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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 August 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     

Commission File Number: 001-08495
stz-20210831_g1.jpg
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware16-0716709
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
207 High Point Drive, Building 100, Victor, New York 14564
(Address of principal executive offices) (Zip code)
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A Common StockSTZNew York Stock Exchange
Class B Common StockSTZ.BNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 164,264,039 shares of Class A Common Stock, 23,221,678 shares of Class B Common Stock, and 614,353 shares of Class 1 Common Stock outstanding as of October 1, 2021.


Table of Contents
TABLE OF CONTENTS
Page
DEFINED TERMS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1. Basis of Presentation
2. Inventories
3. Acquisitions and Divestitures
4. Derivative Instruments
5. Fair Value of Financial Instruments
6. Goodwill
7. Intangible Assets
8. Equity Method Investments
9. Borrowings
10. Income Taxes
11. Stockholders' Equity
12. Net Income (Loss) Per Common Share Attributable to CBI
13. Comprehensive Income (Loss) Attributable to CBI
14. Business Segment Information
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Mine Safety DisclosuresNA
Item 6. Exhibits
INDEX TO EXHIBITS
SIGNATURES







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 Companys 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. “Managements 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.
TermMeaning
$U.S. dollars
2.25% July 2021 Senior Notes$1,000.0 million principal amount of 2.25% senior notes issued in July 2021
2.65% November 2017 Senior Notes$700.0 million principal amount of 2.65% senior notes issued in November 2017 and redeemed in August 2021, prior to maturity
2.70% May 2017 Senior Notes$500.0 million principal amount of 2.70% senior notes issued in May 2017 and redeemed in August 2021, prior to maturity
2018 Authorizationauthority to repurchase up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2018 by our Board of Directors
2019 Five-Year Term Facilitya $491.3 million, five-year term loan facility under the June 2021 Term Credit Agreement, originally entered into in June 2019
2020 Credit Agreementninth 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. wildfiressignificant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest
2021 Annual Reportour Annual Report on Form 10-K for the fiscal year ended February 28, 2021, unless otherwise specified
2021 Authorizationauthority to repurchase up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2021 by our Board of Directors
ABAalternative beverage alcohol
AcreageAcreage Holdings, Inc.
Acreage Financial Instrumenta call option for Canopy Growth Corporation to acquire 70% of the shares of Acreage Holdings, Inc., at a fixed exchange ratio and 30% at a floating exchange ratio
Acreage TransactionCanopy Growth Corporation’s intention to acquire Acreage Holdings, Inc. upon U.S. federal cannabis legalization, subject to certain conditions
Administrative AgentBank of America, N.A., as administrative agent for the senior credit facility and term credit agreement
AOCIaccumulated other comprehensive income (loss)
ASR
accelerated share repurchase agreement with a third-party financial institution
Ballast Point Divestituresale of Ballast Point craft beer business, including a number of its associated production facilities and brewpubs
C$Canadian dollars
Canopy
we made an investment in Canopy Growth Corporation, an Ontario, Canada-based public company
Canopy Debt Securitiesconvertible debt securities issued by Canopy Growth Corporation
Canopy Equity Method Investment
November 2017 Canopy Investment, November 2018 Canopy Investment, and May 2020 Canopy Investment, collectively
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CB International
CB International Finance S.à r.l., a wholly-owned subsidiary of ours
CODMchief operating decision maker
Comparable Adjustmentscertain items affecting comparability that have been excluded by management
Concentrate Business Divestiture
sale of certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
#WORTHREACHINGFOR    I    i

