Business Context and Reporting Period
Constellation Brands, Inc. (STZ) filed this Form 8-K on June 20, 2019, to disclose the impact of its equity method investment in Canopy Growth Corporation ("Canopy") on its financial results for the fiscal quarter ended May 31, 2019. Due to a two-month reporting lag, Constellation recognizes Canopy's results from January 1, 2019, through March 31, 2019, in its Q2 2019 consolidated statements. Constellation's ownership interest in Canopy was 35.8% as of March 31, 2019.
Key Financial Metrics
The filing details the specific impact of the Canopy investment on Constellation's net income, distinguishing between GAAP (reported) and Non-GAAP (comparable) measures.
| Metric (U.S. dollars in millions) | GAAP (Reported) | Non-GAAP (Comparable) |
|---|---|---|
| Equity in earnings (losses) from Canopy | $(106.0) | $(54.4) |
| Benefit from income taxes | $27.8 | $15.6 |
| Net income (loss) attributable to CBI | $(78.2) | $(38.8) |
The filing does not provide total company revenue, operating cash flow, debt levels, or liquidity metrics for the period; it focuses exclusively on the equity earnings impact from the Canopy investment.
Material Changes and Adjustments
The difference between the GAAP loss of $106.0 million and the Non-GAAP loss of $54.4 million is driven by specific adjustments totaling $51.6 million. These adjustments include:
- Net loss on fair value financial instruments: $38.7 million
- Flow through of inventory step-up: $5.6 million
- Share-based compensation expense related to acquisition milestones: $5.0 million
- Acquisition costs: $3.7 million
- Other gains: $(1.4) million
The filing does not provide a direct year-over-year comparison of these specific equity earnings figures to the prior comparable period.
Guidance, Outlook, and Risks
Management utilizes the Non-GAAP "comparable" measures to monitor the underlying business trends of the Canopy investment and to evaluate year-over-year financial performance. The filing notes that the effective tax rate applied to the equity earnings is based on the tax rates of the legal entities holding the investment. No forward-looking guidance, specific risk factors, or contingencies regarding the Canopy investment were disclosed in this specific report beyond the standard disclosure of the reporting lag and accounting methodology.
Investor Verification Checklist
- Verify the 35.8% ownership percentage of Canopy Growth Corporation as of March 31, 2019.
- Confirm the two-month lag in reporting Canopy's results (Jan-Mar 2019 results reported in Constellation's May 31, 2019 quarter).
- Review the reconciliation of the $51.6 million in adjustments, specifically the $38.7 million unrealized loss on fair value financial instruments.
- Check subsequent filings for the full consolidated financial statements to see how this $78.2 million GAAP loss impacted total company net income.