stz-20210531

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended May 31, 2021


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

For the transition period from to

Commission File Number: 001-08495

CONSTELLATION BRANDS, INC.

(Exact name of registrant as specified in its charter)


Delaware			16-0716709
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

207 High Point Drive, Building 100, Victor, New York 14564

(Address of principal executive offices) (Zip code)

(585) 678-7100

(Registrant’s telephone number, including area code)

Not Applicable

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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

There were 168,251,351 shares of Class A Common Stock, 23,221,678 shares of Class B Common Stock, and 613,306 shares of Class 1 Common Stock outstanding as of June 25, 2021.

Table of Contents

TABLE OF CONTENTS


		Page

DEFINED TERMS		i

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Comprehensive Income (Loss)		2
Consolidated Statements of Changes in Stockholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements
	1. Basis of Presentation	6
	2. Inventories	6
	3. Acquisitions and Divestitures	6
	4. Derivative Instruments	7
	5. Fair Value of Financial Instruments	9
	6. Goodwill	14
	7. Intangible Assets	14
	8. Equity Method Investments	15


	9. Borrowings	16
	10. Income Taxes	17


	11. Stockholders' Equity	18
	12. Net Income (Loss) Per Common Share Attributable to CBI	19
	13. Comprehensive Income (Loss) Attributable to CBI	20
	14. Business Segment Information	21


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		44

PART II – OTHER INFORMATION


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 4. Mine Safety Disclosures		NA
Item 6. Exhibits		45

INDEX TO EXHIBITS		46

SIGNATURES		50

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

Table of Contents

Defined Terms

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We use terms in this Quarterly Report on Form 10-Q and in our Notes to the Consolidated Financial Statements that are specific to us or are abbreviations that may not be commonly known or used.


Term						Meaning

$						U.S. dollars
2018 Authorization						authority to repurchase up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2018 by our Board of Directors


2019 Five-Year Term Facility						a $491.3 million, five-year term loan facility under the March 2020 Term Credit Agreement, originally entered into in June 2019

2020 Credit Agreement						ninth amended and restated credit agreement, dated as of March 26, 2020, provides for an aggregate revolving credit facility of $2.0 billion



2020 U.S. wildfires						significant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest
2021 Annual Report						our Annual Report on Form 10-K for the fiscal year ended February 28, 2021, unless otherwise specified

2021 Authorization						authority to repurchase up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2021 by our Board of Directors


ABA						alternative beverage alcohol
Acreage						Acreage Holdings, Inc.
Acreage Financial Instrument						a call option for Canopy Growth Corporation to acquire 70% of the shares of Acreage Holdings, Inc., at a fixed exchange ratio and 30% at a floating exchange ratio.
Acreage Transaction						Canopy Growth Corporation’s intention to acquire Acreage Holdings, Inc. upon U.S. federal cannabis legalization, subject to certain conditions
Administrative Agent						Bank of America, N.A., as administrative agent for the senior credit facility and term credit agreement

AOCI						accumulated other comprehensive income (loss)
ASR						Accelerated share repurchase agreement with a third-party financial institution


Ballast Point Divestiture						sale of Ballast Point craft beer business, including a number of its associated production facilities and brewpubs
Booker Vineyard						My Favorite Neighbor, LLC, also known as Booker Vineyard, a super-luxury, direct-to-consumer focused wine business, we made an investment in My Favorite Neighbor, LLC
C$						Canadian dollars
Canopy						Canopy Growth Corporation
Canopy Debt Securities						convertible debt securities issued by Canopy Growth Corporation
Canopy Equity Method Investment						November 2017 Canopy Investment, November 2018 Canopy Investment, and May 2020 Canopy Investment, collectively
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CB International						CB International Finance S.à r.l., a wholly-owned subsidiary of ours


CODM						chief operating decision maker
Comparable Adjustments						certain items affecting comparability that have been excluded by management
Concentrate Business Divestiture						sale of certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets
Copper & Kings						Copper & Kings American Brandy Company, acquired by us


CSR						corporate social responsibility

Empathy Wines						Empathy Wines business, including a digitally-native wine brand, acquired by us


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Table of Contents


Term						Meaning

ERP						enterprise resource planning system

Financial Statements						our consolidated financial statements and notes thereto included herein
First Quarter 2021						the Company’s three months ended May 31, 2020
First Quarter 2022						the Company’s three months ended May 31, 2021
Fiscal 2021						the Company’s fiscal year ended February 28, 2021
Fiscal 2022						the Company’s fiscal year ending February 28, 2022






