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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 May 31, 2022
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-20220531_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 159,330,225 shares of Class A Common Stock, 23,205,885 shares of Class B Common Stock, and 2,248,714 shares of Class 1 Common Stock outstanding as of June 24, 2022.


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. Derivative Instruments
4. Fair Value of Financial Instruments
5. Goodwill
6. Intangible Assets
7. Equity Method Investments
8. Borrowings
9. Income Taxes
10. Stockholders' Equity
11. Net Income (Loss) Per Common Share Attributable to CBI
12. Comprehensive Income (Loss) Attributable to CBI
13. 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 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
INDEX TO EXHIBITS
SIGNATURES






This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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.”


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 Form 10-Q and in our Notes that are specific to us or are abbreviations that may not be commonly known or used.
TermMeaning
$U.S. dollars
3.20% February 2018 Senior Notes$600.0 million principal amount of 3.20% senior notes issued in February 2018, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
4.25% May 2013 Senior Notes$1,050.0 million principal amount of 4.25% senior notes issued in May 2013, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
2018 Authorizationauthority to repurchase up to $3.0 billion of our Class A Stock and Class B Stock, authorized in January 2018 by our Board of Directors
2020 U.S. wildfiressignificant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest
2021 Authorizationauthority to repurchase up to $2.0 billion of our Class A Stock and Class B Stock, authorized in January 2021 by our Board of Directors
2022 Annual Reportour Annual Report on Form 10-K for the fiscal year ended February 28, 2022, unless otherwise specified
2022 Credit Agreementtenth amended and restated credit agreement, dated as of April 14, 2022, provides for an aggregate revolving credit facility of $2.25 billion
2022 Restatement Agreementrestatement agreement, dated as of April 14, 2022, that amended and restated the ninth amended and restated agreement, dated as of March 26, 2020, which was our then-existing senior credit facility as of February 28, 2022
2022 Term Credit AgreementJune 2021 Term Credit Agreement, inclusive of amendment dated as of April 14, 2022
3-tier
distribution channel where products are sold to a distributor (wholesaler) who then sells to a retailer; the retailer sells the products to a consumer
3-tier eCommercedigital commerce experience for our consumers to purchase beverage alcohol from retailers
ABAalternative beverage alcohol
AcreageAcreage Holdings, Inc.
Acreage Financial Instrumenta call option for Canopy to acquire 70% of the shares of Acreage at a fixed exchange ratio and 30% at a floating exchange ratio
Acreage TransactionCanopy’s intention to acquire Acreage upon U.S. federal cannabis legalization, subject to certain conditions
Administrative AgentBank of America, N.A., as administrative agent for the senior credit facility and term credit agreement
AOCIaccumulated other comprehensive income (loss)
ASR
accelerated share repurchase agreement with a third-party financial institution
Austin Cocktailswe made an initial investment in the Austin Cocktails business and subsequently acquired the remaining ownership interest
C$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
Canopy Equity Method Investment
November 2017 Canopy Investment, November 2018 Canopy Investment, and May 2020 Canopy Investment, collectively
Canopy Strategic Transaction(s)any potential acquisition, divestiture, investment, or other similar transaction made by Canopy, including but not limited to the Acreage Transaction
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    i

TermMeaning
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CB International
CB International Finance S.à r.l., a wholly-owned subsidiary of ours
Charter Amendmentamendment and restatement of our Restated Certificate of Incorporation to effect the Reclassification
Class 1 Stockour Class 1 Convertible Common Stock, par value $0.01 per share
Class A Stockour Class A Common Stock, par value $0.01 per share
Class B Stockour Class B Convertible Common Stock, par value $0.01 per share
CODMchief operating decision maker
Comparable Adjustmentscertain items affecting comparability that have been excluded by management
DEIdiversity, equity, and inclusion
Depletions
represent U.S. domestic distributor shipments of our respective branded products to retail customers, based on third-party data
Digital Business Accelerationa phased initiative by the Company to create a cohesive digital strategy and build an advanced digital business in the coming years
DTCdirect-to-consumer; a digital commerce experience for consumers to purchase directly from brand websites with inventory coming straight from the supplier
Effective Timethe time of filing the Charter Amendment with the Delaware Secretary of State
ERPenterprise resource planning system
ESGenvironmental, social, and governance
Exchange ActSecurities Exchange Act of 1934, as amended
Financial Statements
our consolidated financial statements and notes thereto included herein
First Quarter 2022
the Company’s three months ended May 31, 2021
First Quarter 2023
the Company’s three months ended May 31, 2022
Fiscal 2022the Company’s fiscal year ended February 28, 2022
Fiscal 2023the Company’s fiscal year ending February 28, 2023
Fiscal 2024the Company’s fiscal year ending February 29, 2024
Fiscal 2025the Company’s fiscal year ending February 28, 2025
Fiscal 2026the Company’s fiscal year ending February 28, 2026
Fiscal 2027the Company’s fiscal year ending February 28, 2027
Fiscal 2028the Company’s fiscal year ending February 29, 2028
Five-Year Term Facilitya five-year term loan facility under the 2022 Term Credit Agreement
Form 10-Q
this Quarterly Report on Form 10-Q for First Quarter 2023 unless otherwise specified
GHGgreenhouse gas
June 2021 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 Five-Year Term Facility, 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
Lingua FrancaLingua Franca, LLC business, acquired by us
May 2020 Canopy Investmentin May 2020, we made an incremental investment for 18.9 million common shares of Canopy through the exercise of warrants obtained in November 2017
May 2022 Senior Notes$1,850.0 million aggregate principal amount of senior notes issued in May 2022
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this Form 10-Q
Mexicali Brewery
suspended brewery construction project located in Mexicali, Baja California, Mexico
Mexico Beer Projectsexpansion, optimization, and/or construction activities at the Obregon Brewery, Nava Brewery, and Veracruz Brewery
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    ii

