UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 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

CONSTELLATION BRANDS, INC.

(Exact name of registrant as specified in its charter)

Delaware	16-0716709
(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)

(585) 678-7100

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock	STZ	New York Stock Exchange
Class B Common Stock	STZ.B	New York Stock Exchange

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 filer	☒	Accelerated 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐  No  ☒

There were 159,330,225 shares of Class A Common Stock, 23,205,885 shares of Class B Common Stock, and 2,248,714 shares of Class 1 Common Stock outstanding as of June 24, 2022.

TABLE OF CONTENTS

		Page
DEFINED TERMS		i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Comprehensive Income (Loss)		2
Consolidated Statements of Changes in Stockholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements
	1. Basis of Presentation	6
	2. Inventories	6
	3. Derivative Instruments	6
	4. Fair Value of Financial Instruments	8
	5. Goodwill	12
	6. Intangible Assets	13
	7. Equity Method Investments	14
	8. Borrowings	15
	9. Income Taxes	18
	10. Stockholders' Equity	19
	11. Net Income (Loss) Per Common Share Attributable to CBI	20
	12. Comprehensive Income (Loss) Attributable to CBI	20
	13. Business Segment Information	22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		44
Item 4. Controls and Procedures		45
PART II – OTHER INFORMATION
Item 1A. Risk Factors		46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 6. Exhibits		47
INDEX TO EXHIBITS		48
SIGNATURES		53

This Form 10-Q 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 the Company’s control, that could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. For further information regarding such forward-looking statements, risks, and uncertainties, please see “Information Regarding Forward-Looking Statements” under Part I – Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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-Q and in our Notes that are specific to us or are abbreviations that may not be commonly known or used.

Term	Meaning
$	U.S. dollars
3.20% February 2018 Senior Notes	$600.0 million principal amount of 3.20% senior notes issued in February 2018, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
4.25% May 2013 Senior Notes	$1,050.0 million principal amount of 4.25% senior notes issued in May 2013, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
2018 Authorization	authority 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
2020 U.S. wildfires	significant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest
2021 Authorization	authority 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 Annual Report	our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, unless otherwise specified
2022 Credit Agreement	tenth amended and restated credit agreement, dated as of April 14, 2022, provides for an aggregate revolving credit facility of $2.25 billion
2022 Restatement Agreement	restatement agreement, dated as of April 14, 2022, that amended and restated the ninth amended and restated agreement, dated as of March 26, 2020, which was our then-existing senior credit facility as of February 28, 2022
2022 Term Credit Agreement	June 2021 Term Credit Agreement, inclusive of amendment dated as of April 14, 2022
3-tier	distribution channel where products are sold to a distributor (wholesaler) who then sells to a retailer; the retailer sells the products to a consumer
3-tier eCommerce	digital commerce experience for our consumers to purchase beverage alcohol from retailers
ABA	alternative beverage alcohol
Acreage	Acreage Holdings, Inc.
Acreage Financial Instrument	a call option for Canopy to acquire 70% of the shares of Acreage at a fixed exchange ratio and 30% at a floating exchange ratio
Acreage Transaction	Canopy’s intention to acquire Acreage upon U.S. federal cannabis legalization, subject to certain conditions
Administrative Agent	Bank of America, N.A., as administrative agent for the senior credit facility and term credit agreement
AOCI	accumulated other comprehensive income (loss)
ASR	accelerated share repurchase agreement with a third-party financial institution
Austin Cocktails	we made an initial investment in the Austin Cocktails business and subsequently acquired the remaining ownership interest
C$	Canadian dollars
Canopy	we made an investment in Canopy Growth Corporation, an Ontario, Canada-based public company
Canopy Debt Securities	convertible 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

