Constellation Brands (STZ) 10-K risk factor changes: FY2020 vs FY2019

[removed: In] [added: *In] addition to information discussed elsewhere in this report, you should carefully consider the following factors which could materially affect our business, liquidity, financial [removed: condition] [added: condition,] and/or results of operations.

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 [removed: condition] [added: condition,] and/or results of operations in future [removed: periods.][added: periods.*]

[removed: Operational Risks][added: Operational Risks]

[removed: International] [added: *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 [removed: regulations][added: regulations*]

Our products are produced and sold in numerous countries, we have employees in various [removed: countries] [added: countries,] and we have production facilities currently in the U.S., Mexico, New Zealand, [removed: Italy] and [removed: Canada.][added: Italy.]

Risks associated with international operations, any of which could have a material adverse effect on our business, liquidity, financial [removed: condition] [added: condition,] and/or results of operations, include:

| • | changes in local political, economic, [removed: social] [added: social,] and labor conditions; |

| • | import and export [removed: requirements;] [added: requirements and border accessibility;] |

| • | 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, [added: privacy obligations,] real property rights, and liability issues; and |

Unfavorable global or regional economic conditions, including economic [removed: slowdown, inflation,] [added: slowdown] and the disruption, volatility and tightening of credit and capital markets, as well as unemployment, tax increases, governmental spending [removed: cuts] [added: 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 [removed: issues] [added: issues,] and other financial hardships for us and our suppliers, distributors, [removed: retailers] [added: retailers,] and consumers.

The inability of suppliers, [removed: distributors] [added: distributors,] and retailers to access liquidity could impact our ability to produce and distribute our products.

The U.S. federal government or other governmental bodies may propose changes to international trade agreements, tariffs, [removed: taxes] [added: taxes,] and other government rules and regulations.

Significant increases in import and excise duties or other taxes on, or that impact, beverage alcohol products could have a material adverse effect on our business, liquidity, financial [removed: condition] [added: condition,] and/or results of operations.

In addition, federal, state, provincial, [removed: local] [added: 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, [removed: state] [added: state,] or local regulations also require warning labels and signage.

New or revised regulations or increased licensing fees, [removed: requirements] [added: requirements,] or taxes could have a material adverse effect on our business, liquidity, financial [removed: condition] [added: condition,] and/or results of operations.

These international, [removed: economic] [added: economic,] and political uncertainties and regulatory changes could have a material adverse effect on our business, liquidity, financial [removed: condition] [added: 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 [removed: condition] [added: condition,] and/or results of operations.

[removed: Dependence] [added: *Dependence] on limited facilities for production of our Mexican beer brands, and expansion and construction [removed: issues][added: issues*]

We are [removed: currently] expanding our Obregon Brewery and [removed: constructing] our [removed: Mexicali Brewery, and our] joint venture with Owens-Illinois [removed: is expanding] [added: expanded] its glass [removed: plant.][added: plant with an additional furnace having become operational in February 2020.]

[removed: While these] [added: These are] multi-million-dollar expansion [removed: and construction activities are progressing consistent with our plans, there is always] [added: activities, which could have] 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, [removed: state] [added: 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; [removed: and] (iv) inability to acquire the necessary energy supplies, including electricity, natural [removed: gas] [added: gas,] and diesel [removed: fuel.][added: fuel; or (v) a temporary halt in construction activities due to COVID-19.]

We may not be able to satisfy our product supply requirements for the Mexican beer brands in the event of a significant disruption, partial [removed: destruction] [added: destruction,] or total destruction of the Nava or Obregon breweries or the glass plant, or [added: difficulty shipping raw materials and product into or out of the United States, or temporary inability to produce our product due to closure or lower production levels of one or more of our Mexican breweries as a result of COVID-19.]

Also, if the contemplated expansions of the Obregon Brewery and the glass plant and construction of [removed: the Mexicali Brewery] [added: additional brewery capacity in Mexico] are not completed by their targeted completion dates, we may not be able to produce sufficient quantities of our Mexican beer to satisfy our needs.

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 [removed: condition] [added: condition,] and/or results of operations.

[removed: Operational] [added: *Operational] disruptions or catastrophic loss to breweries, wineries, other production [removed: facilities] [added: facilities,] or distribution [removed: systems][added: systems*]

The glass plant currently [removed: produces] [added: has five operational glass furnaces which supply] approximately [removed: half] [added: 55%] of the total annual glass bottle supply for our Mexican beer brands.

Several of our vineyards and production and distribution facilities, including certain California wineries and [removed: breweries and] our planned Mexicali Brewery, are in areas prone to seismic activity.

Additionally, we have various [removed: vineyards, wineries] [added: vineyards] and [removed: breweries] [added: wineries] in the state of California which has recently experienced wildfires and landslides.

If any of these or other of our properties and production facilities were to experience a significant operational disruption or catastrophic loss, it could delay or disrupt production, [removed: shipments] [added: shipments,] and revenue, and result in potentially significant expenses to repair or replace these properties.

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, [added: pandemics,] labor [removed: strike] [added: strike,] or other labor activities, [removed: cyber-attacks] [added: cyber-attacks,] and other attempts to penetrate our information technology [removed: systems,] [added: systems or the information technology used by our employees who work from home during the COVID-19 pandemic,] unavailability of raw or packaging materials, or other natural or man-made [removed: 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 [removed: condition] [added: condition,] and/or results of operations could be adversely affected due to higher maintenance charges, unexpected capital [removed: spending] [added: spending,] or product supply constraints.

Our insurance policies do not cover certain types of [removed: catastrophes.][added: catastrophes and may not cover certain events such as pandemics.]

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 [removed: condition] [added: condition,] and/or results of operations.

[removed: Supply] [added: *Supply] of quality water, [removed: agricultural] [added: agricultural,] and other raw materials, certain raw materials and packaging materials purchased under short-term supply contracts, limited group of suppliers of glass [removed: bottles][added: bottles*]

We are dependent on sufficient amounts of quality water for operation of our breweries, our [removed: wineries] [added: wineries,] and our distilleries, as well as to irrigate our vineyards and conduct our other operations.

We have substantial brewery operations in the country of Mexico, brewery operations in the states of [removed: California,] Texas, [removed: Virginia] [added: Virginia,] and [removed: Florida,] [added: Florida] and we currently have substantial wine operations in the state of California as well.

Our breweries, the glass plant, our [removed: wineries] [added: 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, [removed: yeast] [added: 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, [removed: wineries] [added: wineries,] and distilleries all use large amounts of various packaging materials, including glass, aluminum, [removed: cardboard] [added: cardboard,] and other paper products.

*Pandemics, such as the current global COVID-19 virus, outbreaks of communicable infections or diseases, or other public health concerns in the markets in which our consumers or employees live and/or in which we or our distributors, retailers, and suppliers operate*

Disease outbreaks and other public health conditions could result in disruptions and damage to our business caused by potential negative consumer purchasing behavior as well as disruption to our supply chains, production processes, and operations.

Consumer purchasing behavior may be impacted by reduced consumption by consumers who may not be able to leave home or otherwise shop in a normal manner as a result of quarantines or other cancellations of public events and other opportunities to purchase our products, from bar and restaurant closures, or from a reduction in consumer discretionary income due to reduced or limited work and layoffs.

Supply disruption may result from restrictions on the ability of employees and others in the supply chain to travel and work, such as caused by quarantine or individual illness, or which may result from border closures imposed by governments to deter the spread of communicable infection or disease, or determinations by us or our suppliers or distributors to temporarily suspend operations in affected areas, or other actions which restrict the ability to distribute our products or which may otherwise negatively impact our ability to produce, bottle and ship our product, for our distributors to distribute our products, or for our suppliers to provide us our raw materials.

Ports or channels of entry may be closed or operate at only a portion of capacity, or transportation of product within a region or country may be limited, if workers are unable to report to work due to travel restrictions or personal illness.

Our operations and the operations of our suppliers may become less efficient or otherwise become negatively impacted if our executive leaders or other personnel critical to our operations are unable to work or if a significant percentage of the workforce is unable to work or is required to work from home.

Our cyber-security could be compromised if persons who are forced to work from home do not maintain adequate information security.

A prolonged quarantine or border closure could result in temporary or longer-term disruptions of sales patterns, consumption and trade patterns, supply chains, production processes, and operations.

A widespread health crisis, such as the COVID-19 pandemic, could negatively affect the economies and financial markets of many countries resulting in a global economic downturn which could negatively impact demand for our products and our ability to borrow money.

Any of these events could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 13 |

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Any such tariffs, particularly on imports from Mexico and any retaliatory tariffs imposed by the Mexican government, may have a material adverse effect on our results of operations, including our sales and profitability.

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 14 |

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Abandonment of our expansion and construction activities could have a material adverse effect on our financial condition.

Recently, in a public consultation process in Mexicali, Baja California, Mexico, voters voiced opposition to the construction of our Mexicali Brewery.

