Edgar Filing: CONSTELLATION BRANDS, INC.

EX-4.18

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2006

o	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

CONSTELLATION BRANDS, INC.

(Exact name of registrant as specified in its charter)

Delaware		16-0716709
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

370 Woodcliff Drive, Suite 300, Fairport, New York	14450
(Address of principal executive offices)	(Zip Code)

(585) 218-3600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer X Accelerated Filer ___ Non-accelerated Filer ___

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of December 31, 2006, is set forth below:

Class		Number of Shares Outstanding
Class A Common Stock, Par Value $.01 Per Share		210,558,466
Class B Common Stock, Par Value $.01 Per Share		23,828,338

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" under Part II - Item 1A of this Quarterly Report on Form 10-Q.

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)
	November 30,			February 28,
	2006			2006
ASSETS
CURRENT ASSETS:
Cash and cash investments	$	34.7		$	10.9
Accounts receivable, net		1,159.6			771.9
Inventories		2,138.9			1,704.4
Prepaid expenses and other		303.2			213.7
Total current assets		3,636.4			2,700.9
PROPERTY, PLANT AND EQUIPMENT, net		1,706.1			1,425.3
GOODWILL		3,089.1			2,193.6
INTANGIBLE ASSETS, net		1,161.3			883.9
OTHER ASSETS, net		252.4			196.9
Total assets	$	9,845.3		$	7,400.6

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks	$	316.8		$	79.9
Current maturities of long-term debt		59.7			214.1
Accounts payable		543.4			312.8
Accrued excise taxes		94.6			76.7
Other accrued expenses and liabilities		828.7			614.6
Total current liabilities		1,843.2			1,298.1
LONG-TERM DEBT, less current maturities		3,949.4			2,515.8
DEFERRED INCOME TAXES		457.9			371.2
OTHER LIABILITIES		266.9			240.3
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value - Authorized, 1,000,000 shares; Issued, none at November 30, 2006, and 170,500 shares at February 28, 2006		-			-
Class A Common Stock, $.01 par value - Authorized, 300,000,000 shares; Issued, 218,012,918 shares at November 30, 2006, and 203,651,535 shares at February 28, 2006		2.2			2.0
Class B Convertible Common Stock, $.01 par value- Authorized, 30,000,000 shares; Issued, 28,835,138 shares at November 30, 2006, and 28,863,138 shares at February 28, 2006		0.3			0.3
Additional paid-in capital		1,242.1			1,159.4
Retained earnings		1,849.1			1,592.3
Accumulated other comprehensive income		359.4			247.4
		3,453.1			3,001.4
Less-Treasury stock-
Class A Common Stock, 8,171,432 shares at November 30, 2006, and 4,474,371 shares at February 28, 2006, at cost		(123.0	)		(24.0	)
Class B Convertible Common Stock, 5,005,800 shares at November 30, 2006, and February 28, 2006, at cost		(2.2	)		(2.2	)
		(125.2	)		(26.2	)
Total stockholders' equity		3,327.9			2,975.2
Total liabilities and stockholders' equity	$	9,845.3		$	7,400.6

The accompanying notes are an integral part of these statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
(unaudited)

	For the Nine Months Ended November 30,						For the Three Months Ended November 30,
	2006			2005			2006			2005

SALES	$	4,979.3		$	4,402.9		$	1,834.2		$	1,567.9
Less - Excise taxes		(905.1	)		(847.3	)		(333.4	)		(300.8	)
Net sales		4,074.2			3,555.6			1,500.8			1,267.1
COST OF PRODUCT SOLD		(2,895.6	)		(2,517.4	)		(1,055.6	)		(882.9	)
Gross profit		1,178.6			1,038.2			445.2			384.2
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		(574.8	)		(478.5	)		(197.8	)		(156.9	)
RESTRUCTURING AND RELATED CHARGES		(26.1	)		(8.4	)		(2.1	)		(4.3	)
ACQUISITION-RELATED INTEGRATION COSTS		(17.6	)		(15.9	)		(9.5	)		(1.6	)
Operating income		560.1			535.4			235.8			221.4
EQUITY IN EARNINGS OF EQUITY METHOD INVESTEES		10.7			5.7			10.4			6.5
GAIN ON CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENT		55.1			-			-			-
INTEREST EXPENSE, net		(194.3	)		(142.3	)		(73.1	)		(48.1	)
Income before income taxes		431.6			398.8			173.1			179.8
PROVISION FOR INCOME TAXES		(169.9	)		(131.7	)		(65.3	)		(70.8	)
NET INCOME		261.7			267.1			107.8			109.0
Dividends on preferred stock		(4.9	)		(7.4	)		-			(2.5	)
INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	256.8		$	259.7		$	107.8		$	106.5


SHARE DATA:
Earnings per common share:
Basic - Class A Common Stock	$	1.14		$	1.19		$	0.47		$	0.49
Basic - Class B Common Stock	$	1.04		$	1.08		$	0.42		$	0.44
Diluted	$	1.09		$	1.12		$	0.45		$	0.46

Weighted average common shares outstanding:
Basic - Class A Common Stock		203.113			196.432			209.524			197.220
Basic - Class B Common Stock		23.845			23.916			23.837			23.888
Diluted		239.889			238.669			239.396			238.583

The accompanying notes are an integral part of these statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

	For the Nine Months Ended November 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	261.7		$	267.1

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		92.2			86.3
Deferred tax provision		31.5			38.8
Loss on disposal of business		16.9			-
Stock-based compensation expense		12.1			0.2
Non-cash portion of loss on extinguishment of debt		11.8			-
Loss on disposal of assets		10.7			1.9
Amortization of intangible and other assets		6.0			6.0
Gain on change in fair value of derivative instrument		(55.1	)		-
Equity in earnings of equity method investees		(10.7	)		(5.7	)
Proceeds from early termination of derivative instruments		-			42.9
Change in operating assets and liabilities, net of effects from purchases and sales of businesses:
Accounts receivable, net		(275.7	)		(161.5	)
Inventories		(147.7	)		(255.5	)
Prepaid expenses and other current assets		(45.1	)		7.3
Accounts payable		172.0			172.6
Accrued excise taxes		13.3			6.9
Other accrued expenses and liabilities		24.4			85.8
Other, net		(0.2	)		(10.8	)
Total adjustments		(143.6	)		15.2
Net cash provided by operating activities		118.1			282.3