Lender						Bank of America, N.A., as lender for the term credit agreement
LIBOR						London Interbank Offered Rate
March 2020 Term Credit Agreement						amended and restated term loan credit agreement, dated as of March 26, 2020, that provides for aggregate facilities of $491.3 million, consisting of the 2019 Five-Year Term Facility
May 2020 Canopy Investment						May 2020 exercise of the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this quarterly report on Form 10-Q
Mexicali Brewery						brewery originally planned to be located in Mexicali, Baja California, Mexico
Mexico Beer Projects						expansion activities at the Obregon Brewery and Nava Brewery

NA						not applicable
Nava Brewery						brewery located in Nava, Coahuila, Mexico
Net sales						gross sales less promotions, returns and allowances, and excise taxes


NM						not meaningful
Nobilo Wine Divestiture						sale of New Zealand-based Nobilo Wine brand and certain related assets
Note(s)						Notes to the Consolidated Financial Statements
November 2017 Canopy Investment						our initial investment for 18.9 million in common shares of Canopy Growth Corporation
November 2017 Canopy Warrants						warrants which gave us the option to purchase 18.9 million common shares of Canopy Growth Corporation, exercised May 1, 2020
November 2018 Canopy Investment						our incremental investment for 104.5 million in common shares of Canopy Growth Corporation
November 2018 Canopy Transaction						November 2018 Canopy Investment and the purchase by us of the November 2018 Canopy Warrants, collectively
November 2018 Canopy Warrants						Tranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively
NPD						new product development
Obregon Brewery						brewery located in Obregon, Sonora, Mexico
OCI						other comprehensive income (loss)

Paul Masson Divestiture						sale of Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts


SEC						Securities and Exchange Commission





SKU						stock-keeping unit is a scannable bar code most often seen printed on product labels in a retail store
Tranche A Warrants						warrants which give us the option to purchase 88.5 million common shares of Canopy Growth Corporation expiring November 1, 2023
Tranche B Warrants						warrants which give us the option to purchase 38.4 million common shares of Canopy Growth Corporation expiring November 1, 2026
Tranche C Warrants						warrants which give us the option to purchase 12.8 million common shares of Canopy Growth Corporation expiring November 1, 2026
TSX						Toronto Stock Exchange
U.S.						United States of America
U.S. GAAP						generally accepted accounting principles in the United States of America


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Table of Contents


Term						Meaning

VWAP Exercise Price						volume-weighted average of the closing market price of Canopy’s common shares on the Toronto Stock Exchange for the five trading days immediately preceding the exercise date

Wine and Spirits Divestiture						sale of a portion of our wine and spirits business, including lower-margin, lower growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities
Wine and Spirits Divestitures						Wine and Spirits Divestiture and the Nobilo Wine Divestiture, collectively


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FINANCIAL STATEMENTS			Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	May 31, 2021		February 28, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	503.8	$	460.6
Accounts receivable	922.8		785.3
Inventories	1,377.6		1,291.1
Prepaid expenses and other	508.9		507.5

Total current assets	3,313.1		3,044.5
Property, plant, and equipment	5,392.2		5,821.6
Goodwill	7,808.9		7,793.5
Intangible assets	2,731.8		2,732.1
Equity method investments	2,656.7		2,788.4
Securities measured at fair value	1,075.7		1,818.1
Deferred income taxes	2,591.0		2,492.5

Other assets	623.0		614.1
Total assets	$	26,192.4	$	27,104.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Current maturities of long-term debt	$	529.4	$	29.2
Accounts payable	821.1		460.0
Other accrued expenses and liabilities	712.3		779.9
Total current liabilities	2,062.8		1,269.1
Long-term debt, less current maturities	9,914.8		10,413.1

