing resources to our U.S. Focus Brands as they represent a majority of our U.S. wine and spirits revenue and profitability, and generally have strong positions in their respective price categories. In markets where it is feasible, we entered into contractual arrangements to consolidate our U.S. distribution network in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth. This consolidated U.S. distribution network currently represents about 70% of our branded wine and spirits volume in the U.S. Throughout the terms of these contracts, we generally expect shipments on an annual basis to these distributors to essentially equal the distributors’ shipments to retailers. Marketing, sales and distribution of our products are managed on a geographic basis in order to fully leverage leading market positions. In addition, market dynamics and consumer trends vary across each of our markets. Within our primary market in the U.S., we offer a range of beverage alcohol products across the imported beer, craft beer, branded wine and spirits categories, with separate distribution networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio. The environment for our products is competitive in each of our markets. We remain committed to our long-term financial model of growing sales, expanding margins and increasing cash flow in order to achieve earnings per share growth, maintain our targeted leverage ratio and pay quarterly cash dividends. Recent Developments In April 2018, we entered into an agreement to sell our remaining interest in our previously-owned Australian and European business for approximately A$130 million, or $100 million, subject to closing adjustments. We expect to recognize a gain of approximately $85 million in connection with this transaction for the first quarter of fiscal 2019. Acquisitions, Divestitures and Investments Beer Segment Funky Buddha Acquisition In August 2017, we acquired Funky Buddha, which primarily included the acquisition of operations, goodwill and trademarks. This acquisition included a portfolio of high-quality, Florida-based craft beers which further strengthened our position in the high-end segment of the U.S. beer market. The results of operations of Funky Buddha are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition. Obregon Brewery Acquisition In December 2016, we acquired the Obregon Brewery, which primarily included the acquisition of operations, goodwill, property, plant and equipment and inventories. This acquisition provided us with immediate functioning brewery capacity to support our fast-growing, high-end Mexican beer portfolio and flexibility for future innovation initiatives. It also enabled us to become fully independent from an interim supply agreement with Modelo, which was terminated at the time of this acquisition. The results of operations of the Obregon Brewery are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition. 27


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    Ballast Point Acquisition In December 2015, we acquired Ballast Point for $998.5 million, net of cash acquired. The transaction primarily included the acquisition of operations, goodwill, trademarks and property, plant and equipment. This acquisition provided us with a premium platform that enabled us to compete in the growing craft beer category and further strengthened our position in the high-end segment of the U.S. beer market. The results of operations of Ballast Point are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition. Wine and Spirits Segment Schrader Cellars Acquisition In June 2017, we acquired Schrader Cellars, which primarily included the acquisition of goodwill, inventories, trademarks and certain grape supply contracts. This acquisition included a collection of highly-rated, limited-production fine wines which aligned with our portfolio premiumization strategy and strengthened our position in the fine wine category. The results of operations of Schrader Cellars are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition. Canadian Divestiture In December 2016, we sold our Canadian wine business, which included Canadian wine brands such as Jackson-Triggs and Inniskillin, wineries, vineyards, offices, facilities and Wine Rack retail stores, at a transaction value of C$1.03 billion, or $775.1 million. Accordingly, our consolidated results of operations include the results of operations of our Canadian wine business through the date of divestiture. We received cash proceeds of $570.3 million, net of outstanding debt and direct costs to sell. We will continue to export certain of our brands into the Canadian market, which remains our largest export market. This transaction is consistent with our strategic focus on premium, high-margin and high-growth brands. We recognized a net gain on the sale of the business in the fourth quarter of fiscal 2017 of $262.4 million. The following table presents selected financial information included in our historical consolidated financial statements for the prior year comparable periods that are no longer part of our consolidated results after the Canadian Divestiture. Fiscal 2017 Fiscal 2016 (in millions) Net sales $ 311.2 $ 365.1 Gross profit $ 131.2 $ 152.9 Depreciation and amortization $ 9.1 $ 11.1 Operating income $ 49.8 $ 62.5 Income before income taxes $ 46.6 $ 61.9 Cash flow from operating activities $ 47.2 $ 80.0 Additionally, the impact on our historical Wine and Spirits segment results is the same as the impact on the historical consolidated results for the prior year comparable periods for net sales, gross profit, and depreciation and amortization. However, as segment results do not include the impact of Comparable Adjustments, amounts reported for our historical Wine and Spirits segment operating income that are no longer part of the segment’s results after the Canadian Divestiture are $50.1 million and $63.3 million for Fiscal 2017 and Fiscal 2016, respectively. Charles Smith Acquisition In October 2016, we acquired Charles Smith, which primarily included the acquisition of goodwill, trademarks, inventories and certain grape supply contracts. This acquisition included a collection of five super and 28