We are currently working with local authorities, government officials and members of the community in Mexicali on next steps related to that brewery construction project and options elsewhere in Mexico.

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 15 |

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events.

Our Mexico brewery operations currently receive allocations of water sufficient for their operations.

Currently, one producer supplies most of our glass container

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 16 |

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We are in the process of a multi-year implementation of a new ERP system.

On December 1, 2019, we replaced the portion of our ERP system servicing our Mexican operations.

The ERP system for the balance of our business is scheduled to be replaced in Fiscal 2022.

difficulty shipping raw materials and product into or out of the United States.

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.

We recognize that many groups on a world-wide basis have

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 in fiscal 2020 and 2021.

where such purchase, sale, manufacture or distribution of marijuana or such other controlled substance is illegal, except in compliance with all applicable Federal, state, local or foreign laws, rules and regulations.

We recently increased our investment in Canopy.

A delay in completing this transaction, or the failure to complete this transaction, could delay the accomplishment of our strategic and financial objectives.

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.

our brands, could adversely affect their sales and our reputation.

[removed: Introduction][added: 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 [removed: flows] [added: flows,] and results of operations.

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

| • | [removed: Strategy.] [added: *Strategy.*] This section provides a description of our strategy and a discussion of recent developments, [added: significant] investments, [removed: acquisitions] [added: acquisitions,] and divestitures. |

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

| • | [removed: Financial] [added: *Financial] liquidity and capital [removed: resources.] [added: resources.*] This section provides an analysis of our cash [removed: flows and our] [added: flows,] outstanding [removed: debt] [added: 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. |

| • | [removed: Critical] [added: *Critical] accounting estimates and [removed: policies.] [added: policies.*] This section identifies those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 1 of the Notes to the Financial Statements. |

For additional information, refer to Note [removed: 1] [added: 17] of the Notes to the Financial Statements.

[removed: Overview][added: OVERVIEW]

We are an international beverage alcohol company with a broad portfolio of [removed: consumer-preferred,] [added: consumer-preferred] high-end imported [removed: and craft] beer brands, and higher-end wine and spirits brands.

[removed: We] [added: In the U.S. market, we] are the third-largest [removed: producer and marketer of] beer [removed: for the U.S. market] [added: company] and a [removed: leading,] [added: leading] higher-end wine [removed: company in the U.S. market.][added: company.]

[removed: Our] [added: Through February 28, 2019, our] internal management financial reporting [removed: consists] [added: consisted] of two business divisions: (i) Beer and (ii) Wine and [removed: Spirits, and we report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate Operations and Other.][added: Spirits.]

In the Beer segment, our portfolio consists of high-end imported and craft beer [added: and alternative beverage alcohol] brands.

We have an exclusive perpetual brand license to import, [removed: market] [added: market,] and sell [removed: in the U.S.] our [removed: Mexican beer portfolio.]

[added: Mexican beer portfolio in the U.S.] In the Wine and Spirits segment, our portfolio includes higher-margin, higher-growth wine brands complemented by certain higher-end spirits brands.

Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, corporate growth and strategy, human resources, internal audit, investor relations, legal, public [removed: relations] [added: relations,] and information technology, as well as our investments [removed: in Canopy and those] made through our corporate venture capital function.

All costs reported within the Corporate Operations and Other segment are not included in our [removed: chief operating decision maker’s] [added: CODM’s] evaluation of the operating income [added: (loss)] performance of the other reportable segments.

The [added: new] business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting.

[removed: Strategy][added: STRATEGY]

Our overall strategy is to drive industry-leading [removed: growth and] [added: growth, build unrivaled] shareholder [removed: value] [added: value, and shape the future of our industry] by building brands that people [removed: love when celebrating big moments or enjoying quiet ones.][added: love.]

We position our portfolio to benefit from the consumer-led trend towards premiumization, which we believe will continue to result in faster growth rates in the higher-end of the beer, [removed: wine] [added: wine,] and spirits categories.

We focus on developing our expertise in consumer insights and category [removed: management] [added: management,] as well as our strong distributor network, which provides an effective route-to-market.

In addition to growing our existing business, we focus on targeted acquisitions of, and investments in, businesses that are higher-margin, higher-growth, consumer-led, have a low integration [removed: risk] [added: risk,] and/or fill a gap in our portfolio.

We also strive to identify, [removed: meet] [added: meet,] and stay ahead of evolving consumer trends and market dynamics (see [removed: “Recent Developments” and] “Investments, [removed: Acquisitions] [added: Acquisitions,] and Divestitures – Canopy Investments” below).

We strive to strengthen our portfolio of higher-end beer, [removed: wine] [added: 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 [removed: portfolio and to provide for cross promotional opportunities;] [added: portfolio;] |

| • | positioning ourselves for success with consumer-led products that identify, [removed: meet] [added: meet,] and stay ahead of evolving consumer trends and market dynamics; |

Our business strategy for the Beer segment focuses on leading the high-end segment of the U.S. beer market and includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key [added: brands, as well as new product development and innovation within the existing portfolio of brands, and continued expansion, construction, and optimization activities for our Mexico beer operations.]

Additionally, in an effort to more fully compete in growing sectors of the high-end segment of the U.S. beer market, [removed: we’ve made several acquisitions of high-quality, regional craft beer brands and] [added: we have] leveraged our innovation capabilities to introduce new brands that align with consumer trends.

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

Expansion, [removed: construction] [added: construction,] and optimization efforts continue under our previously-announced Mexico Beer Expansion Projects (as defined below in “Capital Expenditures”) to align with our anticipated future growth expectations (see “Capital Expenditures” below).

We are investing to meet the evolving needs of consumers; building brands through consumer insights, sensory [removed: expertise] [added: expertise,] and innovation; and refreshing existing brands, as we continue to focus on moving our branded wine and spirits portfolio towards a higher-margin, higher-growth portfolio of brands.

We dedicate a large share of our sales and marketing resources to [removed: our] [added: well-known wine and spirits brands sold in the U.S., which comprise the] U.S. [removed: Focus] [added: Power] Brands as they represent a majority of our U.S. wine and spirits revenue and profitability, and generally hold strong positions in their respective price categories.

Additionally, in connection with the [added: New] Wine and Spirits [removed: Transaction,] [added: Transactions, Other Wine and Spirits Transactions, and the Black Velvet Divestiture,] we expect to optimize the value of our wine and spirits portfolio by driving increased focus on our higher-end [removed: priority brands] [added: Power Brands] to accelerate growth and improve overall operating margins.

Marketing, [removed: sales] [added: sales,] and distribution of our products are managed on a geographic basis in order to fully leverage leading market positions.

Within our primary market in the U.S., we offer a range of beverage alcohol products across the imported beer, craft beer, branded [removed: wine] [added: wine,] and spirits categories, with generally separate distribution networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio.

[removed: Within our Corporate Operations and Other segment, we] [added: We] complemented our total beverage alcohol strategy in an adjacent category by making investments in Canopy, a world-leading, diversified cannabis company.

These investments are consistent with our long-term strategy to identify, [removed: meet] [added: meet,] and stay ahead of evolving consumer trends and market dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as a global leader in cannabis production, branding, intellectual [removed: property] [added: property,] and retailing.

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

[removed: Recent Developments][added: Recent Developments]

We have elected to omit discussion on the earliest of the three years covered by the consolidated financial statement presented.

Refer to Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Liquidity and Capital Resources” located in our Form 10-K for the fiscal year ended February 28, 2019, filed on April 23, 2019, for reference to discussion of the fiscal year ended February 28, 2018, the earliest of the three fiscal years presented.

Many of our products are recognized as leaders in their respective categories.

We are one of the leading U.S. growth drivers at retail among beverage alcohol suppliers.

Beginning March 1, 2019, as a result of our November 2018 Canopy Investment and a change in our CODM on March 1, 2019, we have changed our internal management financial reporting to consist of three business divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy.

Consequently, beginning with the first quarter of fiscal 2020, we report our operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate Operations and Other, and (iv) Canopy.

Our Canopy Equity Method Investment makes up the Canopy segment.

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 31 |

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We believe sharing a toast, unwinding after a day, celebrating milestones, and helping people connect, is Worth Reaching For.

We continue to refine our options to optimize the value of our Beer segment and drive increased focus on our high-performing import portfolio and upcoming new product introductions.

See “Recent Developments - Ballast Point Transaction” below.

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 32 |

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Additionally, we are continuing to invest to expand our brewery operations in Obregon, Sonora, Mexico, where expansion is expected to be completed by the end of Fiscal 2021, although containment actions associated with COVID-19 may alter that timeline.

See “Capital Expenditures” below for discussion of a recent public consultation on construction of a new brewery in Mexicali, Baja California, Mexico.

*COVID-19*

We have an existing Crisis Management Committee that has been closely monitoring the impact of the novel strain of a virus, COVID-19, on our Company and our workforce since January 2020.

In March 2020, the World Health Organization (“WHO”) recognized COVID-19 as a pandemic.

COVID-19 has severely restricted the level of economic activity around the world.

