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)

3 Months Ended

May 31, 2021

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.

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.

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)
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.

Assets and liabilities measured at estimated 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 Three Months Ended May 31, 2021
Long-lived assets	$	—	$	—	$	20.0	$	665.9



For the Three Months Ended May 31, 2020
Long-lived assets held for sale	$	—	$	—	$	784.0	$	25.0