Edgar Filing: CONSTELLATION BRANDS, INC.

STZ 2.28.2014 10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2014



¨	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)

Registrant’s telephone number, including area code (585) 678-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Class A Common Stock (par value $.01 per share)	New York Stock Exchange
Class B Common Stock (par value $.01 per share)	New 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 ý 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 ý

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

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 $8,578,531,740.



The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April 22, 2014, is set forth below:
Class	Number of Shares Outstanding
Class A Common Stock, par value $.01 per share	168,379,662
Class B Common Stock, par value $.01 per share	23,413,664
Class 1 Common Stock, par value $.01 per share	None

DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement of Constellation Brands, Inc. to be issued for the Annual Meeting of Stockholders which is expected to be held July 23, 2014 is incorporated by reference in Part III to the extent described therein.

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TABLE OF CONTENTS



		Page
PART I
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	10
ITEM 1B.	Unresolved Staff Comments	20
ITEM 2.	Properties	20
ITEM 3.	Legal Proceedings	21
ITEM 4.	Mine Safety Disclosures	21

PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
ITEM 6.	Selected Financial Data	23
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
ITEM 8.	Financial Statements and Supplementary Data	48
ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	114
ITEM 9A.	Controls and Procedures	114
ITEM 9B.	Other Information	114

PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	115
ITEM 11.	Executive Compensation	115
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	115
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	116
ITEM 14.	Principal Accounting Fees and Services	116

PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	117

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This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 Annual Report on Form 10-K, including without limitation (I) the statements under Item 1 “Business” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding (i) our business strategy, future financial position, prospects, plans and objectives of management, (ii) information concerning expected or potential actions of third parties, (iii) information concerning the future expected balance of supply and demand for wine, (iv) the expected impact upon results of operations resulting from the consolidation of our U.S. distributor network and the expected impact on net sales and gross profit from the reduction of distributor inventory, (v) the duration of the share repurchase implementation, (vi) our effective tax rate, and (vii) the timing of the cash payment for the purchase price adjustment and the amount of working capital adjustment, and (II) the statements regarding the expansion of our Brewery and its costs and timeframe for completion are forward-looking statements. When used in this Annual Report on 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 Annual Report on 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 Annual Report on Form 10-K are also subject to the risk and uncertainty that (i) the actual balance of supply and demand for wine products will vary from current expectations due to, among other reasons, actual grape harvest, actual shipments to distributors and actual consumer demand, (ii) the amount and timing of any share repurchases may vary due to market conditions, our cash and debt position, the impact of the Beer Business Acquisition and other factors as determined by management from time to time, (iii) the timing of the cash payment for the purchase price adjustment and the actual amount of certain working capital adjustments may differ from our current expectations, and (iv) the timeframe and actual costs associated with the expansion of our Brewery may vary from management’s current expectations due to market conditions, our cash and debt position, and other factors as determined by management. 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 Annual Report on Form 10-K are those described in Item 1A “Risk Factors” and elsewhere in this report and in our other filings with the Securities and Exchange Commission.

Unless the context otherwise requires, the terms “Company,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. All references to “net sales” refer to gross sales less promotions, returns and allowances, and excise taxes consistent with the Company’s method of classification. All references to “Fiscal 2014,” “Fiscal 2013” and “Fiscal 2012” refer to the Company’s fiscal year ended the last day of February of the indicated year. All references to “Fiscal 2015” refer to our fiscal year ending February 28, 2015. Unless otherwise defined herein, refer to the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for the definition of capitalized terms used herein.

Market positions and industry data discussed in this Annual Report on Form 10-K are as of calendar 2013 and have been obtained or derived from industry and government publications and our estimates. The industry and government publications include: Beverage Information Group; Beer Institute; Beer Marketers Insights; Impact Databank Review and Forecast; IRI; Aztec; Euromonitor International; International Wine and Spirit Record; Association for Canadian Distillers; and Distilled Spirits Council of the United States. 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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PART I

Item 1. Business.

Introduction

We are a leading international beverage alcohol company with many of our products recognized as leaders in their respective categories and geographic markets. We are the third-largest producer and marketer of beer for the U.S. market and the world’s leading premium wine company with a leading market position in the U.S., Canada and New Zealand. Our wine portfolio is complemented by select premium spirits brands and other select beverage alcohol products. We are the largest multi-category supplier (beer, wine and spirits) (“Multi-category Supplier”) of beverage alcohol in the U.S. Our strong market positions make us a supplier of choice to many of our customers, who include wholesale distributors, retailers, on-premise locations and government alcohol beverage control agencies.

The Company is a Delaware corporation incorporated on December 4, 1972, as the successor to a business founded in 1945. We have approximately 6,300 employees located primarily in the U.S., Canada and Mexico, with our corporate headquarters located in Victor, New York. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities.

Strategy

Certain key industry trends during the past decade have impacted our activities, results and strategy. These include:


•	consolidation of suppliers, wholesalers and retailers;


•	high-end beer (imports and crafts) growing faster than domestic beer in the U.S.;


•	an increase in global wine consumption, with premium wines growing faster than value-priced wines; and


•	volume of premium spirits growing faster than value-priced spirits in the U.S.

To capitalize on these trends, become more competitive and grow our business, we have generally employed a strategy focused on a combination of organic growth and acquisitions, with an increasing focus on the higher-margin premium categories of the beverage alcohol industry. Key elements of our strategy include:


•	leveraging our existing portfolio of leading brands;


•	developing new products, new packaging and line extensions;


•	strengthening relationships with wholesalers and retailers;


•	expanding distribution of our product portfolio;


•	enhancing production capabilities;


•	realizing operating efficiencies and synergies; and


•	maximizing asset utilization.

We have complemented this strategy by divesting certain businesses, brands and assets as part of our efforts to increase the mix of premium brands, improve margins, create operating efficiencies and reduce debt. Further, we have acquired higher-margin premium wine growth brands, and we have completed the Beer Business Acquisition to solidify our position in the U.S. beer market over the long-term; diversify our profit base and enhance our margins, earnings and cash flow; and provide new avenues for growth.

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

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Acquisitions and Divestitures

As part of our strategy to improve margins, enhance production capabilities and keep an increased focus on the higher-margin premium categories of the beverage alcohol industry, we have made the following acquisitions and divestitures:



Name		Period
Beer Business Acquisition		June 2013
Mark West acquisition		July 2012
Ruffino acquisition		October 2011
CWAE Divestiture		January 2011

Beer Business Acquisition

The acquisition of Modelo’s U.S. beer business included the remaining 50% interest in Crown Imports, which provides us with complete, independent control of our U.S. commercial beer business; a state-of-the-art Brewery in Mexico; and exclusive perpetual brand rights to import, market and sell Corona and the other Mexican Beer Brands in the U.S. market. The transaction solidifies our position in the U.S. beer market for the long term and makes us the third-largest brewer and seller of beer for the U.S. market. Combining this with our strong position in wine and spirits positions us as the largest Multi-category Supplier of beverage alcohol in the U.S.

Mark West

The acquisition of this higher-margin, premium wine growth brand has complemented our existing portfolio and further strengthened our position in the U.S. Pinot Noir category.

Ruffino

The acquisition of the remaining equity interest in this business has solidified our position in the Italian premium wine category in the U.S. and Canada.

CWAE Divestiture

Consistent with our strategic focus on premiumizing our portfolio and improving our margins and return on invested capital, we sold 80.1% of our Australian and U.K. business in January 2011 (the “CWAE Divestiture”).

For further information about our Fiscal 2014, Fiscal 2013 and Fiscal 2012 transactions, see (i) MD&A and (ii) Note 3 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K (“Notes to the Financial Statements”).

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Business Segments

We report our operating results in three segments: (i) Beer (formerly Crown Imports), (ii) Wine and Spirits (formerly Constellation Wines and Spirits) and (iii) Corporate Operations and Other. The business segments reflect how our operations are managed, how operating performance is evaluated by senior management and the structure of our internal financial reporting. We report net sales in two reportable segments, as follows:



	For the Year Ended February 28, 2014			% of Reportable Segment Net Sales		For the Year Ended February 28, 2013			% of Reportable Segment Net Sales		For the Year Ended February 29, 2012			% of Reportable Segment Net Sales
(in millions)
Beer	$	2,835.6		49.9	%	$	2,588.1		48.1	%	$	2,469.5		48.2	%
Wine and Spirits:
Wine	2,554.2			45.0	%	2,495.8			46.3	%	2,386.8			46.6	%
Spirits	291.3			5.1	%	300.3			5.6	%	267.5			5.2	%
Total Wine and Spirits	2,845.5			50.1	%	2,796.1			51.9	%	2,654.3			51.8	%
Total Reportable Segments	5,681.1			100.0	%	5,384.2			100.0	%	5,123.8			100.0	%
Consolidation and Eliminations	(813.4		)			(2,588.1		)			(2,469.5		)
Consolidated Net Sales	$	4,867.7				$	2,796.1				$	2,654.3

Beer

In connection with the Beer Business Acquisition and the resulting consolidation of the acquired businesses as of June 2013, the Crown Imports segment, together with the Brewery Purchase, is now known as the Beer segment. We have the exclusive right to import, market and sell these Mexican Beer Brands in all 50 states of the U.S.:


•	Corona Extra


•	Corona Light


•	Modelo Especial


•	Pacifico


•	Negra Modelo


•	Victoria

In the U.S., we have five of the top-selling 15 imported beer brands. Corona Extra is the best-selling imported beer and the fifth best-selling beer overall in the U.S.; Corona Light is the leading imported light beer; and Modelo Especial is the third-largest and one of the fastest-growing major imported beer brands. During Fiscal 2014, we introduced Modelo Especial Chelada, a blend of Modelo Especial with flavors of tomato, salt and lime, to further capitalize on the strength of this growing brand.

The current capacity of our Brewery is 10 million hectoliters. We intend to expand the Brewery’s capacity to 20 million hectoliters so it can produce all of our anticipated Mexican beer supply requirements. The Brewery expansion is targeted to be completed over the three-year period from the date of the Beer Business Acquisition, with total spend estimated to be in the range of $900 million to $1.1 billion. We have invested approximately $124 million in the Brewery expansion for Fiscal 2014.

Prior to the Beer Business Acquisition, we and Modelo, indirectly, each had an equal interest in Crown Imports, which had the exclusive right to import, market and sell the Mexican Beer Brands.

Wine and Spirits

We are the world’s leading producer and marketer of premium wine. We sell a large number of wine brands across all categories – table wine, sparkling wine and dessert wine – and across all price points – popular, premium,

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super-premium and fine wine – and we have a leading market position in the U.S., Canada and New Zealand. Our portfolio of super-premium and fine wines is supported by vineyard holdings in the U.S., Canada, New Zealand and Italy. Our premium spirit brands each have a leading position in their respective categories.

Our wine produced in the U.S. is primarily marketed domestically and in Canada and the U.K. Wine produced in Canada is primarily marketed domestically. Wine produced in New Zealand is primarily marketed in the U.S., Canada, Australia, the U.K. and domestically. Wine produced in Italy is primarily marketed in the U.S., Canada and domestically. In addition, we export our wine products to other major world markets.

In our spirits business, Svedka Vodka is imported from Sweden and is the second-largest imported vodka brand in the U.S. Black Velvet Canadian Whisky is the second-largest Canadian whisky brand in the U.S.

In the U.S., we sell 14 of the top-selling 100 table wine brands and are a leading premium wine company. Some of our well-known wine and spirits brands sold in the U.S., which comprise our U.S. Focus Brands (“Focus Brands”), include:



Wine Brands			Spirits Brands
Arbor Mist	Inniskillin	Rex Goliath	Black Velvet Canadian Whisky
Black Box	Kim Crawford	Robert Mondavi	Svedka Vodka
Blackstone	Mark West	Ruffino
Clos du Bois	Mount Veeder	Simi
Estancia	Nobilo	Toasted Head
Franciscan Estate	Ravenswood	Wild Horse

We dedicate a large share of sales and marketing resources to these brands as they represent a majority of our U.S. wine and spirits revenue and profitability, and have strong positions in their respective price segments, mostly within the $5 to $20 price range at U.S. retail. Within the Focus Brands, we have been increasing brand building support behind certain key brands which we collectively believe provide the best opportunity for growth and operating margin enhancement for our wine and spirits business. These brands include Robert Mondavi, Svedka, Black Box, Rex Goliath, Clos du Bois, Ruffino, Estancia, Mark West, Kim Crawford and Nobilo.

We have been increasing resources in support of product innovation as we believe this is one of the key drivers of overall beverage alcohol category growth. In wine, we have introduced varietal line extensions behind many of our focus brands and newer brands like The Dreaming Tree, Thorny Rose and Simply Naked. In spirits, we have been introducing flavor extensions for Svedka and Black Velvet.

In Canada, we are the leading wine company and have six of the top-selling 25 table wine brands. In this market, Jackson-Triggs is the top-selling wine brand and Inniskillin is the leading icewine brand. In addition to our domestic brands, we are targeting to increase our import brand presence in this market with offerings like Robert Mondavi, Kim Crawford and Ruffino.

Corporate Operations and Other

The Corporate Operations and Other segment includes traditional corporate-related items including executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations and global information technology.

Further information regarding net sales, operating income and total assets of each of our business segments and information regarding geographic areas is set forth in Note 21 of the Notes to the Financial Statements.

