UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of
earliest event reported): June 5, 2008 (June 5, 2008)
Brown-Forman Corporation
(Exact name of registrant as specified in its charter)
Delaware 002-26821 61-0143150
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
850 Dixie Highway, Louisville, Kentucky 40210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 585-1100
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2.):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
Brown-Forman Corporation issued a press release today, June 5, 2008 reporting
results of its operations for the fiscal year and fiscal quarter ended April 30,
2008. A copy of this Brown-Forman Corporation press release is attached hereto
as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Exhibits
99.1 Press Release, dated June 5, 2008.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Brown-Forman Corporation
(Registrant)
Date: June 5, 2008 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President, Associate
General Counsel and Assistant
Corporate Secretary
Exhibit Index
Exhibit
Number Description
99.1 Press Release, dated June 5, 2008, issued by Brown-Forman
Corporation, reporting results of operations for the fiscal year and
fiscal quarter ended April 30, 2008.
Exhibit 99.1
FOR IMMEDIATE RELEASE
BROWN-FORMAN REPORTS RECORD EARNINGS FOR FISCAL 2008
REPORTED OPERATING INCOME GREW 14% WHILE UNDERLYING(1) OPERATING INCOME
INCREASED 8%
Louisville, KY, June 5, 2008 - Brown-Forman Corporation reported record net
sales for fiscal 2008, totaling nearly $3.3 billion, with international markets
contributing more than 50% of total net sales for the first time in the
company's 138-year history. Reported diluted earnings per share from continuing
operations(2) rose 10% to $3.55 and operating income grew 14% to $685 million
for the fiscal year.
Higher consumer demand for Jack Daniel's Tennessee Whiskey, Jack Daniel's &
Cola, and Finlandia Vodka, particularly outside the U.S., and excellent growth
in the U.S. for Gentleman Jack drove operating income increases. Additionally,
benefits from a weaker U.S. dollar and the incremental profits from the Casa
Herradura(3) and Chambord acquisitions completed in the prior fiscal year
contributed to year-over-year profit growth. Higher raw material costs and
increased operating investments partially offset these gains. Adjusting for
added profits associated with Casa Herradura and Chambord, the benefits of a
weaker U.S. dollar, and last year's net gain on the sale of winery assets,
underlying operating income was up 8% for the fiscal year.
--------
(1) Underlying operating income represents operating income reported in
accordance with GAAP, adjusted for certain items. A reconciliation from
reported growth to underlying operating income growth (a non-GAAP measure)
for the fourth quarter and full year, and the reasons why management
believes these adjustments to be useful to the reader, are included in
Schedule A.
(2) All financial and statistical information contained in this press release
relates to the continuing operations of the company unless otherwise stated.
(3) Major brands included in the January 2007 Casa Herradura acquisition were
Tequila Herradura, el Jimador tequila, and the New Mix ready to drink
product.
Fiscal 2008 net sales grew $476 million, or 17%, over fiscal 2007 while gross
profit increased $214 million, or 14%. Net sales and gross profit benefited from
double-digit gains for the Jack Daniel's family of brands and Finlandia, in
addition to mid-single digit gains for Southern Comfort. Net sales growth
reflects volume and pricing increases along with favorable foreign exchange
gains. Higher costs, including grain, grapes, and fuel, partially offset these
gains. The fiscal 2007 acquisitions of the Casa Herradura brands and Chambord
also contributed to the increases in revenues and gross profit. Adjusting for
foreign exchange and acquisitions, the fiscal 2008 underlying gross profit
growth was 6%.
Advertising and promotion investments increased 15% for the year due to spending
behind the company's premium global brands, developing brands, and recently
acquired brands, and due to a weaker U.S. dollar. Adjusting for foreign exchange
and spending behind recently acquired brands, advertising and promotion was up
6% for the year. Selling, general, and administrative expenses increased 10%
over 2007 due largely to the acquisition of the Casa Herradura brands, and a
weaker U.S. dollar. Excluding these items, underlying SG&A increased 3% for the
year.
Global depletions(4) for Jack Daniel's were up 4% over the prior year. In the
U.S., depletions increased in the low-single digit range, while international
depletions grew at a high-single digit rate. Robust double-digit depletion
growth rates were recorded throughout many markets in Europe and Latin America.
