Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

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

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

Strategy*.* This section provides a description of our strategy and a discussion of recent developments, significant investments, acquisitions, and divestitures.

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

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

Critical accounting policies and estimates. This section identifies accounting policies that are considered important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 1.

Overview

Our internal management financial reporting consists of three business divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy and we report our operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate Operations and Other, and (iv) Canopy. Our Canopy Equity Method Investment makes up the Canopy segment.

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

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Strategy

Our business strategy for the Beer segment focuses on leading the high-end segment of the U.S. beer market. This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, as well as NPD and innovation within the existing portfolio of brands, and continued expansion and construction activities for our Mexico beer operations. Additionally, in an effort to more fully compete in growing sectors of the high-end segment of the U.S. beer market, we have leveraged our innovation capabilities to introduce new brands that align with consumer trends.

We have more than tripled the production capacity of the Nava Brewery since its 2013 acquisition. In early Fiscal 2022, we completed part of a planned expansion of our Obregon Brewery. Expansion efforts continue under our Mexico Beer Projects to align with our anticipated future growth expectations. However, at this time, we have suspended all Mexicali Brewery construction activities, following a negative result from a public consultation held in Mexico. See “Capital expenditures” below.

Our strategy for the Wine and Spirits segment is to build an industry-leading portfolio of higher-end wine and spirits brands. We are investing to meet the evolving needs of consumers, including launching direct-to-consumer and eCommerce platforms; building brands through consumer insights, sensory expertise, and innovation; and refreshing existing brands, as we continue to focus on moving our branded wine and spirits portfolio towards a higher-margin, higher-growth portfolio of brands. We focus our innovation and investment dollars on brands within our portfolio which position us to benefit from the consumer-led trend towards premiumization. Additionally, in connection with the recent divestitures, we expect to optimize the value of our wine and spirits portfolio by driving increased focus on our higher-end brands to accelerate growth and improve overall operating margins. In markets where it is feasible, we entered into contractual arrangements to consolidate our U.S. distribution network in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth. This consolidated U.S. distribution network currently represents about 70% of our branded wine and spirits volume in the U.S. Effective April 1, 2021, we have modified our U.S. wine and spirits distribution network to a single distributor which we expect to continue to represent approximately 70% of that volume. Throughout the terms of these contracts, we generally expect shipments on an annual basis to these distributors to essentially equal the distributors’ shipments to retailers.

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

We complement our strategy with our investment in Canopy, by expanding our portfolio into adjacent categories. Canopy is a leading cannabis company with operations in countries across the world. This investment is consistent with our long-term strategy to identify, address, and stay ahead of evolving consumer trends and market dynamics. We expanded our strategic relationship with Canopy to help position it as a global leader in cannabis production, branding, intellectual property, and retailing.

We remain committed to our long-term financial model of: growing sales, expanding margins, and increasing cash flow in order to achieve earnings per share growth, maintain our targeted leverage ratio, and deliver returns to shareholders through the payment of dividends and periodic share repurchases. Our results of operations and financial condition have not been significantly affected by inflation and changing prices. In the event of future rising costs, we intend to pass along such rising costs through increased selling prices, subject to normal competitive conditions. There can be no assurances, however, that we will be able to pass along rising costs through increased selling prices. In addition, we continue to identify on-going cost savings initiatives.

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Recent Development

Mexicali Brewery

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

COVID-19

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

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

In response to COVID-19, we have ensured our ongoing liquidity and financial flexibility through cash preservation initiatives, capital expense reductions, and cost control measures. We are not able to estimate the long-term impact of COVID-19 on our business, financial condition, results of operations, and/or cash flow. We believe we have sufficient liquidity available from operating cash flow, cash on hand, and availability under our $2.0 billion revolving credit facility. We expect to have continued access to capital markets and to be able to continue to return value to shareholders through dividends and periodic share repurchases.

