Constellation Brands, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments (Tables)

Fair Value of Financial Instruments (Tables)

6 Months Ended

Aug. 31, 2019

The inputs used to estimate the fair value of the Canopy warrants (all as defined in Note 9) are as follows:



	August 31, 2019 ⁽¹⁾									February 28, 2019
	New Tranche A Warrants⁽²⁾			New Tranche B Warrants ⁽³⁾			November 2017 Canopy Warrants ⁽²⁾			November 2018 Canopy Warrants ⁽²⁾			November 2017 Canopy Warrants ⁽²⁾
Exercise price ⁽⁴⁾	C$	50.40		C$	76.68		C$	12.98		C$	50.40		C$	12.98
Valuation date stock price ⁽⁵⁾	C$	31.46		C$	31.46		C$	31.46		C$	62.38		C$	62.38
Expected life⁽⁶⁾	4.2 years			7.2 years			0.7 years			2.7 years			1.2 years
Expected volatility ⁽⁷⁾	65.0		%	65.0		%	69.6		%	79.3		%	87.8		%
Risk-free interest rate ⁽⁸⁾	1.2		%	1.2		%	1.6		%	1.8		%	1.8		%
Expected dividend yield ⁽⁹⁾	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%


⁽¹⁾	New Tranche C Warrants are not included in the table as there is no fair value assigned.


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


⁽³⁾	The fair value is estimated using Monte Carlo simulations (Level 2 fair value measurement).


⁽⁴⁾	Based on the exercise price from the applicable underlying agreements.


⁽⁵⁾	Based on the closing market price for Canopy common stock on the Toronto Stock Exchange (“TSX”) as of the applicable date.


⁽⁶⁾	Based on the expiration date of the warrants.


⁽⁷⁾	Based on consideration of historical and/or implied volatility levels of the underlying equity security and limited consideration of historical peer group volatility levels.


⁽⁸⁾	Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expected life.

⁽⁹⁾

Based on historical dividend levels.

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



	August 31, 2019			February 28, 2019
Conversion price ⁽¹⁾	C$	48.17		C$	48.17
Valuation date stock price ⁽²⁾	C$	31.46		C$	62.38
Remaining term⁽³⁾	3.9 years			4.4 years
Expected volatility ⁽⁴⁾	49.0		%	45.9		%
Risk-free interest rate ⁽⁵⁾	1.3		%	1.8		%
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 historical volatility levels of the underlying equity security reduced to account for certain risks not incorporated into the option-pricing model.


⁽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 debt securities.

⁽⁶⁾

Based on historical dividend levels.

The inputs used to estimate the fair value of the New November 2018 Canopy Warrants as of the June 27, 2019 modification date, are as follows:



	New Tranche A Warrants ⁽¹⁾			New Tranche B Warrants ⁽¹⁾
Exercise price	C$	50.40		C$	76.68
Valuation date stock price	C$	53.36		C$	53.36
Expected life	4.3 years			7.3 years
Expected volatility	66.7		%	66.7		%
Risk-free interest rate	1.4		%	1.4		%
Expected dividend yield	0.0		%	0.0		%

Financial assets and liabilities measured at estimated fair value on a recurring basis

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)
August 31, 2019
Assets:
Foreign currency contracts	$	—	$	25.7	$	—	$	25.7
Commodity derivative contracts	$	—	$	1.5	$	—	$	1.5
Interest rate swap contracts	$	—	$	0.1	$	—	$	0.1
Equity securities ⁽¹⁾	$	—	$	1,438.0	$	—	$	1,438.0
Canopy Debt Securities ⁽¹⁾	$	—	$	134.2	$	—	$	134.2
Liabilities:
Foreign currency contracts	$	—	$	53.6	$	—	$	53.6
Commodity derivative contracts	$	—	$	26.3	$	—	$	26.3
Interest rate swap contracts	$	—	$	0.8	$	—	$	0.8

February 28, 2019
Assets:
Foreign currency contracts	$	—	$	38.2	$	—	$	38.2
Commodity derivative contracts	$	—	$	8.7	$	—	$	8.7
Equity securities ⁽¹⁾	$	—	$	3,023.2	$	—	$	3,023.2
Canopy Debt Securities ⁽¹⁾	$	—	$	211.5	$	—	$	211.5
Liabilities:
Foreign currency contracts	$	—	$	15.7	$	—	$	15.7
Commodity derivative contracts	$	—	$	11.6	$	—	$	11.6



⁽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 Six Months Ended					For the Three Months Ended
			August 31, 2019			August 31, 2018		August 31, 2019			August 31, 2018
	(in millions)
	November 2017 Canopy Investment ⁽ⁱ⁾		$	—		$	461.0	$	—		$	328.1
	November 2017 Canopy Warrants		(450.8		)	435.9		(316.7		)	310.5
	November 2018 Canopy Warrants ⁽ⁱⁱ⁾		(1,134.4		)	—		(473.6		)	—
	Canopy Debt Securities		(81.4		)	53.5		(48.8		)	53.5
			$	(1,666.6	)	$	950.4	$	(839.1	)	$	692.1
	⁽ⁱ⁾	Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted for under the equity method from November 1, 2018. For additional information on the November 2017 Canopy Investment, refer to Note 9.
	⁽ⁱⁱ⁾	The terms of the November 2018 Canopy Warrants were modified in June 2019. For additional information on the November 2018 Canopy Warrants and the related modification, refer to Note 9. The amounts are net of a $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification for the six months and three months ended August 31, 2019.

Assets and liabilities measured at fair value on a nonrecurring basis

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 period 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 Six Months Ended August 31, 2019
Long-lived assets held for sale	$	—	$	—	$	1,444.4	$	27.0
Trademarks	$	—	$	—	$	17.0	$	11.0
Total	$	—	$	—	$	1,461.4	$	38.0