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    i

Term	Meaning
CARES Act	Coronavirus Aid, Relief, and Economic Security Act
CB International	CB International Finance S.à r.l., a wholly-owned subsidiary of ours
Charter Amendment	amendment and restatement of our Restated Certificate of Incorporation to effect the Reclassification
Class 1 Stock	our Class 1 Convertible Common Stock, par value $0.01 per share
Class A Stock	our Class A Common Stock, par value $0.01 per share
Class B Stock	our Class B Convertible Common Stock, par value $0.01 per share
CODM	chief operating decision maker
Comparable Adjustments	certain items affecting comparability that have been excluded by management
DEI	diversity, equity, and inclusion
Depletions	represent U.S. domestic distributor shipments of our respective branded products to retail customers, based on third-party data
Digital Business Acceleration	a phased initiative by the Company to create a cohesive digital strategy and build an advanced digital business in the coming years
DTC	direct-to-consumer; a digital commerce experience for consumers to purchase directly from brand websites with inventory coming straight from the supplier
Effective Time	the time of filing the Charter Amendment with the Delaware Secretary of State
ERP	enterprise resource planning system
ESG	environmental, social, and governance
Exchange Act	Securities Exchange Act of 1934, as amended
Financial Statements	our consolidated financial statements and notes thereto included herein
First Quarter 2022	the Company’s three months ended May 31, 2021
First Quarter 2023	the Company’s three months ended May 31, 2022
Fiscal 2022	the Company’s fiscal year ended February 28, 2022
Fiscal 2023	the Company’s fiscal year ending February 28, 2023
Fiscal 2024	the Company’s fiscal year ending February 29, 2024
Fiscal 2025	the Company’s fiscal year ending February 28, 2025
Fiscal 2026	the Company’s fiscal year ending February 28, 2026
Fiscal 2027	the Company’s fiscal year ending February 28, 2027
Fiscal 2028	the Company’s fiscal year ending February 29, 2028
Five-Year Term Facility	a five-year term loan facility under the 2022 Term Credit Agreement
Form 10-Q	this Quarterly Report on Form 10-Q for First Quarter 2023 unless otherwise specified
GHG	greenhouse gas
June 2021 Term Credit Agreement	amended 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, inclusive of amendment dated as of June 10, 2021
Lender	Bank of America, N.A., as lender for the term credit agreement
LIBOR	London Interbank Offered Rate
Lingua Franca	Lingua Franca, LLC business, acquired by us
May 2020 Canopy Investment	in May 2020, we made an incremental investment for 18.9 million common shares of Canopy through the exercise of warrants obtained in November 2017
May 2022 Senior Notes	$1,850.0 million aggregate principal amount of senior notes issued in May 2022
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this Form 10-Q
Mexicali Brewery	suspended brewery construction project located in Mexicali, Baja California, Mexico
Mexico Beer Projects	expansion, optimization, and/or construction activities at the Obregon Brewery, Nava Brewery, and Veracruz Brewery

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    ii

Term	Meaning
M&T	Manufacturers and Traders Trust Company
My Favorite Neighbor	we made an initial investment in My Favorite Neighbor, LLC and subsequently acquired the remaining ownership interest
NA	not applicable
Nasdaq	Nasdaq Global Select Market
Nava	Nava, Coahuila, Mexico
Nava Brewery	brewery located in Nava
Net sales	gross sales less promotions, returns and allowances, and excise taxes
NM	not meaningful
Note(s)	notes to the consolidated financial statements
November 2017 Canopy Investment	in November 2017, we made an initial investment for 18.9 million common shares of Canopy
November 2018 Canopy Investment	in November 2018, we made an 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 Warrants	Tranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively
NYSE	New York Stock Exchange
Obregon	Obregon, Sonora, Mexico
Obregon Brewery	brewery located in Obregon
OCI	other comprehensive income (loss)
Pre-issuance hedge contracts	treasury lock and/or swap lock contracts designated as cash flow hedges entered into to hedge treasury rate volatility on future debt issuances
Reclassification	the plan to reclassify the Company’s common stock to eliminate the existing Class B Stock pursuant to the terms and conditions of the Reclassification Agreement
Reclassification Agreement	reclassification agreement in support of the Reclassification, dated June 30, 2022, among the Company and the Sands Stockholder Group
RTD	ready-to-drink
SEC	Securities and Exchange Commission
Sands Stockholder Group	Richard Sands, Robert Sands, Astra Legacy LLC, and WildStar Partners LLC
Securities Act	Securities Act of 1933, as amended
SOFR	secured overnight financing rate administered by the Federal Reserve Bank of New York
THC	tetrahydrocannabinol
Tranche A Warrants	warrants which give us the option to purchase 88.5 million common shares of Canopy expiring November 1, 2023
Tranche B Warrants	warrants which give us the option to purchase 38.4 million common shares of Canopy expiring November 1, 2026
Tranche C Warrants	warrants 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. GAAP	generally accepted accounting principles in the U.S.
Veracruz	Heroica Veracruz, Veracruz, Mexico
Veracruz Brewery	a new brewery intended to be located in Veracruz
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