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired		(1,093.7	)		(45.8	)
Purchases of property, plant and equipment		(135.6	)		(91.6	)
Payment of accrued earn-out amount		(3.7	)		(3.1	)
Proceeds from maturity of derivative instrument		55.1			-
Proceeds from sales of businesses		28.4			17.8
Proceeds from sales of assets		8.8			119.1
Proceeds from sales of equity method investments		-			36.0
Investment in equity method investee		-			(2.7	)
Other investing activities		(0.4	)		(4.9	)
Net cash (used in) provided by investing activities		(1,141.1	)		24.8

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		3,695.0			-
Net proceeds from notes payable		210.5			111.1
Exercise of employee stock options		51.3			21.0
Excess tax benefits from stock-based payment awards		12.0			-
Proceeds from employee stock purchases		3.3			3.1
Principal payments of long-term debt		(2,780.3	)		(425.3	)
Purchases of treasury stock		(100.0	)		-
Payment of issuance costs of long-term debt		(20.2	)		-
Payment of preferred stock dividends		(7.3	)		(7.4	)
Net cash provided by (used in) financing activities		1,064.3			(297.5	)

Effect of exchange rate changes on cash and cash investments		(17.5	)		(0.8	)

NET INCREASE IN CASH AND CASH INVESTMENTS		23.8			8.8
CASH AND CASH INVESTMENTS, beginning of period		10.9			17.6
CASH AND CASH INVESTMENTS, end of period	$	34.7		$	26.4

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired	$	1,736.9		$	49.5
Liabilities assumed		(609.6	)		(1.4	)
Net assets acquired		1,127.3			48.1
Plus - settlement of note payable		2.3			-
Less - issuance of note payable		-			(2.3	)
Less - cash acquired		(34.9	)		-
Less - direct acquisition costs accrued		(1.0	)		-
Net cash paid for purchases of businesses	$	1,093.7		$	45.8

The accompanying notes are an integral part of these statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2006

1)	MANAGEMENT’S REPRESENTATIONS:

The consolidated financial statements included herein have been prepared by Constellation Brands, Inc. and its subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of the Company, all adjustments necessary to present fairly the financial information for the Company. 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 consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Current Report on Form 8-K dated August 8, 2006. Results of operations for interim periods are not necessarily indicative of annual results.

2) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:

Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 151 (“SFAS No. 151”), “Inventory Costs - an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in Accounting Research Bulletin No. 43 (“ARB No. 43”), “Restatement and Revision of Accounting Research Bulletins,” Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that those items be recognized as current period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of SFAS No. 151 did not have a material impact on the Company’s consolidated financial statements.

Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment.” SFAS No. 123(R) replaces Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board Opinion No. 25 (“APB Opinion No. 25”), “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires the cost resulting from all share-based payment transactions be recognized in the financial statements. In addition, SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a grant date fair-value-based measurement method in accounting for share-based payment transactions. SFAS No. 123(R) also amends Statement of Financial Accounting Standards No. 95 (“SFAS No. 95”), “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS No. 123(R) applies to all awards granted, modified, repurchased, or cancelled by the Company after March 1, 2006. See Note 16 for further discussion.

Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 154 (“SFAS No. 154”), “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 changes the requirements for the accounting of and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle and requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change of estimate effected by a change in accounting principle. SFAS No. 154 also carries forward without change the guidance in APB Opinion No. 20 with respect to accounting for changes in accounting estimates, changes in the reporting unit and correction of an error in previously issued financial statements. The adoption of SFAS No. 154 did not have a material impact on the Company’s consolidated financial statements.

3) ACQUISITION:

On June 5, 2006, the Company acquired all of the issued and outstanding common shares of Vincor International Inc. (“Vincor”), Canada’s premier wine company. Vincor is Canada’s largest producer and marketer of wine. At the time of the acquisition, Vincor was the world’s eighth largest producer and distributor of wine and related products by revenue and was also one of the largest wine importers, marketers and distributors in the U.K. Through this transaction, the Company acquired various additional winery and vineyard interests used in the production of premium, super-premium and fine wines from Canada, California, Washington State, Western Australia and New Zealand. In addition, as a result of the acquisition, the Company sources, markets and sells premium wines from South Africa. Well-known premium brands acquired in the Vincor acquisition include Inniskillin, Jackson-Triggs, Sumac Ridge, Hawthorne Mountain, R.H. Phillips, Toasted Head, Hogue, Kim Crawford and Kumala.

The acquisition of Vincor supports the Company’s strategy of strengthening the breadth of its portfolio across price segments and geographic regions to capitalize on the overall growth in the wine industry. In addition to complementing the Company’s current operations in the U.S., U.K., Australia and New Zealand, the acquisition of Vincor increases the Company’s global presence by adding Canada as another core market and provides the Company with the ability to capitalize on broader geographic distribution in strategic international markets. In addition, the acquisition of Vincor makes the Company the largest wine company in Canada and strengthens the Company’s position as the largest wine company in the world and the largest premium wine company in the U.S.

Total consideration paid in cash to the Vincor shareholders was $1,115.8 million. In addition, the Company expects to incur direct acquisition costs of approximately $11.5 million. At closing, the Company also assumed outstanding indebtedness of Vincor, net of cash acquired, of $308.2 million. The purchase price was financed with borrowings under the Company’s 2006 Credit Agreement (as defined in Note 10). In accordance with the purchase method of accounting, the acquired net assets are recorded at fair value at the date of acquisition. The purchase price was based primarily on the estimated future operating results of the Vincor business, including the factors described above, as well as an estimated benefit from operating cost synergies.