Marketing and Distribution

To focus on their respective product categories, build brand equity and increase sales, our segments employ full-time, in-house marketing, sales and customer service functions. These functions engage in a range of marketing activities and strategies, including market research, consumer and trade advertising, price promotions, point-of-sale

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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 North America, our products are primarily distributed by wholesale distributors, with separate distribution networks utilized for our imported beer and wine and spirits portfolios, as well as state and provincial alcohol beverage control agencies. 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 or province. State and provincial governments can affect prices paid by consumers of our products through the imposition of taxes or, in states and provinces in which the government acts as the distributor of our products through an alcohol beverage control agency, by directly setting the retail prices.

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. Throughout our segments, we also have various licenses and distribution agreements for the sale, or the production and sale, of our products and products of third parties. These licenses and distribution agreements have varying terms and durations.

Prior to the Beer Business Acquisition, all of our imported beer products were imported, marketed and sold through Crown Imports. Crown Imports had entered into exclusive importation agreements with the suppliers of the imported beer products and had an exclusive sub-license to use certain trademarks related to the Mexican Beer Brands in the U.S. and Guam pursuant to a renewable sub-license agreement between Crown Imports and Marcas Modelo, S.A. de C.V. As a result of the Beer Business Acquisition, our sub-license agreement for the exclusive use of the trademarks for our Mexican Beer Brands is now perpetual.

Competition

The beverage alcohol industry is highly competitive. We compete on the basis of quality, price, brand recognition 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:



Beer	Anheuser-Busch InBev, MillerCoors, Heineken

Wine
U.S.	E&J Gallo Winery, The Wine Group, Trinchero, Treasury Wine Estates, Deutsch Family Wine & Spirits, Ste. Michelle Wine Estates, Kendall-Jackson
Canada	Andrew Peller, E&J Gallo Winery, Treasury Wine Estates, Kruger
New Zealand	Pernod Ricard, Lion Nathan, Treasury Wine Estates

Spirits	Diageo, Beam, Pernod Ricard, Bacardi, Brown-Forman

Production

Approximately 55% of our Mexican Beer Brands requirements are produced by our Brewery, which is located in Nava, Coahuila, Mexico. This location is approximately 10 miles from the Texas border. The current capacity of the Brewery is 10 million hectoliters. We intend to expand the Brewery’s capacity to 20 million hectoliters so it can produce all of our anticipated Mexican beer supply requirements. The Brewery expansion is targeted to be completed over the three-year period from the date of the Beer Business Acquisition. To meet our beer supply requirements above the current Brewery capacity, we have entered into a three-year interim supply agreement with Anheuser-Busch InBev SA/NV (“ABI”). This agreement also provides for up to two one-year extensions. However, the United States, acting through the Antitrust Division of the United States Department of Justice (“DOJ”), has a right of approval, in its sole discretion, of any extension of the term of this interim supply agreement beyond three years.

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In the U.S., we operate 18 wineries using many varieties of grapes grown principally in the Napa, Sonoma, Monterey and San Joaquin regions of California. We also operate nine wineries in Canada, four wineries in New Zealand and five wineries in Italy. Grapes are crushed at most of our wineries 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 prior to the subsequent year’s crush. Wine inventories are usually at their highest levels in September through November in the U.S., Canada and Italy, and in March through May in New Zealand.

Our Canadian whisky requirements are produced and aged at our Canadian distillery in Lethbridge, Alberta. Our requirements for grains and bulk spirits used in the production of Canadian whisky are purchased from various suppliers.

Sources and Availability of Production Materials

The principal components in the production of our Mexican Beer Brands at our Brewery include water; agricultural products, such as malt, hops and corn starch; and packaging materials, which include glass, aluminum and cardboard. Packaging materials represent the largest cost component of production, with glass bottles representing the largest cost component of our packaging materials. In Fiscal 2014, the package format mix of our beer volume sold in the U.S. was 78% glass bottles, 21% aluminum cans and 1% in stainless steel kegs.

The Brewery receives allotments of water originating from a mountain aquifer. We believe we have adequate access to water allotments to support the Brewery’s on-going requirements and future requirements after completing the Brewery expansion. In connection with the Beer Business Acquisition, we have entered into a transition services agreement with ABI for the supply of glass, aluminum cans, can lids, crowns, caps, cartons, malt, hops, corn starch and yeast for a period of 36 months from the date of the acquisition. Investments and efforts to establish stand-alone procurement systems and supply arrangements for the beer business operations are on-going and progressing. We believe that ABI will have adequate sources of the materials noted above to meet our sales expectations.

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 purchases from each year’s harvest which normally begins in August and runs through October in the U.S., Canada and Italy, and begins in February and runs through May in New Zealand. We receive grapes from approximately 1,040 independent growers in the U.S., approximately 100 independent growers in Canada, approximately 80 independent growers in New Zealand and approximately 10 independent growers in Italy. We enter into purchase agreements with a majority of these growers with pricing that generally varies year-to-year and is generally based on then-current market prices.

As of February 28, 2014, we owned or leased approximately 20,000 acres of land and vineyards, either fully bearing or under development, in the U.S., Canada, 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 our super-premium and fine 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.

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We utilize glass and polyethylene terephthalate (“PET”) 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 bottle costs are the largest component of our cost of product sold. In the U.S. and Canada, the glass bottle industry is highly concentrated with only a small number of producers. We have traditionally obtained, and 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 and a portion of our glass container requirements for our Canadian operations, with the remaining portion for our Canadian operations supplied by another producer. 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 Regulation

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.

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 imported 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.

Employees

As of the end of March 2014, we had approximately 6,300 employees. Approximately 3,300 employees were in the U.S. and approximately 3,000 employees were outside of the U.S., primarily in Canada and Mexico. We may employ additional workers during the grape crushing seasons. We consider our employee relations generally to be good.

Executive Officers of the Company

Information with respect to our current executive officers is as follows:



NAME	AGE	OFFICE OR POSITION HELD
Richard Sands	63	Chairman of the Board
Robert Sands	55	President and Chief Executive Officer
William F. Hackett	62	Executive Vice President and President, Beer Division
F. Paul Hetterich	51	Executive Vice President, Business Development and Corporate Strategy
Thomas M. Kane	53	Executive Vice President and Chief Human Resources Officer
Thomas J. Mullin	62	Executive Vice President and General Counsel
Robert Ryder	54	Executive Vice President and Chief Financial Officer
John A. (Jay) Wright	55	Executive Vice President and President, Wine & Spirits Division

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Richard Sands, Ph.D., is the Chairman of the Board of the Company. He has been employed by the Company in various capacities since 1979. He has served as a director since 1982. In September 1999, Mr. Sands was elected Chairman of the Board. He served as Chief Executive Officer from October 1993 to July 2007, as Executive Vice President from 1982 to May 1986, as President from May 1986 to December 2002 and as Chief Operating Officer from May 1986 to October 1993. He is the brother of Robert Sands.

Robert Sands is President and Chief Executive Officer of the Company. He was appointed Chief Executive Officer in July 2007 and appointed as President in December 2002. He has served as a director since January 1990. Mr. Sands also served 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.

William F. Hackett has served as the Company’s Executive Vice President and President, Beer Division since June 2013. Crown Imports LLC was previously owned 50% by the Company, and as a result of the Beer Business Acquisition, it is now a wholly-owned indirect subsidiary of the Company. Mr. Hackett is also President of Crown Imports LLC and has served in that position since January 2007. Prior to that, he was President of Barton Beers, Ltd. (an indirect wholly-owned subsidiary of the Company now known as Constellation Beers Ltd.), having served in that role from 1993 until January 2007. Prior to that, Mr. Hackett held several increasingly senior positions in Barton Beers, Ltd., having joined that company in 1984.

F. Paul Hetterich has been the Company’s Executive Vice President, Business Development and Corporate Strategy since June 2011. From July 2009 until June 2011, he served as Executive Vice President, Business Development, Corporate Strategy and International. From June 2003 until July 2009, he served as Executive Vice President, Business Development and Corporate Strategy. From April 2001 to June 2003, Mr. Hetterich served as the Company’s Senior Vice President, Corporate Development. Prior to that, Mr. Hetterich held several increasingly senior positions in the Company’s marketing and business development groups. Mr. Hetterich has been with the Company since 1986.

Thomas M. Kane joined the Company in May 2013 as Executive Vice President and Chief Human Resources Officer. 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, and 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.

Thomas J. Mullin joined the Company as Executive Vice President and General Counsel in May 2000. Prior to joining the Company, Mr. Mullin served as President and Chief Executive Officer of TD Waterhouse Bank, NA, a national banking association, since February 2000, of CT USA, F.S.B. since September 1998, and of CT USA, Inc. since March 1997. He also served as Executive Vice President, Business Development and Corporate Strategy of C.T. Financial Services, Inc. from March 1997 through February 2000. From 1985 through 1997, Mr. Mullin served as Vice Chairman and Senior Executive Vice President of First Federal Savings and Loan Association of Rochester, New York and from 1982 through 1985, he was a partner in the law firm of Phillips Lytle LLP.

Robert Ryder joined the Company in May 2007 as Executive Vice President and Chief Financial Officer. Mr. Ryder previously served from 2005 to 2006 as Executive Vice President and Chief Financial and Administrative Officer of IMG, a sports marketing and media company. From 2002 to 2005, he was Senior Vice President and Chief Financial Officer of American Greetings Corporation, a publicly traded, multi-national consumer products company. From 1989 to 2002, he held several management positions of increasing responsibility with PepsiCo, Inc. These included control, strategic planning, mergers and acquisitions and CFO and Controller positions serving at

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PepsiCo’s corporate headquarters and at its Frito-Lay International and Frito-Lay North America divisions. Mr. Ryder is a certified public accountant.

John A. (Jay) Wright has served as the Company’s Executive Vice President and President, Wine & Spirits Division since June 2013. He served as Executive Vice President and Chief Operating Officer of the Company from June 2011 to June 2013 and has served as President of the Company’s wholly-owned direct subsidiary Constellation Brands U.S. Operations, Inc. (formerly known as Constellation Wines U.S., Inc.) since December 2009. Additionally, from December 2009 until June 2011, he served as President, Constellation Wines North America. Prior to that, he served as Executive Vice President and Chief Commercial Officer of Constellation Wines U.S., Inc. from March 2009 until December 2009. Mr. Wright joined the Company in June 2006 with the Company’s acquisition of Vincor International Inc. (now known as Constellation Brands Canada, Inc.) Mr. Wright served as President of Vincor International Inc. from June 2006 until March 2009 and, prior to that, as President and Chief Operating Officer of Vincor International Inc.’s Canadian Wine Division from October 2001 until June 2006. Before that, he held various positions of increasing responsibility with various other consumer products companies.

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.

Company Information

Our Internet website is http://www.cbrands.com. Our filings with the Securities and Exchange Commission (“SEC”), including our annual report on 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 Securities Exchange Act of 1934, are accessible free of charge at http://www.cbrands.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, such as ourselves, that file electronically with the SEC. The Internet address of the SEC’s site is http://www.sec.gov. Also, the public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330.

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 Internet site. This Chief Executive Officer and Senior Financial Executive Code of Ethics meets the requirements as set forth in the Securities Exchange Act of 1934, 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 Internet website, together with our Global Code of Responsible Practices for Beverage Alcohol Advertising and Marketing, 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 Committee (which serves as the Board’s nominating committee). All of these materials are accessible on our Internet website at http://www.cbrands.com/investors/corporate-governance. 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. Copies of these materials are available in print to any shareholder who requests them. Shareholders 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.

The information regarding our website and its content is for your convenience only. The content of our website 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 the other information set forth in this report, you should carefully consider the following factors which could materially affect our business, financial condition or results of operations. The risks described below are not the only risks we face. Additional factors not presently known to us or that we currently deem to be immaterial also may materially adversely affect our business, cash flows, financial condition or results of operations in future periods.

Worldwide and domestic economic trends and financial market conditions

We are subject to risks associated with adverse economic conditions, including economic slowdown, inflation, and the disruption, volatility and tightening of credit and capital markets. Unfavorable global or regional economic conditions could adversely impact our business, liquidity, financial condition and results of operations. Unemployment, tax increases, governmental spending cuts or a return of high levels of inflation could affect consumer spending patterns and purchases of our products. These could also create or exacerbate credit issues, cash flow 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 have a committed credit facility and additional liquidity facilities available to us. While to date we have not experienced problems with accessing these facilities, to the extent that the financial institutions that participate in these facilities were to default on their obligation to fund, those funds would not be available to us.

Global operations, currency rate fluctuations, interest rate fluctuations, and geopolitical uncertainty

Our products are produced and sold in numerous countries throughout the world, and we have announced plans to enter into certain emerging markets over time. As a result of the Beer Business Acquisition, we also have operations in Mexico.

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


•	changes in local political, economic, social and labor conditions;


•	potential disruption from socio-economic violence, including terrorism and drug-related violence;


•	restrictions on foreign ownership and investments or on repatriation of cash earned in countries outside the U.S.;


•	changes in laws, governmental regulations and policies in many countries outside the U.S.;


•	import and export requirements;


•	currency exchange rate fluctuations;


•	a less developed and less certain legal and regulatory environment, which among other things can create uncertainty with regard to liability issues;


•	laws regarding the enforcement of contract and intellectual property rights;


•	inadequate levels of compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act; and


•	other challenges caused by distance, language, and cultural differences.