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    iii

FINANCIAL STATEMENTS Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)

	May 31, 2022		February 28, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	101.8	$	199.4
Accounts receivable	879.9		899.0
Inventories	1,656.4		1,573.2
Prepaid expenses and other	664.1		658.1
Total current assets	3,302.2		3,329.7
Property, plant, and equipment	6,163.3		6,059.6
Goodwill	7,915.1		7,862.4
Intangible assets	2,765.7		2,755.2
Equity method investments	2,534.0		2,688.7
Securities measured at fair value	172.3		191.4
Deferred income taxes	2,334.8		2,351.5
Other assets	653.7		617.3
Total assets	$	25,841.1	$	25,855.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	124.0	$	323.0
Current maturities of long-term debt	575.1		605.3
Accounts payable	874.6		899.2
Other accrued expenses and liabilities	792.1		871.3
Total current liabilities	2,365.8		2,698.8
Long-term debt, less current maturities	10,278.2		9,488.2
Deferred income taxes and other liabilities	1,638.6		1,621.0
Total liabilities	14,282.6		13,808.0
Commitments and contingencies
CBI stockholders’ equity:
Class A Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 187,264,514 shares and 187,263,859 shares, respectively	1.9		1.9
Class B Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,211,685 shares and 28,212,340 shares, respectively	0.3		0.3
Additional paid-in capital	1,825.0		1,808.9
Retained earnings	14,746.2		14,505.4
Accumulated other comprehensive income (loss)	(166.3)		(412.7)
	16,407.1		15,903.8
Less: Treasury stock –
Class A Stock, at cost, 26,694,497 shares and 22,824,607 shares, respectively	(5,173.5)		(4,169.7)
Class B Stock, at cost, 5,005,800 shares	(2.2)		(2.2)
	(5,175.7)		(4,171.9)
Total CBI stockholders’ equity	11,231.4		11,731.9
Noncontrolling interests	327.1		315.9
Total stockholders’ equity	11,558.5		12,047.8
Total liabilities and stockholders’ equity	$	25,841.1	$	25,855.8

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    1

FINANCIAL STATEMENTS Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, except per share data)

(unaudited)

	For the Three Months Ended May 31,
	2022		2021
Sales	$	2,540.7	$	2,188.3
Excise taxes	(177.5)		(161.8)
Net sales	2,363.2		2,026.5
Cost of product sold	(1,108.2)		(907.2)
Gross profit	1,255.0		1,119.3
Selling, general, and administrative expenses	(438.6)		(378.3)
Impairment of brewery construction in progress	—		(665.9)
Operating income (loss)	816.4		75.1
Income (loss) from unconsolidated investments	(187.9)		(899.2)
Interest expense	(88.5)		(86.7)
Loss on extinguishment of debt	(15.3)		—
Income (loss) before income taxes	524.7		(910.8)
(Provision for) benefit from income taxes	(125.4)		13.5
Net income (loss)	399.3		(897.3)
Net (income) loss attributable to noncontrolling interests	(9.8)		(10.8)
Net income (loss) attributable to CBI	$	389.5	$	(908.1)
Comprehensive income (loss)	$	658.3	$	(792.8)
Comprehensive (income) loss attributable to noncontrolling interests	(22.4)		(16.4)
Comprehensive income (loss) attributable to CBI	$	635.9	$	(809.2)
Net income (loss) per common share attributable to CBI:
Basic – Class A Stock	$	2.09	$	(4.74)
Basic – Class B Stock	$	1.89	$	(4.31)
Diluted – Class A Stock	$	2.06	$	(4.74)
Diluted – Class B Stock	$	1.89	$	(4.31)
Weighted average common shares outstanding:
Basic – Class A Stock	165.335		170.602
Basic – Class B Stock	23.206		23.247
Diluted – Class A Stock	189.333		170.602
Diluted – Class B Stock	23.206		23.247
Cash dividends declared per common share:
Class A Stock	$	0.80	$	0.76
Class B Stock	$	0.72	$	0.69

