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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             

Commission file number 001-08495
stz-20220228_g1.jpg
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware16-0716709
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
207 High Point Drive, Building 100, Victor, New York 14564
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code  (585) 678-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A Common StockSTZNew York Stock Exchange
Class B Common StockSTZ.BNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes      No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes      No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing sales prices of the registrant’s Class A and Class B Common Stock as reported on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter was $33.3 billion.
The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April 14, 2022, is set forth below:
ClassNumber of Shares Outstanding
Class A Common Stock, par value $.01 per share162,762,867
Class B Common Stock, par value $.01 per share23,205,885
Class 1 Common Stock, par value $.01 per share2,248,714
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of Constellation Brands, Inc. to be issued for the 2022 Annual Meeting of Stockholders are incorporated by reference in Part III to the extent described therein.


TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS
DEFINED TERMS
PART I
Item 1.Business
Item 1A.Risk Factors
Item 1B.Unresolved Staff CommentsNA
Item 2.Properties
Item 3.Legal Proceedings
Item 4.Mine Safety DisclosuresNA
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Item 6.[Reserved]NA
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Item 8.Financial Statements and Supplementary Data
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNA
Item 9A.Controls and Procedures
Item 9B.Other InformationNA
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent InspectionsNA
PART III
Item 10.Directors, Executive Officers, and Corporate Governance
Item 11.Executive Compensation
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.Certain Relationships and Related Transactions, and Director Independence
Item 14.Principal Accountant Fees and Services
PART IV
Item 15.Exhibits and Financial Statement Schedules
Item 16.Form 10-K Summary
SIGNATURES




This Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. All statements other than statements of historical fact included in this Form 10-K are forward-looking statements, including without limitation:

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, innovation strategy and new products, future financial position, future net sales and expected volume and inventory trends, future marketing spend, future effective tax rates and anticipated tax liabilities, prospects, plans, and objectives of management;
the anticipated availability of water, agricultural and other raw materials, and packaging materials;
the COVID-19 pandemic;
our ESG strategy, sustainability initiatives, environmental stewardship targets, and human capital and DEI objectives and goals;
the potential impact to supply, production levels, and costs due to global supply chain logistics and transportation;
expected or potential actions of third parties, including possible changes to laws, rules, and regulations;
anticipated inflationary pressures and our responses thereto;
expected purchase accounting allocations;
the future expected balance of supply and demand for and inventory levels of our products;
the refinement of our wine and spirits portfolio;
the Wine and Spirits Divestitures, including potential amounts of contingent consideration;
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, optimization, and/or construction activities, including anticipated scope, capacity, costs, capital expenditures, timeframes for completion, discussions with government officials in Mexico, and potential future impairment of non-recoverable brewery construction assets and other costs and expenses.
The statements regarding:
the volatility of the fair value of our investment in Canopy measured at fair value;
our activities surrounding our investment in Canopy;
Canopy’s expectations and the transaction with Acreage;
the timing and source of funds for operating activities and exercises of the November 2018 Canopy Warrants, if any;
a potential future impairment of our Canopy Equity Method Investment; and
our future ownership level in Canopy and our future share of Canopy’s reported earnings and losses.
The statements regarding our targeted net leverage ratio.
The statements regarding the future reclassification of net gains from AOCI.
The statements regarding the impact of any potential common stock declassification, including in connection with the Proposal.

Constellation Brands, Inc. FY 2022 Form 10-K
#WORTHREACHINGFOR    I    i

When used in this Form 10-K, the words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Form 10-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and markets in which we compete, our forward-looking statements contained in this Form 10-K are also subject to the risk, uncertainty, and possible variance from our current expectations regarding:

water, agricultural and other raw material, and packaging material supply, production, and/or shipment difficulties which could adversely affect our ability to supply our customers;
the ability to respond to anticipated inflationary pressures, including reductions in consumer discretionary income and our ability to pass along rising costs through increased selling prices;
the actual impact to supply, production levels, and costs from global supply chain logistics, transportation challenges, wildfires, and severe weather events, due to, among other reasons, actual supply chain and transportation performance and the actual severity and geographical reach of wildfires and severe weather events;
the actual balance of supply and demand for our products and percentage of our portfolio distributed through any particular distributor due to, among other reasons, actual raw material and water supply, actual shipments to distributors, and actual consumer demand;
the actual demand, net sales, channel proportions, and volume trends for our products due to, among other reasons, actual shipments to distributors and actual consumer demand;
beer operations expansion, optimization, and/or construction activities, scope, capacity, costs (including impairments), capital expenditures, and timing due to, among other reasons, market conditions, our cash and debt position, receipt of required regulatory approvals by the expected dates and on the expected terms, results of discussions with government officials in Mexico, the actual amount of non-recoverable brewery construction assets and other costs and expenses, and other factors as determined by management;
the duration and impact of the COVID-19 pandemic, including but not limited to the impact and severity of new variants, vaccine efficacy and immunization rates, the closure of non-essential businesses, which may include our manufacturing facilities, and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while non-production employees work remotely;
the impact of the military conflict in Ukraine and associated geopolitical tensions and responses, including on inflation, supply chains, commodities, energy, and cyber-security;
the amount, timing, and source of funds for any share repurchases or future exercises of the November 2018 Canopy Warrants, if any, which may vary due to market conditions; our cash and debt position; the impact of the beer operations expansion, optimization, and/or construction activities; the impact of our investment in Canopy; and other factors as determined by management from time to time;
the amount and timing of future dividends which are subject to the determination and discretion of our Board of Directors and may be impacted 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;
the fair value of our investment in Canopy due to market and economic conditions in Canopy’s markets and business locations;
the accuracy of management’s projections relating to the Canopy investment due to Canopy’s actual results and market and economic conditions;
the timeframe and amount of any potential future impairment of our Canopy Equity Method Investment if our expectations about Canopy’s prospective results and cash flows decline which could be influenced by various factors including adverse market conditions or if Canopy records a significant impairment of goodwill or intangible assets or other long-lived assets, makes significant asset sales, or has changes in senior management;
the amount of contingent consideration, if any, received in the Wine and Spirits Divestitures which will depend on actual future brand performance;
Constellation Brands, Inc. FY 2022 Form 10-K
#WORTHREACHINGFOR    I    ii

the expected impacts of wine and spirits portfolio refinement activities;
purchase accounting with respect to any transaction, or the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
any impact of U.S. federal laws on Canopy Strategic Transactions or upon the implementation of such Canopy Strategic Transactions, or the impact of any Canopy Strategic Transaction upon our future ownership level in Canopy or our future share of Canopy’s reported earnings and losses;
whether a definitive agreement in relation to the Proposal will be entered into, what the ultimate terms of any such agreement may be, whether the required stockholder approval would be obtained, and the impact of any such transaction on our shares outstanding and associated financial metrics; and
our targeted net leverage ratio due to market conditions, our ability to generate cash flow at expected levels, and our ability to generate expected earnings.

Additional important factors that could cause actual results to differ materially from those set forth in or implied by our forward-looking statements contained in this Form 10-K are those described in Item 1A. “Risk Factors” and elsewhere in this report and in our other filings with the SEC.

Market positions and industry data discussed in this Form 10-K are as of calendar 2021 and have been obtained or derived from industry and government publications and our estimates. The industry and government publications include: Beer Marketers Insights; Beverage Information Group; Growers Network; Impact Databank Review and Forecast; International Wine and Spirits Research (IWSR); IRI; Beer Institute; and National Alcohol Beverage Control Association. We have not independently verified the data from the industry and government publications. Unless otherwise noted, all references to market positions are based on equivalent unit volume.
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Defined Terms

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We use terms in this Form 10-K and in our Notes that are specific to us or are abbreviations that may not be commonly known or used.
TermMeaning
$U.S. dollars
2.25% July 2021 Senior Notes$1,000.0 million principal amount of 2.25% senior notes issued in July 2021
2.65% November 2017 Senior Notes$700.0 million principal amount of 2.65% senior notes issued in November 2017 and redeemed in August 2021, prior to maturity
2.70% May 2017 Senior Notes$500.0 million principal amount of 2.70% senior notes issued in May 2017 and redeemed in August 2021, prior to maturity
2018 Authorizationauthority to repurchase up to $3.0 billion of our Class A Stock and Class B Stock, authorized in January 2018 by our Board of Directors
2019 Term Credit Agreementa term loan credit agreement, dated as of June 28, 2019, consisting of the Five-Year Term Facility, now superseded by the 2020 Term Credit Agreement and the June 2021 Term Credit Agreement
2020 Credit Agreementninth amended and restated credit agreement, dated as of March 26, 2020, provided for an aggregate revolving credit facility of $2.0 billion, now superseded by the 2022 Credit Agreement
2020 Restatement Agreementrestatement agreement, dated as of March 26, 2020, that amended and restated our eighth amended and restated credit agreement, dated as of September 14, 2018, which was our then-existing senior credit facility
2020 Term Credit Agreementamended and restated term credit agreement, dated as of March 26, 2020, now repaid in full
2020 Term Loan Restatement Agreementrestatement agreement, dated as of March 26, 2020, that amended and restated the 2019 Term Credit Agreement, resulting in the March 2020 Term Credit Agreement
2020 U.S. wildfiressignificant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest
2021 Authorizationauthority to repurchase up to $2.0 billion of our Class A Stock and Class B Stock, authorized in January 2021 by our Board of Directors
2022 Credit Agreementtenth amended and restated credit agreement, dated as of April 14, 2022, provides for an aggregate revolving credit facility of $2.25 billion
2022 Restatement Agreementrestatement agreement, dated as of April 14, 2022, that amended and restated the 2020 Credit Agreement, which was our then-existing senior credit facility as of February 28, 2022
2022 Term Credit AgreementMarch 2020 Term Credit Agreement, inclusive of amendments dated as of June 10, 2021, and April 14, 2022
3-tier
distribution channel where products are sold to a distributor (wholesaler) who then sells to a retailer; the retailer sells the products to a consumer
3-tier eCommercedigital commerce experience for our consumers to purchase beverage alcohol from retailers
ABAalternative beverage alcohol
AcreageAcreage Holdings, Inc.
Acreage Financial Instrumenta call option for Canopy to acquire 70% of the shares of Acreage at a fixed exchange ratio and 30% at a floating exchange ratio
Acreage TransactionCanopy’s intention to acquire Acreage upon U.S. federal cannabis legalization, subject to certain conditions
Administrative AgentBank of America, N.A., as administrative agent for applicable senior credit facilities and term credit agreements
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TermMeaning
AOCIaccumulated other comprehensive income (loss)
ASR
accelerated share repurchase agreement with a third-party financial institution
Austin Cocktailswe made an initial investment in the Austin Cocktails business and subsequently acquired the remaining ownership interest
Ballast Point Divestituresale of Ballast Point craft beer business, including a number of its associated production facilities and brewpubs
Black Velvet Divestiture
sale of Black Velvet Canadian Whisky business and the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility, and related inventory
BRG(s)business resource group(s)
C$Canadian dollars
Canopy
we made an investment in Canopy Growth Corporation, an Ontario, Canada-based public company
Canopy Debt Securitiesconvertible debt securities issued by Canopy
Canopy Equity Method Investment
November 2017 Canopy Investment, November 2018 Canopy Investment, and May 2020 Canopy Investment, collectively
Canopy Strategic Transaction(s)any potential acquisition, divestiture, investment, or other similar transaction made by Canopy, including but not limited to the Acreage Transaction
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CB International
CB International Finance S.à r.l., a wholly-owned subsidiary of ours
CDCCenters for Disease Control and Prevention
Class 1 Stockour Class 1 Convertible Common Stock, par value $0.01 per share
Class A Stockour Class A Common Stock, par value $0.01 per share
Class B Stockour Class B Convertible Common Stock, par value $0.01 per share
Coca-ColaThe Coca-Cola Company
CODMchief operating decision maker
Comparable Adjustmentscertain items affecting comparability that have been excluded by management
Concentrate Business Divestiture
sale of certain brands used in our concentrates and high-color concentrate business, and certain intellectual property, inventory, interests in certain contracts, and other assets
Copper & Kings
Copper & Kings American Brandy Company, acquired by us
CPGconsumer packaged goods
CrownCrown Imports LLC, a wholly-owned subsidiary of ours
CSRcorporate social responsibility
DEIdiversity, equity, and inclusion
Depletionsrepresent U.S. domestic distributor shipments of our respective branded products to retail customers, based on third-party data
DGCLGeneral Corporation Law of the State of Delaware
DTCdirect-to-consumer; a digital commerce experience for consumers to purchase directly from brand websites with inventory coming straight from the supplier
EHSEnvironmental, Health, & Safety
Empathy Wines
Empathy Wines business, including a digitally-native wine brand, acquired by us
Employee Stock Purchase Planthe Company’s employee stock purchase plan, established in 1989, under which 9,000,000 shares of Class A Stock may be issued
ERPenterprise resource planning system
ESGenvironmental, social, and governance
Exchange ActSecurities Exchange Act of 1934, as amended
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TermMeaning
FASBFinancial Accounting Standards Board
Fiscal 2020
the Company’s fiscal year ended February 29, 2020
Fiscal 2021
the Company’s fiscal year ended February 28, 2021
Fiscal 2022
the Company’s fiscal year ended February 28, 2022
Fiscal 2023
the Company’s fiscal year ending February 28, 2023
Fiscal 2024the Company’s fiscal year ending February 29, 2024
Fiscal 2025the Company’s fiscal year ending February 28, 2025
Fiscal 2026the Company’s fiscal year ending February 28, 2026
Fiscal 2027the Company’s fiscal year ending February 28, 2027
Five-Year Term Facilitya five-year term loan facility under the 2022 Term Credit Agreement
Form 10-Kthis Annual Report on Form 10-K for Fiscal 2022 unless otherwise specified
GalloE. & J. Gallo Winery
GHGgreenhouse gas
GILTIglobal intangible low-taxed income
Glass Plantglass production plant in Nava operated through an equally-owned joint venture with Owens-Illinois
June 2019 Warrant ModificationJune 2019 modification of the terms of the warrants and certain other rights originally obtained in November 2018 which gave us the option to purchase 139.7 million common shares of Canopy
June 2019 Warrant Modification Lossour share of Canopy’s additional loss resulting from the June 2019 Warrant Modification
June 2021 Term Credit AgreementMarch 2020 Term Credit Agreement, inclusive of amendment dated as of June 10, 2021
LenderBank of America, N.A., as lender for the term credit agreement
LIBORLondon Interbank Offered Rate
Lingua FrancaLingua Franca, LLC business, acquired by us
Long-Term Stock Incentive Plana stockholder-approved omnibus incentive plan that provides the ability to grant various types of equity and cash awards to eligible plan participants
March 2020 Term Credit Agreementamended and restated term loan credit agreement, dated as of March 26, 2020, that provided for aggregate facilities of $491.3 million, consisting of the Five-Year Term Facility
May 2020 Canopy InvestmentMay 2020 exercise of the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7. of this Form 10-K
Mexicali Brewery
suspended brewery construction project located in Mexicali, Baja California, Mexico
Mexico Beer Projectsexpansion, optimization, and/or construction activities at the Obregon Brewery, Nava Brewery, and Southeast Mexico Brewery
Mission Bell
Mission Bell Winery in Madera, California
M&TManufacturers and Traders Trust Company
My Favorite Neighborwe made an initial investment in My Favorite Neighbor, LLC and subsequently acquired the remaining ownership interest
NAnot applicable
NasdaqThe Nasdaq Global Select Market
NavaNava, Coahuila, Mexico
Nava Brewerybrewery located in Nava
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TermMeaning
Nelson’s Green Brierwe made an initial investment in Nelson’s Green Brier Distillery, LLC and subsequently increased our ownership interest
Net salesgross sales less promotions, returns and allowances, and excise taxes
NMnot meaningful
Nobilo Wine Divestiture
sale of New Zealand-based Nobilo Wine brand and certain related assets
Note(s)notes to the consolidated financial statements under Item 8. of this Form 10-K
November 2017 Canopy Investmentour initial investment for 18.9 million common shares of Canopy
November 2017 Canopy Warrantswarrants which gave us the option to purchase 18.9 million common shares of Canopy, exercised May 1, 2020
November 2018 Canopy Investmentour incremental investment for 104.5 million common shares of Canopy
November 2018 Canopy Transaction
November 2018 Canopy Investment and the purchase by us of the November 2018 Canopy Warrants, collectively
November 2018 Canopy WarrantsTranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively
NPDnew product development
NYSENew York Stock Exchange
Obregon
Obregon, Sonora, Mexico
Obregon Brewery
brewery located in Obregon
OCIother comprehensive income (loss)
Owens-IllinoisO-I Glass, Inc., the ultimate parent of the company with which we have an equally-owned joint venture to operate the Glass Plant
Paul Masson Divestiture
sale of Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts
Proposal
non-binding proposal from the Sands family and entities controlled by members of the Sands family to declassify our common stock
Proxy StatementProxy Statement for Fiscal 2022 to be issued in connection with the 2022 Annual Meeting of Stockholders of our Company
RTDready-to-drink
Scope 1
direct GHG emissions from sources that are owned or controlled by the company, such as emissions associated with furnaces or vehicles
Scope 2
indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
SKUstock-keeping unit, a scannable bar code, most often seen printed on product labels in a retail store
SOFR
secured overnight financing rate administered by the Federal Reserve Bank of New York
Southeast Mexico Brewerya new brewery intended to be located in Southeast Mexico in the state of Veracruz
SOXSection 404 of the Sarbanes-Oxley Act of 2002
TCJ ActTax Cuts and Jobs Act
Term Loan Restatement Agreementrestatement agreement, dated as of March 26, 2020, that amended and restated our term credit agreement dated as of September 14, 2018, resulting in the 2020 Term Credit Agreement
THCtetrahydrocannabinol
Tranche A Warrantswarrants which give us the option to purchase 88.5 million common shares of Canopy expiring November 1, 2023
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TermMeaning
Tranche B Warrantswarrants which give us the option to purchase 38.4 million common shares of Canopy expiring November 1, 2026
Tranche C Warrantswarrants which give us the option to purchase 12.8 million common shares of Canopy expiring November 1, 2026
TSX
Toronto Stock Exchange
U.S.United States of America
U.S. GAAPgenerally accepted accounting principles in the U.S.
VWAP Exercise Price
volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date
WHOWorld Health Organization
Wine and Spirits Divestiture
sale of 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
Wine and Spirits Divestitures
Wine and Spirits Divestiture and the Nobilo Wine Divestiture, collectively