Our success will depend, in part, on our ability to overcome the challenges we encounter with respect to these factors and other matters generally affecting U.S. companies with global operations. Although we have implemented policies and procedures designed to ensure compliance with U.S. and foreign laws and regulations, including anti-corruption laws, there can be no assurance that our employees, business partners or agents will not violate our policies or take action determined to be in violation of the law. Any determination that our operations or activities were not in compliance 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.

We are also exposed to risks associated with currency fluctuations and risks associated with interest rate fluctuations. Currency exchange rates between the U.S. dollar and foreign currencies in the markets in which we do business have fluctuated in recent years and are likely to continue to do so in the future. We manage our exposure

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to foreign currency and interest rate risks utilizing derivative instruments and other means to reduce those risks. We could experience changes in our ability to hedge against or manage fluctuations in foreign currency exchange rates or 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 or intergovernmental disputes. These currency, economic and political uncertainties may have a material adverse effect on our results of operations and financial condition, especially to the extent these matters, or the decisions, policies or economic strength of our suppliers and distributors, affect our global operations.

Competition

We are in a highly competitive industry and the dollar amount and unit volume of our sales could be negatively affected by numerous factors including:


•	our inability to maintain or increase prices;


•	new entrants in our markets or categories;


•	a general decline in beverage alcohol consumption; or


•	the decision of wholesalers, retailers or consumers to purchase a competitor’s products instead of ours.

Unit volume and dollar amount of sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and provincial agencies, and retailers which could affect their supply of, or consumer demand for, our products. 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 or for other reasons.

Acquisition, divestiture and joint venture strategy

We have made a number of acquisitions and divestitures and may, from time to time, acquire additional businesses, assets or securities of companies that we believe would provide a strategic fit with our business. We may also divest ourselves of businesses, assets or securities of companies that we believe no longer provide a strategic fit with our business. We will need to 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 cannot assure you that we will realize the expected benefits of acquisitions, such as revenue, earnings or operating efficiency, and we may not effectively assimilate the business or product offerings of acquired companies into our business successfully or within the anticipated costs or timeframes. Complications with on-going integration of any acquisition, including our Beer Business Acquisition, could result from the following circumstances, among others:


•	failure to implement our business plan for the combined business;


•	unanticipated issues in integrating manufacturing, logistics, information, communications, financial, internal control and other systems;


•	failure to retain key customers and suppliers;


•	unanticipated changes in applicable laws and regulations;


•	failure to retain key employees;


•	operating risks inherent in the acquired businesses and assets and our business;


•	unanticipated issues, expenses and liabilities;


•	failure to realize fully anticipated cost savings, growth opportunities and other potential synergies; and


•	unfamiliarity with operating in new locations.

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The integration of the Beer Business Acquisition can be further impacted by the following circumstances:


•	failure to expand the Brewery under the timeline imposed by the DOJ pursuant to the final judgment;


•	Brewery operations will be dependent upon the operational experience of employees who are relatively new to our organization; and


•	our ability to secure or expand Brewery capacity beyond the initial Brewery expansion in order to support the future growth of our beer business.

If these events were to occur with respect to any of our acquisitions, including our Beer Business Acquisition, our business, financial condition and results of operations may be negatively impacted.

We may provide various indemnifications in connection with the sale of assets or portions of our business. Additionally, 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. We cannot assure you that the fair value of acquired businesses will remain constant.

We have entered into joint ventures and we may enter into additional joint ventures. We share control of our joint ventures. We have also acquired or retained ownership interests in companies which we do not control. 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. Our failure to adequately manage the risks associated with any acquisition, or the failure of an entity in which we have an equity or membership interest, could adversely affect our financial condition or our valuation of these types of investments.

We cannot assure you that any of our acquisitions, investments or joint ventures will be profitable or that forecasts regarding acquisition, divestiture, joint venture or investment activities will be accurate.

Indebtedness

In recent years, we have incurred substantial indebtedness to finance our acquisitions, repurchase shares of our common stock and fund the Beer Business Acquisition. In the future, we may continue to incur substantial additional indebtedness to finance acquisitions, repurchase shares of our stock and fund other general corporate purposes, including our Brewery expansion. We cannot assure you that our business will generate sufficient cash flow from operations to meet all of our debt service requirements and to fund our general corporate capital requirements.

Our ability to satisfy our debt obligations will depend upon our future operating performance. We do not have complete control over our future operating performance because it is subject to prevailing economic conditions, levels of interest rates and financial, business and other factors.

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 acquisitions or other purposes may be limited;


•	our funds available for operations, expansion or distributions 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.

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Restrictive covenants in our senior credit facility and in our indentures place limits on our ability to conduct our business. Covenants in our senior credit facility include those that restrict our ability to make acquisitions, incur debt, encumber or sell assets, pay dividends, engage in mergers and consolidations, enter into transactions with affiliates, make investments and permit our subsidiaries to enter into certain restrictive agreements. It additionally contains certain financial covenants, including a debt ratio test and an interest coverage ratio test. Covenants in our indentures are generally less restrictive than those in our senior credit facility but nevertheless, among other things, limit our ability under certain circumstances to create, encumber or enter into sale-leaseback transactions and impose conditions on our ability to engage in mergers, consolidations and sales of all or substantially all of our assets.

These agreements also contain certain change of control provisions which, if triggered, may result in an acceleration of our obligation to repay the debt. If we fail to comply with the obligations contained in the senior credit facility, our existing or future indentures or other loan agreements, we could be in default under such agreements, which could require us to immediately repay the related debt and also debt under other agreements that may contain cross-acceleration or cross-default provisions.

Control by the Sands Family

Our Class B Common 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 Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to 10 votes per share. Holders of Class 1 Common 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 April 22, 2014, voting as a single class. As a result, the Sands family 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.

Potential decline in the consumption of products we sell

We rely on consumers’ demand for our products. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and beverage consumption patterns. Our continued success will require us to anticipate and respond effectively to shifts in consumer behavior and drinking tastes. If consumer preferences were to move away from our premium brands in any of our major markets, our financial results might be adversely affected.

While over the past several years there have been modest increases in consumption of beverage alcohol in most of our product categories and geographic markets, there have been periods in the past in which there were substantial declines in the overall per capita consumption of beverage alcohol products in the U.S. and other markets in which we participate. 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, such as may result from smoking bans and stricter laws related to driving while under the influence of alcohol;


•	consumer dietary preferences favoring lighter, lower calorie beverages such as diet soft drinks, sports drinks and water products;


•	the increased activity of anti-alcohol groups;


•	increased federal, state, provincial or foreign excise or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing;


•	increased regulation placing restrictions on the purchase or consumption of beverage alcohol products or increasing prices due to the imposition of duties or excise tax;


•	inflation;


•	wars, pandemics, weather, and natural or man-made disasters; and


•	cost of gasoline and other petroleum-based products.

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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 regard to their appeal to consumers. The launch of a new product can give rise to a variety of costs and 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 may result in inventory write-offs and other costs.

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 across the imported beer, branded wine and spirits categories, with separate distribution networks utilized for our imported beer portfolio and our wine and spirits portfolio. In the U.S., we sell our products principally to wholesalers for resale to retail outlets including grocery stores, club and discount stores, package liquor stores and restaurants and also directly to government agencies, while in Canada, we sell our products principally to government agencies. In the U.S., we have entered into exclusive arrangements with certain wholesalers that generate a large portion of our U.S. wine and spirits sales. The replacement or poor performance of our major wholesalers, retailers or government agencies could result in temporary or longer-term sales disruptions or could materially and adversely affect our results of operations and financial condition for a particular period. Our inability to collect accounts receivable from our major wholesalers, retailers or government agencies could also materially and adversely affect our results of operations and financial condition.

Our industry is being affected by the trend toward consolidation in the wholesale and retail distribution channels, particularly in the U.S. If we are unable to adapt successfully to this changing environment, our net income, market share and volume growth could be negatively affected. In addition, wholesalers and retailers of our products offer products which compete directly with our products for retail shelf space, promotional support and consumer purchases. Accordingly, wholesalers or retailers may give higher priority to products of our competitors.

Dependence on sales of our Mexican Beer Brands

Since the Beer Business Acquisition, sales of the Mexican Beer Brands in the U.S. have become a more significant portion of our business. Accordingly, if the growth rate, amount or profitability of our sales of the Mexican Beer Brands in the U.S. declines, our business could be more adversely affected than as compared to a time prior to the Beer Business Acquisition. Further, consumer preferences and tastes may shift away from the Mexican Beer Brands, the categories in which they compete, or beer generally due to, among other reasons, changing taste preferences, demographics or perceived value. Consequently, any material shift in consumer preferences and taste away from the Mexican Beer Brands, or from the categories in which they compete, could have a material adverse effect on our business, our financial condition and results of operations.

Reliance upon complex information systems and third party global networks

We depend on information technology to enable us to operate efficiently and interface with customers and suppliers, as well as maintain financial accuracy and efficiency. 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, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. We recognize that many groups on a world-wide basis have experienced increases in cyber attacks and other hacking activity. We have dedicated internal and external resources to review and address such threats. However, as with all large information technology systems, our systems could be penetrated by outside parties intent on extracting confidential or proprietary information, corrupting our information, disrupting our business processes, or engaging in the unauthorized use of strategic information about us or our employees, customers or consumers. Such unauthorized access could disrupt our business operations and could result in the loss of assets or revenues, litigation, remediation costs, damage to our reputation, or the failure by us to retain or attract customers following such an event. Such events could have a material adverse effect on our business, financial condition or results of operations.

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We have outsourced various functions to third-party service providers and may outsource other functions in the future. We rely on those third-party service providers to provide services on a timely and effective basis. Although we believe we have robust service level agreements with such third parties, closely monitor their performance and maintain contingency plans in case they are unable to perform as agreed, we do not ultimately control their performance. Their failure to perform as expected or as required by contract could result in significant disruptions and costs to our operations, which could materially affect our business, financial condition, operating results and cash flow, and could impair our ability to make required filings with various reporting agencies on a timely or accurate basis.

In connection with the Beer Business Acquisition, we currently receive various services pursuant to our transition services agreement with ABI. These currently include the following services which are available for the time periods as set forth in the transition services agreement:


•	consulting services in logistical matters, materials resource planning and advisory services on procurement matters in connection with the transitioning of the operations of our Brewery;


•	general administrative services currently provided at our Brewery, including information technology (IT Service), finance and regulatory compliance, certain services related to the testing of products and packaging, human resources and certain promotional, retail and licensing services;


•	services relating to expansion of our Brewery; and


•	supply of aluminum cans, glass, malt, crowns and caps, hops, corn starch, can lids, cartons and yeast.

The failure of ABI (or any third party that ABI is permitted to outsource to) to perform as expected or as required by our contract could result in significant disruptions and costs to our operations, and could also materially affect our business, financial condition, operating results and cash flow, and could impair our ability to make required filings with various reporting agencies on a timely or accurate basis.

Supply of Mexican Beer Brands

In order to fulfill our current and projected Mexican Beer Brands product requirements, we are currently dependent on our Brewery which is a single facility located in Nava, Coahuila, Mexico, and an interim supply agreement for our supply of Mexican Beer Brands through calendar year 2016. Although we are assessing options for additional capacity requirements and sources of supply after the initial Brewery expansion is completed, our Brewery may become our sole source of supply for our Mexican Beer Brands. The Brewery currently has the capacity to fill approximately 55% of our current projected product requirements. We intend to expand the Brewery's capacity over a three-year period ending in calendar year 2016 and thus we have entered into an interim supply agreement for a supply of additional Mexican Beer Brands products for an initial period of three years. This agreement also provides for up to two one-year extensions. However, the United States, acting though the DOJ, will have a right of approval, in its sole discretion, of any extension of the term of this interim supply agreement beyond three years. There can be no assurance that any requested extension would be granted.

We may not be able to satisfy all of our product supply requirements for the Mexican Beer Brands in the event of a significant partial destruction or the total destruction of the Brewery or our interim supplier’s breweries. Also, if the contemplated expansion of our Brewery is not completed within three years after consummation of the Beer Business Acquisition, the Brewery may not be able to produce sufficient Mexican Beer Brands to satisfy our needs. Under such circumstances, we may be unable to obtain Mexican Beer Brands at a reasonable price from another source, if at all. A significant disruption at the Brewery or at our supplier’s breweries, even on a short-term basis, could impair our ability to produce and ship products to the 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 negatively affect our business and financial performance. Additionally, our general insurance policies may not cover certain types of catastrophes that might affect our supply of the Mexican Beer Brands. A major uninsured catastrophe could result in significant unrecoverable losses.

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Supply of quality water, agricultural and other raw materials

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 the Brewery, our wineries and our distillery, as well as to irrigate our vineyards. The suppliers of the agricultural raw materials we purchase are also dependent upon sufficient supplies of quality water for their vineyards and fields. Our Brewery receives allotments of water originating from a mountain aquifer. Although we anticipate receiving allotments adequate to support the Brewery’s on-going requirements, including as a result of the anticipated expansion, there is no guarantee that its allotments or requirements will not change materially in the future. If water available to our operations or the operations of our suppliers becomes scarcer or the quality of that water deteriorates, we may incur increased production costs or face manufacturing constraints which could negatively affect our business and financial performance. Even if quality water is widely available to the Brewery, our wineries, our distillery and our vineyards, water purification and waste treatment infrastructure limitations could increase costs or constrain operation of our production facilities and vineyards. Any of these factors could have a material and adverse effect on our financial condition and results of operations.