Table of Contents
TermMeaning
Copper & Kings
Copper & Kings American Brandy Company, acquired by us
CSRcorporate social responsibility
DTCdirect-to-consumer
Empathy Wines
Empathy Wines business, including a digitally-native wine brand, acquired by us
ERPenterprise resource planning system
Financial Statements
our consolidated financial statements and notes thereto included herein
Fiscal 2021
the Company’s fiscal year ended February 28, 2021
Fiscal 2022
the Company’s fiscal year ending February 28, 2022
June 2021 Term Credit AgreementMarch 2020 Term Credit Agreement, inclusive of amendment dated as of June 10, 2021
LenderBank of America, N.A., as lender for the term credit agreement
LIBORLondon Interbank Offered Rate
March 2020 Term Credit Agreementamended and restated term loan credit agreement, dated as of March 26, 2020, that provided for aggregate facilities of $491.3 million, consisting of the 2019 Five-Year Term Facility
May 2020 Canopy InvestmentMay 2020 exercise of the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this quarterly report on Form 10-Q
Mexicali Brewery
brewery originally planned to be located in Mexicali, Baja California, Mexico
Mexico Beer Projectsexpansion activities at the Obregon Brewery and Nava Brewery
My Favorite Neighborwe made an investment in My Favorite Neighbor, LLC
NAnot applicable
Nava Brewerybrewery located in Nava, Coahuila, Mexico
Net salesgross sales less promotions, returns and allowances, and excise taxes
NMnot meaningful
Nobilo Wine Divestiture
sale of New Zealand-based Nobilo Wine brand and certain related assets
Note(s)notes to the consolidated financial statements
November 2017 Canopy Investmentour 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 Investmentour 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 WarrantsTranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively
Obregon Brewery
brewery located in Obregon, Sonora, Mexico
OCIother comprehensive income (loss)
Paul Masson Divestiture
sale of Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts
SECSecurities and Exchange Commission
Second Quarter 2021
the Company’s three months ended August 31, 2020
Second Quarter 2022
the Company’s three months ended August 31, 2021
Six Months 2021
the Company’s six months ended August 31, 2020
Six Months 2022
the Company’s six months ended August 31, 2021
Tranche A Warrantswarrants which give us the option to purchase 88.5 million common shares of Canopy Growth Corporation expiring November 1, 2023
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
#WORTHREACHINGFOR    I    ii

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TermMeaning
Tranche B Warrantswarrants which give us the option to purchase 38.4 million common shares of Canopy Growth Corporation expiring November 1, 2026
Tranche C Warrantswarrants 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. GAAPgenerally accepted accounting principles in the United States of America
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
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
#WORTHREACHINGFOR    I    iii

FINANCIAL STATEMENTS
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)
August 31,
2021
February 28,
2021
ASSETS
Current assets:
Cash and cash equivalents$103.4 $460.6 
Accounts receivable972.8 785.3 
Inventories1,339.0 1,291.1 
Prepaid expenses and other528.5 507.5 
Total current assets2,943.7 3,044.5 
Property, plant, and equipment5,505.4 5,821.6 
Goodwill7,798.9 7,793.5 
Intangible assets2,729.7 2,732.1 
Equity method investments2,819.0 2,788.4 
Securities measured at fair value488.6 1,818.1 
Deferred income taxes2,448.0 2,492.5 
Other assets607.0 614.1 
Total assets$25,340.3 $27,104.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings$486.0 $ 
Current maturities of long-term debt5.8 29.2 
Accounts payable840.4 460.0 
Other accrued expenses and liabilities854.9 779.9 
Total current liabilities2,187.1 1,269.1 
Long-term debt, less current maturities10,081.7 10,413.1 
Deferred income taxes and other liabilities1,546.9 1,493.5 
Total liabilities13,815.7 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 capital1,648.3 1,604.2 
Retained earnings13,922.2 15,117.8 
Accumulated other comprehensive income (loss)(290.4)(335.5)
15,282.3 16,388.7 
Less: Treasury stock –
Class A Common Stock, at cost, 22,588,014 shares and 17,070,550 shares, respectively
(4,087.4)(2,787.6)
Class B Convertible Common Stock, at cost, 5,005,800 shares
(2.2)(2.2)
(4,089.6)(2,789.8)
Total CBI stockholders’ equity11,192.7 13,598.9 
Noncontrolling interests331.9 330.2 
Total stockholders’ equity11,524.6 13,929.1 
Total liabilities and stockholders’ equity$25,340.3 $27,104.8 
The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)
(unaudited)
For the Six Months
Ended August 31,
For the Three Months
Ended August 31,
2021202020212020
Sales$4,753.3 $4,591.4 $2,565.0 $2,459.7 
Excise taxes(355.7)(367.6)(193.9)(199.3)
Net sales4,397.6 4,223.8 2,371.1 2,260.4 
Cost of product sold(2,048.6)(2,019.7)(1,141.4)(1,044.6)
Gross profit2,349.0 2,204.1 1,229.7 1,215.8 
Selling, general, and administrative expenses(868.8)(752.4)(490.5)(399.1)
Impairment of brewery construction in progress(665.9)   
Impairment of assets held for sale (3.0) 22.0 
Operating income (loss)814.3 1,448.7 739.2 838.7 
Income (loss) from unconsolidated investments(1,370.0)(651.9)(470.8)(80.7)
Interest expense(182.5)(200.2)(95.8)(100.2)
Loss on extinguishment of debt(29.4)(7.6)(29.4)(0.6)
Income (loss) before income taxes(767.6)589.0 143.2 657.2 
(Provision for) benefit from income taxes(117.8)(239.8)(131.3)(135.4)
Net income (loss)(885.4)349.2 11.9 521.8 
Net income (loss) attributable to noncontrolling interests(21.2)(15.0)(10.4)(9.7)
Net income (loss) attributable to CBI$(906.6)$334.2 $1.5 $512.1 
Comprehensive income (loss)$(838.6)$(231.7)$(45.8)$733.2 
Comprehensive (income) loss attributable to noncontrolling interests(22.9)16.7 (6.5)(14.2)
Comprehensive income (loss) attributable to CBI$(861.5)$(215.0)$(52.3)$719.0 
Net income (loss) per common share attributable to CBI:
Basic – Class A Common Stock$(4.77)$1.74 $0.01 $2.68 
Basic – Class B Convertible Common Stock$(4.34)$1.58 $0.01 $2.43 
Diluted – Class A Common Stock$(4.77)$1.71 $0.01 $2.62 
Diluted – Class B Convertible Common Stock$(4.34)$1.58 $0.01 $2.42 
Weighted average common shares outstanding:
Basic – Class A Common Stock169.025 169.841 167.447 170.078 
Basic – Class B Convertible Common Stock23.234 23.289 23.222 23.284 
Diluted – Class A Common Stock169.025 194.962 192.530 195.142 
Diluted – Class B Convertible Common Stock23.234 23.289 23.222 23.284 
Cash dividends declared per common share:
Class A Common Stock$1.52 $1.50 $0.76 $0.75 
Class B Convertible Common Stock$1.38 $1.36 $0.69 $0.68 