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Item 1. Business

Introduction

We are an international producer and marketer of beer, wine, and spirits with operations in the U.S., Mexico, New Zealand, and Italy with powerful, consumer-connected, high-quality brands like Corona Extra, Modelo Especial, the Robert Mondavi Brand Family, Kim Crawford, Meiomi, The Prisoner Wine Company, and High West. In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers. We are the third-largest beer company and continue to strengthen our leadership position as the #1 high-end beer supplier and the #1 share gainer across the U.S. beer market. Within wine and spirits, we are making solid progress in transforming our brand portfolio to shift to a higher-end focused business to deliver net sales growth and margin expansion. The strength of our brands makes us a supplier of choice to many of our consumers and our customers, which include wholesale distributors, retailers, and on-premise locations. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities.

Our mission is to build brands that people love. We place a relentless focus on the consumer in our pursuit to deliver what’s next and create new experiences that elevate human connections. We believe it is a mission that is Worth Reaching For. It is worth our dedication, hard work, and the bold, calculated risks we take to deliver more for our employees, consumers, trade partners, stockholders, and communities in which we live and work. It is what has made us one of the fastest-growing large CPG companies in the U.S. at retail. Our core values guide our pursuits:

People – True strength is achieved when everyone has a voice. That is why we build our culture on a foundation that encourages inclusion and diversity of thought, where everyone feels empowered to bring their true selves and different points of views to drive us forward
Customers – We are relentless to anticipate what consumers want today, tomorrow, and well into the future
Entrepreneurship – As an industry leader, we act with a bold, calculated approach to realize our vision and unlock new growth opportunities
Quality – Our promise is to pursue quality in our process and products by continuously enhancing what we do and how we do it
Integrity – It is about more than achieving goals. How we achieve them is just as important. We act with high moral and ethical standards and always do the right thing, even when it is the hard thing

Headquartered in Victor, New York, we are a Delaware corporation incorporated in 1972, as the successor to a business founded in 1945.

Strategy

Our overall strategic vision is to consistently deliver industry-leading total stockholder returns over the long-term through a focus on these key pillars:

continue building strong brands people love with advantaged routes to market;
build a culture that is consumer-obsessed and leverages robust innovation capabilities to stay on the forefront of consumer trends; and
deliver on impactful ESG initiatives that we believe are not only good business, but also good for the world.

We will continue to strive for success by ensuring consumer-led decision making drives all aspects of our business; building a diverse talent pipeline with best-in-class people development; investing in data systems, architecture, and infrastructure that enables our business; and exemplifying intentional and proactive balance sheet management. We place focus on positioning our portfolio on higher-margin, higher-growth categories of the beverage alcohol industry to align with consumer-led premiumization trends, which we believe will continue to drive faster growth rates across beer, wine, and spirits. To continue capitalizing on consumer-led premiumization trends, become more competitive, and grow our business, we have employed a strategy dedicated to organic growth and supplemented by targeted investments and acquisitions. We also believe a key component to driving
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faster growth rates is to invest and strengthen our leadership position within the DTC and 3-tier eCommerce channels. As a result of this strategy, we have realized impacts on each segment of our business.

In our beer business, we focus on upholding our leadership position in the high-end of the U.S. beer market through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth. We are investing in the next increment of capacity additions required to sustain our momentum. We continue to focus on consumer-led innovation by creating new line extensions behind celebrated, trusted brands and package formats that meet emerging needs.

In our wine and spirits business, we continue to focus on higher-end brands, improving margins, and creating operating efficiencies. We continue to refine our portfolio primarily through the acquisition of higher-margin, higher-growth wine and spirits brands. We recently reorganized this business into two distinct commercial teams, one focused on our fine wine and craft spirits brands and the other focused on our mainstream and premium brands. While each team has its own distinct strategy, both remain aligned to the goal of accelerating performance by growing net sales and expanding margins. In addition, within the DTC and 3-tier eCommerce channels, we aim to have these channels collectively account for 20% of our wine and spirits business over time.

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. Our relationship with Canopy is designed to help position it to be successful in cannabis production, branding, and intellectual property.

For further information on our strategy, see “Overview” within MD&A.

Investments, acquisitions, and divestitures

In connection with executing our strategy as outlined above, during Fiscal 2022 we completed the following transactions:
DateStrategic Contribution
Wine and Spirits segment
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Lodi Distribution CenterDecember
2021
Acquisition of a previously leased distribution facility located in Lodi, California; consistent with our strategic focus to invest in infrastructure that enables our business to grow.
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My Favorite NeighborNovember
2021
Acquisition of super-luxury, DTC-focused wine business as well as certain wholesale sourced brands; supported our focus on consumer-led premiumization trends and meeting the evolving needs of our consumers.
For further information about our significant Fiscal 2022, Fiscal 2021, and Fiscal 2020 transactions, refer to (i) “Overview” within MD&A and (ii) Notes 2 and 5.

Business segments

We have four reportable segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate Operations and Other, and (iv) Canopy. The business segments reflect how our operations are managed, resources are allocated, operating performance is evaluated by senior management, and the structure of our internal financial reporting. 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 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 its results are included in the information below and subsequently eliminated to reconcile to our consolidated financial statements.
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We report net sales in two reportable segments, as Canopy is eliminated in consolidation, as follows:
For the Years Ended
February 28,
2022
February 28,
2021
(in millions)
Beer$6,751.6 $6,074.6 
Wine and Spirits:
Wine1,819.3 2,208.4 
Spirits249.8 331.9 
Total Wine and Spirits2,069.1 2,540.3 
Canopy444.3 378.6 
Consolidation and Eliminations(444.3)(378.6)
Consolidated Net Sales$8,820.7 $8,614.9 
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Beer segment
We are the #1 brewer and seller of imported beer in the U.S. market. We are also the leader in the high-end segment of the U.S. beer market, which includes the imported, craft, and ABA categories. We have the exclusive right to import, market, and sell the following Mexican brands in all 50 states of the U.S.:
Corona Brand FamilyModelo Brand FamilyOther Import Brands
Corona Extra
Corona Light
Modelo Especial
Pacifico
Corona Premier
Corona Refresca
Modelo Negra
Victoria
Corona Familiar
Corona Hard Seltzer
Modelo Chelada

We have nine of the 15 top-selling imported beer brands in the U.S. Modelo Especial is the best-selling imported beer, second best-selling beer overall, and the fastest-growing major imported beer brand in the U.S. Corona Extra is the second largest imported beer and fifth best-selling beer overall in the U.S.

In the past nine years we have increased our production capacity in Mexico by fourfold allowing us the opportunity to further expand our leadership position in the high-end segment of the U.S. beer market. Since the 2013 acquisition of the imported beer business, we have invested over $5.6 billion in the Mexico Beer Projects, with approximately $800 million during Fiscal 2022. In early Fiscal 2022, we completed part of a planned expansion project at the Obregon Brewery. This project increased our total production capacity to approximately 39 million hectoliters, which contributed to satisfying our medium-term capacity needs. We expect to spend an
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additional $5.0 billion to $5.5 billion over Fiscal 2023 through Fiscal 2026, with the majority of spend expected to occur in the first three fiscal years of that timeframe. Expansion, optimization, and/or construction activities continue under our Mexico Beer Projects to support expected future business needs. For further information about our Mexico Beer Projects, refer to (i) “Production” below, (ii) MD&A, and (iii) Note 7.

We are also building on the success of our leading import brand families through our innovation strategy. Our Modelo Chelada brands have become an important growth contributor to our portfolio as the leading chelada in the U.S. beer market. We continued to build on this successful innovation platform in Fiscal 2022 with a new entrant, Modelo Chelada Piña Picante, which was launched in August 2021 and is already a top share gainer among imported brands. To capitalize on the robust growth of the high-end ABA category we launched Corona Refresca in Fiscal 2020 and Corona Hard Seltzer in Fiscal 2021. In Fiscal 2022, we expanded Corona Hard Seltzer into new flavors and restaged our variety packs with consumer-preferred thematic offerings and enhanced flavor profiles. Additionally, we are continuing efforts focused on increasing distribution of products in can, draft, single-serve, and larger package size formats.

In December 2021, we entered into a brand authorization agreement with Coca-Cola in the U.S. to extend its FRESCA® brand into the beverage alcohol category for the anticipated launch of RTD vodka spritz and tequila paloma cocktails in Fiscal 2023. We intend to include the net sales and operating results of these products in our Beer segment.

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Wine and Spirits segment
We are a leading, higher-end wine and spirits company in the U.S. market, with a portfolio that includes higher-margin, higher-growth wine and spirits brands. Our wine portfolio is supported by grapes purchased from independent growers, primarily in the U.S. and New Zealand, and vineyard holdings in the U.S., New Zealand, and Italy. Our wine and spirits are primarily marketed in the U.S. and exported to Canada and other major world markets.

In the U.S., we have nine of the 100 top-selling high-end wine brands, with Meiomi and Kim Crawford achieving the fifth and eighth spots, respectively. Some of our well-known wine and spirits brands and portfolio of brands include:
Wine BrandsWine Portfolio of BrandsSpirits Brands
7 Moons
Meiomi
Charles Smith
Casa Noble
Mi CAMPO
Cook’s California Champagne
Mount Veeder
My Favorite Neighbor
Copper & Kings
Nelson’s Green Brier
Cooper & Thief
Ruffino
Robert Mondavi Winery
High West
SVEDKA
Crafters Union
SIMI
Schrader
Kim Crawford
The Dreaming Tree
The Prisoner Wine Company

In Fiscal 2022, our fine wine and craft spirits brands delivered solid growth, driven primarily by The Prisoner Wine Company brands and High West, as well as strong gains in our DTC, 3-tier eCommerce channels,
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hospitality, and international businesses. The focus for our mainstream and premium brands is on maintaining market share, while continuing to deliver growth through premium wine brands, such as Meiomi and Kim Crawford, consistent with our consumer-led premiumization strategy.

Over the last few years, we have been increasing our investment in support of on-trend product innovation as we believe this is one of the key drivers of overall beverage alcohol category growth. We have launched several innovations that are creating momentum and driving growth for the business, including varietal line extensions, such as The Prisoner cabernet sauvignon and chardonnay varietals, Woodbridge spirits barrel aged varietals, Meiomi cabernet sauvignon, and SVEDKA and High West pre-mixed cocktails in the RTD space. Additionally, we recently extended some of our well-known brands through betterment lines, such as Kim Crawford Illuminate, and new package formats, such as Woodbridge 3-liter box.

Corporate Operations and Other segment
The Corporate Operations and Other segment includes traditional corporate-related items including 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.

Canopy segment
The Canopy Equity Method Investment makes up the Canopy segment.