Finlandia depletions were up 16% globally over fiscal 2007, driven by strong
double-digit growth in many parts of Europe, particularly Poland and Russia.
Southern Comfort global depletions were flat for the full-year as solid gains in
the U.K., South Africa, and Australia were partially offset by low-single digit
declines in the U.S.
--------
(4) Depletions are shipments from wholesaler distributors to retail customers,
and are commonly regarded in the industry as an approximate measure of
consumer demand.
Depletions for several brands, including Bonterra, Gentleman Jack, and Woodford
Reserve, grew at healthy double-digit rates for the year while Sonoma-Cutrer
advanced in the high-single digits. Fetzer Valley Oaks and Korbel registered
low-single digit depletion growth while Canadian Mist, Bolla, and Early Times
recorded modest declines for the year.
The following chart summarizes the fiscal 2008 worldwide depletions, depletion
growth, reported net sales growth, and foreign exchange adjusted net sales
growth, for Brown-Forman's largest volume brands:
Net Sales % Change vs. Fiscal 2007
Nine-Liter Cases Depletion % Change ----------------------------------
Brand (000's) vs Fiscal 2007 Reported Constant Currency(5)
Jack Daniel's TW 9,450 4% 9% 6%
New Mix RTD(6) 4,340 NA NA NA
Finlandia 2,835 16% 33% 19%
Southern Comfort 2,460 - 6% 3%
Fetzer Valley Oaks 2,355 2% 2% 1%
Jack Daniel's & Cola RTD 2,260 18% 33% 19%
Canadian Mist 1,895 (3%) - -
Fourth Quarter
Fourth quarter reported diluted earnings per share increased 45% over the same
quarter last year to $0.81 while operating income grew 25% to $135 million. Net
sales and gross profit grew 12% and 11%, respectively. Reported operating
earnings were driven by continued growth in consumer demand for the Jack
Daniel's family of brands and Finlandia, particularly outside the U.S., the
acquisition of the Casa Herradura brands, moderate increases in operating
investments in the quarter and the weaker U.S. dollar. Additionally, net income
for the quarter was positively impacted by a lower effective tax rate resulting
from the effective settlement of various tax uncertainties. These settlements
resulted in the reversal of previously established tax reserves, providing an
incremental $0.04 in earnings per diluted share compared to the same period last
year.
--------
(5) Constant currency represents reported net sales with the benefit of a weaker
U.S. dollar removed. Management uses the measure to understand the growth
of the business on a constant dollar basis as fluctuations in exchange rates
can distort the underlying growth of the business both positively and
negatively.
(6) Tequila ready-to-drink brand acquired in January 2007 as part of Casa
Herradura and sold exclusively in Mexico.
Fourth quarter underlying operating income was up 12% over the prior year
period. These excellent underlying results reflect stable Jack Daniel's
depletion trends in the U.S. and continued solid demand in many markets outside
the U.S., exceptional growth for Finlandia in Eastern Europe, strong growth for
Gentleman Jack, and moderate increases in brand investments, as well as a slight
decline in SG&A expense in the quarter when compared to the prior-year-period.
Fiscal 2009 Outlook
Paul Varga, the company's chief executive officer, stated, "Fiscal 2008 was
another excellent year for our company, particularly considering the difficult
macro-economic conditions under which these results were achieved, as our
underlying earnings growth approximated our company's long-term growth rate."
Building on this strong foundation, in fiscal 2009 the company projects diluted
earnings per share to fall within a range of $3.73 to $3.98, representing growth
of 5% to 12% and operating income to grow in the range of 3% to 10% for the
year.
The company's outlook incorporates expectations for continued solid
international growth, improving trends for both Jack Daniel's and Southern
Comfort and healthy growth from the Casa Herradura brands in the U.S.,
expectations for a higher effective tax rate, anticipated increases in fuel and
raw material costs, the benefits of the fiscal 2008 share repurchase, and lower
interest expense.
Brown-Forman will host a conference call to discuss the results at 10:00 a.m.
(EDT) this morning. All interested parties in the U.S. are invited to join the
conference call by dialing 888-624-9285 and asking for the Brown-Forman call.
International callers should dial 706-679-3410 and ask for the Brown-Forman
call. No password is required. The company suggests that participants dial in
approximately ten minutes in advance of the 10:00 a.m. start of the conference
call.
