þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
61-0143150
|
(State or other jurisdiction of
|
(IRS Employer
|
incorporation or organization)
|
Identification No.)
|
|
|
850 Dixie Highway
|
|
Louisville, Kentucky
|
40210
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
þ
|
Accelerated filer
o
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Class A Common Stock ($.15 par value, voting)
|
84,462,242
|
|
Class B Common Stock ($.15 par value, nonvoting)
|
128,735,471
|
|
BROWN-FORMAN CORPORATION
|
||
Index to Quarterly Report Form 10-Q
|
||
|
|
|
|
|
Page
|
|
|
|
Item 1.
|
||
|
|
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Item 2.
|
||
|
|
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Item 3.
|
||
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|
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Item 4.
|
||
|
|
|
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Item 2.
|
||
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|
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Item 6.
|
||
|
|
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Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
October 31,
|
|
October 31,
|
||||||||||||
|
2012
|
|
2013
|
|
2012
|
|
2013
|
||||||||
Net sales
|
$
|
1,014
|
|
|
$
|
1,079
|
|
|
$
|
1,892
|
|
|
$
|
1,975
|
|
Excise taxes
|
237
|
|
|
246
|
|
|
449
|
|
|
455
|
|
||||
Cost of sales
|
252
|
|
|
257
|
|
|
454
|
|
|
467
|
|
||||
Gross profit
|
525
|
|
|
576
|
|
|
989
|
|
|
1,053
|
|
||||
Advertising expenses
|
107
|
|
|
111
|
|
|
199
|
|
|
214
|
|
||||
Selling, general, and administrative expenses
|
159
|
|
|
162
|
|
|
308
|
|
|
318
|
|
||||
Othe
r (income) expense, n
et
|
(3
|
)
|
|
(8
|
)
|
|
(2
|
)
|
|
(7
|
)
|
||||
Operating income
|
262
|
|
|
311
|
|
|
484
|
|
|
528
|
|
||||
Interest income
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
||||
Interest expense
|
5
|
|
|
7
|
|
|
11
|
|
|
13
|
|
||||
Income before income taxes
|
258
|
|
|
305
|
|
|
474
|
|
|
516
|
|
||||
Income taxes
|
85
|
|
|
99
|
|
|
154
|
|
|
167
|
|
||||
Net income
|
$
|
173
|
|
|
$
|
206
|
|
|
$
|
320
|
|
|
$
|
349
|
|
Earnings per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.81
|
|
|
$
|
0.97
|
|
|
$
|
1.50
|
|
|
$
|
1.63
|
|
Diluted
|
$
|
0.80
|
|
|
$
|
0.96
|
|
|
$
|
1.49
|
|
|
$
|
1.62
|
|
Cash dividends per common share:
|
|
|
|
|
|
|
|
||||||||
Declared
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.467
|
|
|
$
|
0.510
|
|
Paid
|
$
|
0.233
|
|
|
$
|
0.255
|
|
|
$
|
0.467
|
|
|
$
|
0.510
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
October 31,
|
|
October 31,
|
||||||||||||
|
2012
|
|
2013
|
|
2012
|
|
2013
|
||||||||
Net income
|
$
|
173
|
|
|
$
|
206
|
|
|
$
|
320
|
|
|
$
|
349
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
||||||||
Currency translation adjustments
|
12
|
|
|
7
|
|
|
(1
|
)
|
|
(5
|
)
|
||||
Postretirement benefits adjustments
|
5
|
|
|
14
|
|
|
9
|
|
|
19
|
|
||||
Ne
t gain (loss) on
cash flow hedges
|
(9
|
)
|
|
(10
|
)
|
|
(1
|
)
|
|
(4
|
)
|
||||
Net other comprehensi
ve income (loss)
|
8
|
|
|
11
|
|
|
7
|
|
|
10
|
|
||||
Comprehensive income
|
$
|
181
|
|
|
$
|
217
|
|
|
$
|
327
|
|
|
$
|
359
|
|
|
April 30,
2013 |
|
October 31,
2013 |
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
204
|
|
|
$
|
192
|
|
Accounts receivable, less allowance for doubtful accounts of $9 and $9 at April 30 and October 31, respectively
|
548
|
|
|
729
|
|
||
Inventories:
|
|
|
|
||||
Barreled whiskey
|
456
|
|
|
462
|
|
||
Finished goods
|
177
|
|
|
227
|
|
||
Work in process
|
137
|
|
|
151
|
|
||
Raw materials and supplies
|
57
|
|
|
61
|
|
||
Total inventories
|
827
|
|
|
901
|
|
||
Current deferred tax assets
|
29
|
|
|
44
|
|
||
Other current assets
|
213
|
|
|
167
|
|
||
Total current assets
|
1,821
|
|
|
2,033
|
|
||