Deferred income taxes and other liabilities	1,617.2		1,493.5
Total liabilities	13,594.8		13,175.7
Commitments and contingencies
CBI stockholders’ equity:
Class A Common Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 187,247,721 shares and 187,204,280 shares, respectively	1.9		1.9
Class B Convertible Common Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,227,478 shares and 28,270,288 shares, respectively	0.3		0.3
Additional paid-in capital	1,619.2		1,604.2
Retained earnings	14,063.6		15,117.8
Accumulated other comprehensive income (loss)	(236.6)		(335.5)
	15,448.4		16,388.7
Less: Treasury stock –
Class A Common Stock, at cost, 18,577,123 shares and 17,070,550 shares, respectively	(3,184.6)		(2,787.6)
Class B Convertible Common Stock, at cost, 5,005,800 shares	(2.2)		(2.2)
	(3,186.8)		(2,789.8)
Total CBI stockholders’ equity	12,261.6		13,598.9
Noncontrolling interests	336.0		330.2
Total stockholders’ equity	12,597.6		13,929.1
Total liabilities and stockholders’ equity	$	26,192.4	$	27,104.8

The accompanying notes are an integral part of these statements.


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FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, except per share data)

(unaudited)


	For the Three Months Ended May 31,
	2021		2020
Sales	$	2,188.3	$	2,131.7
Excise taxes	(161.8)		(168.3)
Net sales	2,026.5		1,963.4
Cost of product sold	(907.2)		(975.1)
Gross profit	1,119.3		988.3
Selling, general, and administrative expenses	(378.3)		(353.3)
Impairment of brewery construction in progress	(665.9)		—
Impairment of assets held for sale	—		(25.0)

Operating income (loss)	75.1		610.0
Income (loss) from unconsolidated investments	(899.2)		(571.2)
Interest expense	(86.7)		(100.0)
Loss on extinguishment of debt	—		(7.0)
Income (loss) before income taxes	(910.8)		(68.2)
(Provision for) benefit from income taxes	13.5		(104.4)
Net income (loss)	(897.3)		(172.6)
Net income (loss) attributable to noncontrolling interests	(10.8)		(5.3)
Net income (loss) attributable to CBI	$	(908.1)	$	(177.9)

Comprehensive income (loss)	$	(792.8)	$	(964.9)
Comprehensive (income) loss attributable to noncontrolling interests	(16.4)		30.9
Comprehensive income (loss) attributable to CBI	$	(809.2)	$	(934.0)

Net income (loss) per common share attributable to CBI:
Basic and Diluted – Class A Common Stock	$	(4.74)	$	(0.94)
Basic and Diluted – Class B Convertible Common Stock	$	(4.31)	$	(0.86)




Weighted average common shares outstanding:
Basic and Diluted – Class A Common Stock	170.602		169.604
Basic and Diluted – Class B Convertible Common Stock	23.247		23.293




Cash dividends declared per common share:
Class A Common Stock	$	0.76	$	0.75
Class B Convertible Common Stock	$	0.69	$	0.68

The accompanying notes are an integral part of these statements.


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FINANCIAL STATEMENTS			Table of Contents


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited)
	Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-controlling Interests		Total
	Class A		Class B
Balance at February 28, 2021	$	1.9	$	0.3	$	1,604.2	$	15,117.8	$	(335.5)	$	(2,789.8)	$	330.2	$	13,929.1

Comprehensive income (loss):
Net income (loss)	—		—		—		(908.1)		—		—		10.8		(897.3)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		98.9		—		5.6		104.5
Comprehensive income (loss)															(792.8)
Repurchase of shares	—		—		—		—		—		(400.8)		—		(400.8)
Dividends declared	—		—		—		(146.1)		—		—		—		(146.1)
Noncontrolling interest distributions	—		—		—		—		—		—		(10.6)		(10.6)
Shares issued under equity compensation plans	—		—		(0.9)		—		—		3.8		—		2.9
Stock-based compensation	—		—		15.9		—		—		—		—		15.9
Balance at May 31, 2021	$	1.9	$	0.3	$	1,619.2	$	14,063.6	$	(236.6)	$	(3,186.8)	$	336.0	$	12,597.6























Balance at February 29, 2020	$	1.9	$	0.3	$	1,514.6	$	13,695.3	$	(266.3)	$	(2,814.0)	$	342.5	$	12,474.3

Comprehensive income (loss):
Net income (loss)	—		—		—		(177.9)		—		—		5.3		(172.6)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		(756.1)		—		(36.2)		(792.3)
Comprehensive income (loss)															(964.9)

Dividends declared	—		—		—		(143.3)		—		—		—		(143.3)

Shares issued under equity compensation plans	—		—		(6.0)		—		—		2.8		—		(3.2)
Stock-based compensation	—		—		14.7		—		—		—		—		14.7
Balance at May 31, 2020	$	1.9	$	0.3	$	1,523.3	$	13,374.1	$	(1,022.4)	$	(2,811.2)	$	311.6	$	11,377.6

The accompanying notes are an integral part of these statements.


