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.

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

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.

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

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.

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		)

	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-

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).

Fiscal 2018 Compared to Fiscal 2017

Net Sales

	Fiscal 2018				Fiscal 2017				Dollar Change				Percent 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

	Fiscal 2018				Fiscal 2017				Dollar Change				Percent 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

	Fiscal 2018				Fiscal 2017				Dollar Change				Percent 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

spirits volume of $39.9 million driven predominantly by brands within our wine and spirits portfolio other than our Focus Brands.

Gross Profit

	Fiscal 2018				Fiscal 2017				Dollar Change				Percent 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

	Fiscal 2018				Fiscal 2017				Dollar Change				Percent 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

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

	Fiscal 2018				Fiscal 2017				Dollar Change				Percent 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

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

	Fiscal 2017				Fiscal 2016				Dollar Change				Percent 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	%

Beer Segment

	Fiscal 2017				Fiscal 2016				Dollar Change				Percent 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

	Fiscal 2017				Fiscal 2016				Dollar Change				Percent 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

	Fiscal 2017				Fiscal 2016				Dollar Change				Percent 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	%

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

	Fiscal 2017				Fiscal 2016				Dollar Change				Percent 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

administrative expenses having exceeded the growth in Wine and Spirits net sales resulted in approximately 25 basis points to the rate growth.

Operating Income

	Fiscal 2017				Fiscal 2016				Dollar Change				Percent 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

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.

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:

	Fiscal 2018				Fiscal 2017				Dollar 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.

Fiscal 2017 Compared to Fiscal 2016

The increase in net cash used in financing activities consists of:

	Fiscal 2017				Fiscal 2016				Dollar 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.

General

The majority of our outstanding borrowings as of February 28, 2018, consisted of fixed-rate senior unsecured notes with maturities ranging from calendar 2019 to calendar 2048, and a variable-rate senior unsecured term loan facility under our 2017 Credit Agreement with a calendar 2024 maturity.

In October 2017, we implemented a commercial paper program which provides for the issuance of up to an aggregate principal amount of $1.0 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2017 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our 2017 Credit Agreement.

We do not have purchase commitments from buyers for our commercial paper and, therefore, our ability to issue commercial paper is subject to market demand. If the commercial paper market is not available to us for any reason when outstanding commercial paper borrowings mature, we will utilize unused commitments under our revolving credit facility under our 2017 Credit Agreement to repay commercial paper borrowings. We do not expect that fluctuations in demand for commercial paper will affect our liquidity given our borrowing capacity available under our revolving credit facility under our 2017 Credit Agreement.

We had the following borrowing capacity available under our 2017 Credit Agreement and our accounts receivable securitization facilities:

	Remaining Borrowing Capacity
	February 28, 2018				April 17, 2018
(in millions)
Revolving Credit Facility (1)	$	1,140.3			$	1,200.3
CBI Facility	$	13.1			$	139.7
Crown Facility	$	—			$	32.0

(1)	Net of outstanding revolving credit facility borrowings and outstanding letters of credit under our 2017 Credit Agreement and outstanding borrowings under our commercial paper program.

The financial institutions participating in our 2017 Credit Agreement and our accounts receivable securitization facilities have complied with prior funding requests and we believe such financial institutions will comply with any future funding requests. However, there can be no assurances that any particular financial institution will continue to do so.

As of February 28, 2018, we also have additional credit arrangements totaling $503.5 million, with $277.0 million outstanding under these arrangements. These arrangements primarily support the financing needs of our domestic and foreign subsidiary operations, as well as our glass production plant joint venture.

We and our subsidiaries are subject to covenants that are contained in the 2017 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness) by subsidiaries that are not guarantors, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio, both as defined in the 2017 Credit Agreement. As of February 28, 2018, the minimum interest coverage ratio was 2.5x and the maximum net leverage ratio was 4.0x.

Our indentures relating to our outstanding senior notes contain certain covenants, including, but not limited to: (i) a limitation on liens on certain assets, (ii) a limitation on certain sale and leaseback transactions, and (iii) restrictions on mergers, consolidations and the transfer of all or substantially all of our assets to another person.

As of February 28, 2018, we were in compliance with all of our covenants under both our senior credit facility and our indentures, and have met all debt payment obligations.

For a complete discussion and presentation of all borrowings and available sources of borrowing, refer to Note 12 of the Notes to the Financial Statements.

Common Stock Dividends

On March 28, 2018, our Board of Directors declared a quarterly cash dividend of $0.74 per share of Class A Common Stock, $0.67 per share of Class B Convertible 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 expect to return approximately $560 million to stockholders in Fiscal 2019 through cash dividends.

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

Share Repurchase Program

Our Board of Directors have authorized the repurchase of up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2018 Authorization. Shares repurchased under this authorization have become treasury shares.

As of April 23, 2018, total shares repurchased under this authorization are as follows:

					Class A Common Shares
	Repurchase Authorization				Dollar Value of Shares Repurchased				Number of Shares Repurchased
(in millions, except share data)
2018 Authorization	$	3,000.0			$	512.8			2,373,154

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

For additional information, refer to Note 15 of the Notes to the Financial Statements.