The Brewery, our wineries and our distillery also use a large volume of agricultural and other raw materials to produce their products. As to the Brewery, these include corn starch, malt, hops and water; the wineries use large amounts of grapes and water; and the distillery uses large amounts of grain and water. The Brewery, our wineries and our distillery all use large amounts of various packaging materials, including glass, aluminum, cardboard and other paper products. Our production facilities also use a significant amount of energy in their operations. The supply and price of these raw materials and energy can be affected by a number of factors beyond our control, including market demand, global geopolitical events (especially as to their impact on crude oil prices), droughts and other weather conditions, economic factors affecting growth decisions, inflation, plant diseases and theft. To the extent any of the foregoing factors affect the prices of ingredients or packaging or we do not effectively or completely hedge changes in commodity price risks, our financial condition and results of operations could be materially and adversely impacted.

Catastrophic loss to wineries, production facilities or distribution systems

Throughout the years, we have consolidated several of our winery and production facility operations. Three of our largest wineries are the Woodbridge Winery in Acampo, CA, the Mission Bell Winery in Madera, CA, and the Canandaigua Winery in Canandaigua, NY. These three facilities produce approximately 34.5 million cases (or approximately 52.9%) of our global wine and spirits product annually. Additionally, many of our vineyards and production and distribution facilities, such as our California wineries and our Lodi Distribution Center in Lodi, CA, are located in areas which are prone to seismic activity. If any of these vineyards and facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue, and result in potentially significant expenses to repair or replace the vineyard or facility. If such a disruption were to occur, we could breach agreements, our reputation could be harmed, and our business and operating results could be adversely affected. In addition, since we have consolidated certain of our operations and various production and distribution facilities, we are more likely to experience an interruption of our operations in the event of a catastrophic event in any one location, such as through acts of war or terrorism, fires, floods, earthquakes, hurricanes or other natural or man-made disasters. Although we carry insurance for property damage and business interruption, certain catastrophes are not covered by our insurance policies as we believe this to be a prudent financial decision. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain 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 financial results. We take steps to minimize the damage that would be caused by a catastrophic event, but there is no certainty that our efforts would prove successful. If one or more significant uninsured events occur, we could suffer a major financial loss.

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Raw materials purchased under short-term supply contracts and limited group of suppliers of glass bottles

Our business is heavily dependent upon raw materials, such as grapes, grape juice concentrate, grains, alcohol and packaging materials from third-party suppliers. We could experience raw material supply, production or shipment difficulties that could adversely affect our ability to supply goods to our customers. Increases in the costs of raw materials also directly affect us. The prices for raw materials and packaging materials from third-party suppliers fluctuate depending upon market conditions. For example, in the past, we have experienced dramatic increases in the cost of grapes. Although we believe we have adequate sources of grape supplies, we could experience shortages if the demand for particular wine products exceeds expectations.

The wine industry swings between cycles of grape oversupply and undersupply. In a severe oversupply environment, the ability of wine producers, including ourselves, to raise prices is limited, and, in certain situations, the competitive environment may put pressure on producers to lower prices. Further, although an oversupply may enhance opportunities to purchase grapes at lower costs, a producer’s selling and promotional expenses associated with the sale of its wine products can rise in such an environment. Substantial increases in the prices of raw materials and packaging materials, including those from third-party suppliers, to the extent they cannot be recouped through increases in the price of our finished products, would increase our operating costs and could decrease our profitability. Our net sales could be impacted negatively if our customers cannot afford our products.

Glass bottle costs are one of our largest components of cost of product sold. We currently purchase from ABI all of the glass bottles for our Mexican Beer Brands. In the U.S. and Canada, glass bottles have only a small number of producers. Currently, one producer supplies most of our glass container requirements for our U.S. operations and a portion of our glass container requirements for our Canadian operations, with the remaining portion of our glass container requirements for our Canadian operations supplied by another producer. The inability of any of our glass bottle suppliers to satisfy our requirements could adversely affect our business.

Various diseases, pests and certain weather conditions

Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the quality and quantity of grapes and other agricultural raw materials available, decreasing the supply of our products and negatively impacting profitability. We cannot guarantee that our grape suppliers or our suppliers of other agricultural raw materials will succeed in preventing contamination in existing vineyards or fields or that we will succeed in preventing contamination in our existing vineyards or future vineyards we may acquire. 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. Growing agricultural raw materials also requires adequate water supplies. A substantial reduction in water supplies could result in material losses of grape crops and vines or other crops, which could lead to a shortage of our product supply.

Climate change, or legal, regulatory or market measures to address climate change

Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases 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, such as the recent drought in California and prolonged cold winter in New York, and climate change may negatively affect agricultural productivity in the regions from which we presently source our various agricultural raw materials. Decreased availability of our raw materials may increase the cost of goods for our products. Severe weather events or changes in the frequency or intensity of weather events can also disrupt our supply chain, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers and consumers.

Import and excise duties or other taxes or government

The U.S., Canada and other countries in which we operate impose import and excise duties and other taxes on beverage alcohol products in varying amounts which are subject to change. Significant increases in import and

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excise duties or other taxes on beverage alcohol products could materially and adversely affect our financial condition or results of operations. The U.S. federal budget and individual state, provincial or local municipal budget deficits 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 or provincial level in recent years. Many U.S. states have considered proposals to increase, and some of these states have increased, state alcohol excise taxes. There may be further consideration by federal, state, provincial, local and foreign governmental entities to increase taxes upon beverage alcohol products as governmental entities explore available alternatives for raising funds during the current macroeconomic climate. In addition, federal, state, provincial, local and foreign governmental agencies extensively regulate the beverage alcohol products industry concerning such matters as licensing, warehousing, trade and pricing practices, permitted and required labeling, advertising and relations with wholesalers and retailers. Certain federal, state or provincial regulations also require warning labels and signage. New or revised regulations or increased licensing fees, requirements or taxes could also have a material adverse effect on our financial condition or results of operations.

Benefit cost increases

Our profitability is affected by employee medical costs and other employee benefits. In recent years, employee medical costs have increased due to factors such as the increase in health care costs in the U.S. These factors, plus the enactment of the Patient Protection and Affordable Care Act in March 2010, are expected to continue to put pressure on our business and financial performance due to higher employee benefit costs. Although we actively seek to control increases in employee benefit costs and encourage employees to maintain healthy lifestyles to reduce future potential medical costs, there can be no assurance that we will succeed in limiting future cost increases. Continued employee benefit cost increases could have an adverse effect on our results of operations and financial condition.

Intangible assets, such as goodwill and trademarks

We continue to 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 materially and adversely affect our net income.

Class action or other litigation relating to alcohol abuse, the misuse of alcohol, product liability, or marketing or sales practices

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 also could be exposed to lawsuits relating to product liability or marketing or sales practices. 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.

Damage to our reputation

Maintaining a good reputation is critical to selling our branded products. Product contamination or tampering or the failure to maintain our standards for product quality, safety and integrity, including with respect to raw materials obtained from suppliers, may reduce demand for our products or cause production and delivery disruptions. Although we maintain standards for the materials and product components we receive from our suppliers, and we also audit our suppliers’ compliance with our standards, it is 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. If any of our products becomes unfit for consumption, is misbranded or causes injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall or a significant product liability judgment could cause our products to be unavailable for a period of time, which could further reduce consumer demand and brand equity. Our reputation

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could be impacted negatively by public perception, adverse publicity (whether or not valid), negative comments in social media, or our responses relating to:


•	a perceived failure to maintain high ethical, social and environmental standards for all of our operations and activities;


•	a perceived failure to address concerns related to the quality, safety or integrity of our products;


•	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.

Failure to comply with local laws and regulations, to maintain an effective system of internal controls, to provide accurate and timely financial statement information, or to 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, financial condition and results of operations, as well as require additional resources to rebuild our reputation, competitive position and brand equity.

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 covering our brands and products and have filed, and expect to continue to file, 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 our trademark applications. There is also a risk that we could, by omission, fail to timely renew or protect a trademark or that our competitors will challenge, invalidate or circumvent any existing or future trademarks issued to, or licensed by, us.

Contamination

The success of our brands depends upon the positive image that consumers have of those brands. 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 their sales. Contaminants in raw materials 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 of our brands.

Cost of energy or environmental regulatory compliance

We have experienced increases in energy costs, and energy costs could continue to rise, which would result in higher transportation, freight and other operating costs. We may experience significant future increases in the costs associated with environmental regulatory compliance, including fees, licenses, and the cost of capital improvements to our operating facilities in order to meet environmental regulatory requirements. Our future operating expenses and margins will be dependent on our ability to manage the impact of cost increases. We cannot guarantee that we will be able to pass along increased energy costs or increased costs associated with environmental regulatory compliance to our customers through increased prices.

In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or in connection with historical activities of businesses we acquire. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants in our current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs that we have estimated. We cannot assure you that our costs in relation to these matters will not exceed our projections or otherwise have an adverse effect upon our business reputation, financial condition or results of operations.

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Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

We operate a brewery, wineries, a distilling plant and bottling plants, many of which include warehousing and distribution facilities on the premises. In addition to our 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. 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 and have adequate capacity to meet our needs for the foreseeable future, although we do possess certain underutilized assets. As of February 28, 2014, our properties include the following:



	Owned	Leased
Beer
Brewery
Nava, Coahuila, Mexico	1

Warehouse and Distribution Facilities
U.S.		12
Total Beer	1	12

Wine and Spirits
Wineries
U.S.
California	14	2
New York	1
Washington	1
Canada
British Columbia	3	1
Ontario	3	1
Quebec	1
New Zealand	4
Italy		5
Total Wineries	27	9

Distillery
Canada	1

Warehouse, Distribution and Other Production Facilities
U.S.		4
Canada	3	1
Italy	1	7
Total Warehouse, Distribution and Other Production Facilities	4	12
Total Wine and Spirits	32	21

Within our Wine and Spirits segment, as of February 28, 2014, we owned, leased or had interests in approximately 13,300 acres of vineyards in California (U.S.), 4,000 acres of vineyards in New Zealand, 1,700 acres of vineyards in Canada and 1,000 acres of vineyards in Italy.

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As of February 28, 2014, our principal facilities, all of which are owned, consist of:


•	the Brewery in Nava, Coahuila, Mexico;


•	two wineries in California: the Woodbridge Winery in Acampo and the Mission Bell winery in Madera;


•	the Canandaigua winery in Canandaigua, New York; and


•	the distillery in Lethbridge, Alberta, Canada.

Item 3. Legal Proceedings.

In the ordinary course of their business, the Company and its subsidiaries are subject to lawsuits, arbitrations, claims and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Management believes that the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and that the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.

Regulatory Matters – The Company and its subsidiaries are in discussions with various governmental agencies concerning matters raised during regulatory examinations or otherwise subject to such agencies’ inquiry. These matters could result in censures, fines or other sanctions. Management believes the outcome of any pending regulatory matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. However, the Company is unable to predict the outcome of these matters.

As previously reported in the Company’s Forms 10-Q for the fiscal quarters ended May 31, 2013, August 31, 2013 and November 30, 2013, the United States District Court for the District of Columbia (“District Court”) signed the Stipulation and Order filed by the DOJ, permitting the Company and ABI to consummate the Beer Business Acquisition. After expiration of the 60-day public comment period as required under the Antitrust Procedures and Penalties Act, the DOJ moved the District Court for entry of the Final Judgment. The Final Judgment was signed on October 21, 2013, and entered into the District Court’s docket on October 24, 2013, without modification to the terms included in the Proposed Final Judgment. The Company is operating in accordance with the requirements of the Final Judgment.

As previously reported in the Company’s Forms 10-Q for the fiscal quarters ended May 31, 2013, August 31, 2013, and November 30, 2013, an action had been filed by private parties against the Company, ABI, and Modelo alleging certain antitrust claims and seeking to enjoin the proposed transaction between ABI and Modelo. On June 4, 2013, the United States District Court for the Northern District of California denied plaintiff’s Motion for a Temporary Restraining Order and the transaction between ABI and Modelo was consummated June 7, 2013. Plaintiffs’ Second Amended and Supplemental Complaint was filed June 25, 2013, and dismissed by the Court on September 13, 2013, and the district judge denied plaintiffs’ other procedural motions. Plaintiffs’ filed their Motion for Relief from Judgment Pursuant to Fed. R. Civ. P. 59(e) or 60(b), or in the alternative, Rule 60(d) on November 11, 2013 and was denied by the Court on January 24, 2014. Plaintiffs filed their Notice of Appeal on February 21, 2014. Management believes that this action is baseless and without merit and the Company intends to continue to defend itself vigorously against this claim.

Item 4. Mine Safety Disclosures.

Not Applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our Class A Common Stock and Class B Common Stock trade on the New York Stock Exchange^® (“NYSE”) under the symbols STZ and STZ.B, respectively. There is no public trading market for our Class 1 Common Stock. The following tables set forth for the periods indicated the high and low sales prices of our Class A Common Stock and Class B Common Stock as reported on the NYSE.

