FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2006

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.
(Exact name of registrant as specified in its charter)
 

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


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

(585) 218-3600
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large Accelerated Filer          Accelerated Filer ___         Non-accelerated Filer ___

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

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of June 30, 2006 is set forth below:

Class
 
Number of Shares Outstanding
Class A Common Stock, Par Value $.01 Per Share
 
200,489,240
Class B Common Stock, Par Value $.01 Per Share
 
  23,844,838


This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934.  These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control, that could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements.  For further information regarding such forward-looking statements, risks and uncertainties, please see "Information Regarding Forward-Looking Statements" under Part I - Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q.
1


 
           
Item 1.  Financial Statements
         
           
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(in millions, except share and per share data)
 
(unaudited)
 
           
   
May 31,
 
February 28,
 
   
2006
 
2006
 
ASSETS
         
CURRENT ASSETS:
         
Cash and cash investments
 
$
37.5
 
$
10.9
 
Accounts receivable, net
   
854.2
   
771.9
 
Inventories
   
1,751.1
   
1,704.4
 
Prepaid expenses and other
   
278.7
   
213.7
 
Total current assets
   
2,921.5
   
2,700.9
 
PROPERTY, PLANT AND EQUIPMENT, net
   
1,442.7
   
1,425.3
 
GOODWILL
   
2,204.1
   
2,193.6
 
INTANGIBLE ASSETS, net
   
886.9
   
883.9
 
OTHER ASSETS, net
   
216.3
   
196.9
 
Total assets
 
$
7,671.5
 
$
7,400.6
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
CURRENT LIABILITIES:
             
Notes payable to banks
 
$
164.3
 
$
79.9
 
Current maturities of long-term debt
   
214.3
   
214.1
 
Accounts payable
   
365.0
   
312.8
 
Accrued excise taxes
   
68.2
   
76.7
 
Other accrued expenses and liabilities
   
625.3
   
614.6
 
Total current liabilities
   
1,437.1
   
1,298.1
 
LONG-TERM DEBT, less current maturities
   
2,481.8
   
2,515.8
 
DEFERRED INCOME TAXES
   
373.6
   
371.2
 
OTHER LIABILITIES
   
259.0
   
240.3
 
STOCKHOLDERS' EQUITY:
             
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, 170,500 shares at May 31, 2006, and
February 28, 2006 (Aggregate liquidation preference
of $172,951 at May 31, 2006)
   
-
   
-
 
Class A Common Stock, $.01 par value-
Authorized, 300,000,000 shares;
Issued, 204,395,792 shares at May 31, 2006,
and 203,651,535 shares at February 28, 2006
   
2.0
   
2.0
 
Class B Convertible Common Stock, $.01 par value-
Authorized, 30,000,000 shares;
Issued, 28,851,138 shares at May 31, 2006,
and 28,863,138 shares at February 28, 2006
   
0.3
   
0.3
 
Additional paid-in capital
   
1,174.9
   
1,159.4
 
Retained earnings
   
1,675.3
   
1,592.3
 
Accumulated other comprehensive income
   
293.7
   
247.4
 
     
3,146.2
   
3,001.4
 
Less-Treasury stock-
             
Class A Common Stock, 4,473,638 shares at
May 31, 2006, and 4,474,371 shares at
February 28, 2006, at cost
   
(24.0
)
 
(24.0
)
Class B Convertible Common Stock, 5,005,800 shares
at May 31, 2006, and February 28, 2006, at cost
   
(2.2
)
 
(2.2
)
     
(26.2
)
 
(26.2
)
Total stockholders' equity
   
3,120.0
   
2,975.2
 
Total liabilities and stockholders' equity
 
$
7,671.5
 
$
7,400.6
 
               
The accompanying notes are an integral part of these statements.
2

 
CONSOLIDATED STATEMENTS OF INCOME
 
(in millions, except per share data)
 
(unaudited)
 
           
   
For the Three Months Ended May 31,
 
   
2006
 
2005
 
           
SALES
 
$
1,430.2
 
$
1,366.3
 
Less - Excise taxes
   
(274.3
)
 
(269.8
)
Net sales
   
1,155.9
   
1,096.5
 
COST OF PRODUCT SOLD
   
(837.3
)
 
(790.5
)
Gross profit
   
318.6
   
306.0
 
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
   
(172.6
)
 
(157.9
)
RESTRUCTURING AND RELATED CHARGES     (2.3 )   (1.9 )
ACQUISITION-RELATED INTEGRATION COSTS
   
(0.7
)
 
(6.4
)
Operating income
   
143.0
   
139.8
 
EQUITY IN EARNINGS (LOSS) OF EQUITY
METHOD INVESTEES
   
0.1
   
(0.5
)
GAIN ON CHANGE IN FAIR VALUE OF
DERIVATIVE INSTRUMENT
   
52.5
   
-
 
INTEREST EXPENSE, net
   
(48.7
)
 
(47.3
)
Income before income taxes
   
146.9
   
92.0
 
PROVISION FOR INCOME TAXES
   
(61.4
)
 
(16.3
)
NET INCOME
   
85.5
   
75.7
 
Dividends on preferred stock
   
(2.5
)
 