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    ultra-premium wine brands and solidified our position as the second leading supplier of Washington State wines with this collection of fast-growing, high quality wines that have strong consumer affinity and demand. The results of operations of Charles Smith are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition. High West Acquisition In October 2016, we acquired High West, which primarily included the acquisition of operations, goodwill, trademarks, inventories and property, plant and equipment. This acquisition included a portfolio of distinctive, award-winning, fast-growing and high-end craft whiskeys and other select spirits. The results of operations of High West are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition. Prisoner Acquisition In April 2016, we acquired Prisoner, which primarily included the acquisition of goodwill, inventories, trademarks and certain grape supply contracts. This acquisition, which included a portfolio of five fast-growing, higher-margin, super-luxury wine brands, aligned with our portfolio premiumization strategy and strengthened our position in the super-luxury wine category. The results of operations of Prisoner are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition. Meiomi Acquisition In August 2015, we acquired Meiomi, which primarily included the acquisition of goodwill, inventories, the trademark and certain grape supply contracts. The acquisition of this higher-margin, luxury growth brand has complemented our existing portfolio and further strengthened our position in the U.S. pinot noir category. The results of operations of Meiomi are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition. Corporate Operations and Other Segment Canopy Investment and Canopy Warrants In November 2017, we acquired a 9.9% investment in Canopy Growth Corporation, an Ontario, Canada- based public company and leading provider of medicinal cannabis products, and warrants which give us the option to purchase an additional ownership interest in Canopy Growth Corporation. This transaction is consistent with our long-term strategy to identify, meet and stay ahead of evolving consumer trends and market dynamics. For Fiscal 2018 (as defined below), we recognized an unrealized gain of $464.3 million from the changes in fair value of the Canopy Investment and the Canopy Warrants, which is included in income from unconsolidated investments. We expect the fair value of these investments to continue to be volatile in future periods. For additional information on these acquisitions, divestitures and investments, refer to Notes 2 and 7 of the Notes to the Financial Statements. 29


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    Results of Operations Financial Highlights References to organic throughout the following discussion exclude the impact of acquired brand activity in connection with our more significant acquisitions, consisting of Meiomi, Prisoner, High West and Charles Smith (wine and spirits), and the acquisition of Ballast Point (beer), and divested brand activity in connection with the Canadian Divestiture (wine and spirits), as appropriate. Financial Highlights for Fiscal 2018: Our results of operations benefited from improvements in both the Beer and Wine and Spirits segments. Net sales increased 3% primarily due to an increase in Beer net sales driven predominantly by volume growth within our Mexican beer portfolio, partially offset by a decrease in Wine and Spirits net sales due largely to the Canadian Divestiture. Operating income decreased 5% largely due to an unfavorable change in Comparable Adjustments, partially offset by the net sales volume growth and benefits from lower cost of product sold within our Mexican beer portfolio, and a favorable product mix shift within the Wine and Spirits segment. Net income attributable to CBI and diluted net income per common share attributable to CBI increased 51% and 54%, respectively, driven largely by a net income tax benefit recorded in the fourth quarter of fiscal 2018 associated with the TCJ Act. Comparable Adjustments Management excludes items that affect comparability from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and segment management compensation are evaluated based on core segment operating income (loss). As such, the performance measures for incentive compensation purposes for segment management do not include the impact of these Comparable Adjustments. As more fully described herein and in the related Notes to the Financial Statements, the Comparable Adjustments that impacted comparability in our segment results for each period are as follows: Fiscal 2018 Fiscal 2017 Fiscal 2016 (in millions) Cost of product sold Loss on inventory write-down $ (19.1) $ — $ — Flow through of inventory step-up (18.7) (20.1) (18.4) Net gain (loss) on undesignated commodity derivative contracts 7.4 16.3 (48.1) Settlements of undesignated commodity derivative contracts 2.3 23.4 29.5 Amortization of favorable interim supply agreement — (2.2) (31.7) Total cost of product sold (28.1) 17.4 (68.7) 30


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    Fiscal 2018 Fiscal 2017 Fiscal 2016 (in millions) Selling, general and administrative expenses Impairment of intangible assets (86.8) (37.6) — Loss on contract termination (59.0) — — Restructuring and other strategic business development costs (14.0) (0.9) (16.4) Transaction, integration and other acquisition-related costs (8.1) (14.2) (15.4) Costs associated with the Canadian Divestiture and related activities (3.2) (20.4) — Other gains (losses) 10.5 (2.6) — Total selling, general and administrative expenses (160.6) (75.7) (31.8) Gain on sale of business — 262.4 — Comparable Adjustments, Operating income (loss) $ (188.7) $ 204.1 $ (100.5) Income (loss) from unconsolidated investments $ 452.6 $ (1.7) $ 24.5 Cost of Product Sold Loss on Inventory Write-Down We recorded a loss on the write-down of certain bulk wine inventory as a result of smoke damage sustained during the Fall 2017 California wildfires. 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. 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. Favorable Interim Supply Agreement In connection with the June 2013 acquisition of the imported beer business, a temporary supply agreement was negotiated under a favorable pricing arrangement for the required volume of beer needed to fulfill expected U.S. demand in excess of the Nava Brewery’s capacity. Amortization of favorable interim supply agreement reflects amounts associated with non-Nava Brewery product purchased from the date of acquisition which has been sold to our U.S. customers during the respective period. Selling, General and Administrative Expenses Impairment of Intangible Assets We recorded trademark impairment losses related to our Beer segment’s craft beer trademark asset (Fiscal 2018) and certain of our Wine and Spirits trademark assets associated with our decision to discontinue certain small- 31


