10-K 1 l41071e10vk.htm FORM 10-K e10vk
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 2011
OR
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. LOGO)
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   16-0716709
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
207 High Point Drive, Building 100, Victor, New York           14564
(Address of principal executive offices)                                (Zip Code)
Registrant’s telephone number, including area code (585) 678-7100
Securities registered pursuant to Section 12(b) of the Act:
         
  Title of each class   Name of each exchange on which registered  
  Class A Common Stock (par value $.01 per share)   New York Stock Exchange  
  Class B Common Stock (par value $.01 per share)   New York Stock Exchange  
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   X       No ___
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ____     No   X  
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 ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   X       No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [     ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
     Large accelerated filer   X  
  Accelerated filer ___
     Non-accelerated filer ___
  Smaller reporting company ___
(Do not check if a smaller reporting company)
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ____     No   X  
The aggregate market value of the voting common equity held by non-affiliates of the registrant, based upon the closing sales prices of the registrant’s Class A and Class B Common Stock as reported on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter was $2,998,865,745. On that date the registrant had no non-voting common equity.
The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April 19, 2011, is set forth below:
         
Class   Number of Shares Outstanding
Class A Common Stock, par value $.01 per share
  189,422,727    
Class B Common Stock, par value $.01 per share
  23,600,158    
Class 1 Common Stock, par value $.01 per share
  None     
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement of Constellation Brands, Inc. to be issued for the Annual Meeting of Stockholders which is expected to be held July 21, 2011 is incorporated by reference in Part III to the extent described therein.
 

 


 

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          This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E 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, which could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. All statements other than statements of historical fact included in this Annual Report on Form 10-K, including without limitation the statements under Item 1 “Business” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding (i) the Company’s business strategy, future financial position, prospects, plans and objectives of management, (ii) the Company’s expected restructuring charges, accelerated depreciation and other costs, (iii) information concerning expected or potential actions of third parties, (iv) information concerning the future expected balance of supply and demand for wine, (v) the expected impact upon results of operations resulting from the Company’s decision to consolidate its U.S. distributor network, and (vi) the duration of the share repurchase implementation are forward-looking statements. When used in this Annual Report on Form 10-K, the words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and markets in which the Company competes, the forward-looking statements of the Company contained in this Annual Report on Form 10-K are also subject to the risk and uncertainty that (i) the impact upon results of operations resulting from the decision to consolidate the Company’s U.S. distributor network will vary from current expectations due to actual U.S. distributor experience, (ii) the actual balance of supply and demand for wine products will vary from current expectations due to, among other reasons, actual consumer demand, (iii) the Company’s restructuring charges, accelerated depreciation and other costs may vary materially from current expectations due to, among other reasons, variations in anticipated headcount reductions, contract terminations or modifications, equipment relocation, product portfolio rationalizations, production footprint, and/or other costs of implementation, and (iv) the amount and timing of any share repurchases may vary due to market conditions, the Company’s cash and debt position, and other factors as determined by management from time to time. Additional important factors that could cause actual results to differ materially from those set forth in, or implied, by the Company’s forward-looking statements contained in this Annual Report on Form 10-K are those described in Item 1A “Risk Factors” and elsewhere in this report and in other Company filings with the Securities and Exchange Commission.

 


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PART I
Item 1.     Business.
Introduction
          Unless the context otherwise requires, the terms “Company,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries, and all references to “net sales” refer to gross sales less promotions, returns and allowances, and excise taxes to conform with the Company’s method of classification. All references to “Fiscal 2011,” “Fiscal 2010,” and “Fiscal 2009” refer to the Company’s fiscal year ended the last day of February of the indicated year. All references to “Fiscal 2012” refer to the Company’s fiscal year ending February 29, 2012.
          Market positions and industry data discussed in this Annual Report on Form 10-K are as of calendar 2010 and have been obtained or derived from industry and government publications and Company estimates. The industry and government publications include: Beverage Information Group; Impact Databank Review and Forecast; SymphonyIRI Group; Nielsen; Beer Marketer’s Insights; Euromonitor International; International Wine and Spirit Record; Association for Canadian Distillers; and AZTEC. The Company has not independently verified the data from the industry and government publications. Unless otherwise noted, all references to market positions are based on equivalent unit volume.
          The Company is a Delaware corporation incorporated on December 4, 1972, as the successor to a business founded in 1945. The Company has approximately 4,300 employees located primarily in the United States (“U.S.”) and Canada with the corporate headquarters located in Victor, New York. The Company conducts its business through entities it wholly owns as well as through a variety of joint ventures and other entities.
          The Company is the world’s leading premium wine company with a leading market position in each of its core markets, which include the U.S., Canada and New Zealand. Prior to January 31, 2011, the Company had a leading market position in both Australia and the United Kingdom (“U.K.”) through its Australian and U.K. business. On January 31, 2011, the Company sold 80.1% of its Australian and U.K. business as part of its efforts to premiumize its portfolio and improve margins and return on invested capital (see additional discussion regarding this divestiture below). The Company’s wine portfolio is complemented by select premium spirits brands and other select beverage alcohol products.
          The Company is the leading marketer of imported beer in the U.S. through its investment in Crown Imports, a joint venture with Grupo Modelo, S.A.B. de C.V. (“Modelo”) pursuant to which Modelo’s Mexican beer portfolio (the “Modelo Brands”) are imported, marketed and sold by the joint venture in the U.S. along with certain other imported brands.
          Many of the Company’s products are recognized leaders in their respective categories and geographic markets. The Company’s strong market positions make the Company a supplier of choice to many of its customers, who include wholesale distributors, retailers, on-premise locations and government alcohol beverage control agencies.

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          The Company reports net sales in two reportable segments – Constellation Wines North America and Constellation Wines Australia and Europe (see additional discussion regarding business segments below). Net sales reported by these segments (based on the location of the selling company) are summarized as follows:
                                 
    For the Year             For the Year        
    Ended             Ended        
    February 28,     % of     February 28,     % of  
    2011     Total     2010     Total  
(in millions)                                
Constellation Wines North America
  $ 2,557.3       77%     $ 2,434.7       72%  
Constellation Wines Australia and Europe
    774.7       23%       930.1       28%  
 
                       
Consolidated Net Sales
  $ 3,332.0       100%     $ 3,364.8       100%  
 
                       
          During the past 10 years, there have been certain key trends within the beverage alcohol industry, which include:
    Consolidation of suppliers, wholesalers and retailers;
 
    An increase in global wine consumption, with premium wines growing faster than value-priced wines;
 
    Premium spirits growing faster than value-priced spirits; and
 
    High-end beer (imports and crafts) growing faster than domestic beer in the U.S.
          To capitalize on these trends and become more competitive, the Company has generally employed a strategy focused on a combination of organic growth, acquisitions and investments in joint ventures and other entities, with an increasing focus on the higher-margin premium categories of the beverage alcohol industry. Key elements of the Company’s strategy include:
    Leveraging its existing portfolio of leading brands;
 
    Developing new products, new packaging and line extensions;
 
    Strengthening relationships with wholesalers and retailers;
 
    Expanding distribution of its product portfolio;
 
    Enhancing production capabilities;
 
    Realizing operating efficiencies and synergies; and
 
    Maximizing asset utilization.
          Over the last four fiscal years, the Company has complemented this strategy by divesting certain businesses, brands, and assets as part of its efforts to increase its mix of premium brands, improve margins, create operating efficiencies and reduce debt.
          A challenging global economic environment contributed to some slowing of premium wine industry growth during calendar 2008 and the first half of calendar 2009. Premium wine industry growth began to show improvement in the second half of calendar 2009 and this trend continued in calendar 2010. The Company believes consumers will continue to trade up to premium wines over the long-term.
Recent Divestitures
          In January 2011, the Company sold 80.1% of its Australian and U.K. business (the “CWAE Divestiture”) at a transaction value of $266.9 million, subject to post-closing adjustments. The Company received cash proceeds, net of cash divested of $15.8 million and direct costs paid of $2.3 million, of $221.3 million, subject to post-closing adjustments, and retained a 19.9% interest in the business. This transaction is consistent with the Company’s strategic focus on premiumizing the Company’s portfolio and improving margins and return on invested capital.

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          In January 2010, the Company sold its U.K. cider business for cash proceeds of £43.9 million ($71.6 million), net of direct costs to sell. This transaction is consistent with the Company’s strategic focus on premium higher-growth, higher-margin wine, beer and spirits brands.
          In March 2009, as part of its strategic focus on higher-margin premium brands in its portfolio, the Company sold its value spirits business for $336.4 million, net of direct costs to sell. The Company received $276.4 million, net of direct costs to sell, in cash proceeds and a note receivable for $60.0 million. In the first quarter of fiscal 2011, the Company received full payment of the note receivable. The Company retained the SVEDKA Vodka and Black Velvet Canadian Whisky premium spirit brands, which have marketplace scale and higher margins than the value spirits brands that were sold. To achieve synergies and operating efficiencies, these brands were consolidated into the Company’s North American wine operations during Fiscal 2010.
          In June 2008, the Company sold certain businesses consisting of several California wineries and wine brands that had been acquired as part of the December 2007 acquisition of the Fortune Brands U.S. wine business, as well as certain wineries and wine brands from the states of Washington and Idaho (collectively, the “Pacific Northwest Business”) for cash proceeds of $204.2 million, net of direct costs to sell. This transaction contributed to the Company’s streamlining of its U.S. wine portfolio by eliminating brand duplication and reducing excess production capacity.
          For more information about these transactions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.
Business Segments
          As a result of the Company’s changes during the first quarter of fiscal 2011 within its internal management structure for its Australian and U.K. business, and the Company’s revised business strategy within these markets, the Company changed its internal management financial reporting on May 1, 2010, to consist of four business divisions: Constellation Wines North America, Constellation Wines Australia and Europe, Constellation Wines New Zealand and Crown Imports. However, due to a number of factors, including the size of the Constellation Wines New Zealand segment’s operations, the similarity of its economic characteristics and long-term financial performance with that of the Constellation Wines North America business, and the fact that the vast majority of the wine produced by the Constellation Wines New Zealand operating segment is sold in the U.S. and Canada, the Company has aggregated the results of this operating segment with its Constellation Wines North America operating segment to form one reportable segment. Accordingly, beginning May 1, 2010, the Company began reporting its operating results in four segments: Constellation Wines North America (wine and spirits) (“CWNA”), Constellation Wines Australia and Europe (wine) (“CWAE”), Corporate Operations and Other, and Crown Imports (imported beer). Prior to the changes noted above, the Company’s internal management financial reporting consisted of two business divisions, Constellation Wines and Crown Imports. The business segments, described more fully below, reflect how the Company’s operations are managed, how operating performance within the Company is evaluated by senior management and the structure of its internal financial reporting. As a result of the January 2011 CWAE Divestiture, as of February 1, 2011, the Company is no longer reporting operating results for the CWAE segment.
          Information regarding net sales, operating income and total assets of each of the Company’s business segments and information regarding geographic areas is set forth in Note 23 to the Company’s consolidated financial statements located in Item 8 of this Annual Report on Form 10-K.

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          Constellation Wines North America
          CWNA is the leading producer and marketer of premium wine in the world. It has a leading market position in each of its core markets – U.S., Canada and New Zealand and sells a large number of wine brands across all categories – table wine, sparkling wine and dessert wine – and across all price points – popular, premium, super-premium and fine wine. The portfolio of super-premium and fine wines is supported by vineyard holdings in the U.S., Canada and New Zealand. Wine produced by the Company in the U.S. is primarily marketed domestically and in the U.K. and Canada. Wine produced in New Zealand is primarily marketed domestically and in the U.S., Canada, Australia and the U.K., while wine produced in Canada is primarily marketed domestically. In addition, CWNA exports its wine products to other major wine consuming markets of the world.
          In the U.S., CWNA sells 14 of the top-selling 100 table wine brands and is the leading premium wine company. In Canada, it has wine across all price points, and has seven of the top-selling 25 table wine brands and the leading icewine brand with Inniskillin.
          CWNA’s well-known wine brands include Robert Mondavi Brands, Clos du Bois, Blackstone, Estancia, Arbor Mist, Toasted Head, Simi, Black Box, Ravenswood, Rex Goliath, Kim Crawford, Franciscan Estate, Wild Horse, Ruffino, Nobilo, Mount Veeder, Inniskillin and Jackson-Triggs.
          Premium spirit brands in CWNA’s portfolio include SVEDKA Vodka, Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy, all of which have a leading position in their respective categories.
          CWNA is also a leading producer and marketer of wine kits and beverage alcohol refreshment drinks in Canada.
          In conjunction with its wine production, CWNA produces and sells bulk wine and other related products and services.
          Constellation Wines Australia and Europe
          Prior to the January 2011 CWAE Divestiture, the Company’s CWAE segment was a leading producer and marketer of wine in Australia and a leading marketer of wine in the U.K. Wine produced by the Company in Australia was primarily marketed domestically and in the U.K. CWAE had wine brands across all price points and varieties, and was the leading producer of value-priced cask (box) wines in Australia.
          Crown Imports
          In January 2007, the Company completed the formation of the Crown Imports joint venture with Modelo. The Company and Modelo indirectly each have an equal interest in Crown Imports, which has the exclusive right to import, market and sell the Modelo Brands, which include Corona Extra, Corona Light, Coronita, Modelo Especial, Pacifico, Negra Modelo and Victoria, as well as the St. Pauli Girl and Tsingtao brands in all 50 states of the U.S. In the U.S., Crown Imports has six of the top-selling 25 imported beer brands. Corona Extra is the best-selling imported beer and the sixth best-selling beer overall and Corona Light is the leading imported light beer, while St. Pauli Girl is the number two selling German Beer and Tsingtao is the number one selling Chinese Beer. The Company accounts for its investment in Crown Imports under the equity method.

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          Corporate Operations and Other
          The Corporate Operations and Other segment includes traditional corporate-related items including executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations, global information technology and global supply chain.
Marketing and Distribution
          The Company’s segments employ full-time, in-house marketing, sales and customer service organizations to maintain a high degree of focus on their respective product categories. The organizations use a range of marketing strategies and tactics designed to build brand equity and increase sales, including market research, consumer and trade advertising, price promotions, point-of-sale materials, event sponsorship, on-premise promotions and public relations. Where opportunities exist, particularly with national accounts in the U.S., the Company leverages its sales and marketing skills across the organization and segments.
          In North America, the Company’s products are primarily distributed by wholesale distributors as well as state and provincial alcoholic beverage control agencies. As is the case with all other beverage alcohol companies, products sold through state or provincial alcoholic beverage control agencies are subject to obtaining and maintaining listings to sell the Company’s products in that agency’s state or province. State and provincial governments can affect prices paid by consumers of the Company’s products. This is possible either through the imposition of taxes or, in states and provinces in which the government acts as the distributor of the Company’s products through an alcohol beverage control agency, by directly setting retail prices for the Company’s products. In New Zealand, the Company’s products are primarily distributed either directly to retailers or through wholesalers and importers with the distribution channels dominated by a small number of industry leaders.
Trademarks and Distribution Agreements
          Trademarks are an important aspect of the Company’s business. The Company sells its products under a number of trademarks, which the Company owns or uses under license. Throughout its segments, the Company also has various licenses and distribution agreements for the sale, or the production and sale, of its products and products of third parties. These licenses and distribution agreements have varying terms and durations. At the end of the Company’s year ended February 28, 2011, these agreements included, among others, a long-term license agreement with the B. Manischewitz Company, which expires in 2042, for the Manischewitz brand, and a distribution, importation and license agreement with Baron Philippe de Rothschild which expires in December 2016 for the Mouton Cadet brand. Additionally, in connection with the CWAE Divestiture, the Company entered into distribution, importation and license agreements that expire in 2014 regarding the distribution, importation and licensing of products owned by the divested business which include various brands, such as, but not limited to, the Hardy’s brands.

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          All of the Company’s imported beer products are imported, marketed and sold through Crown Imports. Crown Imports has entered into exclusive importation agreements with the suppliers of the imported beer products. These agreements have terms that vary and prohibit Crown Imports from importing beer products from other producers from the same country. Crown Imports’ Mexican beer portfolio, the Modelo Brands, currently consists of the Corona Extra, Corona Light, Coronita, Modelo Especial, Negra Modelo, Pacifico and Victoria brands. Crown Imports has the right to market and sell the Modelo Brands in all 50 states of the U.S., the District of Columbia and Guam. Crown Imports also has entered into license and importation agreements with the owners of the German St. Pauli Girl and the Chinese Tsingtao brands for their importation, marketing and sale within the U.S. With respect to the Modelo Brands, Crown Imports has an exclusive sub-license to use certain trademarks related to Modelo Brands beer products in the U.S. (including the District of Columbia and Guam) pursuant to a sub-license agreement between Crown Imports and Marcas Modelo, S.A. de C.V. This sub-license agreement continues for the duration of the Crown Imports joint venture.
          Crown Imports and Extrade II S.A. de C.V. (“Extrade II”), an affiliate of Modelo, have entered into an Importer Agreement, pursuant to which Extrade II granted to Crown Imports the exclusive right to sell the Modelo Brands in the territories mentioned above. The joint venture and the related importation arrangements provide that, subject to the terms and conditions of those agreements, the joint venture and the related importation arrangements will continue through 2016 for an initial term of 10 years, and renew in 10-year periods unless GModelo Corporation, a Delaware corporation and subsidiary of Diblo, S.A. de C.V. (“Diblo”), gives notice prior to the end of year seven of any term.
Competition
          The beverage alcohol industry is highly competitive. The Company competes on the basis of quality, price, brand recognition and distribution strength. The Company’s beverage alcohol products compete with other alcoholic and non-alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant presence and wholesaler attention. The Company competes with numerous multinational producers and distributors of beverage alcohol products, some of which have greater resources than the Company.
          CWNA’s principal wine competitors include: E&J Gallo Winery, The Wine Group, Treasury Wine Estates, W.J. Deutsch & Sons, Ste. Michelle Wine Estates, Kendall-Jackson and Diageo in the U.S.; Andrew Peller, Treasury Wine Estates, Kruger and E&J Gallo Winery in Canada; and Pernod Ricard, Lion Nathan and Treasury Wine Estates in New Zealand. CWNA’s principal distilled spirits competitors include: Diageo, Fortune Brands, Pernod Ricard, Bacardi and Brown-Forman.
          Crown Imports’ principal competitors include: Anheuser-Busch InBev, MillerCoors and Heineken.
Production
          In the U.S., the Company operates 18 wineries where wine is produced from many varieties of grapes grown principally in the Napa, Sonoma, Monterey and San Joaquin regions of California. The Company also operates nine wineries in Canada and four wineries in New Zealand. Grapes are crushed at most of the Company’s wineries and stored as wine until packaged for sale under the Company’s brand names or sold in bulk. In the U.S. and Canada, the Company’s inventories of wine are usually at their highest levels in September through November during and after the crush of each year’s grape harvest, and are reduced prior to the subsequent year’s crush. Similarly, in New Zealand, the Company’s inventories of wine are usually at their highest levels in March through May during and after the crush of each year’s grape harvest, and are reduced prior to the subsequent year’s crush.

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          The Company’s Canadian whisky requirements are produced and aged at its Canadian distillery in Lethbridge, Alberta. The Company’s requirements of grains and bulk spirits it uses in the production of Canadian whisky are purchased from various suppliers.
Sources and Availability of Production Materials
          The principal components in the production of the Company’s branded beverage alcohol products are agricultural products, such as grapes and grain, and packaging materials (primarily glass).
          Most of the Company’s annual grape requirements are satisfied by purchases from each year’s harvest which normally begins in August and runs through October in the U.S. and Canada, and begins in February and runs through May in New Zealand. The Company believes that it has adequate sources of grape supplies to meet its sales expectations. However, when demand for certain wine products exceeds expectations, the Company sources the extra requirements from the bulk wine markets. Depending upon overall demand, the Company could experience shortages.
          The Company receives grapes from approximately 1,160 independent growers in the U.S., approximately 110 independent growers in New Zealand and approximately 110 independent growers in Canada. The Company enters into written purchase agreements with a majority of these growers and pricing generally varies year-to-year and is generally based on then-current market prices.
          At February 28, 2011, the Company owned or leased approximately 17,900 acres of land and vineyards, either fully bearing or under development, in California (U.S.), New York (U.S.), Canada and New Zealand. This acreage supplies only a small percentage of the Company’s overall total grape needs for wine production. However, most of this acreage is used to supply a large portion of the grapes used for the production of the Company’s super-premium and fine wines. The Company continues to consider the purchase or lease of additional vineyards, and additional land for vineyard plantings, to supplement its grape supply.
          The distilled spirits manufactured and imported by the Company require various agricultural products, neutral grain spirits and bulk spirits. The Company fulfills its requirements through purchases from various sources by contractual arrangement and through purchases on the open market. The Company believes that adequate supplies of the aforementioned products are available at the present time.
          The Company utilizes glass and polyethylene terephthalate (“PET”) bottles and other materials such as caps, corks, capsules, labels, wine bags and cardboard cartons in the bottling and packaging of its products. After grape purchases, glass bottle costs are the largest component of the Company’s cost of product sold. In the U.S. and Canada, the glass bottle industry is highly concentrated with only a small number of producers. The Company has traditionally obtained, and continues to obtain, its glass requirements from a limited number of producers under long-term supply arrangements. Currently, one producer supplies most of the Company’s glass container requirements for its U.S. operations and another producer supplies a majority of the Company’s glass container requirements for its Canadian operations. The Company has been able to satisfy its requirements with respect to the foregoing and considers its sources of supply to be adequate at this time. However, the inability of any of the Company’s glass bottle suppliers to satisfy the Company’s requirements could adversely affect the Company’s operations.

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Government Regulation
          The Company is subject to a range of regulations in the countries in which it operates. Where it produces products, the Company is subject to environmental laws and regulations and may be required to obtain permits and licenses to operate its facilities. Where it markets and sells products, it may be subject to laws and regulations on trademark and brand registration, packaging and labeling, distribution methods and relationships, pricing and price changes, sales promotions, advertising and public relations. The Company is also subject to rules and regulations relating to changes in officers or directors, ownership or control.
          The Company believes it is in compliance in all material respects with all applicable governmental laws and regulations in the countries in which it operates. The Company also believes that the cost of administration and compliance with, and liability under, such laws and regulations does not have, and is not expected to have, a material adverse impact on its financial condition, results of operations or cash flows.
Seasonality
          The beverage alcohol industry is subject to seasonality in each major category. As a result, in response to wholesaler and retailer demand which precedes consumer purchases, the Company’s wine and spirits sales are typically highest during the third quarter of its fiscal year, primarily due to seasonal holiday buying. Crown Imports’ imported beer sales are typically highest during the first and second quarters of the Company’s fiscal year, which correspond to the Spring and Summer periods in the U.S.
Employees
          As of the end of March 2011, the Company had approximately 4,300 full-time employees. Approximately 2,800 full-time employees were in the U.S. and approximately 1,500 full-time employees were outside of the U.S., primarily in Canada and New Zealand. Additional workers may be employed by the Company during the grape crushing seasons. The Company considers its employee relations generally to be good.
Company Information
          The Company’s internet address is http://www.cbrands.com. The Company’s filings with the Securities and Exchange Commission (“SEC”), including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible free of charge at http://www.cbrands.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, such as the Company, that file electronically with the SEC. The internet address of the SEC’s site is http://www.sec.gov. Also, the public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
          The Company has adopted a Chief Executive Officer and Senior Financial Executive Code of Ethics that specifically applies to its chief executive officer, its principal financial officer, and controller. This Chief Executive Officer and Senior Financial Executive Code of Ethics meets the requirements as set forth in the Securities Exchange Act of 1934, Item 406 of Regulation S-K. The Company has posted on its internet website a copy of the Chief Executive Officer and Senior Financial Executive Code of Ethics. It is located at http://www.cbrands.com/investors/corporate-governance.

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          The Company also has adopted a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including each person who is subject to the Chief Executive Officer and Senior Financial Executive Code of Ethics. The Code of Business Conduct and Ethics is available on the Company’s internet website, together with the Company’s Global Code of Responsible Practices for Beverage Alcohol Advertising and Marketing, its Board of Directors Corporate Governance Guidelines and the Charters of the Board’s Audit Committee, Human Resources Committee (which serves as the Board’s compensation committee) and Corporate Governance Committee (which serves as the Board’s nominating committee). All of these materials are accessible on the Company’s Internet site at http://www.cbrands.com/investors/corporate-governance. Amendments to, and waivers granted to the Company’s directors and executive officers under the Company’s codes of ethics, if any, will be posted in this area of the Company’s website. A copy of the Code of Business Conduct and Ethics, Global Code of Responsible Practices for Beverage Alcohol Advertising and Marketing, Chief Executive Officer and Senior Financial Executive Code of Ethics, and/or the Board of Directors Corporate Governance Guidelines and committee charters are available in print to any shareholder who requests it. Shareholders should direct such requests in writing to Investor Relations Department, Constellation Brands, Inc., 207 High Point Drive, Building 100, Victor, New York 14564, or by telephoning the Company’s Investor Center at 1-888-922-2150.
          The foregoing information regarding the Company’s website and its content is for your convenience only. The content of the Company’s website is not deemed to be incorporated by reference in this report or filed with the SEC.
Item 1A.  Risk Factors.
          In addition to the other information set forth in this report, you should carefully consider the following factors which could materially affect our business, financial condition or results of operations. The risks described below are not the only risks we face. Additional factors not presently known to us or that we currently deem to be immaterial also may materially adversely affect our business, cash flows, financial condition or results of operations in future periods.
Worldwide and domestic economic trends and financial market conditions could adversely impact our financial performance.
          Although we believe the severe worldwide and domestic economic conditions experienced over recent years have improved, the degree and pace of recovery is uncertain and is expected to vary around the globe. Worldwide and domestic economies remain subject to prolongation, exacerbation and expansion of adverse conditions. We are subject to risks associated with adverse economic conditions, including economic slowdown, inflation, and the disruption, volatility and tightening of credit and capital markets.
          In addition, adverse global or domestic economic situations could adversely impact our major suppliers, distributors and retailers. The inability of suppliers, distributors or retailers to conduct business or to access liquidity could impact our ability to produce and distribute our products. We have a committed credit facility and additional liquidity facilities available to us. While to date we have not experienced problems with accessing these facilities, to the extent that the financial institutions that participate in these facilities were to default on their obligation to fund, those funds would not be available to us.

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          The timing and nature of any recovery in the financial markets remains uncertain, and there can be no assurance that market conditions will improve in the near future. A prolonged downturn, further worsening or broadening of the adverse conditions in the worldwide and domestic economies, or return of high levels of inflation could affect consumer spending patterns and purchases of our products, and create or exacerbate credit issues, cash flow issues and other financial hardships for us and for our suppliers, distributors, retailers and consumers. Depending upon their severity and duration, these conditions could have a material adverse impact on our business, liquidity, financial condition and results of operations. We are not able to predict the pace of recovery of the recent adverse economic conditions in the United States and our other major markets outside the United States.
Our indebtedness could have a material adverse effect on our financial health.
          We have incurred substantial indebtedness to finance our acquisitions. In the future, we may incur substantial additional indebtedness to finance further acquisitions, the buyback of our shares or for other purposes. Our ability to satisfy our debt obligations outstanding from time to time will depend upon our future operating performance. We do not have complete control over our future operating performance because it is subject to prevailing economic conditions, levels of interest rates and financial, business and other factors. We cannot assure you that our business will generate sufficient cash flow from operations to meet all of our debt service requirements and to fund our capital expenditure requirements.
          Our current and future debt service obligations and covenants could have important consequences to you. These consequences include, or may include, the following:
    Our ability to obtain financing for future working capital needs or acquisitions or other purposes may be limited;
 
    Our funds available for operations, expansion or distributions will be reduced because we will dedicate a significant portion of our cash flow from operations to the payment of principal and interest on our indebtedness;
 
    Our ability to conduct our business could be limited by restrictive covenants; and
 
    Our vulnerability to adverse economic conditions may be greater than less leveraged competitors and, thus, our ability to withstand competitive pressures may be limited.
          Our senior credit facility and the indentures under which our debt securities have been issued contain restrictive covenants. These covenants affect our ability to, among other things, grant liens and restrict changes of control and certain other fundamental changes. Our senior credit facility also contains covenants that restrict our ability to make acquisitions, incur debt, sell assets, pay dividends, enter into transactions with affiliates and make investments. It also contains certain financial covenants, including a debt ratio test and an interest coverage ratio test. These covenants could limit our ability to conduct business. If we fail to comply with the obligations contained in the senior credit facility, our existing or future indentures or other loan agreements, we could be in default under such agreements, which could require us to immediately repay the related debt and also debt under other agreements that may contain cross-acceleration or cross-default provisions.

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Our acquisition, divestiture and joint venture strategies may not be successful.
          We have made a number of acquisitions and we anticipate that we may, from time to time, acquire additional businesses, assets or securities of companies that we believe would provide a strategic fit with our business. We will need to integrate acquired businesses with our existing operations. We cannot assure you that we will effectively assimilate the business or product offerings of acquired companies into our business or realize anticipated operational synergies. Integrating the operations and personnel of acquired companies into our existing operations or separating from our existing operations the operations and personnel of businesses of which we divest may result in difficulties, significant expense and accounting charges, disrupt our business or divert management’s time and attention. In connection with the integration of acquired operations or the conduct of our overall business strategies, we may periodically restructure our businesses and/or sell assets or portions of our business, including the recent sales of 80.1% of our Australian and U.K. business, our U.K. cider business and our value spirits business. We may not achieve expected cost savings or efficiencies from restructuring activities or realize the expected proceeds from sales of assets or portions of our business, and actual charges, costs and adjustments due to restructuring activities may vary materially from our estimates. We may provide various indemnifications in connection with the sale of assets or portions of our business. Additionally, our final determinations and appraisals of the fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates. We cannot assure you that the fair value of acquired businesses will remain constant.
          Acquisitions involve numerous other risks, including potential exposure to unknown liabilities of acquired companies and the possible loss of key employees and customers of the acquired business. In connection with acquisitions or joint venture investments outside the U.S., we may enter into derivative contracts to purchase foreign currency in order to hedge against the risk of foreign currency fluctuations in connection with such acquisitions or joint venture investments, which subjects us to the risk of foreign currency fluctuations associated with such derivative contracts.
          We have also acquired or retained equity or membership interests in companies which we do not control, such as our holdings in Ruffino S.r.l. and our retained 19.9% interest in certain companies that comprised our Australian and U.K. business. The other parties that hold the remaining equity or membership interests in these types of companies may at any time have economic, business or legal interests or goals that are inconsistent with our goals or the goals of those companies. The arrangements through which we acquired or hold our equity or membership interests may require us, among other matters, to pay certain costs or to purchase other parties’ interests. Our failure to adequately manage the risks associated with any acquisition, or the failure of an entity in which we have an equity or membership interest, could adversely affect our financial condition or our valuation of these types of investments.
          We have entered into joint ventures, including our joint venture with Modelo and our holdings in Opus One Winery LLC, and we may enter into additional joint ventures. We share control of our joint ventures. Our joint venture partners may at any time have economic, business or legal interests or goals that are inconsistent with our goals or the goals of the joint venture. Our joint venture arrangements may require us, among other matters, to pay certain costs or to make certain capital investments. In addition, our joint venture partners may be unable to meet their economic or other obligations and we may be required to fulfill those obligations alone. Our failure or the failure of an entity in which we have a joint venture interest to adequately manage the risks associated with any acquisitions or joint ventures could have a material adverse effect on our financial condition or results of operations.