The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Non-controlling
Interests
Total
Class AClass 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, 20211.9 0.3 1,619.2 14,063.6 (236.6)(3,186.8)336.0 12,597.6 
Comprehensive income (loss):
Net income (loss)   1.5   10.4 11.9 
Other comprehensive income (loss), net of income tax effect    (53.8) (3.9)(57.7)
Comprehensive income (loss)(45.8)
Repurchase of shares     (904.2) (904.2)
Dividends declared   (142.9)   (142.9)
Noncontrolling interest distributions      (10.6)(10.6)
Shares issued under equity compensation plans  8.9   1.4  10.3 
Stock-based compensation  20.2     20.2 
Balance at August 31, 2021$1.9 $0.3 $1,648.3 $13,922.2 $(290.4)$(4,089.6)$331.9 $11,524.6 
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, 20201.9 0.3 1,523.3 13,374.1 (1,022.4)(2,811.2)311.6 11,377.6 
Comprehensive income (loss):
Net income (loss)— — — 512.1 — — 9.7 521.8 
Other comprehensive income (loss), net of income tax effect— — — — 206.9 — 4.5 211.4 
Comprehensive income (loss)733.2 
Dividends declared— — — (144.0)— — — (144.0)
Noncontrolling interest distributions— — — — — — (10.0)(10.0)
Shares issued under equity compensation plans  10.9 — — 16.7 — 27.6 
Stock-based compensation— — 19.4 — — — — 19.4 
Balance at August 31, 2020$1.9 $0.3 $1,553.6 $13,742.2 $(815.5)$(2,794.5)$315.8 $12,003.8 