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    scale, low-margin U.S. brands (Fiscal 2017). In addition, refer to “Costs Associated with the Canadian Divestiture and Related Activities” below for information about an additional impairment of intangible assets recognized in connection with the Canadian Divestiture. Loss on Contract Termination We recorded a loss in connection with the early termination of a beer glass supply contract with Owens- Illinois, a related-party entity with which we have an equally-owned joint venture which owns and operates a glass production plant located adjacent to our Nava Brewery. Restructuring and Other Strategic Business Development Costs We recorded costs primarily in connection with the development of a program specifically intended to identify opportunities for further streamlining of processes and improving capabilities, linking strategy with execution, prioritizing resources and enabling an integrated digital platform (Fiscal 2018) and employee termination benefit costs recognized in connection with our plan initiated in May 2015 to streamline and simplify processes, and shift resources and investment to long-term, profitable growth opportunities across the business (Fiscal 2017 and Fiscal 2016). Costs Associated with the Canadian Divestiture and Related Activities We recorded costs in connection with the evaluation of the merits of executing an initial public offering for a portion of our Canadian wine business (Fiscal 2017) and net costs incurred in connection with the sale of the Canadian wine business (Fiscal 2018 and Fiscal 2017). In addition, in connection with the Canadian Divestiture, we recorded a trademark impairment loss for trademarks associated with certain U.S. brands within our Wine and Spirits portfolio sold exclusively through the Canadian wine business, for which future sales of these brands were expected to be minimal subsequent to the Canadian Divestiture (Fiscal 2017). Other Gains (Losses) Other gains (losses) consist primarily of a gain in connection with the reduction in estimated fair value of a contingent liability associated with a prior period acquisition (Fiscal 2018). Gain on Sale of Business We recognized a net gain on sale of the Canadian wine business. Income (Loss) from Unconsolidated Investments We recorded an unrealized gain from the changes in fair value of the Canopy Investment and the Canopy Warrants, net of losses from hedging activities to reduce the associated foreign currency risk (Fiscal 2018), and dividend income from a retained interest in a previously divested business (Fiscal 2016). 32


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    Fiscal 2018 Compared to Fiscal 2017 Net Sales Dollar Percent Fiscal 2018 Fiscal 2017 Change Change (in millions) Beer $ 4,658.5 $ 4,229.3 $ 429.2 10% Wine and Spirits: Wine 2,559.5 2,739.3 (179.8) (7%) Spirits 367.0 362.9 4.1 1% Total Wine and Spirits 2,926.5 3,102.2 (175.7) (6%) Consolidated net sales $ 7,585.0 $ 7,331.5 $ 253.5 3% Beer Segment Dollar Percent Fiscal 2018 Fiscal 2017 Change Change (in millions, branded product, 24-pack, 12-ounce case equivalents) Net sales $ 4,658.5 $ 4,229.3 $ 429.2 10% Shipment volume 268.0 246.4 8.8% Depletion volume (1) 9.8% (1) Depletions represent distributor shipments of our respective branded products to retail customers, based on third- party data, including acquired brands from the date of acquisition and for the comparable prior year period. The increase in Beer net sales is primarily due to (i) the volume growth within our Mexican beer portfolio of $371.4 million, which benefited from continued consumer demand and increased marketing spend, and (ii) a favorable impact from pricing in select markets within our Mexican beer portfolio of $74.2 million. Wine and Spirits Segment Dollar Percent Fiscal 2018 Fiscal 2017 Change Change (in millions, branded product, 9-liter case equivalents) Net sales $ 2,926.5 $ 3,102.2 $ (175.7) (6%) Shipment volume Total 59.0 69.2 (14.7%) Organic 58.6 59.3 (1.2%) U.S. Domestic 54.7 55.0 (0.5%) Organic U.S. Domestic 54.4 55.0 (1.1%) U.S. Domestic Focus Brands 33.6 31.8 5.7% Organic U.S. Domestic Focus Brands 33.4 31.8 5.0% Depletion volume (1) U.S. Domestic 0.9% U.S. Domestic Focus Brands 6.6% The decrease in Wine and Spirits net sales is due to the Canadian Divestiture of $311.2 million, partially offset by net sales from acquired brands of $50.4 million and organic net sales growth of $85.1 million. The organic growth is due largely to favorable product mix shift of $129.5 million, partially offset by lower branded wine and 33