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    2

FINANCIAL STATEMENTS Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited)
	Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-controlling Interests		Total
	Class A		Class B
Balance at February 28, 2022	$	1.9	$	0.3	$	1,808.9	$	14,505.4	$	(412.7)	$	(4,171.9)	$	315.9	$	12,047.8
Comprehensive income (loss):
Net income (loss)	—		—		—		389.5		—		—		9.8		399.3
Other comprehensive income (loss), net of income tax effect	—		—		—		—		246.4		—		12.6		259.0
Comprehensive income (loss)															658.3
Repurchase of shares	—		—		—		—		—		(1,007.6)		—		(1,007.6)
Dividends declared	—		—		—		(148.7)		—		—		—		(148.7)
Noncontrolling interest distributions	—		—		—		—		—		—		(11.2)		(11.2)
Shares issued under equity compensation plans	—		—		(0.6)		—		—		3.8		—		3.2
Stock-based compensation	—		—		16.7		—		—		—		—		16.7
Balance at May 31, 2022	$	1.9	$	0.3	$	1,825.0	$	14,746.2	$	(166.3)	$	(5,175.7)	$	327.1	$	11,558.5
Balance at February 28, 2021	$	1.9	$	0.3	$	1,604.2	$	15,117.8	$	(335.5)	$	(2,789.8)	$	330.2	$	13,929.1
Comprehensive income (loss):
Net income (loss)	—		—		—		(908.1)		—		—		10.8		(897.3)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		98.9		—		5.6		104.5
Comprehensive income (loss)															(792.8)
Repurchase of shares	—		—		—		—		—		(400.8)		—		(400.8)
Dividends declared	—		—		—		(146.1)		—		—		—		(146.1)
Noncontrolling interest distributions	—		—		—		—		—		—		(10.6)		(10.6)
Shares issued under equity compensation plans	—		—		(0.9)		—		—		3.8		—		2.9
Stock-based compensation	—		—		15.9		—		—		—		—		15.9
Balance at May 31, 2021	$	1.9	$	0.3	$	1,619.2	$	14,063.6	$	(236.6)	$	(3,186.8)	$	336.0	$	12,597.6

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    3

FINANCIAL STATEMENTS Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	For the Three Months Ended May 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	399.3	$	(897.3)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Unrealized net (gain) loss on securities measured at fair value	22.4		745.1
Deferred tax provision (benefit)	21.5		(98.7)
Depreciation	92.7		76.0
Stock-based compensation	16.8		16.0
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings	165.5		154.1
Noncash lease expense	21.6		19.7
Amortization of debt issuance costs and loss on extinguishment of debt	17.7		2.7
Impairment of brewery construction in progress	—		665.9
Gain (loss) on settlement of Pre-issuance hedge contracts	20.7		—
Change in operating assets and liabilities, net of effects from purchase and sale of business:
Accounts receivable	17.2		(136.7)
Inventories	(83.0)		(82.3)
Prepaid expenses and other current assets	93.7		(11.7)
Accounts payable	94.5		224.1
Deferred revenue	26.2		130.5
Other accrued expenses and liabilities	(166.2)		(61.7)
Other	(2.4)		(29.7)
Total adjustments	358.9		1,613.3
Net cash provided by (used in) operating activities	758.2		716.0
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(196.6)		(113.9)
Purchase of business, net of cash acquired	(37.2)		—
Investments in equity method investees and securities	—		(8.5)
Proceeds from sale of assets	6.5		0.8
Proceeds from sale of business	—		5.0
Other investing activities	0.5		—
Net cash provided by (used in) investing activities	(226.8)		(116.6)