In response to COVID-19, the governments of many countries, states, cities, and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to

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limit or forgo their time outside of their homes.

Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily.

Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses.

In most of our locations, the beverage alcohol industry has been classified as an essential business and as such we are still able to produce and sell our products.

COVID-19 has affected us primarily in the reduction of depletion volume on our products in the on-premise business due to shelter in place mandates and bar and restaurant closures.

The on-premise business has historically been about 10% to 15% of our depletion volume for beer, wine, and spirits.

Currently, our major breweries, wineries, and bottling facilities are still operating but, in some instances, at lower production levels than planned.

Effective March 1, 2018, we adopted the FASB amended guidance regarding the recognition of revenue from contracts with customers using the retrospective application method.

Accordingly, unless otherwise noted, we have restated net sales, gross profit, operating income, provision for income taxes and net income attributable to CBI for the years ended February 28, 2018, and February 28, 2017.

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.

brands, as well as new product development and innovation within the existing portfolio of brands, and continued expansion, construction and optimization activities for our Mexico beer operations.

In addition, construction of the Mexicali Brewery is progressing and we are continuing to invest to expand the Obregon Brewery, which was acquired in December 2016.

The Wine and Spirits Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approval.

We are in the process of

developing a plan to eliminate any remaining costs in the Wine and Spirits segment from the brands we are selling and expect to incur a restructuring charge for the first quarter of fiscal 2020.

We are selling approximately $1.3 billion in tangible and intangible assets, excluding goodwill, in connection with the Wine and Spirits Transaction.

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Canopy Warrants Modification

In April 2019, we agreed to modify the terms of the November 2018 Canopy Warrants and certain other rights.

Modification of the November 2018 Canopy Warrants is subject to, among other things, approval by Canopy’s shareholders.

These changes are a result of Canopy’s intention to acquire Acreage Holdings, Inc. upon U.S. Federal cannabis legalization, subject to certain conditions.

We expect the New November 2018 Canopy Warrants to be accounted for at fair value.

If Canopy shareholder approval is received, we expect the modifications to the November 2018 Canopy Warrants will result in a fair value adjustment related to the warrants.

| | | | | $ | 1,971.2 | | | $ | 464.3 | |

Equity in earnings (losses) for our Canopy Equity Method Investment are reported in the Corporate Operations and Other segment and are expected to be volatile in future periods.

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.

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.

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 strategic focus on higher-end wine and spirits brands 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.

We will continue to export certain of our brands into the Canadian market, which remains our largest export market.

We recognized a net gain on the sale of the business in the fourth quarter of fiscal 2017 of $262.4 million.

Selected financial information included in our historical financial statements for Fiscal 2017 that are no longer part of our results after the Canadian Divestiture is as follows:

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Net Sales | | | | Gross Profit | | | | Depreciation and Amortization | | | | Operating Income | | | | Income Before Income Taxes | | | | Cash Flows From Operating Activities | | |

| (in millions) | | | | | | | | | | | | | | | | | | | | | | | |

As a result of our global operating, [added: investment,] acquisition and financing activities, we are exposed to market risk associated with changes in foreign currency exchange rates, commodity prices, interest [removed: rates] [added: rates,] and equity prices.

To manage the volatility relating to these risks, we periodically purchase and/or sell derivative instruments including foreign currency forward and option contracts, commodity swap [removed: contracts and] [added: contracts,] interest rate swap [added: contracts and treasury lock] contracts.

[removed: Foreign] [added: *Foreign] Currency and Commodity Price [removed: Risk][added: Risk*]

Foreign currency derivative instruments are or may be used to hedge existing foreign currency denominated assets and liabilities, forecasted foreign currency denominated sales/purchases to/from third parties as well as intercompany sales/purchases, intercompany principal and interest payments, and in connection with [added: investments,] acquisitions, [removed: divestitures] or [removed: investments] [added: divestitures] outside the U.S. As of February [removed: 28, 2019,] [added: 29, 2020,] we had exposures to foreign currency risk primarily related to the Mexican peso, euro, [added: Canadian dollar, and] New Zealand [removed: dollar and Canadian] dollar.

Approximately [removed: 80%] [added: 84%] of our balance sheet exposures and forecasted transactional exposures for the year ending February [removed: 29, 2020,] [added: 28, 2021,] were hedged as of February [removed: 28, 2019.][added: 29, 2020.]

As of February [removed: 28, 2019,] [added: 29, 2020,] exposures to commodity price risk which we are currently hedging include aluminum, corn, diesel fuel, natural [removed: gas] [added: gas,] and wheat prices.

Approximately [removed: 75%] [added: 83%] of our forecasted transactional exposures for the year ending February [removed: 29, 2020,] [added: 28, 2021,] were hedged as of February [removed: 28, 2019.][added: 29, 2020.]

Losses or gains from the revaluation or settlement of the related underlying positions would substantially offset such [removed: gains or] losses [added: or gains] on the derivative instruments.

The aggregate notional value, estimated fair [removed: value] [added: value,] and sensitivity analysis for our open foreign currency and commodity derivative instruments are summarized as follows:

| | February [removed: 28, 2019] [added: 29, 2020] | | | | February 28, [removed: 2018] [added: 2019] | | | | February [removed: 28, 2019] [added: 29, 2020] | | | | February 28, [removed: 2018] [added: 2019] | | | | February [removed: 28, 2019] [added: 29, 2020] | | | | February 28, [removed: 2018] [added: 2019] | | |

| Foreign currency contracts | $ | [removed: 2,039.6] [added: 3,011.2] | | | $ | [removed: 1,906.0] [added: 2,039.6] | | | $ | [removed: 22.5] [added: 61.9] | | | $ | [removed: 20.4] [added: 22.5] | | | $ | [removed: (166.5] [added: (193.3] | ) | | $ | [removed: (107.1] [added: (166.5] | ) |

| Commodity derivative contracts | $ | [removed: 284.7] [added: 282.8] | | | $ | [removed: 177.5] [added: 284.7] | | | $ | [removed: (2.9] [added: (40.3] | ) | | $ | [removed: 3.5] [added: (2.9] | [added: )] | | $ | [removed: 24.4] [added: 21.7] | | | $ | [removed: (15.0] [added: 24.4] | [removed: )] |

[removed: Interest] [added: *Interest] Rate [removed: Risk][added: Risk*]

The estimated fair value of our fixed interest rate debt is subject to interest rate risk, credit [removed: risk] [added: risk,] and foreign currency risk.

As of February [removed: 28, 2019,] [added: 29, 2020,] and February 28, [removed: 2018, we had] [added: 2019, there were] no [added: undesignated] interest rate swap contracts outstanding.

The aggregate notional value, estimated fair [removed: value] [added: value,] and sensitivity analysis for our outstanding fixed and variable interest rate debt, including current [removed: maturities,] [added: maturities and open interest rate derivative instruments,] are summarized as follows:

| | Aggregate Notional Value | | | | | | | | Fair Value [added: Net Asset (Liability)] | | | | | | | | [removed: Decrease] [added: Increase (Decrease)] in Fair Value – Hypothetical 1% Rate Increase | | | | | | |

| Fixed interest rate debt | $ | [removed: 10,278.9] [added: 10,075.3] | | | $ | [removed: 8,787.5] [added: 10,278.9] | | | $ | [removed: 10,098.5] [added: (10,942.8] | [added: )] | | $ | [removed: 8,682.9] [added: (10,098.5] | [added: )] | | $ | [removed: (591.0] [added: (708.4] | ) | | $ | [removed: (524.3] [added: (591.0] | ) |

| Variable interest rate debt | $ | [removed: 3,422.7] [added: 2,185.4] | | | $ | [removed: 1,476.1] [added: 3,422.7] | | | $ | [removed: 3,461.9] [added: (2,232.0] | [added: )] | | $ | [removed: 1,460.7] [added: (3,461.9] | [added: )] | | $ | [removed: (88.0] [added: (46.6] | ) | | $ | [removed: (29.6] [added: (88.0] | ) |

[removed: Equity] [added: *Equity] Price [removed: Risk][added: Risk*]

The estimated fair value of our investments in the Canopy warrants and the Canopy convertible debt securities are subject to equity price risk, interest rate risk, credit [removed: risk] [added: risk,] and foreign currency risk.

As of February [removed: 28, 2019,] [added: 29, 2020,] the fair value of our investments in the Canopy warrants and the Canopy convertible debt securities was [removed: $3,234.7] [added: $1,117.1] million, with an unrealized net gain [added: (loss)] on these investments of [removed: $1,678.7] [added: $(2,126.4)] million recognized in our results of operations for the year ended February [removed: 28, 2019.][added: 29, 2020.]

As of February [removed: 28, 2019,] [added: 29, 2020,] such a hypothetical 10% adverse change would have resulted in a decrease in fair value of [removed: $438.3] [added: $172.0] million.

As of February 29, 2020, we had $375.0 million of outstanding cash flow designated interest rate swap agreements which fixed LIBOR interest rates (to minimize interest rate volatility) on our floating LIBOR rate debt.