For further information regarding net sales and operating income (loss) of our business segments and geographic areas see Note 22.

Marketing and distribution

To focus on their respective product categories, build brand equity, and increase sales, we employ full-time, in-house marketing, sales, and customer service functions for our Beer and Wine and Spirits segments. These functions engage in a range of marketing activities and strategies, including market research, consumer and trade advertising, price promotions, point-of-sale materials, event sponsorship, on-premise promotions, and public relations. Where opportunities exist, particularly with national accounts in the U.S., we leverage our sales and marketing skills across the organization.

In the U.S., our products are primarily distributed by wholesale distributors, which generally have separate distribution networks for (i) our beer portfolio and (ii) our wine and spirits portfolio. In addition, in states where the government acts as the distributor, we distribute our products through state alcohol beverage control agencies, which set the retail prices of our products. As is the case with all other beverage alcohol companies, products sold through these agencies are subject to obtaining and maintaining listings to sell our products in that agency’s state. State governments can also affect prices paid by consumers for our products through the imposition of taxes.

Trademarks and distribution agreements

Trademarks are an important aspect of our business. We sell products under a number of trademarks, which we own or use under license. We also have various licenses and distribution agreements for the sale, or the production and sale, of our products, and products of others. These licenses and distribution agreements have varying terms and durations.

Within the Beer segment, we have an exclusive sub-license to use trademarks related to our Mexican beer brands in the U.S. This sub-license agreement is perpetual.

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Competition

The beverage alcohol industry is highly competitive. We compete on the basis of quality, price, brand recognition and reputation, and distribution strength. Our beverage alcohol products compete with other alcoholic and non-alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant presence, and wholesaler attention. We compete with numerous multinational producers and distributors of beverage alcohol products, some of which have greater resources than we do. Our principal competitors include:
BeerAnheuser-Busch InBev, The Boston Beer Company, Heineken, Mark Anthony, Molson Coors
WineDeutsch Family Wine & Spirits, Duckhorn Portfolio, E. & J. Gallo Winery, Ste. Michelle Wine Estates, Treasury Wine Estates, Trinchero Family Estates, The Wine Group
SpiritsBacardi USA, Beam Suntory, Brown-Forman, Diageo, Fifth Generation, Pernod Ricard, Sazerac Company
Canopy operates in the recreational and medicinal cannabis markets and, in their largest market, they compete with numerous licensed producers and distributors of cannabis products. In the recreational market, Canopy competes on the basis of quality, price, brand recognition, consistency, and variety of cannabis products whereas these same competitive factors apply in the medicinal market as well as physician familiarity.

Production

As of February 28, 2022, our production capacity at our Mexican breweries was approximately 39 million hectoliters. By the end of Fiscal 2026, we expect to increase our capacity in Mexico to approximately 64 to 69 million hectoliters to support the growth of our Mexican beer brands. This includes the planned construction of the Southeast Mexico Brewery where there is ample water and we will have a skilled workforce to meet our long-term needs, as well as continued expansion, optimization, and/or construction at our current brewery locations in Nava and Obregon. For further information on these expansion, optimization, and/or construction activities, refer to (i) MD&A and (ii) Note 7. We are continuing to work with government officials in Mexico to determine next steps for our suspended Mexicali Brewery construction project.

Our Daleville facility, located in Roanoke, Virginia, supports our craft and specialty business in addition to our domestic innovation initiatives. In Fiscal 2023, we expect to produce FRESCATM Mixed RTD cocktails using real spirits at this facility.

In the U.S., we operate 12 wineries using many varieties of grapes grown principally in the Napa, Sonoma, Monterey, and San Joaquin regions of California. We also operate two wineries in New Zealand and six wineries in Italy. Grapes are crushed in August through November in the U.S. and Italy, and in February through May in New Zealand and stored as wine until packaged for sale under our brand names or sold in bulk. The inventories of wine are usually at their highest levels during and after the crush of each year’s grape harvest and are reduced as sold throughout the year. In Fiscal 2023, we acquired an additional U.S. winery in Oregon. For further information on this acquisition, refer to (i) “Overview” within MD&A and (ii) Note 2.

We currently operate four distilleries in the U.S. for the production of our spirits; two facilities for High West whiskey, one facility for Copper & Kings American brandies, and one facility for Nelson’s Green Brier bourbon and whiskey products. The requirements for grains and bulk spirits used in the production of our spirits are purchased from various suppliers.

Certain of our wines and spirits must be aged for multiple years. Therefore, our inventories of wines and spirits may be larger in relation to sales and total assets than in many other businesses.


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Resources and availability of production materials

The principal components in the production of our Mexican and craft beer brands include water; agricultural products, such as yeast and grains; and packaging materials, which include glass, aluminum, and cardboard.

For our Mexican beer brands, packaging materials are the largest cost component of production, with glass bottles representing the largest cost component of our packaging materials.
For Fiscal 2022, the package format mix of our Mexican beer volume sold in the U.S. was as follows:
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As part of our efforts to solidify our beer glass sourcing strategy over the long-term, we formed an equally-owned joint venture with Owens-Illinois, one of the leading manufacturers of glass containers in the world. The joint venture owns a state-of-the-art Glass Plant adjacent to our Nava Brewery in Mexico. The Glass Plant currently has five operational glass furnaces which supply nearly 60% of the total annual glass bottle supply for our Mexican beer brands. We also have long-term glass supply agreements with other glass producers.

The Nava and Obregon breweries receive water originating from aquifers. We believe we have adequate access to water to support the breweries’ ongoing requirements, as well as future requirements after the completion of planned expansion, optimization, and/or construction activities. Both breweries employ comprehensive water management practices that focus on water efficiency and wastewater treatment operations to reuse water consumed as part of the production process.

The principal components in the production of our wine and spirits products are agricultural products, such as grapes and grain, and packaging materials, primarily glass.

Most of our annual grape requirements are satisfied by grower purchases from each year’s harvest which normally begins in August and runs through November in the U.S. and Italy, and begins in February and runs through May in New Zealand. We receive grapes from approximately 150 independent growers located in the U.S. and 55 independent growers in New Zealand and Italy. We enter into purchase agreements with a majority of these growers with pricing that generally varies year-to-year and is largely based on then-current market prices.

As of February 28, 2022, we owned or leased approximately 17,800 acres of land and vineyards, either fully bearing or under development, in the U.S., New Zealand, and Italy. This acreage supplies only a small percentage of our overall total grape needs for wine production. However, most of this acreage is used to supply a large portion of the grapes used for the production of certain of our higher-end wines. We continue to consider the purchase or lease of additional vineyards, and additional land for vineyard plantings, to supplement our grape supply.

We believe that we have adequate sources of grape supplies to meet our sales expectations. However, when demand for certain wine products exceeds expectations, we look to source the extra requirements from the bulk wine markets around the world.

The distilled spirits manufactured and imported by us require various agricultural products, neutral grain spirits, and bulk spirits, which we fulfill through purchases from various sources by contractual arrangement and through purchases on the open market. We believe that adequate supplies of the aforementioned products are available at the present time.

We utilize glass and polyethylene terephthalate bottles and other materials such as caps, corks, capsules, labels, wine bags, and cardboard cartons in the bottling and packaging of our wine and spirits products. After grape purchases, glass bottles are the largest component of our cost of product sold. In the U.S., the glass bottle industry is highly concentrated with only a small number of producers. We have traditionally obtained, and
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continue to obtain, our glass requirements from a limited number of producers under long-term supply arrangements. Currently, one producer supplies most of our glass container requirements for our U.S. operations. We have been able to satisfy our requirements with respect to the foregoing and consider our sources of supply to be adequate at this time.

Government regulations

We are subject to a range of laws and regulations in the countries in which we operate. Where we produce products, we are subject to environmental laws and regulations, and may be required to obtain environmental and alcohol beverage permits and licenses to operate our facilities. Where we market and sell products, we may be subject to laws and regulations on brand registration, packaging and labeling, distribution methods and relationships, pricing and price changes, sales promotions, advertising, and public relations. We are also subject to rules and regulations relating to changes in officers or directors, ownership, or control.

We believe we are in compliance in all material respects with all applicable governmental laws and regulations in the countries in which we operate. We also believe that the cost of administration and compliance with, and liability under, such laws and regulations does not have, and is not expected to have, a material adverse impact on our financial condition, results of operations, or cash flows.

As part of our brewery expansion efforts and commitment to making a positive impact on the communities where we operate, we plan to continue working with local authorities and community-based organizations on sustainability initiatives that benefit local residents. Critical local projects have been identified through community collaboration and input and guidance from third-party water restoration organizations. For example, to improve water quality in the Nava area, we have partnered with Pronatura Noreste, investing in a 10-year project that we expect will help restore the Bravo Conchos basin in the Serranía del Burro. In Obregon, we have worked with local organizations to construct three dams along the Yaqui Valley canal that help improve water management efficiency, recovering volumes of water that play a vital role in the sustainability of the region. This is in addition to other benefits we provide, including local job creation and fueling economic development. We plan to work with local authorities in areas near the Southeast Mexico Brewery on similar initiatives.

Seasonality

The beverage alcohol industry is subject to seasonality in each major category. As a result, in response to wholesaler and retailer demand which precedes consumer purchases, our beer sales are typically highest during the first and second quarters of our fiscal year, which correspond to the Spring and Summer periods in the U.S. Our wine and spirits sales are typically highest during the third quarter of our fiscal year, primarily due to seasonal holiday buying.

For Fiscal 2021, our beer net sales were higher in the second and third quarters as inventory levels in our distribution channels were replenished following a COVID-19 related production slowdown at our major breweries in Mexico earlier in the year.

ESG

During the course of our history, we have been committed to safeguarding our environment, making a positive difference in our communities, and advocating for responsible consumption of beverage alcohol products. Our ESG strategy is aligned with our business goals and stakeholder interests, reflects our Company values, and more directly addresses pressing societal needs. Specifically, we dedicate our resources towards:

Serving as good stewards of our environment and natural resources – Modeling water stewardship for our industry; and reducing GHG emissions through energy conservation and renewable energy initiatives
Enhancing social equity within our industry and communities – Championing the professional development and advancement of women in beverage alcohol and our communities; and enhancing economic development and prosperity in disadvantaged communities
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Promoting responsible beverage alcohol consumption – Empowering adults to make responsible choices in their alcohol (substance) consumption by supporting fact-based education, engagement programs, and policies

During Fiscal 2022 we took the following steps to advance our ESG strategy by key area:

Serving as good stewards of our environment and natural resources
developed a target to restore approximately 1.1 billion gallons of water withdrawals from critical watersheds and improve water accessibility in disadvantaged communities where we operate between the periods Fiscal 2023 to Fiscal 2025
developed a target to reduce Scope 1 (direct) and Scope 2 (indirect) GHG emissions by 15% between the periods Fiscal 2020 to Fiscal 2025
revised the Board of Directors’ Corporate Governance and Responsibility Committee Charter to include oversight of environmental, sustainability, and social responsibility programs and goals
completed an assessment to identify and prioritize ESG issues that are most important to our wine and spirits business
donated $200,000 to The Nature Conservancy’s Resilient Watershed Project

Enhancing social equity within our industry and communities
five of our eight Focus on Female Founder and Focus On Minority Founder participants grew ahead of their respective categories. Our shared sales team helped drive growth between approximately 160% to 420% in key markets for Austin Cocktails, Durham Distillery, La Fête du Rosé, and Catoctin Creek
our AASCEND BRG and CSR team created the 2022 Martin Luther King Jr./Black History Month Fund allowing employees the opportunity to lend their support by contributing to community organizations that focus on social equity. Employee and company matched donations went to the Equal Justice Initiative, Facing History and Ourselves, and the Southern Poverty Law Center
our company support of Dress for Success Worldwide, an organization whose mission is to empower women to achieve economic independence, helped more than 1.2 million women worldwide (80,000 in the U.S.) work towards self-sufficiency. Direct dollars to affiliates in our major office locations helped more than 3,500 women work toward job placement and career advancement goals
made a $1.75 million multi-year commitment to the National Restaurant Association Education Foundation's “Restaurants Advance” campaign in support of rebuilding the industry workforce
contributed $500,000 to UnidosUS to strengthen Hispanic families’ financial security through financial empowerment and home ownership programs

Promoting responsible beverage alcohol consumption
made a minority investment in HopWTR, an adaptogen and nootropics-based non-alcoholic product line
implemented a six-week wellness challenge that provided an opportunity for employees to learn more about conscious consumption and how our portfolio of brands plays a critical role
promoted conscious consumption throughout our company social media platforms during culturally relevant moments and holidays such as New Year’s Eve and the Super Bowl

For further information about our ESG advancements refer to (i) “Human capital resources” below and (ii) “Capital resources” within MD&A.


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Human capital resources

As of March 31, 2022, we had approximately 10,000 employees, including approximately 1,200 employees through our equally-owned joint venture with Owens-Illinois. The number of employees may change throughout the year, as we employ additional workers during the grape crushing seasons. Approximately 20% of the employees are covered by collective bargaining agreements. Collective bargaining agreements expiring within one year are minimal. We consider our employee relations generally to be good.
Employee geographic data is as follows:
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COVID-19 response
We have an existing Crisis Management Committee that, since January 2020, has been closely monitoring the impact of the virus that causes COVID-19 on our business and our workforce. In March 2020, the WHO recognized COVID-19 as a pandemic. In response, we implemented various measures to reduce the spread of the virus including working from home, restricting visitors to our production locations, splitting our production workforces, reducing the on-site production workforce levels, screening workers before they enter facilities, enforcing social distancing, and encouraging employees to adhere to prevention measures recommended by the CDC and the WHO. To incentivize U.S. employees to receive COVID-19 vaccines, we provided a one-time employee protection bonus to all full-time and part-time U.S. employees who submitted proof of being fully vaccinated or had approved exemptions. In Mexico, COVID-19 vaccines were not as readily available as in the U.S. We created programs to facilitate access through free, voluntary on-site clinics and local vaccination sites for our employees, including those at the Glass Plant, their families, as well as for other local Nava and Obregon businesses. These efforts contributed to achieving an employee vaccination rate of more than 98% at our Nava and Obregon breweries. Additionally, our Chief Medical Officer provides ongoing health-related advice and expertise to our executive officers, Crisis Management Committee, and human resources leadership teams as they make decisions designed to protect the health and safety of our workforce. The preventative measures we have implemented may be modified and/or discontinued as government agencies issue new guidance, including due to fluctuations in COVID-19 case levels.