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    spirits volume of $39.9 million driven predominantly by brands within our wine and spirits portfolio other than our Focus Brands. Gross Profit Dollar Percent Fiscal 2018 Fiscal 2017 Change Change (in millions) Beer $ 2,529.3 $ 2,151.3 $ 378.0 18% Wine and Spirits 1,316.0 1,360.7 (44.7) (3%) Comparable Adjustments (28.1) 17.4 (45.5) NM Consolidated gross profit $ 3,817.2 $ 3,529.4 $ 287.8 8% NM = Not meaningful The increase in Beer is primarily due to (i) the volume growth and the favorable impact from pricing in select markets within our Mexican beer portfolio of $190.2 million and $74.2 million, respectively, and (ii) lower cost of product sold for our Mexican beer business of $140.5 million. The lower cost of product sold is primarily due to operational and foreign currency transactional benefits within our Mexican beer portfolio of $89.6 million and $30.3 million, respectively. The decrease in Wine and Spirits is due to the Canadian Divestiture of $131.2 million, partially offset by organic gross profit growth of $60.4 million and gross profit from the acquired brands of $26.1 million. The organic growth is due largely to favorable product mix shift of $93.2 million, partially offset by higher branded wine and spirits cost of product sold of $25.9 million. Gross profit as a percent of net sales increased to 50.3% for Fiscal 2018 compared with 48.1% for Fiscal 2017 primarily due to (i) lower cost of product sold for the Beer segment, (ii) the favorable impact from Beer pricing in select markets and (iii) the favorable Wine and Spirits product mix shift, which contributed approximately 185 basis points, 50 basis points and 40 basis points of rate growth, respectively; partially offset by an unfavorable change in Comparable Adjustments, which resulted in approximately 60 basis points of rate decline. Selling, General and Administrative Expenses Dollar Percent Fiscal 2018 Fiscal 2017 Change Change (in millions) Beer $ 691.0 $ 616.9 $ 74.1 12% Wine and Spirits 515.3 559.9 (44.6) (8%) Corporate Operations and Other 165.8 139.9 25.9 19% Comparable Adjustments 160.6 75.7 84.9 NM Consolidated selling, general and administrative expenses $ 1,532.7 $ 1,392.4 $ 140.3 10% The increase in Beer is primarily due to increases in marketing spend of $46.1 million and general and administrative expenses of $27.9 million. The increase in marketing spend is due largely to planned investment to support the growth of our Mexican beer portfolio. The increase in general and administrative expenses is predominantly driven by higher expenses supporting the growth of the business. The decrease in Wine and Spirits is primarily driven by the Canadian Divestiture of $81.1 million, partially offset by an increase in marketing spend primarily due to planned investment to support our organic growth and acquired businesses of $32.4 million. The increase in Corporate Operations and Other is due to higher general and administrative expenses primarily attributable to increases in consulting of $12.8 million and compensation and benefits of $11.0 million, both largely attributable to supporting the growth of the business. Selling, general and administrative expenses as a percent of net sales increased to 20.2% for Fiscal 2018 as compared with 19.0% for Fiscal 2017. The increase is primarily attributable to the unfavorable change in 34


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    Comparable Adjustments and the growth in Corporate Operations and Other general and administrative expenses, which resulted in approximately 135 basis points of rate growth, partially offset by a benefit of approximately 25 basis points from the divestiture of the Canadian wine business, which had a higher rate of selling, general and administrative expenses as a percent of net sales as compared with the rest of the Wine and Spirits business. Operating Income Dollar Percent Fiscal 2018 Fiscal 2017 Change Change (in millions) Beer $ 1,838.3 $ 1,534.4 $ 303.9 20% Wine and Spirits 800.7 800.8 (0.1) —% Corporate Operations and Other (165.8) (139.9) (25.9) (19%) Comparable Adjustments (188.7) 204.1 (392.8) NM Consolidated operating income $ 2,284.5 $ 2,399.4 $ (114.9) (5%) Operating income growth in our Beer segment was driven predominantly by the factors discussed above. Wine and Spirits remained relatively flat as the loss of operating income in connection with the divestiture of the Canadian wine business was offset by the growth factors discussed above. Income from Unconsolidated Investments Income from unconsolidated investments increased to $487.2 million for Fiscal 2018 from $27.3 million for Fiscal 2017, an increase of $459.9 million. This increase is driven largely by an unrealized gain from the changes in fair value of the Canopy Investment and the Canopy Warrants, net of losses from hedging activities to reduce the associated foreign currency risk, of $452.6 million. Interest Expense Interest expense remained relatively flat for Fiscal 2018 as compared to Fiscal 2017 as a lower average interest rate of approximately 30 basis points was offset by higher average borrowings of approximately $645 million. The lower average interest rate is predominantly due to the issuance of the lower rate December 2016 Senior Notes, May 2017 Senior Notes and November 2017 Senior Notes and the repayment of the higher rate August 2006 senior notes and January 2008 Senior Notes. The higher average borrowings are primarily attributable to the purchases of businesses and treasury stock, net of proceeds from the Canadian Divestiture, during Fiscal 2017. Loss on Extinguishment of Debt Loss on extinguishment of debt for Fiscal 2018 consists of a make-whole payment of $73.6 million in connection with the early redemption of our April 2012 Senior Notes and the write-off of debt issuance costs of $23.4 million in connection with the May and November 2017 repayments of outstanding obligations under the European Term A loan facility and the U.S. Term A loan facility under our applicable senior credit facility, the July 2017 amendment and restatement of the 2016 Credit Agreement and the early redemption of our April 2012 Senior Notes. Provision for Income Taxes Our effective tax rate for Fiscal 2018 and Fiscal 2017 was 0.5% and 26.5%, respectively. For Fiscal 2018, our effective tax rate was lower than the federal statutory rate of 32.7% primarily due to a net income tax benefit associated with the TCJ Act, lower effective tax rates applicable to our foreign businesses and the recognition of the income tax effect of stock-based compensation awards in the income statement when the awards vest or are settled in connection with our March 1, 2017, adoption of the FASB amended share-based compensation guidance. For Fiscal 2017, our effective tax rate was lower than the federal statutory rate of 35% primarily due to lower effective 35