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FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	For the Three Months Ended May 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(897.3)	$	(172.6)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Unrealized net (gain) loss on securities measured at fair value	745.1		197.3
Deferred tax provision (benefit)	(98.7)		98.9
Depreciation	76.0		71.0
Stock-based compensation	16.0		14.6
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings	154.1		373.9
Noncash lease expense	19.7		20.9






Impairment of brewery construction in progress	665.9		—
Impairment of assets held for sale	—		25.0

Loss on inventory and related contracts associated with business optimization	—		24.3
Loss on settlement of treasury lock contracts	—		(29.3)

Change in operating assets and liabilities, net of effects from purchase and sale of business:
Accounts receivable	(136.7)		167.0
Inventories	(82.3)		48.6
Prepaid expenses and other current assets	(11.7)		40.5
Accounts payable	224.1		(28.4)
Deferred revenue	130.5		34.4
Other accrued expenses and liabilities	(61.7)		(155.5)
Other	(27.0)		(44.1)
Total adjustments	1,613.3		859.1
Net cash provided by (used in) operating activities	716.0		686.5

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(113.9)		(144.2)


Investments in equity method investees and securities	(8.5)		(213.4)
Proceeds from sale of assets	0.8		17.7

Proceeds from sale of business	5.0		41.1
Other investing activities	—		(0.3)
Net cash provided by (used in) investing activities	(116.6)		(299.1)


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FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	For the Three Months Ended May 31,
	2021		2020
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	6.3		1,194.6
Principal payments of long-term debt	(7.4)		(959.5)
Net proceeds from (repayments of) short-term borrowings	—		(238.9)
Dividends paid	(146.7)		(143.9)
Purchase of treasury stock	(400.8)		—
Proceeds from shares issued under equity compensation plans	12.5		4.4
Payments of minimum tax withholdings on stock-based payment awards	(9.8)		(7.6)
Payments of debt issuance, debt extinguishment, and other financing costs	—		(18.1)
Distributions to noncontrolling interests	(10.6)		—




Net cash provided by (used in) financing activities	(556.5)		(169.0)

Effect of exchange rate changes on cash and cash equivalents	0.3		3.0

Net increase (decrease) in cash and cash equivalents	43.2		221.4
Cash and cash equivalents, beginning of period	460.6		81.4
Cash and cash equivalents, end of period	$	503.8	$	302.8

Supplemental disclosures of noncash investing and financing activities











Additions to property, plant, and equipment	$	179.6	$	64.5

The accompanying notes are an integral part of these statements.


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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

MAY 31, 2021

(unaudited)

1. BASIS OF PRESENTATION

We have prepared the Financial Statements, without audit, pursuant to the rules and regulations of the SEC applicable to quarterly reporting on Form 10-Q and reflect, in our opinion, all adjustments necessary to present fairly our financial information. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2021 Annual Report. Results of operations for interim periods are not necessarily indicative of annual results.

2. INVENTORIES

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


	May 31, 2021		February 28, 2021
(in millions)
Raw materials and supplies	$	169.8	$	151.1
In-process inventories	706.1		735.9
Finished case goods	501.7		404.1
	$	1,377.6	$	1,291.1

3. ACQUISITIONS AND DIVESTITURES

Acquisitions

Copper & Kings

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

Empathy Wines

In June 2020, we acquired the Empathy Wines business, including the acquisition of a digitally-native wine brand which strengthens our position in the direct-to-consumer and eCommerce markets. This transaction primarily included the acquisition of goodwill, trademarks, and inventory. In addition, the purchase price for Empathy Wines includes an earn-out over five years based on performance. The results of operations of Empathy Wines are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Divestitures

Paul Masson Divestiture

On January 12, 2021, we sold the Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts. The cash proceeds were used for general corporate purposes. Prior to the Paul Masson Divestiture, we recorded the results of operations of our Paul Masson Grande Amber Brandy business in


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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

the Wine and Spirits segment. The following table summarizes the net gain recognized in connection with this divestiture:


(in millions)
Cash received from buyer	$	272.4
Net assets sold	(206.4)
Contract termination	(4.0)
Direct costs to sell	(3.2)

Gain on sale of business	$	58.8

Wine and Spirits Divestitures

On January 5, 2021, we sold a portion of our wine and spirits business, including lower-margin, lower growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities. We have the potential to earn an incremental $250 million of contingent consideration if certain brand performance targets are met over a two-year period after closing. Also on January 5, 2021, in a separate, but related transaction with the same buyer, we sold the New Zealand-based Nobilo Wine brand and certain related assets. The cash proceeds were utilized to reduce outstanding debt and for other general corporate purposes.

