Quarterly report pursuant to Section 13 or 15(d)

Equity Method Investments (Tables)

v3.19.3
Equity Method Investments (Tables)
 6 Months Ended
Aug. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Equity method investments
The following table presents summarized financial information for Canopy presented in accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s fourth quarter fiscal 2019 and first quarter fiscal 2020 earnings (losses) for the period January through June 2019 in our six months ended August 31, 2019. We recognized our share of Canopy’s first quarter fiscal 2020 earnings (losses) for the period April through June 2019, in our three months ended August 31, 2019 results. The amounts shown represent 100% of Canopy’s results of operations for the respective periods. However, they exclude the impact the June 2019 Warrant Modification Loss because it was recorded within equity.
 
For the Six Months Ended August 31,
 
For the Three Months Ended August 31,
 
2019
 
2018
 
2019
 
2018
(in millions)
 
 
 
 
 
 
 
Net sales
$
138.4

 
NA
 
$
67.7

 
NA
Gross profit
$
21.1

 
NA
 
$
9.8

 
NA
Net gain (loss)
$
(418.6
)
 
NA
 
$
(149.7
)
 
NA
Net gain (loss) attributable to Canopy
$
(430.4
)
 
NA
 
$
(146.3
)
 
NA
 
 
 
 
 
 
 
 
NA = Not Applicable
 
 
 
 
 
 
 


Our equity method investments are as follows:
 
August 31, 2019
 
February 28, 2019
 
Carrying Value
 
Ownership Percentage
 
Carrying Value
 
Ownership Percentage
(in millions)
 
 
 
 
 
 
 
Canopy Equity Method Investment
$
2,846.0

 
35.6
%
 
$
3,332.1

 
36.0
%
Other equity method investments
157.8

 
20%-50%

 
133.5

 
20%-50%

 
$
3,003.8

 
 
 
$
3,465.6

 
 

Fair value measurement inputs
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
%