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    4

FINANCIAL STATEMENTS Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	For the Three Months Ended May 31,
	2022		2021
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	1,846.8		6.3
Principal payments of long-term debt	(1,084.7)		(7.4)
Net proceeds from (repayments of) short-term borrowings	(199.0)		—
Dividends paid	(149.3)		(146.7)
Purchases of treasury stock	(1,007.6)		(400.8)
Proceeds from shares issued under equity compensation plans	14.0		12.5
Payments of minimum tax withholdings on stock-based payment awards	(10.4)		(9.8)
Payments of debt issuance, debt extinguishment, and other financing costs	(25.8)		—
Distributions to noncontrolling interests	(11.2)		(10.6)
Net cash provided by (used in) financing activities	(627.2)		(556.5)
Effect of exchange rate changes on cash and cash equivalents	(1.8)		0.3
Net increase (decrease) in cash and cash equivalents	(97.6)		43.2
Cash and cash equivalents, beginning of period	199.4		460.6
Cash and cash equivalents, end of period	$	101.8	$	503.8
Supplemental disclosures of noncash investing and financing activities
Additions to property, plant, and equipment	$	83.1	$	179.6

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q #WORTHREACHINGFOR    I    5

FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

MAY 31, 2022

(unaudited)

1.    BASIS OF PRESENTATION

We have prepared the Financial Statements, without audit, pursuant to the rules and regulations of the SEC applicable to quarterly reporting on Form 10-Q and reflect, in our opinion, all adjustments necessary to present fairly our financial information. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2022 Annual Report. Results of operations for interim periods are not necessarily indicative of annual results.

2.    INVENTORIES

Inventories are stated at the lower of cost (primarily computed in accordance with the first-in, first-out method) or net realizable value. Elements of cost include materials, labor, and overhead and consist of the following:

	May 31, 2022		February 28, 2022
(in millions)
Raw materials and supplies	$	215.0	$	185.3
In-process inventories	820.9		804.8
Finished case goods	620.5		583.1
	$	1,656.4	$	1,573.2

We assess the valuation of our inventories and reduce the carrying value of those inventories that are obsolete or in excess of our forecasted usage to their estimated net realizable value based on analyses and assumptions including, but not limited to, historical usage, future demand, and market requirements. We evaluated the carrying value of certain inventories and recognized the following in cost of product sold within our consolidated results of operations:

	For the Three Months Ended May 31,
	2022		2021
(in millions)
Loss on inventory write-down	$	6.1	$	16.0

3.    DERIVATIVE INSTRUMENTS

Overview

Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our 2022 Annual Report and have not changed significantly for the three months ended May 31, 2022.

We have an investment in certain equity securities and other rights which provide us with the option to purchase an additional ownership interest in the equity securities of Canopy (see Note 7). This investment is included in securities measured at fair value and is accounted for at fair value, with the net gain (loss) from the changes in fair value of this investment recognized in income (loss) from unconsolidated investments (see Note 4).

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The aggregate notional value of outstanding derivative instruments is as follows:

	May 31, 2022		February 28, 2022
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts	$	2,030.2	$	1,863.2
Pre-issuance hedge contracts	$	—	$	100.0
Derivative instruments not designated as hedging instruments
Foreign currency contracts	$	696.0	$	497.6
Commodity derivative contracts	$	342.0	$	291.1

Credit risk

We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of the derivative contracts. To manage this risk, we contract only with major financial institutions that have earned investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association agreements which allow for net settlement of the derivative contracts. We have also established counterparty credit guidelines that are regularly monitored. Because of these safeguards, we believe the risk of loss from counterparty default to be immaterial.

In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of May 31, 2022, the estimated fair value of derivative instruments in a net liability position due to counterparties was $3.9 million. If we were required to settle the net liability position under these derivative instruments on May 31, 2022, we would have had sufficient available liquidity on hand to satisfy this obligation.

Results of period derivative activity

The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note 4):

Assets					Liabilities
	May 31, 2022		February 28, 2022			May 31, 2022		February 28, 2022
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	61.9	$	28.6	Other accrued expenses and liabilities	$	10.1	$	5.9
Other assets	$	72.2	$	25.1	Deferred income taxes and other liabilities	$	7.6	$	8.6
Pre-issuance hedge contracts:
Other assets	$	—	$	—	Deferred income taxes and other liabilities	$	—	$	0.4
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	13.7	$	2.7	Other accrued expenses and liabilities	$	4.8	$	3.3
Commodity derivative contracts:
Prepaid expenses and other	$	92.3	$	61.3	Other accrued expenses and liabilities	$	5.4	$	0.7
Other assets	$	28.5	$	29.7	Deferred income taxes and other liabilities	$	2.6	$	0.2

