Constellation Brands, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Equity Method Investments (Tables)

Equity Method Investments (Tables)

12 Months Ended

Feb. 29, 2020

Equity Method Investments and Joint Ventures [Abstract]

The following tables present 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 earnings (losses) for the period January through December 2019 in our year ended February 29, 2020 results. We recognized our share of Canopy’s earnings (losses) from November and December 2018, in our year ended February 28, 2019 results. The amounts shown represent 100% of Canopy’s financial position and results of operations, however, they exclude the impact of the June 2019 Warrant Modification Loss from the year ended February 29, 2020 results, as it was recorded by Canopy within equity.



	February 29, 2020		February 28, 2019
(in millions)
Current assets	$	2,232.9	$	3,800.7
Noncurrent assets	$	3,751.6	$	2,466.0
Current liabilities	$	322.0	$	216.8
Noncurrent liabilities	$	867.9	$	668.2
Noncontrolling interests	$	210.5	$	143.3



	For the Years Ended
	February 29, 2020			February 28, 2019 ⁽¹⁾
(in millions)
Net sales	$	290.2		$	48.6
Gross profit (loss)	$	45.4		$	11.2
Net income (loss)	$	(327.0	)	$	(39.6	)
Net income (loss) attributable to Canopy	$	(312.6	)	$	(27.8	)


⁽¹⁾	For the period November 1, 2018, through December 31, 2018.

Our equity method investments are as follows:



	February 29, 2020				February 28, 2019
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
(in millions)
Canopy Equity Method Investment	$	2,911.7	35.3	%	$	3,332.1	36.0	%
Other equity method investments ⁽¹⁾	182.2		20%-50%		133.5		20%-50%
	$	3,093.9			$	3,465.6


⁽¹⁾	The other equity method investments balance at February 29, 2020, excludes investments reclassified to assets held for sale.

Fair value measurement inputs

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



	February 29, 2020			February 28, 2019
Conversion price⁽¹⁾	C$	48.17		C$	48.17
Valuation date stock price⁽²⁾	C$	25.17		C$	62.38
Remaining term ⁽³⁾	3.4 years			4.4 years
Expected volatility ⁽⁴⁾	58.2		%	45.9		%
Risk-free interest rate ⁽⁵⁾	1.1		%	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 Canopy warrants (all as defined in Note 10) are as follows:



	February 29, 2020 ⁽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$	25.17		C$	25.17		C$	25.17		C$	62.38		C$	62.38
Remaining contractual term⁽⁶⁾	3.7 years			6.7 years			0.2 years			2.7 years			1.2 years
Expected volatility ⁽⁷⁾	70.0		%	70.0		%	105.3		%	79.3		%	87.8		%
Risk-free interest rate ⁽⁸⁾	1.1		%	1.1		%	1.5		%	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 expiration date of the warrants.

⁽⁹⁾

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
Remaining contractual term	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 7 for input descriptions.