## 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 

## Description of business – 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Constellation Brands, Inc. and its subsidiaries (the “Company”) operate primarily in the beverage alcohol industry. The Company is a leading international producer and marketer of beverage alcohol brands with a broad portfolio across the wine, spir- its and imported beer categories. The Company has the largest wine business in the world and is the largest multi-category suppli- er of beverage alcohol in the United States (“U.S.”); a leading producer and exporter of wine from Australia and New Zealand; and both a major producer and independent drinks wholesaler in the United Kingdom (“U.K.”). In North America, the Company dis- tributes its products through wholesale distributors. In Australia, the Company distributes its products directly to off-premise accounts, such as major retail chains, on-premise accounts, such as hotels and restaurants, and large wholesalers. In the U.K., the Company distributes its products directly to off-premise accounts, such as major retail chains, and to other wholesalers. Through the Company’s U.K. wholesale business, the Company distributes its branded products and those of other major drinks companies to on-premise accounts: pubs, clubs, hotels and restaurants. 

## Principles of consolidation – 

The consolidated financial statements of the Company include the accounts of Constellation Brands, Inc. and all of its sub- sidiaries. All intercompany accounts and transactions have been eliminated. 

## Management’s use of estimates – 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 

Actual results could differ from those estimates. 

## Revenue recognition – 

Sales are recognized when title passes to the customer, which is generally when the product is shipped. Amounts billed to cus- tomers for shipping and handling are classified as sales. Sales reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and adver- tising allowances, coupons, and rebates. 

## Cost of product sold – 

The types of costs included in cost of product sold are raw materials, packaging materials, manufacturing costs, plant admin- istrative support and overheads, and freight and warehouse costs (including distribution network costs). Distribution network costs include inbound freight charges and outbound shipping and handling costs, purchasing and receiving costs, inspection costs, ware- housing and internal transfer costs. 

## Selling, general and administrative expenses – 

The types of costs included in selling, general and administrative expenses consist predominately of advertising and non-man- ufacturing administrative and overhead costs. Distribution network costs are not included in the Company’s selling, general and administrative expenses, but are included in cost of product sold as described above. The Company expenses advertising costs as incurred, shown or distributed. Prepaid advertising costs at February 29, 2004 and February 28, 2003, were not material. Advertising expense for the years ended February 29, 2004, February 28, 2003, and February 28, 2002, was $116.1 million, $89.6 million and $87.0 million, respectively. 

## Foreign currency translation – 

The “functional currency” for translating the accounts of the Company’s operations outside the U.S. is the local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss) (“AOCI”). Gains or losses resulting from foreign currency denominated transactions are included in selling, general and administrative expens- es in the Company’s Consolidated Statements of Income. The Company engages in foreign currency denominated transactions with customers, suppliers and non-U.S. subsidiaries. Aggregate foreign currency transaction gains were $16.6 million in Fiscal 2004. 

Aggregate foreign currency transaction gains were not material in Fiscal 2003 and Fiscal 2002. 

## Cash investments – 

Cash investments consist of highly liquid investments with an original maturity when purchased of three months or less and are stated at cost, which approximates market value. The amounts at February 29, 2004, and February 28, 2003, are not significant. 

## Allowance for doubtful accounts – 

The Company records an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The majority of the accounts receivable balance is generated from sales to independent distributors with whom the Company has a predetermined collection date arranged through electronic funds transfer. The allowance for doubtful accounts was $17.2 million and $13.8 million as of February 29, 2004, and February 28, 2003, respectively. 