A live audio broadcast of the conference call will also be available via
Brown-Forman's Internet Web site, www.brown-forman.com, through a link to
"Investors/Information." For those unable to participate in the live call, a
replay will be available by calling 800-642-1687 (U.S.) or 706-645-9291
(international). The identification code is 9424319. A digital audio recording
of the conference call will also be available on the Web site approximately one
hour after the conclusion of the conference call. The replay will be available
for at least 30 days following the conference call.
Brown-Forman Corporation is a producer and marketer of fine quality beverage
alcohol brands, including Jack Daniel's, Southern Comfort, Finlandia Vodka,
Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer and Bolla Wines,
and Korbel California Champagnes.
IMPORTANT NOTE ON FORWARD-LOOKING STATEMENTS:
This release contains statements, estimates, or projections that constitute
"forward-looking statements" as defined under U.S. federal securities laws.
Generally, the words "expect," "believe," "intend," "estimate," "will,"
"anticipate," and "project," and similar expressions identify a forward-looking
statement, which speaks only as of the date the statement is made. Except as
required by law, we do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
We believe that the expectations and assumptions with respect to our
forward-looking statements are reasonable. But by their nature, forward-looking
statements involve known and unknown risks, uncertainties and other factors that
in some cases are out of our control. These factors could cause our actual
results to differ materially from Brown-Forman's historical experience or our
present expectations or projections. Here is a non-exclusive list of such risks
and uncertainties:
- continuation of the deterioration in general economic conditions,
particularly in the United States where we earn about half of our profits,
and other markets with economies linked to the U.S., including higher energy
prices, declining home prices, deterioration of the sub-prime lending market,
decreased discretionary income or other factors;
- pricing, marketing and other competitive activity focused against our major
brands;
- lower consumer confidence or purchasing related to economic conditions, major
natural disasters, terrorist attacks or widespread outbreak of infectious
diseases;
- tax increases and/or tariff barriers or other restrictions affecting beverage
alcohol, whether at the federal or state level in the U.S. or in other major
markets around the world, and the unpredictability or suddenness with which
they can occur;
- limitations and restrictions on distribution of products and alcohol
marketing, including advertising and promotion, as a result of stricter
governmental policies adopted either in the United States or in our other
major markets;
- fluctuations in the U.S. Dollar against foreign currencies, especially the
British Pound, Euro, Australian Dollar, and the South African Rand;
- reduced bar, restaurant, hotel and travel business, including travel retail;
- longer-term, a change in consumer preferences, societal attitudes or cultural
trends that results in the reduced consumption of our premium spirits brands
or our ready-to-drink products;
- changes in distribution arrangements in major markets that limit our ability
to market or sell our products;
- adverse impacts relating to our acquisition strategies or our integration of
acquired businesses and conforming them to the company's trade practice
standards, financial controls environment and U.S. public company
requirements;
- price increases in energy or raw materials, including grapes, grain, agave,
wood, glass, and plastic;
- changes in climate conditions, agricultural uncertainties or other supply
limitations that adversely affect the price, availability or quality of
grapes, agave, grain, glass, closures or wood;
- termination of our rights to distribute and market agency brands in our
portfolio;
- press articles or other public media related to our company, brands,
personnel, operations, business performance or prospects;
- counterfeit production of our products and any resulting negative effect on
our intellectual property rights or brand equity; and
- adverse developments stemming from state or federal investigations of
beverage alcohol industry marketing or trade practices of suppliers,
distributors or retailers.