CLASS A COMMON STOCK



	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Fiscal 2013
High	$	24.87	$	33.23	$	36.98	$	44.99
Low	$	18.60	$	18.50	$	31.99	$	28.37
Fiscal 2014
High	$	54.64	$	56.00	$	71.18	$	82.84
Low	$	42.42	$	49.09	$	54.22	$	68.17

CLASS B COMMON STOCK



	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Fiscal 2013
High	$	24.74	$	32.88	$	37.05	$	44.55
Low	$	18.75	$	18.64	$	32.05	$	28.71
Fiscal 2014
High	$	54.01	$	55.49	$	71.07	$	82.32
Low	$	42.89	$	49.69	$	54.76	$	68.38

At April 22, 2014, the number of holders of record of our Class A Common Stock and Class B Common Stock were 689 and 135, respectively. There were no holders of record of our Class 1 Common Stock at April 22, 2014.

We have not paid any cash dividends on our common stock since our initial public offering in 1973. We currently intend to retain all of our earnings to finance the development and expansion of our business, but may in the future consider paying cash dividends on our common stock. In addition, the terms of our 2013 Credit Agreement may restrict the payment of cash dividends on our common stock under certain circumstances. Any indentures for debt securities issued in the future, the terms of any preferred stock issued in the future and any credit agreements entered into in the future may also restrict or prohibit the payment of cash dividends on our common stock.

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Item 6. Selected Financial Data.



	For the Years Ended
	February 28, 2014			February 28, 2013			February 29, 2012			February 28, 2011			February 28, 2010
(in millions, except per share data)
Sales	$	5,411.0		$	3,171.4		$	2,979.1		$	4,096.7		$	4,213.0
Less – excise taxes	(543.3		)	(375.3		)	(324.8		)	(764.7		)	(848.2		)
Net sales	4,867.7			2,796.1			2,654.3			3,332.0			3,364.8
Cost of product sold	(2,876.0		)	(1,687.8		)	(1,592.2		)	(2,141.9		)	(2,220.0		)
Gross profit	1,991.7			1,108.3			1,062.1			1,190.1			1,144.8
Selling, general and administrative expenses	(895.1		)	(585.4		)	(537.5		)	(664.0		)	(730.1		)
Impairment of goodwill and intangible assets ⁽¹⁾	(300.9		)	—			(38.1		)	(23.6		)	(103.2		)
Gain on remeasurement to fair value of equity method investment ⁽²⁾	1,642.0			—			—			—			—
Operating income	2,437.7			522.9			486.5			502.5			311.5
Equity in earnings of equity method investees	87.8			233.1			228.5			243.8			213.6
Interest expense, net	(323.2		)	(227.1		)	(181.0		)	(195.3		)	(265.1		)
Loss on write-off of financing costs	—			(12.5		)	—			—			(0.7		)
Income before income taxes	2,202.3			516.4			534.0			551.0			259.3
(Provision for) benefit from income taxes	(259.2		)	(128.6		)	(89.0		)	8.5			(160.0		)
Net income	$	1,943.1		$	387.8		$	445.0		$	559.5		$	99.3

Earnings per common share:
Basic – Class A Common Stock	$	10.45		$	2.15		$	2.20		$	2.68		$	0.46
Basic – Class B Convertible Common Stock	$	9.50		$	1.96		$	2.00		$	2.44		$	0.41
Diluted – Class A Common Stock	$	9.83		$	2.04		$	2.13		$	2.62		$	0.45
Diluted – Class B Convertible Common Stock	$	9.04		$	1.87		$	1.96		$	2.40		$	0.41

Total assets	$	14,302.1		$	7,638.1		$	7,109.9		$	7,167.6		$	8,094.3

Long-term debt, including current maturities	$	6,963.3		$	3,305.4		$	2,751.6		$	3,152.6		$	3,464.3

⁽¹⁾

For a detailed discussion of impairment of goodwill and intangible assets for the years ended February 28, 2014, and February 29, 2012, see Note 7 of the Notes to the Financial Statements. For the years ended February 28, 2011, and February 28, 2010, impairment of goodwill and intangible assets represent impairment losses recorded for certain trademarks associated with our Wine and Spirits segment and our prior Australian and U.K. wine segment, respectively.


⁽²⁾	For a detailed discussion of the gain on remeasurement to fair value of equity method investment for the year ended February 28, 2014, see Note 3 of the Notes to the Financial Statements.

For the years ended February 28, 2014, and February 28, 2013, see MD&A and the consolidated financial statements and notes thereto under Item 8 of this Annual Report on Form 10-K (the “Financial Statements”).

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

Introduction

This MD&A, which should be read in conjunction with our Financial Statements, provides additional information on our businesses, current developments, financial condition, cash flows and results of operations. It is organized as follows:


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


•	Strategy. This section provides a description of our strategy on a business segment basis and discussion of recent acquisitions.


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


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

•

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

Overview

We are a leading international beverage alcohol company with a broad portfolio of consumer-preferred premium imported beer, wine and spirits brands complemented by other select beverage alcohol products. We are the third-largest producer and marketer of beer for the U.S. market and the world’s leading premium wine company. We are the largest Multi-category Supplier of beverage alcohol in the U.S., the leading producer and marketer of wine in Canada, and a leading producer and exporter of wine from New Zealand and Italy.

Our internal management financial reporting consists of two business divisions: (i) Beer and (ii) Wine and Spirits, and we report our operating results in three segments: (i) Beer (imported beer), (ii) Wine and Spirits (wine and spirits), and (iii) Corporate Operations and Other. The business segments reflect how our operations are managed, how operating performance is evaluated by senior management and the structure of our internal financial reporting. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations and global information technology. The amounts included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are therefore not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in our chief operating decision maker’s evaluation of the operating income performance of the other reportable segments.

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Strategy

Our business strategy in the Beer segment is twofold: (i) continued focus on growing the premium Mexican beer portfolio in the U.S. through expanding distribution for key brands, as well as new product development and innovation within the existing portfolio of brands, and (ii) completion of the required Brewery expansion in Mexico by December 31, 2016, with a goal to complete the expansion within three years from the date of acquisition (see additional discussion below under “Acquisitions - Beer Business Acquisition”).

Our business strategy in the Wine and Spirits segment is centered on continued focus on consumer-preferred premium wine brands, complemented by premium spirits. In this segment, we continue to focus on growing premium product categories. We have consolidated our U.S. distribution network in markets where it was feasible, which currently represents about 70% of our branded wine and spirits volume in the U.S., in order to obtain dedicated selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth. Throughout the terms of these contracts, we generally expect shipments on an annual basis to these distributors (“Shipments”) to essentially equal the distributors’ shipments to retailers (“Depletions”). In addition, we dedicate a large share of our sales and marketing resources to our U.S. Focus Brands as they represent a majority of our U.S. wine and spirits revenue and profitability, and have strong positions in their respective price segments.

We believe the current overall supply of wine is generally in balance with demand within the U.S. The calendar 2013 U.S. grape harvest overall yield came in similar to the calendar 2012 U.S. grape harvest. Accordingly, we expect that the calendar 2013 U.S. grape harvest may continue to provide some relief from the recent tightening of supply within certain U.S. varietals due to relatively smaller U.S. grape harvests in calendar 2011 and calendar 2010.

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 and reduce borrowings.

Marketing, sales and distribution of our products are managed on a geographic basis in order to fully leverage leading market positions. In addition, market dynamics and consumer trends vary across each of our markets. Within our primary market in the U.S., we offer a range of beverage alcohol products across the imported beer, branded wine and spirits categories, with separate distribution networks utilized for our imported beer portfolio and our wine and spirits portfolio. Within our next largest market in Canada, we offer a range of beverage alcohol products primarily across the branded wine category. The environment for our products is competitive in each of our markets.

Acquisitions

Beer Business Acquisition

In June 2013, we completed the Beer Business Acquisition for an aggregate purchase price of $5,226.4 million. The Beer Business Acquisition resulted in the acquisition of:


•	the remaining 50% equity interest in Crown Imports;


•	all of the equity interests of a company which owns and operates the Brewery and of a company which provides personnel and services for the operation and maintenance of the Brewery; and


•	an irrevocable, fully-paid license to produce in Mexico (or worldwide under certain circumstances) and exclusively import, market and sell Modelo’s Mexican beer portfolio sold in the U.S. and Guam as of the date of the acquisition, and certain extensions.

In connection with the Beer Business Acquisition, we are required to build out and expand the Brewery to a nominal capacity of at least 20 million hectoliters of packaged beer annually by December 31, 2016. In addition, an interim supply agreement and a transition services agreement were entered into in association with the Beer Business Acquisition. The interim supply agreement obligates the supplier to provide us with a supply of product not produced by the Brewery and the transition services agreement provides for certain specified services and production materials, both for a specified period of time. The associated agreements provide, among other things,

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that the United States will have approval rights, in its sole discretion, for amendments or modifications to the associated agreements and the United States will have a right of approval, in its sole discretion, of any extension of the term of the interim supply agreement beyond three years. The Beer Business Acquisition has positioned us as the third-largest producer and marketer of beer for the U.S. market and the largest Multi-category Supplier of beverage alcohol in the U.S.

The results of operations of the Beer Business Acquisition are reported in the Beer segment and are included in our consolidated results of operations from the date of acquisition. It is a significant acquisition that has had and will continue to have a material impact on our future results of operations, financial position and cash flows.

Mark West

In July 2012, we acquired Mark West for $159.3 million. The transaction primarily includes the acquisition of the Mark West trademark, related inventories and certain grape supply contracts. The results of operations of Mark West are reported in the Wine and Spirits segment and are included in our consolidated results of operations from the date of acquisition.

Ruffino

In October 2011, we acquired the remaining 50.1% equity interest in Ruffino (which we did not previously own) for €50.3 million ($68.6 million). As a result of this acquisition, we assumed indebtedness of Ruffino, net of cash acquired, of €54.2 million ($73.1 million). The results of operations of the Ruffino business are reported in the Wine and Spirits segment and are included in our consolidated results of operations from the date of acquisition.

For more information on these acquisitions see Note 3 of the Notes to the Financial Statements.

Results of Operations

Financial Highlights

Financial Highlights for Fiscal 2014:

•

Our Beer Business Acquisition solidified our position in the U.S. beer market for the long term and makes us the third-largest brewer and seller of beer for the U.S. market. Combining this with our strong position in wine and spirits makes us the largest Multi-category Supplier of beverage alcohol in the U.S. In addition, the Beer Business Acquisition resulted in the realization of operating efficiencies and the strengthening of relationships with wholesalers and distributors.


•	Our net sales increased 74% primarily due to the Beer Business Acquisition and strong consumer demand within the Mexican beer portfolio.


•	Operating income increased significantly primarily due to a nontaxable gain on the remeasurement to fair value of our preexisting 50% equity interest in Crown Imports combined with the benefit from the Beer Business Acquisition, partially offset by an impairment of nondeductible goodwill and intangible assets for the Wine and Spirits segment’s Canadian reporting unit.


•	Net income also increased significantly primarily due to the items discussed above, partially offset by lower equity in earnings (Crown Imports) and an increase in interest expense, net, driven largely by financing for the Beer Business Acquisition.


•	The significant increase in our diluted earnings per share resulted largely from the Beer Business Acquisition.

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References to organic throughout the following discussion exclude the impact of branded wine acquired in the acquisitions of Mark West and Ruffino, as appropriate.

Unusual items

Management excludes items that affect comparability (“Unusual Items”) from its evaluation of the results of each operating segment as these Unusual Items are not reflective of continuing operations of the segments. Segment operating performance and segment management compensation is evaluated based upon continuing segment operating income. As such, the performance measures for incentive compensation purposes for segment management do not include the impact of these items.

As more fully described herein and in the related Notes to the Financial Statements, the Unusual Items that impacted comparability in our results for each period are as follows:



	Fiscal 2014			Fiscal 2013			Fiscal 2012
(in millions)
Cost of Product Sold
Flow through of inventory step-up	$	11.0		$	7.8		$	1.6
Amortization of favorable interim supply agreement	6.0			—			—
Other costs	(1.0		)	—			0.3
Total Cost of Product Sold	16.0			7.8			1.9

Selling, General and Administrative Expenses
Transaction and related costs associated with pending and completed acquisitions	51.5			27.7			—
Deferred compensation	7.0			—			—
Restructuring charges and other	(2.8		)	(1.7		)	13.5
Total Selling, General and Administrative Expenses	55.7			26.0			13.5

Impairment of Goodwill and Intangible Assets	300.9			—			38.1

Gain on Remeasurement to Fair Value of Equity Method Investment	(1,642.0		)	—			—

Equity in Losses of Equity Method Investees	0.1			1.0			—

Loss on Write-Off of Financing Costs	—			12.5			—
Unusual Items	$	(1,269.3	)	$	47.3		$	53.5

Cost of Product Sold

Inventory Step-Up

In connection with acquisitions, the allocation of purchase price in excess of book value for certain inventory on hand at the date of acquisition is referred to as inventory step-up. Inventory step-up represents an assumed manufacturing profit attributable to the acquired company prior to acquisition. For Fiscal 2014, Fiscal 2013 and Fiscal 2012, flow through of inventory step-up was primarily related to the Beer Business Acquisition, the Mark West acquisition and the Ruffino acquisition, respectively.

Favorable Interim Supply Agreement

In connection with the Beer Business Acquisition, a temporary supply agreement was negotiated under a favorable pricing arrangement for the required volume of beer needed to fulfill U.S. demand in excess of the Brewery’s capacity until the Brewery acquires the necessary capacity to fulfill 100% of the U.S. demand. For Fiscal 2014, amortization of favorable interim supply agreement reflects amounts associated with non-Brewery product purchased from the date of acquisition which has been sold to our U.S. customers during Fiscal 2014.