The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Six Months
Ended August 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$(885.4)$349.2 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Unrealized net (gain) loss on securities measured at fair value1,335.1 244.9 
Deferred tax provision (benefit)(19.2)196.1 
Depreciation162.3 142.7 
Stock-based compensation36.0 34.0 
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings35.3 408.1 
Noncash lease expense40.1 41.3 
Amortization of debt issuance costs and loss on extinguishment of debt35.1 13.7 
Impairment of brewery construction in progress665.9  
Impairment of assets held for sale 3.0 
Loss on inventory and related contracts associated with business optimization 25.1 
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(187.8)(56.1)
Inventories(49.3)73.0 
Prepaid expenses and other current assets10.1 51.3 
Accounts payable245.9 116.7 
Deferred revenue144.6 21.8 
Other accrued expenses and liabilities(3.8)(141.3)
Other(39.0)(49.3)
Total adjustments2,411.3 1,095.7 
Net cash provided by (used in) operating activities1,525.9 1,444.9 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment(353.4)(277.8)
Purchase of business, net of cash acquired (19.9)
Investments in equity method investees and securities(28.6)(217.4)
Proceeds from sale of assets1.3 18.1 
Proceeds from sale of business4.6 41.1 
Other investing activities(1.0)0.6 
Net cash provided by (used in) investing activities(377.1)(455.3)
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Six Months
Ended August 31,
20212020
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt1,001.9 1,194.6 
Principal payments of long-term debt(1,357.1)(1,536.4)
Net proceeds from (repayments of) short-term borrowings486.0 (238.9)
Dividends paid(289.3)(287.6)
Purchases of treasury stock(1,305.0) 
Proceeds from shares issued under equity compensation plans22.9 32.0 
Payments of minimum tax withholdings on stock-based payment awards(9.8)(7.6)
Payments of debt issuance, debt extinguishment, and other financing costs(34.8)(18.2)
Distributions to noncontrolling interests(21.2)(10.0)
Net cash provided by (used in) financing activities(1,506.4)(872.1)
Effect of exchange rate changes on cash and cash equivalents0.4 5.7 
Net increase (decrease) in cash and cash equivalents(357.2)123.2 
Cash and cash equivalents, beginning of period460.6 81.4 
Cash and cash equivalents, end of period$103.4 $204.6 
Supplemental disclosures of noncash investing and financing activities
Additions to property, plant, and equipment$196.5 $69.9 

The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
AUGUST 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:
August 31,
2021
February 28,
2021
(in millions)
Raw materials and supplies$166.0 $151.1 
In-process inventories703.5 735.9 
Finished case goods469.5 404.1 
$1,339.0 $1,291.1 

We assess the valuation of our inventories and reduce the carrying value of those inventories that are obsolete or in excess of our forecasted usage to their estimated net realizable value based on analyses and assumptions including, but not limited to, historical usage, future demand, and market requirements. We reduced the carrying value of certain inventories and recognized losses of $82.6 million and $8.6 million for the six months ended August 31, 2021, and August 31, 2020, respectively, and $66.6 million and $3.9 million for the three months ended August 31, 2021, and August 31, 2020, respectively. The increase in obsolescence was predominantly from excess inventory of hard seltzers within the Beer segment, resulting from a slowdown in the overall category. These losses were included in cost of product sold within our consolidated results of operations.

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 DTC 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
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the Wine and Spirits segment. The following table summarizes the net gain recognized in connection with this divestiture:
(in millions)
Cash received from buyer$272.0 
Net assets sold(206.4)
Contract termination(4.0)
Direct costs to sell(3.2)
Gain on sale of business$58.4 

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$667.4 
Net assets sold(669.1)
Transition services agreements(13.0)
Direct costs to sell(8.4)
AOCI reclassification adjustments, primarily foreign currency translation(5.1)
Other(5.2)
Loss on sale of business$(33.4)

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.

Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 six months and three months ended August 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 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:
August 31,
2021
February 28,
2021
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts$1,378.3 $1,558.0 
Derivative instruments not designated as hedging instruments
Foreign currency contracts$549.6 $704.7 
Commodity derivative contracts$187.0 $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 August 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 August 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):
AssetsLiabilities
August 31,
2021
February 28,
2021
August 31,
2021
February 28,
2021
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other$37.0 $32.0 Other accrued expenses and liabilities$2.7 $3.5 
Other assets$31.3 $41.3 Deferred income taxes and other liabilities$4.9 $2.7 
Constellation Brands, Inc. Q2 FY 2022 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AssetsLiabilities
August 31,
2021
February 28,
2021
August 31,
2021
February 28,
2021
(in millions)
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other$1.7 $3.3 Other accrued expenses and liabilities$3.0 $3.5 
Commodity derivative contracts:
Prepaid expenses and other$33.7 $13.4 Other accrued expenses and liabilities$0.3 $3.9 
Other assets