Investments, acquisitions, and divestitures

Beer segment

Ballast Point Divestiture

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

Wine and Spirits segment

Paul Masson Divestiture

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

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

Wine and Spirits Divestitures

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

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

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

Concentrate Business Divestiture

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

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

			Fiscal 2021						Fiscal 2020
(in millions)
Net sales			$	642.3					$	868.2
Gross profit			$	252.9					$	330.5
Marketing (1)			$	14.5					$	17.8

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

Copper & Kings acquisition

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

Empathy Wines acquisition

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

Booker Vineyard investment

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

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Black Velvet Divestiture

In November 2019, we sold the Black Velvet Canadian Whisky business and the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility, and related inventory. Accordingly, our consolidated results of operations include the results of operations of our Canadian whisky business through the date of divestiture. We received cash proceeds of $266.7 million, net of post-closing adjustments. We recognized a net gain of $70.5 million on the sale of the business, primarily for the year ended February 29, 2020.

Nelson’s Green Brier acquisition

In May 2019, we increased our ownership interest in Tennessee-based Nelson’s Green Brier to 75%, resulting in consolidation of the business and recognition of a 25% noncontrolling interest. This acquisition included a portfolio of craft bourbon and whiskey products. The fair value of the business combination was allocated primarily to goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Canopy segment

Canopy investment

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

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

Results of Operations

Financial Highlights

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

For Fiscal 2021 compared with Fiscal 2020:

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

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

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

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

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Comparable Adjustments

Management excludes items that affect comparability from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and the incentive compensation of segment management are evaluated based on core segment operating income (loss) which do not include the impact of these Comparable Adjustments.

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

			Fiscal 2021						Fiscal 2020
(in millions)
Cost of product sold
Recovery of (loss on) inventory write-down			$	(70.4)					$	8.6
Strategic business development costs			(29.8)						(124.5)
COVID-19 incremental costs			(7.6)						—
Flow through of inventory step-up			(0.4)						(1.5)
Accelerated depreciation			(0.1)						(7.6)
Settlements of undesignated commodity derivative contracts			31.6						11.7
Net gain (loss) on undesignated commodity derivative contracts			25.1						(49.0)
Total cost of product sold			(51.6)						(162.3)
Selling, general, and administrative expenses
Restructuring and other strategic business development costs			(23.9)						(25.3)
Net gain (loss) on foreign currency derivative contracts			(8.0)						(1.8)
Transaction, integration, and other acquisition-related costs			(7.6)						(9.2)
Impairment of intangible assets			(6.0)						(11.0)
COVID-19 incremental costs			(4.8)						—
Other gains (losses)			14.7						7.3
Total selling, general, and administrative expenses			(35.6)						(40.0)
Impairment of assets held for sale			(24.0)						(449.7)
Gain (loss) on sale of business			14.2						74.1
Comparable Adjustments, Operating income (loss)			$	(97.0)					$	(577.9)
Income (loss) from unconsolidated investments			$	265.2					$	(2,480.1)

Cost of product sold

Recovery of (loss on) inventory write-down

We recognized a loss on the write-down of bulk wine inventory and certain grapes as a result of smoke damage sustained during the 2020 U.S. wildfires, partially offset by a related probable recovery from our insurance carriers (Fiscal 2021), and a reimbursement from our insurance carriers for losses recognized on the write-down of certain bulk wine inventory as a result of smoke damage sustained during the fall 2017 California wildfires (Fiscal 2020). For additional information on the 2020 U.S. wildfires, refer to Note 16.

Strategic business development costs

We recognized costs primarily in connection with losses on write-downs of excess inventory and contract terminations resulting from our ongoing efforts to optimize our portfolio, gain efficiencies, and reduce our cost structure within the Wine and Spirits segment.

COVID-19 incremental costs

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

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I**nventory step-up

In connection with acquisitions, the allocation of purchase price in excess of book value for certain inventories on hand at the date of acquisition is referred to as inventory step-up. Inventory step-up represents an assumed manufacturing profit attributable to the acquired business prior to acquisition.