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          We cannot assure you that any of our acquisitions, investments or joint ventures will be profitable or that forecasts regarding joint venture activities will be accurate. In particular, risks and uncertainties associated with our joint ventures include, among others, the joint venture’s ability to operate its business successfully, the joint venture’s ability to develop appropriate standards, controls, procedures and policies for the growth and management of the joint venture and the strength of the joint venture’s relationships with its employees, suppliers and customers.
Competition could have a material adverse effect on our business.
          We are in a highly competitive industry and the dollar amount and unit volume of our sales could be negatively affected by our inability to maintain or increase prices, changes in geographic or product mix, a general decline in beverage alcohol consumption or the decision of wholesalers, retailers or consumers to purchase competitive products instead of our products. Wholesaler, retailer and consumer purchasing decisions are influenced by, among other things, the perceived absolute or relative overall value of our products, including their quality or pricing, compared to competitive products. Unit volume and dollar sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and provincial agencies, and retailers which could affect their supply of, or consumer demand for, our products. We could also experience higher than expected selling, general and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons.
An increase in import and excise duties or other taxes or government regulations could have a material adverse effect on our business.
          The U.S., Canada and other countries in which we operate impose import and excise duties and other taxes on beverage alcohol products in varying amounts which have been subject to change. Significant increases in import and excise duties or other taxes on beverage alcohol products could materially and adversely affect our financial condition or results of operations. Many U.S. states have considered proposals to increase, and some of these states have increased, state alcohol excise taxes. There may be further consideration by governmental entities to increase taxes upon beverage alcohol products as governmental entities explore available alternatives for raising funds during the current macroeconomic climate. In addition, federal, state, local and foreign governmental agencies extensively regulate the beverage alcohol products industry concerning such matters as licensing, trade and pricing practices, permitted and required labeling, advertising and relations with wholesalers and retailers. Certain federal and state or provincial regulations also require warning labels and signage. New or revised regulations or increased licensing fees, requirements or taxes could also have a material adverse effect on our financial condition or results of operations.
Benefit cost increases could reduce our profitability.
          Our profitability is affected by employee medical costs and other employee benefits. In recent years, employee medical costs have increased due to factors such as the increase in health care costs in the U.S. These factors, plus the enactment of the Patient Protection and Affordable Care Act in March 2010, will continue to put pressure on our business and financial performance due to higher employee benefit costs. Although we actively seek to control increases in employee benefit costs and encourage employees to maintain healthy lifestyles to reduce future potential medical costs, there can be no assurance that we will succeed in limiting future cost increases. Continued employee benefit cost increases could have an adverse affect on our results of operations and financial condition.

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          We also sponsor a very limited number of defined benefit plans that cover some of our non-U.S. employees. Our costs of providing defined benefit plans are dependent upon a number of factors, such as discount rates, the rates of return on the plans’ assets, exchange rate fluctuations, future governmental regulation, global equity prices, and our required and/or voluntary contributions to the plans. Without sustained growth in pension investments over time to increase the value of the plans’ assets, and depending upon the other factors relating to worldwide and domestic economic trends and financial market conditions, we could be required to increase funding for some or all of our defined benefit plans.
We rely on the performance of wholesale distributors, major retailers and government agencies for the success of our business.
          Local market structures and distribution channels vary worldwide. In the U.S., we sell our products principally to wholesalers for resale to retail outlets including grocery stores, club and discount stores, package liquor stores and restaurants and also directly to government agencies, while in Canada, we sell our products principally to government agencies. In the U.S., we have entered into exclusive arrangements with certain wholesalers that generate a large portion of our U.S. net sales. The replacement or poor performance of our major wholesalers, retailers or government agencies could materially and adversely affect our results of operations and financial condition. Our inability to collect accounts receivable from our major wholesalers, retailers or government agencies could also materially and adversely affect our results of operations and financial condition.
          The industry is being affected by the trend toward consolidation in the wholesale and retail distribution channels, particularly in the U.S. If we are unable to successfully adapt to this changing environment, our net income, market share and volume growth could be negatively affected. In addition, wholesalers and retailers of our products offer products which compete directly with our products for retail shelf space and consumer purchases. Accordingly, wholesalers or retailers may give higher priority to products of our competitors. In the future, our wholesalers and retailers may not continue to purchase our products or provide our products with adequate levels of promotional support.
Our business could be adversely affected by a decline in the consumption of products we sell.
          While over the past several years there have been modest increases in consumption of beverage alcohol in most of our product categories and geographic markets, there have been periods in the past in which there were substantial declines in the overall per capita consumption of beverage alcohol products in the U.S. and other markets in which we participate. A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:
    A general decline in economic or geo-political conditions;
 
    Increased concern about the health consequences of consuming beverage alcohol products and about drinking and driving;
 
    A general decline in the consumption of beverage alcohol products in on-premise establishments, such as may result from smoking bans and stricter laws related to driving while under the influence of alcohol;
 
    A trend toward a healthier diet including lighter, lower calorie beverages such as diet soft drinks, sports drinks and water products;
 
    The increased activity of anti-alcohol groups;
 
    Increased federal, state, provincial or foreign excise or other taxes on beverage alcohol products; and
 
    Increased regulation placing restrictions on the purchase or consumption of beverage alcohol products.

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          We are primarily a branded consumer products company and we rely on consumers’ demand for our products. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and beverage consumption patterns. Our continued success will require us to anticipate and respond effectively to shifts in consumer behavior and drinking tastes. If consumer preferences were to move away from our premium brands in any of our major markets, our financial results might be adversely affected. Other factors may also reduce consumer spending on our products, including economic declines, inflation, a trend towards frugality even as the economy improves, wars, pandemics, weather, and natural or man-made disasters. As the cost of gasoline and other petroleum-based products increases, consumers may not have as much discretionary funds available to buy our products.
          In addition, our continued success depends, in part, on our ability to develop new products. The launch and ongoing success of new products are inherently uncertain especially with regard to their appeal to consumers. The launch of a new product can give rise to a variety of costs and an unsuccessful launch, among other things, can affect consumer perception of existing brands. Unsuccessful implementation or short-lived popularity of our product innovations may result in inventory write-offs and other costs.
We generally purchase raw materials under short-term supply contracts, and we are subject to substantial price fluctuations for grapes and grape-related materials, and we have a limited group of suppliers of glass bottles.
          Our business is heavily dependent upon raw materials, such as grapes, grape juice concentrate, grains, alcohol and packaging materials from third-party suppliers. We could experience raw material supply, production or shipment difficulties that could adversely affect our ability to supply goods to our customers. Increases in the costs of raw materials also directly affect us. In the past, we have experienced dramatic increases in the cost of grapes. Although we believe we have adequate sources of grape supplies, we could experience shortages if the demand for particular wine products exceeds expectations.
          The wine industry swings between cycles of grape oversupply and undersupply. In a severe oversupply environment, the ability of wine producers, including ourselves, to raise prices is limited, and, in certain situations, the competitive environment may put pressure on producers to lower prices. Further, although an oversupply may enhance opportunities to purchase grapes at lower costs, a producer’s selling and promotional expenses associated with the sale of its wine products can rise in such an environment.
          Glass bottle costs are one of our largest components of cost of product sold. In the U.S. and Canada, glass bottles have only a small number of producers. Currently, one producer supplies most of our glass container requirements for our U.S. operations and another producer supplies substantially all of our glass container requirements for our Canadian operations. The inability of any of our glass bottle suppliers to satisfy our requirements could adversely affect our business.

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Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business, operations or financial performance, and water scarcity or poor quality could negatively impact our production costs and capacity.
          Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. Severe weather events and climate change may negatively affect agricultural productivity in the regions from which we presently source our agricultural raw materials such as grapes. Decreased availability of our raw materials may increase the cost of goods for our products. Changes in frequency or intensity of weather can also disrupt our supply chain, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers and consumers. Water is essential in the production of our products and the quality and quantity of water available for use is important to the supply of grapes and our ability to operate our business. Water is a limited resource in many parts of the world and if climate patterns change and droughts become more severe, there may be a scarcity of water or poor water quality which may affect our production costs or impose capacity constraints. Such events could adversely affect our results of operations and financial condition.
Our operations subject us to risks relating to currency rate fluctuations, interest rate fluctuations and geopolitical uncertainty which could have a material adverse effect on our business.
          We have operations in Canada and New Zealand, our products are produced in various countries around the world and we sell our products in numerous countries throughout the world. Therefore, we are subject to risks associated with currency fluctuations. We are also exposed to risks associated with interest rate fluctuations. We manage our exposure to foreign currency and interest rate risks utilizing derivative instruments and other means to reduce those risks. We could experience changes in our ability to hedge against or manage fluctuations in foreign currency exchange rates or interest rates and, accordingly, there can be no assurance that we will be successful in reducing those risks. We could also be affected by nationalizations or unstable governments or legal systems or intergovernmental disputes. These currency, economic and political uncertainties may have a material adverse effect on our results of operations and financial condition, especially to the extent these matters, or the decisions, policies or economic strength of our suppliers, affect our global operations.
We have a material amount of intangible assets, such as goodwill and trademarks, and if we are required to write-down any of these intangible assets, it would reduce our net income, which in turn could have a material adverse effect on our results of operations.
          During the years ended February 28, 2011, February 28, 2010, and February 28, 2009, we recorded impairment losses of $23.6 million, $103.2 million and $300.4 million, respectively, on our goodwill and/or other intangible assets. We continue to have a significant amount of intangible assets such as goodwill and trademarks and may acquire more intangible assets in the future. In accordance with the Financial Accounting Standards Board (“FASB”) guidance for intangibles – goodwill and other, goodwill and indefinite lived intangible assets are subject to a periodic impairment evaluation. Reductions in our net income caused by the write-down of any of these intangible assets could materially and adversely affect our results of operations and financial condition.

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The termination of our joint venture with Modelo relating to importing, marketing and selling imported beer could have a material adverse effect on our business.
          On January 2, 2007, we participated in establishing and commencing operations of a joint venture with Modelo, pursuant to which Corona Extra and the other Modelo Brands are imported, marketed and sold by the joint venture in the U.S. (including the District of Columbia) and Guam along with certain other imported beer brands in their respective territories. Pursuant to the joint venture and related importation arrangements, the joint venture will continue for an initial term of 10 years, and renew in 10-year periods unless GModelo Corporation, a Delaware corporation and subsidiary of Diblo, gives notice prior to the end of year seven of any term of its intention to purchase our interest we hold through our subsidiary, Constellation Beers Ltd. (“Constellation Beers”). The joint venture may also terminate under other circumstances involving action by governmental authorities, certain changes in control of us or Constellation Beers as well as in connection with certain breaches of the importation and related sub-license agreements, after notice and cure periods.
          The termination of the joint venture by acquisition of Constellation Beers’ interest or for other reasons noted above could have a material adverse effect on our business, financial condition or results of operations.
Class action or other litigation relating to alcohol abuse, the misuse of alcohol, product liability or marketing or sales practices could adversely affect our business.
          There has been public attention directed at the beverage alcohol industry, which we believe is due to concern over problems related to alcohol abuse, including drinking and driving, underage drinking and health consequences from the misuse of alcohol. We also could be exposed to lawsuits relating to product liability or marketing or sales practices. Adverse developments in lawsuits concerning these types of matters or a significant decline in the social acceptability of beverage alcohol products that results from lawsuits could have a material adverse effect on our business.
Any damage to our reputation could have an adverse effect on our business, financial condition and results of operation.
          Maintaining a good reputation globally is critical to selling our branded products. Product contamination or tampering or the failure to maintain high standards for product quality, safety and integrity, including with respect to raw materials obtained from suppliers, may reduce demand for our products or cause production and delivery disruptions. If any of our products becomes unfit for consumption, misbranded or causes injury, we may have to engage in a product recall and/or be subject to liability. A widespread product recall or a significant product liability judgment could cause our products to be unavailable for a period of time, which could further reduce consumer demand and brand equity. Our reputation could be impacted negatively by public perception, adverse publicity (whether or not valid), or our responses relating to:
    A perceived failure to maintain high ethical, social and environmental standards for all of our operations and activities;
 
    Our environmental impact, including use of agricultural materials, packaging, water and energy use and waste management; or
 
    Efforts that are perceived as insufficient to promote the responsible use of alcohol.

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          Failure to comply with local laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation, competitive position and brand equity.
We depend upon our trademarks and proprietary rights, and any failure to protect our intellectual property rights or any claims that we are infringing upon the rights of others may adversely affect our competitive position and brand equity.
          Our future success depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property rights. We have been granted numerous trademark registrations covering our brands and products and have filed, and expect to continue to file, trademark applications seeking to protect newly-developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of our trademark applications. There is also a risk that we could, by omission, fail to timely renew or protect a trademark or that our competitors will challenge, invalidate or circumvent any existing or future trademarks issued to, or licensed by, us.
Contamination could harm the integrity of or consumer support for our brands and adversely affect the sales of our products.
          The success of our brands depends upon the positive image that consumers have of those brands. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for those brands, could adversely affect their sales. Contaminants in raw materials purchased from third parties and used in the production of our wine and spirits products or defects in the distillation or fermentation process could lead to low beverage quality as well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand or all of our brands.
An increase in the cost of energy or the cost of environmental regulatory compliance could affect our profitability.
          We have experienced significant increases in energy costs, and energy costs could continue to rise, which would result in higher transportation, freight and other operating costs. We may experience significant future increases in the costs associated with environmental regulatory compliance. Our future operating expenses and margins will be dependent on our ability to manage the impact of cost increases. We cannot guarantee that we will be able to pass along increased energy costs or increased costs associated with environmental regulatory compliance to our customers through increased prices.
          In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or in connection with historical activities of businesses we acquire. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants in our current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs that we have estimated. We cannot assure you that our costs in relation to these matters will not exceed our projections or otherwise have an adverse effect upon our business reputation, financial condition or results of operations.

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Our reliance upon complex information systems distributed worldwide and our reliance upon third party global networks means we could experience interruptions to our business services.
          We depend on information technology to enable us to operate efficiently and interface with customers, as well as maintain financial accuracy and efficiency. If we do not allocate, and effectively manage, the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. As with all large systems, our information systems could be penetrated by outside parties intent on extracting information, corrupting information or disrupting business processes. Such unauthorized access could disrupt our business operations and could result in the loss of assets and have a material adverse effect on our business, financial condition or results of operations.
          We have outsourced various functions to third-party service providers and may outsource other functions in the future. We rely on those third-party service providers to provide services on a timely and effective basis. Although we closely monitor the performance of these third parties and maintain contingency plans in case they are unable to perform as agreed, we do not ultimately control their performance. Their failure to perform as expected or as required by contract could result in significant disruptions and costs to our operations, which could materially affect our business, financial condition, operating results and cash flow, and could impair our ability to make required filings with various reporting agencies on a timely or accurate basis.
Changes in accounting standards and guidance and taxation requirements could affect our financial results.
          New accounting guidance that may become applicable to us from time to time, or changes in the interpretations of existing guidance, could have a significant effect on our reported results for the affected periods. The Financial Accounting Standards Board and the International Accounting Standards Board continue to work towards a convergence of accounting standards. Certain standards may become applicable to us and change the interpretation of existing guidance. Such events could have a significant effect on our reported results for the affected periods. In addition, our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions in which we operate. Increases in indirect taxes could affect our products’ affordability and therefore reduce our sales. We are also subject to income tax in numerous jurisdictions in which we generate revenues. Changes in tax laws, tax rates or tax rulings may have a significant adverse impact on our effective tax rate. Our tax liabilities are affected by the mix of pretax income or loss among the tax jurisdictions in which we operate. We must exercise judgment in determining our worldwide provision for income taxes, interest and penalties; accordingly, future events could change management’s assessment of these amounts.
Various diseases, pests and certain weather conditions could affect quality and quantity of grapes or other agricultural raw materials.
          Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the quality and quantity of grapes and other agricultural raw materials available, decreasing the supply of our products and negatively impacting profitability. We cannot guarantee that our grape suppliers or suppliers of other agricultural raw materials will succeed in preventing contamination in existing vineyards or fields or that we will succeed in preventing contamination in our existing vineyards or future vineyards we may acquire. Future government restrictions regarding the use of certain materials used in grape growing may increase vineyard costs and/or reduce production. Growing agricultural raw materials also requires adequate water supplies. A substantial reduction in water supplies could result in material losses of grape crops and vines or other crops, which could lead to a shortage of our product supply.

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Risks generally associated with building and sustaining our information technology infrastructure or implementation of our integrated technology platform may adversely affect our business and results of operations or the effectiveness of internal control over financial reporting.
          We have undertaken a comprehensive, multi-year business transformation initiative that we call Project Fusion. Project Fusion is our effort to create, design, implement and migrate certain of our financial processing systems to an enterprise-wide systems solution intended to improve our reporting capabilities and cost efficiencies. It is a planned initiative that will include an integrated technology platform intended to improve the accessibility of information, the visibility of global data, further enhance operating efficiencies and provide more effective management of our business operations. Enterprise resource planning system projects, such as Project Fusion, are complex and time-consuming projects that can involve substantial expenditures for system hardware, software, management focus and implementation activities that can continue for several years. There can be no certainty that Project Fusion will deliver the expected benefits. The failure to deliver our goals may impact our ability to (1) process transactions accurately and efficiently and (2) remain in step with the changing needs of the trade, which could result in the loss of customers. In addition, the failure to either deliver system and process upgrades on time, or anticipate the necessary readiness and training needs, could lead to business disruption and loss of customers and revenue.
          Project Fusion will include an upgrade to our existing business accounting and journal entry system. This upgrade will be deployed for use throughout our company in various “go live” phases targeted to begin in the second quarter of Fiscal 2012. Upgrading an accounting system and conversion to a new information technology platform is costly and involves risks inherent in the conversion to the upgraded system, including potential loss of information, disruption to our normal operations, changes in accounting procedures and internal control over financial reporting, as well as problems achieving accuracy in the conversion of electronic data. Although we are expending resources which are intended to properly or adequately address these issues, implementation risks include a potential increase in costs, the diversion of management’s and employees’ attention and resources and a potentially adverse affect on our operating results, internal controls over financial reporting and ability to manage our business effectively. While Project Fusion is intended to further improve and enhance our information systems, it exposes us to the risks of integrating the system upgrades with our existing systems and processes. Disruption of our financial reporting could impair our ability to make required filings with various reporting agencies on a timely or accurate basis.
Item 1B. Unresolved Staff Comments.
          Not Applicable.
Item 2.    Properties.
          Through its business segments, the Company operates wineries, a distilling plant and bottling plants, many of which include warehousing and distribution facilities on the premises. In addition to the Company’s properties described below, certain of the Company’s businesses maintain office space for sales and similar activities and offsite warehouse and distribution facilities in a variety of geographic locations.
          The Company believes that its facilities, taken as a whole, are in good condition and working order and have adequate capacity to meet its needs for the foreseeable future, although it does possess certain underutilized assets.

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          As a result of the January 2011 sale of 80.1% of the Company’s Australian and U.K. business, as of February 1, 2011, the Company is no longer reporting results for its CWAE segment. The following discussion details the properties associated with the Company’s remaining three business segments.
          Constellation Wines North America
          Through the Constellation Wines North America segment (“CWNA”), the Company maintains facilities in the U.S., New Zealand and Canada. These facilities include wineries, a distilling plant, bottling plants, warehousing and distribution facilities, distribution centers and office facilities. The segment maintains owned and/or leased division offices in a variety of locations, including Canandaigua, New York; St. Helena, California; San Francisco, California; Chicago, Illinois; Mississauga, Ontario; and Huapai, New Zealand.
          United States
          In the U.S., the Company, through its CWNA segment, operates one winery in New York, located in Canandaigua; 16 wineries in California, located in Acampo, Geyserville, Gonzales, Healdsburg, Madera, Oakville, Soledad, Rutherford, Templeton, Ukiah, two in Lodi, two in Napa, two in Sonoma; and one winery in Washington, located in Prosser. Sixteen of these wineries are owned and one winery in Napa, California and one winery in Sonoma, California are leased. The Company considers the segment’s principal facilities in the U.S. to be the Mission Bell winery in Madera (California), the Canandaigua winery in Canandaigua (New York), the Franciscan Vineyards winery in Rutherford (California), the Woodbridge Winery in Acampo (California), the Turner Road Vintners Wineries in Lodi (California), the Robert Mondavi Winery in Oakville (California), the Clos du Bois Winery in Geyserville (California) and the Gonzales Winery in Gonzales (California). The Mission Bell winery crushes grapes, produces, bottles and distributes wine and produces specialty concentrates and Mega Colors for sale. The Canandaigua winery crushes grapes and produces, bottles and distributes wine. The other principal wineries crush grapes, vinify, cellar and bottle wine. In California, the CWNA segment also operates a distribution center and two warehouses and, in New York, operates a warehouse, all of which are leased.
          Through the CWNA segment, as of February 28, 2011, the Company owned or leased approximately 12,100 acres of vineyards, either fully bearing or under development, in California and New York to supply a portion of the grapes used in the production of wine.
          Canada
          Through the CWNA segment, the Company operates nine Canadian wineries, four of which are in British Columbia, four in Ontario, and one in Quebec. Seven of these wineries are owned, one winery in British Columbia is leased and one winery in Ontario is leased. The British Columbia and Ontario operations all harvest a domestic crop and all locations vinify and cellar wines. Four wineries include bottling and/or packaging operations. The Company also operates a warehousing and distribution facility and sales office in Scoudouc, New Brunswick. In addition, through the segment, the Company operates facilities in Vancouver, British Columbia and Kitchener, Ontario in connection with its beer and wine making kit business. The Company also operates various retail stores in rented facilities throughout Ontario. The Company considers the segment’s principal facilities in Canada to be Niagara Cellars located in Niagara Falls (Ontario), the Vincor Quebec Division located in Rougemont (Quebec), the Vincor Production Facility located in Oliver (British Columbia) and the warehousing and distribution facility located in Scoudouc (New Brunswick).

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          Through the CWNA segment, as of February 28, 2011, the Company owned or leased approximately 1,800 acres of vineyards, either fully bearing or under development, in Ontario and British Columbia to supply a portion of the grapes used in the production of wine.
          Through this segment, the Company currently owns and operates a distilling plant located in Lethbridge, Alberta, Canada. This facility distills, bottles and stores Canadian whisky for the segment, and distills and/or bottles and stores Canadian whisky, vodka, rum, gin and liqueurs for third parties. The Company considers this facility to be a principal facility.
          New Zealand
          Through the CWNA segment, the Company owns and operates four wineries in New Zealand. All of these New Zealand wineries vinify and cellar wine, and three of these wineries crush grapes. One includes bottling and packaging operations. The Company considers the segment’s principal facilities in New Zealand to be the Nobilo Winery located in Huapai, West Auckland (North Island) and the Drylands Winery located in Marlborough (South Island).
          Through the CWNA segment, as of February 28, 2011, the Company owns or has interests in approximately 4,000 acres of vineyards, either fully bearing or under development, in New Zealand.
Crown Imports
          Crown Imports has entered into various arrangements to satisfy its warehouse requirements. It currently has contracted with seven providers of warehouse space and services in a total of 12 locations throughout the U.S. Crown Imports maintains leased offices in Chicago, Illinois as well as in four other locations throughout the U.S.
Corporate Operations and Other
          The Company’s corporate headquarters are located in leased offices in Victor, New York.
Item 3.     Legal Proceedings.
          In the ordinary course of their business, the Company and its subsidiaries are subject to lawsuits, arbitrations, claims and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Management believes that the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and that the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.
          Regulatory Matters – The Company and its subsidiaries are in discussions with various governmental agencies concerning matters raised during regulatory examinations or otherwise subject to such agencies’ inquiry. These matters could result in censures, fines or other sanctions. Management believes the outcome of any pending regulatory matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. However, the Company is unable to predict the outcome of these matters.

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          On February 14, 2011, a subsidiary of the Company received from the United States Environmental Protection Agency (“EPA”) a Notification of Potential Enforcement Action for Violations of Section 112(r)(7) of the Clean Air Act. The notification is based on the findings of an October 2009 inspection of the Company’s Woodbridge Winery facility by the EPA. The EPA has indicated that anticipated allegations against the Company include the failure to recertify or replace ammonia system relief valves in the facility within the timeframes as required under risk management plan regulations for prevention of accidental releases and related paperwork deficiencies. The Company promptly effected all necessary corrections when the deficiencies were brought to its attention in 2009 and has fully cooperated with all of the EPA’s requests. No ammonia relief valves malfunctioned and there was no discharge of materials into the environment as a result of these deficiencies. The Company believes that its Woodbridge Winery is currently in compliance with the relevant section of the Clean Air Act. On March 28, 2011, the EPA extended to the Company an opportunity to discuss resolving any penalty action prior to the filing of a formal Determination of Violation, Compliance Order and Notice of Right to Request a Hearing. The EPA has indicated that it will propose a penalty of $226,000. The Company will dispute such a penalty.
Item 4.      (Removed and Reserved).
Executive Officers of the Company
          Information with respect to the current executive officers of the Company is as follows:
             
NAME   AGE   OFFICE OR POSITION HELD
Richard Sands
    60     Chairman of the Board
Robert Sands
    52     President and Chief Executive Officer
F. Paul Hetterich
    48    
Executive Vice President, Business Development, Corporate
Strategy and International
Thomas J. Mullin
    59    
Executive Vice President and General Counsel
Robert Ryder
    51    
Executive Vice President and Chief Financial Officer
W. Keith Wilson
    60    
Executive Vice President, Chief Human Resources and
Administrative Officer
John A. (Jay) Wright
    52    
President, Constellation Wines North America
          Richard Sands, Ph.D., is the Chairman of the Board of the Company. He has been employed by the Company in various capacities since 1979. He has served as a director since 1982. In September 1999, Mr. Sands was elected Chairman of the Board. He served as Chief Executive Officer from October 1993 to July 2007, as Executive Vice President from 1982 to May 1986, as President from May 1986 to December 2002 and as Chief Operating Officer from May 1986 to October 1993. He is the brother of Robert Sands.
          Robert Sands is President and Chief Executive Officer of the Company. He was appointed Chief Executive Officer in July 2007 and appointed as President in December 2002. He has served as a director since January 1990. Mr. Sands also served as Chief Operating Officer from December 2002 to July 2007, as Group President from April 2000 through December 2002, as Chief Executive Officer, International from December 1998 through April 2000, as Executive Vice President from October 1993 through April 2000, as General Counsel from June 1986 through May 2000, and as Vice President from June 1990 through October 1993. He is the brother of Richard Sands.

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          F. Paul Hetterich has been the Company’s Executive Vice President, Business Development, Corporate Strategy and International since July 2009. From June 2003 until July 2009, he served as Executive Vice President, Business Development and Corporate Strategy. From April 2001 to June 2003, Mr. Hetterich served as the Company’s Senior Vice President, Corporate Development. Prior to that, Mr. Hetterich held several increasingly senior positions in the Company’s marketing and business development groups. Mr. Hetterich has been with the Company since 1986.
          Thomas J. Mullin joined the Company as Executive Vice President and General Counsel in May 2000. Prior to joining the Company, Mr. Mullin served as President and Chief Executive Officer of TD Waterhouse Bank, NA, a national banking association, since February 2000, of CT USA, F.S.B. since September 1998, and of CT USA, Inc. since March 1997. He also served as Executive Vice President, Business Development and Corporate Strategy of C.T. Financial Services, Inc. from March 1997 through February 2000. From 1985 through 1997, Mr. Mullin served as Vice Chairman and Senior Executive Vice President of First Federal Savings and Loan Association of Rochester, New York and from 1982 through 1985, he was a partner in the law firm of Phillips Lytle LLP.
          Robert Ryder joined the Company in May 2007 as Executive Vice President and Chief Financial Officer. Mr. Ryder previously served from 2005 to 2006 as Executive Vice President and Chief Financial and Administrative Officer of IMG, a sports marketing and media company. From 2002 to 2005, he was Senior Vice President and Chief Financial Officer of American Greetings Corporation, a publicly traded, multi-national consumer products company. From 1989 to 2002, he held several management positions of increasing responsibility with PepsiCo, Inc. These included control, strategic planning, mergers and acquisitions and CFO and Controller positions serving at PepsiCo’s corporate headquarters and at its Frito-Lay International and Frito-Lay North America divisions. Mr. Ryder is a certified public accountant.
          W. Keith Wilson joined the Company in January 2002 as Senior Vice President, Human Resources. In September 2002, he was elected Chief Human Resources Officer and in April 2003 he was elected Executive Vice President. In July 2007, he was appointed Chief Administrative Officer while retaining the position of Executive Vice President. From 1999 to 2001, Mr. Wilson served as Senior Vice President, Global Human Resources of Xerox Engineering Systems, a subsidiary of Xerox Corporation, which engineers, manufactures and sells hi-tech reprographics equipment and software worldwide. From 1990 to 1999, he served in various senior human resource positions with the banking, marketing and real estate and relocation businesses of Prudential Life Insurance of America, an insurance company that also provides other financial products.
          John A. (Jay) Wright is currently President, Constellation Wines North America and the President of Constellation Wines U.S., Inc., having held these positions since December 2009. Prior to that, he served as Executive Vice President and Chief Commercial Officer of Constellation Wines U.S., Inc. from March 2009 until December 2009. Mr. Wright joined the Company in June 2006 with the Company’s acquisition of Vincor International Inc. Mr. Wright served as President of Vincor International Inc. from June 2006 until March 2009 and, prior to that, as President and Chief Operating Officer of Vincor International Inc.’s Canadian Wine Division from October 2001 until June 2006. Before that, he held various positions of increasing responsibility with various other consumer products companies.
          Executive officers of the Company are generally chosen or elected to their positions annually and hold office until the earlier of their removal or resignation or until their successors are chosen and qualified.

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PART II
Item 5.      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
          The Company’s Class A Common Stock (the “Class A Stock”) and Class B Common Stock (the “Class B Stock”) trade on the New York Stock ExchangeÒ (“NYSE”) under the symbols STZ and STZ.B, respectively. There is no public trading market for the Company’s Class 1 Common Stock. The following tables set forth for the periods indicated the high and low sales prices of the Class A Stock and the Class B Stock as reported on the NYSE.
                                             
  CLASS A STOCK    
        1st Quarter       2nd Quarter       3rd Quarter       4th Quarter    
                             
 
Fiscal 2010
                                         
 
High
    $ 13.50       $ 15.20       $ 17.56       $ 17.46    
 
Low
    $ 10.72       $ 11.62       $ 14.36       $ 14.60    
                             
 
Fiscal 2011
                                         
 
High
    $ 18.87       $ 17.56       $ 21.01       $ 22.52    
 
Low
    $ 15.06       $ 14.97       $ 16.64       $ 18.84    
                             
  CLASS B STOCK    
        1st Quarter       2nd Quarter       3rd Quarter       4th Quarter    
                             
 
Fiscal 2010
                                         
 
High
    $ 13.53       $ 15.12       $ 17.50       $ 17.22    
 
Low
    $ 10.50       $ 11.75       $ 14.62       $ 14.75    
                             
 
Fiscal 2011
                                         
 
High
    $ 18.74       $ 17.44       $ 20.94       $ 22.29    
 
Low
    $ 15.00       $ 15.03       $ 16.82       $ 18.50    
                             
          At April 19, 2011, the number of holders of record of Class A Stock and Class B Stock of the Company were 904 and 178, respectively. There were no holders of record of Class 1 Common Stock.
          With respect to its common stock, the Company’s policy is to retain all of its earnings to finance the development and expansion of its business, and the Company has not paid any cash dividends on its common stock since its initial public offering in 1973. In addition, the Company’s senior credit facility limits the cash dividends that can be paid by the Company on its common stock to an amount determined in accordance with the terms of the 2006 Credit Agreement (as defined under Item 7 of this Annual Report on Form 10-K under the caption “Financial Liquidity and Capital Resources – Debt – Senior Credit Facility”). Any indentures for debt securities issued in the future, the terms of any preferred stock issued in the future and any credit agreements entered into in the future may also restrict or prohibit the payment of cash dividends on common stock.

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Item 6.   Selected Financial Data.
                                         
    For the Years Ended  
    February 28,     February 28,     February 28,     February 29,     February 28,  
    2011     2010     2009     2008     2007  
(in millions, except per share data)                                  
Sales
  $ 4,096.7     $ 4,213.0     $ 4,723.0     $ 4,885.1     $ 6,401.8  
Less – excise taxes
    (764.7 )     (848.2 )     (1,068.4 )     (1,112.1 )     (1,185.4 )
 
                             
Net sales
    3,332.0       3,364.8       3,654.6       3,773.0       5,216.4  
Cost of product sold
    (2,141.9 )     (2,220.0 )     (2,424.6 )     (2,491.5 )     (3,692.5 )
 
                             
Gross profit
    1,190.1       1,144.8       1,230.0       1,281.5       1,523.9  
Selling, general and administrative expenses (1)
    (640.9 )     (682.5 )     (832.0 )     (812.6 )     (787.2 )
Impairment of goodwill and intangible assets (2)
    (23.6 )     (103.2 )     (300.4 )     (812.2 )     -        
Restructuring charges (3)
    (23.1 )     (47.6 )     (68.0 )     (6.9 )     (32.5 )
 
                             
Operating income (loss)
    502.5       311.5       29.6       (350.2 )     704.2  
Equity in earnings of equity method investees
    243.8       213.6       186.6       257.9       49.9  
Interest expense, net
    (195.3 )     (265.1 )     (323.0 )     (348.3 )     (273.9 )
Loss on write-off of financing costs
    -             (0.7 )     -             -             -        
Gain on change in fair value of derivative instruments
    -             -             -             -             55.1  
 
                             
Income (loss) before income taxes
    551.0       259.3       (106.8 )     (440.6 )     535.3  
Benefit from (provision for) income taxes
    8.5       (160.0 )     (194.6 )     (172.7 )     (203.4 )
 
                             
Net income (loss)
    559.5       99.3       (301.4 )     (613.3 )     331.9  
Dividends on preferred stock
    -             -             -             -             (4.9 )
 
                             
Income (loss) available to common stockholders
  $ 559.5     $ 99.3     $ (301.4 )   $ (613.3 )   $ 327.0  
 
                             
 
                                       
Earnings (loss) per common share:
                                       
Basic – Class A Common Stock
  $ 2.68     $ 0.46     $ (1.40 )   $ (2.83 )   $ 1.44  
 
                             
Basic – Class B Convertible Common Stock
  $ 2.44     $ 0.41     $ (1.27 )   $ (2.57 )   $ 1.31  
 
                             
Diluted – Class A Common Stock
  $ 2.62     $ 0.45     $ (1.40 )   $ (2.83 )   $ 1.38  
 
                             
Diluted – Class B Convertible Common Stock
  $ 2.40     $ 0.41     $ (1.27 )   $ (2.57 )   $ 1.27  
 
                             
 
                                       
Total assets
  $ 7,167.6     $ 8,094.3     $ 8,036.5     $ 10,052.8     $ 9,438.2  
 
                             
Long-term debt, including current maturities
  $ 3,152.6     $ 3,464.3     $ 4,206.3     $ 4,878.0     $ 4,032.2  
 
                             
 
(1)   During the first quarter of the year ended February 28, 2011, the Company reclassified acquisition-related integration costs to selling, general and administrative expenses. Accordingly, all periods presented have been reclassified to reflect this revised presentation.
 