Property, plant and equipment, net
|
450
|
|
|
483
|
|
||
Goodwill
|
617
|
|
|
620
|
|
||
Other intangible assets
|
668
|
|
|
671
|
|
||
Deferred tax assets
|
14
|
|
|
13
|
|
||
Other assets
|
56
|
|
|
62
|
|
||
Total assets
|
$
|
3,626
|
|
|
$
|
3,882
|
|
Liabilities
|
|
|
|
||||
Accounts payable and accrued expenses
|
$
|
451
|
|
|
$
|
513
|
|
Accrued income taxes
|
10
|
|
|
15
|
|
||
Current deferred tax liabilities
|
7
|
|
|
7
|
|
||
Short-term borrowings
|
3
|
|
|
6
|
|
||
Current portion of long-term debt
|
2
|
|
|
1
|
|
||
Total current liabilities
|
473
|
|
|
542
|
|
||
Long-term debt
|
997
|
|
|
997
|
|
||
Deferred tax liabilities
|
180
|
|
|
199
|
|
||
Accrued pension and other postretirement benefits
|
280
|
|
|
242
|
|
||
Other liabilities
|
68
|
|
|
64
|
|
||
Total liabilities
|
1,998
|
|
|
2,044
|
|
||
Commitments and contingencies
|
|
|
|
||||
Stockholders’ Equity
|
|
|
|
||||
Common stock:
|
|
|
|
||||
Class A, voting (85,000,000 shares authorized; 85,000,000 shares issued)
|
13
|
|
|
13
|
|
||
Class B, nonvoting (400,000,000 shares authorized; 142,313,000 shares issued)
|
21
|
|
|
21
|
|
||
Additional paid-in capital
|
71
|
|
|
80
|
|
||
Retained earnings
|
2,500
|
|
|
2,729
|
|
||
Accumulated other comprehensive income (loss), net of tax
|
(211
|
)
|
|
(201
|
)
|
||
Treasury stock, at cost (13,606,000 and 14,132,000 shares at April 30 and October 31, respectively)
|
(766
|
)
|
|
(804
|
)
|
||
Total stockholders’ equity
|
1,628
|
|
|
1,838
|
|
||
Total liabilities and stockholders’ equity
|
$
|
3,626
|
|
|
$
|
3,882
|
|
|
Six Months Ended
|
||||||
|
October 31,
|
||||||
|
2012
|
|
2013
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
320
|
|
|
$
|
349
|
|
Adjustments to reconcile net income to net cash provided by operations:
|
|
|
|
||||
Depreciation and amortization
|
24
|
|
|
24
|
|
||
Stock-based compensation expense
|
5
|
|
|
6
|
|
||
Deferred income taxes
|
42
|
|
|
(6
|
)
|
||
Changes in assets and liabilities
|
(226
|
)
|
|
(172
|
)
|
||
Cash provided by operating activities
|
165
|
|
|
201
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Additions to property, plant, and equipment
|
(39
|
)
|
|
(60
|
)
|
||
Cash used for investing activities
|
(39
|
)
|
|
(60
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Net increase in short-term borrowings
|
4
|
|
|
3
|
|
||
Repayment of long-term debt
|
(1
|
)
|
|
(1
|
)
|
||
Net payments related to exercise of stock-based awards
|
(10
|
)
|
|
(6
|
)
|
||
Excess tax benefits from stock-based awards
|
13
|
|
|
9
|
|
||
Acquisition of treasury stock
|
—
|
|
|
(49
|
)
|
||
Dividends paid
|
(100
|
)
|
|
(109
|
)
|
||
Cash used for financing activities
|
(94
|
)
|
|
(153
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(1
|
)
|
|
—
|
|
||
Net increase (decrease) in cash and cash equivalents
|
31
|
|
|
(12
|
)
|
||
Cash and cash equivalents, beginning of period
|
338
|
|
|
204
|
|
||
Cash and cash equivalents, end of period
|
$
|
369
|
|
|
$
|
192
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
October 31,
|
|
October 31,
|
||||||||||||
(Dollars in millions, except per share amounts)
|
2012
|
|
2013
|
|
2012
|
|
2013
|
||||||||
Net income available to common stockholders
|
$
|
173
|
|
|
$
|
206
|
|
|
$
|
320
|
|
|
$
|
349
|
|
Share data (in thousands):
|
|
|
|
|
|
|
|
||||||||
Basic average common shares outstanding
|
213,276
|
|
|
213,587
|
|
|
213,220
|
|
|
213,634
|
|
||||
Dilutive effect of stock-based awards
|
1,615
|
|
|
1,617
|
|
|
1,623
|
|
|
1,614
|
|
||||
Diluted average common shares outstanding
|
214,891
|
|
|
215,204
|
|
|
214,843
|
|
|
215,248
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share
|
$
|
0.81
|
|
|
$
|
0.97
|
|
|
$
|
1.50
|
|
|
$
|
1.63
|
|
Diluted earnings per share
|
$
|
0.80
|
|
|
$
|
0.96
|
|
|
$
|
1.49
|
|
|
$
|
1.62