In connection with the Vincor acquisition, the Company entered into a foreign currency forward contract to fix the U.S. dollar cost of the acquisition and the payment of certain outstanding indebtedness in April 2006. For the nine months ended November 30, 2006, the Company recorded a gain of $55.1 million in connection with this derivative instrument. Under SFAS No. 133, a transaction that involves a business combination is not eligible for hedge accounting treatment. As such, the gain was recognized separately on the Company’s Consolidated Statements of Income, and the proceeds from maturity of the derivative instrument were reported as cash flows provided by investing activities on the Company’s Consolidated Statements of Cash Flows.

The results of operations of the Vincor business are reported in the Constellation Wines segment and have been included in the Consolidated Statements of Income since the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the Vincor acquisition at the date of acquisition. The Company is in the process of obtaining third-party valuations of certain assets and liabilities, and refining its restructuring plan which is under development and will be finalized during the Company’s year ending February 28, 2007 (see Note 18). Accordingly, the allocation of the purchase price is preliminary and subject to change. Estimated fair values at June 5, 2006, are as follows:

(in millions)
Current assets	$	391.2
Property, plant and equipment		213.7
Goodwill		849.9
Trademarks		230.1
Other assets		52.0
Total assets acquired		1,736.9

Current liabilities		288.9
Long-term liabilities		320.7
Total liabilities assumed		609.6

Net assets acquired	$	1,127.3

The trademarks are not subject to amortization. None of the goodwill is expected to be deductible for tax purposes.

The following table sets forth the unaudited pro forma results of operations of the Company for the nine months ended November 30, 2006, and November 30, 2005, and the unaudited historical and unaudited pro forma results of operations of the Company for the three months ended November 30, 2006, and November 30, 2005, respectively. The unaudited pro forma results of operations for the nine months ended November 30, 2006, and November 30, 2005, and the three months ended November 30, 2005, give effect to the Vincor acquisition as if it occurred on March 1, 2005. The unaudited pro forma results of operations are presented after giving effect to certain adjustments for depreciation, amortization of certain intangible assets and deferred financing costs, interest expense on the acquisition financing, interest expense associated with adverse grape contracts, and related income tax effects. The unaudited pro forma results of operations are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma results of operations for the nine months ended November 30, 2005, do not reflect total pretax nonrecurring charges of $29.5 million ($0.09 per share on a diluted basis) related to transaction costs, primarily for the acceleration of vesting of stock options, legal fees and investment banker fees, all of which were incurred by Vincor prior to the acquisition. The unaudited pro forma results of operations do not purport to present what the Company’s results of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning of the period indicated, nor do they project the Company’s financial position or results of operations at any future date or for any future period.

	For the Nine Months Ended November 30,				For the Three Months Ended November 30,
	2006		2005		2006		2005
(in millions, except per share data)
Net sales	$	4,191.8	$	3,978.0	$	1,500.8	$	1,428.3
Income before income taxes	$	385.6	$	427.4	$	173.1	$	184.9
Net income	$	229.9	$	289.8	$	107.8	$	113.6
Income available to common stockholders	$	225.0	$	282.4	$	107.8	$	111.1

Earnings per common share - basic:
Class A Common Stock	$	1.00	$	1.29	$	0.47	$	0.51
Class B Common Stock	$	0.91	$	1.18	$	0.42	$	0.46
Earnings per common share - diluted	$	0.96	$	1.21	$	0.45	$	0.48

Weighted average common shares outstanding - basic:
Class A Common Stock		203.113		196.432		209.524		197.220
Class B Common Stock		23.845		23.916		23.837		23.888
Weighted average common shares outstanding - diluted		239.889		238.669		239.396		238.583

4)	INVENTORIES:

Inventories are stated at the lower of cost (computed in accordance with the first-in, first-out method) or market. Elements of cost include materials, labor and overhead and consist of the following:

	November 30, 2006		February 28, 2006
(in millions)
Raw materials and supplies	$	188.2	$	82.4
In-process inventories		1,247.4		1,081.3
Finished case goods		703.3		540.7
	$	2,138.9	$	1,704.4

5)	PROPERTY, PLANT AND EQUIPMENT:

The major components of property, plant and equipment are as follows:

	November 30, 2006			February 28, 2006
(in millions)
Land and land improvements	$	308.5		$	245.2
Vineyards		198.6			187.7
Buildings and improvements		427.2			373.2
Machinery and equipment		1,192.5			1,042.2
Motor vehicles		38.9			16.2
Construction in progress		137.8			73.9
		2,303.5			1,938.4
Less - Accumulated depreciation		(597.4	)		(513.1	)
	$	1,706.1		$	1,425.3

In October 2006, as part of the Fiscal 2007 Wine Plan (as defined in Note 18), the Company recorded an asset impairment charge of $10.8 million in connection with the write-down of certain winery and vineyard assets which satisfied the conditions necessary to be classified as held-for-sale. These Constellation Wines segment’s assets were written down to a value based on the Company’s estimate of fair value less cost to sell. Total assets held for sale as of November 30, 2006, are not material. The impairment charge is included within selling, general and administrative expenses on the Company’s Consolidated Statements of Income for the nine months and three months ended November 30, 2006.

GOODWILL:

The changes in the carrying amount of goodwill for the nine months ended November 30, 2006, are as follows:

	Constellation Wines			Constellation Beers and Spirits			Consolidated
(in millions)
Balance, February 28, 2006	$	2,034.9		$	158.7		$	2,193.6
Purchase accounting allocations		838.4			(0.9	)		837.5
Foreign currency translation adjustments		80.3			-			80.3
Purchase price earn-out		3.6			-			3.6
Disposal of business		(25.9	)		-			(25.9	)
Balance, November 30, 2006	$	2,931.3		$	157.8		$	3,089.1

The Constellation Wines segment's purchase accounting allocations of goodwill totaling $838.4 million consist of $849.9 million of goodwill resulting from the Vincor acquisition and a reduction of $11.5 million, net of tax, in connection with an adjustment to assumed liabilities acquired in a prior acquisition.