(2)   For a detailed discussion of impairment of goodwill and intangible assets for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this Annual Report on Form 10-K under the caption “Fiscal 2011 Compared to Fiscal 2010 – Impairment of Goodwill and Intangible Assets” and “Fiscal 2010 Compared to Fiscal 2009 – Impairment of Goodwill and Intangible Assets,” respectively.

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(3)   For a detailed discussion of restructuring charges for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this Annual Report on Form 10-K under the captions “Fiscal 2011 Compared to Fiscal 2010 – Restructuring Charges” and “Fiscal 2010 Compared to Fiscal 2009 – Restructuring Charges,” respectively.
          For the years ended February 28, 2011, and February 28, 2010, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this Annual Report on Form 10-K and the consolidated financial statements and notes thereto under Item 8 of this Annual Report on Form 10-K.
Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
          The Company is the world’s leading premium wine company with a broad portfolio of consumer-preferred premium wine brands complemented by premium spirits, imported beer and other select beverage alcohol products. The Company continues to supply imported beer in the United States (“U.S.”) through its investment in a joint venture with Grupo Modelo, S.A.B. de C.V. This imported beers joint venture operates as Crown Imports LLC and is referred to hereinafter as “Crown Imports.” The Company is the leading premium wine company in the U.S.; the leading producer and marketer of wine in Canada; and a leading producer and exporter of wine from New Zealand. Prior to January 31, 2011, the Company had leading market positions in both Australia and the United Kingdom (“U.K.”) through its Australian and U.K. business. On January 31, 2011, the Company completed the sale of 80.1% of its Australian and U.K. business (the “CWAE Divestiture”) as further discussed below under “Divestitures in Fiscal 2011, Fiscal 2010 and Fiscal 2009”.
          In connection with the Company’s changes during the first quarter of fiscal 2011 within its internal management structure for its Australian and U.K. business, and the Company’s revised business strategy within these markets, the Company changed its internal management financial reporting on May 1, 2010, to consist of four business divisions: Constellation Wines North America, Constellation Wines Australia and Europe, Constellation Wines New Zealand and Crown Imports. However, due to a number of factors, including the size of the Constellation Wines New Zealand segment’s operations, the similarity of its economic characteristics and long-term financial performance with that of the Constellation Wines North America business, and the fact that the vast majority of the wine produced by the Constellation Wines New Zealand operating segment is sold in the U.S. and Canada, the Company has aggregated the results of this operating segment with its Constellation Wines North America operating segment to form one reportable segment. Accordingly, beginning May 1, 2010, the Company began reporting its operating results in four segments: Constellation Wines North America (wine and spirits) (“CWNA”), Constellation Wines Australia and Europe (wine) (“CWAE”), Corporate Operations and Other, and Crown Imports (imported beer). Prior to the changes noted above, the Company’s internal management financial reporting consisted of two business divisions, Constellation Wines and Crown Imports. As a result of the CWAE Divestiture, as of February 1, 2011, the Company is no longer reporting operating results for the CWAE segment. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations, global information technology and global supply chain. Any costs incurred at the corporate office that are applicable to the segments are allocated to the appropriate segment. The amounts included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are therefore not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in the chief operating decision maker’s evaluation of the operating income performance of the other reportable segments.

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          The new business segments reflect how the Company’s operations are managed, how operating performance within the Company is evaluated by senior management and the structure of its internal financial reporting. The financial information for Fiscal 2010 and Fiscal 2009 (each as defined below) has been restated to conform to the new segment presentation.
          In addition, the Company excludes restructuring charges and unusual items that affect comparability from its definition of operating income for segment purposes as these items are not reflective of normal continuing operations of the segments. The Company excludes these items as segment operating performance and segment management compensation is evaluated based upon a normalized segment operating income. As such, the performance measures for incentive compensation purposes for segment management do not include the impact of these items.
          The Company’s business strategy in the CWNA segment is to remain focused on consumer-preferred premium wine brands, complemented by premium spirits. In this segment, the Company intends to continue to focus on growing premium product categories and expects to capitalize on its size and scale in the marketplace to profitably grow the business. During Fiscal 2010, the Company began implementation of a strategic project to consolidate its U.S. distributor network in key markets and create a new go-to-market strategy designed to focus the full power of its U.S. wine and spirits portfolio in order to improve alignment of dedicated, selling resources which is expected to drive organic growth. In connection with this strategy, the Company negotiated long-term contracts with five U.S. distributors who currently represent about 60% of the Company’s branded wine and spirits volume in the U.S. During the second half of fiscal 2010 and throughout Fiscal 2011 (as defined below), the Company’s net sales and operating income for its U.S. branded wine and spirits business has benefited from these contracts as the Company’s shipments to distributors exceeded distributor shipments to retailers. Following the end of Fiscal 2011, the distributor inventory levels related to the Company’s branded wine and spirits products should remain stable as shipments on an annual basis to these distributors will essentially equal the distributors’ shipments to retailers for the remainder of the terms of these contracts, which extend through the end of fiscal 2015. The Company believes that this is the right strategy to take in order to position the Company for future growth in a consolidating market. In addition, recent U.S. market trends and sales from distributors to retailers of the Company’s branded wine and spirits products indicate that the Company has benefited from this new go-to-market strategy in Fiscal 2011.
          In addition, in the U.S., the calendar 2010 grape harvest came in lower than the calendar 2009 grape harvest. The Company continues to expect the overall supply of wine to remain generally in balance with demand within the U.S.
          Prior to the CWAE Divestiture, the Company’s business strategy in the CWAE segment previously included tightening of its portfolio focus, increasing efficiencies, reducing costs and improving cash generation in response to the continuing competitive conditions in the U.K. and Australia. This strategy was adopted to assist the Company in its efforts to effectively deal with some of the long-term challenges the Company had been facing in the U.K. and Australia markets, including (i) annual duty increases in the U.K.; (ii) significant consolidation of U.K. retailers which resulted in a limited number of retailers controlling a significant portion of the off-premise wine business; (iii) continuing surplus of Australian wine which made low cost wine available to U.K. retailers who were able to create and build private label brands in the Australian wine category; and (iv) foreign exchange volatility. For these reasons, combined with the Company’s strategic focus on premiumizing its portfolio, generating strong free cash flow and improving return on invested capital, the Company decided to substantially reduce its exposure to the U.K. and Australian markets through the CWAE Divestiture.

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          The Company remains committed to its long-term financial model of growing sales, including international expansion of its CWNA segment’s branded portfolio, expanding margins, increasing cash flow and reducing borrowings to achieve earnings per share growth and improve return on invested capital.
          Marketing, sales and distribution of the Company’s products are managed on a geographic basis in order to fully leverage leading market positions within each core market. Market dynamics and consumer trends vary significantly across the Company’s remaining three core markets (U.S., Canada and New Zealand) within the Company’s remaining two geographic regions (North America and New Zealand). Within North America, the Company offers a range of beverage alcohol products across the branded wine and spirits and, through Crown Imports, imported beer categories in the U.S. Within New Zealand, the Company primarily offers branded wine. The environment for the Company’s products is competitive in each of the Company’s core markets.
          For the year ended February 28, 2011 (“Fiscal 2011”), the Company’s net sales decreased 1% over the year ended February 28, 2010 (“Fiscal 2010”), primarily due to the divestiture of the U.K. cider business (see “Divestitures in Fiscal 2011, Fiscal 2010 and Fiscal 2009” below) and the CWAE Divestiture, partially offset by a combination of volume growth and favorable product mix shift in the U.S. base branded wine portfolio (as defined below). Operating income for Fiscal 2011 increased 61% over Fiscal 2010 primarily due to a decrease in restructuring charges and unusual items for Fiscal 2011 compared to Fiscal 2010. Net income for Fiscal 2011 increased significantly over Fiscal 2010 primarily due to the items discussed above combined with a benefit from income taxes and lower interest expense.
          The following discussion and analysis summarizes the significant factors affecting (i) consolidated results of operations of the Company for Fiscal 2011 compared to Fiscal 2010, and Fiscal 2010 compared to the year ended February 28, 2009 (“Fiscal 2009”), and (ii) financial liquidity and capital resources for Fiscal 2011. References to U.S. base branded wine exclude the impact of (i) branded wine for the CWNA segment previously sold through the Company’s CWAE segment, (ii) branded spirits divested of in the value spirits divestiture (as discussed below) and/or (iii) branded wine divested of in the Pacific Northwest Business divestiture (as defined below), as appropriate. References to U.K. base branded wine exclude the impact of U.K. cider divested of in the U.K. cider business divestiture (as discussed below). This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto included herein.
Divestitures in Fiscal 2011, Fiscal 2010 and Fiscal 2009
          Australian and U.K. Business
          In January 2011, the Company sold 80.1% of its Australian and U.K. business (the “CWAE Divestiture”) at a transaction value of $266.9 million, subject to post-closing adjustments. The Company received cash proceeds, net of cash divested of $15.8 million and direct costs paid of $2.3 million, of $221.3 million, subject to post-closing adjustments. The Company retained a 19.9% interest in its previously owned Australian and U.K. business. This transaction is consistent with the Company’s strategic focus on premiumizing the Company’s portfolio and improving margins and return on invested capital.

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          The following table summarizes the net gain recognized and the net cash proceeds received in connection with this divestiture:
         
(in millions)
       
Net assets sold
  $ (734.1 )
Cash received from buyer, net of cash divested
    223.6  
Retained interest in previously owned business
    48.2  
Estimated post-closing adjustments
    (19.3 )
Foreign currency reclassification
    678.8  
Indemnification liabilities
    (26.1 )
Direct costs to sell, paid and accrued
    (14.0 )
Other
    8.0  
 
     
Net gain on sale
    165.1  
Loss on settlement of pension
    (109.9 )
 
     
Net gain
  $ 55.2  
 
     
          In addition, the Company’s CWAE segment recorded an additional net gain of $28.5 million, primarily associated with a net gain on derivative instruments of $20.8 million, related to this divestiture. Total net gains associated with this divestiture of $83.7 million are included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.
          U.K. Cider Business
           In January 2010, the Company sold its U.K. cider business for cash proceeds of £43.9 million ($71.6 million), net of direct costs to sell. This transaction is consistent with the Company’s strategic focus on premium higher-growth, higher-margin wine, beer and spirits brands. In connection with this divestiture, the Company’s CWAE segment recorded a gain of $11.2 million for Fiscal 2010 which is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.
          Value Spirits Business
          In March 2009, the Company sold its value spirits business for $336.4 million, net of direct costs to sell. The Company received $276.4 million, net of direct costs to sell, in cash proceeds and a note receivable for $60.0 million in connection with this divestiture. In the first quarter of fiscal 2011, the Company received full payment of the note receivable. The Company retained certain premium spirits brands, including SVEDKA Vodka, Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy. This transaction is consistent with the Company’s strategic focus on premium, higher-growth and higher-margin brands in its portfolio. In connection with the classification of this business as an asset group held for sale as of February 28, 2009, the Company’s CWNA segment recorded a loss of $15.6 million in the fourth quarter of fiscal 2009, primarily related to asset impairments. In the first quarter of fiscal 2010, the Company’s CWNA segment recognized a net gain of $0.2 million, which included a gain on settlement of a postretirement obligation of $1.0 million, partially offset by an additional loss of $0.8 million. These amounts are included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.

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          Pacific Northwest Business
          In June 2008, the Company sold certain businesses consisting of several California wineries and wine brands acquired in the acquisition of all of the issued and outstanding capital stock of Beam Wine Estates, Inc. (“BWE”), as well as certain wineries and wine brands from the states of Washington and Idaho (collectively, the “Pacific Northwest Business”) for cash proceeds of $204.2 million, net of direct costs to sell. In addition, if certain objectives are achieved by the buyer, the Company could receive up to an additional $25.0 million in cash payments. This transaction contributes to the Company’s streamlining of its U.S. wine portfolio by eliminating brand duplication and reducing excess production capacity. In connection with this divestiture, the Company’s CWNA segment recorded a loss of $23.2 million for Fiscal 2009, which included a loss on business sold of $15.8 million and losses on contractual obligations of $7.4 million. The loss of $23.2 million is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.
Equity Method Investment in Fiscal 2011
          In connection with the Company’s December 2004 investment in Ruffino S.r.l. (“Ruffino”), the Company granted separate irrevocable and unconditional options to the two other shareholders of Ruffino to put to the Company all of the ownership interests held by these shareholders for a price as calculated in the joint venture agreement. Each option was exercisable during the period starting from January 1, 2010, and ending on December 31, 2010. For the year ended February 28, 2010, in connection with the notification by the 9.9% shareholder of Ruffino to exercise its option to put its entire equity interest in Ruffino to the Company for the specified minimum value of €23.5 million, the Company recognized a loss of $34.3 million for the third quarter of fiscal 2010 on the contractual obligation created by this notification. This loss was included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. In May 2010, the Company settled this put option through a cash payment of €23.5 million ($29.6 million) to the 9.9% shareholder of Ruffino, thereby increasing the Company’s equity interest in Ruffino from 40.0% to 49.9%. In December 2010, the Company received notification from the 50.1% shareholder of Ruffino that it was exercising its option to put its entire equity interest in Ruffino to the Company for €55.9 million. Prior to this notification, the Company had initiated arbitration proceedings against the 50.1% shareholder alleging various matters which should affect the validity of the put option. However, subsequent to the initiation of the arbitration proceedings, the Company began discussions with the 50.1% shareholder on a framework for settlement of all legal actions. The framework of the settlement would include the Company’s purchase of the 50.1% shareholder’s entire equity interest in Ruffino on revised terms to be agreed upon by both parties. As a result, the Company recognized a loss for the fourth quarter of fiscal 2011 of €43.4 million ($60.0 million) on the contingent obligation. This loss is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. As of February 28, 2011, the Company’s investment in Ruffino was $7.4 million.

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Results of Operations
Fiscal 2011 Compared to Fiscal 2010
          Net Sales
          The following table sets forth the net sales by reportable segment of the Company for Fiscal 2011 and Fiscal 2010.
                         
    Fiscal     Fiscal     % Increase
    2011     2010     (Decrease)
(in millions)                        
CWNA net sales
  $ 2,557.3     $ 2,434.7       5  %
CWAE net sales
    774.7       930.1       (17 )%
Crown Imports net sales
    2,392.9       2,256.2       6  %
Consolidations and eliminations
    (2,392.9 )     (2,256.2 )     (6 )%
 
                   
Consolidated Net Sales
  $ 3,332.0     $ 3,364.8       (1 )%
 
                   
          Net sales for Fiscal 2011 decreased to $3,332.0 million from $3,364.8 million for Fiscal 2010, a decrease of $32.8 million, or (1%). This decrease resulted primarily from the divestiture of the U.K. cider business, the CWAE Divestiture and the divestiture of the value spirits business of $178.2 million, partially offset by an increase in U.S. base branded wine net sales of $85.9 million and a favorable year-over-year foreign currency translation impact of $52.6 million.
          Constellation Wines North America
          Net sales for CWNA increased to $2,557.3 million for Fiscal 2011 from $2,434.7 million for Fiscal 2010, an increase of $122.6 million, or 5%. This increase is primarily due to volume growth and favorable product mix shift in the U.S. base branded wine portfolio due largely to certain U.S. distributor contractual commitments, and a favorable year-over-year foreign currency translation impact of $36.4 million, partially offset by increased promotional spend, primarily in the U.S. The Fiscal 2011 U.S. volume growth is even more pronounced as a result of the Company’s strategic decision in the fourth quarter of fiscal 2010 to work with certain of its U.S. distributors to reduce their U.S. branded wine inventory levels and not require these distributors to purchase the originally contracted branded wine amounts during that quarter. The Company believes that this strategic decision has helped and will continue to help its U.S. distributors improve depletion trends and consumer takeaway as distributor cost savings associated with carrying lower levels of inventory were invested by the U.S. distributors in additional marketing and promotional programming behind the CWNA segment’s U.S. branded wine portfolio during Fiscal 2011 and such investments are expected to continue during Fiscal 2012.
          Constellation Wines Australia and Europe
          Net sales for CWAE decreased to $774.7 million for Fiscal 2011 from $930.1 million for Fiscal 2010, a decrease of $155.4 million, or (17%). This decrease is primarily due to a decrease in net sales of $171.7 million in connection with the divestiture of the U.K. cider business and the CWAE Divestiture, partially offset by a favorable year-over-year foreign currency translation impact of $16.2 million.
          Crown Imports
          As this segment is eliminated in consolidation, see “Equity in Earnings of Equity Method Investees” below for a discussion of Crown Imports’ net sales, gross profit, selling, general and administrative expenses, and operating income.

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          Gross Profit
          The Company’s gross profit increased to $1,190.1 million for Fiscal 2011 from $1,144.8 million for Fiscal 2010, an increase of $45.3 million, or 4%. This increase is due to an increase in CWNA’s gross profit of $48.3 million and a decrease in unusual items, which consist of certain amounts that are excluded by management in their evaluation of the results of each operating segment, of $27.7 million, partially offset by a decrease in CWAE’s gross profit of $30.7 million. The increase in CWNA’s gross profit is primarily due to favorable product mix shift and volume growth (primarily in the U.S. base branded wine portfolio) combined with a favorable year-over-year foreign currency translation impact of $15.9 million, partially offset by increased U.S. promotional spend and the flow through of higher calendar 2008 U.S. grape costs. The decrease in unusual items is primarily due to decreases in accelerated depreciation of $15.5 million associated with certain restructuring programs and the flow through of inventory step-up of $6.0 million associated primarily with the December 2007 BWE acquisition. The decrease in CWAE’s gross profit is primarily due to the divestiture of the U.K. cider business and the CWAE Divestiture.
          Gross profit as a percent of net sales increased to 35.7% for Fiscal 2011 from 34.0% for Fiscal 2010 primarily due to the lower unusual items and growth of higher-margin CWNA branded wine and spirits net sales (driven primarily by favorable U.S. base branded wine product mix shift and the divestitures of the lower-margin Australian and U.K. business and the U.K. cider business), partially offset by the negative impact of the flow through of the higher calendar 2008 U.S. grape costs and the increased U.S. promotional spend.
          Selling, General and Administrative Expenses
          Selling, general and administrative expenses decreased to $640.9 million for Fiscal 2011 from $682.5 million for Fiscal 2010, a decrease of $41.6 million, or (6%). This decrease is due to decreases in unusual items, which consist of certain amounts that are excluded by management in their evaluation of the results of each operating segment, of $85.7 million, and the CWAE segment of $23.1 million, partially offset by increases in the CWNA segment of $55.3 million and the Corporate Operations and Other segment of $11.9 million. The decrease in unusual items consists of the following:
                         
    Fiscal     Fiscal     (Decrease)  
    2011     2010     Increase  
(in millions)                        
Net gains on the CWAE Divestiture and related activities
  $ (83.7 )   $     $ (83.7 )
Net gain on sale of nonstrategic assets/business
    (3.3 )     (11.2 )     7.9  
Loss on contractual obligation from put option of Ruffino shareholder
    60.0       34.3       25.7  
Acquisition-related integration costs
    0.5       0.2       0.3  
Net gain on March 2009 sale of value spirits business
          (0.2 )     0.2  
Other costs
    6.3       42.4       (36.1 )
 
                 
 
  $ (20.2 )   $ 65.5     $ (85.7 )
 
                 

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          The decrease in other costs above is driven primarily by the Company’s plan (announced in April 2009) to simplify its business, increase efficiencies and reduce its cost structure on a global basis (the “Global Initiative”). The decrease in CWAE’s selling, general and administrative expenses is primarily due to the divestiture of the U.K. cider business and the CWAE Divestiture. The increase in CWNA’s selling, general and administrative expenses is due to increases (on a constant currency basis) in general and administrative expenses of $21.4 million, selling expenses of $15.2 million and advertising expenses of $9.6 million, combined with an unfavorable year-over-year foreign currency translation impact of $9.1 million. The increases in general and administrative expenses and selling expenses are primarily due to (i) costs associated with the Company’s initiative to implement a comprehensive, multi-year program to strengthen and enhance the Company’s global business capabilities and processes through the creation of an integrated technology platform to improve the accessibility of information and visibility of global data (“Project Fusion”); (ii) higher compensation and benefits driven largely by higher annual management incentive compensation expense; and (iii) higher consulting service fees associated with the segment’s review of certain business and process improvement opportunities. The increase in advertising expenses is primarily due to a planned increase in marketing and advertising spend behind the segment’s branded wine and spirits portfolio. The increase in Corporate Operations and Other’s selling, general and administrative expenses is due to an increase in general and administrative expenses resulting largely from higher annual management incentive compensation expense and higher stock-based compensation expense.
          Selling, general and administrative expenses as a percent of net sales decreased to 19.2% for Fiscal 2011 as compared to 20.3% for Fiscal 2010 primarily due to the factors discussed above, partially offset by the increased U.S. promotional spend.
          Impairment of Goodwill and Intangible Assets
          The Company recorded impairment losses of $23.6 million and $103.2 million for Fiscal 2011 and Fiscal 2010, respectively. The Fiscal 2011 impairment losses resulted primarily from the Company’s fourth quarter annual review, pursuant to the Company’s accounting policy, of indefinite lived intangible assets for impairment. The Company determined that certain trademarks associated with the CWNA segment’s Canadian reporting unit were impaired largely due to lower revenue and profitability associated with products incorporating these assets included in long-term financial forecasts developed as part of the strategic planning cycle conducted during the Company’s fourth quarter. As a result of this review, the Company recorded an impairment loss of $19.7 million, which is included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. In addition, in the third quarter of fiscal 2011, in connection with the Company’s decision to discontinue certain wine brands within its CWNA segment’s U.S. wine portfolio, the Company determined that certain indefinite lived trademarks associated with the CWNA segment’s U.S. reporting unit were impaired. As a result of this decision, the Company recorded an impairment loss of $6.9 million, which is included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. The Fiscal 2010 impairment losses resulted from the Company’s fourth quarter annual review, pursuant to the Company’s accounting policy, of indefinite lived intangible assets for impairment. The Company determined that certain trademarks associated primarily with the CWAE segment’s Australian reporting unit were impaired largely due to lower revenue and profitability associated with products incorporating these assets included in long-term financial forecasts developed as part of the strategic planning cycle conducted during the Company’s fourth quarter. As a result of this review, the Company recorded an impairment loss of $103.2 million, which is included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations.

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          Restructuring Charges
          The Company recorded $23.1 million of restructuring charges for Fiscal 2011 associated primarily with the Company’s Global Initiative and the Company’s plan (announced in August 2008) to sell certain assets and implement operational changes designed to improve the efficiencies and returns associated with the Australian business, primarily by consolidating certain winemaking and packaging operations and reducing the Company’s overall grape supply due to reduced capacity needs resulting from a streamlining of the Company’s product portfolio (the “Australian Initiative”). Restructuring charges include $12.1 million of employee termination benefit costs, $5.2 million of contract termination costs, $4.2 million of net noncash charges on assets sold in Australia, and $1.6 million of facility consolidation/relocation costs. The Company recorded $47.6 million of restructuring charges for Fiscal 2010 associated primarily with the Company’s Global Initiative and Australian Initiative.
          In addition, the Company incurred additional costs for Fiscal 2011 and Fiscal 2010 in connection with the Company’s restructuring and acquisition-related integration plans. Total costs incurred in connection with these plans for Fiscal 2011 and Fiscal 2010 are as follows:
                 
    Fiscal   Fiscal
    2011   2010
(in millions)                
Cost of Product Sold
               
Accelerated depreciation
  $ 2.2     $ 17.7  
Inventory write-downs
  $     $ 1.6  
Other
  $     $ 4.7  
 
Selling, General and Administrative Expenses
               
Gain on sale of nonstrategic assets
  $ (1.0 )   $  
Acquisition-related integration costs
  $ 0.5     $ 0.2  
Other costs
  $ 6.3     $ 42.4  
 
Restructuring Charges
  $ 23.1     $ 47.6  
          The Company does not expect to incur any material costs in connection with its existing restructuring plans for Fiscal 2012.
          Operating Income
          The following table sets forth the operating income (loss) by reportable segment of the Company for Fiscal 2011 and Fiscal 2010.
                         
    Fiscal     Fiscal     % (Decrease)
    2011     2010     Increase
(in millions)                        
CWNA
  $ 631.0     $ 638.0       (1 )%
CWAE
    9.3       16.9       (45 )%
Corporate Operations and Other
    (106.6 )     (94.7 )     (13 )%
Crown Imports
    453.0       444.1       2  %
Consolidations and eliminations
    (453.0 )     (444.1 )     (2 )%
 
                   
Total Reportable Segments
    533.7       560.2       (5 )%
Restructuring Charges and Unusual Items
    (31.2 )     (248.7 )    
NM
 
                   
Consolidated Operating Income
  $ 502.5     $ 311.5       61  %
 
                   
 
    NM = Not Meaningful

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          As a result of the factors discussed above, consolidated operating income increased to $502.5 million for Fiscal 2011 from $311.5 million for Fiscal 2010, an increase of $191.0 million, or 61%. Restructuring charges and unusual items of $31.2 million and $248.7 million for Fiscal 2011 and Fiscal 2010, respectively, consist of certain amounts that are excluded by management in their evaluation of the results of each operating segment. These amounts include:
                 
    Fiscal   Fiscal
    2011   2010
(in millions)                
Cost of Product Sold
               
Flow through of inventory step-up
  $ 2.4     $ 8.4  
Accelerated depreciation
    2.2       17.7  
Inventory write-downs
        1.6  
Other
    0.1       4.7  
 
           
Cost of Product Sold
    4.7       32.4  
 
Selling, General and Administrative Expenses
               
Net gains on the CWAE Divestiture and related activities
    (83.7 )    
Net gain on sale of nonstrategic assets/business
    (3.3 )     (11.2 )
Loss on contractual obligation from put option of Ruffino shareholder
    60.0       34.3  
Acquisition-related integration costs
    0.5       0.2  
Net gain on March 2009 sale of value spirits business
        (0.2 )
Other costs
    6.3       42.4  
 
           
Selling, General and Administrative Expenses
    (20.2 )     65.5  
 
Impairment of Intangible Assets
    23.6       103.2  
 
Restructuring Charges
    23.1       47.6  
 
           
 
Restructuring Charges and Unusual Items
  $ 31.2     $ 248.7  
 
           
          Equity in Earnings of Equity Method Investees
          The Company’s equity in earnings of equity method investees increased to $243.8 million for Fiscal 2011 from $213.6 million for Fiscal 2010, an increase of $30.2 million, or 14%. This increase is primarily due to the Company’s Fiscal 2010 recognition of an impairment of $25.4 million related to its CWNA segment’s investment in Ruffino and higher Fiscal 2011 equity in earnings of $4.2 million from the Company’s Crown Imports joint venture. The Fiscal 2010 impairment resulted from the Company’s third quarter review of its equity method investments for other-than-temporary impairment. As a result of this review, the Company determined that the CWNA segment’s investment in Ruffino was impaired primarily due to a decline in revenue and profit forecasts for this international equity method investee combined with an unfavorable foreign exchange movement between the euro and the U.S. Dollar. Accordingly, the Company recorded an impairment loss of $25.4 million in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations.
          Net sales for Crown Imports increased to $2,392.9 million for Fiscal 2011 from $2,256.2 million for Fiscal 2010, an increase of $136.7 million, or 6%. This increase resulted primarily from volume growth within the Crown Imports’ Mexican beer portfolio. Crown Imports’ gross profit increased $32.1 million, or 5%, primarily due to the volume growth, partially offset by a contractual price increase in Mexican beer costs. Selling, general and administrative expenses increased $23.2 million, or 11%, primarily due to an increase in general and administrative expenses driven largely by an unfavorable arbitration panel decision in the third quarter of fiscal 2011 related to a matter with one of Crown Imports’ former distributors, and a planned increase in advertising spend. Operating income increased $8.9 million, or 2%, primarily due to these factors.

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          Interest Expense, Net
          Interest expense, net of interest income of $3.5 million and $10.4 million, for Fiscal 2011 and Fiscal 2010, respectively, decreased to $195.3 million for Fiscal 2011 from $265.1 million for Fiscal 2010, a decrease of $69.8 million, or (26%). The decrease resulted from lower average interest rates for the Company combined with reduced average borrowings for Fiscal 2011.
          Provision for Income Taxes
          The Company’s effective tax rate for Fiscal 2011 and Fiscal 2010 is (1.5%) and 61.7%, respectively. The Company’s effective tax rate for Fiscal 2011 of (1.5%) was driven largely by a benefit of $207.0 million associated with the deduction for investments and loans related to the CWAE Divestiture and a decrease in uncertain tax positions of $36.0 million in connection with the completion of various income tax examinations and the expiration of statutes of limitation during Fiscal 2011, partially offset by the recognition of valuation allowances against net operating losses in the U.K. and Australia. The Company’s effective tax rate for Fiscal 2010 of 61.7% was driven largely by (i) a nondeductible portion of the impairment loss related to certain trademarks of $93.7 million, (ii) the recognition of nondeductible charges of $59.7 million related to the Company’s Ruffino investment and (iii) $37.5 million of taxes associated with the sale of the value spirits business, primarily related to the write-off of nondeductible goodwill; partially offset by a decrease in uncertain tax positions of $33.0 million in connection with the completion of various income tax examinations during Fiscal 2010.
          Net Income
          As a result of the above factors, net income increased to $559.5 million for Fiscal 2011 from $99.3 million for Fiscal 2010, an increase of $460.2 million.
Fiscal 2010 Compared to Fiscal 2009
          Net Sales
          The following table sets forth the net sales by reportable segment of the Company for Fiscal 2010 and Fiscal 2009.
                         
    Fiscal     Fiscal     % (Decrease)
    2010     2009     Increase
(in millions)                        
CWNA net sales
  $ 2,434.7     $ 2,703.4       (10 )%
CWAE net sales
    930.1       951.2       (2 )%
Crown Imports net sales
    2,256.2       2,395.4       (6 )%
Consolidations and eliminations
    (2,256.2 )     (2,395.4 )     6  %
 
                   
Consolidated Net Sales
  $ 3,364.8     $ 3,654.6       (8 )%
 
                   
          Net sales for Fiscal 2010 decreased to $3,364.8 million from $3,654.6 million for Fiscal 2009, a decrease of $289.8 million, or (8%). This decrease resulted primarily from decreases in spirits net sales and U.S. base branded wine net sales of $195.2 million and $70.7 million, respectively, and an unfavorable year-over-year foreign currency translation impact of $66.8 million, partially offset by growth of U.K. branded wine net sales of $35.2 million (on a constant currency basis).