Prior to the Wine and Spirits Divestitures, we recorded the results of operations for this portion of our business in the Wine and Spirits segment. The following table summarizes the net loss recognized in connection with these divestitures:


(in millions)
Cash received from buyer	$	667.4
Net assets sold	(669.1)
Transition services agreements	(13.0)
Direct costs to sell	(8.3)
AOCI reclassification adjustments, primarily foreign currency translation	(5.1)
Other	(5.2)
Loss on sale of business	$	(33.3)

Concentrate Business Divestiture

On December 29, 2020, we sold certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets. Prior to the Concentrate Business Divestiture, we recorded the results of operations of our concentrates and high-color concentrate business in the Wine and Spirits segment.

Ballast Point Divestiture

On March 2, 2020, we sold the Ballast Point craft beer business, including a number of its associated production facilities and brewpubs. Prior to the Ballast Point Divestiture, we recorded the results of operations of the Ballast Point craft beer business in the Beer segment. We received cash proceeds of $41.1 million, which were primarily utilized to reduce outstanding borrowings.

4. DERIVATIVE INSTRUMENTS

Overview

Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our 2021 Annual Report and have not changed significantly for the three months ended May 31, 2021.

We have an investment in certain equity securities and other rights which provide us with the option to purchase an additional ownership interest in the equity securities of Canopy (see Note 8). This investment is


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included in securities measured at fair value and are accounted for at fair value, with the net gain (loss) from the changes in fair value of this investment recognized in income (loss) from unconsolidated investments (see Note 5).

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


	May 31, 2021		February 28, 2021
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts	$	1,434.5	$	1,558.0




Derivative instruments not designated as hedging instruments
Foreign currency contracts	$	457.3	$	704.7
Commodity derivative contracts	$	212.2	$	221.6

Credit risk

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

In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of May 31, 2021, the estimated fair value of derivative instruments in a net liability position due to counterparties was $0.1 million. If we were required to settle the net liability position under these derivative instruments on May 31, 2021, we would have had sufficient available liquidity on hand to satisfy this obligation.

Results of period derivative activity

The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note 5):


Assets					Liabilities
	May 31, 2021		February 28, 2021			May 31, 2021		February 28, 2021
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	47.9	$	32.0	Other accrued expenses and liabilities	$	3.2	$	3.5
Other assets	$	44.9	$	41.3	Deferred income taxes and other liabilities	$	2.7	$	2.7









Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	1.8	$	3.3	Other accrued expenses and liabilities	$	1.9	$	3.5
Commodity derivative contracts:
Prepaid expenses and other	$	24.7	$	13.4	Other accrued expenses and liabilities	$	1.2	$	3.9
Other assets	$	14.9	$	7.8	Deferred income taxes and other liabilities	$	0.4	$	1.4


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


Derivative Instruments in Designated Cash Flow Hedging Relationships	Net Gain (Loss) Recognized in OCI		Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss)	Net Gain (Loss) Reclassified from AOCI to Income (Loss)
(in millions)
For the Three Months Ended May 31, 2021
Foreign currency contracts	$	19.3	Sales	$	(0.2)
			Cost of product sold	9.0


Treasury lock contracts	—		Interest expense	(0.6)
	$	19.3		$	8.2

For the Three Months Ended May 31, 2020
Foreign currency contracts	$	(193.4)	Sales	$	0.4
			Cost of product sold	(8.5)
Interest rate swap contracts	(0.3)		Interest expense	(0.4)
Treasury lock contracts	(16.1)		Interest expense	—
	$	(209.8)		$	(8.5)

We expect $37.6 million of net gains, net of income tax effect, to be reclassified from AOCI to our results of operations within the next 12 months.