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
October 31,
|
|
October 31,
|
||||||||||||
(Dollars in millions)
|
2012
|
|
2013
|
|
2012
|
|
2013
|
||||||||
Pension Benefits
:
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
10
|
|
|
$
|
11
|
|
Interest cost
|
9
|
|
|
8
|
|
|
17
|
|
|
15
|
|
||||
Expected return on plan assets
|
(10
|
)
|
|
(10
|
)
|
|
(20
|
)
|
|
(20
|
)
|
||||
Amortization of net actuarial loss
|
7
|
|
|
8
|
|
|
14
|
|
|
16
|
|
||||
Net cost
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
21
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
||||||||
Other Postretirement Benefits
:
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Net cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
3
|
|
•
|
Level 1
–
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
•
|
Level 2
–
Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data.
|
•
|
Level 3
–
Unobservable inputs that are supported by little or no market activity.
|
(Dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
||||
April 30, 2013:
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Currency derivatives
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Currency derivatives
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
||||
Short-term borrowings
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||
Current portion of long-term debt
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Long-term debt
|
|
—
|
|
|
1,011
|
|
|
—
|
|
|
1,011
|
|
||||
October 31, 2013:
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Currency derivatives
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Currency derivatives
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
||||
Short-term borrowings
|
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
||||
Current portion of long-term debt
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Long-term debt
|
|
—
|
|
|
954
|
|
|
—
|
|
|
954
|
|
|
April 30, 2013
|
|
October 31, 2013
|
||||||||||||
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
||||||||
(Dollars in millions)
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
204
|
|
|
$
|
204
|
|
|
$
|
192
|
|
|
$
|
192
|
|
Currency derivatives
|
5
|
|
|
5
|
|
|
2
|
|
|
2
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Currency derivatives
|
4
|
|
|
4
|
|
|
10
|
|
|
10
|
|
||||
Short-term borrowings
|
3
|
|
|
3
|
|
|
6
|
|
|
6
|
|
||||
Current portion of long-term debt
|
2
|
|
|
2
|
|
|
1
|
|
|
1
|
|
||||
Long-term debt
|
997
|
|
|
1,011
|
|
|
997
|
|
|
954
|
|
|
|
Three Months Ended
|
||||||
|
|
October 31,
|
||||||
(Dollars in millions)
|
Classification
|
2012
|
|
2013
|
||||
Currency derivatives designated as cash flow hedge:
|
|
|
|
|
|
|
||
Net gain (loss) recognized in AOCI
|
n/a
|
$
|
(14
|
)
|
|
$
|
(15
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
||
Currency derivatives – net gain (loss) recognized in income
|
Net sales
|
(1
|
)
|
|
(5
|
)
|
||
Currency derivatives – net gain (loss) recognized in income
|
Other income
|
2
|
|
|
—
|
|
||
|
|
|
|
|
||||
|
|
Six Months Ended
|
||||||
|
|
October 31,
|
||||||
(Dollars in millions)
|
Classification
|
2012
|
|
2013
|
||||
Currency derivatives designated as cash flow hedge:
|
|
|
|
|
|
|
||
Net gain (loss) recognized in AOCI
|
n/a
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
Net gain (loss) reclassified from AOCI into income
|
Net sales
|
1
|
|
|
1
|
|
||
Interest rate swaps designated as fair value hedges:
|
|
|
|
|
||||
Net gain (loss) recognized in income
|
Interest expense
|
1
|
|
|
—
|
|
||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
||
Currency derivatives – net gain (loss) recognized in income
|
Net sales
|
(1
|
)
|
|
(1
|
)
|
||
Currency derivatives – net gain (loss) recognized in income
|
Other income
|
(2
|
)
|
|
2
|
|
||