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          Constellation Wines North America
          Net sales for CWNA decreased to $2,434.7 million for Fiscal 2010 from $2,703.4 million for Fiscal 2009, a decrease of $268.7 million, or (10%). This decrease resulted primarily from decreases in spirits net sales of $195.2 million and U.S. base branded wine net sales of $70.7 million. The decrease in spirits net sales was due to a decrease of $230.0 million in connection with the divestitures of the value spirits business and a Canadian distilling facility, partially offset by growth within the retained spirits business driven largely by volume growth of SVEDKA Vodka. The decrease in the U.S. base branded wine net sales was due primarily to the Company’s fourth quarter of fiscal 2010 strategic decision to assist U.S. distributors in reducing their higher than average inventory levels. The higher inventory levels resulted primarily from a planned build in inventory levels during the second quarter of fiscal 2010 in advance of the September 1, 2009, U.S. distributor transition program. These actions had the planned effect of moving a portion of third quarter of fiscal 2010 sales into the second quarter of fiscal 2010. However, during the third quarter of fiscal 2010, distributor depletions were not as strong as expected. As a result, U.S. distributor inventory levels were higher than expected at the end of the third quarter of fiscal 2010. As such, the Company, in collaboration with certain of its newly contracted U.S. distributors, did not require these distributors to purchase the original contracted amount during the fourth quarter of fiscal 2010. The Company estimated that this decision unfavorably impacted the U.S. branded wine net sales by approximately $60 to $70 million.
          Constellation Wines Australia and Europe
          Net sales for CWAE decreased to $930.1 million for Fiscal 2010 from $951.2 million for Fiscal 2009, a decrease of $21.1 million, or (2%). This decrease was driven primarily by an unfavorable year-over-year foreign currency translation impact of $61.4 million, partially offset by $35.2 million of U.K. base branded wine growth on a constant currency basis. This increase was due primarily to volume growth of lower priced products.
          Crown Imports
          As this segment is eliminated in consolidation, see “Equity in Earnings of Equity Method Investees” below for a discussion of Crown Imports’ net sales, gross profit, selling, general and administrative expenses, and operating income.
          Gross Profit
          The Company’s gross profit decreased to $1,144.8 million for Fiscal 2010 from $1,230.0 million for Fiscal 2009, a decrease of $85.2 million, or (7%). This decrease was due to a decrease in CWNA’s gross profit of $122.0 million and CWAE’s gross profit of $58.1 million, partially offset by a decrease in unusual items, which consist of certain amounts that are excluded by management in their evaluation of the results of each operating segment, of $94.9 million. The decrease in CWNA’s gross profit was primarily due to the divestitures of certain lower margin businesses, primarily the value spirits business, of $76.6 million, and a decrease in the U.S. base branded wine portfolio of $35.8 million. The decrease in the U.S. base branded wine gross profit was largely due to the lower net sales to certain U.S. distributors. The decrease in CWAE’s gross profit was primarily due to the flow through of higher Australian calendar 2008 harvest costs and an unfavorable mix of sales towards lower margin products. The lower unusual items was primarily due to a decrease in inventory write-downs of $92.2 million in Fiscal 2010 compared to Fiscal 2009 due largely to (i) inventory write-downs of $53.9 million recorded in Fiscal 2009 in connection with the Company’s Australian Initiative and (ii) a loss of $37.0 million on the adjustment of certain inventory, primarily Australian, related to prior years.

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          Gross profit as a percent of net sales increased to 34.0% for Fiscal 2010 from 33.7% for Fiscal 2009 primarily due to the lower unusual items, partially offset by the decrease in CWAE’s gross profit resulting primarily from the flow through of higher Australian calendar 2008 harvest costs and the unfavorable mix of sales towards lower margin products.
          Selling, General and Administrative Expenses
          Selling, general and administrative expenses decreased to $682.5 million for Fiscal 2010 from $832.0 million for Fiscal 2009, a decrease of $149.5 million, or (18%). This decrease was due to decreases in the CWNA segment of $115.7 million, the CWAE segment of $27.9 million and unusual items, which consist of certain amounts that are excluded by management in their evaluation of the results of each operating segment, of $13.8 million, partially offset by an increase in the Corporate Operations and Other segment of $7.9 million. The decrease in CWNA’s selling, general and administrative expenses was primarily due to decreases (on a constant currency basis) in general and administrative expenses of $51.4 million, selling expenses of $37.6 million and advertising expenses of $25.2 million. These decreases are largely attributable to (i) the divestitures of certain lower margin value businesses, primarily the value spirits business; (ii) cost savings in connection with the Company’s various restructuring activities; (iii) planned reductions in marketing and advertising spend; and (iv) an overlap of prior year losses on foreign currency transactions. The decrease in CWAE’s selling, general and administrative expenses was primarily due to decreases (on a constant currency basis) in advertising expenses of $12.5 million and selling expenses of $3.6 million, combined with a favorable year-over-year foreign currency translation impact of $10.4 million. These decreases are due largely to planned reductions in marketing and advertising spend and cost savings in connection with the Company’s various restructuring activities. The decrease in unusual items consists of the following:
                         
    Fiscal     Fiscal     (Decrease)  
    2010     2009     Increase  
(in millions)                        
Loss on contractual obligation from put option of Ruffino shareholder
  $ 34.3     $     $ 34.3  
(Gain) loss on sale of nonstrategic business/assets
    (11.2 )     8.1       (19.3 )
Net (gain) loss on March 2009 sale of value spirits business
    (0.2 )     15.6       (15.8 )
Acquisition-related integration costs
    0.2       8.2       (8.0 )
Loss on sale of Pacific Northwest Business
          23.2       (23.2 )
Other costs
    42.4       24.2       18.2  
 
                 
 
  $ 65.5     $ 79.3     $ (13.8 )
 
                 
          The increase in other costs above is due largely to $34.9 million of other costs recognized in Fiscal 2010 in connection with the Company’s Global Initiative plan compared to $16.0 million of other costs recognized in Fiscal 2009 in connection with the Company’s plan (announced in August 2006) to invest in new distribution and bottling facilities in the U.K. and to streamline certain Australian wine operations (collectively, the “Fiscal 2007 Wine Plan”). The increase in the Corporate Operations and Other segment’s selling, general and administrative expenses was due to an increase in general and administrative expenses resulting primarily from Project Fusion.
          Selling, general and administrative expenses as a percent of net sales decreased to 20.3% for Fiscal 2010 as compared to 22.8% for Fiscal 2009 primarily due to cost savings in connection with the Company’s various restructuring activities, the planned reductions in marketing and advertising spend and the overlap of prior year losses on foreign currency transactions.

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          Impairment of Goodwill and Intangible Assets
          During Fiscal 2010, the Company recorded impairment losses of $103.2 million, consisting of impairment of certain trademarks related primarily to its CWAE segment’s Australian reporting unit. During Fiscal 2009, the Company recorded impairment losses of $300.4 million, consisting of impairments of goodwill and certain trademarks of $252.8 million and $47.6 million, respectively, related primarily to its CWAE segment’s U.K. reporting unit.
          Restructuring Charges
          The Company recorded $47.6 million of restructuring charges for Fiscal 2010 associated primarily with the Company’s Global Initiative and Australian Initiative. Restructuring charges included $25.0 million of employee termination benefit costs, $13.4 million of impairment charges on assets sold or held for sale in Australia, $7.6 million of contract termination costs and $1.6 million of facility consolidation/relocation costs. The Company recorded $68.0 million of restructuring charges for Fiscal 2009 associated primarily with the Company’s Australian Initiative.
          In addition, the Company incurred additional costs for Fiscal 2010 and Fiscal 2009 in connection with the Company’s restructuring and acquisition-related integration plans. Total costs incurred in connection with these plans for Fiscal 2010 and Fiscal 2009 are as follows:
                 
    Fiscal     Fiscal  
    2010     2009  
(in millions)                
Cost of Product Sold
               
Accelerated depreciation
  $ 17.7     $ 11.2  
Inventory write-downs
  $ 1.6     $ 56.8  
Other
  $ 4.7     $  
 
Selling, General and Administrative Expenses
               
Acquisition-related integration costs
  $ 0.2     $ 8.2  
Other costs
  $ 42.4     $ 24.2  
 
Impairment of Intangible Assets
  $     $ 22.2  
 
Restructuring Charges
  $ 47.6     $ 68.0  
          Operating Income
          The following table sets forth the operating income (loss) by reportable segment of the Company for Fiscal 2010 and Fiscal 2009.
                         
    Fiscal     Fiscal     % (Decrease)
    2010     2009     Increase
(in millions)                        
CWNA
  $ 638.0     $ 644.3       (1 )%
CWAE
    16.9       47.1       (64 )%
Corporate Operations and Other
    (94.7 )     (86.8 )     (9 )%
Crown Imports
    444.1       504.1       (12 )%
Consolidations and eliminations
    (444.1 )     (504.1 )     12  %
 
                   
Total Reportable Segments
    560.2       604.6       (7 )%
Restructuring Charges and Unusual Items
    (248.7 )     (575.0 )    
NM
 
                   
Consolidated Operating Income
  $ 311.5     $ 29.6      
NM
 
                   

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          As a result of the factors discussed above, consolidated operating income increased to $311.5 million for Fiscal 2010 from $29.6 million for Fiscal 2009, an increase of $281.9 million. Restructuring charges and unusual items of $248.7 million and $575.0 million for Fiscal 2010 and Fiscal 2009, respectively, consist of certain costs that are excluded by management in their evaluation of the results of each operating segment. These costs include:
                 
    Fiscal     Fiscal  
    2010     2009  
(in millions)                
Cost of Product Sold
               
Accelerated depreciation
  $ 17.7     $ 11.2  
Flow through of inventory step-up
    8.4       22.2  
Inventory write-downs
    1.6       56.8  
Other
    4.7       37.1  
 
           
Cost of Product Sold
    32.4       127.3  
 
Selling, General and Administrative Expenses
               
Loss on contractual obligation from put option of Ruffino shareholder
    34.3        
(Gain) loss on sale of nonstrategic business/assets
    (11.2 )     8.1  
Net (gain) loss on March 2009 sale of value spirits business
    (0.2 )     15.6  
Acquisition-related integration costs
    0.2       8.2  
Loss on sale of Pacific Northwest Business
          23.2  
Other costs
    42.4       24.2  
 
           
Selling, General and Administrative Expenses
    65.5       79.3  
 
Impairment of Goodwill and Intangible Assets
    103.2       300.4  
 
Restructuring Charges
    47.6       68.0  
 
           
 
Restructuring Charges and Unusual Items
  $ 248.7     $ 575.0  
 
           
          Equity in Earnings of Equity Method Investees
          The Company’s equity in earnings of equity method investees increased to $213.6 million for Fiscal 2010 from $186.6 million for Fiscal 2009, an increase of $27.0 million, or 14%. This increase was primarily due to the recognition of a $25.4 million impairment loss recognized in Fiscal 2010 related to the Company’s CWNA segment’s international equity method investment in Ruffino as compared to $83.3 million of impairment losses recognized in Fiscal 2009 related primarily to Ruffino ($48.6 million) and the Company’s CWAE segment’s international equity method investment in the U.K. wholesale business, Matthew Clark ($30.1 million). The increase in equity in earnings of equity method investees from lower impairment losses in Fiscal 2010 was partially offset by a decrease of $30.4 million in equity in earnings from the Company’s Crown Imports joint venture.
          Net sales for Crown Imports decreased to $2,256.2 million for Fiscal 2010 from $2,395.4 million for Fiscal 2009, a decrease of $139.2 million, or (6%). This decrease resulted primarily from lower volumes within the Crown Imports Mexican beer portfolio. Crown Imports gross profit decreased $59.0 million, or (8%), primarily due to these lower sales volumes and a contractual price increase in Mexican beer costs. Selling, general and administrative expenses increased $1.0 million, primarily due to an increase in selling expenses as increased advertising spend by Crown Imports in connection with certain Fiscal 2010 national media programs was offset by contributions from the brand owner for this increased advertising spend in Fiscal 2010. Operating income decreased $60.0 million, or (12%), primarily due to these factors.

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          Interest Expense, Net
          Interest expense, net of interest income of $10.4 million and $3.8 million, for Fiscal 2010 and Fiscal 2009, respectively, decreased to $265.1 million for Fiscal 2010 from $323.0 million for Fiscal 2009, a decrease of $57.9 million, or (18%). This decrease was primarily due to lower average borrowings for Fiscal 2010 resulting predominantly from the repayment of a portion of the Company’s outstanding borrowings using the proceeds from the sale of the value spirits business and the U.K. cider business.
          Provision for Income Taxes
          The Company’s effective tax rate for Fiscal 2010 of 61.7% was driven largely by (i) a nondeductible portion of the impairment loss related to certain trademarks of $93.7 million, (ii) the recognition of nondeductible charges of $59.7 million related to the Company’s Ruffino investment; and (iii) $37.5 million of taxes associated with the sale of the value spirits business, primarily related to the write-off of nondeductible goodwill; partially offset by a decrease in uncertain tax positions of $33.0 million in connection with the completion of various income tax examinations during Fiscal 2010. The Company’s effective tax rate for Fiscal 2009 of (182.2%) was impacted primarily by (i) a nondeductible portion of the impairment losses related to goodwill, equity method investments and certain trademarks of $268.8 million, $83.3 million and $23.6 million, respectively; (ii) the recognition of a valuation allowance of $67.4 million against net operating losses primarily in Australia resulting largely from the Australian Initiative; and (iii) the recognition of income tax expense in connection with the gain on settlement of certain foreign currency economic hedges.
          Net Income (Loss)
          As a result of the above factors, net income increased to $99.3 million for Fiscal 2010 from a net loss of $301.4 million for Fiscal 2009, or $400.7 million.
Financial Liquidity and Capital Resources
General
          The Company’s principal use of cash in its operating activities is for purchasing and carrying inventories and carrying seasonal accounts receivable. The Company’s primary source of liquidity has historically been cash flow from operations, except during annual grape harvests when the Company has relied on short-term borrowings. In the U.S. and Canada, the annual grape crush normally begins in August and runs through October. In New Zealand, the annual grape crush normally begins in February and runs through May. The Company generally begins taking delivery of grapes at the beginning of the crush season with the majority of payments for such grapes coming due within 90 days. The Company’s short-term borrowings to support such purchases generally reach their highest levels one to two months after the crush season has ended. Historically, the Company has used cash flow from operating activities to repay its short-term borrowings and fund capital expenditures. The Company will continue to use its short-term borrowings to support its working capital requirements.

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          The Company has maintained adequate liquidity to meet current working capital requirements, fund capital expenditures and repay scheduled principal and interest payments on debt. Absent deterioration of market conditions, the Company believes that cash flows from operating activities and its financing activities, primarily short-term borrowings, will provide adequate resources to satisfy its working capital, scheduled principal and interest payments on debt, and anticipated capital expenditure requirements for both its short-term and long-term capital needs.
          As of April 19, 2011, the Company had $595.4 million in revolving loans available to be drawn under its 2006 Credit Agreement (as defined below). The member financial institutions participating in the Company’s 2006 Credit Agreement have complied with prior funding requests and the Company believes the member financial institutions will comply with ongoing funding requests. However, there can be no assurances that any particular financial institution will continue to do so in the future.
Fiscal 2011 Cash Flows
          Operating Activities
          Net cash provided by operating activities for Fiscal 2011 was $619.3 million, which resulted primarily from net income of $559.5 million, plus $255.7 million of net noncash items charged to the Consolidated Statements of Operations, partially offset by net cash used in the net change in the Company’s operating assets and liabilities of $161.0 million.
          The net noncash items consisted primarily of depreciation expense, loss on settlement of pension obligations associated with the CWAE Divestiture, deferred tax provision, loss on contractual obligation from put option of Ruffino shareholder and stock-based compensation expense, partially offset by the net gain on business sold associated with the CWAE Divestiture. The net cash used in the net change in the Company’s operating assets and liabilities is driven primarily by decreases in other accrued expenses and liabilities of $168.6 million and accounts payable of $82.5 million combined with an increase in accounts receivable, net, of $86.0 million, partially offset by a decrease in inventories of $190.8 million. The decrease in other accrued expenses and liabilities is due largely to the recognition of income tax benefits in connection with the CWAE Divestiture. The decrease in accounts payable is due primarily to lower grape grower payables in Australia as a result of the timing of the January 2011 CWAE Divestiture in advance of the calendar 2011 Australian grape harvest and the timing of payments in the U.K. (through January 31, 2011). The increase in accounts receivable, net is due primarily to the net sales volume growth in the U.S. branded wine portfolio. The decrease in inventories is due largely to decreases in Australian, U.S. and New Zealand inventory levels. The reduction in Australian inventory levels is primarily due to a later calendar 2011 grape harvest combined with the January 2011 CWAE Divestiture. The decrease in the U.S. inventory levels is primarily due to the flow through of higher 2008 U.S. calendar grape costs combined with the net sales volume growth during the fourth quarter of fiscal 2011 in the U.S. branded wine portfolio. The reduction in New Zealand inventory levels is primarily due to lower tonnage and grape costs associated with the calendar 2011 grape harvest.
          Investing Activities
          Net cash provided by investing activities for Fiscal 2011 was $188.1 million, which resulted primarily from proceeds from the sale of businesses, net of cash divested, of $219.7 million driven primarily by the proceeds from the CWAE Divestiture, net of direct costs to sell, and proceeds from the note receivable received in connection with the divestiture of the value spirits business of $60.0 million, partially offset by capital expenditures of $89.1 million and a payment in connection with the settlement of the irrevocable and unconditional put option of the incremental 9.9% ownership interest associated with the Company’s equity method investment, Ruffino, of $29.6 million.

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          Financing Activities
          Net cash used in financing activities for Fiscal 2011 was $845.7 million resulting primarily from principal payments of long-term debt of $328.5 million, purchases of treasury stock through the ASB transaction (as defined below) of $300.0 million and net repayment of notes payable of $289.7 million, partially offset by proceeds from exercise of employee stock options of $61.0 million.
Fiscal 2010 Cash Flows
          Operating Activities
          Net cash provided by operating activities for Fiscal 2010 was $402.5 million, which resulted primarily from net income of $99.3 million, plus $312.0 million of net noncash items charged to the Consolidated Statements of Operations and $47.1 million of other, net, less $55.9 million representing the net change in the Company’s operating assets and liabilities.
          The net noncash items consisted primarily of depreciation expense, impairment of goodwill and intangible assets, stock-based compensation expense and loss on the contractual obligation from the put option of a Ruffino shareholder. Other, net, consists primarily of cash proceeds from the settlement of certain derivative instruments designated to hedge foreign currency risk associated with certain foreign currency denominated transactions. The net change in operating assets and liabilities resulted primarily from a decrease in other accrued expenses and liabilities of $110.6 million and a decrease of $42.7 million in accounts payable, partially offset by a decrease in accounts receivable, net, and inventories of $61.9 million and $51.0 million, respectively. The decrease in other accrued expenses and liabilities of $110.6 million is primarily due to higher income tax payments for Fiscal 2010 and lower accrued interest resulting primarily from the timing of interest payments. The decrease in accounts payable of $42.7 million is due largely to lower grape grower payables in Australia associated with the calendar 2010 harvest and the timing of payments in the U.K. business. The decrease in accounts receivable, net, of $61.9 million primarily reflects the impact of the reduced branded wine net sales in the U.S. during the fourth quarter of fiscal 2010 and the liquidation of the accounts receivable balances associated with the January 2010 divestiture of the U.K. cider business. The decrease in inventories of $51.0 million is primarily due to the flow through of the higher calendar 2008 Australian harvest costs in Fiscal 2010, partially offset by an increase in the Company’s U.S. branded wine inventory levels resulting largely from the reduced branded wine net sales in the U.S. during the fourth quarter of fiscal 2010.
          Investing Activities
          Net cash provided by investing activities for Fiscal 2010 was $256.6 million, which resulted primarily from the proceeds of $349.6 million from the divestitures of the value spirits business and the U.K. cider business, both net of direct costs to sell, partially offset by $107.7 million of capital expenditures.
          Financing Activities
          Net cash used in financing activities for Fiscal 2010 was $623.0 million resulting primarily from principal payments of long-term debt of $781.3 million, partially offset by net proceeds from notes payable of $117.1 million and proceeds from maturity of a derivative instrument of $33.2 million.

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Share Repurchase Programs
          In April 2010, the Company’s Board of Directors authorized the repurchase of up to $300.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. During Fiscal 2011, the Company repurchased 17,223,404 shares of Class A Common Stock pursuant to this authorization at an aggregate cost of $300.0 million, or an average cost of $17.42 per share, through a collared accelerated stock buyback (“ASB”) transaction that was announced in April 2010. The Company paid the purchase price under the ASB transaction in April 2010, at which time it received an initial installment of 11,016,451 shares of Class A Common Stock. In May 2010, the Company received an additional installment of 2,785,029 shares of Class A Common Stock in connection with the early termination of the hedge period on May 10, 2010. In November 2010, the Company received the final installment of 3,421,924 shares of Class A Common Stock following the end of the calculation period on November 24, 2010. The Company used revolver borrowings under the 2006 Credit Agreement to pay the purchase price for the repurchased shares. During Fiscal 2011, the Company has used cash flows from operating activities to repay the revolver borrowings under the 2006 Credit Agreement used to pay the purchase price for the repurchased shares. The repurchased shares have become treasury shares.
          In April 2011, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. The Board of Directors did not specify a date upon which this authorization would expire. Share repurchases under this authorization are expected to be accomplished from time to time based on market conditions, the Company’s cash and debt position, and other factors as determined by management. Shares may be repurchased through open market or privately negotiated transactions, and management currently expects that the repurchase under this authorization will be implemented over a multi-year period. The Company may fund share repurchases with cash generated from operations or proceeds of borrowings under its senior credit facility. Any repurchased shares will become treasury shares. As of April 28, 2011, no shares have been repurchased pursuant to this authorization.
Debt
          Total debt outstanding as of February 28, 2011, amounted to $3,236.3 million, a decrease of $599.2 million from February 28, 2010.
          Senior Credit Facility
          2006 Credit Agreement
          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 are parties to a credit agreement, as amended (the “2006 Credit Agreement”). The 2006 Credit Agreement provides for aggregate credit facilities of $3,842.0 million, consisting of (i) a $1,200.0 million tranche A term loan facility with an original final maturity in June 2011, fully repaid as of February 28, 2011 (the “Tranche A Term Loans”), (ii) a $1,800.0 million tranche B term loan facility, of which $1,500.0 million has a final maturity in June 2013 (the “2013 Tranche B Term Loans”) and $300.0 million has a final maturity in June 2015 (the “2015 Tranche B Term Loans”), and (iii) an $842.0 million revolving credit facility (including a sub-facility for letters of credit of up to $200 million), of which $192.0 million terminates in June 2011 (the “2011 Revolving Facility”) and $650.0 million terminates in June 2013 (the “2013 Revolving Facility”). The Company uses its revolving credit facility under the 2006 Credit Agreement for general corporate purposes.

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          As of February 28, 2011, the required principal repayments of the tranche B term loan facility for each of the five succeeding fiscal years and thereafter are as follows:
         
    Tranche B  
    Term Loan  
    Facility  
(in millions)        
2012
  $ 5.6  
2013
    466.4  
2014
    465.1  
2015
    146.2  
2016
    144.7  
Thereafter
     
 
     
 
  $ 1,228.0  
 
     
          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) with respect to the 2011 Revolving Facility and the 2013 Revolving Facility, and is fixed with respect to the 2013 Tranche B Term Loans and the 2015 Tranche B Term Loans. As of February 28, 2011, the LIBOR margin for the 2011 Revolving Facility is 1.25%; the LIBOR margin for the 2013 Revolving Facility is 2.50%; the LIBOR margin for the 2013 Tranche B Term Loans is 1.50%; and the LIBOR margin on the 2015 Tranche B Term Loans is 2.75%.
          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, the 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 maintaining a maximum total debt coverage ratio and minimum interest coverage ratio.
          As of February 28, 2011, under the 2006 Credit Agreement, the Company had outstanding 2013 Tranche B Term Loans of $928.0 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $300.0 million bearing an interest rate of 3.1%, 2011 Revolving Facility of $7.5 million bearing an interest rate of 3.5%, 2013 Revolving Facility of $67.4 million bearing an interest rate of 3.1%, outstanding letters of credit of $13.9 million, and $753.2 million in revolving loans available to be drawn.
          As of April 19, 2011, following a $300.0 million prepayment of the tranche B term loan facility in March 2011, under the 2006 Credit Agreement, the Company had outstanding 2013 Tranche B Term Loans of $700.2 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $226.4 million bearing an interest rate 3.0%, 2011 Revolving Facility of $43.3 million bearing an interest rate of 1.5%, 2013 Revolving Facility of $189.4 million bearing an interest rate of 2.6%, outstanding letters of credit of $13.9 million, and $595.4 million in revolving loans available to be drawn.

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          Through February 28, 2010, the Company had outstanding interest rate swap agreements which were designated as cash flow hedges of $1,200.0 million of the Company’s floating LIBOR rate debt. The designated cash flow hedges fixed the Company’s interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt through February 28, 2010. In addition, the Company had offsetting undesignated interest rate swap agreements with an absolute notional amount of $2,400.0 million outstanding as of February 28, 2010. On March 1, 2010, the Company paid $11.9 million in connection with the maturity of these outstanding interest rate swap agreements, which is reported in other, net in cash flows from operating activities in the Company’s Consolidated Statements of Cash Flows. In June 2010, the Company entered into a new five year delayed start interest rate swap agreement effective September 1, 2011, which was designated as a cash flow hedge for $500.0 million of the Company’s floating LIBOR rate debt. Accordingly, the Company fixed its interest rates on $500.0 million of the Company’s floating LIBOR rate debt at an average rate of 2.9% (exclusive of borrowing margins) through September 1, 2016. For Fiscal 2011, the Company did not reclassify any amount from Accumulated Other Comprehensive Income (“AOCI”) to interest expense, net on its Consolidated Statements of Operations. For Fiscal 2010 and Fiscal 2009, the Company reclassified net losses of $27.7 million and $12.6 million, respectively, net of income tax effect, from AOCI to interest expense, net on the Company’s Consolidated Statements of Operations.
          Senior Notes
          In November 1999, the Company issued £75.0 million ($121.7 million upon issuance) aggregate principal amount of 8 1/2% Senior Notes due November 2009 (the “Sterling Senior Notes”). In March 2000, the Company exchanged £75.0 million aggregate principal amount of 8 1/2% Series B Senior Notes due November 2009 (the “Sterling Series B Senior Notes”) for all of the Sterling Senior Notes. In October 2000, the Company exchanged £74.0 million aggregate principal amount of Sterling Series C Senior Notes (as defined below) for £74.0 million of the Sterling Series B Senior Notes. On May 15, 2000, the Company issued £80.0 million ($120.0 million upon issuance) aggregate principal amount of 8 1/2% Series C Senior Notes due November 2009 (the “Sterling Series C Senior Notes”). In November 2009, the Company repaid the Sterling Series B Senior Notes and the Sterling Series C Senior Notes with proceeds from the Company’s revolving credit facility under its then existing senior credit facility and cash flows from operating activities.
          In February 2009, the Company entered into a foreign currency forward contract to fix the U.S. dollar payment of the Sterling Series B Senior Notes and Sterling Series C Senior Notes. In accordance with the Financial Accounting Standards Board (“FASB”) guidance for derivatives and hedging, this foreign currency forward contract qualified for cash flow hedge accounting treatment. In November 2009, the Company received $33.2 million of proceeds from the maturity of this derivative instrument. This amount is reported in cash flows from financing activities on the Company’s Consolidated Statements of Cash Flows for Fiscal 2010.
          As of February 28, 2011, the Company had outstanding $695.6 million (net of $4.4 million unamortized discount) aggregate principal amount of 7 1/4% Senior Notes due September 2016 (the “August 2006 Senior Notes”).

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          In May 2007, the Company issued $700.0 million aggregate principal amount of 7 1/4% Senior Notes due May 2017 (the “Original May 2007 Senior Notes”). The net proceeds of the offering ($693.9 million) were used to reduce a corresponding amount of borrowings under the revolving portion of the Company’s then existing senior credit facility. In January 2008, the Company exchanged $700.0 million aggregate principal amount of 7 1/4% Senior Notes due May 2017 (the “May 2007 Senior Notes”) for all of the Original May 2007 Senior Notes. The terms of the May 2007 Senior Notes are substantially identical in all material respects to the Original May 2007 Senior Notes, except that the May 2007 Senior Notes are registered under the Securities Act of 1933, as amended. As of February 28, 2011, the Company had outstanding $700.0 million aggregate principal amount of May 2007 Senior Notes.
          In December 2007, the Company issued $500.0 million aggregate principal amount of 8 3/8% Senior Notes due December 2014 at an issuance price of $496.7 million (net of $3.3 million unamortized discount, with an effective interest rate of 8.5%) (the “December 2007 Senior Notes”). The net proceeds of the offering ($492.2 million) were used to fund a portion of the purchase price of BWE. As of February 28, 2011, the Company had outstanding $498.0 million (net of $2.0 million unamortized discount) aggregate principal amount of December 2007 Senior Notes.
          The senior notes described above 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 plus a make whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 50 basis points. The 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 U.S. operating subsidiaries guarantee the senior notes, on a senior unsecured basis.
          Senior Subordinated Notes
          In January 2002, the Company issued $250.0 million aggregate principal amount of 8 1/8% Senior Subordinated Notes due January 2012 (the “January 2002 Senior Subordinated Notes”). On February 25, 2010, the Company repaid the January 2002 Senior Subordinated Notes with proceeds from its revolving credit facility under the 2006 Credit Agreement and cash flows from operating activities.
          Indentures
          The Company’s indentures under which its outstanding senior notes were issued contain customary covenants, requirements and restrictions, the breach of which could result in an acceleration of the Company’s obligation to repay the senior notes.
          Subsidiary Credit Facilities
          The Company has additional credit arrangements totaling $154.2 million as of February 28, 2011. These arrangements primarily support the financing needs of the Company’s domestic and foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions. As of February 28, 2011, amounts outstanding under these arrangements were $39.8 million.

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Contractual Obligations and Commitments
          The following table sets forth information about the Company’s long-term contractual obligations outstanding at February 28, 2011. The table brings together data for easy reference from the consolidated balance sheet and from individual notes to the Company’s consolidated financial statements. See Notes 10, 11, 12, 13, 14, and 15 to the Company’s consolidated financial statements located in Item 8 of this Annual Report on Form 10-K for a detailed discussion of the items noted in the following table.
                                         
    PAYMENTS DUE BY PERIOD  
            Less than                     After  
    Total     1 year     1-3 years     3-5 years     5 years  
(in millions)                                        
Contractual obligations
                                       
Notes payable to banks
  $ 83.7     $ 83.7     $     $     $  
Interest payments on notes payable to banks(1)
    2.6       2.6                          
Long-term debt (excluding unamortized discount)
    3,159.0       15.9       939.8       796.5       1,406.8  
Interest payments on long-term debt(2)
    971.9       175.4       328.7       242.9       224.9  
Operating leases
    340.2       59.8       76.0       46.1       158.3  
Other long-term liabilities(3)
    141.3       25.5       36.2       10.4       69.2  
Unconditional purchase obligations(4)
    1,401.5       423.0       616.8       256.5       105.2  
 
                             
Total contractual obligations
  $ 6,100.2     $ 785.9     $ 1,997.5     $ 1,352.4     $ 1,964.4  
 
                             
 
(1)   Interest payments on notes payable to banks include interest on both revolving loans under the Company’s senior credit facility and on foreign subsidiary credit facilities. The weighted average interest rate on the revolving loans under the Company’s senior credit facility was 3.2% as of February 28, 2011. Interest rates on foreign subsidiary credit facilities range from 3.0% to 5.9% as of February 28, 2011.
 
(2)   Interest rates on long-term debt obligations range from 2.1% to 8.4% as of February 28, 2011. Interest payments on long-term debt obligations include amounts associated with the Company’s outstanding interest rate swap agreements to fix LIBOR interest rates on $500.0 million of the Company’s floating LIBOR rate debt. Interest payments on long-term debt do not include interest related to capital lease obligations or certain foreign credit arrangements, which represent approximately 1.0% of the Company’s total long-term debt, as amounts are not material.
 
(3)   Other long-term liabilities include $21.5 million associated with expected payments for unrecognized tax benefit liabilities as of February 28, 2011, including $5.3 million in the less than one year period. The payments are reflected in the period in which the Company believes they will ultimately be settled based on the Company’s experience in these matters. Other long-term liabilities do not include payments for unrecognized tax benefit liabilities of $132.9 million due to the uncertainty of the timing of future cash flows associated with these unrecognized tax benefit liabilities. In addition, other long-term liabilities do not include expected payments for interest and penalties associated with unrecognized tax benefit liabilities as amounts are not material. See Note 12 to the Company’s consolidated financial statements located in Item 8 of this Annual Report on Form 10-K for a detailed discussion of these items.
 
(4)   Total unconditional purchase obligations consist of $915.5 million for contracts to purchase grapes over the next fourteen fiscal years, $29.4 million for contracts to purchase bulk wine over the next three fiscal years, $326.5 million for contracts to purchase certain raw materials over the next four fiscal years, and $130.1 million for processing contracts over the next nine fiscal years. See Note 15 to the Company’s consolidated financial statements located in Item 8 of this Annual Report on Form 10-K for a detailed discussion of these items.