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    tax rates applicable to our foreign businesses, including a change in our assertion regarding indefinitely reinvesting earnings of certain foreign subsidiaries and the tax effects of the Canadian Divestiture. On December 22, 2017, the TCJ Act was signed into law. The TCJ Act significantly changes U.S. corporate income taxes. For Fiscal 2018, we recorded a provisional net income tax benefit of $363.0 million associated with the enactment of the TCJ Act. This amount is comprised primarily of benefits from (i) the remeasurement of our deferred tax assets and liabilities to the new, lower federal statutory rate and (ii) the reversal of deferred tax liabilities previously provided for unremitted earnings of foreign subsidiaries which were not considered to be indefinitely reinvested; partially offset by the recording of the mandatory one-time transition tax on unremitted earnings of our foreign subsidiaries. As we complete our analysis of the TCJ Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS and other standard-setting bodies, we may adjust the recorded provisional amounts in subsequent reporting periods. Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Prior to Fiscal 2017, we had historically provided deferred income taxes for the repatriation to the U.S. of earnings from our foreign subsidiaries. During the third quarter of fiscal 2017, in connection with the agreement to divest the Canadian wine business and the ongoing Beer capacity expansion activities in Mexico, including the agreement to acquire the Obregon Brewery, we changed our assertion regarding our ability and intent to indefinitely reinvest unremitted earnings of certain foreign subsidiaries. Approximately $420 million of our Fiscal 2017 earnings and all future earnings for these foreign subsidiaries were expected to be indefinitely reinvested. Therefore, no deferred income taxes had been provided on these applicable unremitted earnings. Although we expect to continue to reinvest these foreign earnings, as the TCJ Act reduces the tax impact of repatriation, beginning in the fourth quarter of fiscal 2018, we have provided deferred income taxes, consisting primarily of foreign withholding and state taxes, on all applicable unremitted earnings of our foreign subsidiaries. For additional information, refer to Note 13 of the Notes to the Financial Statements. We expect our effective tax rate for the next fiscal year to be in the range of 18% to 20%. This includes the impact of an estimated benefit related to the recognition of the income tax effect of stock based compensation awards in the income statement when the awards vest or are settled and lower effective tax rates applicable to our foreign businesses. Net Income Attributable to CBI Net income attributable to CBI increased to $2,318.9 million for Fiscal 2018 from $1,535.1 million for Fiscal 2017, an increase of $783.8 million, or 51%, driven largely by the factors discussed above, including the net unrealized gain primarily from the changes in fair value of the Canopy Investment and the Canopy Warrants of $452.6 million, the net income tax benefit of $363.0 million resulting from the TCJ Act and the strong operating performance for the Beer segment of $303.9 million. Fiscal 2017 Compared to Fiscal 2016 Net Sales Dollar Percent Fiscal 2017 Fiscal 2016 Change Change (in millions) Beer $ 4,229.3 $ 3,622.6 $ 606.7 17% Wine and Spirits: Wine 2,739.3 2,591.4 147.9 6% Spirits 362.9 334.4 28.5 9% Total Wine and Spirits 3,102.2 2,925.8 176.4 6% Consolidated net sales $ 7,331.5 $ 6,548.4 $ 783.1 12% 36