We value the contributions of our workforce and considered the impacts the pandemic would have on their well-being. For our production workforce, where employees were not able to work due to temporary facility closures or illness, we protected their pay to ensure they had a continued paycheck. For our hospitality employees, we recognized a material portion of their pay comes from customer gratuities and we paid these employees an equivalent value during the necessary time away. Our non-production workforce is able to work remotely using various technology tools. As part of the remote office approach, we provide reimbursement for home office support ensuring our employees have the resources needed to be effective. We have a formal COVID-19 policy and offer various programs to assist our employees, including engaging with third-party wellness providers to host dedicated sessions on mental and physical well-being, and increased flexibility and resources surrounding personal and family commitments.

Diversity, equity, and inclusion
Our DEI strategic priorities are as follows:

Cultivate a best-in-class, diverse, and equitable workforce – one that reflects the universe of consumers that exist and the communities in which we live and serve
Foster a winning inclusive culture – create a more equitable experience for underrepresented groups; harness the benefits of diversity and inclusivity
Enhance social equity – extend our influence to enhance social equity within the beverage alcohol industry and communities in which we live and serve

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We provide opportunities for our employees to advance our DEI strategic priorities through a growing community of BRGs. Our BRGs are supported at the highest level with sponsorships from our executives. See “Information about our Executive Officers” below. Each BRG is tasked with making a business impact on behalf of the represented group and welcomes allies. In Fiscal 2022, approximately 60% of our U.S. salaried employees were members of one or more BRG.

Monitoring human capital metrics is a key component to ensuring we are executing on our strategy and making progress against our DEI objectives and goals. In Fiscal 2022, we revised our Board of Directors’ Human Resource Committee Charter to specially address oversight of employee DEI matters. We measure gender and ethnic representation to understand diversity at various levels across the organization, assess progress over time, and drive continuous improvement. We have established goals to enhance both gender representation and overall ethnic diversity among our U.S. salaried population to 50% and 30%, respectively, by Fiscal 2026. Our self-disclosed, U.S. salaried employee information is as follows:

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Additionally, in Fiscal 2022, we launched a DEI growth dashboard for our U.S. salaried employee base, centered around identifying and addressing workforce diversity representation opportunities, utilizing 2020 U.S. Census data as a benchmark. This dashboard is shared with our executives and with certain committees of the Board of Directors on a quarterly basis enabling them to monitor the progress made and to provide guidance on necessary next steps to attain our representation goals. We also assess metrics throughout the human resource lifecycle to identify potential bias and barriers in our processes, including talent acquisition, turnover, engagement scores, or participation in BRG events.

Compensation and benefits
We strive to provide pay, benefits, and services that meet the needs of our employees. There are four components of compensation: (i) base pay, (ii) long-term incentives dependent on a number of factors such as geographic location and management level which can include restricted stock units, stock options, and performance share units, (iii) short-term incentives, and (iv) recognition awards. Base compensation is reviewed on an annual basis ensuring it is competitive in the market and gives employees opportunities to earn more for exceeding expectations. Our total rewards program also offers valuable benefits, tools, and resources designed to help employees stay healthy and well, while achieving security, growth, satisfaction, and success.

Professional development
Building diverse talent pipelines, delivering best-in-class people development, and championing professional advancement are key components of our human capital strategy which is designed to position our business for long-term growth. In Fiscal 2022, we spent approximately $17 million in development and training costs, including the delivery of four leadership development programs and three women’s focused development programs through the University of Constellation Brands, our learning and development center. We are committed to offering programs, resources, and experiences that empower employees to grow their careers and keep reaching for what’s next, both personally and professionally.

Succession planning
We have a comprehensive succession planning process, led by our human resources team and overseen by the Human Resources Committee of our Board. In addition to the Human Resources Committee’s enhanced focus on executive, senior leader, and high-potential employee succession, our full Board is also involved in Chief Executive Officer succession planning and succession and people development for the broader employee population. As part of the succession planning process, we review and discuss potential successors to key roles and examine backgrounds, capabilities, and appropriate developmental opportunities.

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Employee engagement
We assess employee engagement through targeted pulse surveys, which provide feedback on a variety of topics, such as company direction and strategy, resources, support, work environment preferences, and well-being. During calendar year 2021, we had a response rate of 76% to our survey and an engagement measurement of 86% across our surveyed population.

Safety
We are committed to ensuring the safety of our employees. Our global EHS policy defines our dedication to providing a safe and healthy working environment and developing a culture where all employees take responsibility for their own safety as well as the safety of others while minimizing our impact on the environment in the communities where we live and work. With a focus on continuous improvement we are developing more robust EHS management systems, strengthening employee awareness and training, and ensuring senior leadership engagement on safety. Work-related injuries resulting from the production of our beer, wine, and spirits products are well below industry average. Our recordable incident rate as compared to the industry average are as follows:
For the Years Ended
February 28,
2022
February 28, 2021Percent
Change
Recordable incident rate (1)
0.790.95(17%)
Industry average (2)
3.453.50
(1)Defined as total number of worldwide Constellation work-related injuries (cases beyond first aid) per 100 full-time employees.
(2)Calculated by taking the weighted average of the most recent (2020) U.S. Bureau of Labor Statistics data for wineries, breweries, and distilleries based on our portfolio mix on February 2022 and February 2021 for the years ended February 28, 2022, and February 28, 2021, respectively.

Empowering our employees to give back
Giving back to our communities is a value instilled by our founder, Marvin Sands, and remains core to our company’s DNA. We empower our employees to engage in the communities where they live and work in a variety of ways, including volunteering time and through a charitable matching program available to all U.S. employees.
We match donations ranging from a maximum of $5,000 to $50,000 per year, depending on management level, to charitable organizations.
$5.8 million
Fiscal 2022 corporate charitable contributions, including company match of employee donations
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Information about our Executive Officers

Executive officers of the Company are generally chosen or elected to their positions annually and hold office until the earlier of their removal or resignation or until their successors are chosen and qualified. Information with respect to our executive officers as of April 21, 2022, is as follows:
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William A. Newlands, age 63, is the President and Chief Executive Officer of the Company. He has served as Chief Executive Officer of the Company and as a director since March 2019 and as President since February 2018. He served as Chief Operating Officer from January 2017 through February 2019 and as Executive Vice President of the Company from January 2015 until February 2018. From January 2016 to January 2017 he performed the role of President, Wine & Spirits Division and from January 2015 through January 2016 he performed the role of Chief Growth Officer. Mr. Newlands joined the Company in January 2015. Prior to that he served from October 2011 until August 2014 as Senior Vice President and President, North America of
Beam Inc., as Senior Vice President and President, North America of Beam Global Spirits & Wine, Inc. from December 2010 to October 2011, and as Senior Vice President and President, USA of Beam Global Spirits & Wine, Inc. from February 2008 to December 2010. Beam Inc., a producer and seller of branded distilled spirits products, merged with a subsidiary of Suntory Holding Limited, a Japanese company, in 2014. Prior to October 2011, Beam Global Spirits & Wine, Inc. was the spirits operating segment of Fortune Brands, Inc., which was a leading consumer products company that made and sold branded consumer products worldwide in the distilled spirits, home and security, and golf markets.
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Robert Sands, age 63, is the Executive Chairman of the Board of the Company, having served in the role since March 2019 and as a director since January 1990. Previously, he served as Chief Executive Officer of the Company from July 2007 through February 2019. Mr. Sands also served as President of the Company from December 2002 to February 2018, as Chief Operating Officer from December 2002 to July 2007, as Group President from April 2000 through December 2002, as Chief Executive Officer, International from December 1998 through April 2000, as Executive Vice President from October 1993 through April 2000, as General Counsel from June 1986 through May 2000, and as Vice President from June 1990 through October 1993. He is the brother of Richard Sands.
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Richard Sands, Ph.D., age 71, is the Executive Vice Chairman of the Board of the Company, having served in the role since March 2019. He previously served as Chairman of the Board of the Company from September 1999 through February 2019. He has been employed by the Company in various capacities since 1979. He has served as a director since 1982. He served as Chief Executive Officer from October 1993 to July 2007, as President from May 1986 to December 2002, as Chief Operating Officer from May 1986 to October 1993, and as Executive Vice President from 1982 to May 1986. He is the brother of Robert Sands.
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James O. Bourdeau, age 57, is the Executive Vice President and Chief Legal Officer of the Company, having served in the role since December 2017 and as the Company’s Secretary since April 2017. Prior to that, he served as the Company’s Senior Vice President and General Counsel, Corporate Development, having performed that role from September 2014 until December 2017. Before joining the Company in September 2014, Mr. Bourdeau was an attorney with the law firm of Nixon Peabody LLP from July 2000 through September 2014, and a partner from February 2005 through September 2014. Mr. Bourdeau was associated with another law firm from 1995 to 2000.
BRG sponsorship - Stellar PRIDE supporting our LGBTQ+ community
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K. Kristann Carey, age 52, will be the Executive Vice President and Chief Human Resources Officer of the Company, effective May 9, 2022. Ms. Carey has served as the Company’s Senior Vice President, Human Resources, Beer Division since February 2019. From July 2018 until December 2020, she performed the role of Chief Diversity Officer. From July 2017 until January 2019, she served as Chief Compliance Officer and from November 2015 until January 2019, she served as Senior Vice President and General Counsel, Beer Division. From June 2013 until November 2015, she served as Vice President and Associate General Counsel, Beer Division. Before joining the Company, Ms. Carey served in roles of increasing responsibility
with McDonald’s Corporation from January 2005 until June 2013, most recently as Senior Counsel. Prior to joining McDonald’s Corporation, she worked at the law firms of Seyfarth Shaw LLP from January 2003 through January 2005 and Cassiday, Schade & Gloor LLP from October 1998 until January 2003.
BRG sponsorship - Supporting and Attracting Latinos United for Diversity and Development
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Garth Hankinson, age 54, is the Executive Vice President and Chief Financial Officer of the Company, having served in the role since January 2020. Prior to that, he served as the Company’s Senior Vice President, Corporate Development, a position he had been in since February 2016, where he was responsible for leading all of the Company’s financial planning, reporting, and analysis activities, as well as all efforts related to mergers, acquisitions, ventures investments, and strategic alliances. From October 2009 until February 2016, he served as the Vice President, Corporate Development of the Company. From October 2007 until October 2009, Mr. Hankinson served as the Vice President, Business Development for Constellation’s prior
Canadian business, Constellation Brands Canada, Inc., which was a Canadian subsidiary of the Company during that time. From March 2004 until October 2007, he served as the Director of Corporate Development.
BRG sponsorship - VALOR supporting veterans, service members, first responders, and their families
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Robert Hanson, age 59, is the Executive Vice President and President, Wine & Spirits Division of the Company, having served in the role since June 2019. Prior to that, he served as Chief Executive Officer of John Hardy Global Limited, a luxury jewelry brand, from August 2014 to June 2019. He continued to serve as its Chairman of the Board until July 2020. He served as Chief Executive Officer and a Director of American Eagle Outfitters, Inc., a leading global specialty retailer of clothing, accessories, and personal care products from January 2012 to January 2014. He served Levi Strauss & Co. from 1988 to 2011 in a variety of important leadership roles across multiple brands where he led cross-functional teams, including merchandising, product
development, multi-channel operations, marketing and creative teams, in addition to a full support staff. Mr. Hanson’s roles at Levi’s included serving as Global President of the Levi’s Brand from 2010 to 2011; President, Levi’s Strauss Americas/North America from 2006 to 2010; President, Levi’s Brand U.S. from 2001 to 2006; and President/Vice President, Levi’s Europe/Africa/Middle East from 1998 to 2001.
BRG sponsorship - Win.Inspire.Support.Elevate. supporting our female community
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Thomas M. Kane, age 61, is the Executive Vice President and Chief Human Resources Officer of the Company, having served in the role since joining the Company in May 2013 through his retirement from such role, which will be effective May 9, 2022. Mr. Kane previously served as Senior Vice President, Human Resources and Government Relations of Armstrong World Industries, Inc., a global producer of flooring products and ceiling systems, from February 2012 to May 2013, he served as its Senior Vice President, Human Resources from August 2010 to February 2012 and served as its Chief Compliance Officer from February 2011 to February 2012. Prior to that, Mr. Kane served as Global Vice President, Human Resources for Black & Decker
Power Tools, a manufacturer of power and hand tools, from 2002 to 2010. From 1999 to 2002 Mr. Kane served as Global HR leader of GE Specialty Materials, a large manufacturer of silicone products.
BRG sponsorship - Win.Inspire.Support.Elevate. supporting our female community
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Michael McGrew, age 48, has been an Executive Vice President of the Company since April 2020. Beginning December 2020, Mr. McGrew has performed the role of Executive Vice President, and Chief Communications, CSR, and Diversity Officer of the Company. Mr. McGrew joined Constellation Brands in 2014 as Senior Director, Communications for the Company’s Beer Division. He was promoted to Vice President, Communications – Beer Division in 2016 and assumed the role of Vice President, Corporate Communications in 2017. Prior to joining Constellation Brands, he held a number of roles with increasing responsibility at Grainger, then a $9 billion global provider of industrial supplies and equipment. While at Grainger, from 2011 to
2013 Mr. McGrew served as Director, U.S. Business Communications, from January 2013 to October 2013 he served as Senior Director, U.S. Business & Global Supply Chain Communications and from October 2013 to September 2014 he served as Senior Director, Communications – Americas, among other roles of increasing responsibility.
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Mallika Monteiro, age 43, has been an Executive Vice President of the Company since October 2019. Beginning March 2021, Ms. Monteiro has performed the role of Executive Vice President, and Chief Growth, Strategy, and Digital Officer. From October 2019 to February 2021 she performed the role of Executive Vice President, Chief Growth and Strategy Officer and from October 2018 to September 2019, she performed the role of Senior Vice President, Chief Growth Officer. She joined Constellation in October 2016 as Vice President, Beer Innovation and was given additional responsibilities as Chief of Staff to the Company's Executive Management Committee in August 2018. Prior to joining Constellation, from July 2014 to September 2016,
Ms. Monteiro was a Senior Marketing Director at Anheuser Busch InBev. Prior to joining Anheuser Busch InBev, she served in roles of increasing responsibility with Beam Suntory Inc., including as Associate Brand Manager - Jim Beam from July 2007 to June 2009, Brand Manager - Cognac from July 2009 to December 2011, and Senior Brand Manager - Vodka, from January 2012 to June 2014.
BRG sponsorship - Constellation Parents Network
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James A. Sabia, Jr., age 60, is the Company’s Executive Vice President and President, Beer Division as well as President of Crown, having performed these roles since January 2022 and February 2022, respectively. He has been an Executive Vice President of the Company since May 2018. From March 2021 through January 2022 he served as Executive Vice President, Managing Director, Beer Division. From May 2018 through March 2021 he performed the role of Executive Vice President, Chief Marketing Officer. He joined the Company in August 2007 as Vice President, Marketing for the Company’s spirits business. Since then, he has served in roles of increasing responsibility with the Company. Since 2009, he has served as the Chief Marketing
Officer of the Company’s Beer Division. From 2009 to June 2013, Mr. Sabia was employed by Crown, of which the Company owned a 50% interest and was the Company’s beer business during that period. In June 2013, the Company acquired the remaining 50% of Crown, which became a wholly-owned indirect subsidiary of the Company on that date. Prior to joining the Company, Mr. Sabia was with Molson Coors Brewing Company for 17 years.
BRG sponsorship - African Americans Strengthening Constellation’s Engagement, Networking, & Development

Company Information

Our website is https://www.cbrands.com, and our investor relations website is https://ir.cbrands.com. Our filings with the SEC, including our Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge on our investor relations website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website, https://www.sec.gov, that contains reports, proxy, and information statements, and other information regarding issuers, such as ourselves, that file electronically with the SEC.