Commodity derivatives – net gain (loss) recognized in income
|
Cost of sales
|
4
|
|
|
—
|
|
(Dollars in millions)
|
Classification
|
|
Fair value of derivatives in a
gain position
|
|
Fair value of derivatives in a
loss position
|
||||
April 30, 2013:
|
|
|
|
|
|
||||
Designated as cash flow hedges:
|
|
|
|
|
|
||||
Currency derivatives
|
Other current assets
|
|
$
|
6
|
|
|
$
|
(3
|
)
|
Currency derivatives
|
Other assets
|
|
2
|
|
|
—
|
|
||
Currency derivatives
|
Accrued expenses
|
|
2
|
|
|
(4
|
)
|
||
Currency derivatives
|
Other liabilities
|
|
—
|
|
|
(1
|
)
|
||
Not designated as hedges:
|
|
|
|
|
|
||||
Currency derivatives
|
Accrued expenses
|
|
—
|
|
|
(1
|
)
|
||
October 31, 2013:
|
|
|
|
|
|
||||
Designated as cash flow hedges:
|
|
|
|
|
|
||||
Currency derivatives
|
Other current assets
|
|
3
|
|
|
(2
|
)
|
||
Currency derivatives
|
Other assets
|
|
1
|
|
|
(1
|
)
|
||
Currency derivatives
|
Accrued expenses
|
|
2
|
|
|
(10
|
)
|
||
Currency derivatives
|
Other liabilities
|
|
—
|
|
|
(2
|
)
|
||
Not designated as hedges:
|
|
|
|
|
|
||||
Currency derivatives
|
Other current assets
|
|
1
|
|
|
—
|
|
(Dollars in millions)
|
Gross Amounts of Recognized Assets
(Liabilities)
|
|
Gross Amounts Offset in
Balance Sheet
|
|
Net Amounts Presented in
Balance Sheet
|
|
Gross Amounts Not Offset in
Balance Sheet
|
|
Net Amounts
|
||||||||||
April 30, 2013:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative assets
|
$
|
10
|
|
|
$
|
(5
|
)
|
|
$
|
5
|
|
|
$
|
(2
|
)
|
|
$
|
3
|
|
Derivative liabilities
|
(9
|
)
|
|
5
|
|
|
(4
|
)
|
|
2
|
|
|
(2
|
)
|
|||||
October 31, 2013:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative assets
|
7
|
|
|
(5
|
)
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|||||
Derivative liabilities
|
(15
|
)
|
|
5
|
|
|
(10
|
)
|
|
1
|
|
|
(9
|
)
|
(Dollars in millions)
|
Currency Translation
Adjustments
|
|
Net Gain on Cash Flow
Hedges
|
|
Postretirement Benefits
Adjustments
|
|
Total
|
||||||||
Balance at July 31, 2013
|
$
|
(2
|
)
|
|
$
|
6
|
|
|
$
|
(216
|
)
|
|
$
|
(212
|
)
|
Other comprehensive income (loss) before reclassifications
1
|
7
|
|
|
(10
|
)
|
|
9
|
|
|
6
|
|
||||
Amounts reclassified from AOCI
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
||||
Net other comprehensive income (loss)
|
7
|
|
|
(10
|
)
|
|
14
|
|
|
11
|
|
||||
Balance at October 31, 2013
|
$
|
5
|
|
|
$
|
(4
|
)
|
|
$
|
(202
|
)
|
|
$
|
(201
|
)
|
(Dollars in millions)
|
Currency Translation
Adjustments
|
|
Net Gain on Cash Flow
Hedges
|
|
Postretirement Benefits
Adjustments
|
|
Total
|
||||||||
Balance at April 30, 2013
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
(221
|
)
|
|
$
|
(211
|
)
|
Other comprehensive income (loss) before reclassifications
1
|
(5
|
)
|
|
(3
|
)
|
|
9
|
|
|
1
|
|
||||
Amounts reclassified from AOCI
|
—
|
|
|
(1
|
)
|
|
10
|
|
|
9
|
|
||||
Net other comprehensive income (loss)
|
(5
|
)
|
|
(4
|
)
|
|
19
|
|
|
10
|
|
||||
Balance at October 31, 2013
|
$
|
5
|
|
|
$
|
(4
|
)
|
|
$
|
(202
|
)
|
|
$
|
(201
|
)
|
|
|
Amount Reclassified
from AOCI
|
|
Classification in Consolidated Statement
of Operations
|
||
Amounts related to postretirement benefit plans:
|
|
|
|
|
||
Net actuarial gain (loss)
|
|
(8
|
)
|
1
|
|
|
|
|
3
|
|
|
Tax benefit (expense)
|
|
Total reclassifications
|
|
$
|
(5
|
)
|
|
Net of tax
|
|
|
Amount Reclassified
from AOCI
|
|
Classification in Consolidated Statement
of Operations
|
||
Net gain (loss) on cash flow hedges:
|
|
|
|
|
||
Currency derivatives
|
|
$
|
1
|
|
|
Net sales
|
|
|
—
|
|
|
Tax benefit (expense)
|
|
|
|
1
|
|
|
Net of tax
|
|
Amounts related to postretirement benefit plans:
|
|
|
|
|
||
Net actuarial gain (loss)
|
|
(16
|
)
|
1
|
|
|
|
|
6
|
|
|
Tax benefit (expense)
|
|
|
|
(10
|
)
|
|
Net of tax
|
|
Total reclassifications
|
|
$
|
(9
|
)
|
|
Net of tax
|
