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): August 31, 2006
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, August 31, 2006 reporting
results of its operations for the fiscal quarter ended July 31, 2006. 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 August 31, 2006
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: August 31, 2006 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President and
Assistant Corporate Secretary
Exhibit Index
99.1 Press Release, dated August 31, 2006, issued by Brown-Forman Corporation,
reporting results of operations for the fiscal quarter ended July 31,
2006.
Exhibit 99.1
FOR IMMEDIATE RELEASE
BROWN-FORMAN REPORTS STRONG EARNINGS FOR THE FIRST QUARTER
Louisville, KY, August 31, 2006 - Brown-Forman Corporation reported diluted
earnings per share from continuing operations for its first quarter ended July
31, 2006 of $0.76, up 6% from the $0.71 earned in the same prior year period.(1)
Prior year earnings benefited from a $0.07 per share gain related to the
termination of distribution rights to third party agency brands. Excluding this
gain and a $0.05 per share quarter-over-quarter benefit of foreign exchange,
earnings per share grew 11%. Volume growth and margin improvement for the
company's premium global portfolio, led by Jack Daniel's Tennessee Whiskey,
drove results in the period. Nearly every brand in the company's portfolio
recorded gross profit gains in the quarter, also contributing to earnings
improvement.
Revenues and gross profit increased by 17% and 16%, respectively, in the
quarter. Comparisons to the prior year were affected by the previously mentioned
foreign exchange benefit and changes in the company's distribution arrangements
in Australia and Germany, the most significant of which resulted in the company
now being responsible for the collection and remittance of excise taxes in these
markets. These changes had the effect of boosting revenue by $33 million, or 6%,
while lowering the gross margin by approximately 2.2 percentage points. The
company's gross margin on a stripped net sales basis (gross profit as a
percentage of net sales excluding excise tax) was 68.7%, up approximately 1.3
percentage points. Management believes this measure provides a more meaningful
metric given the structural changes in distribution that have occurred.
--------
(1) All financial and statistical information included in this press release
reflects continuing operations of the Company's businesses for all periods
presented unless otherwise indicated.
Advertising expenses in the quarter were up $9 million, or 12%, as a result of
additional investments behind the company's premium global brands. SG&A expenses
increased approximately $21 million, or 19%, compared to the same prior year
period due in part to incremental costs associated with changes in the company's
distribution arrangements in Australia and Germany, which were accompanied by
corresponding increases in gross profit. Additionally, expenses associated with
the reorganization and consolidation of the company's wine and spirits sales and
marketing organizations contributed to the increase in SG&A spending in the
quarter.
Operating income increased $7 million, up 5% over the prior year period, as
gross profit growth more than offset higher SG&A and brand investments. As noted
above, the prior year's first quarter included $14 million of income from
consideration received for the termination of the company's distribution rights
to third party agency brands, which negatively affected quarter-over-quarter
comparisons. Excluding the impact of this item and the current year foreign
exchange benefit of nearly $10 million, operating income grew approximately 10%.
Jack Daniel's global depletions(2) grew at a mid-single digit rate in the
quarter. Outside of the U.S., volumes were up at a double-digit rate, led by
strong growth in Continental Europe and Asia. In the U.S., the brand's volume
growth moderated, increasing at a low-single digit rate for the quarter. Global
volumes for Southern Comfort grew 5% in the quarter, as double-digit gains in
the U.S. more than offset declines internationally. Finlandia volumes remained
solid, fueled by double-digit rate gains in Poland, the brand's largest market,
and a high-single digit growth rate in the U.S.
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(2) Depletions are shipments from wholesale distributors to retail customers,
and are commonly regarded in the industry as an approximate measure of
consumer demand.
Full-Year Outlook
The company's full-year earnings outlook remains unchanged at $3.10 to $3.30 per
share, representing growth of 7% to 14% over comparable prior year earnings.
Despite the favorable impact of foreign exchange, the company has not changed
its outlook for the remainder of this fiscal year given the uncertainty
surrounding the domestic economic environment, slightly moderating U.S. growth
trends for Jack Daniel's, and the impact of lower volumes and higher costs for
the company's mid-priced wine brands.
This outlook excludes the recently announced agreement to acquire Casa
Herradura. As previously communicated, we project the pending acquisition to be
dilutive to our earnings through fiscal 2009. In fiscal 2007 we estimate the
transaction will dilute earnings in the range of $0.08 to $0.12 per share.
Brown-Forman will host a conference call to discuss first quarter results at
9:30 a.m. (EDT) today. Please note the new time for the conference call is 9:30
a.m., not 10:00 a.m.
All interested parties in the U.S. are invited to join the conference 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 the participants dial in approximately ten minutes in
advance of the 9:30 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, and then click on the
link to "Investor Information."
For those unable to participate in the live call, a digital replay will be
available by calling 800-642-1687 (U.S.) or 706-645-9291 (international). The
identification code is 3602847. A digital audio recording of the conference call
will also be available on the web page approximately one hour after the
conclusion of the conference call. The replays will be available for at least 30
days.