Accelerated depreciation

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

Undesignated commodity derivative contracts

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

Selling, general, and administrative expenses

Restructuring and other strategic business development costs

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

Net gain (loss) on foreign currency derivative contracts

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

Transaction, integration, and other acquisition-related costs

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

Impairment of intangible assets

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

COVID-19 incremental costs

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

Other gains (losses)

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

Impairment of assets held for sale

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

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Gain (loss) on sale of business

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

Income (loss) from unconsolidated investments

We recognized an unrealized gain (loss) primarily from (i) the changes in fair value of our securities measured at fair value, (ii) equity in earnings (losses) from Canopy’s results of operations, (iii) equity losses from Canopy related to costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand (Fiscal 2021), and (iv) the increase in fair value resulting from the June 2019 modification of the terms of the November 2018 Canopy Warrants (Fiscal 2020). For additional information, refer to Notes 7 and 10.

Business segments

Net sales

			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions)
Beer			$	6,074.6					$	5,615.9					$	458.7					8		%
Wine and Spirits:
Wine			2,208.4						2,367.5						(159.1)						(7		%)
Spirits			331.9						360.1						(28.2)						(8		%)
Total Wine and Spirits			2,540.3						2,727.6						(187.3)						(7		%)
Canopy			378.6						290.2						88.4						30		%
Consolidation and Eliminations			(378.6)						(290.2)						(88.4)						(30		%)
Consolidated net sales			$	8,614.9					$	8,343.5					$	271.4					3		%

			Beer segment
			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales						$	6,074.6					$	5,615.9					$	458.7					8		%
Shipment volume
Total						334.6						311.9												7.3		%
Organic (1)						334.6						309.4												8.1		%
Depletion volume (1) (2)																								7.1		%

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

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

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

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			Wine and Spirits segment
			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions, branded product, 9-liter case equivalents)
Net sales						$	2,540.3					$	2,727.6					$	(187.3)					(7		%)
Shipment volume
Total						45.0						53.6												(16.0		%)
Organic (3) (4) (5)						45.0						47.3												(4.9		%)
U.S. Domestic						41.5						49.5												(16.2		%)
Organic U.S. Domestic (3) (4) (5)						41.5						43.4												(4.4		%)
U.S. Domestic depletion volume (2) (3) (4) (5)																								(2.8		%)

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

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

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

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

			Canopy segment Our ownership interest in Canopy allows us to exercise significant influence, but not control, and, therefore, we account for our investment in Canopy under the equity method. Amounts included for the Canopy segment represent 100% of Canopy’s reported results on a two-month lag. Accordingly, we recognized our share of Canopy’s earnings (losses) from January through December 2020, in our Fiscal 2021 results and January through December 2019, in our Fiscal 2020 results. Although we own less than 100% of the outstanding shares of Canopy, 100% of the Canopy results are included and subsequently eliminated to reconcile to our consolidated financial statements. See “Income (loss) from unconsolidated investments” below for a discussion of Canopy’s net sales, gross profit (loss), selling, general, and administrative expenses, and operating income (loss).

Gross profit

			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions)
Beer			$	3,402.4					$	3,125.2					$	277.2					9		%
Wine and Spirits			1,115.2						1,189.0						(73.8)						(6		%)
Canopy			(14.1)						45.4						(59.5)						NM
Consolidation and Eliminations			14.1						(45.4)						59.5						NM
Comparable Adjustments			(51.6)						(162.3)						110.7						68		%
Consolidated gross profit			$	4,466.0					$	4,151.9					$	314.1					8		%