•
|
Unfavorable global or regional economic conditions, and related low consumer confidence, high unemployment, weak credit or capital markets, sovereign debt defaults, sequestrations, austerity measures, higher interest rates, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
|
•
|
Risks associated with being a U.S.-based company with global operations, including political or civil unrest; local labor policies and conditions; protectionist trade policies; compliance with local trade practices and other regulations, including anti-corruption laws; terrorism; and health pandemics
|
•
|
Fluctuations in foreign currency exchange rates
|
•
|
Changes in laws, regulations or policies - especially those that affect the production, importation, marketing, sale or consumption of our beverage alcohol products
|
•
|
Tax rate changes (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or changes in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, and the unpredictability and suddenness with which they can occur
|
•
|
Dependence upon the continued growth of the Jack Daniel’s family of brands
|
•
|
Changes in consumer preferences, consumption or purchase patterns - particularly away from brown spirits, our premium products, or spirits generally, and our ability to anticipate and react to them; decline in the social acceptability of beverage alcohol products in significant markets; bar, restaurant, travel or other on-premise declines
|
•
|
Production facility, aging warehouse or supply chain disruption; imprecision in supply/demand forecasting
|
•
|
Higher costs, lower quality or unavailability of energy, input materials or finished goods
|
•
|
Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in implementation-related or higher fixed costs
|
•
|
Inventory fluctuations in our products by distributors, wholesalers, or retailers
|
•
|
Competitors’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our geographic markets or distribution networks
|
•
|
Risks associated with acquisitions, dispositions, business partnerships or investments - such as acquisition integration, or termination difficulties or costs, or impairment in recorded value
|
•
|
Insufficient protection of our intellectual property rights
|
•
|
Product counterfeiting, tampering, or recall, or product quality issues
|
•
|
Significant legal disputes and proceedings; government investigations (particularly of industry or company business, trade or marketing practices)
|
•
|
Failure or breach of key information technology systems
|
•
|
Negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects
|
•
|
Business disruption, decline or costs related to organizational changes, reductions in workforce or other cost-cutting measures, or our failure to attract or retain key executive or employee talent
|
|
% Change vs. Six Months Ended October 31 Last Year
|
||||||||||
|
Volume
|
|
Net Sales
1
|
||||||||
|
Nine-Liter Cases
|
|
Reported
|
|
Constant Currency
|
|
Underlying
|
||||
Jack Daniel's Family
|
4
|
%
|
|
7
|
%
|
|
8
|
%
|
|
10
|
%
|
Jack Daniel's Family of Whiskey Brands
|
7
|
%
|
|
8
|
%
|
|
9
|
%
|
|
11
|
%
|
Jack Daniel's RTDs/RTP
2
|
—
|
%
|
|
2
|
%
|
|
7
|
%
|
|
4
|
%
|
New Mix RTDs
3
|
(20
|
%)
|
|
(14
|
%)
|
|
(16
|
%)
|
|
(16
|
%)
|
Finlandia
|
2
|
%
|
|
(1
|
%)
|
|
(2
|
%)
|
|
1
|
%
|
Southern Comfort Family
|
(4
|
%)
|
|
(6
|
%)
|
|
(5
|
%)
|
|
(4
|
%)
|
Canadian Mist Family
|
1
|
%
|
|
(1
|
%)
|
|
(1
|
%)
|
|
1
|
%
|
Korbel Champagnes
|
4
|
%
|
|
3
|
%
|
|
3
|
%
|
|
8
|
%
|
El Jimador
|
(3
|
%)
|
|
(3
|
%)
|
|
(3
|
%)
|
|
2
|
%
|
Super-Premium Other
4
|
4
|
%
|
|
6
|
%
|
|
6
|
%
|
|
8
|
%
|
|
|
•
|
Jack Daniel's family of brands
volume and net sales grew. The most important factors leading to the increase in net sales on both a reported and an underlying basis were:
|
a.