(2.5
)
INCOME AVAILABLE TO COMMON
STOCKHOLDERS
 
$
83.0
 
$
73.2
 
               
               
SHARE DATA:
             
Earnings per common share:
             
Basic - Class A Common Stock
 
$
0.38
 
$
0.34
 
Basic - Class B Common Stock
 
$
0.34
 
$
0.31
 
Diluted
 
$
0.36
 
$
0.32
 
               
Weighted average common shares outstanding:
             
Basic - Class A Common Stock
   
199.571
   
195.564
 
Basic - Class B Common Stock
   
23.853
   
23.955
 
Diluted
   
240.100
   
238.178
 
               
The accompanying notes are an integral part of these statements.
3

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in millions)
 
(unaudited)
 
   
For the Three Months Ended May 31,
 
   
2006
 
2005
 
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net income
 
$
85.5
 
$
75.7
 
               
Adjustments to reconcile net income to net cash provided by
operating activities:
             
Depreciation of property, plant and equipment
   
26.7
   
27.5
 
Loss on disposal of business
   
17.3
   
-
 
Deferred tax provision
   
15.6
   
13.5
 
Stock-based compensation expense
   
3.6
   
-
 
Amortization of intangible and other assets
   
2.0
   
1.8
 
Loss on disposal of assets
   
0.3
   
1.4
 
Gain on change in fair vlaue of derivative instrument
   
(52.5
)
 
-
 
Equity in (earnings) loss of equity method investees
   
(0.1
)
 
0.5
 
Proceeds from early termination of derivative instruments
   
-
   
30.3
 
Change in operating assets and liabilities, net of effects
from purchases and sales of businesses:
             
Accounts receivable, net
   
(66.4
)
 
8.5
 
Inventories
   
(31.3
)
 
(113.0
)
Prepaid expenses and other current assets
   
(10.9
)
 
(3.6
)
Accounts payable
   
45.4
   
70.1
 
Accrued excise taxes
   
(9.7
)
 
(14.0
)
Other accrued expenses and liabilities
   
(11.1
)
 
(35.7
)
Other, net
   
(7.7
)
 
(3.0
)
Total adjustments
   
(78.8
)
 
(15.7
)
Net cash provided by operating activities
   
6.7
   
60.0
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Purchases of property, plant and equipment
   
(45.1
)
 
(31.8
)
Payment of accrued earn-out amount
   
(1.1
)
 
(1.6
)
Proceeds from sales of businesses
   
28.0
   
17.8
 
Proceeds from sales of assets
   
0.7
   
92.8
 
Proceeds from sales of equity method investments
   
-
   
35.2
 
Investment in equity method investee
   
-
   
(2.3
)
Other investing activities
   
(2.1
)
 
-
 
Net cash (used in) provided by investing activities
   
(19.6
)
 
110.1
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Net proceeds from notes payable
   
83.9
   
46.3
 
Exercise of employee stock options
   
8.6
   
8.7
 
Excess tax benefits from share-based payment awards
   
1.7
   
-
 
Principal payments of long-term debt
   
(52.6
)
 
(219.5
)
Payment of preferred stock dividends
   
(2.5
)
 
(2.5
)
Net cash provided by (used in) financing activities
   
39.1
   
(167.0
)
               
Effect of exchange rate changes on cash and cash investments
   
0.4
   
(1.5
)
               
NET INCREASE IN CASH AND CASH INVESTMENTS
   
26.6
   
1.6
 
CASH AND CASH INVESTMENTS, beginning of period
   
10.9
   
17.6
 
CASH AND CASH INVESTMENTS, end of period
 
$
37.5
 
$
19.2
 
               
The accompanying notes are an integral part of these statements.
4


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2006

1)
MANAGEMENT’S REPRESENTATIONS:

The consolidated financial statements included herein have been prepared by Constellation Brands, Inc. and its subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of the Company, all adjustments necessary to present fairly the financial information for the Company. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2006. Results of operations for interim periods are not necessarily indicative of annual results.
 
2)
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:

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

Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment.” SFAS No. 123(R) replaces Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board Opinion No. 25 (“APB Opinion No. 25”), “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires the cost resulting from all share-based payment transactions be recognized in the financial statements. In addition, SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a grant date fair-value-based measurement method in accounting for share-based payment transactions. SFAS No. 123(R) also amends Statement of Financial Accounting Standards No. 95 (“SFAS No. 95”), “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS No. 123(R) applies to all awards granted, modified, repurchased, or cancelled by the Company after March 1, 2006. See Note 10 for further discussion.