7) INTANGIBLE ASSETS:

The major components of intangible assets are as follows:

	November 30, 2006				February 28, 2006
	Gros Carrying Amount		Net Carrying Amount		Gross Carrying Amount		Net Carrying Amount
(in millions)
Amortizable intangible assets:
Customer relationships	$	34.5	$	33.3	$	3.7	$	3.6
Distribution agreements		18.9		6.1		18.9		7.0
Other		3.2		2.0		2.4		1.3
Total	$	56.6		41.4	$	25.0		11.9

Nonamortizable intangible assets:
Trademarks				1,101.5				853.6
Agency relationships				18.4				18.4
Total				1,119.9				872.0
Total intangible assets			$	1,161.3			$	883.9

The difference between the gross carrying amount and net carrying amount for each item presented is attributable to accumulated amortization. Amortization expense for intangible assets was $2.1 million and $1.4 million for the nine months ended November 30, 2006, and November 30, 2005, respectively, and $0.8 million and $0.6 million for the three months ended November 30, 2006, and November 30, 2005, respectively. Estimated amortization expense for the remaining three months of fiscal 2007 and for each of the five succeeding fiscal years and thereafter is as follows:

(in millions)
2007	$	0.9
2008	$	3.2
2009	$	3.1
2010	$	3.1
2011	$	2.8
2012	$	2.5
Thereafter	$	25.8

8) OTHER ASSETS:

The major components of other assets are as follows:

	November 30, 2006			February 28, 2006
(in millions)
Investment in equity method investees	$	171.5		$	146.6
Deferred financing costs		37.2			34.8
Deferred tax asset		28.9			15.8
Other		28.3			15.3
		265.9			212.5
Less - Accumulated amortization		(13.5	)		(15.6	)
	$	252.4		$	196.9

The Company has several investments which are being accounted for under the equity method. The primary investments consist of Opus One, a 50% owned joint venture arrangement and a 40% interest in Ruffino S.r.l. (“Ruffino”). The percentage of ownership of the remaining investments ranges from 20% to 50%.

In connection with the Company’s investment in Ruffino, the Company’s Constellation Wines segment distributes Ruffino’s products in the U.S. Amounts purchased from Ruffino under this arrangement for the nine months and three months ended November 30, 2006, and November 30, 2005, were not material. As of November 30, 2006, amounts payable to Ruffino were not material.

Amortization expense for other assets was included in selling, general and administrative expenses and was $3.9 million and $4.6 million for the nine months ended November 30, 2006, and November 30, 2005, respectively, and $1.5 million and $1.4 million for the three months ended November 30, 2006, and November 30, 2005, respectively.

9) OTHER ACCRUED EXPENSES AND LIABILITIES:

The major components of other accrued expenses and liabilities are as follows:

	November 30, 2006		February 28, 2006
(in millions)
Advertising and promotions	$	229.0	$	174.1
Income taxes payable		139.3		113.2
Salaries and commissions		71.9		77.3
Accrued interest		69.4		28.4
Accrued restructuring		55.3		25.3
Adverse grape contracts		47.6		59.1
Other		216.2		137.2
	$	828.7	$	614.6

10)	BORROWINGS:

Senior credit facility -

In connection with the acquisition of Vincor, on June 5, 2006, the Company and certain of its U.S. subsidiaries, JPMorgan Chase Bank, N.A. as a lender and administrative agent, and certain other agents, lenders, and financial institutions entered into a new credit agreement (the “2006 Credit Agreement”). The 2006 Credit Agreement provides for aggregate credit facilities of $3.5 billion, consisting of a $1.2 billion tranche A term loan facility due in June 2011, a $1.8 billion tranche B term loan facility due in June 2013, and a $500 million revolving credit facility (including a sub-facility for letters of credit of up to $200 million) which terminates in June 2011. Proceeds of the 2006 Credit Agreement were used to pay off the Company’s obligations under its prior senior credit facility, to fund the acquisition of Vincor and to repay certain indebtedness of Vincor. The Company uses its revolving credit facility under the 2006 Credit Agreement for general corporate purposes, including working capital, on an as needed basis.

The tranche A term loan facility and the tranche B term loan facility were fully drawn on June 5, 2006. In August 2006, the Company used proceeds from the August 2006 Senior Notes (as defined below) to repay $180.0 million of the tranche A term loan and $200.0 million of the tranche B term loan. In addition, the Company prepaid an additional $100.0 million on the tranche B term loan in August 2006. As of November 30, 2006, the required principal repayments of the tranche A term loan and the tranche B term loan for the remaining three months of fiscal 2007 and for each of the five succeeding fiscal years and thereafter are as follows:

	Tranche A Term Loan		Tranche B Term Loan		Total
(in millions)
2007	$	-	$	-	$	-
2008		90.0		7.6		97.6
2009		210.0		15.2		225.2
2010		270.0		15.2		285.2
2011		300.0		15.2		315.2
2012		150.0		15.2		165.2
Thereafter		-		1,431.6		1,431.6
	$	1,020.0	$	1,500.0	$	2,520.0

The rate of interest on borrowings under the 2006 Credit Agreement is a function of LIBOR plus a margin, the federal funds rate plus a margin, or the prime rate plus a margin. The margin is adjustable based upon the Company’s debt ratio (as defined in the 2006 Credit Agreement) and, with respect to LIBOR borrowings, ranges between 1.00% and 1.50%. The initial LIBOR margin for the revolving credit facility and the tranche A term loan facility is 1.25%, while the LIBOR margin on the tranche B term loan facility is 1.50%.

The Company’s obligations are guaranteed by certain of its U.S. subsidiaries. These obligations are also secured by a pledge of (i) 100% of the ownership interests in certain of the Company’s U.S. subsidiaries and (ii) 65% of the voting capital stock of certain of the Company’s foreign subsidiaries.