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			The increase in Beer is primarily due to $259.3 million of volume growth and the $69.7 million favorable impact from pricing, partially offset by $19.9 million of higher cost of product sold, $18.5 million decrease in gross profit due to the Ballast Point Divestiture, and $9.4 million of unfavorable product mix shift. The higher cost of product sold is largely due to $39.6 million increased operational costs and $3.8 million increased logistics costs, partially offset by $23.5 million of foreign currency transactional benefits. The increase in operational costs primarily consisted of (i) $32.3 million of higher material costs, largely attributable to glass, and (ii) $15.7 million of inflation and increased brewery compensation and benefits, partially offset by $20.4 million of favorable fixed cost absorption related to increased production in Fiscal 2021. The increase in logistics costs primarily consisted of $14.5 million increased transportation costs, partially offset by $11.8 million of decreased obsolescence driven by lower inventory levels as we replenished our distribution channels. Unfavorable product mix shift primarily resulted from increased sales of Corona Hard Seltzer, partially offset by a reduction in on-premise keg sales.

			The decrease in Wine and Spirits is largely due to a decrease of $90.0 million in gross profit due to the recent divestitures, $66.5 million higher cost of product sold, and $33.1 million of decline in branded wine and spirits volume, driven by the brands divested in January 2021, partially offset by $71.5 million of favorable product mix shift and the $51.1 million from favorable pricing. Higher cost of product sold was largely attributable to unfavorable fixed cost absorption including $28.6 million from decreased production levels at certain facilities in the second half of fiscal 2021 as a result of the 2020 U.S. wildfires, certain spirits packaging size obsolescence, increased winery compensation and benefits, as well as increased packaging costs, including glass and labels, partially offset by lower grape raw material costs.

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

Selling, general, and administrative expenses

			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions)
Beer			$	908.1					$	877.3					$	30.8					4		%
Wine and Spirits			492.8						480.6						12.2						3		%
Corporate Operations and Other			228.6						223.9						4.7						2		%
Canopy			1,481.9						731.2						750.7						NM
Consolidation and Eliminations			(1,481.9)						(731.2)						(750.7)						NM
Comparable Adjustments			35.6						40.0						(4.4)						(11		%)
Consolidated selling, general, and administrative expenses			$	1,665.1					$	1,621.8					$	43.3					3		%

			The increase in Beer is primarily due to an increase of $26.9 million in marketing spend that was largely driven by increased advertising resulting from planned investments to support the growth of our Mexican beer portfolio predominantly in the fourth quarter of Fiscal 2021.

			The increase in Wine and Spirits is primarily due to an increase of $8.6 million in marketing spend that was largely driven by an increased focus on eCommerce and digital marketing placement for our higher-end, higher-margin brands and a $5.9 million increase in general and administrative expenses. The increase in general and administrative expenses is driven by increased compensation and benefits, partially offset by a favorable impact from reduced travel driven by COVID-19 containment measures and certain cost saving initiatives.

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			The increase in Corporate Operations and Other is largely due to approximately a $15 million increase in compensation and benefits, $6 million of unfavorable foreign currency losses, and an increase of $2 million in charitable contributions, primarily driven by COVID-19 support efforts, partially offset by decreased insurance related costs of $17 million and $6 million of favorable impact from reduced travel driven by COVID-19 containment measures.

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

Operating income (loss)

			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions)
Beer			$	2,494.3					$	2,247.9					$	246.4					11		%
Wine and Spirits			622.4						708.4						(86.0)						(12		%)
Corporate Operations and Other			(228.6)						(223.9)						(4.7)						(2		%)
Canopy			(1,496.0)						(685.8)						(810.2)						NM
Consolidation and Eliminations			1,496.0						685.8						810.2						NM
Comparable Adjustments			(97.0)						(577.9)						480.9						83		%
Consolidated operating income (loss)			$	2,791.1					$	2,154.5					$	636.6					30		%

			The increase in Beer is primarily attributable to the strong volume growth within our Mexican beer portfolio and favorable pricing impact, partially offset by the increased marketing spend and higher cost of product sold.