|
higher pricing in many markets for several brands within the Jack Daniel's family, most notably in the United States for
Jack Daniel's Tennessee Whiskey
;
|
b.
|
higher demand leading to volume growth for Jack Daniel's Tennessee Whiskey in many European markets including the United Kingdom, Russia, France and Turkey;
|
c.
|
volume growth of
Jack Daniel's Tennessee Honey
in the United States and in several international expansion markets; and
|
d.
|
higher demand for
Gentleman Jack
in the United States and Australia.
|
a.
|
lower demand in Australia for Jack Daniel's Tennessee Honey, which compared to high sales related to its launch in the same period last year;
|
b.
|
lower demand for
Jack Daniel's Winter Jack RTP
in Germany; and
|
c.
|
lower demand for Jack Daniel's Tennessee Whiskey in Spain.
|
•
|
Both volume and net sales of
New Mix RTDs
declined. The decreases were driven primarily by higher customer inventory levels at the beginning of the fiscal year. Customer inventories were much higher because of buy-ins at the end of fiscal 2013 ahead of price increases that took effect late in the fourth quarter of fiscal 2013. During the second quarter of fiscal 2014, customer inventories were reduced and normal trading resumed.
|
•
|
Finlandia
volume and underlying net sales increased, while net sales on a reported basis declined. Underlying net sales grew in Russia, in the travel retail channel, and broadly across many markets in Central and Eastern Europe. The gains were partially offset by underlying net sales declines in in a few markets, including Poland, our most significant market for Finlandia, and the United States. In Poland, underlying net sales were negatively affected by customer buy-ins at the end of fiscal 2013 ahead of a price increase implemented at the beginning of the first quarter of 2014.
|
•
|
Southern Comfort family of brands
volume and net sales declined, driven largely by volume losses in the United States and Australia partially offset by volume increases in Germany, the United Kingdom and South Africa. The year-to-date decline was driven by lower consumer demand for Southern Comfort in the U.S. on-premise channel, which weakened compared to the same period last year. In addition, Southern Comfort family sales in the United States in the same period last year included the launch of a flavored line extension, which increased the difficulty of the same period comparison.
|
•
|
Our
Super-Premium Other
brands grew both volume and net sales. Volume and net sales growth rates accelerated during the second quarter, driven by higher growth rates for
Woodford Reserve
,
Sonoma-Cutrer
and
Herradura
. In the six months ended October 31, 2013, Woodford Reserve grew volume 26% compared to the same period last year and delivered similarly strong double-digit net sales growth on both a reported and an underlying basis. Sonoma-Cutrer wines and Herradura both grew volume and net sales while
Tuaca
and
Chambord
both registered volume and net sales declines in the six months ended October 31, 2013.
|
|
Three Months Ended
|
|
||||||
|
October 31,
|
|
||||||
|
2012
|
2013
|
Change
|
|
||||
Net sales
|
$
|
1,014
|
|
$
|
1,079
|
|
6
|
%
|
Excise taxes
|
237
|
|
246
|
|
4
|
%
|
||
Cost of sales
|
252
|
|
257
|
|
2
|
%
|
||
Gross profit
|
525
|
|
576
|
|
10
|
%
|
||
Advertising expenses
|
107
|
|
111
|
|
4
|
%
|
||
Selling, general, and administrative expenses
|
159
|
|
162
|
|
2
|
%
|
||
Other expense (income), net
|
(3
|
)
|
(8
|
)
|
|
|||
Operating income
|
262
|
|
311
|
|
19
|
%
|
||
Interest expense, net
|
4
|
|
6
|
|
|
|||
Income before income taxes
|
258
|
|
305
|
|
18
|
%
|
||
Income taxes
|
85
|
|
99
|
|
|
|||
Net income
|
173
|
|
206
|
|
19
|
%
|
||
|
|
|
|
|||||
Gross margin
|
51.7
|
%
|
53.4
|
%
|
|
|||
Operating margin
|
25.9
|
%
|
28.8
|
%
|
|
|||
|
|
|
|
|||||
Effective tax rate
|
32.8
|
%
|
32.4
|
%
|
|
|||
|
|
|
|
|||||
Earnings per share:
|
|
|
|
|||||
Basic
|
$
|
0.81
|
|
$
|
0.97
|
|
19
|
%
|
Diluted
|
0.80
|
|
0.96
|
|
19
|
%
|
a.