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The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as OCI, net of income tax effect, is as follows:

Derivative Instruments in Designated Cash Flow Hedging Relationships	Net Gain (Loss) Recognized in OCI		Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss)	Net Gain (Loss) Reclassified from AOCI to Income (Loss)
(in millions)
For the Three Months Ended May 31, 2022
Foreign currency contracts	$	79.5	Sales	$	(0.6)
			Cost of product sold	11.1
Pre-issuance hedge contracts	15.7		Interest expense	(0.5)
	$	95.2		$	10.0
For the Three Months Ended May 31, 2021
Foreign currency contracts	$	19.3	Sales	$	(0.2)
			Cost of product sold	9.0
Pre-issuance hedge contracts	—		Interest expense	(0.6)
	$	19.3		$	8.2

We expect $45.6 million of net gains, net of income tax effect, to be reclassified from AOCI to our results of operations within the next 12 months.

The effect of our undesignated derivative instruments on our results of operations is as follows:

Derivative Instruments Not Designated as Hedging Instruments	Location of Net Gain (Loss) Recognized in Income (Loss)	Net Gain (Loss) Recognized in Income (Loss)
(in millions)
For the Three Months Ended May 31, 2022
Commodity derivative contracts	Cost of product sold	$	48.5
Foreign currency contracts	Selling, general, and administrative expenses	6.2
		$	54.7
For the Three Months Ended May 31, 2021
Commodity derivative contracts	Cost of product sold	$	24.1
Foreign currency contracts	Selling, general, and administrative expenses	(2.2)
		$	21.9

4.    FAIR VALUE OF FINANCIAL INSTRUMENTS

Authoritative guidance establishes a framework for measuring fair value, including a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy includes three levels:

•Level 1 inputs are quoted prices in active markets for identical assets or liabilities;

•Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets

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that are not active, and inputs (other than quoted prices) such as volatility, interest rates, and yield curves that are observable for the asset and liability, either directly or indirectly; and

•Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

Fair value methodology

The following methods and assumptions are used to estimate the fair value for each class of our financial instruments:

Foreign currency and commodity derivative contracts

The fair value is estimated using market-based inputs, obtained from independent pricing services, entered into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves, and currency volatilities, as applicable (Level 2 fair value measurement).

Interest rate swap and Pre-issuance hedge contracts

The fair value is estimated based on quoted market prices from respective counterparties. Quotes are corroborated by using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services (Level 2 fair value measurement).

Canopy investment

Equity securities, Warrants – The November 2018 Canopy Warrants consist of three tranches of warrants, including 88.5 million Tranche A Warrants expiring November 1, 2023, which are currently exercisable, 38.4 million Tranche B Warrants expiring November 1, 2026, and 12.8 million Tranche C Warrants expiring November 1, 2026. The inputs used to estimate the fair value of the November 2018 Canopy Warrants are as follows (1) (2):

	May 31, 2022						February 28, 2022
	Tranche A Warrants (3)			Tranche B Warrants (4)			Tranche A Warrants (3)			Tranche B Warrants (4)
Exercise price (5)	C$	50.40		C$	76.68		C$	50.40		C$	76.68
Valuation date stock price (6)	C$	6.33		C$	6.33		C$	9.04		C$	9.04
Remaining contractual term (7)	1.4 years			4.4 years			1.7 years			4.7 years
Expected volatility (8)	85.0		%	85.0		%	75.0		%	75.0		%
Risk-free interest rate (9)	2.6		%	2.7		%	1.4		%	1.7		%
Expected dividend yield (10)	0.0		%	0.0		%	0.0		%	0.0		%

(1)The exercise price for the Tranche C Warrants is based on the VWAP Exercise Price. The Tranche C Warrants are not included in the table as there is no fair value assigned.

(2)In connection with the Acreage Transaction, we obtained other rights which include a share repurchase credit. If Canopy has not purchased the lesser of 27,378,866 Canopy common shares, or C$1,583.0 million worth of Canopy common shares for cancellation between April 18, 2019, and two-years after the full exercise of the Tranche A Warrants, we will be credited an amount that will reduce the aggregate exercise price otherwise payable upon each exercise of the Tranche B Warrants and Tranche C Warrants. The credit will be an amount equal to the difference between C$1,583.0 million and the actual price paid by Canopy in purchasing its common shares for cancellation. The likelihood of receiving the share repurchase credit if we were to fully exercise the Tranche A Warrants is remote, therefore, no fair value has been assigned.