There were no cash flow designated interest rate swap contracts outstanding as of February 28, 2019.

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| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 56 |

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| PART II | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

As of February 29, 2020, we had $300.0 million of outstanding cash flow designated treasury lock agreements which fixed 10-year Treasury interest rates (to minimize interest rate volatility) on our future debt issuances.

There were no cash flow designated treasury lock contracts outstanding as of February 28, 2019.

As of February 29, 2020, and February 28, 2019, there were no undesignated treasury lock contracts outstanding.

| | February 29, 2020 | | | | February 28, 2019 | | | | February 29, 2020 | | | | February 28, 2019 | | | | February 29, 2020 | | | | February 28, 2019 | | |

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

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

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| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 57 |

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| PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

[removed: Introduction][added: Introduction]

We are an international producer and marketer of beer, [removed: wine] [added: wine,] and spirits with operations in the U.S., Mexico, New Zealand, [removed: Italy] and [removed: Canada] [added: Italy] with powerful, consumer-connected, high-quality brands like [removed: Corona,] [added: Corona Extra,] Modelo Especial, Robert Mondavi, Kim Crawford, [removed: Meiomi] [added: Meiomi,] and SVEDKA Vodka.

In the [removed: U.S.,] [added: U.S. market,] we are [removed: the number] one [removed: sales] [added: of the top] growth [removed: driver] [added: contributors] at retail among beverage alcohol suppliers.

We are [removed: the third-largest beer company in the U.S. market and] a leading, higher-end wine [added: and spirits] company in the U.S. market.

This, combined with our strong market positions, makes us a supplier of choice to many of our customers, who include wholesale distributors, [removed: retailers] [added: retailers,] and on-premise locations.

We have approximately [removed: 9,800] [added: 9,000] employees located primarily in the U.S. and Mexico, with our corporate headquarters located in Victor, New York.

[removed: Strategy][added: Strategy]

Our overall strategy is to drive industry-leading [removed: growth and] [added: growth, build unrivaled] shareholder [removed: value] [added: value, and shape the future of our industry] by building brands that people [removed: love when celebrating big moments or enjoying quiet ones.][added: love.]

We position our portfolio to benefit from the consumer-led trend toward premiumization, which we believe will continue to result in faster growth rates in the higher-end of the beer, [removed: wine] [added: wine,] and spirits categories.

To capitalize on premiumization trends, become more [removed: competitive] [added: competitive,] and grow our business, we have [removed: generally] employed a strategy [removed: focused on] [added: dedicated to] a combination of organic growth and acquisitions, with a focus on the higher-margin, higher-growth categories of the beverage alcohol industry.

| • | leveraging our leading position in total beverage alcohol and our scale with wholesalers and retailers to expand distribution of our product [removed: portfolio and to provide for cross promotional opportunities;] [added: portfolio;] |

| • | positioning ourselves for success with consumer-led products that identify, [removed: meet] [added: meet,] and stay ahead of evolving consumer trends and market dynamics; |

In the beer business, we have solidified our position in the [added: high-end of the] U.S. beer market; enhanced our margins, results of [removed: operations] [added: operations,] and operating cash flow; and provided new avenues for growth.

We have made capital investments and acquisitions to increase beer production capacity to [removed: secure independence from a supply standpoint and to] support the growth of the business.

[removed: Additionally, in an effort to more fully compete in growing sectors of] the high-end segment of the U.S. beer market, [removed: we’ve made several acquisitions of high-quality, regional craft beer brands and] [added: we have] leveraged our innovation capabilities to introduce new brands that align with consumer trends.

In our wine and spirits business, as part of our efforts to focus on higher-end brands, improve [removed: margins] [added: margins,] and create operating efficiencies, we have acquired higher-margin, higher-growth wine brands and portfolios of brands, including [removed: Meiomi, Prisoner and Charles Smith, and have strategically optimized the value of this business, particularly lower-margin, lower-growth products, with the divestiture of the Canadian wine business and the expected transaction, which was recently announced, to divest a portion of our wine] [added: Meiomi] and [removed: spirits business.][added: Prisoner.]

[removed: Within our Corporate Operations and Other segment, we] [added: We] complemented our total beverage alcohol strategy in an adjacent category by making investments in Canopy, a world-leading, diversified cannabis company.

These investments are consistent with our long-term strategy to identify, [removed: meet] [added: meet,] and stay ahead of evolving consumer trends and market dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as a global leader in cannabis production, branding, intellectual [removed: property] [added: property,] and retailing.

For further information on our strategy, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item [removed: 7 of this Annual Report on Form 10-K (“MD&A”).][added: 7.]

[removed: Investments] [added: Investments, Acquisitions,] and [removed: Acquisitions][added: Divestitures]

In connection with our strategy outlined above, [added: during Fiscal 2020] we completed the [removed: following investments and acquisitions during Fiscal 2019:][added: following:]

[removed: | Corporate] [added: *Corporate] Operations and [removed: Other Segment | | | | |][added: Other*]

[removed: | Beer Segment | | | | |][added: *Beer Segment*]

For further information about our [added: significant] Fiscal [removed: 2019,] [added: 2020,] Fiscal [removed: 2018] [added: 2019,] and Fiscal [removed: 2017] [added: 2018] transactions, refer to (i) MD&A and (ii) Notes [removed: 2, 7] [added: 2] and 10 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K (“Notes to the Financial Statements”).

[removed: Business Segments][added: Business Segments]

We report our operating results in [removed: three] [added: four] segments: (i) Beer, (ii) Wine and Spirits, [removed: and] (iii) Corporate Operations and [removed: Other.][added: Other, and (iv) Canopy.]

The business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior [removed: management] [added: management,] and the structure of our internal financial reporting.

We report net sales in [removed: two] [added: three] reportable segments, as follows:

| (in millions) | | | | | | | | [removed: | | | | | | | | | | | | |]

| Wine and Spirits: | | | | | | | | [removed: | | | | | | | | | | | | |]

| Total Wine and Spirits | [removed: 2,913.9 | | | | 35.9 | % | | 2,919.9 | | | | 38.5 | % |] [added: 2,727.6] | [removed: 3,093.8] | | | [added: 2,913.9] | [removed: 42.3] | [removed: %] |

| Consolidated Net Sales | $ | [removed: 8,116.0 | | | | | | $ | 7,580.3 | | |] [added: 8,343.5] | | | $ | [removed: 7,321.1 | | |] [added: 8,116.0] | |

We are [removed: the] [added: also a] leader in the high-end segment of the U.S. beer market, which includes the imported, craft, [added: and] domestic super [removed: premium,] [added: premium beer] and alternative beverage alcohol categories.

We sell a number of brands in the high-end categories, driven [removed: largely] by our imported Mexican beer portfolio.

[removed: Within the imported beer category, we] [added: We] have the exclusive right to import, [removed: market] [added: market,] and sell these Mexican [removed: beer] brands in all 50 states of the U.S.:

| ● Corona Extra ● Corona Premier ● Corona Familiar ● Corona Light [added: ● Corona Refresca ● Corona Hard Seltzer] | | ● Modelo Especial ● Modelo Negra ● Modelo Chelada | | ● Pacifico ● Victoria |

[removed: Corona Extra] [added: Modelo Especial] is the best-selling imported [added: beer, fourth best-selling] beer [added: overall,] and the [removed: sixth best-selling] [added: fastest-growing major imported] beer [removed: overall] [added: brand] in the U.S. [removed: and Modelo Especial] [added: Corona Extra] is the [removed: second-largest and the fastest-growing major] [added: second largest] imported beer [removed: brand.][added: and seventh best-selling beer overall in the U.S.]

As part of these efforts, [added: in Fiscal 2019] we successfully introduced Corona Premier, a lower-calorie, lower-carbohydrate product offering, which has become one of the top growth contributors in the high-end segment of the U.S. beer market.

[removed: For Fiscal 2020, we are launching] [added: The national launches of] Corona Refresca [removed: nationally] [added: and Corona Hard Seltzer are part of efforts] to capitalize on the growth of the high-end alternative beverage alcohol category.

Additionally, we are continuing efforts focused on increasing sales distribution of products in can, draft, [removed: single-serve] [added: single-serve,] and larger package size formats.

In the U.S. beer market, we are the third-largest beer company and leader in the high-end.

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

It’s worth our dedication, hard work, and the bold calculated risks we take to deliver more for our consumers, trade partners, shareholders, and communities in which we live and work.

It’s what has made us one of the fastest-growing large CPG companies in the U.S. at retail, and it drives our pursuit to deliver what’s next.