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We have adopted a Chief Executive Officer and Senior Financial Executive Code of Ethics that specifically applies to our chief executive officer, our principal financial officer, and our controller, and is available on our investor relations website. This Chief Executive Officer and Senior Financial Executive Code of Ethics meets the requirements as set forth in the Exchange Act, Item 406 of Regulation S-K. We also have adopted a Code of Business Conduct and Ethics that applies to all employees, directors, and officers, including each person who is subject to the Chief Executive Officer and Senior Financial Executive Code of Ethics. The Code of Business Conduct and Ethics is available on our website, together with our Global Code of Responsible Practices for Beverage Alcohol Advertising and Marketing at https://www.cbrands.com/story/policies. Copies of these materials are available in print to any stockholder who requests them. Stockholders should direct such requests in writing to Investor Relations Department, Constellation Brands, Inc., 207 High Point Drive, Building 100, Victor, New York 14564, or by telephoning our Investor Center at 1-888-922-2150.

Our Board of Directors Corporate Governance Guidelines and the Charters of the Board’s Audit Committee, Human Resources Committee (which serves as the Board’s compensation committee) and Corporate Governance and Responsibility Committee (which serves as the Board’s nominating committee) are accessible on our investor relations website. Amendments to, and waivers granted to our directors and executive officers under our codes of ethics, if any, will be posted in this area of our website.

The information regarding our websites and their content is for your convenience only. The content of our websites is not deemed to be incorporated by reference in this report or filed with the SEC.


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Item 1A. Risk Factors

In addition to information discussed elsewhere in this report, you should carefully consider the following factors, as well as additional factors not presently known to us or that we currently deem to be immaterial, which could materially affect our business, liquidity, financial condition, and/or results of operations in present and/or future periods.

Operational Risks
Supply of quality water, agricultural, and other raw materials, certain raw and packaging materials purchased under supply contracts; inflation; limited group of glass bottle suppliers; supply chain disruptions
The quality and quantity of water available for use is important to the supply of our agricultural raw materials and our ability to operate our business. Water is a limited resource in many parts of the world and if climate patterns change and droughts become more severe, there may be a scarcity of water or poor water quality which may affect our production costs or impose capacity constraints. We are dependent on sufficient amounts of quality water for operation of our breweries, wineries, and distilleries, as well as to irrigate our vineyards and conduct our other operations. The suppliers of the agricultural raw materials we purchase are also dependent upon sufficient supplies of quality water for their vineyards and fields. If water available to our or our suppliers’ operations becomes scarce or the quality of that water deteriorates, we may incur increased production costs or face manufacturing constraints. In addition, water purification and waste treatment infrastructure limitations could increase costs or constrain operation of our production facilities and vineyards. A substantial reduction in water supplies could result in material losses of grape crops and vines or other crops, such as corn, barley, or hops, which could lead to a shortage of our product supply.

We have substantial brewery operations in Mexico, brewery operations in Texas, Virginia, and Florida, and substantial wine operations in California, New Zealand, and Italy. California has endured and continues to experience prolonged drought conditions which have resulted in the imposition of certain restrictions on water usage, and if these conditions or restrictions persist and/or increase in severity, it could have an adverse effect upon those operations. Our Nava Brewery is sourced from a single water supply. Although we anticipate our operations will have adequate sources of quality water to support their ongoing requirements, there is no guarantee that the sources of water, methods of water delivery, water quality, or water requirements will not change materially in the future. We may incur additional expenses for improving water delivery, quality, and efficiency as well as for securing additional water sources.

Our breweries, the Glass Plant, our wineries, and our distilleries use a large volume of agricultural and other raw materials to produce their products. These include corn starch and sugars, malt, hops, fruits, yeast, and water for our breweries; soda ash and silica sand for the Glass Plant; grapes and water for our wineries; and grain and water for our distilleries. Our breweries, wineries, and distilleries all use large amounts of various packaging materials, including glass, aluminum, cardboard, and other paper products. Our production facilities also use electricity, natural gas, and diesel fuel in their operations. Certain raw materials and packaging materials are purchased under contracts of varying maturities. The supply, on-time availability, and price of raw materials, packaging materials, and energy can be affected by many factors beyond our control, including market demand, global geopolitical events and military conflicts, such as repercussions from the recent conflict in Ukraine (including on certain commodities, such as aluminum, corn, crude oil, natural gas, and steel), droughts, storms, and other weather conditions or natural or man-made events, economic factors affecting growth decisions, plant diseases, and theft. Inflationary pressures, including for material costs, energy, commodities, supply chain logistics, and labor, may continue to negatively impact us, and we may be unable to pass along rising costs to consumers through increased selling prices.

Our breweries, wineries, and distilleries are also dependent upon an adequate supply of glass bottles, and we have experienced glass bottle purchasing shortages, particularly for brown glass used for certain of our Mexican beer brands. Glass bottle costs are one of our largest components of cost of product sold. The Glass Plant produces a majority of the total annual glass bottle supply for our Mexican beer brands, and we currently have a small number of other suppliers of glass bottles for our Mexican beer brands. In the U.S., glass bottles have only a small number of producers. Currently, one producer supplies a majority of our glass container requirements for
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our U.S. wine and spirits operations while a different producer supplies the glass bottles for our craft beer operations.

Supply chain disruptions, such as lack of availability and increased costs of ocean freight shipping containers and delays at sea and/or land ports, could continue to impact our distribution and production capabilities. To the extent any of the foregoing factors increases the costs of our finished products or leads to a shortage of our product supply or inventory levels, we could experience a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Reliance upon complex information systems and third-party global networks; cyber-attacks; not realizing benefits of our new global ERP
We depend on information technology to enable us to operate efficiently and interface with customers and suppliers, maintain financial accuracy and efficiency, and effect accurate and timely governmental reporting. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, loss of customers, business disruptions, loss of or damage to intellectual property through security breach, or penalties associated with the failure to timely file governmental reports. We recognize that many groups on a worldwide basis have experienced increases in security breaches, cyber-attacks, and other hacking activities such as denial of service, malware, and ransomware, and there is the possibility of retaliatory cyber-attacks, including by state-sponsored organizations, stemming from geopolitical and economic responses to Russia’s invasion of Ukraine. As with all large information technology systems, our systems could be penetrated by increasingly sophisticated outside parties intent on extracting confidential or proprietary information, corrupting our information, disrupting our business processes, engaging in the unauthorized use of strategic information about us or our employees, customers, or consumers, or demanding monetary payment. Such unauthorized access could disrupt our operations and could result in various costs and adverse consequences, including the loss of assets or revenues, litigation, regulatory actions, remediation costs, increased cyber-security protection costs, damage to our reputation, harm to our employees, or the failure by us to retain or attract customers following such an event.

We have outsourced various functions to third-party service providers and may outsource other functions in the future. We rely on such third-parties to provide services on a timely and effective basis, but we do not ultimately control their performance. In addition, our distributors, wholesalers, suppliers, joint venture partners, and other external business partners utilize their own information technology systems that are subject to similar risks to us as described above. Their failure to perform as expected or as required by contract, or a cyber-attack on them that disrupts their systems, could result in significant disruptions and costs to our operations or, in the case of third-party service providers, a penetration of our systems.

In Fiscal 2022, we completed the implementation of a new global ERP across our business units using a phased approach. We designed the ERP to accurately maintain our financial records, enhance operational functionality, and provide timely information to our management team related to the operation of the business. We plan to make enhancements to the ERP and associated processes and tools, which will continue to require the investment of personnel and financial resources. If our ERP does not operate as intended or the anticipated benefits from this implementation are not fully realized, we may experience delays, increased costs, and other difficulties that may interfere with being able to operate our business and the effectiveness of our internal control over financial reporting could be adversely affected.

To the extent any of the foregoing factors result in significant disruptions and costs to our operations or reduce the effectiveness of our internal control over financial reporting, we could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Economic and other uncertainties associated with our international operations
Our products are produced and sold in numerous countries, we have employees in various countries, and we have production facilities currently in the U.S., Mexico, New Zealand, and Italy.

The countries in which we operate impose duties, excise taxes, and/or other taxes on beverage alcohol products, and/or on certain raw materials used to produce our beverage alcohol products, in varying amounts.
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Governmental bodies may propose changes to international trade agreements, treaties, tariffs, taxes, and other government rules and regulations including but not limited to environmental treaties and regulations. The recent military conflict in Ukraine and escalating geopolitical tensions resulting from such conflict have resulted and may continue to result in sanctions, tariffs, and import-export restrictions which, when combined with any retaliatory actions that may be taken by Russia, could cause further inflationary pressures and economic and supply chain disruptions (including impacts on prices and supply of certain commodities, such as aluminum, corn, crude oil, natural gas, and steel). Significant increases in import and excise duties or other taxes on, or that impact, beverage alcohol products as well as any tariffs, particularly on imports from Mexico and any retaliatory tariffs imposed by the Mexican government, could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

In addition, 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 regulations also require warning labels and signage. We may be subject to new or revised regulations or increased licensing fees, requirements, or taxes. Additionally, various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the marketing or sale of our products because of what our products contain or allegations that our products cause adverse health effects. If these types of requirements become applicable to one or more of our major products under current or future environmental or health laws or regulations, they may inhibit sales of such products.

These uncertainties and changes, as well as the decisions, policies, and economic strength of our suppliers and distributors, could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Dependence on limited facilities for production of our Mexican beer brands, and expansion, optimization, and construction issues
We are dependent on our Nava and Obregon breweries as our sole sources of supply to fulfill our Mexican beer brands product requirements, both now as well as for the near-term.

Expansion, optimization, and/or construction activities continue at our Nava and Obregon breweries, and we are exploring construction of the Southeast Mexico Brewery. We have suspended Mexicali Brewery construction activities following a negative result from a public consultation held in Mexico. We continue to work with Mexican government officials to (i) determine next steps for our suspended Mexicali Brewery construction project, (ii) pursue various forms of recovery for capitalized costs and additional expenses incurred in establishing the Mexicali Brewery, and (iii) explore options to add further capacity elsewhere in Mexico, including the construction of the Southeast Mexico Brewery, to meet our long-term needs. These are multi-billion-dollar activities, with risks of completion delays, cost overruns, and further asset impairments. There is also no assurance of any recovery with respect to the suspended Mexicali Brewery.

Expansion and optimization 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 at all or on terms that are acceptable to us; (ii) potential changes in federal, state, and local laws 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; (iv) inability to acquire the necessary energy supplies, including electricity, natural gas, and diesel fuel; or (v) a halt or delay in expansion, optimization, or construction activities due to COVID-19. Any of these events could delay the expansion, optimization, or construction of our production facilities.

We may not be able to satisfy our product supply requirements for the Mexican beer brands in the event of (i) a significant disruption or the partial or total destruction of the Nava or Obregon breweries or the Glass Plant, (ii) difficulty shipping raw materials and product into or out of the U.S., or (iii) a temporary inability to produce our product due to closure or lower production levels of one or more of our Mexican breweries, including as a result of COVID-19. Also, if the contemplated expansion, optimization, and/or construction activities at the
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Nava and Obregon breweries and construction of additional brewery capacity in Mexico are abandoned or not otherwise completed by their targeted completion dates, we may not be able to produce sufficient quantities of our Mexican beer to satisfy our needs. Under such circumstances, we may be unable to obtain our Mexican beer at a reasonable price from another source, if at all. A significant disruption at our Nava or Obregon breweries, or the Glass Plant, even on a short-term basis, could impair our ability to produce and ship products to market on a timely basis. Alternative facilities with sufficient capacity or capabilities may not readily be available, may cost substantially more, or may take a significant time to start production, any of which could have a material adverse effect on our product supply, business, liquidity, financial condition, and/or results of operations.

Operational disruptions or catastrophic loss to breweries, wineries, other production facilities, or distribution systems
All of our Mexican beer brands product supply is currently produced at our Nava and Obregon breweries. Many of the workers at these breweries are covered by collective bargaining agreements. The Glass Plant has five operational glass furnaces which produce a majority of the total annual glass bottle supply for our Mexican beer brands. Several of our vineyards and production and distribution facilities, including certain California and Oregon wineries, are in areas prone to seismic activity. Additionally, we have various vineyards and wineries in California and Oregon which have recently experienced wildfires and/or landslides.

If any of these or other of our properties and production facilities were to experience a significant operational disruption or catastrophic loss, it could delay or disrupt production, shipments, and revenue, and result in potentially significant expenses to repair or replace these properties or find suitable alternative providers. Also, our production facilities are asset intensive. As our operations are concentrated in a limited number of production and distribution facilities, we are more likely to experience a significant operational disruption or catastrophic loss in any one location from acts of war or terrorism, fires, floods, earthquakes, severe winter storms or frosts, hurricanes, pandemics, labor strikes or other labor activities, cyber-attacks and other attempts to penetrate our or our third-party service providers’ information technology systems or the information technology used by our non-production employees who work remotely during the COVID-19 pandemic, unavailability of raw or packaging materials, or other natural or man-made events. Geopolitical and economic responses to Russia’s invasion of Ukraine could impact global energy prices and supply, particularly for crude oil and natural gas, as well as result in retaliatory cyber-attacks. If a significant operational disruption or catastrophic loss were to occur, we could breach agreements, our reputation could be harmed, and our business, liquidity, financial condition, and/or results of operations could be adversely affected by, among other items, higher maintenance charges, unexpected capital spending, or product supply constraints.