The Company and its subsidiaries are also subject to covenants that are contained in the 2006 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens, mergers and consolidations, disposition or acquisition of property, the payment of dividends, transactions with affiliates and the making of certain investments, in each case subject to numerous conditions, exceptions and thresholds. The financial covenants are limited to maximum total debt and senior debt coverage ratios and minimum interest and fixed charge coverage ratios.

As of November 30, 2006, under the 2006 Credit Agreement, the Company had outstanding tranche A term loans of $1.0 billion bearing an interest rate of 6.7%, tranche B term loans of $1.5 billion bearing an interest rate of 6.9%, revolving loans of $74.0 million bearing an interest rate of 6.5%, outstanding letters of credit of $57.6 million, and $368.4 million in revolving loans available to be drawn.

As of November 30, 2006, the Company had outstanding interest rate swap agreements which fixed LIBOR interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt at an average rate of 4.1% through fiscal 2010. For the nine months ended November 30, 2006, and November 30, 2005, the Company reclassified $4.1 million, net of tax effect of $2.7 million, and $2.7 million, net of tax effect of $1.7 million, respectively, from Accumulated Other Comprehensive Income (Loss) (“AOCI”) to Interest Expense, net in the Company’s Consolidated Statements of Income. For the three months ended November 30, 2006, and November 30, 2005, the Company reclassified $1.8 million, net of tax effect of $1.2 million, and $1.0 million, net of tax effect of $0.6 million, respectively, from AOCI to Interest Expense, net in the Company’s Consolidated Statements of Income. This non-cash operating activity is included on the Other, net line in the Company’s Consolidated Statements of Cash Flows.

Foreign subsidiary facilities -

The Company has additional credit arrangements available totaling $400.7 million as of November 30, 2006. These arrangements support the financing needs of certain of the Company’s foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions. As of November 30, 2006, amounts outstanding under the foreign subsidiary credit arrangements were $264.1 million.

Senior notes -

On August 4, 1999, the Company issued $200.0 million aggregate principal amount of 8 5/8% Senior Notes due August 2006 (the “August 1999 Senior Notes”). On August 1, 2006, the Company repaid the August 1999 Senior Notes with proceeds from its revolving credit facility under the 2006 Credit Agreement.

On August 15, 2006, the Company issued $700.0 million aggregate principal amount of 7 1/4% Senior Notes due September 2016 at an issuance price of $693.1 million (net of $6.9 million unamortized discount, with an effective interest rate of 7.4%) (the “August 2006 Senior Notes”). The net proceeds of the offering ($685.3 million) were used to reduce a corresponding amount of borrowings under the Company’s 2006 Credit Agreement. Interest on the August 2006 Senior Notes is payable semiannually on March 1 and September 1 of each year, beginning March 1, 2007. The August 2006 Senior Notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to 100% of the outstanding principal amount and a make whole payment based on the present value of the future payments at the adjusted Treasury rate plus 50 basis points. The August 2006 Senior Notes are senior unsecured obligations and rank equally in right of payment to all existing and future senior unsecured indebtedness of the Company. Certain of the Company’s significant operating subsidiaries guarantee the August 2006 Senior Notes, on a senior basis. As of November 30, 2006, the Company had outstanding $693.3 million (net of $6.7 million unamortized discount) aggregate principal amount of August 2006 Senior Notes.

11)	INCOME TAXES:

The Company’s effective tax rate for the nine months ended November 30, 2006, and November 30, 2005, was 39.4% and 33.0%, respectively. On May 31, 2006, the Company sold its branded bottled water business. For the nine months ended November 30, 2006, the Company recorded a loss of $13.4 million on the sale which resulted from a write-off of $27.7 million of non-deductible intangible assets, primarily goodwill. The increase in the Company’s effective tax rate for the nine months ended November 30, 2006, was due primarily to the provision for income taxes on the sale of the branded bottled water business. In addition, the effective tax rate for the nine months ended November 30, 2005, reflected adjustments to income tax accruals of $16.2 million in connection with the completion of various income tax examinations as well as the benefit related to the impact of the American Jobs Creation Act of 2004 (the “AJCA”) on planned distributions of foreign earnings.

The Company’s effective tax rate for the three months ended November 30, 2006, and November 30, 2005, was 37.7% and 39.4%, respectively. The decrease in the Company’s effective tax rate for the three months ended November 30, 2006, was due primarily to a decrease in the amount of assumed distributions of foreign earnings for the year ending February 28, 2007.

12) OTHER LIABILITIES:

The major components of other liabilities are as follows:

	November 30, 2006		February 28, 2006
(in millions)
Accrued pension liability	$	132.7	$	122.1
Adverse grape contracts		57.1		64.6
Other		77.1		53.6
	$	266.9	$	240.3

13)	RETIREMENT SAVINGS PLANS AND POSTRETIREMENT BENEFIT PLANS:

In connection with the Vincor acquisition, the Company acquired the Retirement Plan for Salaried Employees of Vincor International Inc. (the “Vincor Plan”) which covers substantially all salaried Canadian employees. The Vincor Plan has a defined benefit component and a defined contribution component. Net periodic benefit costs reported in the Consolidated Statements of Income for the Company’s defined benefit pension plans, including the newly acquired Vincor Plan, include the following components:

	For the Nine Months Ended November 30,						For the Three Months Ended November 30,
	2006			2005			2006			2005
(in millions)
Service cost	$	3.4		$	1.6		$	2.3		$	0.5
Interest cost		16.0			13.1			6.3			4.1
Expected return on plan assets		(18.5	)		(12.6	)		(7.6	)		(3.9	)
Plan participants’ contributions		(0.5	)		-			(0.5	)		-
Amortization of prior service cost		0.2			0.2			0.1			0.1
Recognized net actuarial loss		4.6			2.1			2.0			0.6
Net periodic benefit cost	$	5.2		$	4.4		$	2.6		$	1.4

Net periodic benefit costs reported in the Consolidated Statements of Income for the Company’s unfunded postretirement benefit plans include the following components:

	For the Nine Months Ended November 30,				For the Three Months Ended November 30,
	2006		2005		2006		2005
(in millions)
Service cost	$	0.2	$	0.2	$	0.1	$	0.1
Interest cost		0.2		0.2		0.1		0.1
Amortization of prior service cost		-		-		-		-
Recognized net actuarial loss		-		-		-		-
Net periodic benefit cost	$	0.4	$	0.4	$	0.2	$	0.2

Contributions of $8.9 million and $3.4 million have been made by the Company to fund its defined benefit pension plans for the nine months and three months ended November 30, 2006, respectively. The Company presently anticipates contributing an additional $3.0 million to fund its defined benefit pension plans during the year ending February 28, 2007, resulting in total employer contributions of $11.9 million for the year ending February 28, 2007.