			The decrease in Wine and Spirits was driven largely by the recent divestitures, the higher cost of product sold, and the decline in branded wine and spirits volume, partially offset by favorable impacts from product mix shift and pricing.

			As previously discussed, the Corporate Operations and Other increase in operating loss is due largely to the increase in compensation and benefits, unfavorable foreign currency losses, and increased charitable contributions, partially offset by decreased insurance related costs and the favorable impact from reduced travel.

Income (loss) from unconsolidated investments

General

			Fiscal 2021						Fiscal 2020						Dollar Change						Percent Change
(in millions)
Unrealized net gain (loss) on securities measured at fair value (1)			$	802.0					$	(2,126.4)					$	2,928.4					138		%
Equity in earnings (losses) from Canopy and related activities (2)			(679.0)						(575.9)						(103.1)						(18)		%
Equity in earnings (losses) from other equity method investees			27.3						33.3						(6.0)						(18		%)
Net gain (loss) on sale of unconsolidated investment			—						0.4						(0.4)						NM
			$	150.3					$	(2,668.6)					$	2,818.9					106		%

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(1) Fiscal 2020 includes an unrealized net loss from the changes in fair value of our securities measured at fair value of $3,302.4 million, partially offset by an $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification.

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

			Canopy segment Canopy net sales increased to $378.6 million for Fiscal 2021 from $290.2 million for Fiscal 2020. This increase of $88.4 million, or 30% is primarily attributable to an increase in other product offering sales and international medical sales, as well as additional Canadian recreational sales. The increase in other sales resulted from (i) the expansion of their U.S. distribution network for vaporizers sold by Storz & Bickel GmbH & Co. KG, (ii) beauty, skincare, wellness, and sleep product sales from their May 2019 acquisition of This Works Products Limited, and (iii) sales of sports nutrition beverages, mixes, protein, gum, and mints from their October 2019 acquisition of BioSteel. The increase in international medical sales largely resulted from Canopy’s April 2019 acquisition of C3. Canadian recreational sales benefited from the introductions of retail stores across Canada and cannabis-infused beverages. Canopy gross profit (loss) decreased to $(14.1) million for Fiscal 2021 from $45.4 million for Fiscal 2020. This decrease of $59.5 million is primarily driven by inventory write-downs related to its organizational and strategic review of their business and detailed evaluation of inventory. Canopy selling, general, and administrative expenses increased $750.7 million primarily from (i) their decision to close greenhouse facilities as well as other changes related to its organizational and strategic review of their business and (ii) expected credit losses on financial assets and related charges, partially offset by a reduction in stock-based compensation expense. The combination of these factors were the main contributors to the increase in operating loss of $810.2 million.

Interest expense

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

(Provision for) benefit from income taxes

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

• the recognition of a $547.4 million net income tax benefit resulting from the remeasurement of our deferred tax assets for Fiscal 2020 in connection with the September 2019 enactment of tax reform in Switzerland,

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

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

For additional information, refer to Note 13.

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

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Net income (loss) attributable to CBI

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

Liquidity and Capital Resources

General

Our primary source of liquidity has been cash flow from operating activities. Our ability to consistently generate robust cash flow from our operations is one of our most significant financial strengths, it enables us to invest in our people and brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock. Our largest use of cash in our operations is for purchasing and carrying inventories and carrying seasonal accounts receivable. Historically, we have used this cash flow to repay our short-term borrowings and fund capital expenditures. Additionally, our commercial paper program is used to fund our short-term borrowing requirements and to maintain our access to the capital markets. We use our short-term borrowings, including our commercial paper program, to support our working capital requirements and capital expenditures. COVID-19 has negatively impacted the global economy and financial markets. A prolonged impact could interfere with our ability to access sources of liquidity or at favorable rates and to generate sufficient operating cash flows. We also have used opportunities to defer some payments including certain payroll taxes under the CARES Act afforded to us during the pandemic.