Our insurance policies do not cover certain types of catastrophes and may not cover certain events such as pandemics. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain property damage and business interruption insurance. If our insurance coverage is adversely affected, or to the extent we have elected to self-insure, we may be at greater risk that we may experience an adverse impact to our business, liquidity, financial condition, and/or results of operations.

COVID-19 or other pandemics, 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, including the COVID-19 pandemic, and other public health conditions have resulted and could continue to 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 governmental containment actions, quarantines, or other cancellations of public events and other opportunities to purchase our products, from bar, restaurant, and venue closures or capacity restrictions, 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
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produce, package, and ship our products, 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 remotely. 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.

Climate change; environmental regulatory compliance and emissions and stewardship targets
Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other GHGs in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. Severe weather events and natural disasters, such as our experiences with drought, flooding, and/or wildfires in California, Oregon, or Washington, an unexpected severe winter storm in Texas or Mexico, or a late frost in New Zealand, and climate change may negatively affect agricultural productivity in the regions from which we presently source our various agricultural raw materials or the energy supply powering our production facilities. Decreased availability of our raw materials may increase our cost of product sold. Severe weather events and natural disasters or changes in the frequency or intensity of weather events or natural disasters can also impact product quality and disrupt our supply chains, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers, and consumers. Natural disasters such as severe storms, floods, and earthquakes may also negatively impact the ability of consumers to purchase our products.

We may experience significant future increases in the costs associated with environmental regulatory compliance, including fees, licenses, and the cost of capital improvements for our operating facilities to meet environmental regulatory requirements. In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or relating to historical activities of businesses we acquire. Due to regulatory complexities, governmental or contractual requirements, uncertainties inherent in litigation, and the risk of unidentified contaminants in our current and former properties, the potential exists for remediation, liability, indemnification, and other costs to differ materially from the costs that we have estimated. We may incur costs associated with environmental compliance arising from events we cannot control, such as unusually severe floods, hurricanes, earthquakes, or fires. We have also disclosed targets related to restoration of water withdrawals and Scope 1 and Scope 2 GHG emissions, the achievement of which will require us to make investments and allocate resources. We cannot assure that we have allotted sufficient resources to attain, or that we ultimately will achieve, these targets or that our costs in relation to any of the foregoing matters will not exceed our projections, which could have a material adverse effect upon our business, liquidity, financial condition, and/or results of operations.

Reliance on wholesale distributors, major retailers, and government agencies
Local market structures and distribution channels vary worldwide. Within our primary market in the U.S., we offer a range of beverage alcohol products with generally separate distribution networks utilized for our beer portfolio and our wine and spirits portfolio. In the U.S., we sell our products principally to wholesalers for resale to retail outlets and directly to government agencies. We have an exclusive arrangement with one wholesaler that generates a large portion of our branded U.S. wine and spirits net sales, and we have one wholesaler for our beer portfolio which, through multiple entities, represents roughly one-fifth of our consolidated net sales. Wholesalers and retailers of our products offer products which compete directly with our products for retail shelf space, promotional support and consumer purchases, and wholesalers or retailers may give higher priority to products of our competitors. The replacement or poor performance of our major wholesalers, retailers, or government agencies could result in temporary or longer-term sales disruptions or could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
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Contamination and degradation of product quality from diseases, pests, and weather and climate conditions
Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could adversely affect sales. Various diseases, pests, fungi, viruses, drought, frosts, and certain other weather conditions or the effects of climate conditions, such as smoke taint from wildfires, could affect the quality and quantity of barley, hops, grapes, and other agricultural raw materials available, decreasing the supply and quality of our products. Similarly, power disruptions due to weather conditions could adversely impact our production processes and the quality of our products. We cannot guarantee that we and/or our suppliers of agricultural raw materials will succeed in preventing contamination in existing and/or future vineyards or fields. Future government restrictions regarding the use of certain materials used in growing grapes or other agricultural raw materials may increase vineyard costs and/or reduce production of grapes or other crops. It is also possible that a supplier may not provide materials or product components which meet our required standards or may falsify documentation associated with the fulfillment of those requirements.

Product contamination or tampering or the failure to maintain our standards for product quality, safety, and integrity, including with respect to raw materials, naturally occurring compounds, packaging materials, or product components obtained from suppliers, may also reduce demand for our products or cause production and delivery disruptions. Contaminants or other defects in raw materials, packaging materials, or product components purchased from third parties and used in the production of our beer, wine, or spirits products, or defects in the fermentation or distillation process could lead to low beverage quality as well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand or all our brands.

If any of our products become unsafe or unfit for consumption, are misbranded, or cause injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall, multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a period, which could reduce consumer demand and brand equity and result in reputational harm.

Marijuana is currently illegal under U.S. federal law and in other jurisdictions; we do not control Canopy’s business or operations
The ability of Canopy to achieve its business objectives is contingent, in part, upon the legality of the cannabis industry, Canopy’s compliance with regulatory requirements enacted by various governmental authorities, and Canopy obtaining all regulatory approvals, where necessary, for the production and sale of its products. The laws and regulations governing medicinal and recreational cannabis are still developing, including in ways that we may not foresee. Canopy’s success will depend on, among other things, the ability of Canopy to operate successfully in the cannabis market space and the presence of sufficient retail outlets. There are also concerns about health issues associated with certain types of form factors for cannabis products, such as those used in inhalables. These issues may result in a less robust consumer demand for certain form factors. There is no assurance a robust cannabis consumer market will develop consistent with our expectations or that consumers will purchase any Canopy products. Although the Agriculture Improvement Act of 2018 has taken hemp and hemp derived cannabinoids out of the most restrictive class of controlled substances, marijuana is a schedule-1 controlled substance in the U.S. and is currently illegal under U.S. federal law. Even in those U.S. states in which the recreational use of marijuana has been legalized, its use remains a violation of U.S. federal law. Since U.S. federal laws criminalizing the use of marijuana preempt state laws that legalize its use, continuation of U.S. federal law in its current state regarding marijuana would likely limit the expansion of Canopy’s business into the U.S. Similar issues of illegality apply in other countries. Any amendment to or replacement of existing laws to make them more onerous, or delays in amending or replacing existing laws to liberalize the legal possession and use of cannabis, or delays in obtaining, or the failure to obtain, any necessary regulatory approvals may significantly delay or negatively impact Canopy’s markets, products, and sales initiatives and could have a material adverse effect on Canopy’s business, liquidity, financial condition, and/or results of operations. Were that to occur, we may not be able to recover the value of our investment in Canopy.

We have the right to nominate four members of the Canopy board of directors. While we do not control Canopy’s business or operations, we do rely on Canopy’s internal controls and procedures for operation of that business. Nevertheless, our financing arrangements require us to certify, among other things, that to our knowledge (i) Canopy is properly licensed and operating in accordance with Canadian laws in all material respects;
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(ii) Canopy does not knowingly or intentionally purchase, manufacture, distribute, import, and/or sell marijuana, or any other controlled substance in or from the U.S. or any other jurisdiction, in each case, where such purchase, manufacture, distribution, importation, or sale of marijuana or such other controlled substance is illegal, except in compliance with all applicable federal, state, local, or foreign laws, rules, and regulations; and (iii) Canopy does not knowingly or intentionally partner with, invest in, or distribute marijuana or any other controlled substance to any third-party that knowingly or intentionally purchases, sells, manufactures, or distributes marijuana or any other controlled substance in the U.S. or any other jurisdiction, in each case, 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. Were we to know that Canopy was knowingly or intentionally violating any of these applicable laws, we would be unable to make the required certification under our financing arrangements, which could lead to a default under those financing arrangements.

Strategic Risks
Potential decline in the consumption of products we sell; dependence on sales of our Mexican beer brands
Our business depends upon consumers’ consumption of our beer, wine, and spirits brands, and sales of our Mexican beer brands in the U.S. are a significant portion of our business. Consumer preferences may shift due to a variety of factors, including changes in taste preferences and leisure, dining, and beverage consumption patterns, demographic or social trends, perceived value, and public health policies put into effect to mitigate the spread of COVID-19. Further, a limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:

a general decline in economic or geopolitical conditions;
concern about the health consequences of consuming beverage alcohol products and about drinking and driving;
a general decline in the consumption of beverage alcohol products in on-premise establishments, which may result from stricter laws relating to driving while under the influence of alcohol;
the increased activity of anti-alcohol groups or other bodies advocating measures designed to reduce the consumption of beverage alcohol products, such as the WHO;
increased federal, state, provincial, and foreign excise, or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing;
increased regulation restricting the purchase or consumption of beverage alcohol products;
inflation, including the impact of reduced discretionary income of consumers available to purchase our products and increased commodities costs; and
wars, health epidemics or pandemics, quarantines, weather, and natural or man-made disasters.

If these or any other factors cause a decline in the growth rate, amount, or profitability of our sales of the Mexican beer brands in the U.S. or any material shift in consumer preferences and taste in our major markets away from our beer, wine, and spirits brands, and our Mexican beer brands in particular, or from the categories in which they compete, it could adversely affect our business, liquidity, financial condition, and/or results of operations.

Acquisition, divestiture, investment, and NPD strategies
From time to time, we acquire businesses, assets, or securities of companies that we believe will provide a strategic fit with our business. We integrate acquired businesses with our existing operations; our overall internal control over financial reporting processes; and our financial, operations, and information systems. If the financial performance of our business, as supplemented by the assets and businesses acquired, does not meet our expectations, it may make it more difficult for us to service our debt obligations and our results of operations may fail to meet market expectations. We may not effectively assimilate the business or product offerings of acquired companies into our business or within the anticipated costs or timeframes, retain key customers and suppliers or key employees of acquired businesses, or successfully implement our business plan for the combined business. In addition, our final determinations and appraisals of the estimated fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates and we may fail to fully realize anticipated cost savings, growth opportunities, or other potential synergies. We cannot assure that the fair value of acquired businesses or investments will remain constant.

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We may also divest ourselves of businesses, assets, or securities of companies, including those that we believe no longer provide a strategic fit with our business. We may provide various indemnifications in connection with divestitures of businesses or assets. The amount of contingent consideration, if any, received in divestitures, including in the Wine and Spirits Divestitures, may vary based on various factors including actual future brand performance. Divestitures of portions of our business may also result in costs stranded in our remaining business. Delays in developing or implementing plans to address such costs could delay or prevent the accomplishment of our financial objectives.

We have also acquired or retained ownership interests in companies which we do not control, such as our joint venture to operate the Glass Plant, our interest in Canopy, and investments made through our corporate venture capital function, and we have acquired control of companies which we do not wholly own, such as our 75% interest in Nelson’s Green Brier. Our joint venture partners or the other parties that hold the remaining ownership interests in companies which we do not control may at any time have economic, business, or legal interests or goals that are inconsistent with our goals or the goals of the joint ventures or those companies. Our joint venture arrangements and the arrangements through which we acquired or hold our other equity or membership interests may require us, among other matters, to pay certain costs, to make capital investments, to fulfill alone our joint venture partners’ obligations, or to purchase other parties’ interests. The entities in which we have an interest may be subject to litigation which may have an adverse impact on their ability to do business or under which they may incur costs and expenses which could have a material adverse impact on their operations or financial condition which, in turn, could negatively impact the value of our investment.

We previously increased our investment in Canopy through exercise of our warrants in Canopy and we may further increase our investment in the future. While we will not develop, distribute, manufacture, or sell cannabis products in the U.S., or anywhere else in the world, unless legally permissible to do so at all governmental levels in the particular jurisdiction, this investment could affect consumer perception of our existing brands and our reputation with various constituencies.

In addition, our continued success depends, in part, on our ability to develop new products. The launch and ongoing success of new products are inherently uncertain, especially with respect to consumer appeal. A new product launch can give rise to a variety of costs. An unsuccessful launch, among other things, can affect consumer perception of existing brands and our reputation. Unsuccessful implementation or short-lived popularity of our product innovations has resulted and may in the future result in inventory write-offs and other costs.

We cannot assure that we will realize the expected benefits of acquisitions, divestitures, investments, or new products. We have recognized impairment losses and/or write-offs in connection with acquired and divested businesses and investments, and we may do so again in the future. We also cannot assure that our acquisitions, investments, or joint ventures will be profitable or that forecasts regarding acquisition, divestiture, or investment activities will be accurate or that the internal control over financial reporting of entities which we must consolidate as a result of our investment activities but do not control or wholly own will be as robust as our internal control over financial reporting. Our failure to adequately manage the risks associated with acquisitions, divestitures, investments, or new products, or the failure of an entity in which we have an equity or membership interest, could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Our Canopy investment is dependent upon an emerging market and legal sales of cannabis products
The legal cannabis market is an emerging market. The legislative framework pertaining to the Canadian cannabis market, as well as cannabis markets in other countries, is uncertain. The success of the Canopy transactions will depend on, among other things, the ability of Canopy to create a strong platform to operate successfully in the cannabis market space, consumer demand for its products, and the presence of sufficient retail outlets. There is no assurance a robust cannabis consumer market will develop consistent with our expectations or that consumers will purchase any Canopy products.

The changing legal landscape and the lack of consumer market data makes it difficult to predict the pace at which the cannabis market may grow, if at all, and the products that consumers will purchase in the cannabis marketplace. For example, the Canadian Cannabis Act prohibits testimonials, lifestyle branding and packaging that is appealing to youth. The restrictions on advertising, marketing, and the use of logos and brand names could have
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a material adverse effect on Canopy’s business, liquidity, financial condition, and/or results of operations, and our investment in Canopy. Additionally, Canopy must rely on its own market research and internal data to forecast sales as detailed forecasts may not be fully available at this early stage in the cannabis industry in Canada and globally. Market research relating to the adult-use recreational legal cannabis industry is in its early stages and, as such, trends can only be forecasted.

A failure in the demand for Canopy’s products to materialize as a result of competition, consumer desire, competition from legal and illegal market entrants or other products, or other factors could have a material adverse effect on Canopy’s business, liquidity, financial condition, and/or results of operations. The changing legal landscape and the lack of consumer market data makes it difficult to predict the pace at which the cannabis market may grow, if at all, and the products that consumers will purchase in the cannabis marketplace.