TermMeaning
M&TManufacturers and Traders Trust Company
My Favorite Neighborwe made an initial investment in My Favorite Neighbor, LLC and subsequently acquired the remaining ownership interest
NAnot applicable
NasdaqNasdaq Global Select Market
NavaNava, Coahuila, Mexico
Nava Brewerybrewery located in Nava
Net salesgross sales less promotions, returns and allowances, and excise taxes
NMnot meaningful
Note(s)notes to the consolidated financial statements
November 2017 Canopy Investmentin November 2017, we made an initial investment for 18.9 million common shares of Canopy
November 2018 Canopy Investmentin November 2018, we made an incremental investment for 104.5 million common shares of Canopy
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
NYSENew York Stock Exchange
ObregonObregon, Sonora, Mexico
Obregon Brewery
brewery located in Obregon
OCIother comprehensive income (loss)
Pre-issuance hedge contractstreasury lock and/or swap lock contracts designated as cash flow hedges entered into to hedge treasury rate volatility on future debt issuances
Reclassification
the plan to reclassify the Company’s common stock to eliminate the existing Class B Stock pursuant to the terms and conditions of the Reclassification Agreement
Reclassification Agreement
reclassification agreement in support of the Reclassification, dated June 30, 2022, among the Company and the Sands Stockholder Group
RTDready-to-drink
SECSecurities and Exchange Commission
Sands Stockholder Group
Richard Sands, Robert Sands, Astra Legacy LLC, and WildStar Partners LLC
Securities ActSecurities Act of 1933, as amended
SOFR
secured overnight financing rate administered by the Federal Reserve Bank of New York
THCtetrahydrocannabinol
Tranche A Warrantswarrants which give us the option to purchase 88.5 million common shares of Canopy expiring November 1, 2023
Tranche B Warrantswarrants which give us the option to purchase 38.4 million common shares of Canopy expiring November 1, 2026
Tranche C Warrantswarrants which give us the option to purchase 12.8 million common shares of Canopy expiring November 1, 2026
TSX
Toronto Stock Exchange
U.S.United States of America
U.S. GAAPgenerally accepted accounting principles in the U.S.
VeracruzHeroica Veracruz, Veracruz, Mexico
Veracruz Brewerya new brewery intended to be located in Veracruz
VWAP Exercise Price
volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date
Constellation Brands, Inc. Q1 FY 2023 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)
May 31,
2022
February 28,
2022
ASSETS
Current assets:
Cash and cash equivalents$101.8 $199.4 
Accounts receivable879.9 899.0 
Inventories1,656.4 1,573.2 
Prepaid expenses and other664.1 658.1 
Total current assets3,302.2 3,329.7 
Property, plant, and equipment6,163.3 6,059.6 
Goodwill7,915.1 7,862.4 
Intangible assets2,765.7 2,755.2 
Equity method investments2,534.0 2,688.7 
Securities measured at fair value172.3 191.4 
Deferred income taxes2,334.8 2,351.5 
Other assets653.7 617.3 
Total assets$25,841.1 $25,855.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings$124.0 $323.0 
Current maturities of long-term debt575.1 605.3 
Accounts payable874.6 899.2 
Other accrued expenses and liabilities792.1 871.3 
Total current liabilities2,365.8 2,698.8 
Long-term debt, less current maturities10,278.2 9,488.2 
Deferred income taxes and other liabilities1,638.6 1,621.0 
Total liabilities14,282.6 13,808.0 
Commitments and contingencies
CBI stockholders’ equity:
Class A Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 187,264,514 shares and 187,263,859 shares, respectively
1.9 1.9 
Class B Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,211,685 shares and 28,212,340 shares, respectively
0.3 0.3 
Additional paid-in capital1,825.0 1,808.9 
Retained earnings14,746.2 14,505.4 
Accumulated other comprehensive income (loss)(166.3)(412.7)
16,407.1 15,903.8 
Less: Treasury stock –
Class A Stock, at cost, 26,694,497 shares and 22,824,607 shares, respectively
(5,173.5)(4,169.7)
Class B Stock, at cost, 5,005,800 shares
(2.2)(2.2)
(5,175.7)(4,171.9)
Total CBI stockholders’ equity11,231.4 11,731.9 
Noncontrolling interests327.1 315.9 
Total stockholders’ equity11,558.5 12,047.8 
Total liabilities and stockholders’ equity$25,841.1 $25,855.8 
The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    1

FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)
(unaudited)
For the Three Months
Ended May 31,
20222021
Sales$2,540.7 $2,188.3 
Excise taxes(177.5)(161.8)
Net sales2,363.2 2,026.5 
Cost of product sold(1,108.2)(907.2)
Gross profit1,255.0 1,119.3 
Selling, general, and administrative expenses(438.6)(378.3)
Impairment of brewery construction in progress (665.9)
Operating income (loss)816.4 75.1 
Income (loss) from unconsolidated investments(187.9)(899.2)
Interest expense(88.5)(86.7)
Loss on extinguishment of debt(15.3) 
Income (loss) before income taxes524.7 (910.8)
(Provision for) benefit from income taxes(125.4)13.5 
Net income (loss)399.3 (897.3)
Net (income) loss attributable to noncontrolling interests(9.8)(10.8)
Net income (loss) attributable to CBI$389.5 $(908.1)
Comprehensive income (loss)$658.3 $(792.8)
Comprehensive (income) loss attributable to noncontrolling interests(22.4)(16.4)
Comprehensive income (loss) attributable to CBI$635.9 $(809.2)
Net income (loss) per common share attributable to CBI:
Basic – Class A Stock$2.09 $(4.74)
Basic – Class B Stock$1.89 $(4.31)
Diluted – Class A Stock$2.06 $(4.74)
Diluted – Class B Stock$1.89 $(4.31)
Weighted average common shares outstanding:
Basic – Class A Stock165.335 170.602 
Basic – Class B Stock23.206 23.247 
Diluted – Class A Stock189.333 170.602 
Diluted – Class B Stock23.206 23.247 
Cash dividends declared per common share:
Class A Stock$0.80 $0.76 
Class B Stock$0.72 $0.69 

The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    2

FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Non-controlling
Interests
Total
Class AClass B
Balance at February 28, 2022$1.9 $0.3 $1,808.9 $14,505.4 $(412.7)$(4,171.9)$315.9 $12,047.8 
Comprehensive income (loss):
Net income (loss)   389.5   9.8 399.3 
Other comprehensive income (loss), net of income tax effect    246.4  12.6 259.0 
Comprehensive income (loss)658.3 
Repurchase of shares     (1,007.6) (1,007.6)
Dividends declared   (148.7)   (148.7)
Noncontrolling interest distributions      (11.2)(11.2)
Shares issued under equity compensation plans  (0.6)  3.8  3.2 
Stock-based compensation  16.7     16.7 
Balance at May 31, 2022$1.9 $0.3 $1,825.0 $14,746.2 $(166.3)$(5,175.7)$327.1 $11,558.5 
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, 2021$1.9 $0.3 $1,619.2 $14,063.6 $(236.6)$(3,186.8)$336.0 $12,597.6 

The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    3

FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Three Months
Ended May 31,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$399.3 $(897.3)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Unrealized net (gain) loss on securities measured at fair value22.4 745.1 
Deferred tax provision (benefit)21.5 (98.7)
Depreciation92.7 76.0 
Stock-based compensation16.8 16.0 
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings165.5 154.1 
Noncash lease expense21.6 19.7 
Amortization of debt issuance costs and loss on extinguishment of debt17.7 2.7 
Impairment of brewery construction in progress 665.9 
Gain (loss) on settlement of Pre-issuance hedge contracts20.7  
Change in operating assets and liabilities, net of effects from purchase and sale of business:
Accounts receivable17.2 (136.7)
Inventories(83.0)(82.3)
Prepaid expenses and other current assets93.7 (11.7)
Accounts payable94.5 224.1 
Deferred revenue26.2 130.5 
Other accrued expenses and liabilities(166.2)(61.7)
Other(2.4)(29.7)
Total adjustments358.9 1,613.3 
Net cash provided by (used in) operating activities758.2 716.0 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment(196.6)(113.9)
Purchase of business, net of cash acquired(37.2) 
Investments in equity method investees and securities (8.5)
Proceeds from sale of assets6.5 0.8 
Proceeds from sale of business 5.0 
Other investing activities0.5  
Net cash provided by (used in) investing activities(226.8)(116.6)
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    4

FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Three Months
Ended May 31,
20222021
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt1,846.8 6.3 
Principal payments of long-term debt(1,084.7)(7.4)
Net proceeds from (repayments of) short-term borrowings(199.0) 
Dividends paid(149.3)(146.7)
Purchases of treasury stock(1,007.6)(400.8)
Proceeds from shares issued under equity compensation plans14.0 12.5 
Payments of minimum tax withholdings on stock-based payment awards(10.4)(9.8)
Payments of debt issuance, debt extinguishment, and other financing costs(25.8) 
Distributions to noncontrolling interests(11.2)(10.6)
Net cash provided by (used in) financing activities(627.2)(556.5)
Effect of exchange rate changes on cash and cash equivalents(1.8)0.3 
Net increase (decrease) in cash and cash equivalents(97.6)43.2 
Cash and cash equivalents, beginning of period199.4 460.6 
Cash and cash equivalents, end of period$101.8 $503.8 
Supplemental disclosures of noncash investing and financing activities
Additions to property, plant, and equipment$83.1 $179.6 

The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    5

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
MAY 31, 2022
(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 2022 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:
May 31,
2022
February 28,
2022
(in millions)
Raw materials and supplies$215.0 $185.3 
In-process inventories820.9 804.8 
Finished case goods620.5 583.1 
$1,656.4 $1,573.2 

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 evaluated the carrying value of certain inventories and recognized the following in cost of product sold within our consolidated results of operations:
For the Three Months
Ended May 31,
20222021
(in millions)
Loss on inventory write-down$6.1 $16.0 

3.    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 2022 Annual Report and have not changed significantly for the three months ended May 31, 2022.

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 7). This investment is included in securities measured at fair value and is 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 4).

Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate notional value of outstanding derivative instruments is as follows:
May 31,
2022
February 28,
2022
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts$2,030.2 $1,863.2 
Pre-issuance hedge contracts$ $100.0 
Derivative instruments not designated as hedging instruments
Foreign currency contracts$696.0 $497.6 
Commodity derivative contracts$342.0 $291.1 

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 May 31, 2022, the estimated fair value of derivative instruments in a net liability position due to counterparties was $3.9 million. If we were required to settle the net liability position under these derivative instruments on May 31, 2022, 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 4):
AssetsLiabilities
May 31,
2022
February 28,
2022
May 31,
2022
February 28,
2022
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other$61.9 $28.6 Other accrued expenses and liabilities$10.1 $5.9 
Other assets$72.2 $25.1 Deferred income taxes and other liabilities$7.6 $8.6 
Pre-issuance hedge contracts:
Other assets$ $ Deferred income taxes and other liabilities$ $0.4 
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other$13.7 $2.7 Other accrued expenses and liabilities$4.8 $3.3 
Commodity derivative contracts:
Prepaid expenses and other$92.3 $61.3 Other accrued expenses and liabilities$5.4 $0.7 
Other assets$28.5 $29.7 Deferred income taxes and other liabilities$2.6 $0.2 
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
#WORTHREACHINGFOR    I    7

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as OCI, net of income tax effect, is as follows:
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
Net
Gain (Loss)
Recognized
in OCI
Location of Net Gain (Loss)
Reclassified from
AOCI to Income (Loss)
Net
Gain (Loss)
Reclassified
from AOCI
to Income (Loss)
(in millions)
For the Three Months Ended May 31, 2022
Foreign currency contracts$79.5 Sales$(0.6)
Cost of product sold11.1 
Pre-issuance hedge contracts15.7 Interest expense(0.5)
$95.2 $10.0 
For the Three Months Ended May 31, 2021
Foreign currency contracts$19.3 Sales$(0.2)
Cost of product sold9.0 
Pre-issuance hedge contracts Interest expense(0.6)
$19.3 $8.2 

We expect $45.6 million of net gains, net of income tax effect, to be reclassified from AOCI to our results of operations within the next 12 months.