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Other Costs

For Fiscal 2014, other costs represent unrealized gains from the mark to fair value of undesignated commodity swap contracts which are reported outside of segment operating results until such time that the underlying exposure is realized in the segment operating results. At that time, the realized gains or losses from the mark to fair value of the undesignated commodity swap contracts are reported in the appropriate operating segment, allowing our operating segments to realize the economic effects of the commodity swap contracts without the resulting unrealized mark to fair value volatility. For Fiscal 2012, other costs represent amounts recognized in connection with certain of our restructuring activities.

Selling, General and Administrative Expenses

Transaction and Related Costs Associated With Pending and Completed Acquisitions

For Fiscal 2014 and Fiscal 2013, transaction and related costs were associated primarily with the Beer Business Acquisition.

Deferred Compensation

For Fiscal 2014, deferred compensation relates to a prior period correction of previously unrecognized deferred compensation costs that were associated with certain employment agreements.

Restructuring Charges and Other

For Fiscal 2014, Fiscal 2013 and Fiscal 2012, restructuring charges and other consist primarily of restructuring and related charges associated with previously announced restructuring plans as well as certain (gains) losses on prior period acquisitions and divestitures.

Impairment of Goodwill and Intangible Assets

For Fiscal 2014, we recorded impairment losses of $300.9 million for the second quarter consisting of impairments of goodwill and certain trademarks of $278.7 million and $22.2 million, respectively, related to our Wine and Spirits segment’s Canadian reporting unit. No such impairments were recorded for Fiscal 2013. For Fiscal 2012, we recorded an impairment loss for the fourth quarter consisting of impairments of certain trademarks related to our Wine and Spirits segment’s Canadian business.

Gain on Remeasurement to Fair Value of Equity Method Investment

Prior to the Beer Business Acquisition, we accounted for our investment in Crown Imports under the equity method of accounting. In applying the acquisition method of accounting, our preexisting 50% equity interest was remeasured to its estimated fair value of $1,845.0 million, and we recognized a gain of $1,642.0 million for the second quarter of Fiscal 2014 in connection with the Beer Business Acquisition.

Loss on Write-off of Financing Costs

We recorded a loss on the write-off of financing costs for Fiscal 2013 primarily in connection with the redemption of the August 2012 Senior Notes.

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Fiscal 2014 Compared to Fiscal 2013

Net Sales

The following table sets forth net sales for each of our reportable segments for Fiscal 2014 and Fiscal 2013.



	Fiscal 2014			Fiscal 2013			% Increase (Decrease)
(in millions)
Beer	$	2,835.6		$	2,588.1		10	%
Wine and Spirits:
Wine	2,554.2			2,495.8			2	%
Spirits	291.3			300.3			(3	%)
Total Wine and Spirits	2,845.5			2,796.1			2	%
Total Reportable Segments	5,681.1			5,384.2			6	%
Consolidation and Eliminations	(813.4		)	(2,588.1		)	69	%
Consolidated Net Sales	$	4,867.7		$	2,796.1		74	%

Net sales increased to $4,867.7 million for Fiscal 2014 from $2,796.1 million for Fiscal 2013, an increase of $2,071.6 million, or 74%. This increase resulted primarily from $2,022.2 million of net sales of products acquired in the Beer Business Acquisition. Prior to the Beer Business Acquisition, the results of operations of the Beer segment were eliminated in consolidation as our preexisting 50% equity interest in Crown Imports was accounted for under the equity method of accounting.

Beer



	Fiscal 2014		Fiscal 2013		% Increase
(in millions, branded product, 24 pack, 12 ounce case equivalents)
Net Sales	$	2,835.6	$	2,588.1	9.6	%

Shipment Volume	182.4		170.6		6.9	%

Depletion Volume Growth ⁽¹⁾					7.6	%


⁽¹⁾	Depletions are based on third party data.

The increase in net sales for the Beer segment resulted primarily from volume growth within the Mexican beer portfolio which benefited from continued consumer demand and increased advertising spend, combined with a favorable impact from pricing in select markets.

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Wine and Spirits



	Fiscal 2014		Fiscal 2013		% Increase
(in millions, branded product, 9 liter case equivalents)
Net Sales	$	2,845.5	$	2,796.1	1.8	%

Shipment Volume
Total	66.8		64.2		4.0	%
Organic	66.5		64.2		3.6	%

U.S. Domestic	51.3		49.3		4.1	%
Organic U.S. Domestic	51.0		49.3		3.4	%

U.S. Domestic Focus Brands	35.9		34.0		5.6	%
Organic U.S. Domestic Focus Brands	35.6		34.0		4.7	%

Depletion Volume Growth ⁽¹⁾
U.S. Domestic					3.5	%
U.S. Domestic Focus Brands					5.6	%

The increase in net sales for the Wine and Spirits segment is due primarily to an increase in wine net sales of $58.4 million, or 2%. This increase resulted primarily from organic branded wine volume growth (predominantly in the U.S.) and $18.6 million of net sales of branded wine acquired in the acquisition of Mark West, partially offset by higher promotional expense and unfavorable product mix (predominantly within the organic U.S. branded wine portfolio) and an unfavorable year-over-year foreign currency translation impact of $18.5 million. Spirits net sales decreased $9.0 million, or (3%), primarily due to lower bulk spirits net sales and higher promotional expense.

For the first quarter of fiscal 2015, we expect a low-to-mid single-digit percent decrease in wine and spirits net sales from the first quarter of fiscal 2014 as we work with one of our exclusive distributors to reduce their inventory levels. However, gross profit for the first quarter of fiscal 2015 is not expected to be significantly impacted as a result of this inventory reduction as the distributor is contractually required to pay us an amount approximately equal to the profit lost on the reduced sales.

Gross Profit

Gross profit increased to $1,991.7 million for Fiscal 2014 from $1,108.3 million for Fiscal 2013, an increase of $883.4 million, or 80%. This increase is primarily due to gross profit from the Beer Business Acquisition of $890.6 million, partially offset by an increase in Unusual Items of $8.2 million.

The Beer segment’s gross profit increased $376.7 million, or 50%, primarily due to incremental gross profit from the Brewery Purchase, the favorable impact from pricing in select markets and the volume growth.

Wine and Spirits’ gross profit increased slightly, primarily due to the organic branded wine volume growth, partially offset by the higher promotional expense and higher branded wine product costs.

Gross profit as a percent of net sales increased to 40.9% for Fiscal 2014 compared to 39.6% for Fiscal 2013 primarily due to the benefit from the Beer Business Acquisition, partially offset by the higher wine and spirits promotional expense and the increase in Unusual Items.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $895.1 million for Fiscal 2014 from $585.4 million for Fiscal 2013, an increase of $309.7 million, or 53%. This increase is due to $260.3 million of selling, general and administrative expenses from the Beer Business Acquisition, combined with increases in (i) Unusual

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items of $29.7 million, (ii) Wine and Spirits of $13.4 million and (iii) Corporate Operations and Other of $6.3 million.

The Beer segment’s selling, general and administrative expenses increased $51.8 million, or 17%, primarily due to increases in general and administrative expenses, advertising expenses and selling expenses. The increase in general and administrative expenses is primarily attributable to higher allocated information technology expense in the Beer segment (which was offset by a decrease in allocated information technology expense in the Wine and Spirits segment) and higher compensation and benefit costs associated largely with higher annual management incentive expense. Information technology expense is allocated to each of our segments to reflect utilization of central support services and costs associated with our information technology systems. The reallocation of information technology expense resulted from the Beer Business Acquisition and the associated consolidation of the Beer segment’s results of operations. The increase in advertising expenses is due largely to planned investment behind the Mexican beer portfolio. The increase in selling expenses is due largely to increased headcount to support the Beer segment’s growth.

The increase in Wine and Spirits’ selling, general and administrative expenses is primarily due to an increase in selling expenses of $15.4 million and advertising expenses of $4.4 million, partially offset by a decrease in general and administrative expenses of $6.4 million. The increase in selling and advertising expenses is driven largely by a planned increase in spend behind the segment’s branded wine and spirits portfolio. The decrease in general and administrative expenses is primarily attributable to the lower allocated information technology expense discussed above, partially offset by a number of smaller increases in certain general and administrative expenses supporting the Wine and Spirits’ branded portfolio.

The increase in Corporate Operations and Other’s selling, general and administrative expenses is primarily due to an increase in general and administrative expenses primarily attributable to higher compensation and benefit costs associated largely with higher annual management incentive expense.

Selling, general and administrative expenses as a percent of net sales decreased to 18.4% for Fiscal 2014 as compared to 20.9% for Fiscal 2013 primarily due to the Beer Business Acquisition and the associated lower fixed overhead, partially offset by the higher Unusual Items.

Operating Income

The following table sets forth operating income (loss) for each of our reportable segments for Fiscal 2014 and Fiscal 2013.



	Fiscal 2014			Fiscal 2013			% Increase (Decrease)
(in millions)
Beer	$	772.9		$	448.0		73	%
Wine and Spirits	637.8			650.2			(2	%)
Corporate Operations and Other	(99.8		)	(93.5		)	(7	%)
Total Reportable Segments	1,310.9			1,004.7			30	%
Unusual Items	1,269.4			(33.8		)	NM
Consolidation and Eliminations	(142.6		)	(448.0		)	68	%
Consolidated Operating Income	$	2,437.7		$	522.9		NM

NM = Not Meaningful

As a result of the factors discussed above, consolidated operating income increased to $2,437.7 million for Fiscal 2014 from $522.9 million for Fiscal 2013, an increase of $1,914.8 million.

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Equity in Earnings of Equity Method Investees

Our equity in earnings of equity method investees decreased to $87.8 million in Fiscal 2014 from $233.1 million in Fiscal 2013, a decrease of $145.3 million, or (62%). This decrease is primarily due to lower equity in earnings of Crown Imports as a result of the Beer Business Acquisition and the consolidation of Crown Imports’ results of operations from the date of acquisition.

Interest Expense, Net

Interest expense, net of interest income of $7.7 million and $6.8 million for Fiscal 2014 and Fiscal 2013, respectively, increased to $323.2 million for Fiscal 2014 from $227.1 million for Fiscal 2013, an increase of $96.1 million, or 42%. The increase was driven largely by higher average borrowings, partially offset by a lower weighted average interest rate on outstanding borrowings, both due primarily to the issuance of the May 2013 Senior Notes and borrowings under the 2013 Credit Agreement.

Provision for Income Taxes

Our effective tax rate for Fiscal 2014 and Fiscal 2013 was 11.8% and 24.9%, respectively. Our effective tax rate for Fiscal 2014 was favorably impacted by the Beer Business Acquisition, primarily attributable to the recognition of the nontaxable gain on the remeasurement to fair value of our preexisting 50% equity interest in Crown Imports of $1,642.0 million, partially offset by the write-off of nondeductible goodwill of $278.7 million. Our effective tax rate for Fiscal 2013 was substantially impacted by the benefit from additional foreign tax credits.

We expect our effective tax rate for each of the next three fiscal years to be in the range of 30% to 32% primarily attributable to the Beer Business Acquisition.

Net Income

As a result of the above factors, net income increased to $1,943.1 million for Fiscal 2014 from $387.8 million for Fiscal 2013, an increase of $1,555.3 million.

Fiscal 2013 Compared to Fiscal 2012

Net Sales

The following table sets forth net sales for each of our reportable segments for Fiscal 2013 and Fiscal 2012.



	Fiscal 2013			Fiscal 2012			% Increase (Decrease)
(in millions)
Beer	$	2,588.1		$	2,469.5		5	%
Wine and Spirits:
Wine	2,495.8			2,386.8			5	%
Spirits	300.3			267.5			12	%
Total Wine and Spirits	2,796.1			2,654.3			5	%
Total Reportable Segments	5,384.2			5,123.8			5	%
Consolidation and Eliminations	(2,588.1		)	(2,469.5		)	(5	%)
Consolidated Net Sales	$	2,796.1		$	2,654.3		5	%

Net sales increased to $2,796.1 million for Fiscal 2013 from $2,654.3 million for Fiscal 2012, an increase of $141.8 million, or 5%. This increase resulted primarily from (i) organic U.S. branded wine and spirits volume growth, (ii) $55.5 million of net sales of branded wine acquired in the acquisitions of Mark West and Ruffino and (iii) favorable product mix shift in the organic branded wine and spirits portfolio (predominately in the U.S.), partially offset by higher promotional spend (predominately within the organic U.S. branded wine portfolio).

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Beer



	Fiscal 2013		Fiscal 2012		% Increase
(in millions, branded product, 24 pack, 12 ounce case equivalents)
Net Sales	$	2,588.1	$	2,469.5	4.8	%

Shipment Volume	170.6		164.0		4.0	%

Depletion Volume Growth ⁽¹⁾					3.4	%


⁽¹⁾	Depletions are based on third party data.

The increase in net sales for the Beer segment resulted primarily from volume growth within the Mexican beer portfolio which benefited from continued consumer demand and increased advertising spend, partially offset by the loss of the St. Pauli Girl brand volume.