5


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

3)
INVENTORIES:

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

   
May 31,
2006
 
February 28,
2006
 
(in millions)
         
Raw materials and supplies
 
$
86.6
 
$
82.4
 
In-process inventories
   
1,103.0
   
1,081.3
 
Finished case goods
   
561.5
   
540.7
 
   
$
1,751.1
 
$
1,704.4
 

4)
GOODWILL:

The changes in the carrying amount of goodwill for the three months ended May 31, 2006, are as follows:

   
Constellation
Wines
 
Constellation
Beers and
Spirits
 
Consolidated
 
(in millions)
             
Balance, February 28, 2006
 
$
2,034.9
 
$
158.7
 
$
2,193.6
 
Foreign currency translation adjustments
   
35.2
   
0.5
   
35.7
 
Purchase price earn-out
   
0.7
   
-
   
0.7
 
Disposal of business
   
(25.9
)
 
-
   
(25.9
)
Balance, May 31, 2006
 
$
2,044.9
 
$
159.2
 
$
2,204.1
 


6


5)
INTANGIBLE ASSETS:
 
The major components of intangible assets are as follows:

   
May 31, 2006
 
February 28, 2006
 
   
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
(in millions)
                         
Amortizable intangible assets:
                         
Distributor relationships
 
$
3.7
 
$
3.5
 
$
3.7
 
$
3.6
 
Distribution agreements
   
18.9
   
6.5
   
18.9
   
7.0
 
Other
   
2.4
   
1.3
   
2.4
   
1.3
 
Total
 
$
25.0
   
11.3
 
$
25.0
   
11.9
 
                           
Nonamortizable intangible assets:
                         
Trademarks
         
857.2
         
853.6
 
Agency relationships
         
18.4
         
18.4
 
Total
         
875.6
         
872.0
 
Total intangible assets
       
$
886.9
       
$
883.9
 

The difference between the gross carrying amount and net carrying amount for each item presented is attributable to accumulated amortization. Amortization expense for intangible assets was $0.6 million and $0.4 million for the three months ended May 31, 2006, and May 31, 2005, respectively. Estimated amortization expense for the remaining nine months of fiscal 2007 and for each of the five succeeding fiscal years and thereafter is as follows:

(in millions)
     
2007
 
$
0.9
 
2008
 
$
1.2
 
2009
 
$
1.2
 
2010
 
$
1.1
 
2011
 
$
0.9
 
2012
 
$
0.8
 
Thereafter
 
$
5.2
 

6)
BORROWINGS:

Senior credit facility -
In connection with the acquisition of The Robert Mondavi Corporation ("Robert Mondavi"), on December 22, 2004, the Company and its U.S. subsidiaries (excluding certain inactive subsidiaries), together with certain of its subsidiaries organized in foreign jurisdictions, JPMorgan Chase Bank, N.A. as a lender and administrative agent, and certain other agents, lenders, and financial institutions entered into a new credit agreement (the “2004 Credit Agreement”). The 2004 Credit Agreement provides for aggregate credit facilities of $2.9 billion (subject to increase as therein provided to $3.2 billion), consisting of a $600.0 million tranche A term loan facility due in November 2010, a $1.8 billion tranche B term loan facility due in November 2011, and a $500.0 million revolving credit facility (including a sub-facility for letters of credit of up to $60.0 million) which terminates in December 2010. Proceeds of the 2004 Credit Agreement were used to pay off the Company’s obligations under its prior senior credit facility, to fund the cash consideration payable in connection with its acquisition of Robert Mondavi, and to pay certain obligations of Robert Mondavi. The Company uses its revolving credit facility under the 2004 Credit Agreement for general corporate purposes, including working capital, on an as needed basis. Subsequent to May 31, 2006, the Company entered into a new senior credit facility (see Note 16).


7

 

    As of May 31, 2006, the required principal repayments of the tranche A term loan and the tranche B term loan for the remaining nine months of fiscal 2007 and for each of the five succeeding fiscal years are as follows:

   
Tranche A
Term Loan
 
Tranche B
Term Loan
 
Total
 
(in millions)
             
2007
 
$
-
 
$
-
 
$
-
 
2008
   
-
   
-
   
-
 
2009
   
101.7
   
14.6
   
116.3
 
2010
   
108.0
   
14.6
   
122.6
 
2011
   
95.3
   
353.1
   
448.4
 
2012
   
-
   
1,026.7
   
1,026.7
 
   
$
305.0
 
$
1,409.0
 
$
1,714.0
 

The rate of interest on borrowings under the 2004 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 2004 Credit Agreement) and, with respect to LIBOR borrowings, ranges between 1.00% and 1.75%. As of May 31, 2006, the LIBOR margin for the revolving credit facility and the tranche A term loan facility is 1.25%, while the LIBOR margin on the tranche B term loan facility is 1.50%.

The Company’s obligations are guaranteed by substantially all of its U.S. subsidiaries and by certain of its foreign subsidiaries. These obligations are also secured by a pledge of (i) 100% of the ownership interests in most 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 customary lending covenants including those restricting additional liens, the incurrence of additional indebtedness (including guarantees of indebtedness), the sale of assets, the payment of dividends, transactions with affiliates, the disposition and acquisition of property and the making of certain investments, in each case subject to numerous baskets, exceptions and thresholds. The financial covenants are limited to maximum total debt and senior debt coverage ratios and minimum fixed charges and interest coverage ratios. As of May 31, 2006, the Company is in compliance with all of its covenants under its 2004 Credit Agreement.

As of May 31, 2006, under the 2004 Credit Agreement, the Company had outstanding tranche A term loans of $305.0 million bearing a weighted average interest rate of 6.3%, tranche B term loans of $1,409.0 million bearing a weighted average interest rate of 6.4%, revolving loans of $62.0 million bearing a weighted average interest rate of 6.3%, outstanding letters of credit of $36.8 million, and $401.2 million in revolving loans available to be drawn.