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Off-Balance Sheet Arrangements
          The Company does not have any off-balance sheet arrangements that either have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Capital Expenditures
          During Fiscal 2011, the Company incurred $89.1 million for capital expenditures. The Company plans to spend from $85 million to $95 million for capital expenditures in Fiscal 2012. Included within the planned expenditures for Fiscal 2012 are amounts associated with the Company’s Project Fusion. Management reviews the capital expenditure program periodically and modifies it as required to meet current business needs.
Effects of Inflation and Changing Prices
          The Company’s results of operations and financial condition have not been significantly affected by inflation and changing prices. The Company intends to pass along rising costs through increased selling prices, subject to normal competitive conditions. There can be no assurances, however, that the Company will be able to pass along rising costs through increased selling prices. In addition, the Company continues to identify on-going cost savings initiatives.
Critical Accounting Policies
          The Company’s significant accounting policies are more fully described in Note 1 to the Company’s consolidated financial statements located in Item 8 of this Annual Report on Form 10-K. However, certain of the Company’s accounting policies are particularly important to the portrayal of the Company’s financial position and results of operations and require the application of significant judgment by the Company’s management; as a result, they are subject to an inherent degree of uncertainty. In applying those policies, the Company’s management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on the Company’s historical experience, the Company’s observance of trends in the industry, information provided by the Company’s customers and information available from other outside sources, as appropriate. On an ongoing basis, the Company reviews its estimates to ensure that they appropriately reflect changes in the Company’s business. The Company’s critical accounting policies include:
    Inventory valuation. Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analyses and assumptions including, but not limited to, historical usage, future demand and market requirements. Reductions to the carrying value of inventories are recorded in cost of product sold. If the future demand for the Company’s products is less favorable than the Company’s forecasts, then the value of the inventories may be required to be reduced, which could result in material additional expense to the Company and have a material adverse impact on the Company’s financial statements. The Company recognized inventory write-downs to net realizable value of $1.6 million and $56.8 million for Fiscal 2010 and Fiscal 2009, respectively, in connection with certain of the Company’s restructuring plans, primarily the Australian Initative. Inventory write-downs to net realizable value recognized in the ordinary course of business were not material for Fiscal 2011, Fiscal 2010 and Fiscal 2009. Inventories were $1,369.3 million and $1,879.9 million as of February 28, 2011, and February 28, 2010, respectively.

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    Goodwill and other intangible assets. The Company accounts for goodwill and other intangible assets by classifying intangible assets into three categories: (i) intangible assets with definite lives subject to amortization; (ii) intangible assets with indefinite lives not subject to amortization; and (iii) goodwill. For intangible assets with definite lives, impairment testing is required if conditions exist that indicate the carrying value may not be recoverable. For intangible assets with indefinite lives and for goodwill, impairment testing is required at least annually or more frequently if events or circumstances indicate that these assets might be impaired. The Company performs annual impairment tests and re-evaluates the useful lives of other intangible assets with indefinite lives at its annual impairment test measurement date of January 1 or when circumstances arise that indicate a possible impairment might exist. The Company uses a two-step process to evaluate goodwill for impairment. In the first step, the fair value of each reporting unit is compared to the carrying value of the reporting unit, including goodwill. The estimate of fair value of the reporting unit is generally determined on the basis of discounted future cash flows supplemented by the market approach. If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, a second step is performed to determine the amount of the goodwill impairment the Company should record. In the second step, an implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). The resulting implied fair value of the goodwill is compared to the carrying value of goodwill. The amount of impairment charge for goodwill is equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. The Company’s reporting units include the U.S., Canada and New Zealand. In estimating the fair value of the reporting units, management must make assumptions and projections regarding such items as future cash flows, future revenues, future earnings and other factors. The assumptions used in the estimate of fair value are consistent with historical trends and the projections and assumptions that are used in current operating plans. These assumptions reflect management’s estimates of future economic and competitive conditions and are, therefore, subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment loss for these assets. The recording of any resulting impairment loss could have a material adverse impact on the Company’s financial statements.
 
      The most significant assumptions used in the discounted cash flows calculation to determine the fair value of the Company’s reporting units in connection with impairment testing are: (i) the discount rate, (ii) the expected long-term growth rate and (iii) the annual cash flow projections. If the Company used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used annual cash flow projections that were 100 basis points lower in its impairment testing of goodwill, then the changes individually would not have resulted in the carrying value of the respective reporting unit’s net assets, including its goodwill, exceeding its fair value, which would indicate the potential for impairment and the requirement to measure the amount of impairment, if any.

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      In the fourth quarter of fiscal 2011, pursuant to the Company’s accounting policy, the Company performed its annual goodwill impairment analysis. No indication of impairment was noted for any of the Company’s reporting units, as the fair value of each of the Company’s reporting units with goodwill exceeded their carrying value. Based on this analysis, the fair value of the Company’s U.S., New Zealand and Canadian reporting units exceeded their carrying value by approximately 20%, 19% and 18%, respectively. In the fourth quarter of fiscal 2010, as a result of its annual goodwill impairment analysis, the Company concluded that there were no indications of impairment for any of the Company’s reporting units. In the fourth quarter of fiscal 2009, as a result of its annual goodwill impairment analysis, the Company concluded that the carrying value of goodwill assigned to the CWAE segment’s U.K. reporting unit exceeded its implied fair value and recorded an impairment loss of $252.7 million, which is included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. Goodwill was $2,619.8 million and $2,570.6 million as of February 28, 2011, and February 28, 2010, respectively.
 
      The Company’s other intangible assets consist primarily of customer relationships and trademarks obtained through business acquisitions. Customer relationships are amortized over their estimated useful lives. The useful lives of existing trademarks that were determined to be indefinite are not amortized. These trademarks are evaluated for impairment by comparing the carrying value of the trademarks to their estimated fair value. The estimated fair value of trademarks is calculated based on an income approach using the relief from royalty methodology. The estimated fair value of trademarks is generally determined on the basis of discounted cash flows. The estimate of fair value is then compared to the carrying value of each trademark. If the estimated fair value is less than the carrying value of the trademark, then an impairment charge is recorded by the Company to reduce the carrying value of the trademark to its estimated fair value. In estimating the fair value of the trademarks, management must make assumptions and projections regarding such items as future cash flows, future revenues, future earnings and other factors. The assumptions used in the estimate of fair value are consistent with historical trends and the projections and assumptions that are used in current operating plans. These assumptions reflect management’s estimates of future economic and competitive conditions and are, therefore, subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment loss for these assets. The recording of any resulting impairment loss could have a material adverse impact on the Company’s financial statements.
 
      The most significant assumptions used in the discounted cash flows calculation to determine the fair value of intangible assets with indefinite lives in connection with impairment testing are: (i) the discount rate, (ii) the expected long-term growth rate and (iii) the annual cash flow projections. If the Company used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used annual cash flow projections that were 100 basis points lower in its impairment testing of intangible assets with indefinite lives, then each change individually would not have resulted in any non-impaired unit of accounting’s carrying value exceeding its fair value.

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      In the fourth quarter of fiscal 2011, pursuant to the Company’s accounting policy, the Company performed its annual review of indefinite lived intangible assets for impairment. The Company determined that certain trademarks associated with the CWNA segment’s Canadian reporting unit were impaired. As a result of this review, the Company recorded impairment losses of $16.7 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. The Company had previously recorded impairment losses of $6.9 million during its third quarter of fiscal 2011 in connection with the Company’s decision to discontinue certain wine brands within its CWNA segment’s U.S. wine portfolio. In the fourth quarter of fiscal 2010, as a result of its annual review of indefinite lived intangible assets for impairment, the Company determined that certain trademarks associated primarily with the CWAE segment’s Australian reporting unit were impaired. As a result of this review, the Company recorded impairment losses of $103.2 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. In the fourth quarter of fiscal 2009, as a result of its annual review of indefinite lived intangible assets for impairment, the Company determined that certain trademarks associated primarily with the CWAE segment’s U.K. reporting unit were impaired. As a result of this review, the Company recorded impairment losses of $25.9 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. The Company had previously recorded impairment losses of $21.8 million during its second quarter of fiscal 2009 in connection with the Company’s Australian Initiative. Intangible assets with indefinite lives were $822.2 million and $855.7 million as of February 28, 2011, and February 28, 2010, respectively.
 
    Accounting for promotional activities. Sales reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons, and rebates. Certain customer incentive programs require management to estimate the cost of those programs. The accrued liability for these programs is determined through analysis of programs offered, historical trends, expectations regarding customer and consumer participation, sales and payment trends, and experience with payment patterns associated with similar programs that have been offered previously. If assumptions included in the Company’s estimates were to change or market conditions were to change, then material incremental reductions to revenue could be required, which could have a material adverse impact on the Company’s financial statements. Promotional costs were $699.0 million, $749.8 million and $712.1 million for Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. Accrued promotion costs were $52.3 million and $111.4 million as of February 28, 2011, and February 28, 2010, respectively.

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    Accounting for stock-based compensation. The Company adopted the fair value recognition provisions using the modified prospective transition method on March 1, 2006 in accordance with the FASB guidance for compensation – stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation cost is calculated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the award. In addition, this guidance requires additional accounting related to the income tax effects and disclosure regarding the cash flow effects resulting from stock-based payment arrangements. The Company selected the Black-Scholes option-pricing model as the most appropriate fair value method for its awards granted after March 1, 2006. The calculation of fair value of stock-based awards requires the input of assumptions, including the expected term of the stock-based awards and the associated stock price volatility. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, then stock-based compensation expense could be materially different in the future. If the Company used an expected term for its stock-based awards that was one year longer, the fair value of stock-based awards granted during Fiscal 2011, Fiscal 2010, Fiscal 2009 and for the years ended February 29, 2008 (“Fiscal 2008”), and February 28, 2007 (“Fiscal 2007”), would have increased by $27.1 million, resulting in an increase of $5.5 million of stock-based compensation expense for Fiscal 2011. If the Company used an expected term of the stock-based awards that was one year shorter, the fair value of the stock-based awards granted during Fiscal 2011, Fiscal 2010, Fiscal 2009, Fiscal 2008 and Fiscal 2007 would have decreased by $27.4 million, resulting in a decrease of $5.3 million of stock-based compensation expense for Fiscal 2011. The total amount of stock-based compensation recognized for Fiscal 2011 was $47.0 million, of which $43.1 million was expensed for Fiscal 2011 and $3.9 million was capitalized in inventory as of February 28, 2011. The total amount of stock-based compensation recognized for Fiscal 2010 was $56.8 million, of which $51.7 million was expensed for Fiscal 2010 and $5.1 million was capitalized in inventory as of February 28, 2010. The total amount of stock-based compensation recognized for Fiscal 2009 was $47.5 million, of which $42.9 million was expensed for Fiscal 2009 and $4.6 million was capitalized in inventory as of February 28, 2009.

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    Accounting for income taxes. The Company estimates its income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits based upon various factors including, but not limited to, historical pretax operating income, future estimates of pretax operating income, differences between book and tax treatment of items of income and expense and tax planning strategies. The Company is subject to income taxes in the U.S., Canada, New Zealand and other jurisdictions. The Company recognizes its deferred tax assets and liabilities based upon the expected future tax outcome of amounts recognized in the Company’s Consolidated Statements of Operations. If necessary, the Company records a valuation allowance on deferred tax assets if the realization of the asset appears doubtful. The Company believes that all tax positions are fully supported, however the Company records tax liabilities in accordance with the FASB’s guidance for income tax accounting when certain positions are likely to be challenged and may not succeed. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the tax liabilities. In addition, changes in existing tax laws or rates could significantly change the Company’s current estimate of its tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. Changes in current estimates, if significant, could have a material adverse impact on the Company’s financial statements. The annual effective tax rate was (1.5%), 61.7% and (182.2%) for Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively.
 
    Accounting for business combinations. The acquisition of businesses is an important element of the Company’s strategy. Under the acquisition method, the Company is required to record the net assets acquired at the estimated fair value at the date of acquisition. The determination of the fair value of the assets acquired and liabilities assumed requires the Company to make estimates and assumptions that affect the Company’s financial statements. For example, the Company’s acquisitions typically result in the recognition of goodwill and other intangible assets; the value and estimated life of those assets may affect the amount of future period amortization expense for intangible assets with finite lives as well as possible impairment charges that may be incurred. Amortization expense for amortizable intangible assets was $5.5 million, $5.8 million and $6.8 million for Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. Amortizable intangible assets were $64.1 million and $69.3 million as of February 28, 2011, and February 28, 2010, respectively.

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Accounting Guidance Not Yet Adopted
          Fair value measurements and disclosures –
          In January 2010, the FASB issued amended guidance for fair value measurements and disclosures. This guidance requires an entity to (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers, and (ii) present separately information about purchases, sales, issuances and settlements on a gross basis in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). This guidance also clarifies existing disclosures requiring an entity to provide fair value measurement disclosures for each class of assets and liabilities and, for Level 2 or Level 3 fair value measurements, disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Effective March 1, 2010, the Company adopted the additional disclosure requirements and clarifications of existing disclosures of this guidance, except for the disclosures about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The Company is required to adopt those disclosures for its annual and interim periods beginning March 1, 2011. The adoption of the applicable provisions of this guidance on March 1, 2010, did not have a material impact on the Company’s consolidated financial statements. The adoption of the remaining provision of this guidance on March 1, 2011, did not have a material impact on the Company’s consolidated financial statements.
          Intangibles – goodwill and other –
          In December 2010, the FASB issued amended guidance for when to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The amended guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. Any resulting goodwill impairment upon adoption should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. The Company is required to adopt the guidance for its annual and interim periods beginning March 1, 2011. The adoption of this amended guidance on March 1, 2011, did not have a material impact on the Company’s consolidated financial statements.
Item 7A.        Quantitative and Qualitative Disclosures About Market Risk.
          The Company, as a result of its global operating, acquisition and financing activities, is exposed to market risk associated with changes in foreign currency exchange rates and interest rates. To manage the volatility relating to these risks, the Company periodically purchases and/or sells derivative instruments including foreign currency forward and option contracts and interest rate swap agreements. The Company uses derivative instruments solely to reduce the financial impact of these risks and does not use derivative instruments for trading purposes.
          Foreign currency derivative instruments are or may be used to hedge existing foreign currency denominated assets and liabilities, forecasted foreign currency denominated sales/purchases to/from third parties as well as intercompany sales/purchases, intercompany principal and interest payments, and in connection with acquisitions or joint venture investments outside the U.S. As of February 28, 2011, the Company had exposures to foreign currency risk primarily related to the euro, New Zealand dollar and Canadian dollar.

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          As of February 28, 2011, and February 28, 2010, the Company had outstanding foreign currency derivative instruments with a notional value of $326.4 million and $1,020.1 million, respectively. Approximately 47% of the Company’s total exposures were hedged as of February 28, 2011, including most of the Company’s balance sheet exposures and certain of the Company’s forecasted transactional exposures. The estimated fair value of the Company’s foreign currency derivative instruments was a net asset of $11.7 million and $14.6 million as of February 28, 2011, and February 28, 2010, respectively. Using a sensitivity analysis based on estimated fair value of open contracts using forward rates, if the contract base currency had been 10% weaker as of February 28, 2011, and February 28, 2010, the fair value of open foreign currency contracts would have been decreased by $0.4 million and $13.2 million, respectively. Losses or gains from the revaluation or settlement of the related underlying positions would substantially offset such gains or losses on the derivative instruments.
          The fair value of fixed rate debt is subject to interest rate risk, credit risk and foreign currency risk. The estimated fair value of the Company’s total fixed rate debt, including current maturities, was $2,104.0 million and $1,974.3 million as of February 28, 2011, and February 28, 2010, respectively. A hypothetical 1% increase from prevailing interest rates as of February 28, 2011, and February 28, 2010, would have resulted in a decrease in fair value of fixed interest rate long-term debt by $90.3 million and $97.3 million, respectively.
          As of February 28, 2011, and February 28, 2010, the Company had outstanding cash flow designated interest rate swap agreements to minimize interest rate volatility. As of February 28, 2011, the swap agreements fix LIBOR interest rates on $500.0 million of the Company’s floating LIBOR rate debt at an average rate of 2.9% (exclusive of borrowing margins) through September 1, 2016. As of February 28, 2010, the swap agreements 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 February 28, 2010. In addition, as of February 28, 2010, the Company had offsetting outstanding undesignated interest rate swap agreements with an absolute notional value of $2,400.0 million. The Company’s interest rate swap agreements that were outstanding as of February 28, 2010, matured on March 1, 2010. The estimated fair value of the Company’s interest rate swap agreements was a net liability of $4.4 million and $12.0 million as of February 28, 2011, and February 28, 2010, respectively. A hypothetical 1% increase from prevailing interest rates as of February 28, 2011, would have favorably increased the fair value of the interest rate swap agreements by $25.1 million. A hypothetical 1% increase from prevailing interest rates as of February 28, 2010, would not have resulted in a significant change in the fair value of the interest rate swap agreements.
          In addition to the $2,104.0 million and $1,974.3 million estimated fair value of fixed rate debt outstanding as of February 28, 2011, and February 28, 2010, respectively, the Company also had variable rate debt outstanding (primarily LIBOR-based), certain of which includes a fixed margin. As of February 28, 2011, and February 28, 2010, the estimated fair value of the Company’s total variable rate debt, including current maturities was $1,278.0 million and $1,879.2 million, respectively. Using a sensitivity analysis based on a hypothetical 1% increase in prevailing interest rates over a 12-month period, the approximate increase in cash required for interest as of February 28, 2011, and February 28, 2010, is $29.0 million and $19.2 million, respectively.

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Item 8.     Financial Statements and Supplementary Data.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2011
The following information is presented in this Annual Report on Form 10-K:
       
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  63  
  64  
  66  
  68  
  135  

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Constellation Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Constellation Brands, Inc. and subsidiaries (the Company) as of February 28, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended February 28, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Constellation Brands, Inc. and subsidiaries as of February 28, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended February 28, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Constellation Brands, Inc.’s internal control over financial reporting as of February 28, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 29, 2011 expressed an unqualified opinion on the effectiveness of Constellation Brands, Inc.’s internal control over financial reporting.
/s/ KPMG LLP
Rochester, New York
April 29, 2011

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Constellation Brands, Inc.:
We have audited Constellation Brands, Inc.’s (the Company) internal control over financial reporting as of February 28, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Constellation Brands, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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In our opinion, Constellation Brands, Inc. maintained, in all material respects, effective internal control over financial reporting as of February 28, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Constellation Brands, Inc. and subsidiaries as of February 28, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended February 28, 2011, and our report dated April 29, 2011 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Rochester, New York
April 29, 2011

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Management’s Annual Report on Internal Control Over Financial Reporting
Management of Constellation Brands, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining an adequate system of internal control over financial reporting. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.
Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as of February 28, 2011.
The effectiveness of the Company’s internal control over financial reporting has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
                 
    February 28,     February 28,  
    2011     2010  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash investments
  $ 9.2     $ 43.5  
Accounts receivable, net
    417.4       514.7  
Inventories
    1,369.3       1,879.9  
Prepaid expenses and other
    287.1       151.0  
 
           
Total current assets
    2,083.0       2,589.1  
PROPERTY, PLANT AND EQUIPMENT, net
    1,219.6       1,567.2  
GOODWILL
    2,619.8       2,570.6  
INTANGIBLE ASSETS, net
    886.3       925.0  
OTHER ASSETS, net
    358.9       442.4  
 
           
Total assets
  $ 7,167.6     $ 8,094.3  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Notes payable to banks
  $ 83.7     $ 371.2  
Current maturities of long-term debt
    15.9       187.2  
Accounts payable
    129.2       268.8  
Accrued excise taxes
    14.2       43.8  
Other accrued expenses and liabilities
    419.9       501.6  
 
           
Total current liabilities
    662.9       1,372.6  
 
           
LONG-TERM DEBT, less current maturities
    3,136.7       3,277.1  
 
           
DEFERRED INCOME TAXES
    583.1       536.2  
 
           
OTHER LIABILITIES
    233.0       332.1  
 
           
COMMITMENTS AND CONTINGENCIES (NOTE 15)
               
STOCKHOLDERS’ EQUITY:
               
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares; Issued, none at February 28, 2011, and February 28, 2010
    -              -         
Class A Common Stock, $.01 par value-
Authorized, 322,000,000 shares; Issued, 230,290,798 shares at February 28, 2011, and 225,062,547 shares at February 28, 2010
    2.3       2.3  
Class B Convertible Common Stock, $.01 par value-
Authorized, 30,000,000 shares; Issued, 28,617,758 shares at February 28, 2011, and 28,734,637 shares at February 28, 2010
    0.3       0.3  
Class 1 Common Stock, $.01 par value-
Authorized, 25,000,000 shares; Issued, none at February 28, 2011, and February 28, 2010
    -              -         
Additional paid-in capital
    1,602.4       1,493.2  
Retained earnings
    1,662.3       1,102.8  
Accumulated other comprehensive income
    188.8       587.2  
 
           
 
    3,456.1       3,185.8  
 
           
Less: Treasury stock-
               
Class A Common Stock, 42,739,831 shares at February 28, 2011, and 26,549,546 shares at February 28, 2010, at cost
    (902.0 )     (607.3 )
Class B Convertible Common Stock, 5,005,800 shares at February 28, 2011, and February 28, 2010, at cost
    (2.2 )     (2.2 )
 
           
 
    (904.2 )     (609.5 )
 
           
Total stockholders’ equity
    2,551.9       2,576.3  
 
           
Total liabilities and stockholders’ equity
  $ 7,167.6     $ 8,094.3  
 
           
The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
                         
    For the Years Ended  
    February 28,     February 28,     February 28,  
    2011     2010     2009  
SALES
  $ 4,096.7     $ 4,213.0     $ 4,723.0  
Less - excise taxes
    (764.7 )     (848.2 )     (1,068.4 )
 
                 
Net sales
    3,332.0       3,364.8       3,654.6  
COST OF PRODUCT SOLD
    (2,141.9 )     (2,220.0 )     (2,424.6 )
 
                 
Gross profit
    1,190.1       1,144.8       1,230.0  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    (640.9 )     (682.5 )     (832.0 )
IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
    (23.6 )     (103.2 )     (300.4 )
RESTRUCTURING CHARGES
    (23.1 )     (47.6 )     (68.0 )
 
                 
Operating income
    502.5       311.5       29.6  
EQUITY IN EARNINGS OF EQUITY METHOD INVESTEES
    243.8       213.6       186.6  
INTEREST EXPENSE, net
    (195.3 )     (265.1 )     (323.0 )
LOSS ON WRITE-OFF OF FINANCING COSTS
    -                (0.7 )     -           
 
                 
Income (loss) before income taxes
    551.0       259.3       (106.8 )
BENEFIT FROM (PROVISION FOR) INCOME TAXES
    8.5       (160.0 )     (194.6 )
 
                 
NET INCOME (LOSS)
  $ 559.5     $ 99.3     $ (301.4 )
 
                 
 
                       
SHARE DATA:
                       
Earnings (loss) per common share:
                       
Basic - Class A Common Stock
  $ 2.68     $ 0.46     $ (1.40 )
 
                 
Basic - Class B Convertible Common Stock
  $ 2.44     $ 0.41     $ (1.27 )
 
                 
 
                       
Diluted - Class A Common Stock
  $ 2.62     $ 0.45     $ (1.40 )
 
                 
Diluted - Class B Convertible Common Stock
  $ 2.40     $ 0.41     $ (1.27 )
 
                 
 
                       
Weighted average common shares outstanding:
                       
Basic - Class A Common Stock
    187.224       196.095       193.906  
Basic - Class B Convertible Common Stock
    23.686       23.736       23.753  
 
                       
 
                       
Diluted - Class A Common Stock
    213.765       221.210       193.906  
Diluted - Class B Convertible Common Stock
    23.686       23.736       23.753  
The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions, except share data)
                                                         
                                    Accumulated              
                    Additional             Other              
    Common Stock     Paid-in     Retained     Comprehensive     Treasury        
    Class A     Class B     Capital     Earnings     Income (Loss)     Stock     Total  
BALANCE, February 29, 2008
  $ 2.2     $ 0.3     $ 1,344.0     $ 1,306.0     $ 736.0     $ (622.6 )   $ 2,765.9  
Comprehensive loss:
                                                       
Net loss for Fiscal 2009
    -              -              -              (301.4 )     -              -              (301.4 )
Other comprehensive (loss) income, net of income tax effect:
                                                       
Foreign currency translation adjustments
    -              -              -              -              (683.5 )     -              (683.5 )
Unrealized loss on cash flow hedges:
                                                       
Net derivative losses
    -              -              -              -              (16.4 )     -              (16.4 )
Reclassification adjustments
    -              -              -              -              0.8       -              0.8  
 
                                                     
Net loss recognized in other comprehensive income
                                                    (15.6 )
 
                                                     
Pension/postretirement:
                                                       
Net actuarial gains
    -              -              -              -              44.3       -              44.3  
Reclassification adjustments
    -              -              -              -              12.0       -              12.0  
 
                                                     
Net gain recognized in other comprehensive income
                                                    56.3  
 
                                                     
Other comprehensive loss, net of income tax effect
                                                    (642.8 )
 
                                                     
Comprehensive loss
                                                    (944.2 )
Adjustments to apply change in measurement date provision of compensation - retirement benefits, net of income tax effect
    -              -              -              (1.1 )     1.0       -              (0.1 )
Conversion of 33,660 Class B Convertible Common shares to Class A Common shares
    -              -              -              -              -              -              -         
Exercise of 2,254,660 Class A stock options
    -              -              27.1       -              -              -              27.1  
Employee stock purchases of 376,297 treasury shares
    -              -              3.6       -              -              2.0       5.6  
Grant of 460,036 Class A Common shares - restricted stock awards
    -              -              (2.4 )     -              -              2.4       -         
Stock-based employee compensation
    -              -              47.5       -              -              -              47.5  
Tax benefit on stock-based employee compensation awards
    -              -              6.5       -              -              -              6.5  
 
                                         
BALANCE, February 28, 2009
  $ 2.2     $ 0.3     $ 1,426.3     $ 1,003.5     $ 94.2     $ (618.2 )   $ 1,908.3  
Comprehensive income:
                                                       
Net income for Fiscal 2010
    -              -              -              99.3       -              -              99.3  
Other comprehensive income (loss), net of income tax effect:
                                                       
Foreign currency translation adjustments
    -              -              -              -              497.5       -              497.5  
Unrealized gain on cash flow hedges:
                                                       
Net derivative gains
    -              -              -              -              60.2       -              60.2  
Reclassification adjustments
    -              -              -              -              (11.6 )     -              (11.6 )
 
                                                     
Net gain recognized in other comprehensive income
                                                    48.6  
 
                                                     
Pension/postretirement:
                                                       
Net actuarial losses
    -              -              -              -              (57.7 )     -              (57.7 )
Reclassification adjustments
    -              -              -              -              4.6       -              4.6  
 
                                                     
Net loss recognized in other comprehensive income
                                                    (53.1 )
 
                                                     
Other comprehensive income, net of income tax effect
                                                    493.0  
 
                                                     
Comprehensive income
                                                    592.3  
Conversion of 14,657 Class B Convertible Common shares to Class A Common shares
    -              -              -              -              -              -              -         
Exercise of 1,453,431 Class A stock options
    0.1       -              12.2       -              -              -              12.3  
Employee stock purchases of 388,294 treasury shares
    -              -              2.5       -              -              2.0       4.5  
Grant of 1,365,460 Class A Common shares - restricted stock awards
    -              -              (7.3 )     -              -              7.3       -         
Vesting of 27,145 restricted stock units (17,645 treasury shares and 9,500 Class A Common shares), net of 11,110 shares withheld to satisfy tax withholding requirements
    -              -              (0.2 )     -              -              0.1       (0.1 )
Cancellation of 136,497 restricted Class A Common shares
    -              -              0.7       -              -              (0.7 )     -         
Stock-based employee compensation
    -              -              56.8       -              -              -              56.8  
Tax benefit on stock-based employee compensation awards
    -              -              2.2       -              -              -              2.2  
 
                                         
BALANCE, February 28, 2010
  $ 2.3     $ 0.3     $ 1,493.2     $ 1,102.8     $ 587.2     $ (609.5 )   $ 2,576.3  
 
                                         

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions, except share data)
                                                         
                                    Accumulated              
                    Additional             Other              
    Common Stock     Paid-in     Retained     Comprehensive     Treasury        
    Class A     Class B     Capital     Earnings     Income (Loss)     Stock     Total  
BALANCE, February 28, 2010
  $ 2.3     $ 0.3     $ 1,493.2     $ 1,102.8     $ 587.2     $ (609.5 )   $ 2,576.3  
Comprehensive income:
                                                       
Net income for Fiscal 2011
    -              -              -              559.5       -              -              559.5  
Other comprehensive income (loss), net of income tax effect:
                                                       
Foreign currency translation adjustments:
                                                       
Net gains
                                    178.2               178.2  
Reclassification adjustments
                                    (657.1 )             (657.1 )
 
                                                     
Net loss recognized in other comprehensive income
                                                    (478.9 )
 
                                                     
Unrealized loss on cash flow hedges:
                                                       
Net derivative gains
    -              -              -              -              9.1       -              9.1  
Reclassification adjustments
    -              -              -              -              (24.5 )     -              (24.5 )
 
                                                     
Net loss recognized in other comprehensive income
                                                    (15.4 )
 
                                                     
Pension/postretirement:
                                                       
Net actuarial gains
    -              -              -              -              9.3       -              9.3  
Reclassification adjustments
    -              -              -              -              86.6       -              86.6  
 
                                                     
Net gain recognized in other comprehensive income
                                                    95.9  
 
                                                     
Other comprehensive loss, net of income tax effect
                                                    (398.4 )
 
                                                     
Comprehensive income
                                                    161.1  
Repurchase of 17,240,101 Class A Common shares
    -              -              -              -              -              (300.3 )     (300.3 )
Conversion of 116,879 Class B Convertible Common shares to Class A Common shares
    -              -              -              -              -              -              -         
Exercise of 5,100,677 Class A stock options
    -              -              62.3       -              -              -              62.3  
Employee stock purchases of 305,207 treasury shares
    -              -              2.6       -              -              1.7       4.3  
Grant of 739,388 Class A Common shares - restricted stock awards
    -              -              (3.9 )     -              -              3.9       -         
Vesting of 53,780 restricted stock units (43,085 treasury shares and 10,695 Class A Common shares), net of 23,628 shares withheld to satisfy tax withholding requirements
    -              -              (0.6 )     -              -              0.2       (0.4 )
Cancellation of 37,864 restricted Class A Common shares
    -              -              0.2       -              -              (0.2 )     -         
Stock-based employee compensation
    -              -              47.0       -              -              -              47.0  
Tax benefit on stock-based employee compensation awards
    -              -              1.6       -              -              -              1.6  
 
                                         
BALANCE, February 28, 2011
  $ 2.3     $ 0.3     $ 1,602.4     $ 1,662.3     $ 188.8     $ (904.2 )   $ 2,551.9  
 
                                         
The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
                         
    For the Years Ended  
    February 28,     February 28,     February 28,  
    2011     2010     2009  
 
                       
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income (loss)
  $ 559.5     $ 99.3     $ (301.4 )
 
                       
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                       
Depreciation of property, plant and equipment
    119.2       143.8       143.6  
Loss on settlement of pension obligations
    109.9       -              -         
Deferred tax provision (benefit)
    70.9       (30.6 )     2.3  
Loss on contractual obligation from put option of Ruffino shareholder
    60.0       34.3       -         
Stock-based compensation expense
    46.0       56.3       46.1  
Impairment of goodwill and intangible assets
    23.6       103.2       300.4  
Amortization of intangible and other assets
    14.6       12.1       13.4  
Loss on disposal or impairment of long-lived assets, net
    0.4       15.7       44.9  
(Gain) loss on businesses sold or held for sale, net
    (165.1 )     (10.4 )     31.5  
Equity in earnings of equity method investees, net of distributed earnings
    (23.8 )     (13.1 )     90.3  
Noncash portion of loss on extinguishment of debt
    -              0.7       -         
Write-down of Australian inventory
    -              -              75.5  
Change in operating assets and liabilities, net of effects from purchases and sales of businesses:
                       
Accounts receivable, net
    (86.0 )     61.9       87.4  
Inventories
    190.8       51.0       (86.0 )
Prepaid expenses and other current assets
    (7.6 )     2.6       9.4  
Accounts payable
    (82.5 )     (42.7 )     (26.9 )
Accrued excise taxes
    (7.1 )     (18.1 )     12.1  
Other accrued expenses and liabilities
    (168.6 )     (110.6 )     (95.0 )
Other, net
    (34.9 )     47.1       159.3  
 
                 
Total adjustments
    59.8       303.2       808.3  
 
                 
Net cash provided by operating activities
    619.3       402.5       506.9  
 
                 
 