Contractual Obligations and Commitments

The following table sets forth information about our contractual obligations outstanding at February 28, 2018. It brings together data for easy reference from our balance sheet and Notes to the Financial Statements. For a detailed discussion of the items noted in the following table, refer to Notes 11, 12, 13 and 14 of the Notes to the Financial Statements.

	PAYMENTS DUE BY PERIOD
	Total				Less than 1 year				1-3 years				3-5 years				After 5 years
(in millions)
Short-term borrowings	$	746.8			$	746.8			$	—			$	—			$	—
Long-term debt (excluding unamortized debt issuance costs and unamortized discounts)	9,516.8				22.3				1,727.7				2,312.5				5,454.3
Interest payments on long-term debt (1)	2,996.1				323.7				606.9				508.8				1,556.7
Operating leases	559.2				53.6				104.0				85.3				316.3
Other long-term liabilities (2) (3)	462.0				76.9				166.5				46.6				172.0
Purchase obligations (4)	7,701.7				1,686.0				2,615.1				1,616.7				1,783.9
Total contractual obligations	$	21,982.6			$	2,909.3			$	5,220.2			$	4,569.9			$	9,283.2

(1)	Interest rates on long-term debt obligations range from 2.0% to 4.8% as of February 28, 2018. Interest payments on long-term debt do not include interest related to capital lease obligations or certain foreign credit arrangements, which represent approximately 2.8% of our total long-term debt, as amounts are not material.

(2)

Includes $86.7 million associated with expected payments for unrecognized tax benefit liabilities as of February 28, 2018, $0.3 million of which is expected to be paid in the less than one year period. The payments are reflected in the period in which we believe they will ultimately be settled based on our experience in these matters. Other long-term liabilities do not include payments for unrecognized tax benefit liabilities of $2.6 million due to the uncertainty of the timing of future cash flows associated with these unrecognized tax benefit liabilities. In addition, other long-term liabilities do not include expected payments for interest and penalties associated with unrecognized tax benefit liabilities as amounts are not material. For a detailed discussion of these items, refer to Note 13 of the Notes to the Financial Statements.

(3)

Includes the recording of a mandatory one-time transition tax liability of $180.0 million on unremitted earnings of our foreign subsidiaries associated with the December 2017 enactment of the TCJ Act. As of February 28, 2018, $14.4 million is in other accrued expenses and liabilities and $165.6 million is in other liabilities. In accordance with the provisions of the TCJ Act, this amount is to be paid over eight years. For a detailed discussion of this item, refer to Note 13 of the Notes to the Financial Statements.

(4)	Consists primarily of $6,622.1 million for contracts to purchase certain raw materials and supplies over the next fourteen fiscal years and $590.3 million for contracts to purchase equipment and services over the next four fiscal years. For a detailed discussion of our purchase obligations, refer to Note 14 of the Notes to the Financial Statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that either have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Capital Expenditures

During Fiscal 2018, we incurred $1.058 billion for capital expenditures, including $882.6 million for the Beer segment primarily for (i) our Nava Brewery and glass production plant expansions, (ii) our Mexicali Brewery construction and (iii) our Obregon Brewery optimization and expansion (collectively, the “Mexico Beer Expansion Projects”). Management reviews the capital expenditure program periodically and modifies it as required to meet current business needs. We plan to spend from $1.15 billion to $1.25 billion for capital expenditures for Fiscal 2019, including from $975.0 million to $1.075 billion for the Beer segment associated primarily with the Mexico Beer Expansion Projects. The remaining Fiscal 2019 capital expenditures consist of improvements of existing operating facilities and replacements of existing equipment and/or buildings. The Mexico Beer Expansion Projects are expected to be completed over the next five fiscal years.

Effects of Inflation and Changing Prices

Our results of operations and financial condition have not been significantly affected by inflation and changing prices. We intend to pass along rising costs through increased selling prices, subject to normal competitive conditions. There can be no assurances, however, that we will be able to pass along rising costs through increased selling prices. In addition, we continue to identify on-going cost savings initiatives.

Critical Accounting Estimates

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

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Goodwill and other intangible assets. We account for goodwill and other intangible assets by classifying intangible assets into three categories: (i) intangible assets with definite lives subject to amortization, (ii) intangible assets with indefinite lives not subject to amortization and (iii) goodwill. For intangible assets with definite lives, impairment testing is required if conditions exist that indicate the carrying value may not be recoverable. For intangible assets with indefinite lives and for goodwill, impairment testing is required at least annually or more frequently if events or circumstances indicate that these assets might be impaired. We perform annual impairment tests and re-evaluate the useful lives of other intangible assets with indefinite lives at the annual impairment test measurement date of January 1 or when circumstances arise that indicate a possible impairment or change in useful life might exist. The guidance for goodwill impairment testing allows an entity to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount or to proceed directly to performing the two-step impairment test. In the first step, the estimated fair value of each reporting unit is compared to the carrying value of the reporting unit, including goodwill. The estimate of fair value of the reporting unit is generally calculated based on an income approach using the discounted cash flow method supplemented by the market approach. If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, a second step is performed to determine the amount of goodwill impairment we should record. In the second step, an implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). The resulting implied fair value of the goodwill is compared to the carrying value of the goodwill. The amount of impairment charge for goodwill is equal to the excess of the carrying value of the goodwill over the implied fair value of the goodwill. Our reporting units include the Beer segment and the Wine and Spirits segment. In estimating the fair value of the reporting units, management must make assumptions and projections regarding such items as future cash flows, future revenues, future earnings and other factors. The assumptions used in the estimate of fair value are based on historical trends and the projections and assumptions that are used in current strategic operating plans. These assumptions reflect management’s estimates of future economic and competitive conditions and are, therefore, subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, we may be required to record an impairment loss for these assets. The recording of any resulting impairment loss could have a material adverse impact on our financial statements.