As of May 31, 2006, the Company had outstanding interest rate swap agreements which fixed LIBOR interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt at an average rate of 4.1% through fiscal 2010. For the three months ended May 31, 2006, and May 31, 2005, the Company reclassified $0.8 million, net of tax effect of $0.5 million, and $0.7 million, net of tax effect of $0.5 million, respectively, from AOCI to Interest Expense, net in the Company’s Consolidated Statements of Income. This non-cash operating activity is included on the Other, net line in the Company’s Consolidated Statements of Cash Flows.


8


Foreign subsidiary facilities -
The Company has additional credit arrangements available totaling $210.4 million as of May 31, 2006. These arrangements support the financing needs of certain of the Company’s foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions. As of May 31, 2006, amounts outstanding under the foreign subsidiary credit arrangements were $128.5 million.

7)
INCOME TAXES:

The Company’s effective tax rate for the three months ended May 31, 2006, and May 31, 2005, was 41.8% and 17.7%, respectively. On May 31, 2006, the Company sold its branded bottled water business and recorded a loss of $14.1 million on the sale which resulted from a write-off of $27.7 million of non-deductible intangible assets, primarily goodwill.  The increase in the Company's effective tax rate for the three months ended May 31, 2006, was due primarily to the provision for income taxes on the sale of the branded bottled water business and the adjustments to income tax accruals of $16.2 million for the three months ended May 31, 2005, in connection with the completion of various income tax examinations.

8)
RETIREMENT SAVINGS PLANS AND POSTRETIREMENT BENEFIT PLANS:

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

   
For the Three Months
Ended May 31, 
 
   
2006
 
2005
 
(in millions)
         
Service cost
 
$
0.6
 
$
0.5
 
Interest cost
   
4.8
   
4.6
 
Expected return on plan assets
   
(5.4
)
 
(4.4
)
Amortization of prior service cost
   
0.4
   
-
 
Recognized net actuarial loss
   
0.1
   
0.8
 
Net periodic benefit cost
 
$
0.5
 
$
1.5
 

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

   
For the Three Months
Ended May 31,
 
   
2006
 
2005
 
(in millions)
         
Service cost
 
$
-
 
$
-
 
Interest cost
   
0.1
   
0.1
 
Amortization of prior service cost
   
-
   
-
 
Recognized net actuarial loss
   
-
   
-
 
Net periodic benefit cost
 
$
0.1
 
$
0.1
 

Contributions of $2.0 million have been made by the Company to fund its defined benefit pension plans for the three months ended May 31, 2006. The Company presently anticipates contributing an additional $9.8 million to fund its defined benefit pension plans during the year ending February 28, 2007, resulting in total employer contributions of $11.8 million for the year ending February 28, 2007.


9


9)
EARNINGS PER COMMON SHARE:

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

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

   
For the Three Months
Ended May 31, 
 
   
2006
 
2005
 
(in millions, except per share data)
         
Net income
 
$
85.5
 
$
75.7
 
Dividends on preferred stock
   
(2.5
)
 
(2.5
)
Income available to common stockholders
 
$
83.0
 
$
73.2
 
               
Weighted average common shares outstanding - basic:
             
Class A Common Stock
   
199.571
   
195.564
 
Class B Common Stock
   
23.853
   
23.955
 
Total weighted average common shares outstanding - basic
   
223.424
   
219.519
 
Stock options
   
6.693
   
8.676
 
Preferred stock
   
9.983
   
9.983
 
Weighted average common shares outstanding - diluted
   
240.100
   
238.178
 
               
Earnings per common share - basic:
             
Class A Common Stock
 
$
0.38
 
$
0.34
 
Class B Common Stock
 
$
0.34
 
$
0.31
 
Earnings per common share - diluted
 
$
0.36
 
$
0.32
 

Stock options to purchase 8.7 million and 3.7 million shares of Class A Common Stock at a weighted average price per share of $26.46 and $27.24 were outstanding during the three months ended May 31, 2006, and May 31, 2005, respectively, but were not included in the computation of the diluted earnings per common share because the stock options’ exercise price was greater than the average market price of the Class A Common Stock for the period.

10)
STOCK-BASED COMPENSATION:

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


10


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

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

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

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

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

 
11

As a result of the adoption of SFAS No. 123(R), for the three months ended May 31, 2006, the Company recorded $3.6 million of stock-based compensation cost in selling, general, and administrative expenses on the Company’s Consolidated Statements of Income. In addition, the Company recorded an income tax benefit of $0.9 million related to this stock-based compensation cost.  There was no compensation cost capitalized to assets for the three months ended May 31, 2006.  The following table illustrates the effect of adopting SFAS No. 123(R) for the three months ended May 31, 2006, on selected reported items ("As Reported") and what those items would have been under previous guidance under APB No. 25:

 
   
For the Three Months
Ended May 31, 2006
 
   
As Reported
 
Under
APB No. 25
 
(in millions, except per share data)
         
Income before income taxes
 
$
146.9
 
$
150.5
 
Net income
 
$
85.5
 
$
88.2
 
Cash flows from operating activities
 
$
6.7
 
$
8.4
 
Cash flows from financing activities
 
$
39.1
 
$
37.4
 
               
Earnings per common share - basic:
             