14)	STOCKHOLDERS’ EQUITY:

Stock repurchase -

In February 2006, the Company’s Board of Directors replenished the June 1998 authorization to repurchase up to $100.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. During the nine months ended November 30, 2006, the Company purchased 3,894,978 shares of Class A Common Stock at an aggregate cost of $100.0 million, or at an average cost of $25.67 per share.

Preferred stock -

On September 1, 2006, the Company’s 5.75% Series A Mandatory Convertible Preferred Stock (“Preferred Stock”) was converted into 9,983,066 shares of the Company’s Class A Common Stock. The September 1, 2006, conversion includes both mandatory conversions as well as optional conversions initiated during August 2006. No fractional shares of the Company’s Class A Common Stock were issued in the conversions.

15)	EARNINGS PER COMMON SHARE:

Basic earnings per common share excludes the effect of common stock equivalents and is computed using the two-class computation method. Diluted earnings per common share reflects the potential dilution that could result if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per common share assumes the exercise of stock options using the treasury stock method and the conversion of Class B Common Stock and Preferred Stock using the if converted method.

The computation of basic and diluted earnings per common share is as follows:

	For the Nine Months Ended November 30,						For the Three Months Ended November 30,
	2006			2005			2006		2005
(in millions, except per share data)
Net income	$	261.7		$	267.1		$	107.8	$	109.0
Dividends on preferred stock		(4.9	)		(7.4	)		-		(2.5	)
Income available to common stockholders	$	256.8		$	259.7		$	107.8	$	106.5

Weighted average common shares outstanding - basic:
Class A Common Stock		203.113			196.432			209.524		197.220
Class B Common Stock		23.845			23.916			23.837		23.888
Total weighted average common shares outstanding - basic		226.958			220.348			233.361		221.108
Stock options		6.251			8.338			6.035		7.492
Preferred stock		6.680			9.983			-		9.983
Weighted average common shares outstanding - diluted		239.889			238.669			239.396		238.583

Earnings per common share - basic:
Class A Common Stock	$	1.14		$	1.19		$	0.47	$	0.49
Class B Common Stock	$	1.04		$	1.08		$	0.42	$	0.44
Earnings per common share - diluted	$	1.09		$	1.12		$	0.45	$	0.46

Stock options to purchase 3.8 million and 3.7 million shares of Class A Common Stock at a weighted average price per share of $27.24 and $27.30 were outstanding during the nine months ended November 30, 2006, and November 30, 2005, respectively, but were not included in the computation of the diluted earnings per common share because the stock options’ exercise price was greater than the average market price of the Class A Common Stock for the period. Stock options to purchase 0.2 million and 3.7 million shares of Class A Common Stock at a weighted average price per share of $29.56 and $27.26 were outstanding during the three months ended November 30, 2006, and November 30, 2005, respectively, but were not included in the computation of the diluted earnings per common share because the stock options’ exercise price was greater than the average market price of the Class A Common Stock for the period.

16)	STOCK-BASED COMPENSATION:

Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment,” for its stock-based compensation plans (described more fully below). Under SFAS No. 123(R), all stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in the income statement over the requisite service period. On March 29, 2005, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), “Share-Based Payment,” to express the views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and to provide the staff’s views regarding the valuation of share-based payment arrangements for public companies. The SAB No. 107 guidance was taken into consideration with the implementation of SFAS No. 123(R).

Prior to March 1, 2006, the Company applied the intrinsic value method described in Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its stock-based compensation plans. In accordance with APB No. 25, the compensation cost for stock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Options granted under the Company’s stock option plans have an exercise price equal to the market value of the underlying common stock on the date of grant; therefore, no incremental compensation expense was recognized for grants made to employees under the Company’s stock option plans. The Company utilized the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” as amended.

The Company adopted SFAS No. 123(R) using the modified prospective transition method. Under the modified prospective transition method, the Company is required to record stock-based compensation expense for all awards granted after the adoption date and for the unvested portion of previously granted awards outstanding on the adoption date. Compensation cost related to the unvested portion of previously granted awards is based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123. Compensation cost for awards granted after the adoption date is based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated and do not reflect the recognition of stock-based compensation in accordance with the provisions of SFAS No. 123(R).

Stock-based awards, primarily stock options, granted by the Company are subject to specific vesting conditions, generally time vesting, or upon retirement, disability or death of the employee (as defined by the stock option plan), if earlier. Under APB No. 25, as the exercise price is equal to the market value of the underlying common stock on the date of grant, no compensation expense is recognized for the granting of these stock options. Under the disclosure only provisions of SFAS No. 123, for stock-based awards that specify an employee vests in the award upon retirement, the Company accounts for the compensation expense ratably over the stated vesting period. If the employee retires, becomes disabled or dies before the end of the stated vesting period, then any remaining unrecognized compensation expense is accounted for at the date of the event. The Company continues to apply this policy for any awards granted prior to the Company’s adoption of SFAS No. 123(R) on March 1, 2006, and for the unrecognized compensation expense associated with the remaining portion of the then unvested outstanding awards. The remaining portion of the unvested outstanding awards as of February 28, 2006, was not material.

