On July 17, 2006, Barton Beers, Ltd., a Maryland corporation (“Barton”), an indirect wholly-owned subsidiary of Constellation Brands, Inc., a Delaware corporation (the “Company”), entered into an agreement to establish a joint venture (the “Joint Venture Agreement”) (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 18, 2006) with Diblo, S.A. de C.V., a sociedad anónima de capital variable organized under the laws of Mexico (“Diblo”) that is a joint venture owned 76.75% by Grupo Modelo, S.A. de C.V., a sociedad anónima de capital variable organized under the laws of Mexico (“Modelo”), and 23.25% by Anheuser-Busch, Inc., a Delaware corporation, pursuant to which Modelo’s Mexican beer portfolio will be sold and imported in the 50 states of the United States of America, the District of Columbia and Guam. Subject to the consent of the brands’ owners, the joint venture may also sell Tsingtao and St. Pauli Girl brands.
The Joint Venture Agreement provides that Barton will establish a wholly-owned subsidiary, to be formed as a Delaware limited liability company (“LLC”) and to be governed by a limited liability company agreement. The Joint Venture Agreement provides also that, on the later of January 2, 2007, or the tenth business day after all of the closing conditions have been satisfied or waived, Barton will, pursuant to a Barton Contribution Agreement, dated July 17, 2006 (the “Barton Contribution Agreement”) (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on July 18, 2006), among Barton, Diblo and LLC, transfer to LLC substantially all of its assets relating to importing, marketing and selling beer under the Corona Extra, Corona Light, Coronita, Modelo Especial, Negra Modelo, Pacifico, St. Pauli Girl and Tsingtao brands and the liabilities associated therewith (collectively, the “Barton Contributed Net Assets”). Additionally, the Joint Venture Agreement provides that following Barton’s contribution, a subsidiary of Diblo will, in exchange for a 50% membership interest in the newly formed wholly-owned Barton subsidiary, contribute cash in an amount equal to the Barton Contributed Net Assets, subject to specified adjustments. The joint venture will then enter into an importer agreement with an affiliate of Modelo which will grant the joint venture the exclusive right to sell Modelo’s Mexican beer portfolio in the territories mentioned above. In addition, the existing importer agreement which currently gives Barton the right to import and sell Modelo’s Mexican beer portfolio primarily west of the Mississippi River will be superseded by the transactions contemplated by the Joint Venture Agreement. As a result of these transactions, Barton and Diblo will each have, directly or indirectly, equal interests in the joint venture. The transactions contemplated in the Joint Venture Agreement are expected to be consummated on or after January 2, 2007.
The following unaudited pro forma combined financial information of the Company consists of (i) an unaudited pro forma condensed combined balance sheet as of May 31, 2006 (the “Pro Forma Balance Sheet”), (ii) an unaudited pro forma combined statement of income for the year ended February 28, 2006, (iii) an unaudited pro forma combined statement of income for the three months ended May 31, 2006 (collectively, the “Pro Forma Statements of Income”), and (iv) notes to the unaudited pro forma statements (collectively, the “Pro Forma Statements”).
The Pro Forma Balance Sheet as of May 31, 2006, reflects (i) the probable contribution of the Barton Contributed Net Assets to the joint venture at historical cost and (ii) the recording of Barton’s 50% interest in the probable joint venture as if the transactions had occurred on May 31, 2006. The Pro Forma Statements of Income for the year ended February 28, 2006, and the three months ended May 31, 2006, reflect (i) the probable disposition of the Barton beer business, which is being contributed by Barton to the joint venture, (ii) Barton’s probable equity in earnings (loss) of the joint venture, and (iii) the present ongoing operations of the Company as if the transactions had occurred on March 1, 2005.
The probable equity in earnings (loss) of the joint venture reflects Barton’s 50% share of the joint venture’s earnings for the periods presented based on (i) the understanding that both Diblo and Barton are contributing assets of equal value and (ii) certain provisions in the Joint Venture Agreement are structured with the intent and expectation that Barton would maintain its historical market position and historical profit levels related to the selling of imported beer products in the United States.
The Company’s February 28, 2006, information was derived from its audited consolidated financial statements filed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2006. The Company’s May 31, 2006, information was derived from its unaudited consolidated financial statements filed in its quarterly report on Form 10-Q for the quarter ended May 31, 2006. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the transactions described above, (ii) factually supportable and (iii) with respect to the income statement information, expected to have a continuing impact on the Company’s consolidated results.
The Pro Forma Statements are for illustrative purposes only and should be read in conjunction with the Company’s separate historical consolidated financial statements and the notes thereto and with the accompanying notes to the Pro Forma Statements. The Pro Forma Statements are based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The Pro Forma Statements do not purport to represent what the Company’s financial position or results of operations would actually have been if the aforementioned transactions had in fact occurred on such dates or at the beginning of the periods indicated, nor do they project the Company’s financial position or results of operations at any future date or for any future period.