Wine and Spirits



	Fiscal 2013		Fiscal 2012		% Increase
(in millions, branded product, 9 liter case equivalents)
Net Sales	$	2,796.1	$	2,654.3	5.3	%

Shipment Volume
Total	64.2		61.3		4.7	%
Organic	63.3		61.3		3.3	%

U.S. Domestic	49.3		46.9		5.1	%
Organic U.S. Domestic	48.7		46.9		3.8	%

U.S. Domestic Focus Brands	34.0		31.1		9.3	%
Organic U.S. Domestic Focus Brands	33.5		31.1		7.7	%

Depletion Volume Growth ⁽¹⁾
U.S. Domestic					3.9	%
U.S. Domestic Focus Brands					7.6	%

The increase in net sales for the Wine and Spirits segment is due to an increase in wine net sales of $109.0 million, or 5%, and an increase in spirits net sales of $32.8 million, or 12%. The increase in wine net sales resulted primarily from (i) organic U.S. branded wine volume growth, (ii) $55.5 million of net sales of branded wine acquired in the acquisitions of Mark West and Ruffino, and (iii) favorable product mix shift in the organic branded wine portfolio (predominately in the U.S.), partially offset by higher promotional spend (predominantly within the organic U.S. branded wine portfolio). The increase in spirits net sales resulted primarily from favorable product mix shift and volume growth within the branded spirits portfolio, combined with higher bulk spirits net sales.

Gross Profit

Gross profit increased to $1,108.3 million for Fiscal 2013 from $1,062.1 million for Fiscal 2012, an increase of $46.2 million, or 4%. The increase in gross profit is due to an increase in Wine and Spirits gross profit of $52.1 million, partially offset by an increase in Unusual Items of $5.9 million.

The increase in Wine and Spirits gross profit is primarily due to (i) gross profit of $34.2 million from the acquisitions of Ruffino and Mark West, (ii) favorable product mix shift in the organic branded wine and spirits portfolio, and (iii) higher volumes in the organic U.S. branded wine and spirits portfolio, partially offset by the higher promotional spend.

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The Beer segment’s gross profit increased $34.4 million, or 5%, primarily due to volume growth within the Mexican beer portfolio.

Gross profit as a percent of net sales decreased slightly to 39.6% for Fiscal 2013 from 40.0% for Fiscal 2012 primarily due to the factors discussed above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $585.4 million for Fiscal 2013 from $537.5 million for Fiscal 2012, an increase of $47.9 million, or 9%. This increase is due to increases in (i) the Wine and Spirits segment of $23.8 million, (ii) Unusual Items of $12.5 million and (iii) the Corporate Operations and Other segment of $11.6 million.

The increase in Wine and Spirits’ selling, general and administrative expenses is primarily due to increases in general and administrative expenses of $12.2 million, advertising expenses of $5.9 million and selling expenses of $5.7 million. The increase in general and administrative expenses is primarily due to an overlap of a prior year favorable legal settlement in the U.S. related to the use of a certain intangible asset, combined with an increase in general and administrative expenses associated with the acquisition of Ruffino. The increases in advertising and selling expenses is primarily due to a planned increase in spend behind the segment’s branded wine and spirits portfolio.

The increase in Corporate Operations and Other’s selling, general and administrative expenses is due to an increase in general and administrative expenses driven largely by an increase in higher compensation and benefits and other costs related to our initiative to implement a comprehensive, multi-year program to strengthen and enhance our global business capabilities and processes through the creation of an integrated technology platform, and an overlap of prior year net gains in connection with the early redemption of certain AFS debt securities from Accolade.

The Beer segment’s selling, general and administrative expenses increased $17.4 million, or 6%, primarily due to increases in advertising expenses and general and administrative expenses. The increase in advertising expenses is due largely to planned investment behind the Mexican beer portfolio. The increase in general and administrative expenses is primarily due to higher compensation and benefit costs, partially offset by a gain recognized in the second quarter of fiscal 2013 in connection with the receipt of a payment terminating the right to distribute the St. Pauli Girl beer brand.

Selling, general and administrative expenses as a percent of net sales increased to 20.9% for Fiscal 2013 as compared to 20.3% for Fiscal 2012 primarily due to the factors discussed above, combined with the higher promotional spend.

Operating Income

The following table sets forth operating income (loss) for each of our reportable segments for Fiscal 2013 and Fiscal 2012.



	Fiscal 2013			Fiscal 2012			% Increase (Decrease)
(in millions)
Beer	$	448.0		$	431.0		4	%
Wine and Spirits	650.2			621.9			5	%
Corporate Operations and Other	(93.5		)	(81.9		)	(14	%)
Total Reportable Segments	1,004.7			971.0			3	%
Unusual Items	(33.8		)	(53.5		)	NM
Consolidation and Eliminations	(448.0		)	(431.0		)	(4	%)
Consolidated Operating Income	$	522.9		$	486.5		7	%

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As a result of the factors discussed above, consolidated operating income increased to $522.9 million for Fiscal 2013 from $486.5 million for Fiscal 2012, an increase of $36.4 million, or 7%.

Equity in Earnings of Equity Method Investees

Our equity in earnings of equity method investees increased to $233.1 million for Fiscal 2013 from $228.5 million for Fiscal 2012, an increase of $4.6 million, or 2%. This increase is primarily due to higher equity in earnings of our then existing Crown Imports joint venture, and our Opus One equity method investment, partially offset by lower equity in earnings from Ruffino as a result of the acquisition of Ruffino and the consolidation of Ruffino’s results of operations from the date of acquisition.

Interest Expense, Net

Interest expense, net of interest income of $6.8 million and $6.6 million for Fiscal 2013 and Fiscal 2012, respectively, increased to $227.1 million for Fiscal 2013 from $181.0 million for Fiscal 2012, an increase of $46.1 million, or 25%. The increase was driven largely by higher average borrowings as we positioned ourselves for the expected funding of the then pending beer business acquisition.

Provision for Income Taxes

Our effective tax rate for Fiscal 2013 and Fiscal 2012 was 24.9% and 16.7%, respectively. Our effective tax rate for Fiscal 2013 was substantially impacted by the benefit from additional foreign tax credits. Our effective tax rate for Fiscal 2012 reflects decreases in uncertain tax positions of $85.2 million and other tax adjustments of $42.5 million in connection with the completion of various income tax examinations during Fiscal 2012 and a change in the method of filing certain state income tax returns.

Net Income

As a result of the above factors, net income decreased to $387.8 million for Fiscal 2013 from $445.0 million for Fiscal 2012, a decrease of $57.2 million, or (13%).

Financial Liquidity and Capital Resources

General

Our principal use of cash in our operating activities is for purchasing and carrying inventories and carrying seasonal accounts receivable. Our primary source of liquidity has historically been cash flow from operations, except during annual grape harvests when we have relied on short-term borrowings. In the U.S., Canada and Italy, the annual grape crush normally begins in August and runs through October. In New Zealand, the annual grape crush normally begins in February and runs through May. We generally begin taking delivery of grapes at the beginning of the crush season with the majority of payments for such grapes coming due within 90 days. Our short-term borrowings to support such purchases generally reach their highest levels one to two months after the crush season has ended. Historically, we have used cash flow from operating activities to repay our short-term borrowings and fund capital expenditures. We will continue to use our short-term borrowings, including our accounts receivable securitization facilities (see additional discussion below under “Accounts Receivable Securitization Facilities”), to support our working capital requirements.

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

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As of April 22, 2014, we had a borrowing capacity of $835.2 million available under our 2013 Credit Agreement. The member financial institutions participating in our 2013 Credit Agreement have complied with prior funding requests and we believe the member financial institutions will comply with ongoing funding requests. However, there can be no assurances that any particular financial institution will continue to do so in the future. In addition, the CBI SPV and the Crown SPV have borrowing capacity available under their respective accounts receivable securitization facilities.

Cash Flows

Cash and cash investments (decreased) increased ($267.6) million, $245.7 million and $76.6 million for Fiscal 2014, Fiscal 2013 and Fiscal 2012, respectively. Components of these changes are discussed in more detail below.

Operating Activities



	Fiscal 2014			Fiscal 2013			Fiscal 2012
(in millions)
Net income	$	1,943.1		$	387.8		$	445.0
Net non-cash	(1,126.0		)	220.3			246.6
Change in operating assets and liabilities, net of effects from purchases of businesses	(1.5		)	(67.7		)	101.6
Other, net	10.6			15.9			(9.1		)
Net cash provided by operating activities	$	826.2		$	556.3		$	784.1

Fiscal 2014

The net noncash items consisted primarily of the gain on remeasurement to fair value of our preexisting 50% equity interest in Crown Imports, partially offset by the impairment of goodwill and intangible assets and depreciation expense. The net cash used in the net change in our operating assets and liabilities resulted primarily from a decrease in accounts payable of $49.3 million and an increase in inventories of $41.1 million, partially offset by an increase in other accrued expenses and liabilities of $58.1 million and a decrease in accounts receivable, net, of $36.5 million. The decrease in accounts payable is primarily due to the timing of payments. The increase in inventories is primarily due to higher U.S. wine inventory levels resulting largely from an above average calendar 2013 U.S. grape harvest combined with unfavorable product mix in net sales for the fourth quarter of fiscal 2014, partially offset by lower beer inventory levels due largely to timing as early June inventory levels from the Beer Business Acquisition were at higher levels (as compared to the end of February) to support the strong summer selling season for beer. The increase in other accrued expenses and liabilities is largely due to increases in income taxes payable, accrued salaries and benefits, and accrued advertising and promotions. The increase in income taxes payable is primarily due to higher taxable income driven by the Beer Business Acquisition. The increase in accrued salaries and benefits is primarily due to higher annual management incentive expense. The increase in accrued promotions and advertising is driven primarily by the increased U.S. promotional expense. The decrease in accounts receivable, net, is due largely to timing as early June accounts receivable, net, levels from the Beer Business Acquisition were at higher levels (as compared to the the end of February) due to seasonality of the Beer segment’s net sales.

Fiscal 2013

The net noncash items consisted primarily of depreciation expense, stock-based compensation expense, and deferred tax provision. Other, net, consisted primarily of an increase in deferred revenue. The net cash used in the net change in our operating assets and liabilities resulted primarily from increases in inventories of $90.0 million and accounts receivable, net, of $38.9 million combined with an increase in Fiscal 2013 income tax payments of $86.7 million; partially offset by increases in accounts payable of $76.9 million, accrued interest of $33.7 million and accrued advertising and promotions of $20.6 million. The increase in inventories is primarily due to increased purchases of bulk product to offset the lower harvests from recent years combined with higher grape costs. The

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increase in accounts payable is primarily due to timing of payments as well as increased purchasing of bulk inventory. The increase in income tax payments is due largely to the receipt of an $85.5 million refund in the prior year associated with tax benefits recognized in connection with the CWAE Divestiture. The increase in accounts receivable, net, is due largely to the net sales volume growth in the U.S branded wine and spirits portfolio, including the impact of the net sales from the acquisition of Mark West. The increase in accrued interest is primarily due to timing of payments combined with higher average borrowings. The increase in accrued promotions and advertising is driven primarily by the increased U.S. promotional spend.

Fiscal 2012

The net noncash items consisted primarily of depreciation expense, deferred tax provision, stock-based compensation expense and an impairment of intangible assets. The net cash provided by the net change in our operating assets and liabilities resulted primarily from a decrease in inventories of $51.5 million and an increase in other accrued expenses and liabilities of $44.6 million. The decrease in inventories is due primarily to a decrease in U.S. inventory levels driven largely by net sales volume growth during the fourth quarter of fiscal 2012 as compared to the fourth quarter of fiscal 2011 in the U.S. branded wine portfolio, combined with the lower U.S. calendar 2011 grape harvest. The increase in other accrued expenses and liabilities is due largely to an increase in current income taxes payable due primarily to a refund of $85.5 million received in the first quarter of fiscal 2012 associated with the recognition of income tax benefits in the fourth quarter of fiscal 2011 in connection with the CWAE Divestiture.

Investing Activities



	Fiscal 2014			Fiscal 2013			Fiscal 2012
(in millions)
Purchase of business, net of cash acquired	$	(4,681.3	)	$	(159.3	)	$	(51.5	)
Purchases of property, plant and equipment	(223.5		)	(62.1		)	(68.4		)
Other	41.0			14.6			(15.2		)
Net cash used in investing activities	$	(4,863.8	)	$	(206.8	)	$	(135.1	)

Purchase of business, net of cash acquired, for Fiscal 2014, Fiscal 2013 and Fiscal 2012 consist of net cash paid for the Beer Business Acquisition, the Mark West acquisition and the Ruffino acquisition, respectively. Purchases of property, plant and equipment increased significantly in Fiscal 2014 in connection with the Beer Business Acquisition and the associated Brewery expansion.