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

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

Cash flows

			Fiscal 2021						Fiscal 2020						Dollar Change
(in millions)
Net cash provided by (used in):
Operating activities			$	2,806.5					$	2,551.1					$	255.4
Investing activities			(87.9)						(531.0)						443.1
Financing activities			(2,346.6)						(2,031.4)						(315.2)
Effect of exchange rate changes on cash and cash equivalents			7.2						(0.9)						8.1
Net increase (decrease) in cash and cash equivalents			$	379.2					$	(12.2)					$	391.4

Operating activities

The increase in net cash provided by operating activities for Fiscal 2021 is largely due to strong cash flow from the Beer segment driven primarily by the segment’s solid operating results, combined with the timing of collections for recoverable value-added taxes. Net cash provided by operating activities also benefited from reduced inventories for the Wine and Spirits segment as a result of the 2020 U.S. wildfires. The increase in net

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

Investing activities

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

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

						Investments						Acquisitions						Divestitures
Fiscal 2021
						● May 2020 Canopy Investment						● Copper & Kings						● Paul Masson Grande Amber Brandy
						● Booker Vineyard						● Empathy Wines						● Wine and Spirits Divestiture
																		● Nobilo Wine
																		● Concentrates and high-color concentrates
																		● Ballast Point
Fiscal 2020
												● Nelson’s Green Brier						● Black Velvet Canadian Whisky

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

Financing activities

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

			Fiscal 2021						Fiscal 2020						Dollar Change
(in millions)
Net proceeds from (payments of) debt, current and long-term, and related activities			$	(1,787.8)					$	(1,464.8)					$	(323.0)
Dividends paid			(575.0)						(569.2)						(5.8)
Purchases of treasury stock			—						(50.0)						50.0
Net cash provided by stock-based compensation activities			51.2						63.9						(12.7)
Distributions to noncontrolling interests			(35.0)						—						(35.0)
Payment of contingent consideration			—						(11.3)						11.3
Net cash provided by (used in) financing activities			$	(2,346.6)					$	(2,031.4)					$	(315.2)

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Debt

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

						Debt repayment						Debt issuance

Bank facilities

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

In March 2020, we entered into the Term Loan Restatement Agreement and the 2020 Term Loan Restatement Agreement, that amended and restated the Term Credit Agreement and the 2019 Term Credit Agreement, respectively. These new agreements each resulted in (i) the removal of the subsidiary guarantees and termination of the respective guarantee agreements and (ii) the revision of the LIBOR successor rate provisions in each to permit the use of rates based on SOFR. We prepaid the remaining outstanding Three-Year Term Facility and Five-Year Term Facility borrowings under our 2020 Term Credit Agreement in Fiscal 2021.

Senior notes

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

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

General

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

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

Additionally, we have a commercial paper program which provides for the issuance of up to an aggregate principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2020 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our 2020 Credit Agreement.

We do not have purchase commitments from buyers for our commercial paper and, therefore, our ability to issue commercial paper is subject to market demand. If the commercial paper market is not available to us for any reason when commercial paper borrowings mature, we will utilize unused commitments under our revolving credit facility under our 2020 Credit Agreement to repay commercial paper borrowings. We do not expect that fluctuations in demand for commercial paper will affect our liquidity given our borrowing capacity available under our revolving credit facility under our 2020 Credit Agreement.

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

			Remaining Borrowing Capacity
			February 28, 2021						April 14, 2021
(in millions)
Revolving credit facility (1)			$	1,988.3					$	1,988.4

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

The financial institutions participating in our 2020 Credit Agreement have complied with prior funding requests and we believe they will comply with any future funding requests. However, there can be no assurances that any particular financial institution will continue to do so.