                       
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Proceeds from sales of businesses, net of cash divested
    219.7       349.6       204.2  
Proceeds from note receivable
    60.0       -              -         
Proceeds from sales of assets
    19.5       17.2       25.4  
Capital distributions from equity method investees
    0.3       0.2       20.8  
Purchases of property, plant and equipment
    (89.1 )     (107.7 )     (128.6 )
Investments in equity method investees
    (29.7 )     (0.9 )     (3.2 )
Purchases of businesses, net of cash acquired
    -              -              0.1  
Other investing activities
    7.4       (1.8 )     9.9  
 
                 
Net cash provided by investing activities
    188.1       256.6       128.6  
 
                 
 
                       
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Principal payments of long-term debt
    (328.5 )     (781.3 )     (577.6 )
Purchases of treasury stock
    (300.0 )     -              -         
Net (repayment of) proceeds from notes payable
    (289.7 )     117.1       (109.7 )
Payment of financing costs of long-term debt
    (0.2 )     (11.5 )     -         
Proceeds from exercise of employee stock options
    61.0       12.3       27.1  
Proceeds from excess tax benefits from stock-based payment awards
    7.4       2.7       7.2  
Proceeds from employee stock purchases
    4.3       4.5       5.6  
Proceeds from maturity of derivative instrument
    -              33.2       -         
 
                 
Net cash used in financing activities
    (845.7 )     (623.0 )     (647.4 )
 
                 
 
                       
Effect of exchange rate changes on cash and cash investments
    4.0       (5.7 )     4.5  
 
                 
 
                       
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS
    (34.3 )     30.4       (7.4 )
CASH AND CASH INVESTMENTS, beginning of year
    43.5       13.1       20.5  
 
                 
CASH AND CASH INVESTMENTS, end of year
  $ 9.2     $ 43.5     $ 13.1  
 
                 

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
                         
    For the Years Ended  
    February 28,     February 28,     February 28,  
    2011     2010     2009  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                       
Cash paid during the year for:
                       
Interest
  $ 203.3     $ 307.7     $ 332.8  
 
                 
Income taxes
  $ 79.7     $ 221.4     $ 137.8  
 
                 
 
                       
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
                       
Property, plant and equipment acquired under financing arrangements
  $ 28.4     $ -              $ -           
 
                 
 
                       
Sales of businesses
                       
Investment in Accolade
  $ 48.2     $ -              $ -           
 
                 
Indemnification liabilities
  $ 26.1     $ -              $ -           
 
                 
Note receivable from sale of value spirits business
  $ -              $ 60.0     $ -           
 
                 
The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2011
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
          Description of business –
          Constellation Brands, Inc. and its subsidiaries (the “Company”) operate primarily in the beverage alcohol industry. The Company is a leading international producer and marketer of beverage alcohol with a broad portfolio of premium brands across the wine, spirits and imported beer categories. The Company has the leading premium wine business in the world and is a leading producer and marketer of wine in the United States (“U.S.”); the leading producer and marketer of wine in Canada; and a leading producer and exporter of wine from New Zealand. In North America, the Company’s products are primarily sold to wholesale distributors as well as state and provincial alcoholic beverage control agencies. In New Zealand, the Company’s products are primarily sold to retailers, wholesalers and importers. In addition, the Company imports, markets and sells the Modelo Brands (as defined in Note 9) and certain other imported beer brands through the Company’s joint venture, Crown Imports (as defined in Note 9).
          On January 31, 2011, the Company sold 80.1% of its Australian and U.K. business (the “CWAE Divestiture”) (see Note 7). Prior to this divestiture, the Company was also a leading producer and exporter of wine from Australia and a major supplier of beverage alcohol in the United Kingdom (“U.K.”). In connection with the Company’s changes during the first quarter of fiscal 2011 within its internal management structure for this business, and the Company’s revised business strategy within the Australian and U.K. markets, the Company changed its reportable operating segments on May 1, 2010, to consist of: Constellation Wines North America (“CWNA”), Constellation Wines Australia and Europe (“CWAE”), Corporate Operations and Other, and Crown Imports (see Note 23). All financial information for the years ended February 28, 2010, and February 28, 2009, has been restated to conform to the new segment presentation. As a result of the CWAE Divestiture, as of February 1, 2011, the Company is no longer reporting operating results for the CWAE segment.
          Principles of consolidation –
          The consolidated financial statements of the Company include the accounts of the Company and its majority-owned subsidiaries and entities in which the Company has a controlling financial interest after the elimination of intercompany accounts and transactions. The Company has a controlling financial interest if the Company owns a majority of the outstanding voting common stock or has significant control over an entity through contractual or economic interests in which the Company is the primary beneficiary.
          Management’s use of estimates –
          The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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          Equity investments –
          If the Company is not required to consolidate its investment in another entity, the Company uses the equity method if the Company (i) can exercise significant influence over the other entity and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, plus or minus the Company’s equity in the increases and decreases in the investee’s net assets after the date of acquisition and certain other adjustments. The Company’s share of the net income or loss of the investee is included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations. Dividends received from the investee reduce the carrying amount of the investment.
          Equity method investments are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. No instances of impairment were noted on the Company’s equity method investments for the year ended February 28, 2011. During the third quarter of fiscal 2010, the Company determined that its CWNA segment’s international equity method investment, Ruffino S.r.l. (“Ruffino”) was impaired primarily due to a decline in revenue and profit forecasts for this equity method investee combined with an unfavorable foreign exchange movement between the Euro and the U.S. Dollar. The Company measured the amount of impairment by calculating the amount by which the carrying value of its investment exceeded its estimated fair value, based on projected discounted cash flows of this equity method investee (Level 3 fair value measurement – see Note 6). As a result of this review, the Company recorded an impairment loss of $25.4 million in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations. For the year ended February 28, 2009, the Company recorded impairment losses of $79.2 million primarily associated with Ruffino ($48.6 million) and its CWAE segment’s international equity method investment, Matthew Clark ($30.1 million). These impairment losses resulted primarily from a decline in revenue and profit forecasts for these two equity method investees reflecting significant market deterioration during the fourth quarter of fiscal 2009. The Company measured the amount of impairment for each investment by calculating the amount by which the carrying value of its investment exceeded its estimated fair value, based on projected discounted cash flows of each equity method investee. These impairment losses are included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations.
          Revenue recognition –
          Sales are recognized when title and risk of loss pass to the customer, which is generally when the product is shipped. Amounts billed to customers for shipping and handling are classified as sales. Sales reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons, and rebates.
          Cost of product sold –
          The types of costs included in cost of product sold are raw materials, packaging materials, manufacturing costs, plant administrative support and overheads, and freight and warehouse costs (including distribution network costs). Distribution network costs include inbound freight charges and outbound shipping and handling costs, purchasing and receiving costs, inspection costs, warehousing and internal transfer costs.

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          Selling, general and administrative expenses –
          The types of costs included in selling, general and administrative expenses consist predominately of advertising and non-manufacturing administrative and overhead costs. Distribution network costs are not included in the Company’s selling, general and administrative expenses, but are included in cost of product sold as described above. The Company expenses advertising costs as incurred, shown or distributed. Prepaid advertising costs at February 28, 2011, and February 28, 2010, were not material. Advertising expense for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, was $128.6 million, $132.5 million and $175.7 million, respectively.
          Foreign currency translation –
          The “functional currency” of the Company’s subsidiaries outside the U.S. is the respective local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate for the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss) (“AOCI”). As a result of the January 2011 CWAE Divestiture, the Company reclassified $657.1 million, net of income tax effect, from AOCI to selling, general and administrative expenses on the Company’s Consolidated Statements of Operations (see Note 7, Note 19). Gains or losses resulting from foreign currency denominated transactions are also included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. The Company engages in foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies. Aggregate foreign currency transaction net losses were $2.3 million, $4.6 million and $26.3 million for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively.
          Cash investments –
          Cash investments consist of highly liquid investments with an original maturity when purchased of three months or less and are stated at cost, which approximates fair value. The amounts at February 28, 2011, and February 28, 2010, are not significant.
          Allowance for doubtful accounts –
          The Company records an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The majority of the accounts receivable balance is generated from sales to independent distributors with whom the Company has a predetermined collection date arranged through electronic funds transfer. The allowance for doubtful accounts was $0.8 million and $3.0 million as of February 28, 2011, and February 28, 2010, respectively.
          Fair value of financial instruments –
          The Company calculates the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models for various types of financial instruments (such as forwards, options, swaps, etc.) which take into account the present value of estimated future cash flows (see Note 6).
          Derivative instruments –
          As a multinational company, the Company is exposed to market risk from changes in foreign currency exchange rates and interest rates that could affect the Company’s results of operations and financial condition. The amount of volatility realized will vary based upon the effectiveness and level of derivative instruments outstanding during a particular period of time, as well as the currency and interest rate market movements during that same period.

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          The Company enters into derivative instruments, primarily interest rate swaps and foreign currency forward and option contracts, to manage interest rate and foreign currency risks. In accordance with the Financial Accounting Standards Board (“FASB”) guidance for derivatives and hedging, the Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value (see Note 5, Note 6). The fair values of the Company’s derivative instruments change with fluctuations in interest rates and/or currency rates and are expected to offset changes in the values of the underlying exposures. The Company’s derivative instruments are held solely to hedge economic exposures. The Company follows strict policies to manage interest rate and foreign currency risks, including prohibitions on derivative market-making or other speculative activities.
          To qualify for hedge accounting treatment under the FASB guidance for derivatives and hedging, the details of the hedging relationship must be formally documented at inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risk that is being hedged, the derivative instrument, how effectiveness is being assessed and how ineffectiveness will be measured. The derivative must be highly effective in offsetting either changes in the fair value or cash flows, as appropriate, of the risk being hedged. Effectiveness is evaluated on a retrospective and prospective basis based on quantitative measures.
          Certain of the Company’s derivative instruments do not qualify for hedge accounting treatment under the FASB guidance for derivatives and hedging; for others, the Company chooses not to maintain the required documentation to apply hedge accounting treatment. These undesignated instruments are used to economically hedge the Company’s exposure to fluctuations in the value of foreign currency denominated receivables and payables; foreign currency investments, primarily consisting of loans to subsidiaries; and cash flows related primarily to repatriation of those loans or investments. Foreign currency contracts, generally less than 12 months in duration, are used to hedge some of these risks. The Company’s derivative policy permits the use of undesignated derivatives when the derivative instrument is settled within the fiscal quarter or offsets a recognized balance sheet exposure. In these circumstances, the mark to fair value is reported currently through earnings in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. As of February 28, 2011, and February 28, 2010, the Company had undesignated foreign currency contracts outstanding with a notional value of $160.0 million and $554.9 million, respectively. In addition, the Company had offsetting undesignated interest rate swap agreements with an absolute notional amount of $2,400.0 million outstanding at February 28, 2010 (see Note 11). The Company had no undesignated interest rate swap agreements outstanding as of February 28, 2011.
          Furthermore, when the Company determines that a derivative instrument which qualified for hedge accounting treatment has ceased to be highly effective as a hedge, the Company discontinues hedge accounting prospectively. The Company also discontinues hedge accounting prospectively when (i) a derivative expires or is sold, terminated, or exercised; (ii) it is no longer probable that the forecasted transaction will occur; or (iii) management determines that designating the derivative as a hedging instrument is no longer appropriate.

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          Cash flow hedges:
          The Company is exposed to foreign denominated cash flow fluctuations in connection with third party and intercompany sales and purchases and, historically, third party financing arrangements. The Company primarily uses foreign currency forward and option contracts to hedge certain of these risks. In addition, the Company utilizes interest rate swaps to manage its exposure to changes in interest rates. Derivatives managing the Company’s cash flow exposures generally mature within three years or less, with a maximum maturity of five years. Throughout the term of the designated cash flow hedge relationship, but at least quarterly, a retrospective evaluation and prospective assessment of hedge effectiveness is performed. All components of the Company’s derivative instruments’ gains or losses are included in the assessment of hedge effectiveness. In the event the relationship is no longer effective, the Company recognizes the change in the fair value of the hedging derivative instrument from the date the hedging derivative instrument became no longer effective immediately in the Company’s Consolidated Statements of Operations. In conjunction with its effectiveness testing, the Company also evaluates ineffectiveness associated with the hedge relationship. Resulting ineffectiveness, if any, is recognized immediately in the Company’s Consolidated Statements of Operations.
          The Company records the fair value of its foreign currency and interest rate swap contracts qualifying for cash flow hedge accounting treatment in its consolidated balance sheet with the effective portion of the related gain or loss on those contracts deferred in stockholders’ equity (as a component of AOCI). These deferred gains or losses are recognized in the Company’s Consolidated Statements of Operations in the same period in which the underlying hedged items are recognized and on the same line item as the underlying hedged items. However, to the extent that any derivative instrument is not considered to be highly effective in offsetting the change in the value of the hedged item, the hedging relationship is terminated and the amount related to the ineffective portion of this derivative instrument is immediately recognized in the Company’s Consolidated Statements of Operations in selling, general and administrative expenses.
          As of February 28, 2011, and February 28, 2010, the Company had cash flow designated foreign currency contracts outstanding with a notional value of $166.4 million and $465.2 million, respectively. In addition, as of February 28, 2011, and February 28, 2010, the Company had cash flow designated interest rate swap agreements outstanding with a notional value of $500.0 million and $1,200.0 million, respectively (see Note 11). The Company expects $1.6 million of net gains, net of income tax effect, to be reclassified from AOCI to earnings within the next 12 months.
          Fair value hedges:
          Fair value hedges are hedges that offset the risk of changes in the fair values of recorded assets and liabilities, and firm commitments. The Company records changes in fair value of derivative instruments which are designated and deemed effective as fair value hedges, in earnings offset by the corresponding changes in the fair value of the hedged items. The Company did not designate any derivative instruments as fair value hedges for the years ended February 28, 2011, February 28, 2010, and February 28, 2009.

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          Net investment hedges:
          Net investment hedges are hedges that use derivative instruments or non-derivative instruments to hedge the foreign currency exposure of a net investment in a foreign operation. Historically, the Company has managed currency exposures resulting from certain of its net investments in foreign subsidiaries principally with debt denominated in the related foreign currency. Accordingly, gains and losses on these instruments were recorded as foreign currency translation adjustments in AOCI. In February 2009, the Company discontinued its then existing net investment hedging relationship between the Company’s then existing Sterling Series B Senior Notes and Sterling Series C Senior Notes (as defined in Note 11) totaling £155.0 million aggregate principal amount and the Company’s investment in its U.K. subsidiary. The Company did not designate any derivative or non-derivative instruments as net investment hedges for the years ended February 28, 2011, and February 28, 2010. For the year ended February 28, 2009, net gains of $51.0 million, net of income tax effect, were deferred within foreign currency translation adjustments within AOCI. As a result of the CWAE Divestiture, the Company reclassified $17.8 million, net of income tax effect, from AOCI to earnings related to its prior net investment hedges of its U.K. subsidiary (see Note 5).
          Credit risk:
          The Company enters into master agreements with its bank derivative trading counterparties that allow netting of certain derivative positions in order to manage credit risk. The Company’s derivative instruments are not subject to credit rating contingencies or collateral requirements. As of February 28, 2011, the fair value of derivative instruments in a net liability position due to counterparties was $6.4 million. If the Company were required to settle the net liability position under these derivative instruments on February 28, 2011, the Company would have had sufficient availability under its revolving credit facility to satisfy this obligation.
          Counterparty credit risk:
          Counterparty credit risk relates to losses the Company could incur if a counterparty defaults on a derivative contract. The Company manages exposure to counterparty credit risk by requiring specified minimum credit standards and diversification of counterparties. The Company enters into master agreements with its bank derivative trading counterparties that allow netting of certain derivative positions in order to manage counterparty credit risk. As of February 28, 2011, all of the Company’s counterparty exposures are with financial institutions which have investment grade ratings. The Company has procedures to monitor counterparty credit risk for both current and future potential credit exposures. As of February 28, 2011, the fair value of derivative instruments in a net receivable position due from counterparties was $13.6 million.
          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 are classified as follows:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Raw materials and supplies
  $ 38.2     $ 44.3  
In-process inventories
    1,012.1       1,327.9  
Finished case goods
    319.0       507.7  
 
           
 
  $ 1,369.3     $ 1,879.9  
 
           

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          Bulk wine inventories are included as in-process inventories within current assets, in accordance with the general practices of the wine industry, although a portion of such inventories may be aged for periods greater than one year. A substantial portion of barreled whiskey and brandy will not be sold within one year because of the duration of the aging process. All barreled whiskey and brandy are classified as in-process inventories and are included in current assets, in accordance with industry practice. Warehousing, insurance, ad valorem taxes and other carrying charges applicable to barreled whiskey and brandy held for aging are included in inventory costs.
          The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analyses and assumptions including, but not limited to, historical usage, future demand and market requirements. Reductions to the carrying value of inventories are recorded in cost of product sold. If the future demand for the Company’s products is less favorable than the Company’s forecasts, then the value of the inventories may be required to be reduced, which could result in additional expense to the Company and affect its results of operations. During the year ended February 28, 2009, the Company recorded an immaterial adjustment to inventory of $35.5 million to correct for costs, primarily in the Company’s Australian business, which were not properly released from inventory as the product was sold in prior fiscal year periods.
          Property, plant and equipment –
          Property, plant and equipment is stated at cost. Major additions and betterments are charged to property accounts, while maintenance and repairs are charged to operations as incurred. The cost of properties sold or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts at the time of disposal and resulting gains and losses are included as a component of operating income.
          Depreciation –
          Depreciation is computed primarily using the straight-line method over the following estimated useful lives:
     
    Depreciable Life in Years
Land improvements
  15 to 32
Vineyards
  16 to 26
Buildings and improvements
  10 to 44
Machinery and equipment
  3 to 35
Motor vehicles
  3 to 7
          Goodwill and other intangible assets –
          In accordance with the FASB guidance for intangibles – goodwill and other, the Company reviews its goodwill and indefinite lived intangible assets annually for impairment, or sooner, if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses January 1 as its annual impairment test measurement date. Indefinite lived intangible assets consist principally of trademarks. Intangible assets determined to have a finite life, primarily customer relationships, are amortized over their estimated useful lives and are subject to review for impairment in accordance with the FASB guidance for property, plant and equipment. Note 8 provides a summary of intangible assets segregated between amortizable and nonamortizable amounts.

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          In the fourth quarters of fiscal 2011 and 2010, pursuant to the Company’s accounting policy, the Company performed its annual goodwill impairment analysis. No indication of impairment was noted for any of the Company’s reporting units for the years ended February 28, 2011, and February 28, 2010, as the fair value of each of the Company’s reporting units with goodwill exceeded their carrying value. In the fourth quarter of fiscal 2009, as a result of its annual goodwill impairment analysis, the Company concluded that the carrying amount of goodwill assigned to the CWAE segment’s U.K. reporting unit exceeded its implied fair value and recorded an impairment loss of $252.7 million, which is included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. The impairment loss was determined by comparing the carrying value of goodwill assigned to the specific reporting unit within the segment as of January 1, 2009, with the implied fair value of the goodwill. In determining the implied fair value of the goodwill, the Company considered estimates of future operating results and cash flows of the reporting unit discounted using market based discount rates. The estimates of future operating results and cash flows were principally derived from the Company’s then updated long-term financial forecast, which was developed as part of the Company’s strategic planning cycle conducted during the fourth quarter of fiscal 2009. The decline in the implied fair value of the goodwill and the resulting impairment loss was driven primarily by the accelerated deterioration in the Company’s U.K. business during the fourth quarter of fiscal 2009 and the resulting adjustment to the Company’s long-term financial forecasts, which showed lower estimated future operating results reflecting the significant fourth quarter deterioration in market conditions in the U.K.

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          In the fourth quarter of fiscal 2011, pursuant to the Company’s accounting policy, the Company performed its annual review of indefinite lived intangible assets for impairment. The Company determined that certain trademarks associated primarily with the CWNA segment’s Canadian reporting unit were impaired largely due to lower revenue and profitability associated with products incorporating these assets included in long-term financial forecasts developed as part of the strategic planning cycle conducted during the Company’s fourth quarter. The Company measured the amount of impairment by calculating the amount by which the carrying value of these assets exceeded their estimated fair values, which were based on projected discounted cash flows (Level 3 fair value measurement – see Note 6). As a result of this review, the Company recorded impairment losses of $16.7 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. The Company had previously recorded impairment losses of $6.9 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations, during its third quarter of fiscal 2011 in connection with its decision to discontinue certain wine brands within its CWNA segment’s wine portfolio (Level 3 fair value measurement – see Note 6). In the fourth quarter of fiscal 2010, as a result of its annual review of indefinite lived intangible assets for impairment, the Company determined that certain trademarks associated primarily with the CWAE segment’s Australian reporting unit were impaired largely due to lower revenue and profitability associated with products incorporating these assets included in long-term financial forecasts developed as part of the strategic planning cycle conducted during the Company’s fourth quarter. The Company measured the amount of impairment by calculating the amount by which the carrying value of these assets exceeded their estimated fair values, which were based on projected discounted cash flows (Level 3 fair value measurement – see Note 6). As a result of this review, the Company recorded impairment losses of $103.2 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. In the fourth quarter of fiscal 2009, as a result of its annual review of indefinite lived intangible assets for impairment, the Company determined that certain trademarks associated primarily with the CWAE segment’s U.K. reporting unit were impaired largely due to the aforementioned market declines in the U.K. during the fourth quarter of fiscal 2009, and the resulting lower revenue and profit forecasts associated with products incorporating these assets which reflected the significant fourth quarter deterioration in market conditions in the U.K. The Company measured the amount of impairment by calculating the amount by which the carrying value of these assets exceeded their estimated fair values, which were based on projected discounted cash flows. As a result of this review, the Company recorded impairment losses of $25.9 million, which are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. The Company had previously recorded impairment losses of $21.8 million during its second quarter of fiscal 2009 in connection with the Company’s Australian Initiative (as defined in Note 21) and the resulting lower revenue and profit forecasts associated with certain brands incorporating these assets impacted by the Australian Initiative.
          Other assets –
          Other assets include the following: (i) investments in equity method investees which are carried under the equity method of accounting (see Note 9); (ii) an investment in Accolade (as defined in Note 7) consisting of cost method investments which are carried at cost and available-for-sale debt securities which are carried at fair value (see Note 9); (iii) deferred financing costs which are stated at cost, net of accumulated amortization, and are amortized on an effective interest basis over the term of the related debt; (iv) notes receivable which are stated at cost; (v) derivative assets which are stated at fair value; and (vi) deferred tax assets which are stated net of valuation allowances (see Note 12).

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          Long-lived assets impairment –
          In accordance with the FASB guidance for property, plant and equipment, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted cash flows, an impairment loss is recognized to the extent that the carrying value of the asset exceeds its fair value (Level 3 fair value measurement – see Note 6). Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated (see below).
          Pursuant to this policy, for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, in connection with the Company’s Australian Initiative, the Company’s CWAE segment recorded asset impairment losses of $5.8 million, $13.4 million and $46.5 million, respectively, associated primarily with the write-down of certain winery and vineyard assets which satisfied the conditions necessary to be classified as held for sale. These assets were written down to a value based on the Company’s estimate of fair value less cost to sell. These impairment losses are included in restructuring charges on the Company’s Consolidated Statements of Operations.
          Assets held for sale –
          As of February 28, 2011, the Company had no assets classified as held for sale. As of February 28, 2010, in connection with the Australian Initiative, the Company’s CWAE segment had $21.9 million of property, plant and equipment, net, classified as held for sale. This amount is included in property, plant and equipment, net on the Company’s Consolidated Balance Sheets as the amount is not deemed material for separate presentation on the face of the Company’s Consolidated Balance Sheets.
          Indemnification liabilities –
          The Company has indemnified respective parties against certain liabilities that may arise in connection with certain acquisitions and divestitures. The carrying value of the indemnification liabilities are included in other liabilities on the Company’s Consolidated Balance Sheets (see Note 13, Note 15).
          Income taxes –
          The Company uses the asset and liability method of accounting for income taxes. This method accounts for deferred income taxes by applying statutory rates in effect at the balance sheet date to the difference between the financial reporting and tax bases of assets and liabilities.
          Environmental –
          Environmental expenditures that relate to current operations or to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities for environmental risks or components thereof are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the Company’s commitment to a formal plan of action. Liabilities for environmental costs were not material at February 28, 2011, and February 28, 2010.

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          Earnings per common share –
          The Company has two classes of outstanding common stock: Class A Common Stock and Class B Convertible Common Stock (see Note 16). With respect to dividend rights, the Class A Common Stock is entitled to cash dividends of at least ten percent higher than those declared and paid on the Class B Convertible Common Stock. Accordingly, the Company uses the two-class computation method for the computation of earnings per common share – basic and earnings per common share – diluted. The two-class computation method for each period reflects the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the minimum dividend rights of each class of stock.
          Earnings per common share – basic excludes the effect of common stock equivalents and is computed using the two-class computation method (see Note 18). Earnings per common share – diluted for Class A Common Stock reflects the potential dilution that could result if securities or other contracts to issue common stock were exercised or converted into common stock. Earnings per common share – diluted for Class A Common Stock has been computed using the more dilutive of the if-converted or two-class computation method. Using the if-converted method, earnings per common share – diluted for Class A Common Stock assumes the exercise of stock options using the treasury stock method and the conversion of Class B Convertible Common Stock. Using the two-class computation method, earnings per common share – diluted for Class A Common Stock assumes the exercise of stock options using the treasury stock method and no conversion of Class B Convertible Common Stock. For the years ended February 28, 2011, and February 28, 2010, earnings per common share – diluted for Class A Common Stock has been calculated using the if-converted method. For the year ended February 28, 2009, loss per common share – diluted for Class A Common Stock has been calculated using the two-class computation method. For the years ended February 28, 2011, February 28, 2010, and February 28, 2009, earnings per common share – diluted for Class B Convertible Common Stock is presented without assuming conversion into Class A Common Stock and is computed using the two-class computation method.
          Stock-based employee compensation plans –
          The Company has four stock-based employee compensation plans (see Note 17). The Company applies a grant date fair-value-based measurement method in accounting for its stock-based payment arrangements and records all costs resulting from stock-based payment transactions ratably over the requisite service period in its consolidated financial statements. 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. In accordance with the FASB guidance for compensation – stock compensation, the Company recognizes compensation expense immediately for awards granted to retirement-eligible employees or ratably 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, when appropriate.

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2.   RECENTLY ADOPTED ACCOUNTING GUIDANCE:
          Consolidation of variable interest entities –
          Effective March 1, 2010, the Company adopted the FASB June 2009 amended guidance for consolidation. This guidance, among other things, (i) requires an entity to perform an analysis to determine whether an entity’s variable interest or interests give it a controlling financial interest in a variable interest entity; (ii) requires ongoing reassessments of whether an entity is the primary beneficiary of a variable interest entity and eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; (iii) amends previously issued guidance for determining whether an entity is a variable interest entity; and (iv) requires enhanced disclosure that will provide users of financial statements with more transparent information about an entity’s involvement in a variable interest entity. In addition, effective March 1, 2010, the Company adopted the FASB additional December 2009 guidance on assessing whether a variable interest entity should be consolidated. This guidance identifies the determination of whether a reporting entity should consolidate another entity is based upon, among other things, (i) the other entity’s purpose and design, and (ii) the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This guidance also requires additional disclosures about an entity’s involvement with a variable interest entity, including significant changes in risk exposure due to an entity’s involvement with a variable interest entity and how the involvement with the variable interest entity affects the financial statements of the reporting entity. The adoption of the combined guidance did not have a material impact on the Company’s consolidated financial statements.
          Fair value measurements and disclosures –
          In January 2010, the FASB issued amended guidance for fair value measurements and disclosures. This guidance requires an entity to (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers, and (ii) present separately information about purchases, sales, issuances and settlements on a gross basis in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). This guidance also clarifies existing disclosures requiring an entity to provide fair value measurement disclosures for each class of assets and liabilities and, for Level 2 or Level 3 fair value measurements, disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Effective March 1, 2010, the Company adopted the additional disclosure requirements and clarifications of existing disclosures of this guidance, except for the disclosures about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The Company is required to adopt those disclosures for its annual and interim periods beginning March 1, 2011. The adoption of the applicable provisions of this guidance on March 1, 2010, did not have a material impact on the Company’s consolidated financial statements. The adoption of the remaining provision of this guidance on March 1, 2011, did not have a material impact on the Company’s consolidated financial statements.
3.   PREPAID EXPENSES AND OTHER:
          The major components of prepaid expenses and other are as follows:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Income taxes receivable
  $ 193.8     $ 34.4  
Deferred tax assets
    42.1       50.0  
Other
    51.2       66.6  
 
           
 
  $ 287.1     $ 151.0  
 
           

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4.   PROPERTY, PLANT AND EQUIPMENT:
          The major components of property, plant and equipment are as follows:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Land and land improvements
  $ 298.9     $ 327.3  
Vineyards
    206.1       211.6  
Buildings and improvements
    312.6       416.1  
Machinery and equipment
    900.7       1,232.5  
Motor vehicles
    49.3       58.5  
Construction in progress
    86.4       44.0  
 
           
 
    1,854.0       2,290.0  
Less – Accumulated depreciation
    (634.4 )     (722.8 )
 
           
 
  $ 1,219.6     $ 1,567.2  
 
           
5.   DERIVATIVE INSTRUMENTS:
          The fair value and location of the Company’s derivative instruments on its Consolidated Balance Sheets are as follows (see Note 6):
                 
    February 28,     February 28,  
Balance Sheet Location   2011     2010  
(in millions)                
Derivative instruments designated as hedging instruments
Foreign currency contracts
               
Prepaid expenses and other
  $ 11.0     $ 17.1  
Other accrued expenses and liabilities
  $ 3.4     $ 15.1  
Other assets, net
  $ 2.8     $ 13.5  
Other liabilities
  $ 0.9     $ 5.5  
 
               
Interest rate swap contracts
               
Other accrued expenses and liabilities
  $ 6.1     $ 11.8  
Other assets, net
  $ 1.7     $ -  
 
               
Derivative instruments not designated as hedging instruments
Foreign currency contracts
               
Prepaid expenses and other
  $ 3.2     $ 12.0  
Other accrued expenses and liabilities
  $ 1.0     $ 7.8  
Other assets, net
  $ -     $ 1.6  
Other liabilities
  $ -     $ 1.2  
 
               
Interest rate swap contracts
               
Prepaid expenses and other
  $ -     $ 2.7  
Other accrued expenses and liabilities
  $ -     $ 2.9  

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          The effect of the Company’s derivative instruments designated in cash flow hedging relationships on its Consolidated Statements of Operations, as well as its Other Comprehensive Income (“OCI”), net of income tax effect, for the years ended February 28, 2011, and February 28, 2010, is as follows. As a result of the CWAE Divestiture, the Company recognized net gains of $6.3 million, net of income tax effect, for the year ended February 28, 2011, related to the discontinuance of cash flow hedge accounting due to the probability that the original forecasted transaction would not occur by the end of the originally specified time period (or within the two months following). There were no such amounts recognized for the years ended February 28, 2010, and February 28, 2009. As the Company adopted the FASB guidance for the below enhanced disclosures surrounding derivatives and hedging on December 1, 2008, the required comparative disclosures for the three months ended February 28, 2009, have not been included as amounts are not material.
                     
                Net  
    Net         Gain (Loss)  
    Gain (Loss)         Reclassified  
    Recognized         from AOCI to  
Derivative Instruments in   in OCI     Location of Net Gain (Loss)   Income  
Designated Cash Flow   (Effective     Reclassified from AOCI to   (Effective  
Hedging Relationships   portion)     Income (Effective portion)   portion)  
(in millions)                    
For the Year Ended February 28, 2011
Foreign currency contracts   $ 11.2    
Sales
  $ 13.6  
Foreign currency contracts     0.6    
Cost of product sold
    9.5  
Interest rate swap contracts     (2.7 )  
Interest expense, net
    -  
         
 
     
Total
  $ 9.1    
Total
  $ 23.1  
         
 
     
           
 
       
For the Year Ended February 28, 2010
Foreign currency contracts   $ 39.3    
Sales
  $ 18.6  
Foreign currency contracts     13.2    
Cost of product sold
    (4.6 )
Foreign currency contracts     12.4    
Selling, general and administrative expenses
    22.8  
Interest rate swap contracts     (4.7 )  
Interest expense, net
    (27.7 )
         
 
     
Total
  $ 60.2    
Total
  $ 9.1  
         
 
     
                   
                Net  
                Gain  
                Recognized  
Derivative Instruments in           Location of Net Gain   in Income  
Designated Cash Flow           Recognized in Income   (Ineffective  
Hedging Relationships           (Ineffective portion)   portion)  
(in millions)                    
For the Year Ended February 28, 2011
Foreign currency contracts          
Selling, general and administrative expenses
  $ 1.4  
           
 
     
           
 
       
For the Year Ended February 28, 2010
Foreign currency contracts          
Selling, general and administrative expenses
  $ 2.5  
           
 
     

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    Net         Net Gain  
    Gain (Loss)         Reclassified  
    Recognized         from AOCI to  
Non-Derivative Instruments in   in OCI     Location of Net Gain   Income  
Designated Net Investment   (Effective     Reclassified from AOCI to   (Effective  
Hedging Relationships   portion)     Income (Effective portion)   portion)  
(in millions)                    
Sterling Senior Debt Instruments   $    
Selling, general and administrative expenses
  $ 17.8  
         
 
     
          The effect of the Company’s undesignated derivative instruments on its Consolidated Statements of Operations for the years ended February 28, 2011, and February 28, 2010, is as follows. As the Company adopted the FASB guidance for the below enhanced disclosures surrounding derivatives and hedging on December 1, 2008, the required comparative disclosures for the three months ended February 28, 2009, have not been included as amounts are not material.
             