|
volume gains on Jack Daniel's Tennessee Whiskey in the United Kingdom, Australia, France and Russia;
|
b.
|
higher pricing on Jack Daniel's Tennessee Whiskey in the United States;
|
c.
|
double-digit volume gains on Jack Daniel's Tennessee Honey in the United States and the United Kingdom, plus volume gains from new introductions of the brand in Germany and Mexico; and
|
d.
|
volume growth of our super-premium whiskey brands, most notably Woodford Reserve and Gentleman Jack, as these brands continue to grow in response to our higher investments.
|
|
Change vs.
Prior Period
|
|
· Underlying change in net sales
|
8%
|
|
· Foreign exchange
|
(1%)
|
|
· Estimated net change in trade inventories
|
(1%)
|
|
Reported change in net sales
|
6%
|
|
|
Change vs.
Prior Period
|
|
· Underlying change in cost of sales
|
4%
|
|
· Foreign exchange
|
—%
|
|
· Estimated net change in trade inventories
|
(2%)
|
|
Reported change in cost of sales
|
2%
|
|
a.
|
increased advertising for Southern Comfort in several key markets including Germany, the United States, and the United Kingdom;
|
b.
|
increased advertising expense for our premium tequila brands, Herradura and el Jimador, in key markets including the United States and Mexico;
|
c.
|
increased advertising to support the growth of certain super-premium line extensions from the Jack Daniel's family, including Gentleman Jack; and
|
d.
|
advertising to support Jack Daniel's Tennessee Honey in select markets where the brand was introduced during fiscal 2014.
|
|
Change vs.
Prior Period
|
|
· Underlying change in operating income
|
21%
|
|
· Foreign exchange
|
—%
|
|
· Estimated net change in trade inventories
|
(2%)
|
|
Reported change in operating income
|
19%
|
|
|
Six Months Ended
|
|
||||||
|
October 31,
|
|
||||||
|
2012
|
2013
|
Change
|
|
||||
Net sales
|
$
|
1,892
|
|
$
|
1,975
|
|
4
|
%
|
Excise taxes
|
449
|
|
455
|
|
1
|
%
|
||
Cost of sales
|
454
|
|
467
|
|
3
|
%
|
||
Gross profit
|
989
|
|
1,053
|
|
7
|
%
|
||
Advertising expenses
|
199
|
|
214
|
|
8
|
%
|
||
Selling, general, and administrative expenses
|
308
|
|
318
|
|
3
|
%
|
||
Other expense (income), net
|
(2
|
)
|
(7
|
)
|
|
|||
Operating income
|
484
|
|
528
|
|
9
|
%
|
||
Interest expense, net
|
10
|
|
12
|
|
|
|||
Income before income taxes
|
474
|
|
516
|
|
9
|
%
|
||
Income taxes
|
154
|
|
167
|
|
|
|||
Net income
|
320
|
|
349
|
|
9
|
%
|
||
|
|
|
|
|||||
Gross margin
|
52.3
|
%
|
53.3
|
%
|
|
|||
Operating margin
|
25.6
|
%
|
26.7
|
%
|
|
|||
|
|
|
|
|||||
Effective tax rate
|
32.5
|
%
|
32.4
|
%
|
|
|||
|
|
|
|
|||||
Earnings per share:
|
|
|
|
|||||
Basic
|
$
|
1.50
|
|
$
|
1.63
|
|
9
|
%
|
Diluted
|
1.49
|
|
1.62
|
|
9
|
%
|
a.
|
volume gains driven by higher consumer demand for Jack Daniel's Tennessee Whiskey in many markets, including most importantly the United Kingdom, Russia, France, Turkey and Brazil;
|
b.
|
higher pricing of Jack Daniel's Tennessee Whiskey in many markets but most importantly the United States;
|
c.
|
double-digit volume gains on Jack Daniel's Tennessee Honey in the United States and the United Kingdom, plus volume gains from new introductions of the brand in many markets worldwide; and
|
d.
|
volume growth of our super-premium whiskeys, most notably Woodford Reserve in the United States and Gentleman Jack in both the United States and Australia.
|
a.
|
declining volume for the Southern Comfort family of brands in the United States,
|
b.
|
declining volume of the el Jimador New Mix RTDs in Mexico, and
|
c.
|
lower volume of Jack Daniel's Tennessee Honey in Australia.
|
|
Change vs.