We and our subsidiaries are subject to covenants that are contained in our 2020 Credit Agreement, including those restricting the incurrence of additional indebtedness, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a

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

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

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

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

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

Common stock dividends

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

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

Share Repurchase Program

Our Board of Directors has authorized the repurchase of up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2018 Authorization and the repurchase of up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2021 Authorization. Shares repurchased under the 2018 Authorization have become treasury shares. No shares were repurchased during the fourth quarter of fiscal 2021.

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

									Class A Common Shares
			Repurchase Authorization						Dollar Value of Shares Repurchased						Number of Shares Repurchased
(in millions, except share data)
2018 Authorization			$	3,000.0					$	1,045.9					4,897,605
2021 Authorization			$	2,000.0					$	—					—

Share repurchases under the 2018 Authorization and 2021 Authorization may be accomplished at management’s discretion from time to time based on market conditions, our cash and debt position, and other factors as determined by management. Shares may be repurchased through open market or privately negotiated transactions. We may fund future share repurchases with cash generated from operations and/or proceeds from borrowings. Any repurchased shares will become treasury shares.

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We currently expect to continue to repurchase shares in the future, but such repurchases are dependent upon our financial condition, results of operations, capital requirements, and other factors, including those set forth under Item 1A “Risk Factors” of this Form 10-K.

For additional information, refer to Note 17.

Capital Resources

We have maintained adequate liquidity to meet working capital requirements, fund capital expenditures, and repay scheduled principal and interest payments on debt. Absent deterioration of market conditions, we believe that cash flows from operating activities and financing activities, primarily short-term borrowings, will provide adequate resources to satisfy our working capital, scheduled principal and interest payments on debt, anticipated dividend payments, periodic share repurchases, and anticipated capital expenditure requirements for both our short-term and long-term capital needs. As of February 28, 2021, our $460.6 million cash and cash equivalent balance reflects the recent sale of a portion of our wine and spirits business.

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

			Short-term payments						Long-term payments						Total
(in millions)
Contractual obligations:
Long-term debt (excluding unamortized debt issuance costs and unamortized discounts)			$	29.2					$	10,490.7					$	10,519.9
Interest payments on long-term debt (1)			$	386.7					$	3,707.6					$	4,094.3
Operating leases			$	84.6					$	574.7					$	659.3
Other long-term liabilities (2)			$	49.0					$	207.7					$	256.7
Purchase obligations
Raw materials and supplies			$	994.0					$	3,069.8					$	4,063.8
Contract services			$	189.1					$	627.4					$	816.5
Capital expenditures (3)			$	140.0					$	103.7					$	243.7
In-process inventories			$	30.9					$	44.4					$	75.3
Other purchase obligations			$	8.4					$	18.0					$	26.4
Other:
Return value to shareholders (4)			$	580.0					$	3,225.8					$	3,805.8
Investments in businesses (5)			$	2.0					$	165.3					$	167.3

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

(2)Other long-term liabilities do not include payments for unrecognized tax benefit liabilities of $204.7 million due to the uncertainty of the timing of future cash flows associated with these unrecognized tax benefit liabilities. In addition, other long-term liabilities do not include expected payments for interest and penalties associated with unrecognized tax benefit liabilities as amounts are not material. For a detailed discussion of these items, refer to Note 13.

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

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

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

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Capital expenditures

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

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

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

Critical accounting policies and estimates

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

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

Canopy investment

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

Debt securities, Convertible – estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on market spreads using bond data as of the valuation date. This valuation model uses various market-based inputs,

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

• Goodwill and other intangible assets. Goodwill and other intangible assets are classified into three categories: (i) goodwill, (ii) intangible assets with definite lives subject to amortization, and (iii) intangible assets with indefinite lives not subject to amortization. In estimating the fair value of the reporting units, management must make assumptions and projections regarding items such as future cash flows, revenues, earnings, and other factors. The assumptions used reflect management’s estimates and are based on historical trends, projections and assumptions, including expectations of future economic and competitive conditions that are used in current strategic operating plans, however, are subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, we may be required to recognize an impairment loss for these assets. The recognition of any resulting impairment loss could have a material adverse impact on our financial statements.