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    Beer Segment Dollar Percent Fiscal 2017 Fiscal 2016 Change Change (in millions, branded product, 24-pack, 12-ounce case equivalents) Net sales $ 4,229.3 $ 3,622.6 $ 606.7 17% Shipment volume Total 246.4 218.0 13.0% Organic 242.3 218.0 11.1% Depletion volume (1) 10.4% (1) Depletions represent distributor shipments of our respective branded products to retail customers, based on third- party data, including acquired brands from the date of acquisition and for the comparable prior year period. The increase in Beer net sales is primarily due to (i) the volume growth within our Mexican beer portfolio of $404.4 million, which benefited from continued consumer demand and increased marketing spend; (ii) net sales from the acquired Ballast Point brand of $124.9 million and (iii) a favorable impact from pricing in select markets within our Mexican beer portfolio of $92.2 million. Wine and Spirits Segment Dollar Percent Fiscal 2017 Fiscal 2016 Change Change (in millions, branded product, 9-liter case equivalents) Net sales $ 3,102.2 $ 2,925.8 $ 176.4 6% Shipment volume Total 69.2 68.2 1.5% Organic 68.4 66.2 3.3% U.S. Domestic 55.0 51.9 6.0% Organic U.S. Domestic 54.2 51.9 4.4% U.S. Domestic Focus Brands 32.0 28.4 12.7% Organic U.S. Domestic Focus Brands 31.4 28.4 10.6% Depletion volume (1) U.S. Domestic 2.9% U.S. Domestic Focus Brands 8.9% The increase in Wine and Spirits net sales is largely driven by net sales from acquired brands, primarily the Meiomi and Prisoner brands, of $124.0 million and organic branded wine and spirits volume growth of $95.9 million, partially offset by a decrease in net sales due to the Canadian Divestiture of $62.6 million. Gross Profit Dollar Percent Fiscal 2017 Fiscal 2016 Change Change (in millions) Beer $ 2,151.3 $ 1,776.0 $ 375.3 21% Wine and Spirits 1,360.7 1,235.0 125.7 10% Comparable Adjustments 17.4 (68.7) 86.1 NM Consolidated gross profit $ 3,529.4 $ 2,942.3 $ 587.1 20% 37


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    The increase in Beer is primarily due to (i) the volume growth and the favorable impact from pricing in select markets within our Mexican beer portfolio of $192.9 million and $92.2 million, respectively, (ii) gross profit from the acquired Ballast Point brand of $53.4 million and (iii) lower cost of product sold for our Mexican beer business of $41.7 million. The lower cost of product sold is primarily due to foreign currency transactional benefits within our Mexican beer portfolio of $54.6 million and brewery sourcing benefits of $35.3 million, partially offset by higher depreciation expense of $46.9 million. The increase in Wine and Spirits is primarily due to gross profit from the acquired brands of $69.4 million and growth from the organic wine and spirits business driven primarily by branded wine and spirits volume growth and favorable product mix shift of $48.8 million and $33.1 million, respectively, partially offset by a decrease in gross profit due to the Canadian Divestiture of $27.2 million. Gross profit as a percent of net sales increased to 48.1% for Fiscal 2017 compared with 44.9% for Fiscal 2016 primarily due to (i) a favorable change in Comparable Adjustments, (ii) lower cost of product sold across both segments, (iii) the favorable impact from Beer pricing in select markets and (iv) the favorable impact from the acquired higher-margin wine and spirits brands and divestiture of the lower-margin Canadian wine business, which contributed approximately 120 basis points, 75 basis points, 65 basis points and 25 basis points, respectively. Selling, General and Administrative Expenses Dollar Percent Fiscal 2017 Fiscal 2016 Change Change (in millions) Beer $ 616.9 $ 511.9 $ 105.0 21% Wine and Spirits 559.9 508.0 51.9 10% Corporate Operations and Other 139.9 125.5 14.4 11% Comparable Adjustments 75.7 31.8 43.9 138% Consolidated selling, general and administrative expenses $ 1,392.4 $ 1,177.2 $ 215.2 18% The increase in Beer is due to increases in marketing spend of $58.8 million and general and administrative expenses of $46.2 million. The increase in marketing spend is due largely to planned investment to support the growth of our Mexican beer portfolio. The increase in general and administrative expenses is predominantly driven by higher compensation and benefits supporting the organic growth of the business of $22.2 million and general and administrative expenses associated with the acquired Ballast Point business of $19.7 million. The increase in Wine and Spirits is primarily due to an increase in marketing spend of $25.7 million and general and administrative expenses of $25.0 million. The increase in marketing spend is due largely to planned investment to support the growth of our branded wine and spirits portfolio. The increase in general and administrative expenses is predominantly driven by (i) higher compensation and benefits of $24.5 million and higher consulting expenses supporting the growth of the business and (ii) an unfavorable overlap of prior year foreign currency transaction gains with current year foreign currency transaction losses, partially offset by a decrease in general and administrative expenses due to the Canadian Divestiture of $16.4 million. The increase in Corporate Operations and Other is due to higher general and administrative expenses primarily attributable to (i) higher consulting and information technology expenses, (ii) higher travel and entertainment expenses and (iii) an unfavorable overlap of prior year foreign currency transaction gains with current year foreign currency transaction losses. The increases in consulting, information technology and travel and entertainment expenses are all largely attributable to supporting the growth of the business. Selling, general and administrative expenses as a percent of net sales increased to 19.0% for Fiscal 2017 as compared with 18.0% for Fiscal 2016. The increase is primarily attributable to the growth in Comparable Adjustments and Corporate Operations and Other selling, general and administrative expenses, which resulted in approximately 70 basis points of rate growth. Additionally, the growth in Wine and Spirits selling, general and 38


