Constellation Brands, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value of Financial Instruments (Tables)

Fair Value of Financial Instruments (Tables)

12 Months Ended

Feb. 29, 2020

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



	February 29, 2020			February 28, 2019
Conversion price⁽¹⁾	C$	48.17		C$	48.17
Valuation date stock price⁽²⁾	C$	25.17		C$	62.38
Remaining term ⁽³⁾	3.4 years			4.4 years
Expected volatility ⁽⁴⁾	58.2		%	45.9		%
Risk-free interest rate ⁽⁵⁾	1.1		%	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 Canopy warrants (all as defined in Note 10) are as follows:



	February 29, 2020 ⁽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$	25.17		C$	25.17		C$	25.17		C$	62.38		C$	62.38
Remaining contractual term⁽⁶⁾	3.7 years			6.7 years			0.2 years			2.7 years			1.2 years
Expected volatility ⁽⁷⁾	70.0		%	70.0		%	105.3		%	79.3		%	87.8		%
Risk-free interest rate ⁽⁸⁾	1.1		%	1.1		%	1.5		%	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 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 expiration date of the warrants.

⁽⁹⁾

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
Remaining contractual term	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		%

⁽¹⁾

Refer to Note 7 for input descriptions.

Financial assets and liabilities measured at 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)
February 29, 2020
Assets:
Foreign currency contracts	$	—	$	96.3	$	—	$	96.3
Commodity derivative contracts	$	—	$	0.6	$	—	$	0.6
Equity securities ⁽¹⁾	$	—	$	991.5	$	—	$	991.5
Canopy Debt Securities ⁽¹⁾	$	—	$	125.6	$	—	$	125.6
Liabilities:
Foreign currency contracts	$	—	$	34.4	$	—	$	34.4
Commodity derivative contracts	$	—	$	40.9	$	—	$	40.9
Interest rate swap contracts	$	—	$	0.8	$	—	$	0.8
Treasury lock contracts	$	—	$	7.6	$	—	$	7.6

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:
			February 29, 2020			February 28, 2019
	(in millions)
	November 2017 Canopy Investment ⁽ⁱ⁾		$	—		$	292.5
	November 2017 Canopy Warrants		(543.7		)	465.5
	November 2018 Canopy Warrants ⁽ⁱⁱ⁾		(1,488.1		)	1,157.7
	Canopy Debt Securities		(94.6		)	55.5
			$	(2,126.4	)	$	1,971.2

	⁽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 10.
	⁽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 10. For the year ended February 29, 2020, amounts are net of a $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification.

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 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 Year Ended February 29, 2020
Long-lived assets held for sale	$	—	$	—	$	949.3	$	449.7
Trademarks ⁽¹⁾	—		—		—		11.0
	$	—	$	—	$	949.3	$	460.7

For the Year Ended February 28, 2019
Trademarks	$	—	$	—	$	28.0	$	108.0

For the Year Ended February 28, 2018
Trademarks	$	—	$	—	$	136.0	$	86.8

⁽¹⁾

The balance at February 29, 2020, has been reclassified to assets held for sale (see “Trademarks” below for further discussion).