Financing Activities



	Fiscal 2014			Fiscal 2013			Fiscal 2012
(in millions)
Proceeds from issuance of long-term debt	$	3,725.0		$	2,050.0		$	—
Proceeds from exercises of employee stock options	120.1			158.3			51.3
Proceeds from excess tax benefits from stock-based payment awards	65.4			17.7			10.9
Net proceeds from (repayments of) notes payable	57.3			(372.6		)	249.8
Principal payments of long-term debt	(96.4		)	(1,537.2		)	(475.9		)
Payment of financing costs of long-term debt	(82.2		)	(35.8		)
Purchases of treasury stock	—			(383.0		)	(413.7		)
Other	(12.2		)	3.9			2.5
Net cash provided by (used in) financing activities	$	3,777.0		$	(98.7	)	$	(575.1	)

For Fiscal 2014, proceeds from issuance of long-term debt include proceeds of $2,175.0 million and $1,550.0 million from term loan borrowings under the 2013 Credit Agreement and issuance of the May 2013 Senior Notes, respectively. These proceeds were used to fund a portion of the Beer Business Acquisition. For Fiscal 2013, proceeds from issuance of long-term debt include proceeds from the April 2012 Senior Notes and the August 2012 Senior Notes of $600.0 million and $650.0 million, respectively, combined with $800.0 million of proceeds from

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term loan borrowings under our then existing senior credit facility. A portion of the proceeds from the April 2012 Senior Notes and the term loan borrowings were used to repay the outstanding obligations under our then existing senior credit facility. Proceeds from the August 2012 Senior Notes were intended to be used to fund a portion of the Beer Business Acquisition; however, due to differences between the terms of the initial June 2012 purchase agreement and an amended February 2013 purchase agreement, we determined that the conditions for the release of the previously escrowed proceeds could not be satisfied and we redeemed the August 2012 Senior Notes in February 2013.

For Fiscal 2013, principal payments of long-term debt consist primarily of the aforementioned repayment of outstanding obligations under our then existing senior credit facility and the redemption of the August 2012 Senior Notes. For Fiscal 2012, principal payments of long-term debt consist primarily of a prepayment of $400.0 million of outstanding term loan facility under our then existing senior credit facility.

For Fiscal 2013 and Fiscal 2012, purchases of treasury stock consist of share repurchases under our 2013 Authorization and 2012 Authorization (as further discussed below under “Share Repurchase Programs”).

Share Repurchase Programs

Our Board of Directors authorized the repurchase of up to $500.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock in April 2011 (the “2012 Authorization”) and the repurchase of up to $1.0 billion of the Company’s Class A Common Stock and Class B Convertible Common Stock in April 2012 (the “2013 Authorization”). The results of those share repurchase programs are summarized in the following table. The repurchased shares have become treasury shares.



	Class A Common Shares
	Shares Purchased	Average Price Per Share		Total Dollar Value of Shares Repurchased
(in millions, except share and per share data)
2012 Authorization	25,204,747	$	19.84	$	500.0
2013 Authorization	14,023,985	$	21.15	$	296.7

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

Debt

Total debt outstanding as of February 28, 2014, amounted to $7,020.5 million, an increase of $3,715.1 million from February 28, 2013. This increase was due largely to the issuance of the $1,550.0 million May 2013 Senior Notes and $2,175.0 million in term loan borrowings under the 2013 Credit Agreement to fund a portion of the purchase price for the Beer Business Acquisition. The following outlines our main components of debt and credit arrangements. For further information, refer to Note 12 of the Notes to the Financial Statements.

Senior Credit Facility

In connection with the Beer Business Acquisition, in May 2013, we, together with our wholly-owned subsidiary, CIH, and the Lenders, entered into a Restatement Agreement that amended and restated our prior senior credit facility. The Restatement Agreement, which had an effective date of June 7, 2013, was entered into to arrange a portion of the debt to finance the Beer Business Acquisition. Our 2013 Credit Agreement is our senior credit facility as amended and restated by the Restatement Agreement.

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The 2013 Credit Agreement provides for aggregate credit facilities of $3,787.5 million, consisting of the following:



	Amount		Maturity
(in millions)
U.S. Term A Facility ⁽¹⁾	$	515.6	June 7, 2018
U.S. Term A-1 Facility ⁽¹⁾	246.9		June 7, 2019
U.S. Term A-2 Facility ⁽¹⁾	675.0		June 7, 2018
European Term A Facility ⁽¹⁾	500.0		June 7, 2018
European Term B Facility ⁽²⁾	1,000.0		June 7, 2020
Revolving Credit Facility ⁽³⁾	850.0		June 7, 2018
	$	3,787.5


⁽¹⁾	Contractual interest rate varies based on our debt ratio and is a function of LIBOR plus a margin; or the base rate plus a margin.


⁽²⁾	Contractual interest rate varies based on our debt ratio and is a function of LIBOR, subject to a minimum rate of 0.75%, plus a margin; or the base rate, subject to a minimum rate of 1.75%, plus a margin.


⁽³⁾	Includes a sub-facility for letters of credit of up to $200.0 million.

The principal changes to our prior senior credit facility effected by the 2013 Credit Agreement are (i) changes to the rate and term of the revolving credit facility and outstanding term loan facilities and a new $675.0 million delayed draw U.S. Term A-2 Facility that replaced the former delayed draw term A-2 facility, and (ii) the creation of a $1,500.0 million delayed draw European term loan facility consisting of the $500.0 million European Term A Facility and the $1,000.0 million European Term B Facility. We are the borrower under the U.S. term loan facilities. CIH is the borrower under the European term loan facilities. The 2013 Credit Agreement also modified the maximum net debt coverage ratio financial covenant.

The U.S. obligations under the 2013 Credit Agreement are guaranteed by certain of our U.S. subsidiaries. These obligations are also secured by a pledge of (i) 100% of the ownership interests in certain of our U.S. subsidiaries and (ii) 65% of the ownership interests in certain of our foreign subsidiaries. We guarantee the European obligations under the 2013 Credit Agreement. These obligations are also secured by a pledge of (i) 100% of certain interests in certain of CIH’s subsidiaries and (ii) 100% of the ownership interests in certain of our U.S. subsidiaries and 65% of the ownership interests in certain of our foreign subsidiaries.

We and our subsidiaries are also subject to covenants that are contained in the 2013 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens, mergers and consolidations, the payment of dividends, the making of certain investments, prepayments of certain debt, transactions with affiliates, agreements that restrict our non-guarantor subsidiaries from paying dividends, and dispositions of property, in each case subject to numerous conditions, exceptions and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net debt coverage ratio.

As of February 28, 2014, and April 22, 2014, information with respect to the Revolving Credit Facility under the 2013 Credit Agreement is as follows:



	Outstanding Borrowings		Interest Rate		Outstanding Letters of Credit		Remaining Availability
(in millions)
February 28, 2014	$	—	—	%	$	14.0	$	836.0

April 22, 2014	$	—	—	%	$	14.8	$	835.2

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As of February 28, 2014, and April 22, 2014, outstanding borrowings and applicable interest rates under the term loans of the 2013 Credit Agreement are as follows:



	U.S. Term A Facility			U.S. Term A-1 Facility			U.S. Term A-2 Facility			European Term A Facility			European Term B Facility
(in millions)
February 28, 2014
Outstanding borrowings	$	496.3		$	245.0		$	649.7		$	481.3		$	992.5
Interest rate	2.2		%	2.4		%	2.2		%	2.2		%	2.8		%

April 22, 2014
Outstanding borrowings	$	496.3		$	245.0		$	649.7		$	481.3		$	992.5
Interest rate	2.2		%	2.4		%	2.2		%	2.2		%	2.8		%

As of February 28, 2014, the required principal repayments under the term loans of the 2013 Credit Agreement for each of the five succeeding fiscal years and thereafter are as follows:



	U.S. Term A Facility		U.S. Term A-1 Facility		U.S. Term A-2 Facility		European Term A Facility		European Term B Facility		Total
(in millions)
2015	$	19.4	$	1.8	$	25.3	$	18.8	$	7.5	$	72.8
2016	38.7		2.5		50.6		37.5		10.0		139.3
2017	51.5		2.5		67.5		50.0		10.0		181.5
2018	51.5		2.5		67.5		50.0		10.0		181.5
2019	335.2		2.4		438.8		325.0		10.0		1,111.4
Thereafter	—		233.3		—		—		945.0		1,178.3
	$	496.3	$	245.0	$	649.7	$	481.3	$	992.5	$	2,864.8

In June 2010, we entered into a five year delayed start interest rate swap agreement effective September 1, 2011, which was designated as a cash flow hedge for $500.0 million of our floating LIBOR rate debt. It fixes the interest rates on $500.0 million of our floating LIBOR rate debt at an average rate of 2.9% (exclusive of borrowing margins) through September 1, 2016. In April 2012, we transitioned our interest rate swap agreement to a one-month LIBOR base rate versus the then existing three-month LIBOR base rate by entering into a new interest rate swap agreement which was designated as a cash flow hedge for $500.0 million of our floating LIBOR rate debt. In addition, the then existing interest rate swap agreement was dedesignated as a hedge. We also entered into an additional interest rate swap agreement for $500.0 million that was not designated as a hedge to offset the prospective impact of the newly undesignated interest rate swap agreement. As a result of these hedges, we have fixed our interest rates on $500.0 million of our floating LIBOR rate debt at an average rate of 2.8% (exclusive of borrowing margins) through September 1, 2016. The unrealized losses in AOCI related to the dedesignated interest rate swap agreement are being reclassified from AOCI ratably into earnings in the same period in which the original hedged item is recorded in income. For Fiscal 2014, Fiscal 2013 and Fiscal 2012, we reclassified net losses of $8.2 million, $8.0 million, and $3.8 million, net of income tax effect, respectively, from AOCI to interest expense, net.

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Senior Notes

The following table presents information with respect to our Senior Notes outstanding as of February 28, 2014, and February 28, 2013:



	Date of					Outstanding Balance ⁽²⁾
	Issuance	Maturity	Interest Payments	Principal		February 28, 2014		February 28, 2013
(in millions)
7.25% Senior Notes ⁽¹⁾	August 2006	September 2016	Mar/Sep	$	700.0	$	697.8	$	697.0
7.25% Senior Notes ⁽¹⁾	May 2007	May 2017	May/Nov	$	700.0	$	700.0	$	700.0
8.375% Senior Notes ⁽¹⁾	December 2007	December 2014	Jun/Dec	$	500.0	$	499.5	$	499.0
6% Senior Notes ⁽¹⁾	April 2012	May 2022	May/Nov	$	600.0	$	600.0	$	600.0
3.75% Senior Notes ⁽¹⁾	May 2013	May 2021	May/Nov	$	500.0	$	500.0	$	—
4.25% Senior Notes ⁽¹⁾	May 2013	May 2023	May/Nov	$	1,050.0	$	1,050.0	$	—


⁽¹⁾	The senior notes described above are redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount plus a make whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 50 basis points.


⁽²⁾	Amounts are net of unamortized discounts, where applicable.

Indentures

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

Subsidiary Credit Facilities

We have additional credit arrangements totaling $373.9 million and $371.5 million as of February 28, 2014, and February 28, 2013, respectively. These arrangements primarily support the financing needs of our domestic and foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions. As of February 28, 2014, and February 28, 2013, amounts outstanding under these arrangements were $89.2 million and $46.9 million, respectively.

Accounts Receivable Securitization Facilities

In December 2012, we entered into the CBI Facility, a 364-day revolving trade accounts receivable securitization facility. Under the CBI Facility, trade accounts receivable generated by us and certain of our subsidiaries are sold by us to our wholly-owned bankruptcy remote single purpose subsidiary, the CBI SPV, which is consolidated by us for financial reporting purposes. Such receivables have been pledged by the CBI SPV to secure borrowings under the CBI Facility. We service the receivables for the CBI Facility. The receivable balances related to the CBI Facility are reported as accounts receivable on our Consolidated Balance Sheets, but the receivables are at all times owned by the CBI SPV and are included on our financial statements as required by generally accepted accounting principles.

In October 2013, the Company and the CBI SPV amended and restated the CBI Facility, effectively extending the CBI Facility through September 30, 2014. The Amended CBI Facility provides borrowing capacity of $190.0 million up to $290.0 million to account for the seasonality of our business, subject to further limitations based upon various pre-agreed formulas. As of February 28, 2014, the CBI SPV had no aggregate outstanding borrowings under the Amended CBI Facility. As of February 28, 2014, the Company had $275.0 million available under the Amended CBI Facility.

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Also, in October 2013, Crown Imports entered into the Crown Facility, a 364-day revolving trade accounts receivable securitization facility. Under the Crown Facility, trade accounts receivable generated by Crown Imports are sold to its wholly-owned bankruptcy remote single purpose subsidiary, the Crown SPV, which is consolidated by us for financial reporting purposes. Such receivables have been pledged by the Crown SPV to secure borrowings under the Crown Facility. Crown Imports services the receivables for the Crown Facility. The receivable balances related to the Crown Facility are reported as accounts receivable on our Consolidated Balance Sheets, but the receivables are at all times owned by the Crown SPV and are included on our financial statements as required by generally accepted accounting principles. The Crown Facility provides borrowing capacity of $100.0 million up to $160.0 million to account for the seasonality of Crown Imports’ business. As of February 28, 2014, the Crown SPV had aggregate outstanding borrowings under the Crown Facility of $19.2 million bearing a weighted average interest rate of 1.1%. As of February 28, 2014, the Company had $80.8 million available under the Crown Facility.

Contractual Obligations and Commitments

The following table sets forth information about our long-term contractual obligations outstanding at February 28, 2014. It brings together data for easy reference from our balance sheet and Notes to the Financial Statements. See Notes 11, 12, 13 and 14 of the Notes to the Financial Statements for a detailed discussion of the items noted in the following table.



	PAYMENTS DUE BY PERIOD
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
(in millions)
Contractual obligations
Notes payable to banks	$	57.2	$	57.2	$	—	$	—	$	—
Long-term debt (excluding unamortized discount)	6,966.0		590.5		1,045.2