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


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

		$	21.9

For the Three Months Ended May 31, 2020
Commodity derivative contracts	Cost of product sold	$	(26.8)
Foreign currency contracts	Selling, general, and administrative expenses	(25.9)

		$	(52.7)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

•Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as volatility, interest rates, and yield curves that are observable for the asset and liability, either directly or indirectly; and


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

Fair value methodology

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

Foreign currency and commodity derivative contracts

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

Canopy investment

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


	May 31, 2021						February 28, 2021
	Tranche A Warrants (3)			Tranche B Warrants (4)			Tranche A Warrants (3)			Tranche B Warrants (4)
Exercise price (5)	C$	50.40		C$	76.68		C$	50.40		C$	76.68
Valuation date stock price (6)	C$	30.25		C$	30.25		C$	41.90		C$	41.90
Remaining contractual term (7)	2.4 years			5.4 years			2.7 years			5.7 years
Expected volatility (8)	70.0		%	70.0		%	70.0		%	70.0		%
Risk-free interest rate (9)	0.4		%	1.0		%	0.5		%	1.1		%
Expected dividend yield (10)	0.0		%	0.0		%	0.0		%	0.0		%

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

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

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

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

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

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

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

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

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

(10)Based on historical dividend levels.


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

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


	May 31, 2021			February 28, 2021
Conversion price (1)	C$	48.17		C$	48.17
Valuation date stock price (2)	C$	30.25		C$	41.90
Remaining term (3)	2.1 years			2.4 years
Expected volatility (4)	70.0		%	57.6		%
Risk-free interest rate (5)	0.3		%	0.4		%
Expected dividend yield (6)	0.0		%	0.0		%

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

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

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

(4)Based on consideration of historical and/or implied volatility levels of the underlying equity security, and for February 28, 2021, the volatility was reduced for certain risks associated with debt securities.

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

(6)Based on historical dividend levels.

Long-term debt

The term loan under our March 2020 Term Credit Agreement is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating. The carrying value approximates the fair value of the term loan. The fair value of the remaining fixed interest rate long-term debt is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings, approximate fair value as of May 31, 2021, and February 28, 2021, due to the relatively short maturity of these instruments. As of May 31, 2021, the carrying amount of long-term debt, including the current portion, was $10,444.2 million, compared with an estimated fair value of $11,476.0 million. As of February 28, 2021, the carrying amount of long-term debt, including the current portion, was $10,442.3 million, compared with an estimated fair value of $11,580.9 million.


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Recurring basis measurements

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


	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(in millions)
May 31, 2021
Assets:
Foreign currency contracts	$	—	$	94.6	$	—	$	94.6
Commodity derivative contracts	$	—	$	39.6	$	—	$	39.6

Equity securities (1)	$	—	$	903.5	$	—	$	903.5
Canopy Debt Securities (1)	$	—	$	170.1	$	—	$	170.1

Liabilities:
Foreign currency contracts	$	—	$	7.8	$	—	$	7.8
Commodity derivative contracts	$	—	$	1.6	$	—	$	1.6




February 28, 2021
Assets:
Foreign currency contracts	$	—	$	76.6	$	—	$	76.6
Commodity derivative contracts	$	—	$	21.2	$	—	$	21.2
Equity securities (1)	$	—	$	1,639.7	$	—	$	1,639.7
Canopy Debt Securities (1)	$	—	$	176.3	$	—	$	176.3
Liabilities:
Foreign currency contracts	$	—	$	9.7	$	—	$	9.7
Commodity derivative contracts	$	—	$	5.3	$	—	$	5.3


(1)	Unrealized net gain (loss) from the changes in fair value of our securities measured at fair value recognized in income (loss) from unconsolidated investments, are as follows:
			For the Three Months Ended May 31,
			2021		2020
	(in millions)
	November 2017 Canopy Warrants (i)		$	—	$	(61.8)
	November 2018 Canopy Warrants		(736.2)		(123.0)
	Canopy Debt Securities		(8.9)		(12.5)
			$	(745.1)	$	(197.3)

	(i)	In May 2020, we exercised warrants obtained in November 2017 which gave us the option to purchase 18.9 million common shares of Canopy at an exercise price of C$12.98 per warrant share for C$245.0 million, or $173.9 million.


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Nonrecurring basis measurements

The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring basis for which an impairment assessment was performed for the periods presented:


	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses
(in millions)
For the Three Months Ended May 31, 2021
Long-lived assets	$	—	$	—	$	20.0	$	665.9