Additionally, in an effort to more fully compete in growing sectors of

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 1 |

| PART I | ITEM 1. BUSINESS | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

We have strategically optimized the value of this business through the divestiture of the Canadian wine business and the anticipated completion of the transactions to divest a portion of our wine and spirits business, which include lower-margin, lower-growth products.

of this Annual Report on Form 10-K (“MD&A”).

| Black Velvet Divestiture | | November 2019 | | Divestiture of the lower-margin Black Velvet Canadian Whisky business and the brands associated with the production facility. |

| Nelson’s Green Brier acquisition | | May 2019 | | Portfolio of award-winning, Tennessee-based craft bourbon and whiskey products. |

Amounts included below for the Canopy segment represent 100% of Canopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP, and converted from Canadian dollars to U.S. dollars.

Although we own less than 100% of the outstanding shares of Canopy, 100% of the Canopy results are included in the information below and subsequently eliminated in order to reconcile to our consolidated financial statements.

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| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 2 |

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| PART I | ITEM 1. BUSINESS | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

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| | For the Years Ended | | | | | | |

| | February 29, 2020 | | | | February 28, 2019 | | |

| Beer | $ | 5,615.9 | | | $ | 5,202.1 | |

| Wine | 2,367.5 | | | | 2,532.5 | | |

| Spirits | 360.1 | | | | 381.4 | | |

| Canopy | 290.2 | | | | 48.6 | | |

| Consolidation and Eliminations | (290.2 | | ) | | (48.6 | | ) |

Consolidated net sales are as follows:


We are the #1 brewer and seller of imported beer in the U.S. beer market.

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| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 3 |

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| PART I | ITEM 1. BUSINESS | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

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.

| Canopy Growth Corporation investments | | November 2018 and June 2018 | | Investment in Ontario, Canada-based public company; leading provider of medicinal and recreationally legal cannabis products; supported our long-term strategy to identify, meet and stay ahead of evolving consumer trends and market dynamics. |

| Four Corners acquisition | | July 2018 | | Portfolio of high-quality, dynamic and bicultural, Texas-based craft beers; strengthened our position in the high-end segment of the U.S. beer market. |

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| | For the Year Ended February 28, 2019 | | | | % of Net Sales | | | For the Year Ended February 28, 2018 | | | | % of Net Sales | | | For the Year Ended February 28, 2017 | | | | % of Net Sales | |

| Beer | $ | 5,202.1 | | | 64.1 | % | | $ | 4,660.4 | | | 61.5 | % | | $ | 4,227.3 | | | 57.7 | % |

| Wine | 2,532.5 | | | | 31.2 | % | | 2,556.3 | | | | 33.7 | % | | 2,732.7 | | | | 37.4 | % |

| Spirits | 381.4 | | | | 4.7 | % | | 363.6 | | | | 4.8 | % | | 361.1 | | | | 4.9 | % |

Beer Segment

To align with our anticipated future

growth expectations, we are targeting an additional 10 million hectoliters of production capacity expansion activities to be completed over the next four fiscal years.

Our craft and specialty beer products are primarily sold under the Ballast Point brand.

Ballast Point is led by its popular Sculpin IPA.

In addition, the Funky Buddha and Four Corners acquisitions allow us to leverage our craft beer platform, capitalizing on the growth of high-quality, regional craft beer brands.

Overall, our craft and specialty beer capabilities further strengthen our position as the leader in the high-end segment of the U.S. beer market.

| ● Black Box | ● Meiomi | ● Ruffino | | ● Prisoner | | ● High West |

| ● Clos du Bois | ● Mount Veeder | ● Schrader | | | | ● SVEDKA Vodka |

| ● Franciscan Estate | ● Nobilo | ● Simi | | | | |

| ● Kim Crawford | ● Ravage | ● The Dreaming Tree | | | | |

The Wine and Spirits Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approvals (see “Recent Developments” in MD&A and Note 23 of the Notes to the Financial Statements).

Corporate Operations and Other

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 expanding the Obregon Brewery and constructing the Mexicali Brewery, located near California, which is our largest imported beer market in the U.S.

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.

Our Canadian whisky requirements are produced and aged at our Canadian distillery in Lethbridge, Alberta.

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% of our glass requirements for the Nava Brewery.

As of February 28, 2019, we had approximately 9,800 employees.

Approximately 4,900 employees were in the U.S. and approximately 4,900 employees were outside of the U.S., primarily in Mexico.

F.

From June 2011 until January 2015 he

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.

In the ordinary course of their business, the Company and its subsidiaries are subject to lawsuits, arbitrations, [removed: claims] [added: claims,] and other legal proceedings in connection with their business.

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 [removed: operations] [added: 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 [removed: material adverse effect on the financial condition, results of operations or cash flows of the Company.]

These matters could result in censures, [removed: fines] [added: 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 [removed: operations] [added: operations,] or cash flows.

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| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 27 |

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| PART I | OTHER KEY INFORMATION | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

material adverse effect on the financial condition, results of operations, or cash flows of the Company.

As previously reported in the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended August 31, 2019 and November 30, 2019, on August 21, 2019, Industria Vidriera de Coahuila, S. de R.L. de C.V. (“IVC”), the Mexican subsidiary of a consolidated joint venture of the Company, received from the Procuraduria de Protección al Ambiente de Coahuila (“PROPAEC”) notification of an enforcement action for violations of certain laws in the Mexican state of Coahuila de Zaragoza regulating the discharge of wastewater into the environment.

The notification was based on PROPAEC’s evaluation of IVC’s May 22, 2019 response to allegations arising from an inspection of IVC’s facility originally conducted by PROPAEC on April 12, 2018.

The allegations against IVC consisted of the discharge of wastewater from evaporators without PROPAEC’s authorization and associated recordkeeping violations under relevant state environmental regulations.

On September 19, 2019, IVC paid a penalty of MXN$2,196,740 (approximately $113,000) and related tax of MXN$494,267 (approximately $25,000).

The Company believes this matter is fully settled.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: WASHINGTON,] [added: WASHINGTON,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

| [removed: ý] [added: ☒] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year [removed: ended February 28, 2019][added: ended February 29, 2020]

| [removed: ¨] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period [removed: from to][added: from to]

[removed: Commission] [added: Commission] file [removed: number 001-08495][added: number 001-08495]

[removed: ][added: ]

[removed: CONSTELLATION] [added: CONSTELLATION] BRANDS, [removed: INC.][added: INC.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: Delaware] [added: Delaware] | [removed: 16-0716709] [added: 16-0716709] |

| [removed: State] [added: (State] or other jurisdiction of incorporation or [removed: organization] [added: organization)] | (I.R.S. Employer Identification No.) |

[removed: | 207] [added: 207] High Point [removed: Drive, Building 100 Victor, New York | 14564 |][added: Drive, Building 100, Victor, New York 14564]

[removed: |] (Address of principal executive offices) [removed: |] (Zip [removed: Code) |][added: code)]

[removed: |] Registrant’s telephone number, including area code [removed: (585) 678-7100 | |][added: (585) 678-7100]

[removed: |] Securities registered pursuant to Section 12(b) of the Act: [removed: | |]

| [removed: Title] [added: Title] of [removed: each class] [added: Each Class] | [removed: Name] [added: Trading Symbol(s) | Name] of [removed: each exchange] [added: Each Exchange] on [removed: which registered] [added: Which Registered] |

| Class [removed: A] [added: B] Common [removed: Stock (par] [added: Stock, par] value $.01 per [removed: share)] [added: share] | [removed: New York Stock Exchange] [added: 23,293,136] |

| Class [removed: B] [added: 1] Common [removed: Stock (par] [added: Stock, par] value $.01 per [removed: share)] [added: share] | [removed: New York Stock Exchange] [added: 1,694,803] |

[removed: None][added: None]

Yes [removed: ý] [added: ☒] No [removed: ¨][added: ☐]

Yes [removed: ¨] [added: ☐] No [removed: ý][added: ☒]

| Large [removed: accelerated filer] [added: Accelerated Filer] | [removed: ý] [added: ☒] | Accelerated filer | [removed: ¨] [added: ☐] |

| Non-accelerated filer | [removed: ¨] [added: ☐] | Smaller reporting company | [removed: ¨] [added: ☐] |

| | | Emerging growth company | [removed: ¨] [added: ☐] |

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 [removed: $33,122,314,698.][added: $32,806,810,830.]

| The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April [removed: 17, 2019,] [added: 15, 2020,] is set forth below: | |

| [removed: Class] [added: Class] | [removed: Number] [added: Number] of Shares [removed: Outstanding] [added: Outstanding] |

| Class A Common Stock, par value $.01 per share | [removed: 166,883,483] [added: 167,852,917] |