Brown-Forman Corporation is a diversified producer and marketer of fine quality
consumer products, including Jack Daniel's, Southern Comfort, Finlandia Vodka,
Canadian Mist, Fetzer and Bolla Wines, Korbel California Champagnes, and
Hartmann Luggage.
IMPORTANT NOTE ON FORWARD-LOOKING STATEMENTS:
This report 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:
- changes in general economic conditions, particularly in the United States
where we earn a significant portion of our profits;
- lower consumer confidence or purchasing in the wake of catastrophic events;
- tax increases, whether at the federal or state level or in major
international markets and/or tariff barriers or other restrictions affecting
beverage alcohol;
- 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 globally;
- adverse developments in the class action lawsuits filed against Brown-Forman
and other spirits, beer and wine manufacturers alleging that our industry
conspired to promote the consumption of alcohol by those under the legal
drinking age;
- a strengthening U.S. dollar against foreign currencies, especially the
British Pound, Euro, and Australian Dollar;
- reduced bar, restaurant, hotel and travel business, including travel retail,
in the wake of terrorist attacks;
- lower consumer confidence or purchasing associated with rising energy prices;
- longer-term, a change in consumer preferences, social trends or cultural
trends that results in the reduced consumption of our premium spirits brands;
- changes in distribution arrangements in major markets that limit our ability
to market or sell our products;
- increases in the price of energy or raw materials, including grapes, grain,
wood, glass, and plastic;
- excess wine inventories or a world-wide oversupply of grapes;
- termination of our rights to distribute and market agency brands included in
our portfolio;
- adverse developments as a result of state investigations of beverage alcohol
industry trade practices of suppliers, distributors and retailers.
Brown-Forman Corporation
Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Three Months Ended
July 31,
2005 2006 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $547.5 $639.7 17%
Gross profit 303.0 351.4 16%
Advertising expenses 72.3 81.2 12%
Selling, general, and
administrative expenses 110.3 131.0 19%
Other expense (income), net (13.7) (2.0)
Operating income 134.1 141.2 5%
Interest expense, net 2.6 1.2
Income before income taxes 131.5 140.0 6%
Income taxes 44.0 46.2
Net income 87.5 93.8 7%
Earnings per share:
Basic 0.72 0.76 7%
Diluted 0.71 0.76 6%
DISCONTINUED OPERATIONS
Net loss $(74.7) $ (0.1)
Loss per share:
Basic (0.62) --
Diluted (0.61) --
TOTAL COMPANY
Net income $12.8 $93.7
Earnings per share:
Basic 0.10 0.76
Diluted 0.10 0.76
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Brown-Forman Corporation
Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, July 31,
2006 2006
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Assets:
Cash and cash equivalents $ 474.8 $ 219.9
Short-term investments 159.9 186.3
Accounts receivable, net 328.4 331.2
Inventories 523.0 546.6
Other current assets 124.0 102.5
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Total current assets 1,610.1 1,386.5
Property, plant, and equipment, net 428.5 438.5
Trademarks and brand names 324.9 442.1
Goodwill 195.4 324.3
Prepaid pension cost 146.1 143.1
Other assets 23.2 22.1
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Total assets $2,728.2 $2,756.6
======= =======
Liabilities:
Accounts payable and accrued expenses $ 292.9 $ 249.1
Accrued income taxes 48.3 79.1
Dividends payable -- 34.4
Short-term borrowings 225.0 198.1
Other current liabilities 2.9 2.0
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Total current liabilities 569.1 562.7
Long-term debt 351.6 353.6
Deferred income taxes 132.8 129.1
Accrued postretirement benefits 77.9 79.5
Other liabilities 33.7 17.9
------- -------
Total liabilities 1,165.1 1,142.8
Stockholders' equity 1,563.1 1,613.8
------- -------
Total liabilities and stockholders' equity $2,728.2 $2,756.6
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Brown-Forman Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Three Months Ended
July 31,
2005 2006
------ ------
Cash flows from operating activities:
Continuing operations $ 49.4 $ 75.8
Discontinued operations (15.7) 0.8
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Cash provided by operating activities 33.7 76.6
Cash flows from investing activities:
Acquisition of business -- (250.1)
Short-term investments -- (26.4)
Additions to property, plant, and equipment (8.0) (10.6)
Other (1.1) (0.9)
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Cash used for investing activities (9.1) (288.0)
Cash flows from financing activities:
Net decrease in debt (30.0) (29.3)
Dividends paid (29.9) (34.4)
Other 5.7 20.2
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Cash used for financing activities (54.2) (43.5)
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Net decrease in cash and cash equivalents (29.6) (254.9)
Cash and cash equivalents, beginning of period 294.9 474.8
------- -------
Cash and cash equivalents, end of period $265.3 $219.9
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Brown-Forman Corporation
Continuing Operations Only
Supplemental Information
(Dollars in millions, except per share amounts)
Three Months Ended
July 31,
2005 2006
------ ------
Depreciation and amortization $10.8 $10.2
Excise taxes $97.7 $128.4
Effective tax rate 33.4% 33.0%
Cash dividends paid per common share $0.245 $0.280
Shares (in thousands) used in the
calculation of earnings per share
- Basic 121,945 122,613
- Diluted 123,161 124,066
These figures have been prepared in accordance with the company's customary
accounting practices.