We perform annual impairment tests and re-evaluate the useful lives of other intangible assets with indefinite lives at the annual impairment test measurement date of January 1 or when circumstances arise that indicate a possible impairment or change in useful life might exist.

Goodwill – Our reporting units with goodwill include the Beer segment and the Wine and Spirits segment. In the fourth quarter of fiscal 2021, we performed our annual goodwill impairment analysis using the quantitative assessment. No indication of impairment was noted for any of our reporting units, as the estimated fair value of each of our reporting units with goodwill exceeded their carrying value. Based on this analysis, the reporting unit with the lowest amount of estimated fair value in excess of its carrying value was the Wine and Spirits reporting unit with approximately 108% excess fair value. For Fiscal 2020 and Fiscal 2019, as a result of our annual goodwill impairment analyses, we concluded that there were no indications of impairment for either of our reporting units.

The most significant assumptions used in the discounted cash flow calculation to determine the estimated fair value of our reporting units in connection with the impairment testing are: (i) the discount rate, (ii) the expected long-term growth rate, and (iii) the annual cash flow projections. As of January 1, 2021, if we used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used annual cash flow projections that were 100 basis points lower in our impairment testing of goodwill, then the changes individually would not have resulted in the carrying value of the respective reporting unit’s net assets, including its goodwill, exceeding its estimated fair value. Therefore, we did not have any indication of potential impairment.

Other intangible assets – consist primarily of customer relationships and trademarks obtained through business acquisitions. Customer relationships are amortized over their estimated useful lives. The trademarks that were determined to have indefinite useful lives are not amortized. Using the quantitative assessment, our trademarks are evaluated for impairment by comparing the carrying value of the trademarks to their estimated fair value. The estimated fair value of trademarks is calculated based on an income approach using the relief from royalty method.

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

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increased rate of revenue decline and increased competition, indicated that it was more likely than not the fair value of our indefinite-lived intangible asset associated with the Ballast Point craft beer trademarks might be below its carrying value. Accordingly, we performed a quantitative assessment for impairment. As a result of this assessment, the Ballast Point craft beer trademark asset recognized an impairment loss of $11.0 million. For the fourth quarter of fiscal 2019, the Beer segment’s Ballast Point business recognized a trademark impairment loss of $108.0 million in connection with certain continuing negative trends within its craft beer portfolio and a change in strategy for this portfolio focused on improving profitability by rationalizing the number of product offerings while targeting distribution growth in select strategic markets. Refer to Note 7 for further discussion.

The most significant assumptions used in the relief from royalty method to determine the estimated fair value of intangible assets with indefinite lives in connection with impairment testing are: (i) the estimated royalty rate, (ii) the discount rate, (iii) the expected long-term growth rate, and (iv) the annual revenue projections. As of January 1, 2021, if we used a royalty rate that was 50 basis points lower or used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used annual revenue projections that were 100 basis points lower in our impairment testing of intangible assets with indefinite lives, then each change individually would not have resulted in any unit of accounting’s carrying value exceeding its estimated fair value.

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

For Fiscal 2021, our estimate of fair value for the Paul Masson Divestiture, the Wine and Spirits Divestitures, the Concentrate Business Divestiture, and the Ballast Point Divestiture was determined based on the expected proceeds from the transactions. The components sold were a part of the Wine and Spirits or Beer segment and were included in those reporting units through the date of divestiture. Goodwill was allocated to the assets held for sale based on the relative fair value of the businesses being sold compared to the relative fair value of the reporting unit. Goodwill not allocated to assets associated with the respective divestitures remained in the wine and spirits or beer reporting unit.

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

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

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decreases to income tax expense in the period in which they are determined. Changes in current estimates, if significant, could have a material adverse impact on our financial statements.

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

Change in Accounting Guidance

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

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