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Three Months Ended
April 30,
2007 2008 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $690.8 $772.3 12%
Gross profit 361.9 401.0 11%
Advertising expenses 93.9 101.0 8%
Selling, general, and
administrative expenses 157.6 158.4 1%
Amortization expense 1.3 1.2
Other expense, net 0.5 5.0
Operating income 108.6 135.4 25%
Interest expense, net 10.9 9.0
Income before income taxes 97.7 126.4 29%
Income taxes 28.4 27.7
Net income 69.3 98.7 42%
Earnings per share:
Basic 0.56 0.82 45%
Diluted 0.56 0.81 45%
DISCONTINUED OPERATIONS
Net (loss) income $(2.5) $ 0.4
Loss per share:
Basic (0.02) --
Diluted (0.02) --
TOTAL COMPANY
Net income $ 66.8 $ 99.1 48%
Earnings per share:
Basic 0.54 0.82 51%
Diluted 0.54 0.81 51%
(more)
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Year Ended
April 30,
2007 2008 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $2,806.1 $3,282.2 17%
Gross profit 1,480.8 1,694.6 14%
Advertising expenses 361.1 415.2 15%
Selling, general, and
administrative expenses 535.6 591.5 10%
Amortization expense 1.4 5.1
Other (income), net (19.6) (2.2)
Operating income 602.3 685.0 14%
Interest expense, net 16.3 41.4
Income before income taxes 586.0 643.6 10%
Income taxes 185.9 204.2
Net income 400.1 439.4 10%
Earnings per share:
Basic 3.26 3.59 10%
Diluted 3.22 3.55 10%
DISCONTINUED OPERATIONS
Net (loss) income $(10.6) $ 0.4
Loss per share:
Basic (0.09) --
Diluted (0.09) --
TOTAL COMPANY
Net income $389.5 $439.8 13%
Earnings per share:
Basic 3.17 3.59 13%
Diluted 3.14 3.56 13%
(more)
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, April 30,
2007 2008
------- -------
Assets:
Cash and cash equivalents $ 283 $ 119
Short-term investments 86 --
Accounts receivable, net 404 453
Inventories 694 685
Other current assets 168 199
----- -----
Total current assets 1,635 1,456
Property, plant, and equipment, net 506 501
Goodwill 670 688
Other intangible assets 684 699
Prepaid pension cost 23 23
Other assets 33 38
----- -----
Total assets $3,551 $3,405
===== =====
Liabilities:
Accounts payable and accrued expenses $ 361 $ 380
Accrued income taxes 27 15
Payable to stockholders 204 --
Short-term borrowings 401 585
Current portion of long-term debt 354 4
----- -----
Total current liabilities 1,347 984
Long-term debt 422 417
Deferred income taxes 56 89
Accrued postretirement benefits 123 121
Other liabilities 30 69
----- -----
Total liabilities 1,978 1,680
Stockholders' equity 1,573 1,725
----- -----
Total liabilities and stockholders' equity $3,551 $3,405
===== ======
(more)
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Year Ended
April 30,
2007 2008
------ ------
Cash flows from operating activities:
Continuing operations $349 $534
Discontinued operations 6 --
------ ------
Cash provided by operating activities 355 534
Cash flows from investing activities:
Acquisition of businesses (1,045) 2
Acquisition of distribution rights (25) --
Acquisition of brand names and trademarks -- (13)
Net decrease in short-term investments 74 86
Additions to property, plant, and equipment (58) (41)
Other 16 (6)
------ ------
Cash (used for) provided by
investing activities (1,038) 28
Cash flows from financing activities:
Net increase (decrease) in debt 597 (172)
Acquisition of treasury stock -- (223)
Special distribution to stockholders -- (204)
Dividends paid (143) (158)
Other 33 21
------ ------
Cash provided by (used for)
financing activities 487 (736)
Effect of exchange rate changes
on cash and cash equivalents 4 10
------ ------
Net decrease in cash and cash equivalents (192) (164)
Cash and cash equivalents, beginning of period 475 283
------ ------
Cash and cash equivalents, end of period $283 $119
====== ======
(more)
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
April 30,
2007 2008
------ ------
Net sales $690.8 $772.3
Excise taxes $142.4 $165.9
Net sales (stripped of excise taxes) $548.4 $606.4
Gross profit (as reported) $361.9 $401.0
Gross margin (as reported) 52.4% 51.9%
Gross margin (stripped net sales basis)* 66.0% 66.1%
Effective tax rate 29.1% 22.0%
Cash dividends paid per common share $0.3025 $0.3400
Shares (in thousands) used in the
calculation of earnings per share
- Basic 123,044 120,770
- Diluted 124,236 121,769
* Management believes excluding excise tax from the gross margin calculation
provides a more meaningful comparison because of changes in the company's
distribution structures in several markets. These changes result in the
company collecting and remitting excise taxes which are reported in net sales
and cost of sales, preventing effective comparison across periods where the
same distribution structures were not employed.