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    administrative expenses having exceeded the growth in Wine and Spirits net sales resulted in approximately 25 basis points to the rate growth. Operating Income Dollar Percent Fiscal 2017 Fiscal 2016 Change Change (in millions) Beer $ 1,534.4 $ 1,264.1 $ 270.3 21% Wine and Spirits 800.8 727.0 73.8 10% Corporate Operations and Other (139.9) (125.5) (14.4) (11%) Comparable Adjustments 204.1 (100.5) 304.6 NM Consolidated operating income $ 2,399.4 $ 1,765.1 $ 634.3 36% The increase in Beer is primarily attributable to the growth in the Mexican beer business of $238.9 million driven largely by the factors discussed above. The increase in Wine and Spirits is due to operating income from the acquired brands of $63.0 million and growth from the organic wine and spirits business driven primarily by the factors discussed above. Income from Unconsolidated Investments Income from unconsolidated investments decreased to $27.3 million for Fiscal 2017 from $51.1 million for Fiscal 2016, a decrease of $23.8 million. This decrease is primarily attributable to an unfavorable change in Comparable Adjustments for Fiscal 2017. Interest Expense Interest expense increased to $333.3 million for Fiscal 2017 from $313.9 million for Fiscal 2016, an increase of $19.4 million, or 6%. This increase was primarily due to higher average borrowings of $1.0 billion and lower average interest rates of 25 basis points, both driven largely by the $1.1 billion in new term loan facilities under our senior credit facility for Fiscal 2017 and issuance of the December 2015 Senior Notes and December 2016 Senior Notes, partially offset by the repayment of the August 2006 senior notes. Provision for Income Taxes Our effective tax rate for Fiscal 2017 and Fiscal 2016 was 26.5% and 29.3%, respectively. For Fiscal 2017, our effective tax rate was lower than the federal statutory rate of 35% primarily due to lower effective tax rates applicable to our foreign businesses, including the change in our assertion regarding indefinitely reinvesting earnings of certain foreign subsidiaries and the tax effects of the Canadian Divestiture. For Fiscal 2016, our effective tax rate was lower than the federal statutory rate primarily due to a decrease in uncertain tax positions and lower effective tax rates applicable to our foreign businesses. Net Income Attributable to CBI As a result of the above factors, net income attributable to CBI increased to $1,535.1 million for Fiscal 2017 from $1,054.9 million for Fiscal 2016, an increase of $480.2 million, or 46%. Financial Liquidity and Capital Resources General Our ability to consistently generate cash flow from operating activities is one of our most significant financial strengths. Our strong cash flows enable us to invest in our people and our brands, make appropriate 39


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    capital investments, provide a quarterly cash dividend program, and from time-to-time, repurchase shares of our common stock and make strategic acquisitions that we believe will enhance shareholder value. Our primary source of liquidity has been cash flow from operating activities. Our principal use of cash in our operating activities is for purchasing and carrying inventories and carrying seasonal accounts receivable. Historically, we have used cash flow from operating activities to repay our short-term borrowings and fund capital expenditures. In October 2017, we implemented a commercial paper program which we intend to use to fund our short-term borrowing requirements and to maintain our access to the capital markets. We will continue to use our short-term borrowings, including our commercial paper program and our accounts receivable securitization facilities, to support our working capital requirements and capital expenditures. 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 and anticipated capital expenditure requirements for both our short-term and long-term capital needs. Cash Flows Fiscal 2018 Fiscal 2017 Fiscal 2016 (in millions) Net cash provided by (used in): Operating activities $ 1,931.4 $ 1,696.0 $ 1,413.7 Investing activities (1,423.1) (1,461.8) (2,207.4) Financing activities (601.2) (134.8) 776.0 Effect of exchange rate changes on cash and cash equivalents 5.8 (5.1) (9.3) Net increase (decrease) in cash and cash equivalents $ (87.1) $ 94.3 $ (27.0) Operating Activities Fiscal 2018 Compared to Fiscal 2017 Net cash provided by operating activities increased $235.4 million for Fiscal 2018 primarily due to strong cash flow from the Beer segment driven largely by the segment’s strong operating results, partially offset by (i) the timing of collections for recoverable value-added taxes and (ii) an increase in cash outflow from accounts payable primarily attributable to the timing of payments. Net cash provided by operating activities also benefited from our March 1, 2017, adoption of the FASB amended share-based compensation guidance, which resulted in the classification of excess tax benefits (resulting from an increase in the fair value of an award from grant date to the vesting or settlement date) as an operating activity in the statement of cash flows instead of as a financing activity where they were previously presented prior to March 1, 2017. Refer to Note 2 of the Notes to the Financial Statements for additional information. Fiscal 2017 Compared to Fiscal 2016 Net cash provided by operating activities increased $282.3 million for Fiscal 2017 driven largely by strong cash flow from the Beer and Wine and Spirits segments. The increase in Beer was primarily due to the strong volume growth and the favorable pricing in the Mexican beer portfolio, partially offset by (i) the timing of collections for recoverable value-added taxes and (ii) an increase in beer inventory levels to support the continuing growth within the Mexican beer portfolio. The increase in Wine and Spirits resulted primarily from (i) cash collections from strong net sales in the fourth quarter of fiscal 2016, (ii) a benefit from accounts payable due largely to timing of payments and (iii) a benefit from the timing of receipt of distributor payments for Fiscal 2017; partially offset by an increase in wine and spirits inventory levels due predominantly to a larger calendar year grape harvest for Fiscal 2017 compared with Fiscal 2016. 40


