|9 Months Ended|
Nov. 30, 2020
|Inventory Disclosure [Abstract]|
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:
The inventories balance at November 30, 2020, and February 29, 2020, exclude amounts reclassified to assets held for sale (see Note 3).
Related party transactions and arrangements
We have an equally-owned glass production plant joint venture with Owens-Illinois. We have entered into various contractual arrangements with affiliates of Owens-Illinois primarily for the purchase of glass bottles used largely in our imported beer portfolio. Amounts purchased under these arrangements were $115.5 million and $155.2 million for the nine months ended November 30, 2020, and November 30, 2019, respectively, and $46.0 million and $28.8 million for the three months ended November 30, 2020, and November 30, 2019, respectively. The decrease in amounts purchased for the nine months ended November 30, 2020, was largely driven by reduced production activity in early fiscal 2021 at our Mexican breweries in response to COVID-19 containment measures. The increase in amounts purchased for the three months ended November 30, 2020, was largely driven by efforts to replenish inventory levels in our distribution channels following the reduced production activity in early fiscal 2021.
2020 U.S. wildfires
In August 2020, significant wildfires broke out in California, Oregon, and Washington states which affected the U.S. grape harvest (“2020 U.S. wildfires”). None of our facilities were damaged. At this time, we continue to expect no material impact to our ability to meet customer demand. Most of our annual grape requirements are satisfied by supply contracts from independent growers which, in many cases, allow for us to reject grapes that do not meet required quality specifications, including from smoke damage. We continue to assess when to use our rights under law and our supply contracts to reject grapes that are damaged from wildfires. For the third quarter of fiscal 2021, we recognized a $26.5 million loss in connection with the write-down of certain grapes as a result of smoke damage sustained during the 2020 U.S. wildfires. This loss was included in cost of product sold within ourconsolidated results of operations. We have insurance coverage that partially covers losses for grapes in our own vineyards. While we are pursuing reimbursement from our insurance carriers, there can be no assurance there will be any recoveries. We test the grapes acquired under our supply contracts for smoke damage and other issues prior to accepting them. During the production process, previously undetected smoke damage could create quality issues that may result in additional write-downs of certain bulk wine inventory in future periods. Additionally, for the third quarter of fiscal 2021, we recognized $20.0 million in unfavorable fixed cost absorption from decreased production levels at certain facilities as period costs in cost of product sold within our consolidated results of operations in the Wine and Spirits segment rather than capitalized in inventories.
The entire disclosure for inventory. Includes, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the classes of inventory, and the nature of the cost elements included in inventory.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef