Constellation Brands, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Equity Method Investments (Tables)

Equity Method Investments (Tables)

9 Months Ended

Nov. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Our equity method investments are as follows:



	November 30, 2019				February 28, 2019
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
(in millions)
Canopy Equity Method Investment	$	2,879.4	35.4	%	$	3,332.1	36.0	%
Other equity method investments ⁽¹⁾	179.3		20%-50%		133.5		20%-50%
	$	3,058.7			$	3,465.6

⁽¹⁾

The other equity method investments balance at November 30, 2019, excludes investments reclassified to assets held for sale.

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, first quarter fiscal 2020, and second quarter fiscal 2020 earnings (losses) for the period January through September 2019 in our nine months ended November 30, 2019. We recognized our share of Canopy’s second quarter fiscal 2020 earnings (losses) for the period July through September 2019, in our three months ended November 30, 2019 results. The amounts shown represent 100% of Canopy’s results of operations for the respective periods. However, they exclude the nine months ended November 30, 2019 impact of the June 2019 Warrant Modification Loss because it was recorded by Canopy within equity.



	For the Nine Months Ended November 30,				For the Three Months Ended November 30,
	2019			2018	2019			2018
(in millions)
Net sales	$	196.4		NA	$	58.0		NA
Gross profit (loss)	$	13.8		NA	$	(7.3	)	NA
Net gain (loss)	$	(246.0	)	NA	$	172.6		NA
Net gain (loss) attributable to Canopy	$	(245.4	)	NA	$	185.0		NA

NA = Not Applicable

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:



	November 30, 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$	24.51		C$	24.51		C$	24.51		C$	62.38		C$	62.38
Expected life⁽⁶⁾	3.9 years			6.9 years			0.4 years			2.7 years			1.2 years
Expected volatility ⁽⁷⁾	65.0		%	65.0		%	93.0		%	79.3		%	87.8		%
Risk-free interest rate ⁽⁸⁾	1.5		%	1.5		%	1.7		%	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 expected life.

⁽⁹⁾

Based on historical dividend levels.

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



	November 30, 2019			February 28, 2019
Conversion price ⁽¹⁾	C$	48.17		C$	48.17
Valuation date stock price ⁽²⁾	C$	24.51		C$	62.38
Remaining term⁽³⁾	3.6 years			4.4 years
Expected volatility ⁽⁴⁾	50.1		%	45.9		%
Risk-free interest rate ⁽⁵⁾	1.6		%	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		%

⁽¹⁾

Refer to Note 6 for input descriptions.