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

The Proxy Statement of Constellation Brands, Inc. to be issued for the Annual Meeting of Stockholders which is expected to be held July [removed: 16, 2019] [added: 21, 2020] is incorporated by reference in Part III to the extent described therein.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| [removed: PART I] [added: PART I] | | |

| Item 1. | [removed: [Business](#s71D35300849353C78AEEBD2CD79004B7)] [added: Business] | [removed: [1](#s71D35300849353C78AEEBD2CD79004B7)] [added: [1](#s4EC30A6BE64F5325BAC31E0587F2515F)] |

| Item 1A. | [removed: [Risk Factors](#s44424E30A17B59DDA980BE44B0536BBF)] [added: Risk Factors] | [removed: [10](#s44424E30A17B59DDA980BE44B0536BBF)] [added: [13](#sA9F69F3851D75147BECEB4E8F9172E6A)] |

| Item 1B. | [removed: [Unresolved] [added: Unresolved] Staff [removed: Comments](#sE9CC0079BBAA5D1CB3B302C7D6CF05A7)] [added: Comments] | [removed: [21](#sE9CC0079BBAA5D1CB3B302C7D6CF05A7)] [added: NA] |

| Item 2. | [removed: [Properties](#sBA9982EB4D1556F6B8536675350608A3)] [added: Properties] | [removed: [22](#sBA9982EB4D1556F6B8536675350608A3)] [added: [27](#sD8E48216739A532DA25CF154EEA8D137)] |

| Item 3. | [removed: [Legal Proceedings](#sC71C721EC7AE54EE8A08139B25A68D12)] [added: Legal Proceedings] | [removed: [23](#sC71C721EC7AE54EE8A08139B25A68D12)] [added: [27](#s69BA7215DA825F54BE630BC83045A3D6)] |

| Class A Common Stock | STZ | New York Stock Exchange |

| Class B Common Stock | STZ.B | New York Stock Exchange |

Yes ☒ No ☐

Yes ☒ No ☐

Yes ☐ No ☒

| --- | --- | --- |

| | | |

| | | |

| | | |

| SIGNATURES | | [133](#s24CA2D203D135E6AB2B22A49869A7697) |

| | | |

| NA = Not Applicable | | |

All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements, including without limitation:*

| --- | --- |

| *•* | *The statements regarding the current global COVID-19 pandemic.* |

| --- | --- |

| *•* | *The statements under Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding:* |

| --- | --- |

| *◦* | *our business strategy, future operations, future financial position, future net sales and expected volume trends, expected effective tax rates and anticipated tax liabilities, prospects, plans, and objectives of management;* |

| | |

| --- | --- |

| *◦* | *information concerning expected or potential actions of third parties, including potential changes to international trade agreements, tariffs, taxes, and other governmental rules and regulations;* |

| | |

| --- | --- |

| *◦* | *information concerning the future expected balance of supply and demand for our products;* |

| | |

| --- | --- |

| *◦* | *timing and source of funds for operating activities and Canopy warrant exercises, if any;* |

| | |

| --- | --- |

| *◦* | *the manner, timing, and duration of the share repurchase program and source of funds for share repurchases; and* |

| | |

| --- | --- |

| *◦* | *the amount and timing of future dividends.* |

| | |

| --- | --- |

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

| | |

| --- | --- |

| *•* | *The statements regarding:* |

10-K 1 stz228201910k.htm 10-K

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.

| Class B Common Stock, par value $.01 per share | 23,316,614 |

| Class 1 Common Stock, par value $.01 per share | 1,149,714 |

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, future net sales and expected volume trends, expected effective tax rates and anticipated tax liabilities, 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, and (vi) the amount and timing of future dividends; (II) the statements regarding our beer expansion, construction and optimization activities, including anticipated costs and timeframes for completion; (III) the statements regarding (i) the volatility of the fair value of our investments in Canopy measured at fair value, (ii) our activities following the close of the November 2018 Canopy Transaction, (iii) the time to return to our targeted leverage ratio following the close of the November 2018 Canopy Transaction, (iv) the New November 2018 Canopy Warrants, and (v) our future ownership level in Canopy and (IV) the statements regarding the Wine and Spirits Transaction, expected gain or loss, amount and use of expected proceeds, estimated remaining costs and expected restructuring charge are forward-looking statements.

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, net sales and volume trends for our products will vary from current expectations due to, among other reasons, actual shipments to distributors and actual consumer demand, (iii) the amount, timing 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, the impact of the November 2018 Canopy Transaction, the expected impacts of the Wine and Spirits Transaction and the New November 2018 Canopy Warrants, 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 our investments in Canopy may vary due to market and economic conditions in Canopy’s markets and business locations, (vi) the timeframe and actual costs associated with the beer operations expansion activities may vary from management’s current expectations due to market conditions, our cash and debt position, receipt of required regulatory approvals by the expected dates and on the expected terms, and other factors as determined by management, (vii) any consummation of the Wine and Spirits Transaction and any actual date of consummation may vary from our current expectations and the actual restructuring charge, if any, will vary based on management’s final plans, and (viii) the time to return to our targeted leverage ratio may vary from management’s current expectations due to market conditions, our ability to generate cash flow at expected levels and our ability to generate expected earnings.

Modification of the November 2018 Canopy Warrants is subject to, among other things, Canopy shareholder approval of the modification of the November 2018 Canopy Warrants and Canopy shareholder approval of its proposed transaction with Acreage.

PART I

We operate breweries, wineries, distilling [removed: plants] [added: 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 [added: material] properties described below, certain of our businesses maintain office space for sales and similar activities and offsite warehouse and distribution facilities in a variety of geographic locations.

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 [removed: needs.][added: demand.]

| [added: Beer |] Wine and Spirits [removed: Segment] | [removed: | | |]

Within our Wine and Spirits segment, as of February [removed: 28, 2019,] [added: 29, 2020,] we owned, [removed: leased] [added: leased,] or had interests in approximately [removed: 12,500] [added: 11,600] acres of vineyards in California (U.S.), 6,800 acres of vineyards in New [removed: Zealand] [added: Zealand,] and [removed: 1,200] [added: 1,300] acres of vineyards in Italy.

As of February [removed: 28, 2019,] [added: 29, 2020,] our [removed: principal facilities,] [added: material properties by segment,] all of which are owned, [added: unless otherwise noted,] consist of:

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

| Breweries ● Compañía Cervecera de Coahuila in Nava, Coahuila, Mexico ● Compañía Cervecera de Obregón in Obregon, Sonora, Mexico Glass production plant ● Industria Vidriera de Coahuila in Nava, Coahuila, Mexico (1) | Wineries ● Canandaigua Winery in Canandaigua, New York, U.S. (2) ● Gonzales Winery in Gonzales, California, U.S. ● Mission Bell Winery in Madera, California, U.S. (2) ● Woodbridge Winery in Acampo, California, U.S. ● Drylands Winery in Marlborough, South Island, New Zealand Warehouse, distribution, and other production facilities ● Lodi Distribution Center in Lodi, California, U.S. (3) ● Pontassieve Winery in Florence, Italy |

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

As of February 28, 2019, our properties include the following:

| | | | |

| --- | --- | --- | --- |

| | Owned | | Leased |

| Beer Segment | | | |

| Breweries | | | |

| U.S. | 2 | | 8 |

| Mexico | 2 | | |

| Total breweries | 4 | | 8 |

| Glass production plant (1) | | | |

| Mexico | 1 | | |

| Warehouse, distribution and other production facilities | | | |

| U.S. | | | 32 |

| Mexico | 1 | | 5 |

| Total warehouse, distribution and other production facilities | 1 | | 37 |

| Total Beer Segment | 6 | | 45 |

| Wineries | | | |

| U.S. | | | |

| California | 14 | | 2 |

| New York | 1 | | |

| Washington | 1 | | |

| New Zealand | 3 | | |

| Italy | 1 | | 5 |

| Total wineries | 20 | | 7 |

| Distilleries | | | |

| U.S. | 1 | | 1 |

| Canada | 1 | | |

| Total distilleries | 2 | | 1 |

| U.S. | | | 6 |

| Canada | | | 1 |

| Italy | 1 | | 8 |

| Total warehouse, distribution and other production facilities | 1 | | 15 |

| Total Wine and Spirits Segment | 23 | | 23 |

| | |

| --- | --- |

| • | 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 |

At April [removed: 17, 2019,] [added: 15, 2020,] the number of holders of record of our Class A Common Stock, Class B Common [removed: Stock] [added: Stock,] and Class 1 Common Stock were [removed: 531, 100] [added: 517, 97,] and [removed: 11,] [added: 13,] respectively.