Prior Period
|
|
· Underlying change in net sales
|
7%
|
|
· Foreign exchange
|
(1%)
|
|
· Estimated net change in trade inventories
|
(2%)
|
|
Reported change in net sales
|
4%
|
|
a.
|
increased advertising expense to support Southern Comfort's “Whatever's Comfortable” campaign in key markets, including Germany, the United States, Australia and the United Kingdom;
|
b.
|
increased advertising to support new and recent innovations from the Jack Daniel's family of brands, including increased advertising expense for Jack Daniel's Tennessee Honey in markets where the brand was launched during fiscal 2014; and
|
c.
|
increased advertising to support the global growth of our super-premium whiskeys, including notably Gentleman Jack and Woodford Reserve.
|
|
Change vs.
Prior Period
|
|
· Underlying change in operating income
|
13%
|
|
· Foreign exchange
|
1%
|
|
· Estimated net change in trade inventories
|
(4%)
|
|
Reported change in operating income
|
9%
|
*
|
|
|
|
*Total differs because of rounding
|
|
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|
August 1, 2013 - August 31, 2013
|
—
|
—
|
—
|
—
|
September 1, 2013 - September 30, 2013
|
—
|
—
|
—
|
$250,000,000
|
October 1, 2013 - October 31, 2013
|
686,272
|
$69.00
|
686,272
|
$202,600,000
|
Total
|
686,272
|
$69.00
|
686,272
|
|
10
|
|
Amendment No. 1 to Five-Year Credit Agreement.
|
31.1
|
|
CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
|
31.2
|
|
CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
|
32
|
|
CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (not considered to be filed).
|
101
|
|
The following materials from Brown-Forman Corporation's Quarterly Report on Form 10-Q for the quarter ended October 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (a) Condensed Consolidated Statements of Operations, (b) Condensed Consolidated Statements of Comprehensive Income, (c) Condensed Consolidated Balance Sheets, (c) Condensed Consolidated Statements of Cash Flows, and (d) Notes to the Condensed Consolidated Financial Statements.
|
|
|
BROWN-FORMAN CORPORATION
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date:
|
December 4, 2013
|
By:
|
/s/ Donald C. Berg
|
|
|
|
Donald C. Berg
|
|
|
|
Executive Vice President
and Chief Financial Officer
|
|
|
|
(On behalf of the Registrant and
as Principal Financial Officer)
|
|
Ratings
(S&P/Moody’s/Fitch)
|
Facility Fee
(% per annum)
|
LIBOR/ EURIBOR Margin
(% per annum)
|
Letter of Credit Participation Fee (% per annum)
|
Category 1
|
>
AA-/Aa3/AA-
|
0.050%
|
0.575%
|
0.575%
|
Category 2
|
>
A+/A1/A+
|
0.060%
|
0.690%
|
0.690%
|
Category 3
|
>
A/A2/A
|
0.070%
|
0.805%
|
0.805%
|
Category 4
|
>
A-/A3/A-
|
0.100%
|
0.900%
|
0.900%
|
Category 5
|
>
BBB+/Baa1/BBB+
|
0.150%
|
0.975%
|
0.975%
|
Category 6
|
<BBB+/Baa1/BBB+
|
0.200%
|
1.050%
|
1.050%
|
|
|
1.
|
I have reviewed this Quarterly report on Form 10-Q of Brown-Forman Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Dated:
|
December 4, 2013
|
By:
|
/s/ Paul C. Varga
|
|
|
|
Paul C. Varga
|
|
|
|
Chief Executive Officer and Chairman of the Company
|
1.
|
I have reviewed this Quarterly report on Form 10-Q of Brown-Forman Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Dated:
|
December 4, 2013
|
By:
|
/s/ Donald C. Berg
|
|
|
|
Donald C. Berg
|
|
|
|
Executive Vice President and Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Dated:
|
December 4, 2013
|
|
|
|
|
By:
|
/s/ Paul C. Varga
|
|
|
|
Paul C. Varga
|
|
|
|
Chief Executive Officer and Chairman of the Company
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Donald C. Berg
|
|
|
|
Donald C. Berg
|
|
|
|
Executive Vice President and Chief Financial Officer
|