Dependence upon trademarks and proprietary rights, failure to protect our intellectual property rights
Our future success depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property rights. We have been granted numerous trademark registrations and use certain trademarks under license covering our brands and products, and we have filed, and expect to continue to file or have filed on our behalf, trademark applications seeking to protect newly developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of such trademark applications. We could also, by omission, fail to timely renew or protect a trademark and our competitors could challenge, invalidate, or circumvent any existing or future trademarks issued to, or licensed by, us. Several of our subsidiaries are defendants in a lawsuit originally filed in U.S. District Court for the Southern District of New York in February 2021 and amended in December 2021, which alleges, among other things, that our sublicense of the trademarks for our Mexican beer brands should not permit us to use the Corona brand name on our Corona Hard Seltzer or the Modelo brand name on our Modelo Ranch Water. While we believe this lawsuit is without merit, if we are not successful, we may not be able to market our hard seltzer product in its current formulation under the Corona brand name or our ranch water product in its current formulation under the Modelo brand name which may have an adverse effect on our business and financial condition. We may be subject to other litigation related to our trademarks and intellectual property rights. A substantial adverse judgment or other unfavorable resolution of these matters or our failure to otherwise protect our intellectual property rights could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Financial Risks
Indebtedness
We have incurred indebtedness to finance investments and acquisitions, fund beer operations expansion, optimization, and construction activities, pay cash dividends, and repurchase shares of our common stock. In the future, we may continue to incur additional indebtedness for any or all of these activities as well as to fund other general corporate purposes. We cannot assure that our business will generate sufficient cash flow from operations to meet all our debt service requirements; return value to stockholders such as through payment of dividends or repurchase of shares of our common stock; and fund our general corporate and capital requirements.

Our current and future debt service obligations and covenants could have important consequences. These consequences include, or may include, the following:

our ability to obtain financing for future working capital needs or investments/acquisitions or other purposes may be limited;
our funds available for operations, expansions, and construction, dividends, or other distributions, or share repurchases may be reduced because we dedicate a significant portion of our cash flow from operations to the payment of principal and interest on our indebtedness;
our ability to conduct our business could be limited by restrictive covenants; and
our vulnerability to adverse economic conditions may be greater than less leveraged competitors and, thus, our ability to withstand competitive pressures may be limited.

Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in the instruments governing our debt, could result in an event of default under the terms of those instruments and a downgrade to our credit ratings. A downgrade in our credit ratings would increase our borrowing costs and
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could affect our ability to issue commercial paper. Certain of our debt facilities also contain change of control provisions which, if triggered, may result in an acceleration of our obligation to repay the debt. In addition, certain of our current and future debt and derivative financial instruments have, or in the future, could have interest rates that are tied to reference rates, such as SOFR. The volatility and availability of such reference rates, including establishment of alternative reference rates, is out of our control. Changes to or the unavailability of such rates or the manner for calculation of such reference rates, could result in increases to the cost of our debt.

If we do not comply with the obligations contained in our senior credit facility, our existing or future indentures, or other loan agreements, we could be in default under such debt facilities or agreements. In such an event, the holders of our debt could elect to declare as due and payable all amounts outstanding under those instruments. A default could also require the immediate repayment of outstanding obligations under other debt facilities or agreements that contain cross-acceleration or cross-default provisions. If that occurred, we might not have available funds to satisfy our repayment obligations.

Securities measured at fair value
The value of the warrants and convertible debt we hold in Canopy through our subsidiaries is subject to the volatility of the market price of Canopy’s common stock. This volatility subjects our financial statements to volatility. The market price of Canopy’s common stock has experienced significant volatility, and that volatility may continue in the future and may also be subject to wide fluctuations in response to many factors beyond the control of Canopy, or of us. These factors include, but are not limited to:

actual or anticipated fluctuations in Canopy’s reported results of operations or financial position, including due to a significant impairment of goodwill, intangible assets, or other long-lived assets;
recommendations and reports by securities and industry analysts;
impact of COVID-19 on Canopy’s operations, revenues, and ability to access financial markets as well as, on the cannabis industry generally;
significant acquisitions, investments, and/or equity issuances by Canopy;
changes in the performance or market valuations of companies in Canopy’s industry;
announcement of developments and material events by Canopy or its competitors;
fluctuations in the costs of vital production materials and services;
addition or departure of Canopy executive officers or other key personnel;
speculative trading activity by certain investors;
news reports relating to trends, concerns, technological, or competitive developments, regulatory changes and other related issues in Canopy’s industry or target markets;
legal and regulatory changes affecting the cannabis industry generally and Canopy’s business and operations; and
administrative obligations associated with Health Canada requirements and compliance with all associated rules and regulations including, but not limited to, the Canadian Cannabis Act.

We currently account for our investment in Canopy under the equity method. There may be a future impairment of our Canopy Equity Method Investment if Canopy’s stock price remains below our carrying value of that investment and does not recover in the near-term or if our expectations about Canopy’s prospective results and cash flows decline, which could be influenced by a variety of factors including those listed above. We recognize our equity in Canopy’s earnings on a two-month lag primarily because of the availability of Canopy’s financial results since Canopy’s fiscal year ends annually March 31 while our fiscal year ends annually on the last day of February.

Canopy’s corporate governance and valuation
Canopy’s business is subject to evolving corporate governance and public disclosure regulations that may from time to time increase both Canopy’s compliance costs and the risk of its non-compliance. These include changing rules and regulations promulgated by a number of governmental and self-regulated organizations, including, but not limited to, the Canadian Securities Administrators, the TSX, the International Accounting Standards Board, the SEC, and Nasdaq. These rules continue to evolve in scope and complexity creating new requirements for Canopy. Canopy is required to comply with applicable Nasdaq listing standards and SOX requirements. In the future, Canopy’s internal controls may not be adequate, or Canopy may not be able to
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maintain adequate and effective internal controls over financial reporting as required by SOX, or on an ongoing basis if standards are modified, supplemented, or amended from time to time. If not maintained, investors could lose confidence in the reliability of its financial statements, which could harm Canopy’s business and have a negative impact on the trading price or market value of Canopy securities.

In addition, we record as equity in earnings our proportional share of Canopy’s results of operations. We could have a material weakness in the event the proportional share of Canopy’s results of operations that we record contains an error as a result of an error in Canopy’s financial statements that we do not detect.

Although we do not control Canopy, we do have significant influence over Canopy. If we controlled Canopy, we would have to consolidate Canopy into our financial statements, and if Canopy had a material weakness, we would inherit Canopy’s material weakness through consolidation. In such an event, even if Canopy’s financial statements were correct, the fact that Canopy had a material weakness could result in a material weakness for us.

Class action or other litigation relating to abuse of our products, the misuse of our products, product liability, or marketing or sales practices, including product labeling
There has been public attention directed at the beverage alcohol industry, which we believe is due to concern over problems related to harmful use of alcohol, including drinking and driving, underage drinking, and health consequences from the misuse of alcohol. We could be exposed to lawsuits relating to product liability or marketing or sales practices, including product labeling. Adverse developments in lawsuits concerning these types of matters or a significant decline in the social acceptability of beverage alcohol products that may result from lawsuits could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Other Risks
Control by the Sands family; Proposal from the Sands family to declassify our common stock
Our Class B Stock is principally held by members of the Sands family, either directly or through entities controlled by members of the Sands family. Holders of Class A Stock are entitled to one vote per share and holders of Class B Stock are entitled to 10 votes per share. Holders of Class 1 Stock generally do not have voting rights. The stock ownership of the Sands family and entities controlled by members of the Sands family represents a majority of the combined voting power of all classes of our common stock as of the date of this Form 10-K, voting as a single class. Consequently, the Sands family currently has the power to elect a majority of our directors and approve actions requiring the approval of the stockholders of the Company voting as a single class.

On April 2, 2022, we received the Proposal which proposes that each share of Class B Stock would be converted into 1.35 shares of Class A Stock. It is expected that the Sands family and entities controlled by members of the Sands family will continue to be our largest stockholder if a transaction were consummated on the terms proposed. Our Board of Directors has established a Special Committee to evaluate the Proposal. Any definitive agreement with the Sands family and entities controlled by members of the Sands family with respect to the potential transaction must be approved by the Special Committee as well as our Board of Directors. Pursuant to the terms of the Proposal, any potential transaction would also require the approval of holders of a majority of the shares of Class A Stock that do not also hold shares of Class B Stock. We cannot assure you that a definitive agreement will be entered into, including because the Special Committee or the Board of Directors does not approve any such transaction, or what the ultimate terms of any such agreement may be. In addition, even if an agreement is approved by the Special Committee and the Board of Directors, a transaction still may not be completed if such transaction is not approved by the holders of a majority of the shares of Class A Stock that do not also hold shares of Class B Stock.

The Sands family and entities controlled by members of the Sands family have pledged shares of Class A Stock and Class B Stock to secure various credit facilities. In the event of noncompliance with certain covenants under the credit facilities, the financial institutions to which such stock is pledged have certain remedies, including the right to sell the pledged shares (which would require the conversion of Class B Stock into Class A Stock prior to any sales) subject to certain protections afforded to the borrowers and pledgors. The sale by such financial institutions of a substantial amount of the pledged shares could depress, or result in volatility in, the trading price
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of our Class A Stock and/or result in the Sands family and entities controlled by members of the Sands family ceasing to own shares representing a majority of the combined voting power of all classes of our common stock voting as a single class. In addition, if significant stock indices decide to prohibit the inclusion of companies with dual class structures, the price of our Class A Stock could be negatively impacted and could become more volatile.

Choice-of-forum provision contained in by-laws regarding certain stockholder litigation
Our by-laws provide that, unless we consent in writing to the selection of an alternative forum, (i) the Court of Chancery of Delaware (or if such court lacks subject matter jurisdiction, the federal district court of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company; any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, or stockholders to the Company or our stockholders; any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation, or our by-laws or as to which the DGCL confers jurisdiction on the Court of Chancery of Delaware; or any action asserting a claim governed by the internal affairs doctrine, and (ii) the federal district courts of the U.S. will, to the fullest extent permitted by law, be the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act.

To the fullest extent permitted by law, this choice-of-forum provision will apply to state and federal law claims, including claims under the federal securities laws (including the Securities Act and the Exchange Act), although our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. This choice-of-forum provision may increase costs for a stockholder pursuing any such claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our directors, officers, other stockholders, or other employees which may discourage such lawsuits even though an action, if successful, might benefit our stockholders. In addition, the courts located in Delaware may reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. If a court were to find this choice-of-forum provision inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions which could adversely affect our business, liquidity, financial condition, and/or results of operations. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and consented to the provisions of our by-laws described above.

General Risks
International operations, worldwide and regional economic trends and financial market conditions, geopolitical uncertainty, interest rate fluctuations, or other governmental rules and regulations
Risks associated with international operations, any of which could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations, include:

changes in local political, economic, social, and labor conditions;
potential disruption from wars and military conflicts, including Russia’s invasion of Ukraine, terrorism, kidnapping, and drug-related or other types of violence;
restrictions on foreign ownership and investments or on repatriation of cash earned in countries outside the U.S.;
import and export requirements and border accessibility;
protectionist trade policies, sanctions, and tariffs;
currency exchange rate fluctuations;
a less developed and less certain legal and regulatory environment in some countries, which, among other things, can create uncertainty regarding contract enforcement, intellectual property rights, privacy obligations, real property rights, and liability issues; and
inadequate levels of compliance with applicable domestic and foreign anti-bribery and anti-corruption laws, including the Foreign Corrupt Practices Act.

Unfavorable global or regional economic conditions, including economic slowdown or recession and the disruption, volatility, and tightening of credit and capital markets, as well as unemployment, tax increases, governmental spending cuts, or continuing high levels of inflation, could affect consumer spending patterns and
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purchases of our products. These could also create or exacerbate credit issues, cash flow issues, and other financial hardships for us and our suppliers, distributors, retailers, and consumers. The inability of suppliers, distributors, and retailers to access liquidity could impact our ability to produce and distribute our products.

We are also exposed to risks associated with interest rate fluctuations. We could experience changes in our ability to manage fluctuations in interest rates and, accordingly, there can be no assurance that we will be successful in reducing those risks.

We could also be affected by nationalization of our international operations, unstable governments, unfamiliar or biased legal systems, intergovernmental disputes or animus against the U.S. Any determination that our operations or activities did not comply with applicable U.S. or foreign laws or regulations could result in the imposition of fines and penalties, interruptions of business, terminations of necessary licenses and permits, and other legal and equitable sanctions.

Damage to our reputation
The success of our brands depends upon the positive image that consumers have of those brands and maintaining a good reputation is critical to selling our branded products. Our reputation could also be impacted negatively by public perception, adverse publicity (whether or not valid, such as the similarity of the name of certain of our brands or trademarks and a type of virus), negative comments in social media, or our responses relating to:

a perceived failure to maintain high ethical standards and responsible operating practices to achieve business goals for all our operations and activities, including those related to our ESG and DEI strategies, initiatives, and targets as well as associated reporting regulations, standards, frameworks, and ratings;
a perceived failure to address concerns relating to the quality, safety, or integrity of our products, including from contamination, whether arising accidentally or through deliberate third-party action;
allegations that we, or persons currently or formerly associated with us, have violated applicable laws or regulations, including but not limited to those related to safety, employment, discrimination, harassment, whistle-blowing, privacy, corporate citizenship, improper business practices, or cyber-security;
our environmental impact, including use of agricultural materials, packaging, water and energy use, and waste management; or
efforts that are perceived as insufficient to promote the responsible use of alcohol or cannabis.

Failure to comply with applicable laws and regulations, maintain an effective system of internal controls, provide accurate and timely financial statement information, or protect our information systems against service interruptions, misappropriation of data, or breaches of security, could also hurt our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations, as well as require additional resources to rebuild our reputation, competitive position, and brand equity and renew investor confidence.

Competition
We operate in a highly competitive industry, and our sales and profitability could be negatively affected by numerous factors including:

our inability to maintain or increase prices;
new entrants in our market or categories;
the consolidation of distributors, wholesalers, retailers, and suppliers;
the decision of wholesalers, retailers, or consumers to purchase competitors’ products instead of ours;
a general decline in beverage alcohol consumption due to consumer dietary preference changes or consumers substituting legalized marijuana or other similar products in lieu of beverage alcohol; or
pricing, purchasing, financing, operational, advertising, or promotional decisions made by wholesalers, state and other local agencies, and retailers which could affect their supply of, or consumer demand for, our products.
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Our continued success also depends on our ability to attract and retain a high-quality and diverse workforce in a competitive environment for talent. We could also experience higher than expected selling, general, and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position, due to employee turnover including as a result of the ongoing “great resignation” occurring in the U.S. economy, or for other reasons. We cannot guarantee that we will be able to increase our prices to pass along to our customers any increased costs we incur.