Class A Common Stock
 
$
0.38
 
$
0.39
 
Class B Common Stock
 
$
0.34
 
$
0.35
 
Earnings per common share - diluted
 
$
0.36
 
$
0.37
 

The following table illustrates the effect on net income and earnings per share for the three months ended May 31, 2005, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

   
For the Three
Months Ended
May 31, 2005
 
(in millions, except per share data)
     
Net income, as reported
 
$
75.7
 
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects
   
-
 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
   
(3.3
)
Pro forma net income
 
$
72.4
 
         
Earnings per common share - basic:
       
Class A Common Stock, as reported
 
$
0.34
 
Class B Common Stock, as reported
 
$
0.31
 
         
Class A Common Stock, pro forma
 
$
0.32
 
Class B Common Stock, pro forma
 
$
0.29
 
         
Earnings per common share - diluted, as reported
 
$
0.32
 
Earnings per common share - diluted, pro forma
 
$
0.30
 
 
12


Long-term stock incentive plan -
Under the Company’s Long-Term Stock Incentive Plan, nonqualified stock options, stock appreciation rights, restricted stock and other stock-based awards may be granted to employees, officers and directors of the Company. The aggregate number of shares of the Company’s Class A Common Stock available for awards under the Company’s Long-Term Stock Incentive Plan is 80,000,000 shares. The exercise price, vesting period and term of nonqualified stock options granted are established by the committee administering the plan (the “Committee”). The exercise price of any nonqualified stock option may not be less than the fair market value of the Company’s Class A Common Stock on the date of grant. Grants of stock appreciation rights, restricted stock and other stock-based awards may contain such vesting, terms, conditions and other requirements as the Committee may establish. During the three months ended May 31, 2006, and May 31, 2005, no stock appreciation rights were granted. During the three months ended May 31, 2006, 514 shares of restricted Class A Common Stock were granted at a grant date fair value of $25.89 per share.  During the three months ended May 31, 2005, no shares of restricted Class A Common Stock were granted.

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

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

   
Number
of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
 
Options outstanding, February 28, 2006
   
23,652,958
 
$
14.43
   
6.5 years
       
Granted
   
5,144,151
 
$
25.88
   
9.9 years
       
Exercised
   
(732,257
)
$
11.64
   
5.5 years
       
Forfeited
   
(149,122
)
$
26.12
   
8.8 years
       
Options outstanding, May 31, 2006
   
27,915,730
 
$
16.55
   
6.9 years
 
$
242,783,907
 
                           
Options exercisable, May 31, 2006
   
22,474,129
 
$
14.44
   
6.3 years
 
$
239,893,776
 

Other information pertaining to stock options is as follows:

   
For the Three Months
Ended May 31, 
 
   
2006
 
2005
 
Weighted average grant-date fair value of stock options granted
 
$
10.00
 
$
9.55
 
Total fair value of stock options vested
 
$
972,275
 
$
667,511
 
Total intrinsic value of stock options exercised
 
$
10,057,737
 
$
13,108,817
 


13


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

   
For the Three Months
Ended May 31, 
 
   
2006
 
2005
 
Expected life
   
5.5 years
   
5.0 years
 
Expected volatility
   
31.7
%
 
31.3
%
Risk-free interest rate
   
4.8
%
 
4.1
%
Expected dividend yield
   
0.0
%
 
0.0
%

For the three months ended May 31, 2006, and May 31, 2005, the Company used a projected expected life for each award granted based on historical experience of employees’ exercise behavior for similar type grants. Expected volatility for the three months ended May 31, 2006, and May 31, 2005, is based on historical volatility levels of the Company’s Class A Common Stock. The risk-free interest rate for the three months ended May 31, 2006, and May 31, 2005, is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life.

As of May 31, 2006, there was $44.4 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Company’s Long-Term Stock Incentive Plan and the Incentive Stock Option Plan. This cost is expected to be recognized in the Company's Consolidated Statements of Income over a weighted-average period of 3.8 years.

Employee stock purchase plans -
The Company has a stock purchase plan under which 9,000,000 shares of Class A Common Stock may be issued. Under the terms of the plan, eligible employees may purchase shares of the Company’s Class A Common Stock through payroll deductions. The purchase price is the lower of 85% of the fair market value of the stock on the first or last day of the purchase period. No shares were purchased under this plan during the three months ended May 31, 2006, and May 31, 2005.

The Company has a stock purchase plan under which 2,000,000 shares of the Company’s Class A Common Stock may be issued to eligible employees and directors of the Company’s U.K. subsidiaries. Under the terms of the plan, participants may purchase shares of the Company’s Class A Common Stock through payroll deductions. The purchase price may be no less than 80% of the closing price of the stock on the day the purchase price is fixed by the committee administering the plan. During the three months ended May 31, 2006, and May 31, 2005, employees purchased 219 shares and 4,828 shares, respectively. During the three months ended May 31, 2006, and May 31, 2005, there were no purchase rights granted.

      With respect to the issuance of shares under any of the Company's stock-based compensation plans, the Company has the option to issue authorized but unissued shares or treasury shares. The parameters of the Company's share repurchase program are not established solely with reference to the dilutive impact of issuances under any of its stock-based compensation plans. However, the Company expects that share repurchases will mitigate the dilutive impact of issuances to be made under its stock-based compensation plans.


14


11)
COMPREHENSIVE INCOME (LOSS):

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

   
For the Three Months
Ended May 31, 
 
   
2006
 
2005
 
(in millions)
         
Net income
 
$
85.5
 
$
75.7
 
Other comprehensive income (loss), net of tax:
             
Foreign currency translation adjustments, net of tax (expense) benefit of ($7.6) and $6.7, respectively
   
61.4
   
(113.4
)
Cash flow hedges:
             
Net derivative gains, net of tax benefit of $1.1 and $7.3, respectively
   
(5.6
)
 
(12.7
)
Reclassification adjustments, net of tax benefit of $1.5 and $1.1, respectively
   
(3.2
)
 
(2.2
)
Net cash flow hedges
   
(8.8
)
 
(14.9
)
Minimum pension liability adjustment, net of tax benefit (expense) of $2.7 and ($1.8), respectively
   
(6.3
)
 
4.1
 
Total comprehensive income (loss)
 
$
131.8
 
$
(48.5
)

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

   
Foreign
Currency
Translation
Adjustments
 
Net
Unrealized
Gains on
Derivatives
 
Minimum
Pension
Liability
Adjustment
 
Accumulated
Other
Comprehensive
Income (Loss)
 
(in millions)
                 
Balance, February 28, 2006
 
$
314.7
 
$
31.0
 
$
(98.3
)
$
247.4
 
Current period change
   
61.4
   
(8.8
)
 
(6.3
)
 
46.3
 
Balance, May 31, 2006
 
$
376.1
 
$
22.2
 
$
(104.6
)
$
293.7
 

12)
RESTRUCTURING AND RELATED CHARGES:

For the three months ended May 31, 2006, the Company recorded $2.3 million of restructuring and related charges associated primarily with costs incurred in connection with the Company’s worldwide wine organizations announced during fiscal 2006 and the Company’s program to consolidate certain west coast production processes in the U.S. (collectively, the “Fiscal 2006 Plan”), within the Constellation Wines segment.  Restructuring and related charges included $2.5 million of employee termination benefit costs and a credit of $0.2 million of contract termination costs. In addition, in connection with the Fiscal 2006 Plan, the Company recorded (i) $1.1 million of accelerated depreciation charges associated with the Company’s reconfiguration of certain existing assets under the plan which was recorded in the cost of product sold line and (ii) $1.6 million of other related costs which was recorded in the selling, general and administrative expenses line within the Company’s Consolidated Statements of Income. The Company recorded $1.9 million of restructuring and related charges for the three months ended May 31, 2005, associated primarily with the Company’s decision to restructure and integrate the operations of Robert Mondavi (the “Robert Mondavi Plan”).
 
 
15


The Company estimates that the Fiscal 2006 Plan will include (i) a total of $31.8 million of employee termination benefit costs through February 28, 2007, of which $26.6 million has been incurred through May 31, 2006, (ii) a total of $3.0 million of contract termination costs through February 28, 2007, none of which has been incurred through May 31, 2006, and (iii) a total of $9.5 million of facility consolidation and relocation costs through February 28, 2007, of which $0.1 million has been incurred through May 31, 2006. In addition, the Company expects to incur accelerated depreciation charges of $20.4 million through February 28, 2007, of which $14.5 million has been incurred through May 31, 2006. Amounts associated with the accelerated depreciation charges are recorded in cost of product sold in the Company’s Consolidated Statements of Income. Lastly, the Company expects to incur other related costs of $8.5 million through February 28, 2007, of which $1.7 million has been incurred through May 31, 2006. Amounts associated with the other related costs will be recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Income.

In addition to the Fiscal 2006 Plan, the Company estimates that charges in connection with its realignment of business operations as previously announced in Fiscal 2004 (the “Fiscal 2004 Plan”), will include (i) a total of $10.2 million of employee termination benefit costs through February 28, 2007, of which $10.2 million has been incurred through May 31, 2006, (ii) a total of $19.2 million of contract termination costs through February 28, 2007, of which $19.2 million has been incurred through May 31, 2006, and (iii) a total of $4.7 million of facility consolidation and relocation costs through February 28, 2007, of which $4.2 million has been incurred through May 31, 2006.

Lastly, the Company estimates that the Robert Mondavi Plan will include (i) a total of $2.9 million of employee termination benefit costs through February 28, 2007, of which $2.9 million has been incurred through May 31, 2006, (ii) a total of $0.6 million of contract termination costs through February 28, 2007, of which $0.5 million has been incurred through May 31, 2006, and (iii) a total of $0.5 million of facility consolidation and relocation costs through February 28, 2007, of which $0.5 million has been incurred through May 31, 2006.

In connection with the Company’s acquisition of Robert Mondavi, the Company accrued $50.5 million of liabilities for exit costs as of the acquisition date. The balance of these purchase accounting accruals was $6.8 million and $8.1 million as of May 31, 2006, and February 28, 2006, respectively.
 
      The following table illustrates the changes in the restructuring liability balance since February 28, 2006:

   
Employee
Termination
Benefit
Costs
 
Contract
Termination
Costs
 
Facility
Consolidation/
Relocation
Costs
 
Total
 
(in millions)
                 
Balance, February 28, 2006
 
$
16.7
 
$
8.1
 
$
0.5
 
$
25.3
 
Restructuring charges
   
2.5
   
(0.2
)
 
-
   
2.3
 
Cash expenditures
   
(4.3
)
 
(1.2
)
 
(0.1
)
 
(5.6
)
Foreign currency adjustments
   
0.3
   
-
   
-
   
0.3
 
Balance, May 31, 2006
 
$
15.2
 
$
6.7
 
$
0.4
 
$
22.3
 
 
13)
ACQUISITION-RELATED INTEGRATION COSTS:

For the three months ended May 31, 2006, the Company recorded $0.7 million of acquisition-related integration costs associated with the Robert Mondavi Plan. Acquisition-related integration costs included $0.2 million of employee-related costs and $0.5 million of facilities and other one-time costs. For the three months ended May 31, 2005, the Company recorded $6.4 million of acquisition-related integration costs associated with the Robert Mondavi Plan.
 
 
16

14)
CONDENSED CONSOLIDATING FINANCIAL INFORMATION:

The following information sets forth the condensed consolidating balance sheets as of May 31, 2006, and February 28, 2006, the condensed consolidating statements of income for the three months ended May 31, 2006, and May 31, 2005, and the condensed consolidating statements of cash flows for the three months ended May 31, 2006, and May 31, 2005, for the Company, the parent company, the combined subsidiaries of the Company which guarantee the Company’s senior notes and senior subordinated notes (“Subsidiary Guarantors”) and the combined subsidiaries of the Company which are not Subsidiary Guarantors, primarily Matthew Clark Limited and Hardy Wine Company Limited and their subsidiaries, which are included in the Constellation Wines segment (“Subsidiary Nonguarantors”). The Subsidiary Guarantors are wholly-owned and the guarantees are full, unconditional, joint and several obligations of each of the Subsidiary Guarantors. Separate financial statements for the Subsidiary Guarantors of the Company are not presented because the Company has determined that such financial statements would not be material to investors. The accounting policies of the parent company, the Subsidiary Guarantors and the Subsidiary Nonguarantors are the same as those described for the Company in the Summary of Significant Accounting Policies in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2006, and include the recently adopted accounting pronouncements described in Note 2 herein. There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to the Company in the form of cash dividends, loans or advances.
 


   
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
 
(in millions)
                     
Condensed Consolidating Balance Sheet at May 31, 2006
 
Current assets:
                     
Cash and cash investments
 
$
1.1
 
$
3.5
 
$
32.9
 
$
-
 
$
37.5
 
Accounts receivable, net
   
207.5
   
214.1
   
432.6
   
-
   
854.2
 
Inventories
   
37.5
   
999.7
   
726.6
   
(12.7
)
 
1,751.1
 
Prepaid expenses and other
   
14.3
   
215.0
   
49.4
    -    
278.7
 
Intercompany receivable (payable)
   
158.3
   
(729.9
)
 
571.6
   
-
   
-
 
Total current assets
   
418.7
   
702.4
   
1,813.1
   
(12.7
)
 
2,921.5
 
Property, plant and equipment, net
   
34.8
   
733.2
   
674.7
   
-
   
1,442.7
 
Investments in subsidiaries
   
5,223.1
   
1,781.8
   
-
   
(7,004.9
)
 
-
 
Goodwill
   
-
   
1,326.6
   
877.5
   
-
   
2,204.1
 
Intangible assets, net
   
-
   
548.4
   
338.5
   
-
   
886.9
 
Other assets, net
   
28.6
   
132.7
   
55.0
   
-
   
216.3
 
Total assets
 
$
5,705.2
 
$
5,225.1
 
$
3,758.8
 
$
(7,017.6
)
$
7,671.5
 
                                 
Current liabilities:
                               
Notes payable to banks
 
$
62.0
 
$
-
 
$
102.3
 
$
-
 
$
164.3
 
Current maturities of long-term debt
   
200.0
   
4.4
   
9.9
   
-
   
214.3
 
Accounts payable
   
6.0
   
100.2
   
258.8
   
-
   
365.0
 
Accrued excise taxes
   
10.0
   
30.4
   
27.8
   
-
   
68.2
 
Other accrued expenses and liabilities
   
204.4
   
212.9
   
211.8
   
(3.8
)
 
625.3
 
Total current liabilities
   
482.4
   
347.9
   
610.6
   
(3.8
)
 
1,437.1
 
Long-term debt, less current maturities
   
2,453.5
   
11.9
   
16.4
   
-
   
2,481.8
 
Deferred income taxes
   
(17.3
)
 
368.3
   
22.6
   
-
   
373.6
 
Other liabilities
   
4.7
   
81.6
   
172.7
   
-
   
259.0
 

17

 
   
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
 
(in millions)
                     
Stockholders’ equity:
                     
Preferred stock
   
-
   
-
   
-
   
-
    -  
Class A and Class B common stock
   
2.3
   
6.4
   
141.6
   
(148.0
)
 
2.3
 
Additional paid-in capital
   
1,174.9
   
2,295.2
   
2,573.7
   
(4,868.9
)
 
1,174.9
 
Retained earnings
   
1,686.4
   
1,940.2
   
47.8
   
(1,999.1
)
 
1,675.3
 
Accumulated other comprehensive
(loss) income
   
(55.5
)
 
173.6
   
173.4
   
2.2
   
293.7
 
Treasury stock
   
(26.2
)
 
-
   
-
   
-
   
(26.2
)
Total stockholders’ equity
   
2,781.9
   
4,415.4
   
2,936.5
   
(7,013.8
)
 
3,120.0
 
Total liabilities and
stockholders’ equity
 
$
5,705.2
 
$
5,225.1
 
$
3,758.8
 
$
(7,017.6
)
$
7,671.5
 
                                 
Condensed Consolidating Balance Sheet at February 28, 2006
Current assets:
                               
Cash and cash investments
 
$
0.9
 
$
3.0
 
$
7.0
 
$
-
 
$
10.9
 
Accounts receivable, net
   
233.0
   
196.1
   
342.8
   
-
   
771.9
 
Inventories
   
38.6
   
1,033.3
   
647.4
   
(14.9
)
 
1,704.4
 
Prepaid expenses and other
   
13.6
   
150.0
   
45.6
   
4.5
   
213.7
 
Intercompany receivable (payable)
   
136.4
   
(709.4
)
 
573.0
   
-
   
-
 
Total current assets
   
422.5
   
673.0
   
1,615.8
   
(10.4
)
 
2,700.9
 
Property, plant and equipment, net
   
35.6
   
729.6
   
660.1
   
-
   
1,425.3
 
Investments in subsidiaries
   
5,197.1
   
1,785.3
   
-
   
(6,982.4
)
 
-
 
Goodwill
   
-
   
1,325.1
   
868.5
   
-
   
2,193.6
 
Intangible assets, net
   
-
   
549.8
   
334.1
   
-
   
883.9
 
Other assets, net
   
24.9
   
118.2
   
53.8
   
-
   
196.9
 
Total assets
 
$
5,680.1
 
$
5,181.0
 
$
3,532.3
 
$
(6,992.8
)
$
7,400.6
 
                                 
Current liabilities:
                               
Notes payable to banks
 
$
54.5
 
$
-
 
$
25.4
 
$
-
 
$
79.9
 
Current maturities of long-term debt
   
200.1
   
4.6
   
9.4
   
-
   
214.1
 
Accounts payable
   
4.4
   
123.6
   
184.8
   
-
   
312.8
 
Accrued excise taxes
   
15.6
   
42.8
   
18.3
   
-
   
76.7
 
Other accrued expenses and liabilities
   
230.6
   
163.9
   
220.4
   
(0.3
)
 
614.6
 
Total current liabilities
   
505.2
   
334.9
   
458.3
   
(0.3
)
 
1,298.1
 
Long-term debt, less current maturities
   
2,485.5
   
12.8
   
17.5
   
-
   
2,515.8
 
Deferred income taxes
   
(12.8
)
 
359.9
   
24.1
   
-
   
371.2
 
Other liabilities
   
5.4
   
70.3
   
164.6
   
-
   
240.3
 
Stockholders’ equity:
                               
Preferred stock
   
-
   
-
   
-
   
-
   
-
 
Class A and Class B common stock
   
2.3
   
6.4
   
141.6
   
(148.0
)
 
2.3
 
Additional paid-in capital
   
1,159.4
   
2,302.0
   
2,498.7
   
(4,800.7
)
 
1,159.4
 
Retained earnings
   
1,606.0
   
1,934.9
   
98.7
   
(2,047.3
)
 
1,592.3
 
Accumulated other comprehensive
(loss) income
   
(44.7
)
 
159.8
   
128.8
   
3.5
   
247.4
 
Treasury stock
   
(26.2
)
 
-
   
-
   
-
   
(26.2
)
Total stockholders’ equity
   
2,696.8
   
4,403.1
   
2,867.8
   
(6,992.5
)
 
2,975.2
 
Total liabilities and
stockholders’ equity
 
$
5,680.1
 
$
5,181.0
 
$
3,532.3
 
$
(6,992.8
)
$
7,400.6
 
 

18

 
   
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
 
(in millions)
                     
Condensed Consolidating Statement of Income for the Three Months Ended May 31, 2006
 
Sales
 
$
319.7
 
$
746.8
 
$
634.5
 
$
(270.8
)
$
1,430.2
 
Less - excise taxes
   
(37.2
)
 
(112.8
)
 
(124.3
)
 
-
   
(274.3
)
Net sales
   
282.5
   
634.0
   
510.2
   
(270.8
)
 
1,155.9
 
Cost of product sold
   
(219.0
)
 
(457.5
)
 
(435.5
)
 
274.7
   
(837.3
)
Gross profit
   
63.5
   
176.5
   
74.7
   
3.9
 
 
318.6
 
Selling, general and administrative
expenses
   
(46.2
)
 
(62.8
)
 
(63.6
)
 
-
   
(172.6
)
Restructuring and related charges     -     (2.3 )   -     -     (2.3
Acquisition-related integration costs
   
-
   
(0.7
)
 
-
   
-
   
(0.7
)
Operating income
   
17.3
   
110.7
   
11.1
   
3.9
   
143.0
 
Equity in earnings (loss) of equity