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

For information on securities authorized for issuance under our equity compensation plans, see Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters under Item 12.

of this Annual Report on Form 10-K.

| | |

| --- | --- |

| | |

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 28 |

| | | |

| --- | --- | --- |

| | | |

| PART II | OTHER KEY INFORMATION | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

| | [added: February 29, 2020 (1) | | | |] February 28, 2019 | | | | February 28, 2018 | | | | February 28, 2017 [removed: (1)] [added: (2)] | | | | February 29, 2016 | | | [removed: | February 28, 2015 | | |]

| Sales | [removed: $] [added: $] | [removed: 8,884.3] [added: 9,113.0] | | | $ | [removed: 8,322.1] [added: 8,884.3] | | | $ | [removed: 8,051.2] [added: 8,322.1] | | | $ | [removed: 7,223.8] [added: 8,051.2] | | | $ | [removed: 6,672.1] [added: 7,223.8] | |

| Excise taxes | [removed: (768.3] [added: (769.5] | | [removed: )] [added: )] | | [removed: (741.8] [added: (768.3] | | ) | | [removed: (730.1] [added: (741.8] | | ) | | [removed: (675.4] [added: (730.1] | | ) | | [removed: (644.1] [added: (675.4] | | ) |

| [removed: Net sales] [added: Net sales] | [removed: 8,116.0] [added: 8,343.5] | | | | [removed: 7,580.3] [added: 8,116.0] | | | | [removed: 7,321.1] [added: 7,580.3] | | | | [removed: 6,548.4] [added: 7,321.1] | | | | [removed: 6,028.0] [added: 6,548.4] | | |

| Cost of product sold [added: (3)] | [removed: (4,035.7] [added: (4,191.6] | | [removed: )] [added: )] | | [removed: (3,767.8] [added: (4,035.7] | | ) | | [removed: (3,802.1] [added: (3,767.8] | | ) | | [removed: (3,606.1] [added: (3,802.1] | | ) | | [removed: (3,449.4] [added: (3,606.1] | | ) |

| [removed: Gross profit] [added: Gross profit] | [removed: 4,080.3] [added: 4,151.9] | | | | [removed: 3,812.5] [added: 4,080.3] | | | | [removed: 3,519.0] [added: 3,812.5] | | | | [removed: 2,942.3] [added: 3,519.0] | | | | [removed: 2,578.6] [added: 2,942.3] | | |

| Selling, [removed: general] [added: general,] and administrative expenses [removed: (2) (3)] [added: (4)] | [removed: (1,668.1] [added: (1,621.8] | | [removed: )] [added: )] | | [removed: (1,532.7] [added: (1,668.1] | | ) | | [removed: (1,392.4] [added: (1,532.7] | | ) | | [removed: (1,177.2] [added: (1,392.4] | | ) | | [removed: (1,078.4] [added: (1,177.2] | | ) |

| Gain [added: (loss)] on sale of business | [removed: —] [added: 74.1] | | | | — | | | | [removed: 262.4] [added: —] | | | | [removed: —] [added: 262.4] | | | | — | | |

| [removed: Operating] [added: Operating] income [added: (loss)] | [removed: 2,412.2] [added: 2,154.5] | | | | [removed: 2,279.8] [added: 2,412.2] | | | | [removed: 2,389.0] [added: 2,279.8] | | | | [removed: 1,765.1] [added: 2,389.0] | | | | [removed: 1,500.2] [added: 1,765.1] | | |

| Income [added: (loss)] from unconsolidated investments [removed: (4)] [added: (5) (6) (7)] | [removed: 2,101.6] [added: (2,668.6] | | [added: )] | | [removed: 487.2] [added: 2,101.6] | | | | [removed: 27.3] [added: 487.2] | | | | [removed: 51.1] [added: 27.3] | | | | [removed: 21.5] [added: 51.1] | | |

| Interest expense | [removed: (367.1] [added: (428.7] | | [removed: )] [added: )] | | [removed: (332.0] [added: (367.1] | | ) | | [removed: (333.3] [added: (332.0] | | ) | | [removed: (313.9] [added: (333.3] | | ) | | [removed: (337.7] [added: (313.9] | | ) |

| Loss on extinguishment of debt [removed: (5)] [added: (8)] | [added: (2.4 | | ) | |] (1.7 | | ) | | (97.0 | | ) | | — | | | | (1.1 | | ) | [removed: | (4.4 | | ) |]

| Income [added: (loss)] before income taxes | [removed: 4,145.0] [added: (945.2] | | [added: )] | | [removed: 2,338.0] [added: 4,145.0] | | | | [removed: 2,083.0] [added: 2,338.0] | | | | [removed: 1,501.2] [added: 2,083.0] | | | | [removed: 1,179.6] [added: 1,501.2] | | |

| [removed: Provision for] [added: (Provision for) benefit from] income taxes [removed: (6)] [added: (9)] | [removed: (685.9] [added: 966.6] | | [removed: )] | | [removed: (22.7] [added: (685.9] | | ) | | [removed: (550.3] [added: (22.7] | | ) | | [removed: (440.6] [added: (550.3] | | ) | | [removed: (343.4] [added: (440.6] | | ) |

| [removed: Net] [added: Net] income [added: (loss)] | [removed: 3,459.1] [added: 21.4] | | | | [removed: 2,315.3] [added: 3,459.1] | | | | [removed: 1,532.7] [added: 2,315.3] | | | | [removed: 1,060.6] [added: 1,532.7] | | | | [removed: 836.2] [added: 1,060.6] | | |

| Net (income) loss attributable to noncontrolling interests | [added: (33.2 | | ) | |] (23.2 | | ) | | (11.9 | | ) | | (4.1 | | ) | | (5.7 | | ) | [removed: | 3.1 | | |]

| [removed: Net] [added: Net] income [added: (loss)] attributable to [removed: CBI] [added: CBI] | [removed: $] [added: $] | [removed: 3,435.9] [added: (11.8] | [added: )] | | $ | [removed: 2,303.4] [added: 3,435.9] | | | $ | [removed: 1,528.6] [added: 2,303.4] | | | $ | [removed: 1,054.9] [added: 1,528.6] | | | $ | [removed: 839.3] [added: 1,054.9] | |

| [removed: Net] [added: Net] income [added: (loss)] per common share attributable to [removed: CBI:] [added: CBI:] | | | | | | | | | | | | | | | | | | | |

| Basic – Class A Common Stock | [removed: $] [added: $] | [removed: 18.24] [added: (0.07] | [added: )] | | $ | [removed: 11.96] [added: 18.24] | | | $ | [removed: 7.76] [added: 11.96] | | | $ | [removed: 5.42] [added: 7.76] | | | $ | [removed: 4.40] [added: 5.42] | |

| Basic – Class B Convertible Common Stock | [removed: $] [added: $] | [removed: 16.57] [added: (0.07] | [added: )] | | $ | [removed: 10.86] [added: 16.57] | | | $ | [removed: 7.04] [added: 10.86] | | | $ | [removed: 4.92] [added: 7.04] | | | $ | [removed: 4.00] [added: 4.92] | |

| Diluted – Class A Common Stock | [removed: $] [added: $] | [removed: 17.57] [added: (0.07] | [added: )] | | $ | [removed: 11.47] [added: 17.57] | | | $ | [removed: 7.49] [added: 11.47] | | | $ | [removed: 5.18] [added: 7.49] | | | $ | [removed: 4.17] [added: 5.18] | |

| Diluted – Class B Convertible Common Stock | [removed: $] [added: $] | [removed: 16.21] [added: (0.07] | [added: )] | | $ | [removed: 10.59] [added: 16.21] | | | $ | [removed: 6.90] [added: 10.59] | | | $ | [removed: 4.79] [added: 6.90] | | | $ | [removed: 3.83] [added: 4.79] | |

| [removed: Cash] [added: Cash] dividends declared per common [removed: share:] [added: share:] | | | | | | | | | | | | | | | | | | | |

| Class A Common Stock | [removed: $] [added: $] | [removed: 2.96] [added: 3.00] | | | $ | [removed: 2.08] [added: 2.96] | | | $ | [removed: 1.60] [added: 2.08] | | | $ | [removed: 1.24] [added: 1.60] | | | $ | [removed: —] [added: 1.24] | |

| Class B Convertible Common Stock | [removed: $] [added: $] | [removed: 2.68] [added: 2.72] | | | $ | [removed: 1.88] [added: 2.68] | | | $ | [removed: 1.44] [added: 1.88] | | | $ | [removed: 1.12] [added: 1.44] | | | $ | [removed: —] [added: 1.12] | |

| Total assets | [removed: $] [added: $] | [removed: 29,231.5] [added: 27,323.2] | | | $ | [removed: 20,538.7] [added: 29,231.5] | | | $ | [removed: 18,602.4] [added: 20,538.7] | | | $ | [removed: 16,965.0] [added: 18,602.4] | | | $ | [removed: 15,093.0] [added: 16,695.0] | |

| Long-term debt, including current maturities | [removed: $] [added: $] | [removed: 12,825.0] [added: 11,945.7] | | | $ | [removed: 9,439.9] [added: 12,825.0] | | | $ | [removed: 8,631.6] [added: 9,439.9] | | | $ | [removed: 7,672.9] [added: 8,631.6] | | | $ | [removed: 7,244.1] [added: 7,672.9] | |

| [removed: (2)] [added: (4)] | Includes impairment of intangible assets of [added: $11.0 million,] $108.0 million, $86.8 [removed: million] [added: million,] and $46.0 million for the years ended February [added: 29, 2020, February] 28, 2019, February 28, 2018, and February 28, 2017, respectively (refer to Note 7 of the Notes to the Financial Statements for additional discussion). |

| [removed: (3)] [added: (5)] | Includes a net gain in connection with the sale of our Accolade Wine Investment of $99.8 million for the year ended February 28, 2019 (refer to Note 2 of the Notes to the Financial Statements for additional discussion). |

| [removed: (4)] [added: (6)] | Includes unrealized net gain [added: (loss)] from the changes in fair value of the Canopy securities measured at fair value of [added: $(2,126.4) million,] $1,971.2 [removed: million] [added: million,] and $464.3 million for the years ended February [added: 29, 2020, February] 28, 2019, and February 28, 2018, respectively (refer to Note 7 of the Notes to the Financial Statements for additional discussion). |

| [removed: (5)] [added: (8)] | Consists of a make-whole payment of $73.6 million in connection with the early redemption of our April 2012 senior notes and the write-off of debt issuance costs of $23.4 million in connection with prior-to-maturity repayments of various debt obligations for the year ended February 28, 2018 (refer to Note [removed: 12] [added: 13] of the Notes to the Financial Statements for additional discussion). |

| [removed: (6)] [added: (9)] | Includes a [added: net income tax benefit of $547.4 million for the year ended February 29, 2020, resulting from the remeasurement of our deferred tax assets in connection with the enactment of tax reform in Switzerland and a] provisional net income tax benefit of $351.2 million for the year ended February 28, 2018, associated with the [removed: December 2017] enactment of the TCJ Act (refer to Note [removed: 13] [added: 14] of the Notes to the Financial Statements for additional discussion). |