Intangible assets, such as goodwill and trademarks
We have a significant amount of intangible assets such as goodwill and trademarks and may acquire more intangible assets in the future. Intangible assets are subject to a periodic impairment evaluation under applicable accounting standards. The write-down of any of these intangible assets could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Changes to tax laws, fluctuations in our effective tax rate, accounting for tax positions, the resolution of tax disputes, and changes to accounting standards, elections, assertions, or policies
Changes to federal, state, provincial, local, or foreign tax laws, could result in increased taxes on our products, business, customers, or consumers. Various proposals to increase taxes on beverage alcohol products have been made at the federal and state levels or at other governmental bodies in recent years. Federal, state, provincial, local, or foreign governmental entities may consider increasing taxes upon beverage alcohol products as they explore available alternatives for raising funds, including to offset budget or other deficits.

In addition, significant judgment is required to determine our effective tax rate and evaluate our tax positions. Our provision for income taxes includes a provision for uncertain tax positions. Fluctuations in federal, state, local, and foreign taxes, or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and our financial results. When tax matters arise, several years may elapse before such matters are audited and finally resolved. Unfavorable resolution of any tax matter could increase our effective tax rate and resolution of a tax issue may require the use of cash in the year of resolution.

U.S. tax changes or changes in how international corporations are taxed, including changes in how existing tax laws are interpreted or enforced, or changes to accounting standards, elections, or assertions as well as our accounting policies could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Cash dividends and share repurchases are subject to a number of uncertainties, and may affect the price of our common stock
Our capital allocation strategy contemplates quarterly cash dividends and periodic share repurchases under our share repurchase program. We fund our cash dividends and share repurchases through a combination of cash flow from operations, borrowings, and divestiture proceeds. However, we are not required to declare dividends or to make any share repurchases under our share repurchase program. We may discontinue, limit, suspend, increase, or delay our dividends and share repurchases at any time without prior notice. Even if not discontinued, the amount of such dividends and repurchases may be changed, and the amount, timing, and frequency of such dividends and repurchases may vary from historical practice or from our stated expectations. Decisions with respect to dividends and share repurchases are subject to the discretion of our Board of Directors and will be based on a variety of factors. Important factors that could cause us to discontinue, limit, suspend, increase, or delay our cash dividends or share repurchases include market conditions, the price of our common stock, the nature and timing of other investment opportunities, changes in our business strategy, the terms of our financing arrangements, our outlook as to our ability to obtain financing at attractive rates, the impact on our credit ratings, and the availability of cash. The reduction or elimination of our cash dividend, or longer suspension or elimination of our share repurchase program could adversely affect the market prices of our common stock. Additionally, there can be no assurance that any share repurchases will enhance stockholder value because the market prices of our common stock may decline below the levels at which we repurchased shares of common stock, and short-term stock price fluctuations could reduce the program’s effectiveness.

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Item 2. Properties

We operate breweries, wineries, distilleries, 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 principal physical properties described below, certain of our businesses maintain office space for sales and similar activities and offsite warehouse and distribution facilities in a variety of geographic locations.

Our corporate headquarters are located in leased offices in Victor, New York. We plan to relocate our corporate headquarters to a leased office in Rochester, New York in Fiscal 2024. Our segments also maintain leased office spaces in other locations in the U.S. and internationally.

We believe that our facilities, taken as a whole, are in good condition and working order. Within the 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 demand. Within the Wine and Spirits segment, we have adequate capacity to meet our needs for the foreseeable future. As of February 28, 2022, our principal physical properties by segment, excluding Canopy, all of which are owned, consist of:
stz-20220228_g22.jpg
Beer
stz-20220228_g2.jpg
Wine and Spirits
Breweries
Nava Brewery in Nava, Coahuila, Mexico
Obregon Brewery in Obregon, Sonora, Mexico

Production facility
Glass Plant in Nava, Coahuila, Mexico

Wineries
Gonzales Winery in Gonzales, California, U.S.
Mission Bell Winery in Madera, California, U.S.
Woodbridge Winery in Acampo, California, U.S.
Kim Crawford Winery in Marlborough, South Island, New Zealand

Warehouse, distribution, and other production facilities
Lodi Distribution Center in Lodi, California, U.S.
Pontassieve Winery in Florence, Italy

Within our Wine and Spirits segment, as of February 28, 2022, we owned, leased, or had interests in approximately 9,700 acres of vineyards in California (U.S.), 6,700 acres of vineyards in New Zealand, and 1,400 acres of vineyards in Italy. In Fiscal 2023, we acquired the Lingua Franca business which included a vineyard and a production facility in Oregon (U.S.). For further information on this acquisition, refer to (i) “Overview” within MD&A and (ii) Note 2.


Item 3. Legal Proceedings

For information regarding Legal Proceedings, see Risk Factors and Note 16.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our Class A Stock and Class B Stock trade on the NYSE under the symbols STZ and STZ.B, respectively. There is no public trading market for our Class 1 Stock. At April 14, 2022, the number of holders of record of our Class A Stock, Class B Stock, and Class 1 Stock were 478, 91, and 18, respectively.

For information regarding a recent development related to a proposed declassification of our Class B Stock, dividends, and share repurchase programs, see (i) MD&A and (ii) Note 17.

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 Form 10-K.

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PART IIITEM 7. MD&A
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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 28, 2021, filed on April 20, 2021, for reference to discussion of the fiscal year ended February 29, 2020, 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, COVID-19 and global supply chain related impacts, and 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 financial 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 brands, craft beer, and ABAs. 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, we sell a portfolio that 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 upholding our leadership position in the high-end segment of the U.S. beer market through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth. This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, including within the DTC and 3-tier eCommerce channels, as well as continued expansion, optimization, and/or 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 create new line extensions behind celebrated, trusted brands and package formats that meet emerging needs.

We have increased our production capacity in Mexico by fourfold since the 2013 acquisition of the imported beer business. In early Fiscal 2022, we completed part of a planned expansion at the Obregon Brewery, increasing our production capacity to approximately 39 million hectoliters. Expansion, optimization, and/or construction activities continue under our Mexico Beer Projects to align with our anticipated future growth expectations. 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 business strategy for the Wine and Spirits segment focuses on growing industry-leading, higher-end wine and spirits brands through margin improvements and creation of operating efficiencies. We focus our investment dollars on (i) building and refreshing existing brands within our portfolio through consumer insights, sensory expertise, and innovation, and (ii) refining our portfolio through targeted acquisitions of higher-margin, higher-growth wine and spirits brands. We recently reorganized this business into two distinct commercial teams, one focused on our fine wine and craft spirits brands and the other focused on our mainstream and premium brands. While each team has its own distinct strategy, both remain aligned to the goal of accelerating performance by growing net sales and expanding margins. Additionally, we continue to strengthen our leadership position and invest in DTC and 3-tier eCommerce channels. In markets where it is feasible, we entered into contractual arrangements to consolidate our U.S. distribution in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth. This U.S. distributor currently represents about 70% of our branded wine and spirits volume in the U.S.

Marketing, sales, and distribution of our products are primarily 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. Our strategic relationship with Canopy is designed to help position it to be successful in cannabis production, branding, and intellectual property.

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 net leverage ratio, and deliver returns to stockholders through the payment of dividends and periodic share repurchases. Our results of operations and financial condition have been affected by inflation and changing prices and we expect these impacts to continue in Fiscal 2023. Our Fiscal 2023 results of operations could also be impacted by reductions in discretionary income of consumers available to purchase our products. We intend to pass along rising costs through increased selling prices, subject to normal competitive conditions. In addition, we continue to identify ongoing cost savings initiatives, including our commodity hedge program. However, there can be no assurances that we will be able to fully mitigate rising costs through increased selling prices and/or cost savings initiatives. Furthermore, to the extent climate-related events, such as the 2020 U.S. wildfires or the late frost in New Zealand,
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continue to occur or accelerate in future periods, it could have a material impact on our results of operations and financial condition.

Recent Developments

Class B Stock declassification proposal
In April 2022, we received the Proposal which proposes that each share of Class B Stock would be converted into 1.35 shares of Class A Stock. Our Board of Directors has established a Special Committee to evaluate the Proposal. Any definitive agreement with respect to the potential transaction must be approved by the Special Committee as well as our Board of Directors. In addition, pursuant to the terms of the Proposal, any potential transaction would require the approval of holders of a majority of the shares of our Class A Stock that do not also hold shares of Class B Stock.

Other acquisitions
During the first quarter of Fiscal 2023, we completed the acquisitions of other businesses, consisting of Lingua Franca, which included a collection of luxury wines, a vineyard, and a production facility, and the remaining 73% ownership interest in Austin Cocktails, which included a portfolio of small batch, RTD cocktails. The purchase price for each acquisition includes an earn-out based on the performance of the respective brands. The results of operations of these acquired businesses will be reported in the Wine and Spirits segment and will be included in our consolidated results of operations from their respective date of acquisition.

COVID-19 and Global Supply Chain Related Impacts

COVID-19 containment measures affected us predominantly in the first half of Fiscal 2021 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 which we were able to rectify in the second half of Fiscal 2021. The on-premise business has historically been about 10% to 15% of our depletion volume for beer, wine, and spirits. Our on-premise depletion volumes for Fiscal 2022 were, and in Fiscal 2023 may continue to be, impacted by regional COVID-19 case levels, vaccine immunization rates, new COVID-19 variants, and vaccine efficacy against new COVID-19 variants. Currently, our breweries, wineries, distilleries, and bottling facilities are open and operational.

As reflected in the discussion below, we have seen consumers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased eCommerce sales, including DTC, for our business. Fiscal 2022 was impacted by challenges with both global supply chain logistics and transportation which contributed to lower product inventory levels and higher cost of product sold. For example, wine produced in New Zealand and Italy and subsequently shipped to the U.S. for distribution continues to be affected by the lack of availability and increased costs of ocean freight shipping containers and port delays causing increased storage charges. In addition, during Fiscal 2022, we experienced a brown glass purchasing shortage, which impacted certain of our imported beer brands. This supply returned to normal levels in early Fiscal 2023. To the extent these circumstances continue to occur or accelerate in future periods it could have a material impact on our results of operations.

In response to COVID-19, we have ensured our ongoing liquidity and financial flexibility through cash preservation initiatives, capital management adjustments, and cost control measures. We have used opportunities to defer some payments including certain payroll taxes under the CARES Act afforded to us earlier in the pandemic. 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 revolving credit facility. We expect to have continued access to capital markets and to be able to continue to return value to stockholders through dividends and periodic share repurchases.

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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
My Favorite Neighbor acquisition
In November 2021, we acquired the remaining 65% ownership interest in My Favorite Neighbor, which primarily included the acquisition of goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of My Favorite Neighbor are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition. In April 2020, we made an initial investment in My Favorite Neighbor that was accounted for under the equity method. We recognized our share of their equity in earnings (losses) in our consolidated financial statements in the Wine and Spirits segment up to the date we acquired the remaining ownership interest. The My Favorite Neighbor investment and subsequent acquisition supported our strategic focus on consumer-led premiumization trends and meeting the evolving needs of our consumers.

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, net of post-closing adjustments. The net cash proceeds were used for general corporate purposes. We recognized a net gain of $58.4 million on the sale of the business primarily for the year ended February 28, 2021.

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, net of 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, net of post-closing adjustments.

The cash proceeds from the Wine and Spirits Divestitures were utilized to reduce outstanding debt and for other general corporate purposes. We recognized a net loss of $33.6 million on the Wine and Spirits Divestitures primarily for the year ended February 28, 2021.

Concentrate Business Divestiture
In December 2020, we sold certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets.

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
(in millions)
Net sales$642.3 
Gross profit$252.9 
Marketing (1)
$14.5 
(1)Included in selling, general, and administrative expenses within our consolidated results of operations.
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Copper & Kings acquisition
In September 2020, we acquired the remaining ownership interest in Copper & Kings which primarily included the acquisition of inventory 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 DTC and other 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.

Corporate Operations and Other segment
Corporate investment
In February 2022, we sold an investment made through our corporate venture capital function. We recognized our share of their equity in earnings (losses) in our consolidated financial statements in the Corporate Operations and Other segment up to the date we sold our ownership interest.

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 these recent developments, investments, acquisitions, and divestitures, refer to Notes 2, 7, 10, and 17.


Results of Operations

Financial Highlights

References to organic throughout the following discussion exclude the impact of the brands divested in January 2021, as appropriate.

For Fiscal 2022 compared with Fiscal 2021:

Our results of operations were negatively impacted by (i) an unrealized net loss from the changes in fair value of our investment in Canopy as compared with the unrealized net gain in Fiscal 2021, (ii) an impairment of long-lived assets for Fiscal 2022 in connection with certain assets at the Mexicali Brewery, (iii) a decrease in Wine and Spirits net sales due largely to the divestitures, and (iv) an increase in operational costs within the Beer segment, partially offset by an increase in Beer net sales, as well as a decrease in equity in losses from Canopy’s results.

Net sales increased 2% as an increase in Beer net sales, driven predominantly by shipment volume growth and favorable impact from pricing, was offset by the decrease in Wine and Spirits net sales, due largely to the divestitures.

Operating income decreased 16% largely due to (i) the impairment of long-lived assets, (ii) the decrease in Wine and Spirits net sales, (iii) an increase in cost of product sold within the Beer segment, and (iv) an increase in marketing spend for the Beer segment, driven by a planned increase to support the growth of our brands, partially offset by the increase in Beer net sales.

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Net income (loss) attributable to CBI and diluted net income (loss) per common share attributable to CBI decreased largely due to the items discussed above, partially offset by lower provision for income taxes.

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 does not include the impact of these Comparable Adjustments.

As more fully described herein and in the related Notes, the Comparable Adjustments that impacted comparability in our segment results for each period are as follows:
Fiscal
2022
Fiscal
2021
(in millions)
Cost of product sold
Net gain (loss) on undesignated commodity derivative contracts$109.9 $25.1 
Net flow through of reserved inventory12.1 — 
Settlements of undesignated commodity derivative contracts(35.9)31.6 
Strategic business development costs(2.6)(29.8)
Recovery of (loss on) inventory write-down(1.0)(70.4)
Flow through of inventory step-up(0.1)(0.4)
COVID-19 incremental costs— (7.6)
Accelerated depreciation— (0.1)
Total cost of product sold82.4 (51.6)
Selling, general, and administrative expenses
Transition services agreements activity(19.2)0.4 
Transaction, integration, and other acquisition-related costs(1.4)(7.6)
Restructuring and other strategic business development costs0.6 (23.9)
Net gain (loss) on foreign currency derivative contracts— (8.0)
Impairment of intangible assets— (6.0)
COVID-19 incremental costs— (4.8)
Other gains (losses)
(2.3)14.3 
Total selling, general, and administrative expenses(22.3)(35.6)
Impairment of brewery construction in progress(665.9)— 
Impairment of assets held for sale