With the Company’s adoption of SFAS No. 123(R) on March 1, 2006, the Company revised its policy for recognition of compensation expense for all new stock-based awards that accelerate vesting upon retirement. Under this revised policy, compensation expense will be recognized immediately for awards granted to retirement-eligible employees or over the period from the date of grant to the date of retirement-eligibility if that is expected to occur during the requisite service period.

Prior to the adoption of SFAS No. 123(R), the Company reported all tax benefits resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS No. 123(R) requires cash flows resulting from the tax deductions in excess of the related compensation cost recognized in the financial statements (excess tax benefits) to be classified as financing cash flows. In accordance with SFAS No. 123(R), excess tax benefits recognized in periods after the adoption date have been properly classified as financing cash flows. Excess tax benefits recognized in periods prior to the adoption date are classified as operating cash flows.

As a result of the adoption of SFAS No. 123(R), for the nine months and three months ended November 30, 2006, the Company recorded $12.0 million and $4.3 million, respectively, of stock-based compensation cost in selling, general and administrative expenses on the Company’s Consolidated Statements of Income. In addition, the Company recorded an income tax benefit of $3.1 million and $1.1 million for the nine months and three months ended November 30, 2006, respectively, related to this stock-based compensation cost. There was no compensation cost capitalized to assets for the nine months and three months ended November 30, 2006. The following table illustrates the effect of adopting SFAS No. 123(R) for the nine months and three months ended November 30, 2006, on selected reported items (“As Reported”) and what those items would have been under previous guidance under APB No. 25:

	For the Nine Months Ended November 30, 2006				For the Three Months Ended November 30, 2006
	As Reported		Under APB No. 25		As Reported			Under APB No. 25
(in millions, except per share data)
Income before income taxes	$	431.6	$	443.6	$	173.1		$	177.4
Net income	$	261.7	$	270.6	$	107.8		$	111.0
Cash flows from operating activities	$	118.1	$	130.1	$	33.2		$	36.4
Cash flows from financing activities	$	1,064.3	$	1,052.3	$	(10.9	)	$	(14.1	)

Earnings per common share - basic:
Class A Common Stock	$	1.14	$	1.18	$	0.47		$	0.48
Class B Common Stock	$	1.04	$	1.07	$	0.42		$	0.44
Earnings per common share - diluted	$	1.09	$	1.13	$	0.45		$	0.46

The following table illustrates the effect on net income and earnings per share for the nine months and three months ended November 30, 2005, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

	For the Nine Months Ended November 30, 2005			For the Three Months Ended November 30, 2005
(in millions, except per share data)
Net income, as reported	$	267.1		$	109.0
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		0.1			0.1
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(7.1	)		(1.8	)
Pro forma net income	$	260.1		$	107.3

Earnings per common share - basic:
Class A Common Stock, as reported	$	1.19		$	0.49
Class B Common Stock, as reported	$	1.08		$	0.44

Class A Common Stock, pro forma	$	1.16		$	0.48
Class B Common Stock, pro forma	$	1.05		$	0.44

Earnings per common share - diluted, as reported	$	1.12		$	0.46
Earnings per common share - diluted, pro forma	$	1.08		$	0.45

Long-term stock incentive plan -

Under the Company’s Long-Term Stock Incentive Plan, nonqualified stock options, stock appreciation rights, restricted stock and other stock-based awards may be granted to employees, officers and directors of the Company. The aggregate number of shares of the Company’s Class A Common Stock available for awards under the Company’s Long-Term Stock Incentive Plan is 80,000,000 shares. The exercise price, vesting period and term of nonqualified stock options granted are established by the committee administering the plan (the “Committee”). The exercise price of any nonqualified stock option may not be less than the fair market value of the Company’s Class A Common Stock on the date of grant. Grants of stock appreciation rights, restricted stock and other stock-based awards may contain such vesting, terms, conditions and other requirements as the Committee may establish. During the nine months ended November 30, 2006, and November 30, 2005, no stock appreciation rights were granted. During the nine months ended November 30, 2006, and November 30, 2005, 8,614 shares and 7,150 shares of restricted Class A Common Stock were granted at a weighted average grant date fair value of $24.75 per share and $27.96 per share, respectively.

Incentive stock option plan -

Under the Company’s Incentive Stock Option Plan, incentive stock options may be granted to employees, including officers, of the Company. Grants, in the aggregate, may not exceed 8,000,000 shares of the Company’s Class A Common Stock. The exercise price of any incentive stock option may not be less than the fair market value of the Company’s Class A Common Stock on the date of grant. The vesting period and term of incentive stock options granted are established by the Committee. The maximum term of incentive stock options is ten years.

A summary of stock option activity under the Company’s Long-Term Stock Incentive Plan and the Incentive Stock Option Plan is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding, February 28, 2006		23,652,958		$	14.43		6.5 years
Granted		5,662,681		$	25.97		9.4 years
Exercised		(4,350,317	)	$	12.00		5.2 years
Forfeited		(471,305	)	$	25.48		8.7 years
Options outstanding, November 30, 2006		24,494,017		$	17.32		6.7 years	$	261,425,841

Options exercisable, November 30, 2006		18,783,123		$	14.84		5.9 years	$	247,017,992

Other information pertaining to stock options is as follows:

	For the Nine Months Ended November 30,
	2006		2005
Weighted average grant-date fair value of stock options granted	$	10.04	$	9.56
Total fair value of stock options vested	$	1,109,530	$	5,760,224
Total intrinsic value of stock options exercised	$	60,288,515	$	32,361,360

The fair value of options is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	For the Nine Months Ended November 30,
	2006		2005
Expected life		5.5 years		5.0 years
Expected volatility		31.7%		31.3%
Risk-free interest rate		4.8%		4.1%
Expected dividend yield		0.0%		0.0%

For the nine months ended November 30, 2006, and November 30, 2005, the Company used a projected expected life for each award granted based on historical experience of employees’ exercise behavior for similar type grants. Expected volatility for the nine months ended November 30, 2006, and November 30, 2005, is based on historical volatility levels of the Company’s Class A Common Stock. The risk-free interest rate for the nine months ended November 30, 2006, and November 30, 2005, is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life.