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

| (1) | Includes an impairment of long-lived assets held for sale in connection with the New Wine and Spirits Transactions, Other Wine and Spirits Transactions, and the Ballast Point Transaction (refer to Notes 2 and 7 of the Notes to the Financial Statements for additional discussion). Additionally, in November 2019, we sold the Black Velvet Canadian Whisky business and recognized a net gain on sale of business (refer to Note 2 of the Notes to the Financial Statements for additional discussion). |

| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 29 |

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| PART II | OTHER KEY INFORMATION | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

| (2) | In December 2016, we sold the Wine and Spirits Canadian wine business and recognized a net gain on sale of business. |

| (3) | Includes a loss on inventory write-downs of $102.9 million in connection with the wine and spirits optimization activities for the year ended February 29, 2020 (refer to Note 2 of the Notes to the Financial Statements for additional discussion). |

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| (7) | Includes equity in earnings (losses) from Canopy of $(575.9) million and $(2.6) million for the years ended February 29, 2020, and February 28, 2019, respectively (refer to Note 10 of the Notes to the Financial Statements for additional discussion). |

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| Constellation Brands, Inc. FY 2020 Form 10-K | #WORTHREACHINGFOR I 30 |

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| --- | --- | --- |

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| PART II | ITEM 7. MD&A | [Table of Contents](#sCD87E31BD1B550908BABB6F659206986) |

Effective March 1, 2018, we adopted the FASB amended guidance regarding the recognition of revenue from contracts with customers using the retrospective application method.

Accordingly, we have restated sales, net sales, gross profit, operating income, income before income taxes, provision for income taxes, net income, net income attributable to CBI and net income per common share attributable to CBI, for the years ended February 28, 2018, and February 28, 2017.

For additional information, refer to Note 1 of the Notes to the Financial Statements.

| (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). |

[removed: CONSTELLATION] [added: CONSTELLATION] BRANDS, INC. AND [removed: SUBSIDIARIES][added: SUBSIDIARIES]

[removed: INDEX] [added: INDEX] TO CONSOLIDATED FINANCIAL [removed: STATEMENTS][added: STATEMENTS]

[removed: FEBRUARY] [added: | | February 29, 2020 | | | | February] 28, 2019 [added: | | |]

| | [added: | | |] Page |

[removed: | [Management’s] [added: Management’s] Annual Report on Internal Control Over Financial [removed: Reporting](#s6AFDEB8A783F58AEBF31F70C69AF8092) | [52](#s6AFDEB8A783F58AEBF31F70C69AF8092) |][added: Reporting]

[removed: | [Report] [added: Report] of Independent Registered Public Accounting [removed: Firm – KPMG LLP](#sC83ACC457B125FBEB836681D415038E6) | [53](#sC83ACC457B125FBEB836681D415038E6) |][added: Firm]

[removed: | [Report] [added: Report] of Independent Registered Public Accounting [removed: Firm – KPMG LLP](#s28F88B2FCEC55714BDB7D94B5A9BE506) | [55](#s28F88B2FCEC55714BDB7D94B5A9BE506) |][added: Firm]

| [removed: [Notes] [added: Notes] to Consolidated Financial [removed: Statements](#sE8BBC07F08D75A08A0375FF532A64BB1)] [added: Statements] | [removed: [61](#sE8BBC07F08D75A08A0375FF532A64BB1)] | [added: | | |]

[removed: | [Selected Quarterly Financial Information (unaudited)](#s54B8A73E311754869C64D506B758EAA7) | [112](#s54B8A73E311754869C64D506B758EAA7) |][added: SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)]

[added: |] Management’s Annual Report on Internal Control Over Financial Reporting [added: | | | | [59](#sC4DE856E01B25BDA87736A57CE85F67C) |]

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in [removed: Internal] [added: *Internal] Control – Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as of February [removed: 28, 2019.][added: 29, 2020.]

[removed: Report] [added: | Reports] of Independent Registered Public Accounting Firm [added: – KPMG LLP | | | | [60](#s564855A573435D47BF3090F48E0F4ED9) |]

[removed: Opinion] [added: *Opinion] on Internal Control Over Financial [removed: Reporting][added: Reporting*]

We have audited Constellation Brands, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of February [removed: 28, 2019,] [added: 29, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February [removed: 28, 2019,] [added: 29, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of February [removed: 28, 2019] [added: 29, 2020,] and [removed: 2018,] [added: February 28, 2019,] the related consolidated statements of comprehensive [removed: income,] [added: income (loss),] changes in stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February [removed: 28, 2019,] [added: 29, 2020,] and the related notes (collectively, the consolidated financial statements), and our report dated April [removed: 23, 2019] [added: 21, 2020] expressed an unqualified opinion on those consolidated financial statements.

[removed: Basis] [added: *Basis] for [removed: Opinion][added: Opinion*]

[removed: Definition] [added: *Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting*]

[removed: Opinion] [added: *Opinion] on the Consolidated Financial [removed: Statements][added: Statements*]

We have audited the accompanying consolidated balance sheets of Constellation Brands, Inc. and subsidiaries (the Company) as of February [removed: 28, 2019] [added: 29, 2020] and [removed: 2018,] [added: February 28, 2019,] the related consolidated statements of comprehensive [removed: income,] [added: income (loss),] changes in stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February [removed: 28, 2019,] [added: 29, 2020,] and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February [removed: 28, 2019] [added: 29, 2020] and [removed: 2018,] [added: February 28, 2019,] and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended February [removed: 28, 2019,] [added: 29, 2020,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February [removed: 28, 2019,] [added: 29, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April [removed: 23, 2019] [added: 21, 2020] expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial [removed: reporting.][added: reporting*.*]

| [removed: CONSTELLATION] [added: CONSTELLATION] BRANDS, INC. AND [removed: SUBSIDIARIES CONSOLIDATED] [added: SUBSIDIARIES CONSOLIDATED] BALANCE [removed: SHEETS] [added: SHEETS] (in millions, except share and per share data) | | | | | | | |

| | [added: February 29, 2020 | | | |] February 28, 2019 | | | | February 28, 2018 | | |

| [removed: ASSETS] [added: ASSETS] | | | | | | | |

| [removed: Current assets:] [added: Current assets:] | | | | | | | |

| Cash and cash equivalents | [removed: $] [added: $] | [removed: 93.6] [added: 81.4] | | | $ | [removed: 90.3] [added: 93.6] | |

| Accounts receivable | [removed: 846.9] [added: 864.8] | | | | [removed: 776.2] [added: 846.9] | | |

| Inventories | [removed: 2,130.4] [added: 1,373.6] | | | | [removed: 2,084.0] [added: 2,130.4] | | |

| Prepaid expenses and other | [removed: 613.1] [added: 535.8] | | | | [removed: 523.5] [added: 613.1] | | |

| [removed: Total] [added: Total] current [removed: assets] [added: assets] | [removed: 3,684.0] [added: 3,484.1] | | | | [removed: 3,474.0] [added: 3,684.0] | | |

| Property, [removed: plant] [added: plant,] and equipment | [removed: 5,267.3] [added: 5,333.0] | | | | [removed: 4,789.7] [added: 5,267.3] | | |

| Goodwill | [removed: 8,088.8] [added: 7,757.1] | | | | [removed: 8,083.1] [added: 8,088.8] | | |

| Intangible assets | [removed: 3,198.1] [added: 2,718.9] | | | | [removed: 3,304.8] [added: 3,198.1] | | |

| Equity method investments [added: (1)] | [added: $ | 3,093.9 | | | $ |] 3,465.6 | | | [added: $] | 121.5 | | [removed: |]

| Securities measured at fair value | [removed: 3,234.7] [added: 1,117.1] | | | | [removed: 672.2] [added: 3,234.7] | | |