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    Investing Activities Fiscal 2018 Compared to Fiscal 2017 Net cash used in investing activities decreased $38.7 million for Fiscal 2018. This decrease resulted primarily from a lower level of Fiscal 2018 net business acquisition and divestiture activity of $380.6 million, partially offset by the investments in Canopy Growth Corporation of $191.3 million and higher capital expenditures of $150.2 million for Fiscal 2018. Fiscal 2017 Compared to Fiscal 2016 Net cash used in investing activities decreased $745.6 million for Fiscal 2017. This decrease resulted primarily from proceeds from the sale of the Canadian wine business in December 2016 of $575.3 million and a lower level of Fiscal 2017 business acquisition activity of $205.4 million. Business acquisitions consist primarily of the following: Fiscal 2018 Fiscal 2017 Fiscal 2016 Schrader Cellars (June 2017) Prisoner (April 2016) Meiomi (August 2015) Funky Buddha (August 2017) High West (October 2016) Ballast Point (December 2015) Charles Smith (October 2016) Obregon Brewery (December 2016) Financing Activities Fiscal 2018 Compared to Fiscal 2017 The increase in net cash used in financing activities consists of: Dollar Fiscal 2018 Fiscal 2017 Change (in millions) Purchases of treasury stock $ (1,038.5) $ (1,122.7) $ 84.2 Dividends paid (400.1) (315.1) (85.0) Net proceeds from debt, current and long-term, and related activities 819.7 1,176.8 (357.1) Net cash provided by stock-based compensation activities 17.7 126.2 (108.5) Net cash used in financing activities $ (601.2) $ (134.8) $ (466.4) The decrease in net proceeds from debt for Fiscal 2018 is due largely to our strong operating cash flow. The reduction in net cash provided by stock-based compensation activities is primarily due to our March 1, 2017, adoption of the FASB amended share-based compensation guidance, which resulted in the classification of excess tax benefits as an operating activity in the statement of cash flows instead of as a financing activity where they were previously presented prior to March 1, 2017. 41


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    Fiscal 2017 Compared to Fiscal 2016 The increase in net cash used in financing activities consists of: Dollar Fiscal 2017 Fiscal 2016 Change (in millions) Purchases of treasury stock $ (1,122.7) $ (33.8) $ (1,088.9) Dividends paid (315.1) (241.6) (73.5) Net proceeds from debt, current and long-term, and related activities 1,176.8 748.6 428.2 Net cash provided by stock-based compensation activities 126.2 277.8 (151.6) Other financing activities — 25.0 (25.0) Net cash provided by (used in) financing activities $ (134.8) $ 776.0 $ (910.8) The increase in net proceeds from debt for Fiscal 2017 is due largely to required funding for Fiscal 2017 business acquisition activity and to finance the significant increase in share repurchases for Fiscal 2017. The reduction in cash provided by stock-based compensation activities is primarily due to decreased Fiscal 2017 employee equity award exercise activity. Debt Total debt outstanding as of February 28, 2018, amounted to $10.2 billion, an increase of $948.6 million from February 28, 2017. This increase was largely due to the issuance of the February 2018 Senior Notes (refer to “Senior Notes” below). Senior Credit Facility In July 2017, we entered into the 2017 Restatement Agreement that amended and restated our 2016 Credit Agreement. Among other things, the 2017 Restatement Agreement increased our revolving credit facility by $350.0 million to $1.5 billion and extended its maturity to July 14, 2022. Proceeds from borrowings under the 2017 Credit Agreement were primarily used to refinance outstanding obligations under the 2016 Credit Agreement. Senior Notes In May 2017, we issued the May 2017 Senior Notes. Proceeds from this offering, net of discount and debt issuance costs, of $1,482.5 million were used for the repayment of our January 2008 Senior Notes and a portion of the outstanding obligations under the U.S. Term A loan facility under our 2016 Credit Agreement. The remaining outstanding obligations under the U.S. Term A loan facility were repaid in May 2017 primarily with revolver borrowings under our 2016 Credit Agreement. In November 2017, we issued the November 2017 Senior Notes. Proceeds from this offering, net of discount and debt issuance costs, of $1,982.5 million were used for the repayment of our outstanding obligations under the European Term A loan facility under our 2017 Credit Agreement. In February 2018, we issued the February 2018 Senior Notes. Proceeds from this offering, net of discount and debt issuance costs, of $1,879.9 million were used to redeem prior to maturity our outstanding April 2012 Senior Notes in the aggregate principal amount of $600.0 million and for general corporate purposes, including the repurchase of shares of our Class A Common Stock and the repayment of short-term borrowings. 42

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