        Net  
        Gain (Loss)  
Derivative Instruments not   Location of Net Gain (Loss)   Recognized  
Designated as Hedging Instruments   Recognized in Income   in Income  
(in millions)            
For the Year Ended February 28, 2011
Foreign currency contracts  
Selling, general and administrative expenses
  $ 4.3  
   
 
     
Total
 
 
  $ 4.3  
   
 
     
   
 
       
For the Year Ended February 28, 2010
Foreign currency contracts  
Selling, general and administrative expenses
  $ 12.8  
Interest rate swap contracts  
Interest expense, net
    (0.4 )
   
 
     
Total
 
 
  $ 12.4  
   
 
     
6.   FAIR VALUE OF FINANCIAL INSTRUMENTS:
          The carrying amount and estimated fair value of the Company’s financial instruments are summarized as follows:
                                 
    February 28, 2011     February 28, 2010  
    Carrying     Fair     Carrying     Fair  
    Amount     Value     Amount     Value  
(in millions)                                
Assets:
                               
Cash and cash investments
  $ 9.2     $ 9.2     $ 43.5     $ 43.5  
Accounts receivable
  $ 417.4     $ 417.4     $ 514.7     $ 514.7  
Available-for-sale debt securities
  $ 40.8     $ 40.8     $ -     $ -  
Foreign currency contracts
  $ 17.0     $ 17.0     $ 44.2     $ 44.2  
Interest rate swap contracts
  $ 1.7     $ 1.7     $ 2.7     $ 2.7  
Notes receivable
  $ 4.8     $ 4.8     $ 65.7     $ 65.7  
 
                               
Liabilities:
                               
Notes payable to banks
  $ 83.7     $ 83.8     $ 371.2     $ 370.1  
Accounts payable
  $ 129.2     $ 129.2     $ 268.8     $ 268.8  
Long-term debt, including current portion
  $ 3,152.6     $ 3,298.2     $ 3,464.3     $ 3,483.4  
Foreign currency contracts
  $ 5.3     $ 5.3     $ 29.6     $ 29.6  
Interest rate swap contracts
  $ 6.1     $ 6.1     $ 14.7     $ 14.7  

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          The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
          Cash and cash investments, accounts receivable and accounts payable: The carrying amounts approximate fair value due to the short maturity of these instruments.
          Available-for-sale debt securities: The fair value is estimated by discounting cash flows using market-based inputs (see “Fair Value Measurements” below).
          Foreign currency contracts: The fair value is estimated using market-based inputs, obtained from independent pricing services, into valuation models (see “Fair Value Measurements” below).
          Interest rate swap contracts: The fair value is estimated based on quoted market prices from respective counterparties (see “Fair Value Measurements” below).
          Notes receivable: These instruments are fixed interest rate bearing notes. The fair value is estimated by discounting cash flows using market-based inputs, including counterparty credit risk.
          Notes payable to banks: The revolving credit facility under the 2006 Credit Agreement (as defined in Note 11) is a variable interest rate bearing note which includes a fixed margin which is adjustable based upon the Company’s debt ratio (as defined in the 2006 Credit Agreement). The fair value of the revolving credit facility is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions. The remaining instruments are variable interest rate bearing notes for which the carrying value approximates the fair value.
          Long-term debt: The tranche A term loan facility under the 2006 Credit Agreement is a variable interest rate bearing note which includes a fixed margin which is adjustable based upon the Company’s debt ratio. The tranche B term loan facility under the 2006 Credit Agreement is a variable interest rate bearing note which includes a fixed margin. The fair value of the tranche A term loan facility and the tranche B term loan facility is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions. The fair value of the remaining long-term debt, which is all fixed rate, is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities.
          Fair value measurements –
          The FASB guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. In February 2008, the FASB issued additional guidance which deferred the effective date for fair value measurements and disclosures of nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, at least annually, including goodwill and trademarks. On March 1, 2008, the Company adopted the provisions for fair value measurements and disclosures that were not deferred by additional guidance. The adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. On March 1, 2009, in accordance with the additional guidance, the Company adopted the remaining provisions for fair value measurements and disclosures. The adoption of the remaining provisions did not have a material impact on the Company’s consolidated financial statements.

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          The fair value measurement guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset and liability, either directly or indirectly; Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
          The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:
                                 
    Quoted     Significant              
    Prices in     Other     Significant        
    Active     Observable     Unobservable        
    Markets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
(in millions)                                
February 28, 2011
                               
Assets:
                               
Available-for-sale debt securities
  $ -     $ -     $ 40.8     $ 40.8  
Foreign currency contracts
  $ -     $ 17.0     $ -     $ 17.0  
Interest rate swap contracts
  $ -     $ 1.7     $ -     $ 1.7  
Liabilities:
                               
Foreign currency contracts
  $ -     $ 5.3     $ -     $ 5.3  
Interest rate swap contracts
  $ -     $ 6.1     $ -     $ 6.1  
 
                               
February 28, 2010
                               
Assets:
                               
Foreign currency contracts
  $ -     $ 44.2     $ -     $ 44.2  
Interest rate swap contracts
  $ -     $ 2.7     $ -     $ 2.7  
Liabilities:
                               
Foreign currency contracts
  $ -     $ 29.6     $ -     $ 29.6  
Interest rate swap contracts
  $ -     $ 14.7     $ -     $ 14.7  
          The Company’s foreign currency contracts consist of foreign currency forward and option contracts which are valued using market-based inputs, obtained from independent pricing services, into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, interest-rate yield curves and currency volatilities. Interest rate swap fair values are based on quotes from respective counterparties. Quotes are corroborated by the Company using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services. Available-for-sale debt securities are valued using market-based inputs into discounted cash flow models.

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          The following table represents a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
         
    Available-  
    For-Sale  
    Debt  
    Securities  
(in millions)        
Balance at February 28, 2010
  $ -  
Retained interest in Accolade (see Note 7)
    39.6  
Total gains (losses):
       
Included in earnings
    0.4  
Included in other comprehensive income
(foreign currency translation adjustments)
    0.8  
 
     
Total gains (losses)
    1.2  
Transfers in and/or out of Level 3
    -  
 
     
Balance at February 28, 2011
  $ 40.8  
 
     
          The following table presents the Company’s assets and liabilities measured at fair value on a nonrecurring basis for which an impairment assessment was performed for the periods presented:
                                 
    Fair Value Measurements Using        
    Quoted     Significant              
    Prices in     Other     Significant        
    Active     Observable     Unobservable        
    Markets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total Losses  
(in millions)                                
For the Year Ended February 28, 2011        
Long-lived assets held for sale
  $ -     $ -     $ 4.1     $ 5.8  
Trademarks
    -       -       136.9       23.6  
 
                       
Total
  $ -     $ -     $ 141.0     $ 29.4  
 
                       
 
                               
For the Year Ended February 28, 2010        
Long-lived assets held for sale
  $ -     $ -     $ 21.9     $ 13.4  
Trademarks
    -       -       162.7       103.2  
Investment in equity method investee
    -       -       4.2       25.4  
 
                       
Total
  $ -     $ -     $ 188.8     $ 142.0  
 
                       
          Long-lived assets held for sale:
          For the year ended February 28, 2011, in connection with the Company’s Australian Initiative, long-lived assets held for sale with a carrying value of $10.1 million were written down to their estimated fair value of $4.1 million, less cost to sell (which was estimated to be minimal), resulting in a loss of $5.8 million. For the year ended February 28, 2010, in connection with the Company’s Australian Initiative, long-lived assets held for sale with a carrying value of $35.9 million were written down to their estimated fair value of $22.5 million, less cost to sell of $0.6 million (or $21.9 million), resulting in a loss of $13.4 million. These losses are included in restructuring charges on the Company’s Consolidated Statements of Operations. For each period, these assets consisted primarily of certain winery and vineyard assets which had satisfied the conditions necessary to be classified as held for sale. As such, these assets were written down to a value based on the Company’s estimate of fair value less cost to sell. The fair value was determined based on a market value approach adjusted for the different characteristics between assets measured and the assets upon which the observable inputs were based.

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          Trademarks:
          For the year ended February 28, 2011, in connection with the Company’s annual review of indefinite lived intangible assets for impairment, certain trademarks, with a carrying value of $153.9 million, were written down to their fair value of $136.9 million, resulting in an impairment of $16.7 million. In addition, in connection with the Company’s third quarter of fiscal 2011 decision to discontinue certain wine brands within its CWNA segment’s wine portfolio, certain indefinite-lived trademarks, with a carrying value of $6.9 million, were written down to their estimated fair value resulting in an impairment of $6.9 million. For the year ended February 28, 2010, in connection with the Company’s annual review of indefinite lived intangible assets for impairment, certain trademarks, with a carrying value of $266.3 million, were written down to their fair value of $162.7 million, resulting in an impairment of $103.2 million for the year ended February 28, 2010. These impairments are included in impairment of goodwill and intangible assets on the Company’s Consolidated Statements of Operations. For each period, the Company measured the amount of impairment by calculating the amount by which the carrying value of these assets exceeded their estimated fair values. The fair value was determined based on an income approach using the relief from royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of trademark assets. The cash flow models the Company uses to estimate the fair values of its trademarks involve several assumptions, including (i) projected revenue growth rates; (ii) estimated royalty rates; (iii) calculated after-tax royalty savings expected from ownership of the subject trademarks; and (iv) discount rates used to derive the present value factors used in determining the fair value of the trademarks.
          Investment in equity method investee:
          For the year ended February 28, 2010, in connection with the Company’s review of its equity method investments for other-than-temporary impairment in the third quarter of fiscal 2010, the Company’s CWNA segment’s international equity method investment, Ruffino, with a carrying value of $29.8 million was written down to its fair value of $4.2 million, resulting in a loss of $25.4 million. This loss is included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations. The Company measured the amount of impairment by calculating the amount by which the carrying value of its investment exceeded its estimated fair value, which was based on projected discounted cash flows of this equity method investee.

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7.   GOODWILL:
          The changes in the carrying amount of goodwill are as follows:
                                         
                            Consolidations        
                    Crown     and        
    CWNA     CWAE     Imports     Eliminations     Consolidated  
(in millions)                                        
Balance, February 28, 2009
                                       
Goodwill
  $ 2,615.0     $ 852.6     $ 13.0     $ (13.0 )   $ 3,467.6  
Accumulated impairment losses
    -       (852.6 )     -       -       (852.6 )
 
                             
 
    2,615.0       -       13.0       (13.0 )     2,615.0  
Foreign currency translation adjustments
    114.1       -       -       -       114.1  
Divestiture of business
    (158.5 )     -       -       -       (158.5 )
 
                             
Balance, February 28, 2010
                                       
Goodwill
    2,570.6       852.6       13.0       (13.0 )     3,423.2  
Accumulated impairment losses
    -       (852.6 )     -       -       (852.6 )
 
                             
 
    2,570.6       -       13.0       (13.0 )     2,570.6  
Foreign currency translation adjustments
    49.2       -       -       -       49.2  
Divestiture of business
                                       
Goodwill
    -       (852.6 )     -       -       (852.6 )
Accumulated impairment losses
    -       852.6       -       -       852.6  
 
                             
Balance, February 28, 2011
                                       
Goodwill
    2,619.8       -       13.0       (13.0 )     2,619.8  
Accumulated impairment losses
    -       -       -       -       -  
 
                             
 
  $ 2,619.8     $ -     $ 13.0     $ (13.0 )   $ 2,619.8  
 
                             
           For the year ended February 28, 2010, the CWNA segment’s divestiture of business consists of the Company’s reduction of goodwill in connection with the March 2009 sale of its value spirits business. For the year ended February 28, 2011, the CWAE segment’s divestiture of business consists of the Company’s reduction of goodwill and accumulated impairment losses in connection with the January 2011 CWAE Divestiture.
           Divestiture of the Pacific Northwest Business –
           In June 2008, the Company sold certain businesses consisting of several of the California wineries and wine brands acquired in the acquisition of all of the issued and outstanding capital stock of Beam Wine Estates, Inc. (“BWE”), as well as certain wineries and wine brands from the states of Washington and Idaho (collectively, the “Pacific Northwest Business”) for cash proceeds of $204.2 million, net of direct costs to sell. In addition, if certain objectives are achieved by the buyer, the Company could receive up to an additional $25.0 million in cash payments. In connection with this divestiture, the Company’s CWNA segment recorded a loss of $23.2 million for the year ended February 28, 2009, which included a loss on business sold of $15.8 million and losses on contractual obligations of $7.4 million. This loss of $23.2 million is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.

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          Divestiture of the Value Spirits Business –
          In March 2009, the Company sold its value spirits business for $336.4 million, net of direct costs to sell. The Company received $276.4 million, net of direct costs to sell, in cash proceeds and a note receivable for $60.0 million in connection with this divestiture. In March 2010, the Company received full payment of the note receivable. In connection with the classification of the value spirits business as an asset group held for sale as of February 28, 2009, the Company’s CWNA segment recorded a loss of $15.6 million in the fourth quarter of fiscal 2009, primarily related to asset impairments, which is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. In the first quarter of fiscal 2010, the Company’s CWNA segment recognized a net gain of $0.2 million, which included a gain on settlement of a postretirement obligation of $1.0 million, partially offset by an additional loss of $0.8 million. This net gain is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.
          Divestiture of the Australian and U.K. Business –
          In January 2011, the Company sold 80.1% of its Australian and U.K. business (the “CWAE Divestiture”) at a transaction value of $266.9 million, subject to post-closing adjustments. The Company received cash proceeds, net of cash divested of $15.8 million and direct costs paid of $2.3 million, of $221.3 million, subject to post-closing adjustments. The Company retained a 19.9% interest in its previously owned Australian and U.K. business, hereinafter referred to as Accolade Wines (“Accolade”) (see Note 9). The following table summarizes the net gain recognized and the net cash proceeds received in connection with this divestiture:
         
(in millions)        
Net assets sold
  $ (734.1 )
Cash received from buyer, net of cash divested
    223.6  
Retained interest in Accolade
    48.2  
Estimated post-closing adjustments
    (19.3 )
Foreign currency reclassification
    678.8  
Indemnification liabilities
    (26.1 )
Direct costs to sell, paid and accrued
    (14.0 )
Other
    8.0  
 
     
Net gain on sale
    165.1  
Loss on settlement of pension (see Note 14)
    (109.9 )
 
     
Net gain
  $ 55.2  
 
     
          In addition, the Company’s CWAE segment recorded an additional net gain of $28.5 million, primarily associated with a net gain on derivative instruments of $20.8 million, related to this divestiture. Total net gains associated with this divestiture of $83.7 million are included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations.

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8.   INTANGIBLE ASSETS:
          The major components of intangible assets are as follows:
                                 
    February 28, 2011     February 28, 2010  
    Gross     Net     Gross     Net  
    Carrying     Carrying     Carrying     Carrying  
    Amount     Amount     Amount     Amount  
(in millions)                                
Amortizable intangible assets:
                               
Customer relationships
  $ 83.2     $ 64.1     $ 85.0     $ 69.0  
Other
    2.6       -       2.6       0.3  
 
                       
Total
  $ 85.8       64.1     $ 87.6       69.3  
 
                           
 
                               
Nonamortizable intangible assets:
                               
Trademarks
            816.5               846.0  
Other
            5.7               9.7  
 
                           
Total
            822.2               855.7  
 
                           
Total intangible assets, net
          $ 886.3             $ 925.0  
 
                           
          The Company did not incur costs to renew or extend the term of acquired intangible assets during the years ended February 28, 2011, and February 28, 2010. 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 $5.5 million, $5.8 million and $6.8 million for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively. Estimated amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
         
(in millions)        
2012
  $ 4.7  
2013
  $ 4.7  
2014
  $ 4.6  
2015
  $ 4.7  
2016
  $ 4.7  
Thereafter
  $ 40.7  
9.   OTHER ASSETS:
          The major components of other assets are as follows:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Investments in equity method investees
  $ 262.9     $ 278.5  
Investment in Accolade
    49.6       -  
Deferred financing costs
    47.3       47.1  
Notes receivable
    4.8       65.7  
Other
    22.4       70.2  
 
           
 
    387.0       461.5  
Less – Accumulated amortization
    (28.1 )     (19.1 )
 
           
 
  $ 358.9     $ 442.4  
 
           

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          Investments in equity method investees –
          Crown Imports:
          Constellation Beers Ltd. (“Constellation Beers”) (previously known as Barton Beers, Ltd.), an indirect wholly-owned subsidiary of the Company, and Diblo, S.A. de C.V. (“Diblo”), an entity owned 76.75% by Grupo Modelo, S.A.B. de C.V. (“Modelo”) and 23.25% by Anheuser-Busch Companies, Inc., each have, directly or indirectly, equal interests in a joint venture, Crown Imports LLC (“Crown Imports”). Crown Imports has the exclusive right to import, market and sell Modelo’s Mexican beer portfolio (the “Modelo Brands”) in the U.S. and Guam. In addition, Crown Imports also has the exclusive rights to import, market and sell the Tsingtao and St. Pauli Girl brands in the U.S.
          The Company accounts for the investment in Crown Imports under the equity method. Accordingly, the results of operations of Crown Imports are included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations. As of February 28, 2011, and February 28, 2010, the Company’s investment in Crown Imports was $183.3 million and $167.2 million, respectively. The carrying amount of the investment is greater than the Company’s equity in the underlying assets of Crown Imports by $13.6 million due to the difference in the carrying amounts of the indefinite lived intangible assets contributed to Crown Imports by each party. The Company received $210.0 million, $191.7 million and $265.9 million of cash distributions from Crown Imports for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively, all of which represent distributions of earnings.
          Constellation Beers provides certain administrative services to Crown Imports. Amounts related to the performance of these services for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, were not material. In addition, as of February 28, 2011, and February 28, 2010, amounts receivable from Crown Imports were not material.
          Ruffino:
          The Company has a 49.9% interest in Ruffino, the well-known Italian fine wine company. The Company does not have a controlling interest in Ruffino or exert any managerial control. The Company accounts for the investment in Ruffino under the equity method; accordingly, the results of operations of Ruffino are included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Operations.

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          In connection with the Company’s December 2004 investment in Ruffino, the Company granted separate irrevocable and unconditional options to the two other shareholders of Ruffino to put to the Company all of the ownership interests held by these shareholders for a price as calculated in the joint venture agreement. Each option was exercisable during the period starting from January 1, 2010, and ending on December 31, 2010. For the year ended February 28, 2010, in connection with the notification by the 9.9% shareholder of Ruffino to exercise its option to put its entire equity interest in Ruffino to the Company for the specified minimum value of €23.5 million, the Company recognized a loss of $34.3 million for the third quarter of fiscal 2010 on the contractual obligation created by this notification. This loss was included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. In May 2010, the Company settled this put option through a cash payment of €23.5 million ($29.6 million) to the 9.9% shareholder of Ruffino, thereby increasing the Company’s equity interest in Ruffino from 40.0% to 49.9%. In December 2010, the Company received notification from the 50.1% shareholder of Ruffino that it was exercising its option to put its entire equity interest in Ruffino to the Company for €55.9 million. Prior to this notification, the Company had initiated arbitration proceedings against the 50.1% shareholder alleging various matters which should affect the validity of the put option. However, subsequent to the initiation of the arbitration proceedings, the Company began discussions with the 50.1% shareholder on a framework for settlement of all legal actions. The framework of the settlement would include the Company’s purchase of the 50.1% shareholder’s entire equity interest in Ruffino on revised terms to be agreed upon by both parties. As a result, the Company recognized a loss for the fourth quarter of fiscal 2011 of €43.4 million ($60.0 million) on the contingent obligation. This loss is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. As of February 28, 2011, and February 28, 2010, the Company’s investment in Ruffino was $7.4 million and $4.1 million, respectively.
          The Company’s CWNA segment distributes Ruffino’s products, primarily in the U.S. Amounts purchased from Ruffino under this arrangement for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, were not material. As of February 28, 2011, and February 28, 2010, amounts payable to Ruffino were not material.
          Other:
          In connection with prior acquisitions, the Company acquired several investments which are being accounted for under the equity method. The primary investment consists of Opus One Winery LLC (“Opus One”), a 50% owned joint venture arrangement. As of February 28, 2011, and February 28, 2010, the Company’s investment in Opus One was $57.2 million and $57.4 million, respectively. The percentage of ownership of the remaining investments ranges from 20% to 50%.
          The following table presents summarized financial information for the Company’s Crown Imports equity method investment and the other material equity method investments discussed above. The amounts shown represent 100% of these equity method investments’ financial position and results of operations.
                                                 
    February 28, 2011     February 28, 2010  
    Crown                     Crown              
    Imports     Other     Total     Imports     Other     Total  
(in millions)                                                
Current assets
  $ 386.9     $ 110.1     $ 497.0     $ 336.6     $ 255.7     $ 592.3  
Noncurrent assets
  $ 32.1     $ 120.9     $ 153.0     $ 32.3     $ 177.6     $ 209.9  
Current liabilities
  $ (147.5 )   $ (100.7 )   $ (248.2 )   $ (161.7 )   $ (198.1 )   $ (359.8 )
Noncurrent liabilities
  $ (0.1 )   $ (76.3 )   $ (76.4 )   $ (0.1 )   $ (122.4 )   $ (122.5 )

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    Crown              
    Imports     Other     Total  
(in millions)                        
For the Year Ended February 28, 2011
Net sales
  $ 2,392.9     $ 987.5     $ 3,380.4  
Gross profit
  $ 690.5     $ 170.4     $ 860.9  
Income from continuing operations
  $ 452.3     $ 40.4     $ 492.7  
Net income
  $ 452.3     $ 40.4     $ 492.7  
 
                       
For the Year Ended February 28, 2010
Net sales
  $ 2,256.2     $ 1,126.2     $ 3,382.4  
Gross profit
  $ 658.4     $ 186.3     $ 844.7  
Income from continuing operations
  $ 443.9     $ 36.7     $ 480.6  
Net income
  $ 443.9     $ 36.7     $ 480.6  
 
                       
For the Year Ended February 28, 2009
Net sales
  $ 2,395.4     $ 988.0     $ 3,383.4  
Gross profit
  $ 717.4     $ 184.5     $ 901.9  
Income from continuing operations
  $ 504.6     $ 32.4     $ 537.0  
Net income
  $ 504.6     $ 32.4     $ 537.0  
          Investment in Accolade –
          In connection with the Company’s CWAE Divestiture, the Company retained a 19.9% interest in Accolade, its previously owned Australian and U.K. business, which consists of equity securities and available-for-sale debt securities. The investment in the equity securities will be accounted for under the cost method. Accordingly, the Company will recognize earnings only upon the receipt of a dividend from Accolade. Dividends received in excess of net accumulated earnings since the date of investment will be considered a return of investment and will be recorded as a reduction of the cost of the investment. No dividends were received for the year ended February 28, 2011. The available-for-sale debt securities will be measured at fair value on a recurring basis with unrealized holding gains and losses, including foreign currency gains and losses, reported in other comprehensive income until realized. Interest income will be recognized based on the interest rate implicit in the available-for-sale debt securities’ fair value and will be reported in interest expense, net, on the Company’s Consolidated Statements of Operations. Interest income recognized in connection with the available-for-sale debt securities was not material for the year ended February 28, 2011. The available-for-sale debt securities have a contractual maturity of twelve years from the date of issuance and can be settled, at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof.
          Other items –
          Amortization of deferred financing costs of $9.1 million, $6.3 million and $6.6 million for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively, is included in interest expense, net on the Company’s Consolidated Statements of Operations.

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10.   OTHER ACCRUED EXPENSES AND LIABILITIES:
          The major components of other accrued expenses and liabilities are as follows:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Salaries and commissions
  $ 76.1     $ 80.0  
Contractual obligation from put option of Ruffino shareholder
    60.0       32.1  
Advertising and promotions
    53.7       113.8  
Deferred revenue
    31.7       33.4  
Accrued interest
    23.9       26.8  
Accrued insurance
    17.7       18.7  
Accrued profit sharing
    15.8       12.7  
Income taxes payable
    14.1       43.1  
Other
    126.9       141.0  
 
           
 
  $ 419.9     $ 501.6  
 
           
11.   BORROWINGS:
          Borrowings consist of the following:
                                 
                            February 28,  
    February 28, 2011     2010  
    Current     Long-term     Total     Total  
(in millions)                                
Notes Payable to Banks:
                               
Senior Credit Facility –
                               
Revolving Credit Loans
  $ 74.9     $ -     $ 74.9     $ 289.3  
Other
    8.8       -       8.8       81.9  
 
                       
 
  $ 83.7     $ -     $ 83.7     $ 371.2  
 
                       
 
                               
Long-term Debt:
                               
Senior Credit Facility – Term Loans
  $ 5.6     $ 1,222.4     $ 1,228.0     $ 1,549.1  
Senior Notes
    -       1,893.6       1,893.6       1,892.6  
Other Long-term Debt
    10.3       20.7       31.0       22.6  
 
                       
 
  $ 15.9     $ 3,136.7     $ 3,152.6     $ 3,464.3  
 
                       
          Senior credit facility –
          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 are parties to a credit agreement, as amended (the “2006 Credit Agreement”). The 2006 Credit Agreement provides for aggregate credit facilities of $3,842.0 million, consisting of (i) a $1,200.0 million tranche A term loan facility with an original final maturity in June 2011, fully repaid as of February 28, 2011 (the “Tranche A Term Loans”), (ii) a $1,800.0 million tranche B term loan facility, of which $1,500.0 million has a final maturity in June 2013 (the “2013 Tranche B Term Loans”) and $300.0 million has a final maturity in June 2015 (the “2015 Tranche B Term Loans”), and (iii) an $842.0 million revolving credit facility (including a sub-facility for letters of credit of up to $200 million), of which $192.0 million terminates in June 2011 (the “2011 Revolving Facility”) and $650.0 million terminates in June 2013 (the “2013 Revolving Facility”). The Company uses its revolving credit facility under the 2006 Credit Agreement for general corporate purposes.

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          As of February 28, 2011, the required principal repayments of the tranche B term loan facility for each of the five succeeding fiscal years and thereafter are as follows:
         
    Tranche B  
    Term Loan  
    Facility  
(in millions)        
2012
  $ 5.6  
2013
    466.4  
2014
    465.1  
2015
    146.2  
2016
    144.7  
Thereafter
    -  
 
     
 
  $ 1,228.0  
 
     
          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) with respect to the 2011 Revolving Facility and the 2013 Revolving Facility, and is fixed with respect to the 2013 Tranche B Term Loans and the 2015 Tranche B Term Loans. As of February 28, 2011, the LIBOR margin for the 2011 Revolving Facility is 1.25%; the LIBOR margin for the 2013 Revolving Facility is 2.50%; the LIBOR margin for the 2013 Tranche B Term Loans is 1.50%; and the LIBOR margin on the 2015 Tranche B Term Loans is 2.75%.
          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, the 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 maintaining a maximum total debt coverage ratio and minimum interest coverage ratio.
          As of February 28, 2011, under the 2006 Credit Agreement, the Company had outstanding 2013 Tranche B Term Loans of $928.0 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $300.0 million bearing an interest rate of 3.1%, 2011 Revolving Facility of $7.5 million bearing an interest rate of 3.5%, 2013 Revolving Facility of $67.4 million bearing an interest rate of 3.1%, outstanding letters of credit of $13.9 million, and $753.2 million in revolving loans available to be drawn.

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          In April 2009, the Company transitioned its interest rate swap agreements to a one-month LIBOR base rate versus the then existing three-month LIBOR base rate. Accordingly, the Company entered into new interest rate swap agreements which were designated as cash flow hedges of $1,200.0 million of the Company’s floating LIBOR rate debt. In addition, the then existing interest rate swap agreements were dedesignated by the Company and the Company entered into additional undesignated interest rate swap agreements for $1,200.0 million to offset the prospective impact of the newly undesignated interest rate swap agreements. As a result, the Company fixed its interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt at an average rate of 4.0% through February 28, 2010. On March 1, 2010, the Company paid $11.9 million in connection with the maturity of these outstanding interest rate swap agreements, which is reported in other, net in cash flows from operating activities in the Company’s Consolidated Statements of Cash Flows. In June 2010, the Company entered into a new five year delayed start interest rate swap agreement effective September 1, 2011, which was designated as a cash flow hedge for $500.0 million of the Company’s floating LIBOR rate debt. Accordingly, the Company fixed its interest rates on $500.0 million of the Company’s floating LIBOR rate debt at an average rate of 2.9% (exclusive of borrowing margins) through September 1, 2016. For the year ended February 28, 2011, the Company did not reclassify any amount from AOCI to interest expense, net on its Consolidated Statements of Operations. For the years ended February 28, 2010, and February 28, 2009, the Company reclassified net losses of $27.7 million and $12.6 million, net of income tax effect, respectively, from AOCI to interest expense, net on the Company’s Consolidated Statements of Operations.
          Senior notes –
          In November 1999, the Company issued £75.0 million ($121.7 million upon issuance) aggregate principal amount of 8 1/2% Senior Notes due November 2009 (the “Sterling Senior Notes”). In March 2000, the Company exchanged £75.0 million aggregate principal amount of 8 1/2% Series B Senior Notes due in November 2009 (the “Sterling Series B Senior Notes”) for all of the Sterling Senior Notes. In October 2000, the Company exchanged £74.0 million aggregate principal amount of Sterling Series C Senior Notes (as defined below) for £74.0 million of the Sterling Series B Senior Notes. On May 15, 2000, the Company issued £80.0 million ($120.0 million upon issuance) aggregate principal amount of 8 1/2% Series C Senior Notes due November 2009 (the “Sterling Series C Senior Notes”). In November 2009, the Company repaid the Sterling Series B Senior Notes and the Sterling Series C Senior Notes with proceeds from its revolving credit facility under its then existing senior credit facility and cash flows from operating activities.
          In February 2009, the Company entered into a foreign currency forward contract to fix the U.S. dollar payment of the Sterling Series B Senior Notes and Sterling Series C Senior Notes. In accordance with the FASB guidance for derivatives and hedging, this foreign currency forward contract qualified for cash flow hedge accounting treatment. In November 2009, the Company received $33.2 million of proceeds from the maturity of this derivative instrument. This amount is reported in cash flows from financing activities on the Company’s Consolidated Statements of Cash Flows.
          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 ($685.6 million) were used to reduce a corresponding amount of borrowings under the Company’s then existing senior credit facility. Interest on the August 2006 Senior Notes is payable semiannually on March 1 and September 1 of each year, beginning March 1, 2007. As of February 28, 2011, and February 28, 2010, the Company had outstanding $695.6 million (net of $4.4 million unamortized discount) and $695.0 million (net of $5.0 million unamortized discount), respectively, aggregate principal amount of August 2006 Senior Notes.