In the fourth quarter of fiscal 2018, we performed our annual goodwill impairment analysis. No indication of impairment was noted for any of our reporting units, as the estimated fair value of each of our reporting units with goodwill exceeded their carrying value. Based on this analysis, the reporting

unit with the lowest amount of estimated fair value in excess of its carrying value was the Wine and Spirits reporting unit with approximately 126% excess fair value. For Fiscal 2017 and Fiscal 2016, as a result of our annual goodwill impairment analyses, we concluded that there were no indications of impairment for any of our reporting units.

The most significant assumptions used in the discounted cash flows calculation to determine the estimated fair value of our reporting units in connection with impairment testing are: (i) the discount rate, (ii) the expected long-term growth rate and (iii) the annual cash flow projections. As of January 1, 2018, if we used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used annual cash flow projections that were 100 basis points lower in our impairment testing of goodwill, then the changes individually would not have resulted in the carrying value of the respective reporting unit’s net assets, including its goodwill, exceeding its estimated fair value, which would indicate the potential for impairment and the requirement to measure the amount of impairment, if any.

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

In the first quarter of fiscal 2018, the Beer segment’s Ballast Point business recognized a trademark impairment loss of $86.8 million in connection with certain negative trends within its craft beer portfolio. In the fourth quarter of fiscal 2017, the Wine and Spirits’ U.S. business recognized a trademark impairment loss of $37.6 million in connection with our decision to discontinue certain small-scale, low-margin U.S. brands. Additionally, in the fourth quarter of fiscal 2017, the Wine and Spirits’ U.S. business recognized a trademark impairment loss of $8.4 million in connection with certain U.S. brands sold exclusively through the Canadian wine business, for which we expect future sales of these brands to be minimal subsequent to the Canadian Divestiture (refer to Note 7 of the Notes to the Financial Statements for further discussion). No indication of impairment was noted for any of our indefinite lived intangible assets for Fiscal 2016.

The most significant assumptions used in the relief from royalty method to determine the estimated fair value of intangible assets with indefinite lives in connection with impairment testing are: (i) the estimated royalty rate, (ii) the discount rate, (iii) the expected long-term growth rate and (iv) the annual revenue projections. As of January 1, 2018, if we used a royalty rate that was 50 basis points lower or used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used annual revenue projections that were 100 basis points lower in our impairment testing of intangible assets with indefinite lives, then each change individually would not have resulted in any unit of accounting’s carrying value exceeding its estimated fair value.

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Accounting for promotional activities. Sales reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons and rebates. Certain customer incentive programs require management to estimate the cost of those programs. The accrued liability for these programs is determined through analysis of programs offered, historical trends, expectations regarding customer and consumer participation, sales and payment trends, and experience with payment patterns associated with similar programs that have been offered previously. If assumptions included in our estimates were to change or market conditions were to change, then material incremental reductions to revenue could be required, which could have a material adverse impact on our financial statements (refer to Note 1 of the Notes to the Financial Statements, “Accounting guidance not yet adopted – Revenue recognition”).

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Accounting for income taxes. We estimate our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits based upon various factors including, but not limited to, historical pretax operating income, future estimates of pretax operating income, differences between book and tax treatment of items of income and expense, and tax planning strategies. We are subject to income taxes in Canada, Luxembourg, Mexico, New Zealand, the U.S. and other jurisdictions. We recognize our deferred tax assets and liabilities based upon the expected future tax outcome of amounts recognized in our results of operations. If necessary, we record a valuation allowance on deferred tax assets when it is more likely than not that they will not be realized. We believe that all tax positions are fully supported; however, we record tax liabilities in accordance with the FASB’s guidance for income tax accounting. We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. In addition, changes in existing tax laws or rates could significantly change our current estimate of our tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. Changes in current estimates, if significant, could have a material adverse impact on our financial statements.

On December 22, 2017, the TCJ Act was signed into law. The TCJ Act significantly changes U.S. corporate income taxes. Due to the timing of the enactment and the complexity involved in applying the provisions of the TCJ Act, we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of and for the year ended February 28, 2018, based on currently available information. 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.

Accounting Guidance

Accounting guidance adopted for Fiscal 2018 did not have a material impact on our consolidated financial statements. For further information on accounting guidance not yet adopted, refer to Note 1 in the Notes to the Financial Statements.