Employee stock purchase plans -

The Company has a stock purchase plan under which 9,000,000 shares of Class A Common Stock may be issued. Under the terms of the plan, eligible employees may purchase shares of the Company’s Class A Common Stock through payroll deductions. The purchase price is the lower of 85% of the fair market value of the stock on the first or last day of the purchase period. During the nine months ended November 30, 2006, and November 30, 2005, employees purchased 140,233 shares and 111,192 shares, respectively, under this plan.

The weighted average fair value of purchase rights granted during the nine months ended November 30, 2006, and November 30, 2005, was $5.60 and $6.47, respectively. The fair value of purchase rights granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	For the Nine Months Ended November 30,
	2006		2005
Expected life		0.5 years		0.5 years
Expected volatility		25.1%		29.0%
Risk-free interest rate		5.2%		3.7%
Expected dividend yield		0.0%		0.0%

The Company has a stock purchase plan under which 2,000,000 shares of the Company’s Class A Common Stock may be issued to eligible employees and directors of the Company’s U.K. subsidiaries. Under the terms of the plan, participants may purchase shares of the Company’s Class A Common Stock through payroll deductions. The purchase price may be no less than 80% of the closing price of the stock on the day the purchase price is fixed by the committee administering the plan. During the nine months ended November 30, 2006, and November 30, 2005, employees purchased 52,842 shares and 92,622 shares, respectively, under this plan. During the nine months ended November 30, 2006, the Company granted purchase rights with a weighted average fair value of $11.25. The fair value of the purchase rights granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected purchase right life of 4.0 years, expected volatility of 28.0%, risk-free interest rate of 4.8% and expected dividend yield of 0%. The maximum number of shares which can be purchased under this grant is 396,803 shares. During the nine months ended November 30, 2005, there were no purchase rights granted.

As of November 30, 2006, there was $46.3 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Company’s four stock-based employee compensation plans. This cost is expected to be recognized in the Company’s Consolidated Statements of Income over a weighted-average period of 3.4 years. With respect to the issuance of shares under any of the Company’s stock-based compensation plans, the Company has the option to issue authorized but unissued shares or treasury shares.

17)	COMPREHENSIVE INCOME (LOSS):

Comprehensive income (loss) consists of net income, foreign currency translation adjustments, net unrealized gains or losses on derivative instruments, net unrealized gains or losses on available-for-sale marketable equity securities and minimum pension liability adjustments. The reconciliation of net income to comprehensive income (loss) is as follows:

	For the Nine Months Ended November 30,						For the Three Months Ended November 30,
	2006			2005			2006			2005
(in millions)
Net income	$	261.7		$	267.1		$	107.8		$	109.0
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax (expense) benefit of ($10.8), $11.7, ($2.1) and $4.3, respectively		150.2			(171.2	)		53.1			(55.9	)
Cash flow hedges:
Net derivative losses (gains), net of tax benefit (expense) of $10.3, ($4.1), $3.2 and ($11.9), respectively		(17.8	)		3.7			(3.2	)		18.0
Reclassification adjustments, net of tax benefit of $4.4, $4.0, $1.0 and $2.2, respectively		(9.3	)		(6.8	)		(2.1	)		(3.8	)
Net cash flow hedges		(27.1	)		(3.1	)		(5.3	)		14.2
Minimum pension liability adjustment, net of tax benefit (expense) of $4.8, ($3.2), $1.3 and ($1.3), respectively		(11.1	)		7.4			(3.0	)		2.9
Total comprehensive income	$	373.7		$	100.2		$	152.6		$	70.2

Accumulated other comprehensive income (loss), net of tax effects, includes the following components:

	Foreign Currency Translation Adjustments		Net Unrealized Gains on Derivatives			Minimum Pension Liability Adjustment			Accumulated Other Comprehensive Income (Loss)
(in millions)
Balance, February 28, 2006	$	314.7	$	31.0		$	(98.3	)	$	247.4
Current period change		150.2		(27.1	)		(11.1	)		112.0
Balance, November 30, 2006	$	464.9	$	3.9		$	(109.4	)	$	359.4

18)	RESTRUCTURING AND RELATED CHARGES:

The Company has the following restructuring plans within its Constellation Wines segment as of November 30, 2006: (i) the Company’s plans to invest in new distribution and bottling facilities in the U.K. and to streamline certain Australian wine operations announced August 2006 (collectively, the “Fiscal 2007 Wine Plan”), (ii) the Company’s plan to restructure and integrate the operations of Vincor (the “Vincor Plan”) announced July 2006, (iii) the Company’s worldwide wine reorganizations and the Company’s plan to consolidate certain west coast production processes in the U.S., both announced during fiscal 2006, (collectively, the “Fiscal 2006 Plan”), and (iv) the Company’s plan to restructure and integrate the operations of The Robert Mondavi Corporation (the “Robert Mondavi Plan”) (announced January 2005) and the further realignment of business operations and the Company’s plan to exit the commodity concentrate product line in the U.S., both announced during fiscal 2004, (the “Fiscal 2004 Plan”), (the Robert Mondavi Plan and the Fiscal 2004 Plan are collectively referred to as “Other Plans”). For the nine months ended November 30, 2006, the Company recorded $26.1 million of restructuring and related charges associated with these plans. For the nine months ended November 30, 2005, the Company recorded $8.4 million of restructuring and related charges associated primarily with the Fiscal 2006 Plan and the Robert Mondavi Plan.

Details of each plan are presented in the following table:

	Fiscal 2007 Wine Plan		Vincor Plan		Fiscal 2006 Plan		Other Plans		Total
(in millions)
Restructuring liability, February 28, 2006	$	-	$	-	$	16.7	$	8.6	$