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          On May 14, 2007, the Company issued $700.0 million aggregate principal amount of 7 1/4% Senior Notes due May 2017 (the “Original May 2007 Senior Notes”). The net proceeds of the offering ($693.9 million) were used to reduce a corresponding amount of borrowings under the revolving portion of the Company’s then existing senior credit facility. Interest on the Original May 2007 Senior Notes is payable semiannually on May 15 and November 15 of each year, beginning November 15, 2007. In January 2008, the Company exchanged $700.0 million aggregate principal amount of 7 1/4% Senior Notes due May 2017 (the “May 2007 Senior Notes”) for all of the Original May 2007 Senior Notes. The terms of the May 2007 Senior Notes are substantially identical in all material respects to the Original May 2007 Senior Notes, except that the May 2007 Senior Notes are registered under the Securities Act of 1933, as amended. As of February 28, 2011, and February 28, 2010, the Company had outstanding $700.0 million aggregate principal amount of May 2007 Senior Notes.
          On December 5, 2007, the Company issued $500.0 million aggregate principal amount of 8 3/8% Senior Notes due December 2014 at an issuance price of $496.7 million (net of $3.3 million unamortized discount, with an effective interest rate of 8.5%) (the “December 2007 Senior Notes”). The net proceeds of the offering ($492.2 million) were used to fund a portion of the purchase price of BWE. Interest on the December 2007 Senior Notes is payable semiannually on June 15 and December 15 of each year, beginning June 15, 2008. As of February 28, 2011, and February 28, 2010, the Company had outstanding $498.0 million (net of $2.0 million unamortized discount) and $497.6 million (net of $2.4 million unamortized discount) aggregate principal amount of December 2007 Senior Notes.
          The senior notes described above 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 plus a make whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 50 basis points. The 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 U.S. operating subsidiaries guarantee the senior notes, on a senior unsecured basis.
          Senior subordinated notes
          On January 23, 2002, the Company issued $250.0 million aggregate principal amount of 8 1/8% Senior Subordinated Notes due January 2012 (the “January 2002 Senior Subordinated Notes”). On February 25, 2010, the Company repaid the January 2002 Senior Subordinated Notes with proceeds from its revolving credit facility under the 2006 Credit Agreement and cash flows from operating activities.
          Indentures
          The Company’s Indentures relating to its outstanding senior notes contain certain covenants, including, but not limited to: (i) a limitation on liens on certain assets; (ii) a limitation on certain sale and leaseback transactions; and (iii) restrictions on mergers, consolidations and the transfer of all or substantially all of the assets of the Company to another person.
          Subsidiary credit facilities –
          The Company has additional credit arrangements totaling $154.2 million and $266.3 million as of February 28, 2011, and February 28, 2010, respectively. These arrangements primarily support the financing needs of the Company’s domestic and foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions. As of February 28, 2011, and February 28, 2010, amounts outstanding under these arrangements were $39.8 million and $104.5 million, respectively.

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          Debt payments
          Principal payments required under long-term debt obligations (excluding unamortized discount of $6.4 million) for each of the five succeeding fiscal years and thereafter are as follows:
         
(in millions)        
2012
  $ 15.9  
2013
    471.1  
2014
    468.7  
2015
    650.3  
2016
    146.2  
Thereafter
    1,406.8  
 
     
 
  $ 3,159.0  
 
     
12.   INCOME TAXES:
          Income (loss) before income taxes was generated as follows:
                         
    For the Years Ended  
    February 28,     February 28,     February 28,  
    2011     2010     2009  
(in millions)                        
Domestic
  $ 946.0     $ 365.6     $ 401.9  
Foreign
    (395.0 )     (106.3 )     (508.7 )
 
                 
 
  $ 551.0     $ 259.3     $ (106.8 )
 
                 
          The income tax (benefit) provision consisted of the following:
                         
    For the Years Ended  
    February 28,     February 28,     February 28,  
    2011     2010     2009  
(in millions)                        
Current:
                       
Federal
  $ (112.9 )   $ 139.4     $ 133.8  
State
    21.7       34.2       36.4  
Foreign
    11.8       17.0       22.1  
 
                 
Total current
    (79.4 )     190.6       192.3  
 
                 
 
                       
Deferred:
                       
Federal
    31.8       5.4       22.7  
State
    4.6       0.9       (3.5 )
Foreign
    34.5       (36.9 )     (16.9 )
 
                 
Total deferred
    70.9       (30.6 )     2.3  
 
                 
 
                       
Income tax provision
  $ (8.5 )   $ 160.0     $ 194.6  
 
                 
          The foreign (benefit) provision for income taxes is based on foreign pretax earnings. Earnings of foreign subsidiaries would be subject to U.S. income taxation on repatriation to the U.S. The Company’s consolidated financial statements provide for anticipated tax liabilities on amounts that may be repatriated.
          Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income.

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          Significant components of deferred tax assets (liabilities) consist of the following:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Deferred tax assets:
               
Stock-based compensation
  $ 49.2     $ 43.0  
Inventory
    16.1       13.9  
Net operating losses
    9.9       158.2  
Insurance accruals
    6.4       6.7  
Employee benefits
    4.1       30.6  
Other accruals
    40.8       30.6  
 
           
Gross deferred tax assets
    126.5       283.0  
Valuation allowances
    (11.4 )     (234.7 )
 
           
Deferred tax assets, net
    115.1       48.3  
 
           
 
               
Deferred tax liabilities:
               
Intangible assets
    (383.4 )     (286.5 )
Property, plant and equipment
    (192.8 )     (167.9 )
Investment in equity method investees
    (41.4 )     (33.7 )
Provision for unremitted earnings
    (22.6 )     (1.5 )
Unrealized foreign exchange
    (10.6 )     -  
Derivative instruments
    (4.6 )     (14.5 )
 
           
Total deferred tax liabilities
    (655.4 )     (504.1 )
 
           
Deferred tax liabilities, net
  $ (540.3 )   $ (455.8 )
 
           
          Amounts recognized in the Consolidated Balance Sheets consist of:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Current deferred tax assets
  $ 42.1     $ 50.0  
Long-term deferred tax assets
    1.8       30.8  
Current deferred tax liabilities
    (1.1 )     (0.4 )
Long-term deferred tax liabilities
    (583.1 )     (536.2 )
 
           
 
  $ (540.3 )   $ (455.8 )
 
           
          In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. Management considers the projected reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon this assessment, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of any valuation allowances. During the years ended February 28, 2011, and February 28, 2010, the Company recorded additional valuation allowances, primarily associated with its Australian and U.K. business. The decrease in the valuation allowance as of February 28, 2011, is primarily related to the January 2011 CWAE Divestiture.
          Operating loss carryforwards totaling $42.0 million at February 28, 2011, are being carried forward in a number of foreign jurisdictions where the Company is permitted to use tax operating losses from prior periods to reduce future taxable income. Of these operating loss carryforwards, $27.0 million will expire in 2013 through 2027 and $15.0 million of operating losses in foreign jurisdictions may be carried forward indefinitely. A U.S. tax loss of $235.2 million was generated during the year ended February 28, 2011. The Company expects to carryback this loss and credits generated during the year ended February 28, 2011, to the years ended February 28, 2010, and February 28, 2009.

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          The Company is subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, the Company provides for additional tax expense based on probable outcomes of such matters. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes the reserves reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would require the use of cash. Favorable resolution would be recognized as a reduction to the effective tax rate in the year of resolution. During the year ended February 28, 2011, various federal, state, and international examinations were finalized. A tax benefit of $36.0 million was recorded primarily related to the resolution of certain tax positions in connection with those examinations and the expiration of statutes of limitation.
          A reconciliation of the total tax provision to the amount computed by applying the statutory U.S. Federal income tax rate to income (loss) before provision for income taxes is as follows:
                                                 
    For the Years Ended  
    February 28, 2011     February 28, 2010     February 28, 2009  
            % of             % of             % of  
            Pretax             Pretax             Pretax  
    Amount     Income     Amount     Income     Amount     Income  
(in millions, except % of pretax income data)  
Income tax provision (benefit) at statutory rate
  $ 192.9       35.0     $ 90.8       35.0     $ (37.4 )     35.0  
State and local income taxes, net of federal income tax benefit
    17.1       3.1       22.8       8.8       21.3       (20.0 )
Deduction for investments and loans related to the CWAE Divestiture
    (207.0 )     (37.5 )     -       -       -       -  
CWAE Divestiture
    (19.7 )     (3.6 )     -       -       -       -  
Impairments and dispositions of nondeductible goodwill, equity method investments and other intangible assets
    21.0       3.8       61.5       23.7       131.5       (123.1 )
Net operating loss valuation allowance
    46.8       8.5       18.6       7.2       67.4       (63.2 )
Nontaxable foreign exchange gains and losses
    (3.8 )     (0.7 )     (8.8 )     (3.4 )     11.4       (10.6 )
Earnings of subsidiaries taxed at other than U.S. statutory rate
    (46.8 )     (8.5 )     (27.7 )     (10.7 )     (3.5 )     3.3  
Miscellaneous items, net
    (9.0 )     (1.6 )     2.8       1.1       3.9       (3.6 )
 
                                   
 
  $ (8.5 )     (1.5 )   $ 160.0       61.7     $ 194.6       (182.2 )
 
                                   
          The effect of earnings of foreign subsidiaries includes the difference between the U.S. statutory rate and local jurisdiction tax rates, as well as the (benefit) provision for incremental U.S. taxes on unremitted earnings of foreign subsidiaries offset by foreign tax credits and other foreign adjustments.

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          As of February 28, 2011, and February 28, 2010, the liability for income taxes associated with uncertain tax positions, excluding interest and penalties, was $154.4 million and $124.0 million, respectively. A reconciliation of the beginning and ending unrecognized tax benefit liabilities is as follows:
                 
    For the Years Ended  
    February 28,     February 28,  
    2011     2010  
(in millions)                
Balance, March 1
  $ (124.0 )   $ (146.6 )
Increases as a result of tax positions taken during a prior period
    (9.5 )     (4.8 )
Decreases as a result of tax positions taken during a prior period
    1.8       10.8  
Increases as a result of tax positions taken during the current period
    (59.5 )     (25.3 )
Decreases related to settlements with tax authorities
    36.0       39.6  
Decreases related to lapse of applicable statute of limitations
    0.8       2.3  
 
           
Balance, February 28
  $ (154.4 )   $ (124.0 )
 
           
          As of February 28, 2011, and February 28, 2010, the Company has $163.3 million and $130.8 million, respectively, of non-current unrecognized tax benefit liabilities, including interest and penalties, recorded on the Company’s Consolidated Balance Sheet. These liabilities are recorded as non-current as payment of cash is not anticipated within one year of the balance sheet date.
          As of February 28, 2011, and February 28, 2010, the Company has $154.4 million and $124.0 million, respectively, of unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax rate.
          In accordance with the Company’s accounting policy, the Company recognizes interest and penalties related to unrecognized tax benefit liabilities as a component of the provision for income taxes on the Company’s Consolidated Statements of Operations. For the years ended February 28, 2011, and February 28, 2010, the Company recorded ($4.1) million and ($1.1) million of net interest expense (income), net of income tax effect, and penalties, respectively. As of February 28, 2011, and February 28, 2010, $11.6 million, net of income tax effect, and $15.7 million, net of income tax effect, respectively, was included in the liability for uncertain tax positions for the possible payment of interest and penalties.
          Various U.S. Federal, state and foreign income tax examinations are currently in progress. It is reasonably possible that the liability associated with the Company’s unrecognized tax benefit liabilities will increase or decrease within the next twelve months as a result of these examinations or the expiration of statutes of limitation. As of February 28, 2011, the Company estimates that unrecognized tax benefit liabilities could change by a range of $25 million to $70 million. The Company files U.S. Federal income tax returns and various state, local and foreign income tax returns. Major tax jurisdictions where the Company is subject to examination by tax authorities include Australia, Canada, New Zealand, the U.K. and the U.S. With few exceptions, the Company is no longer subject to U.S. Federal, state, local or foreign income tax examinations for fiscal years prior to February 28, 2006.

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13.   OTHER LIABILITIES:
          The major components of other liabilities are as follows:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Unrecognized tax benefit liabilities
  $ 151.7     $ 130.8  
Indemnification liabilities
    27.8       1.8  
Accrued pension liability (see Note 14)
    10.3       115.6  
Adverse grape contracts (see Note 15)
    9.3       15.9  
Other
    33.9       68.0  
 
           
 
  $ 233.0     $ 332.1  
 
           
14.   DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS:
          Defined contribution plans –
          The Company’s retirement and profit sharing plan, the Constellation Brands, Inc. 401(k) and Profit Sharing Plan (the “Plan”), covers substantially all U.S. employees, excluding those employees covered by collective bargaining agreements. The 401(k) portion of the Plan permits eligible employees to defer a portion of their compensation (as defined in the Plan) on a pretax basis. Participants may defer up to 50% of their compensation for the year, subject to limitations of the Plan. The Company makes a matching contribution of 50% of the first 6% of compensation a participant defers. The amount of the Company’s contribution under the profit sharing portion of the Plan is a discretionary amount as determined by the Board of Directors on an annual basis, subject to limitations of the Plan. Company contributions under the Plan were $13.6 million, $15.6 million and $14.0 million for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively.
          In addition to the Plan discussed above, the Company has a defined contribution plan that covers substantially all of its New Zealand employees and a defined contribution plan that covers certain of its Canadian employees. The Company also has the Retirement Plan for Salaried Employees of Vincor International Inc. (the “Vincor Retirement Plan”) which covers substantially all of its salaried Canadian employees. The Vincor Retirement Plan has a defined benefit component and a defined contribution component. Prior to the CWAE Divestiture, the Company also had the Constellation Wines Australia Superannuation Plan (the “Constellation Wines Australia Plan”) which covered substantially all of its salaried Australian employees. The Constellation Wines Australia Plan had a defined benefit component and a defined contribution component. The Company also had a statutory obligation to provide a minimum defined contribution on behalf of any Australian employees who were not covered by the Constellation Wines Australia Plan. Lastly, the Company had a defined contribution plan that covered substantially all of its U.K. employees. Company contributions under the defined contribution component of the Constellation Wines Australia Plan, the Australian statutory obligation, the U.K. defined contribution plan, the New Zealand defined contribution plan, the Canadian defined contribution plan and the defined contribution component of the Vincor Retirement Plan aggregated $7.0 million, $8.2 million and $8.6 million for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively.
          Defined benefit pension plans –
          The Company also has defined benefit pension plans that cover certain of its non-U.S. employees. These consist of a Canadian plan, the defined benefit component of the Vincor Retirement Plan and one defined benefit pension plan which covers substantially all of its hourly Canadian employees. Prior to the CWAE Divestiture, the Company also had defined benefit pension plans that consisted of an U.K. plan and the defined benefit component of the Constellation Wines Australia Plan.

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          Effective February 28, 2009, the Company adopted amended FASB guidance for compensation – retirement benefits. This guidance requires companies to measure the funded status of a defined benefit postretirement plan as of the date of the company’s fiscal year-end (with limited exceptions). The Company had previously used a December 31 measurement date for its defined benefit pension and other postretirement plans. On March 1, 2008, the Company elected to transition to a fiscal year-end measurement date utilizing the second alternative prescribed by the amended FASB guidance. Accordingly, on March 1, 2008, the Company recognized adjustments to its opening retained earnings, accumulated other comprehensive income, net of income tax effect, and pension and other postretirement plan assets or liabilities. These adjustments did not have a material impact on the Company’s consolidated financial statements. The Company completed its adoption of this amended FASB guidance on February 28, 2009, when the Company changed its measurement date for its defined benefit pension and other postretirement plans to February 28, 2009. Accordingly, the Company used the last day of February as its measurement date for all of its plans for the years ended February 28, 2011, February 28, 2010 and February 28, 2009.
          For the year ended February 28, 2011, in connection with the January 2011 CWAE Divestiture, the Company recognized settlement losses of $109.9 million associated with the settlement of the related pension obligations. For the year ended February 28, 2009, in connection with the Company’s August 2008 sale of a nonstrategic Canadian distilling facility, the Company recognized a settlement loss and curtailment loss of $8.6 million and $0.4 million, respectively, associated with the settlement of the related pension obligation. Net periodic benefit cost reported in the Consolidated Statements of Operations for all of the Company’s defined benefit pension plans includes the following components:
                         
    For the Years Ended  
    February 28,     February 28,     February 28,  
    2011     2010     2009  
(in millions)                        
Service cost
  $ 4.4     $ 2.4     $ 3.9  
Interest cost
    22.2       21.8       23.4  
Expected return on plan assets
    (23.8 )     (25.5 )     (27.5 )
Amortization of prior service cost
    0.1       0.1       0.2  
Recognized net actuarial loss
    9.0       4.4       6.9  
Recognized loss due to curtailment
    -       -       0.4  
Recognized net loss due to settlement
    109.9       1.1       8.6  
 
                 
Net periodic benefit cost
  $ 121.8     $ 4.3     $ 15.9  
 
                 
          The following table summarizes the funded status of the Company’s defined benefit pension plans and the related amounts included in the Consolidated Balance Sheets:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Change in benefit obligation:
               
Benefit obligation as of March 1
  $ 397.6     $ 288.8  
Service cost
    4.4       2.4  
Interest cost
    22.2       21.8  
Plan participants’ contributions
    1.8       1.8  
Curtailment
    (12.1 )     (1.6 )
Actuarial loss
    4.3       78.7  
Plan amendment
    (2.6 )     -  
Settlement
    (337.3 )     (4.5 )
Benefits paid
    (15.9 )     (15.5 )
Foreign currency exchange rate changes
    23.7       25.7  
 
           
Benefit obligation as of the last day of February
  $ 86.1     $ 397.6  
 
           

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    February 28,     February 28 ,  
    2011     2010  
(in millions)                
Change in plan assets:
               
Fair value of plan assets as of March 1
  $ 283.1     $ 240.1  
Actual return on plan assets
    45.7       29.4  
Employer contribution
    10.4       7.5  
Plan participants’ contributions
    1.8       1.8  
Settlement
    (268.1 )     (4.5 )
Benefits paid
    (15.9 )     (15.5 )
Foreign currency exchange rate changes
    18.7       24.3  
 
           
Fair value of plan assets as of the last day of February
  $ 75.7     $ 283.1  
 
           
 
               
Funded status of the plan as of the last day of February
  $ (10.4 )   $ (114.5 )
 
           
 
               
Amounts recognized in the Consolidated Balance Sheets consist of:
Long-term pension asset
  $ -     $ 1.2  
Current accrued pension liability
    (0.1 )     (0.1 )
Long-term accrued pension liability
    (10.3 )     (115.6 )
 
           
 
  $ (10.4 )   $ (114.5 )
 
           
 
               
Amounts recognized in accumulated other comprehensive income:
Unrecognized prior service (credit) cost
  $ (2.1 )   $ 0.6  
Unrecognized actuarial loss
    15.4       145.1  
 
           
Accumulated other comprehensive income, gross
    13.3       145.7  
Cumulative tax impact
    3.3       40.3  
 
           
Accumulated other comprehensive income, net
  $ 10.0     $ 105.4  
 
           
          The estimated amounts that will be amortized from accumulated other comprehensive income, net of income tax effect, into net periodic benefit cost over the next fiscal year are as follows:
         
(in millions)        
Prior service cost
  $ 0.1  
Net actuarial loss
  $ 0.4  
          As of February 28, 2011, and February 28, 2010, the accumulated benefit obligation for all defined benefit pension plans was $71.6 million and $379.2 million, respectively. The following table summarizes the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for only those pension plans with an accumulated benefit obligation in excess of plan assets:
                 
    February 28,     February 28,  
    2011     2010  
(in millions)                
Projected benefit obligation
  $ 7.2     $ 323.2  
Accumulated benefit obligation
  $ 6.9     $ 317.2  
Fair value of plan assets
  $ 5.8     $ 217.6  
          The following table sets forth the weighted average assumptions used in developing the net periodic pension expense:
                 
    For the Years Ended
    February 28,   February 28,
    2011   2010
Rate of return on plan assets
    9.11%       9.72%  
Discount rate
    5.95%       6.82%  
Rate of compensation increase
    4.40%       4.03%  

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          The actuarial present value of the benefit obligation is based on the expected date of separation or retirement. The following table sets forth the weighted average assumptions used in developing the benefit obligation:
                 
    February 28,   February 28,
    2011   2010
Discount rate
    5.23%       5.95%  
Rate of compensation increase
    3.50%       4.40%  
          The Company’s weighted average expected long-term rate of return on plan assets is 9.11%. The Company considers the historical level of long-term returns and the current level of expected long-term returns for each asset class, as well as the current and expected allocation of assets when developing its expected long-term rate of return on assets assumption. The expected return for each asset class is weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the Company’s portfolios.
          On February 28, 2010, the Company adopted the amended FASB guidance for compensation – retirement benefits which provided additional guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The following table presents the major categories and the respective fair value hierarchy for the Company’s defined benefit pension plan assets as of February 28, 2011, and February 28, 2010:
                                 
    Quoted     Significant              
    Prices in     Other     Significant        
    Active     Observable     Unobservable        
    Markets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
(in millions)                                
February 28, 2011
                               
Asset Class
                               
Cash and cash equivalent funds
  $ 3.4     $ -     $ -     $ 3.4  
Equity securities:
                               
U. S. equities
    11.0       -       -       11.0  
Non-U.S. equities
    45.8       -       -       45.8  
Fixed income securities:
                               
Corporate bonds
    -       5.9       -       5.9  
Government bonds
    -       9.2       -       9.2  
Mortgage-backed
    -       0.4       -       0.4  
 
                       
Total fair value of plan assets
  $ 60.2     $ 15.5     $ -     $ 75.7  
 
                       
 
                               
February 28, 2010
                               
Asset Class
                               
Cash and cash equivalent funds
  $ 12.8     $ -     $ -     $ 12.8  
Equity securities:
                               
U. S. equities
    23.6       -       -       23.6  
Non-U.S. equities
    69.0       -       -       69.0  
Fixed income securities:
                    -          
Corporate bonds
    40.0       5.2       -       45.2  
Government bonds
    18.7       6.9       -       25.6  
Mortgage-backed
    -       0.5       -       0.5  
Asset-backed
    0.2       8.8       -       9.0  
Real estate
    -       0.5       -       0.5  
Hedge funds
    27.0       26.0       -       53.0  
Other
    33.9       10.0       -       43.9  
 
                       
Total fair value of plan assets
  $ 225.2     $ 57.9     $ -     $ 283.1  
 
                       

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          The following methods and assumptions were used to estimate the fair value of each asset class:
          Cash and cash equivalent funds: The value is based on cost, which approximates fair value.
          Equity securities: Investments in stocks are valued using quoted market prices multiplied by the number of shares held.
          Fixed income securities: The value is determined using quoted prices in an active market; or independent observable market inputs, such as matrix pricing, yield curves and indices.
          Real estate: The value is based on the net asset value of units of ownership underlying the assets held at year end. The fair value of real estate holdings is based on market data including earnings capitalization, discounted cash flow analysis, comparable sales transactions or a combination of these methods.
          Hedge funds: The value is based on the net asset value of the underlying assets of the investment. The underlying assets consist of cash, equity securities and fixed income securities.
          Other: The value is calculated by the counterparty using a combination of quoted market prices, discounted cash flow analysis, and the Black-Scholes option-pricing model.
          For its Canadian defined benefit plans, the Company employs an investment return approach whereby a mix of equities and fixed income investments are used to maximize the long-term rate of return on plan assets for a prudent level of risk. From time to time, the Company will target asset allocation to enhance total return while balancing risks. The established weighted average target allocations are approximately 78.5% equity securities, 21.3% fixed income securities and 0.2% all other types of investments. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The individual investment portfolios contain a diversified blend of equity and fixed income investments. Equity investments are diversified across the plan’s local jurisdiction stocks as well as international stocks, and across multiple asset classifications, including growth, value, and large and small capitalizations. Investment risk is measured and monitored on an ongoing basis through periodic investment portfolio reviews and annual liability measures.
          The Company expects to contribute $4.2 million to its pension plans during the year ended February 29, 2012.
          Benefit payments, which reflect expected future service, as appropriate, expected to be paid during the next ten fiscal years are as follows:
         
(in millions)        
2012
  $ 2.4  
2013
  $ 2.8  
2014
  $ 2.8  
2015
  $ 3.1  
2016
  $ 3.4  
2017 – 2021
  $ 23.2  
15.   COMMITMENTS AND CONTINGENCIES:
          Operating leases –
          Step rent provisions, escalation clauses, capital improvement funding and other lease concessions, when present in the Company’s leases, are taken into account in computing the minimum lease payments. The minimum lease payments for the Company’s operating leases are recognized on a straight-line basis over the minimum lease term.

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          Future payments under noncancelable operating leases having initial or remaining terms of one year or more are as follows for each of the five succeeding fiscal years and thereafter:
         
(in millions)        
2012
  $ 59.8  
2013
    45.3  
2014
    30.7  
2015
    24.8  
2016
    21.3  
Thereafter
    158.3  
 
     
 
  $ 340.2  
 
     
          Rental expense was $92.6 million, $99.4 million and $94.6 million for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively.
          Purchase commitments and contingencies –
          In connection with previous acquisitions as well as with the BWE acquisition, the acquisition of all the outstanding common shares of Vincor International Inc. (“Vincor”) and the acquisition of all of the outstanding capital stock of The Robert Mondavi Corporation (“Robert Mondavi”), the Company has assumed grape purchase contracts with certain growers and suppliers. In addition, the Company has entered into other grape purchase contracts with various growers and suppliers in the normal course of business. Under the grape purchase contracts, the Company is committed to purchase grape production yielded from a specified number of acres for a period of time from one to fourteen years. The actual tonnage and price of grapes that must be purchased by the Company will vary each year depending on certain factors, including weather, time of harvest, overall market conditions and the agricultural practices and location of the growers and suppliers under contract. The Company purchased $383.4 million, $404.8 million and $446.2 million of grapes under contracts for the years ended February 28, 2011, February 28, 2010, and February 28, 2009, respectively. Based on current production yields and published grape prices, the aggregate minimum purchase obligations under these contracts are estimated to be $915.5 million over the remaining terms of the contracts which extend through December 2024.
          In connection with previous acquisitions as well as with the BWE acquisition, the Vincor acquisition and the Robert Mondavi acquisition, the Company established a liability for the estimated loss on firm purchase commitments assumed at the time of acquisition. As of February 28, 2011, and February 28, 2010, the remaining balance on this liability is $14.1 million and $25.3 million, respectively.
          The Company’s aggregate minimum purchase obligations under bulk wine purchase contracts are estimated to be $29.4 million over the remaining terms of the contracts which extend through December 2013. The Company’s aggregate minimum purchase obligations under certain raw material purchase contracts are estimated to be $326.5 million over the remaining terms of the contracts which extend through February 2015.
          In connection with a previous acquisition, the Company assumed certain processing contracts which commit the Company to utilize outside services to process and/or package a minimum volume quantity. The Company’s aggregate minimum contractual obligations under these processing contracts are estimated to be $130.1 million over the remaining terms of the contracts which extend through March 2019.

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          Indemnification liabilities –
          In connection with the Company’s January 2011 CWAE Divestiture, the Company indemnified respective parties against certain liabilities that may arise related to certain contracts with certain investees of Accolade, a certain facility in the U.K. and a certain income tax matter. As a result, the Company recorded liabilities with a fair value of $26.1 million at January 31, 2011, resulting in a loss of $26.1 million. This loss is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. The fair value was determined using a probability-weighted cash flow analysis based on the credit profile of the issuer. As of February 28, 2011, the carrying amount of these indemnification liabilities was $26.1 million. If the indemnified party were to incur a liability, pursuant to the terms of the indemnification, the Company would be required to reimburse the indemnified party. As of February 28, 2011, the Company estimates that these indemnifications could require the Company to make potential future payments of up to $331.9 million under these indemnifications with $282.1 million of this amount able to be recovered by the Company from third parties under recourse provisions. The Company does not expect to be required to make material payments under the indemnifications and the Company believes that the likelihood is remote that the indemnifications could have a significant adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.
          Other contingency –
          In February 2011, the Company terminated early a certain agreement with a certain equity method investee. Based upon the terms of the certain agreement and the related joint venture agreement, the Company concluded as of February 28, 2011, that it is not probable that there is a likelihood of loss under this contingency. Therefore, no liability has been recorded by the Company related to this contingency. While the Company believes it should prevail against any claim related to the early termination of this agreement, a loss of up to $55 million could be incurred by the Company should it not prevail in any claim.
          Employment contracts –
          The Company has employment contracts with its executive officers and certain other management personnel with either automatic one year renewals after an initial term or an indefinite term of employment unless terminated by either party. These employment contracts provide for minimum salaries, as adjusted for annual increases, and may include incentive bonuses based upon attainment of specified management goals. These employment contracts may also provide for severance payments in the event of specified termination of employment. In addition, the Company has employment arrangements with certain other management personnel which provide for severance payments in the event of specified termination of employment. As of February 28, 2011, the aggregate commitment for future compensation and severance, excluding incentive bonuses, was $35.6 million, none of which was accrued.
          Employees covered by collective bargaining agreements –
          Approximately 10% of the Company’s full-time employees are covered by collective bargaining agreements at February 28, 2011. Agreements expiring within one year cover approximately 2% of the Company’s full-time employees.
          Legal matters –
          In the course of its business, the Company is subject to litigation from time to time. Although the amount of any liability with respect to such litigation cannot be determined, in the opinion of management, such liability will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

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16.   STOCKHOLDERS’ EQUITY:
          Common stock –
          The Company has two classes of outstanding common stock: Class A Common Stock and Class B Convertible Common Stock. Class B Convertible Common Stock shares are convertible into shares of Class A Common Stock on a one-to-one basis at any time at the option of the holder. Holders of Class B Convertible Common Stock are entitled to ten votes per share. Holders of Class A Common Stock are entitled to one vote per share and a cash dividend premium. If the Company pays a cash dividend on Class B Convertible Common Stock, each share of Class A Common Stock will receive an amount at least ten percent greater than the amount of the cash dividend per share paid on Class B Convertible Common Stock. In addition, the Board of Directors may declare and pay a dividend on Class A Common Stock without paying any dividend on Class B Convertible Common Stock. However, the Company’s senior credit facility limits the cash dividends that can be paid by the Company on its common stock to an amount determined in accordance with the terms of the 2006 Credit Agreement.
          In addition, the Company has a class of common stock consisting of shares of Class 1 Common Stock, $0.01 par value per share (the “Class 1 Common Stock”). Shares of Class 1 Common Stock do not generally have voting rights. Class 1 Common Stock shares are convertible into shares of Class A Common Stock on a one-to-one basis at any time at the option of the holder, provided that the holder immediately sells the Class A Common Stock acquired upon conversion. Because shares of Class 1 Common Stock are convertible into shares of Class A Common Stock, for each share of Class 1 Common Stock issued, the Company must reserve one share of Class A Common Stock for issuance upon the conversion of the share of Class 1 Common Stock. Holders of Class 1 Common Stock do not have any preference as to dividends, but may participate in any dividend if and when declared by the Board of Directors. If the Company pays a cash dividend on Class 1 Common Stock, each share of Class A Common Stock will receive an amount at least ten percent greater than the amount of cash dividend per share paid on Class 1 Common Stock. In addition, the Board of Directors may declare and pay a dividend on Class A Common Stock without paying a dividend on Class 1 Common Stock. The cash dividends declared and paid on Class B Convertible Common Stock and Class 1 Common Stock must always be the same.
          In July 2009, the stockholders of the Company approved an increase in the number of authorized shares of Class A Common Stock from 315,000,000 shares to 322,000,000 shares, and the number of authorized shares of Class 1 Common Stock from 15,000,000 shares to 25,000,000 shares, thereby increasing the aggregate number of authorized shares of the Company’s common and preferred stock to 378,000,000 shares.
          At February 28, 2011, there were 187,550,967 shares of Class A Common Stock and 23,611,958 shares of Class B Convertible Common Stock outstanding, net of treasury stock. There were no shares outstanding of Class 1 Common Stock at February 28, 2011.

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          Stock repurchases –
          In April 2010, the Company’s Board of Directors authorized the repurchase of up to $300.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. During the year ended February 28, 2011, the Company repurchased 17,223,404 shares of Class A Common Stock pursuant to this authorization at an aggregate cost of $300.0 million, or an average cost of $17.42 per share, through a collared accelerated stock buyback (“ASB”) transaction that was announced in April 2010. The Company paid the purchase price under the ASB transaction in April 2010, at which time it received an initial installment of 11,016,451 shares of Class A Common Stock. In May 2010, the Company received an additional installment of 2,785,029 shares of Class A Common Stock in connection with the early termination of the hedge period on May 10, 2010. In November 2010, the Company received the final installment of 3,421,924 shares of Class A Common Stock following the end of the calculation period on November 24, 2010. The Company used revolver borrowings under the 2006 Credit Agreement to pay the purchase price for the repurchased shares. The repurchased shares have become treasury shares. No shares were repurchased during the years ended February 28, 2010, and February 28, 2009.
          In April 2011, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. The Board of Directors did not specify a date upon which this authorization would expire. Share repurchases under this authorization are expected to be accomplished from time to time based on market conditions, the Company’s cash and debt position, and other factors as determined by management. Shares may be repurchased through open market or privately negotiated transactions, and management currently expects that the repurchase under this authorization will be implemented over a multi-year period. The Company may fund share repurchases with cash generated from operations or proceeds of borrowings under its senior credit facility. Any repurchased shares will become treasury shares. As of April 28, 2011, no shares have been repurchased pursuant to this authorization.
17.   STOCK-BASED EMPLOYEE COMPENSATION:
          The Company has four stock-based employee compensation plans (as further discussed below). Total compensation cost and income tax benefits recognized for the Company’s stock-based awards are as follows: