UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended August 31, 2011

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

(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)

(585) 678-7100

(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 ý No o

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 ý No o

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.

				Large accelerated filer ý		Accelerated filer o
				Non-accelerated filer o		Smaller reporting company o
		(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 o No ý

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of September 30, 2011, is set forth below:

Class	Number of Shares Outstanding
Class A Common Stock, par value $.01 per share		178,838,531
Class B Common Stock, par value $.01 per share		23,589,202
Class 1 Common Stock, par value $.01 per share		11,633

 

 

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			37
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			56
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 6. Exhibits			57
SIGNATURES			58
INDEX TO EXHIBITS			59
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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 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, 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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)

		August 31,				February 28,
		2011				2011
ASSETS
CURRENT ASSETS:
Cash and cash investments		$	10.0			$	9.2
Accounts receivable, net			501.7				417.4
Inventories			1,259.2				1,369.3
Prepaid expenses and other			148.7				287.1
Total current assets			1,919.6				2,083.0
PROPERTY, PLANT AND EQUIPMENT, net			1,241.0				1,219.6
GOODWILL			2,632.7				2,619.8
INTANGIBLE ASSETS, net			895.4				886.3
OTHER ASSETS, net			346.0				358.9
Total assets		$	7,034.7			$	7,167.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable to banks		$	198.0			$	83.7
Current maturities of long-term debt			13.7				15.9
Accounts payable			138.7				129.2
Accrued excise taxes			26.4				14.2
Other accrued expenses and liabilities			410.0				419.9
Total current liabilities			786.8				662.9
LONG-TERM DEBT, less current maturities			2,734.7				3,136.7
DEFERRED INCOME TAXES			596.9				583.1
OTHER LIABILITIES			217.2				233.0
COMMITMENTS AND CONTINGENCIES (NOTE 12)
STOCKHOLDERS’ EQUITY:
Class A Common Stock, $.01 par value-Authorized, 322,000,000 shares; Issued, 232,894,647 shares at August 31, 2011, and 230,290,798 shares at February 28, 2011			2.3				2.3
Class B Convertible Common Stock, $.01 par value-Authorized, 30,000,000 shares; Issued, 28,597,102 shares at August 31, 2011, and 28,617,758 shares at February 28, 2011			0.3				0.3
Additional paid-in capital			1,655.0				1,602.4
Retained earnings			1,899.5				1,662.3
Accumulated other comprehensive income			216.8				188.8
			3,773.9				3,456.1
Less: Treasury stock -
Class A Common Stock, 51,625,074 shares at August 31, 2011, and 42,739,831 shares at February 28, 2011, at cost			(1,072.6	)			(902.0	)
Class B Convertible Common Stock, 5,005,800 shares at August 31, 2011, and February 28, 2011, at cost			(2.2	)			(2.2	)
			(1,074.8	)			(904.2	)
Total stockholders’ equity			2,699.1				2,551.9
Total liabilities and stockholders’ equity		$	7,034.7			$	7,167.6

The accompanying notes are an integral part of these statements.

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

		For the Six Months Ended August 31,								For the Three Months Ended August 31,
		2011				2010				2011				2010
SALES		$	1,481.1			$	2,033.1			$	770.4			$	1,056.9
Less - excise taxes			(155.6	)			(382.8	)			(80.2	)			(194.1	)
Net sales			1,325.5				1,650.3				690.2				862.8
COST OF PRODUCT SOLD			(791.5	)			(1,066.1	)			(407.2	)			(548.6	)
Gross profit			534.0				584.2				283.0				314.2
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			(276.4	)			(336.1	)			(138.2	)			(167.3	)
RESTRUCTURING CHARGES			(10.8	)			(18.6	)			0.3				(13.7	)
Operating income			246.8				229.5				145.1				133.2
EQUITY IN EARNINGS OF EQUITY METHOD INVESTEES			126.2				120.9				64.0				66.4
INTEREST EXPENSE, net			(86.8	)			(98.8	)			(42.5	)			(50.3	)
Income before income taxes			286.2				251.6				166.6				149.3
PROVISION FOR INCOME TAXES			(49.0	)			(111.2	)			(3.9	)			(58.0	)
NET INCOME		$	237.2			$	140.4			$	162.7			$	91.3
SHARE DATA:
Earnings per common share:
Basic - Class A Common Stock		$	1.14			$	0.67			$	0.78			$	0.44
Basic - Class B Convertible Common Stock		$	1.04			$	0.61			$	0.71			$	0.40
Diluted - Class A Common Stock		$	1.11			$	0.65			$	0.76			$	0.43
Diluted - Class B Convertible Common Stock		$	1.02			$	0.60			$	0.70			$	0.40
Weighted average common shares outstanding:
Basic - Class A Common Stock			186.837				189.084				186.629				185.455
Basic - Class B Convertible Common Stock			23.599				23.719				23.593				23.712
Diluted - Class A Common Stock			214.406				215.136				213.645				211.149
Diluted - Class B Convertible Common Stock			23.599				23.719				23.593				23.712

The accompanying notes are an integral part of these statements.

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

		For the Six Months Ended August 31,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	237.2			$	140.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment			46.0				61.0
Deferred tax provision			24.7				50.6
Stock-based compensation expense			24.2				25.7
Equity in earnings of equity method investees, net of distributed earnings			10.0				36.5
Amortization of intangible and other assets			6.3				7.3
Loss on disposal or impairment of long-lived assets, net			0.1				4.8
Gain on business sold, net			(0.8	)			-
Change in operating assets and liabilities:
Accounts receivable, net			(84.5	)			(204.5	)
Inventories			118.7				157.2
Prepaid expenses and other current assets			7.7				5.3
Accounts payable			12.8				(10.7	)
Accrued excise taxes			12.1				13.2
Other accrued expenses and liabilities			83.0				40.1
Other, net			19.9				(20.8	)
Total adjustments			280.2				165.7
Net cash provided by operating activities			517.4				306.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(39.2	)			(43.2	)
Payments related to sale of business			(28.8	)			(1.6	)
Investments in equity method investees			(0.1	)			(29.7	)
Proceeds from note receivable			1.0				60.0
Proceeds from sales of assets			0.3				3.1
Other investing activities			(6.4	)			0.5
Net cash used in investing activities			(73.2	)			(10.9	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt			(419.9	)			(24.5	)
Purchases of treasury stock			(187.5	)			(300.0	)
Payment of minimum tax withholdings on stock-based payment awards			(2.2	)			(0.4	)
Net proceeds from (repayment of) notes payable			113.3				(24.1	)
Proceeds from exercises of employee stock options			39.0				18.0
Proceeds from excess tax benefits from stock-based payment awards			10.6				4.7
Proceeds from employee stock purchases			2.4				2.1
Payment of financing costs of long-term debt			-				(0.2	)
Net cash used in financing activities			(444.3	)			(324.4	)
Effect of exchange rate changes on cash and cash investments			0.9				(0.4	)
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS			0.8				(29.6	)
CASH AND CASH INVESTMENTS, beginning of period			9.2				43.5
CASH AND CASH INVESTMENTS, end of period		$	10.0			$	13.9
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment acquired under financing arrangements		$	15.0			$	4.8

The accompanying notes are an integral part of these statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(unaudited)

1.       BASIS OF PRESENTATION:

          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, 2011. Results of operations for interim periods are not necessarily indicative of annual results.

2.       RECENTLY ADOPTED ACCOUNTING GUIDANCE:

          Fair value measurements and disclosures –

          In January 2010, the Financial Accounting Standards Board (“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). Effective March 1, 2011, the Company adopted the additional disclosure requirement to 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). 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 –

          Effective March 1, 2011, the Company adopted 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 adoption of this amended guidance on March 1, 2011, 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:

		August 31,				February 28,
		2011				2011
(in millions)
Raw materials and supplies		$	46.6			$	38.2
In-process inventories			902.2				1,012.1
Finished case goods			310.4				319.0
		$	1,259.2			$	1,369.3

4.       PREPAID EXPENSES AND OTHER:

          The major components of prepaid expenses and other are as follows:

		August 31,				February 28,
		2011				2011
(in millions)
Income taxes receivable		$	56.9			$	193.8
Deferred tax assets			40.8				42.1
Other			51.0				51.2
		$	148.7			$	287.1

5.       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.

          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 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 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 August 31, 2011, and February 28, 2011, the Company had undesignated foreign currency contracts outstanding with a notional value of $331.8 million and $160.0 million, respectively. The Company had no undesignated interest rate swap agreements outstanding as of August 31, 2011, and 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.

          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 in selling, general and administrative expenses.

          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 (as defined in Note 15)). 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 August 31, 2011, and February 28, 2011, the Company had cash flow designated foreign currency contracts outstanding with a notional value of $357.3 million and $166.4 million, respectively. In addition, as of August 31, 2011, and February 28, 2011, the Company had cash flow designated interest rate swap agreements outstanding with a notional value of $500.0 million (see Note 10). The Company expects $4.3 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 six months and three months ended August 31, 2011, and August 31, 2010.

          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. The Company did not designate any derivative or non-derivative instruments as net investment hedges for the six months and three months ended August 31, 2011, and August 31, 2010.

          Fair values of derivative instruments:

          The fair value and location of the Company’s derivative instruments on its Consolidated Balance Sheets are as follows:

		August 31,				February 28,
Balance Sheet Location		2011				2011
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts
Prepaid expenses and other		$	16.3			$	11.0
Other accrued expenses and liabilities		$	1.5			$	3.4
Other assets, net		$	6.5			$	2.8
Other liabilities		$	1.3			$	0.9
Interest rate swap contracts
Other accrued expenses and liabilities		$	12.6			$	6.1
Other assets, net		$	-			$	1.7
Other liabilities		$	28.9			$	-
Derivative instruments not designated as hedging instruments
Foreign currency contracts
Prepaid expenses and other		$	4.9			$	3.2
Other accrued expenses and liabilities		$	1.2			$	1.0
Other assets, net		$	0.1			$	-
Other liabilities		$	0.1			$	-

          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, is as follows:

										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 Six Months Ended August 31, 2011
Foreign currency contracts		$	7.0			Sales				$	2.7
Foreign currency contracts			6.2			Cost of product sold					0.6
Interest rate swap contracts			(22.6	)		Interest expense, net					-
Total		$	(9.4	)		Total				$	3.3
For the Six Months Ended August 31, 2010
Foreign currency contracts		$	0.1			Sales				$	7.9
Foreign currency contracts			(2.1	)		Cost of product sold					1.3
Interest rate swap contracts			(12.0	)		Interest expense, net					-
Total		$	(14.0	)		Total				$	9.2
For the Three Months Ended August 31, 2011
Foreign currency contracts		$	3.3			Sales				$	1.7
Foreign currency contracts			2.3			Cost of product sold					0.6
Interest rate swap contracts			(13.0	)		Interest expense, net					-
Total		$	(7.4	)		Total				$	2.3
For the Three Months Ended August 31, 2010
Foreign currency contracts		$	1.2			Sales				$	4.3
Foreign currency contracts			1.2			Cost of product sold					(0.9	)
Interest rate swap contracts			(12.0	)		Interest expense, net					-
Total		$	(9.6	)		Total				$	3.4

				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 Six Months Ended August 31, 2011
		Selling, general and
Foreign currency contracts		administrative expenses		$	0.8
For the Six Months Ended August 31, 2010
		Selling, general and
Foreign currency contracts		administrative expenses		$	0.7
For the Three Months Ended August 31, 2011
		Selling, general and
Foreign currency contracts		administrative expenses		$	0.2
For the Three Months Ended August 31, 2010
		Selling, general and
Foreign currency contracts		administrative expenses		$	0.4

          The effect of the Company’s undesignated derivative instruments on its Consolidated Statements of Operations is as follows:

						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 Six Months Ended August 31, 2011
Foreign currency contracts		Selling, general and administrative expenses				$	4.8
For the Six Months Ended August 31, 2010
Foreign currency contracts		Selling, general and administrative expenses				$	(1.0	)
For the Three Months Ended August 31, 2011
Foreign currency contracts		Selling, general and administrative expenses				$	1.7
For the Three Months Ended August 31, 2010
Foreign currency contracts		Selling, general and administrative expenses				$	3.3

          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 August 31, 2011, the fair value of derivative instruments in a net liability position due to counterparties was $41.9 million. If the Company were required to settle the net liability position under these derivative instruments on August 31, 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 August 31, 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 August 31, 2011, the fair value of derivative instruments in a net receivable position due from counterparties was $24.1 million.

6.       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.

          The carrying amount and estimated fair value of the Company’s financial instruments are summarized as follows:

		August 31, 2011								February 28, 2011
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
(in millions)
Assets:
Cash and cash investments		$	10.0			$	10.0			$	9.2			$	9.2
Accounts receivable		$	501.7			$	501.7			$	417.4			$	417.4
Available-for-sale debt securities		$	43.7			$	43.7			$	40.8			$	40.8
Foreign currency contracts		$	27.8			$	27.8			$	17.0			$	17.0
Interest rate swap contracts		$	-			$	-			$	1.7			$	1.7
Notes receivable		$	3.4			$	3.4			$	4.8			$	4.8
Liabilities:
Notes payable to banks		$	198.0			$	195.1			$	83.7			$	83.8
Accounts payable		$	138.7			$	138.7			$	129.2			$	129.2
Long-term debt, including current portion		$	2,748.4			$	2,882.9			$	3,152.6			$	3,298.2
Foreign currency contracts		$	4.1			$	4.1			$	5.3			$	5.3
Interest rate swap contracts		$	41.5			$	41.5			$	6.1			$	6.1

          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 (“AFS”) 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 10) 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 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 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 requires 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. 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)
August 31, 2011
Assets:
AFS debt securities		$	-			$	-			$	43.7			$	43.7
Foreign currency contracts		$	-			$	27.8			$	-			$	27.8
Liabilities:
Foreign currency contracts		$	-			$	4.1			$	-			$	4.1
Interest rate swap contracts		$	-			$	41.5			$	-			$	41.5
February 28, 2011
Assets:
AFS 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

          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. AFS debt securities are valued using market-based inputs into discounted cash flow models.

          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).

		AFS
		Debt
		Securities
(in millions)
Balance at February 28, 2011		$	40.8
Total gains (losses):
Included in earnings (interest expense, net)			3.1
Included in other comprehensive income (net unrealized losses on AFS debt securities)			(0.2	)
Total net gains			2.9
Transfers in and/or out of Level 3			-
Balance at August 31, 2011		$	43.7

7.        GOODWILL:

          The changes in the carrying amount of goodwill are as follows:

		Constellation				Constellation
		Wines				Wines
		North				Australia and				Crown				Consolidations
		America				Europe				Imports				and
		(“CWNA”)				(“CWAE”)				LLC				Eliminations				Consolidated
(in millions)
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
Foreign currency translation adjustments			12.9				-				-				-				12.9
Balance, August 31, 2011
Goodwill			2,632.7				-				13.0				(13.0	)			2,632.7
Accumulated impairment losses			-				-				-				-				-
		$	2,632.7			$	-			$	13.0			$	(13.0	)		$	2,632.7

          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 $266.2 million. As of August 31, 2011, the Company has received cash proceeds of $192.5 million, net of cash divested of $15.8 million, direct costs paid of $11.2 million and post-closing adjustments paid of $19.9 million. The Company has retained a less than 20% interest in its previously owned Australian and U.K. business, 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 and post-closing adjustments paid			203.7
Retained interest in Accolade			48.2
Foreign currency reclassification			678.8
Indemnification liabilities (see Note 12)			(25.4	)
Direct costs to sell, paid and accrued			(13.2	)
Other			7.9
Net gain on sale			165.9
Loss on settlement of pension			(109.9	)
Net gain		$	56.0

          Of the $56.0 million net gain, $55.2 million was recognized for the fourth quarter of fiscal 2011. The Company recognized an $0.8 million net gain and a $0.6 million net loss for the six months and three months ended August 31, 2011, respectively. In addition, the Company’s CWAE segment recorded an additional net gain of $28.5 million for the fourth quarter of fiscal 2011, primarily associated with a net gain on derivative instruments of $20.8 million, related to this divestiture. For the six months and three months ended August 31, 2011, the Company recorded an additional net loss of $0.7 million and $0.1 million, respectively, related to this divestiture. Total net gains associated with this divestiture of $83.8 million are included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. Of this amount, $83.7 million of net gains was recognized for the year ended February 28, 2011, $0.1 million of net gains was recognized for the six months ended August 31, 2011, and $0.7 million of net losses was recognized for the three months ended August 31, 2011.

8.       INTANGIBLE ASSETS:

          The major components of intangible assets are as follows:

		August 31, 2011								February 28, 2011
		Gross				Net				Gross				Net
		Carrying				Carrying				Carrying				Carrying
		Amount				Amount				Amount				Amount
(in millions)
Amortizable intangible assets:
Customer relationships		$	83.1			$	61.6			$	83.2			$	64.1
Other			3.9				1.3				2.6			-
Total		$	87.0				62.9			$	85.8				64.1
Nonamortizable intangible assets:
Trademarks							826.8								816.5
Other							5.7								5.7
Total							832.5								822.2
Total intangible assets, net						$	895.4							$	886.3

          The Company did not incur costs to renew or extend the term of acquired intangible assets during the six months and three months ended August 31, 2011, and August 31, 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 $2.5 million and $2.8 million for the six months ended August 31, 2011, and August 31, 2010, respectively, and $1.3 million and $1.4 million for the three months ended August 31, 2011, and August 31, 2010, respectively. Estimated amortization expense for the remaining six months of fiscal 2012 and for each of the five succeeding fiscal years and thereafter is as follows:

(in millions)
2012		$	2.5
2013		$	4.9
2014		$	4.9
2015		$	4.9
2016		$	5.0
2017		$	4.7
Thereafter		$	36.0

9.       INVESTMENTS:

          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 its 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 August 31, 2011, and February 28, 2011, the Company’s investment in Crown Imports was $171.3 million and $183.3 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 $134.5 million and $156.0 million of cash distributions from Crown Imports for the six months ended August 31, 2011, and August 31, 2010, 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 six months and three months ended August 31, 2011, and August 31, 2010, were not material. In addition, as of August 31, 2011, and February 28, 2011, amounts receivable from Crown Imports were not material.

          The following table presents summarized financial information for the Company’s Crown Imports equity method investment. The amounts shown represent 100% of this equity method investment’s results of operations.

		Crown
		Imports
(in millions)
For the Six Months Ended August 31, 2011
Net sales		$	1,404.5
Gross profit		$	409.9
Income from continuing operations		$	245.0
Net income		$	245.0
For the Six Months Ended August 31, 2010
Net sales		$	1,300.9
Gross profit		$	368.0
Income from continuing operations		$	239.2
Net income		$	239.2
For the Three Months Ended August 31, 2011
Net sales		$	727.0
Gross profit		$	210.3
Income from continuing operations		$	125.4
Net income		$	125.4
For the Three Months Ended August 31, 2010
Net sales		$	679.4
Gross profit		$	191.8
Income from continuing operations		$	130.7
Net income		$	130.7

          Ruffino:

          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. 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. During the six months and three months ended August 31, 2011, the Company recognized a net foreign currency (loss) gain of ($2.1) million and $0.1 million, respectively, on the contractual obligation recorded in the fourth quarter of fiscal 2011 in connection with the potential settlement created by the notification by the 50.1% shareholder of Ruffino to exercise the option to put its entire equity interest in Ruffino to the Company. This net (loss) gain is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations. As of August 31, 2011, and February 28, 2011, the Company’s investment in Ruffino was $10.3 million and $7.4 million, respectively.

          On October 5, 2011, the Company acquired the 50.1% shareholder’s entire equity interest in Ruffino for €50.3 million ($68.6 million). In conjunction with this acquisition, all of the aforementioned legal actions were settled. As a result of this acquisition, the Company assumed indebtedness of Ruffino, net of cash acquired, of €54.7 million ($73.0 million). The purchase price was financed with revolver borrowings under the 2006 Credit Agreement. In accordance with the acquisition method of accounting, the identifiable assets acquired and the liabilities assumed will be measured at their acquisition-date fair values. The results of operations of the Ruffino business will be reported in the Company’s CWNA segment and will be included in the consolidated results of operations of the Company from the date of acquisition.

          Investment in Accolade –

          In connection with the Company’s CWAE Divestiture, the Company retained a less than 20% interest in Accolade, its previously owned Australian and U.K. business, which consists of equity securities and AFS debt securities. The investment in the equity securities is accounted for under the cost method. Accordingly, the Company recognizes earnings only upon the receipt of a dividend from Accolade. Dividends received in excess of net accumulated earnings since the date of investment are considered a return of investment and are recorded as a reduction of the cost of the investment. No dividends were received for the six months and three months ended August 31, 2011. The AFS debt securities are measured at fair value on a recurring basis with unrealized holding gains and losses, including foreign currency gains and losses, reported in AOCI until realized. Interest income is recognized based on the interest rate implicit in the AFS debt securities’ fair value and is reported in interest expense, net, on the Company’s Consolidated Statements of Operations. Interest income recognized in connection with the AFS debt securities was not material for the six months and three months ended August 31, 2011. The AFS 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.

10.     BORROWINGS:

          Borrowings consist of the following:

														February 28,
		August 31, 2011												2011
		Current				Long-term				Total				Total
(in millions)
Notes Payable to Banks
Senior Credit Facility –
Revolving Credit Loans		$	189.8			$	-			$	189.8			$	74.9
Other			8.2				-				8.2				8.8
		$	198.0			$	-			$	198.0			$	83.7
Long-term Debt
Senior Credit Facility – Term Loans		$	0.9			$	825.7			$	826.6			$	1,228.0
Senior Notes			-				1,894.2				1,894.2				1,893.6
Other Long-term Debt			12.8				14.8				27.6				31.0
		$	13.7			$	2,734.7			$	2,748.4			$	3,152.6

          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, (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 $200.0 million), of which $192.0 million terminated in June 2011 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.

          As of August 31, 2011, following the prepayment of $400.0 million of the tranche B term loan facility during the first quarter of fiscal 2012, under the 2006 Credit Agreement, the Company had outstanding 2013 Tranche B Term Loans of $624.7 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $201.9 million bearing an interest rate of 3.0%, 2013 Revolving Facility of $189.8 million bearing an interest rate of 2.7%, outstanding letters of credit of $12.8 million, and $447.4 million in revolving loans available to be drawn.

          As of August 31, 2011, the required principal repayments of the tranche B term loan facility for the remaining six months of fiscal 2012 and for each of the four succeeding fiscal years are as follows:

		Tranche B
		Term Loan
		Facility
(in millions)
2012		$	-
2013			314.1
2014			314.1
2015			99.7
2016			98.7
		$	826.6

          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. The Company did not reclassify any amount from AOCI to interest expense, net on its Consolidated Statements of Operations for the six months and three months ended August 31, 2011, and August 31, 2010.

11.     INCOME TAXES:

          The Company’s effective tax rate for the six months ended August 31, 2011, and August 31, 2010, was 17.1% and 44.2%, respectively. The Company’s effective tax rate for the six months ended August 31, 2011, was substantially impacted by a decrease in uncertain tax positions in connection with the completion of various income tax examinations during the six months ended August 31, 2011. The Company’s effective tax rate for the six months ended August 31, 2010, includes the recognition of a valuation allowance against deferred tax assets in the U.K. of $30.1 million, partially offset by a decrease in uncertain tax positions in connection with the completion of various income tax examinations during the six months ended August 31, 2010.

          The Company’s effective tax rate for the three months ended August 31, 2011, and August 31, 2010, was 2.3% and 38.8%, respectively. The Company’s effective tax rate for the three months ended August 31, 2011, was substantially impacted by a decrease in uncertain tax positions in connection with the completion of various income tax examinations during the three months ended August 31, 2011.

12.     COMMITMENTS AND CONTINGENCIES:

          Indemnification liabilities –

          In connection with the 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. During the first quarter of fiscal 2012, the Company was released from one of its guarantees related to a contract with a certain investee of Accolade. In connection with this release, the Company recognized a gain of $0.7 million, which is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Operations for the six months ended August 31, 2011. As of August 31, 2011, and February 28, 2011, the carrying amount of these indemnification liabilities was $25.4 million and $26.1 million, respectively. 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 August 31, 2011, the Company estimates that these indemnifications could require the Company to make potential future payments of up to $330.9 million under these indemnifications with $282.1 million of this amount subject to recovery 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.

13.     STOCKHOLDERS’ EQUITY:

          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 repurchases 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.

          During the six months ended August 31, 2011, the Company repurchased 9,766,888 shares of Class A Common Stock pursuant to this authorization at an aggregate cost of $187.5 million, or an average cost of $19.20 per share, through open market transactions. Subsequent to August 31, 2011, and through October 11, 2011, the Company repurchased an additional 4,751,600 shares of Class A Common Stock pursuant to this authorization at an aggregate cost of $85.7 million, or an average cost of $18.02 per share, through open market transactions. In total, the Company has repurchased 14,518,488 shares of Class A Common Stock pursuant to this authorization at an aggregate cost of $273.2 million, or an average cost of $18.82 per share. The Company used revolver borrowings under the 2006 Credit Agreement and cash flows from operating activities to pay the purchase price for the repurchased shares. The repurchased shares have become treasury shares.

14.     EARNINGS PER COMMON SHARE:

          The Company has two classes of outstanding common stock: Class A Common Stock and Class B Convertible Common Stock. Earnings per common share – basic excludes the effect of common stock equivalents and is computed using the two-class computation method. 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 six months and three months ended August 31, 2011, and August 31, 2010, earnings per common share – diluted for Class A Common Stock has been calculated using the if-converted method. For the six months and three months ended August 31, 2011, and August 31, 2010, 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.

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

		For the Six Months								For the Three Months
		Ended August 31,								Ended August 31,
		2011				2010				2011				2010
(in millions, except per share data)
Income available to common stockholders		$	237.2			$	140.4			$	162.7			$	91.3
Weighted average common shares outstanding – basic:
Class A Common Stock			186.837				189.084				186.629				185.455
Class B Convertible Common Stock			23.599				23.719				23.593				23.712
Weighted average common shares outstanding – diluted:
Class A Common Stock			186.837				189.084				186.629				185.455
Class B Convertible Common Stock			23.599				23.719				23.593				23.712
Stock-based awards, primarily stock options			3.970				2.333				3.423				1.982
Weighted average common shares outstanding – diluted			214.406				215.136				213.645				211.149
Earnings per common share – basic:
Class A Common Stock		$	1.14			$	0.67			$	0.78			$	0.44
Class B Convertible Common Stock		$	1.04			$	0.61			$	0.71			$	0.40
Earnings per common share – diluted:
Class A Common Stock		$	1.11			$	0.65			$	0.76			$	0.43
Class B Convertible Common Stock		$	1.02			$	0.60			$	0.70			$	0.40

          For the six months ended August 31, 2011, and August 31, 2010, stock-based awards, primarily stock options, which could result in the issuance of 9.0 million and 23.5 million shares, respectively, of Class A Common Stock were outstanding, but were not included in the computation of earnings per common share – diluted for Class A Common Stock because the effect of including such awards would have been antidilutive. For the three months ended August 31, 2011, and August 31, 2010, stock-based awards, primarily stock options, which could result in the issuance of 9.1 million and 25.3 million shares, respectively, of Class A Common Stock were outstanding, but were not included in the computation of earnings per common share – diluted for Class A Common Stock because the effect of including such awards would have been antidilutive.

15.     COMPREHENSIVE INCOME (LOSS):

          Comprehensive income (loss) consists of net income, foreign currency translation adjustments, net unrealized losses on derivative instruments, net unrealized losses on AFS debt securities and pension/postretirement adjustments. The reconciliation of net income to comprehensive income is as follows:

		Before Tax				Tax (Expense)				Net of Tax
(in millions)		Amount				Benefit				Amount
For the Six Months Ended August 31, 2011
Net income										$	237.2
Other comprehensive income (loss):
Foreign currency translation adjustments		$	42.0			$	(0.5	)			41.5
Unrealized loss on cash flow hedges:
Net derivative losses			(19.6	)			10.2				(9.4	)
Reclassification adjustments			(5.1	)			1.0				(4.1	)
Net loss recognized in other comprehensive income			(24.7	)			11.2				(13.5	)
Net unrealized loss on AFS debt securities			(0.2	)			-				(0.2	)
Pension/postretirement adjustments:
Net gains arising during the period			-				-				-
Reclassification adjustments			0.2				-				0.2
Net gain recognized in other comprehensive income			0.2				-				0.2
Other comprehensive income		$	17.3			$	10.7				28.0
Total comprehensive income										$	265.2
For the Six Months Ended August 31, 2010
Net income										$	140.4
Other comprehensive (loss) income:
Foreign currency translation adjustments		$	(14.3	)		$	(1.6	)			(15.9	)
Unrealized loss on cash flow hedges:
Net derivative losses			(19.1	)			5.1				(14.0	)
Reclassification adjustments			(13.3	)			3.4				(9.9	)
Net loss recognized in other comprehensive income			(32.4	)			8.5				(23.9	)
Pension/postretirement adjustments:
Net losses arising during the period			(0.7	)			0.4				(0.3	)
Reclassification adjustments			4.9				(1.4	)			3.5
Net gain recognized in other comprehensive income			4.2				(1.0	)			3.2
Other comprehensive loss		$	(42.5	)		$	5.9				(36.6	)
Total comprehensive income										$	103.8
For the Three Months Ended August 31, 2011
Net income										$	162.7
Other comprehensive income (loss):
Foreign currency translation adjustments		$	2.7			$	0.3				3.0
Unrealized loss on cash flow hedges:
Net derivative losses			(14.2	)			6.8				(7.4	)
Reclassification adjustments			(3.1	)			0.6				(2.5	)
Net loss recognized in other comprehensive income			(17.3	)			7.4				(9.9	)
Net unrealized loss on AFS debt securities			(0.2	)			-				(0.2	)
Pension/postretirement adjustments:
Net gains arising during the period			-				-				-
Reclassification adjustments			0.2				-				0.2
Net gain recognized in other comprehensive income			0.2				-				0.2
Other comprehensive loss		$	(14.6	)		$	7.7				(6.9	)
Total comprehensive income										$	155.8