The effect of our undesignated derivative instruments on our results of operations is as follows:
Derivative Instruments Not
Designated as Hedging Instruments
Location of Net Gain (Loss)
Recognized in Income (Loss)
Net
Gain (Loss)
Recognized
in Income (Loss)
(in millions)
For the Three Months Ended May 31, 2022
Commodity derivative contractsCost of product sold$48.5 
Foreign currency contractsSelling, general, and administrative expenses6.2 
$54.7 
For the Three Months Ended May 31, 2021
Commodity derivative contractsCost of product sold$24.1 
Foreign currency contractsSelling, general, and administrative expenses(2.2)
$21.9 

4.    FAIR VALUE OF FINANCIAL INSTRUMENTS

Authoritative guidance establishes a framework for measuring fair value, including a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy includes three levels:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that are not active, and inputs (other than quoted prices) such as volatility, interest rates, and yield curves that are observable for the asset and liability, either directly or indirectly; and
Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

Fair value methodology
The following methods and assumptions are used to estimate the fair value for each class of our financial instruments:

Foreign currency and commodity derivative contracts
The fair value is estimated using market-based inputs, obtained from independent pricing services, entered into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves, and currency volatilities, as applicable (Level 2 fair value measurement).

Interest rate swap and Pre-issuance hedge contracts
The fair value is estimated based on quoted market prices from respective counterparties. Quotes are corroborated by using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services (Level 2 fair value measurement).

Canopy investment
Equity securities, WarrantsThe November 2018 Canopy Warrants consist of three tranches of warrants, including 88.5 million Tranche A Warrants expiring November 1, 2023, which are currently exercisable, 38.4 million Tranche B Warrants expiring November 1, 2026, and 12.8 million Tranche C Warrants expiring November 1, 2026. The inputs used to estimate the fair value of the November 2018 Canopy Warrants are as follows (1) (2):
May 31, 2022February 28, 2022
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$6.33 C$6.33 C$9.04 C$9.04 
Remaining contractual term (7)
1.4 years4.4 years1.7 years4.7 years
Expected volatility (8)
85.0 %85.0 %75.0 %75.0 %
Risk-free interest rate (9)
2.6 %2.7 %1.4 %1.7 %
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. The Tranche C Warrants 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.
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.

Debt securities, ConvertibleWe have elected the fair value option to account for the Canopy Debt Securities acquired in June 2018 for C$200.0 million, or $150.5 million. Interest income on the Canopy Debt Securities is calculated using the effective interest method and is recognized separately from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance but may be converted prior to maturity by either party upon the occurrence of certain events. The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on market spreads using bond data as of the valuation date. For additional information on the Canopy Debt Securities refer to Note 7.

The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:
May 31,
2022
February 28,
2022
Conversion price (1)
C$48.17 C$48.17 
Valuation date stock price (2)
C$6.33 C$9.04 
Remaining term (3)
1.1 years1.4 years
Expected volatility (4)
85.0 %75.0 %
Risk-free interest rate (5)
2.5 %1.4 %
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, adjusted for certain risks associated with debt securities, as appropriate.
(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.

Short-term borrowings
Our short-term borrowings consist of our commercial paper program and the revolving credit facility under our senior credit facility. The revolving credit facility is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating (as defined in our senior credit facility). For these short-term borrowings the carrying value approximates the fair value.

Long-term debt
The term loan under our term credit agreement is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating. The carrying value approximates the fair value of the term loan. The fair value of the remaining fixed interest rate long-term debt is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value as of May 31, 2022, and February 28, 2022, due
Constellation Brands, Inc. Q1 FY 2023 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the relatively short maturity of these instruments. As of May 31, 2022, the carrying amount of long-term debt, including the current portion, was $10,853.3 million, compared with an estimated fair value of $10,442.9 million. As of February 28, 2022, the carrying amount of long-term debt, including the current portion, was $10,093.5 million, compared with an estimated fair value of $10,345.3 million.

Recurring basis measurements
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, 2022
Assets:
Foreign currency contracts$ $147.8 $ $147.8 
Commodity derivative contracts$ $120.8 $ $120.8 
November 2018 Canopy Warrants (1)
$ $17.6 $ $17.6 
Canopy Debt Securities (1)
$ $146.1 $ $146.1 
Liabilities:
Foreign currency contracts$ $22.5 $ $22.5 
Commodity derivative contracts$ $8.0 $ $8.0 
February 28, 2022
Assets:
Foreign currency contracts$ $56.4 $ $56.4 
Commodity derivative contracts$ $91.0 $ $