(3)The fair value is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement).

(4)The fair value is estimated using Monte Carlo simulations (Level 2 fair value measurement).

(5)Based on the exercise price from the applicable underlying agreements.

(6)Based on the closing market price for Canopy common stock on the TSX as of the applicable date.

(7)Based on the expiration date of the warrants.

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(8)Based on consideration of historical and/or implied volatility levels of the underlying equity security and limited consideration of historical peer group volatility levels.

(9)Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expiration date of the applicable warrants.

(10)Based on historical dividend levels.

Debt securities, Convertible – We have elected the fair value option to account for the Canopy Debt Securities acquired in June 2018 for C$200.0 million, or $150.5 million. Interest income on the Canopy Debt Securities is calculated using the effective interest method and is recognized separately from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance but may be converted prior to maturity by either party upon the occurrence of certain events. The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on market spreads using bond data as of the valuation date. For additional information on the Canopy Debt Securities refer to Note 7.

The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:

	May 31, 2022			February 28, 2022
Conversion price (1)	C$	48.17		C$	48.17
Valuation date stock price (2)	C$	6.33		C$	9.04
Remaining term (3)	1.1 years			1.4 years
Expected volatility (4)	85.0		%	75.0		%
Risk-free interest rate (5)	2.5		%	1.4		%
Expected dividend yield (6)	0.0		%	0.0		%

(1)Based on the rate which the Canopy Debt Securities may be converted into equity shares, or the equivalent amount of cash, at the option of the issuer.

(2)Based on the closing market price for Canopy common stock on the TSX as of the applicable date.

(3)Based on the contractual maturity date of the notes.

(4)Based on consideration of historical and/or implied volatility levels of the underlying equity security, adjusted for certain risks associated with debt securities, as appropriate.

(5)Based on the implied yield currently available on Canadian Treasury zero coupon issues with a term equal to the remaining contractual term of the Canopy Debt Securities.

(6)Based on historical dividend levels.

Short-term borrowings

Our short-term borrowings consist of our commercial paper program and the revolving credit facility under our senior credit facility. The revolving credit facility is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating (as defined in our senior credit facility). For these short-term borrowings the carrying value approximates the fair value.

Long-term debt

The term loan under our term credit agreement is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating. The carrying value approximates the fair value of the term loan. The fair value of the remaining fixed interest rate long-term debt is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value as of May 31, 2022, and February 28, 2022, due

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to the relatively short maturity of these instruments. As of May 31, 2022, the carrying amount of long-term debt, including the current portion, was $10,853.3 million, compared with an estimated fair value of $10,442.9 million. As of February 28, 2022, the carrying amount of long-term debt, including the current portion, was $10,093.5 million, compared with an estimated fair value of $10,345.3 million.

Recurring basis measurements

The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:

	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(in millions)
May 31, 2022
Assets:
Foreign currency contracts	$	—	$	147.8	$	—	$	147.8
Commodity derivative contracts	$	—	$	120.8	$	—	$	120.8
November 2018 Canopy Warrants (1)	$	—	$	17.6	$	—	$	17.6
Canopy Debt Securities (1)	$	—	$	146.1	$	—	$	146.1
Liabilities:
Foreign currency contracts	$	—	$	22.5	$	—	$	22.5
Commodity derivative contracts	$	—	$	8.0	$	—	$	8.0
February 28, 2022
Assets:
Foreign currency contracts	$	—	$	56.4	$	—	$	56.4
Commodity derivative contracts	$	—	$	91.0	$	—	$	91.0
November 2018 Canopy Warrants (1)	$	—	$	36.3	$	—	$	36.3
Canopy Debt Securities (1)	$	—	$	146.6	$	—	$	146.6
Liabilities:
Foreign currency contracts	$	—	$	17.8	$	—	$	17.8
Commodity derivative contracts	$	—	$	0.9	$	—	$	0.9
Pre-issuance hedge contracts	$	—