(more)
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Year Ended
April 30,
2007 2008
------ ------
Net sales $2,806.1 $3,282.2
Excise taxes $588.5 $700.7
Net sales (stripped of excise taxes) $2,217.6 $2,581.5
Gross profit (as reported) $1,480.8 $1,694.6
Gross margin (as reported) 52.8% 51.6%
Gross margin (stripped net sales basis)* 66.8% 65.6%
Effective tax rate 31.7% 31.7%
Cash dividends paid per common share $1.1650 $1.2850
Shares (in thousands) used in the
calculation of earnings per share
- Basic 122,868 122,464
- Diluted 124,201 123,609
* Management believes excluding excise tax from the gross margin calculation
provides a more meaningful comparison because of changes in the company's
distribution structures in several markets. These changes result in the
company collecting and remitting excise taxes which are reported in net sales
and cost of sales, preventing effective comparison across periods where the
same distribution structures were not employed.
These figures have been prepared in accordance with the company's customary
accounting practices.
Schedule A
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
Three Months Twelve Months
Ended Ended
April 30, 2008 April 30, 2008
REPORTED NET SALES GROWTH 12% 17%
Net sales from acquisitions 0% (7%)
Impact of foreign currencies (5%) (4%)
Net sales from agency brands 2% 0%
Estimated net change in trade inventories (2%) 0%
----- -----
UNDERLYING NET SALES GROWTH 7% 6%
===== =====
REPORTED GROSS PROFIT GROWTH 11% 14%
Gross profit from acquisitions (1%) (4%)
Impact of foreign currencies (5%) (4%)
Estimated net change in trade inventories (1%) 0%
----- -----
UNDERLYING GROSS PROFIT GROWTH 4% 6%
===== =====
REPORTED ADVERTISING GROWTH 8% 15%
Advertising from acquisitions 0% (5%)
Impact of foreign currencies (5%) (4%)
----- -----
UNDERLYING ADVERTISING GROWTH 3% 6%
===== =====
REPORTED SG&A GROWTH 1% 10%
SG&A from acquisitions 0% (6%)
Impact of foreign currencies (2%) (1%)
----- -----
UNDERLYING SG&A GROWTH (1%) 3%
===== =====
REPORTED OPERATING INCOME GROWTH 25% 14%
Operating income from acquisitions (5%) (3%)
Impact of foreign currencies (4%) (5%)
Operating income from agency brands 1% 0%
Estimated net change in trade inventories (5%) 0%
Absence of gain on winery assets 0% 2%
----- -----
UNDERLYING OPERATING INCOME GROWTH 12% 8%
===== =====
Notes:
Acquisitions - Refers to the acquisition of the Casa Herradura brands in January
2007 and Chambord in May 2006, thus making comparisons difficult to understand.
In addition, we believe that excluding the results, and associated transition
expenses, of these acquisitions provides helpful information in forecasting and
planning the growth expectations of the company.
Impact of foreign currencies - Refers to net gains and losses incurred by the
company relating to sales and purchases in currencies other than the U.S.
Dollar. We use the measure to understand the growth of the business on a
constant dollar basis as fluctuations in exchange rates can distort the
underlying growth of our business (both positively and negatively). To
neutralize the effect of foreign exchange fluctuations, we have historically
translated current year results at prior year rates. While we recognize that
foreign exchange volatility is a reality for a global company, we routinely
review our company performance on a constant dollar basis. We believe this
allows both management and our investors to understand better our company's
growth trends.
Agency brands - Refers to the impact of certain agency brands (including Red
Bull) exiting the Mexican distribution operation.
Estimated net change in trade inventories - Refers to the estimated financial
impact of changes in wholesale trade inventories for the company's brands in
markets where we use third-party distributors. We compute this effect using our
estimated depletion trends and separately identify trade inventory changes in
the variance analysis for our key measures. Based on the estimated depletions
and the fluctuations in trade inventory levels, we then adjust the percentage
variances from prior to current periods for our key measures. We believe it is
important to make this adjustment in order for management and investors to
understand the results of our business without distortions that can arise from
varying levels of wholesale inventories.
Absence of gain on winery assets - Refers to the net gain recorded during fiscal
2007 associated with the sale of an Italian winery used in the production of
Bolla wines. We believe this item creates a disproportionate effect on
underlying business results, making comparisons difficult for the reader. In
addition, we believe that excluding this gain provides helpful information in
forecasting and planning the growth expectations of the company.
The company cautions that non-GAAP measures may be considered in addition to,
but not as a substitute for, the company's reported GAAP results.