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): March 6, 2007
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, March 6, 2007
reporting results of its operations for the fiscal quarter ended January 31,
2007. 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 March 6, 2007
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: March 6, 2007 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President and
Assistant Corporate Secretary
Exhibit Index
99.1 Press Release, dated March 6, 2007, issued by Brown-Forman Corporation,
reporting results of operations for the fiscal quarter ended January 31,
2007.
Exhibit 99.1
FOR IMMEDIATE RELEASE
BROWN-FORMAN REPORTS STRONG THIRD QUARTER EARNINGS OF $0.90 PER SHARE
Louisville, KY, March 6, 2007 - Brown-Forman Corporation reported earnings per
share for its third quarter ended January 31, 2007 of $0.90, down 8% from the
$0.97 recorded in the same prior year period.(1) The decline in reported
earnings was driven by the absence of a net $0.14 per share benefit related to
changes in our Australian distribution joint venture and a $0.04 per share gain
on the sale of winery property, both recorded in last year's third quarter.
Excluding these and other items, underlying earnings per share were $0.89, up
12% from $0.80 per share earned in the same prior year period.(2) Higher
earnings in the quarter were driven by solid profit growth for Jack Daniel's
Tennessee Whiskey, Southern Comfort, Finlandia, and the Jack Daniel's & Cola
ready-to-drink product sold primarily in Australia.
Third quarter revenues grew 20% to $755 million. Gross profit grew 17% to $387
million with solid growth coming from all of the company's premium brands.
Revenue comparisons to the prior year period also benefited from the
above-mentioned changes to the company's distribution arrangements in Australia
and a weaker U.S. dollar, which accounted for approximately half the reported
growth.
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(1) All financial and statistical information contained in this press release
relates to the continuing operations of the company's business unless
otherwise stated. Earnings per share refers to diluted earnings per share.
(2) Underlying earnings per share represent reported earnings per share adjusted
for certain items. A reconciliation from reported to underlying earnings
per share (a non-GAAP measure) and the reasons why management believes these
adjustments to be useful to the reader, is included in Notes to Schedule A
and B of this press release.
Advertising expenses increased 11% to $94 million in the quarter as a result of
additional investments primarily behind Jack Daniel's, Finlandia, and Chambord,
as well as a weaker U.S. dollar. SG&A expenses increased 14% to $129 million due
in part to transition expenses associated with the acquisition of the Casa
Herradura brands and increased investments due to changes in the company's
route-to-market strategy in certain international markets, particularly
Australia.
Jack Daniel's global depletions(3) continued to grow at a mid-single digit rate
in the quarter, with volumes growing in the low-single digits in the U.S. and at
a double-digit rate internationally. Notable double-digit volume gains were
recorded in several of the brand's key international markets such as the UK,
Germany, South Africa, France, Australia, and Japan. Global volumes for Southern
Comfort grew at a mid-single digit rate in the quarter led by strong growth in
the UK and South Africa, while the U.S. advanced at a low single-digit rate.
Finlandia volumes grew at a double-digit rate, fueled by continued strong growth
in Eastern Europe.
For the first nine months of the fiscal year, reported earnings per share were
$2.66, up 3% from the $2.59 earned in the same period last year. Underlying
earnings per share, when adjusted for certain items, increased 10%(4).
Year-to-date growth is being driven by strong performance from Jack Daniel's,
Southern Comfort, Finlandia and Jack Daniel's & Cola in Australia, as well as
the benefit of a weaker U.S. dollar.
The company's gross margin on a stripped net sales basis(5) (gross profit as a
percentage of net sales excluding excise tax) for the first nine months of the
fiscal year was 67.0%, up from 66.5% in the prior-year period due to the
benefits of a weaker U.S. dollar, price increases, and favorable sales mix
shift. 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.
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(3) Depletions are shipments from wholesaler distributors to retail customers,
and are commonly regarded in the industry as an approximate measure of
consumer demand.
(4) Underlying earnings per share represent reported earnings per share adjusted
for certain items. A reconciliation from reported to underlying earnings per
share (a non-GAAP measure) and the reasons why management believes these
adjustments to be useful to the reader, is included in Notes to Schedule A
and B of this press release.
(5) The calculation of the company's gross profit margin on a stripped net sales
basis is included in Schedule C of this press release.
Full-Year Outlook
Excluding the recent acquisition of Casa Herradura, and on a comparable basis
with prior guidance for this year, the company is narrowing the range of its
full-year earnings outlook to $3.20 to $3.30 per share. This compares favorably
to the $3.14 to $3.30 per share guidance provided at the end of the second
quarter. This updated outlook continues to include an $0.08 per share gain from
the sale of the company's Italian winery and represents forecasted growth of 10%
to 14% over adjusted prior-year earnings of $2.90 per share. The revised outlook
anticipates, in the fourth quarter of the fiscal year, an expected higher tax
rate versus the prior year period, further increases in spending behind the
company's premium global brands, higher grain costs, and expected further
reductions in global distributor inventory levels.
As previously communicated, the company projects the acquisition of Casa
Herradura, which closed on January 18, 2007, to be dilutive to earnings for this
fiscal year in the range of $0.14 to $0.18 per share, which includes $0.02
reported in the third quarter.
Brown-Forman will host a conference call to discuss third quarter results at
10:00 a.m. (EST) today. 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 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, and then click on the
link to "Investor Relations."
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 9698939. 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,
Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer and Bolla Wines,
Korbel California Champagnes, and Hartmann Luggage.
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:
- 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, Australian Dollar, and the Mexican Peso;
- reduced bar, restaurant, hotel and travel business, including travel retail,
in the wake of terrorist attacks;
- lower consumer confidence or purchasing associated with high 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;
- counterfeit production of our products could adversely affect our
intellectual property rights, brand equity and operating results;
- adverse developments as a result of state investigations of beverage alcohol
industry trade practices of suppliers, distributors and retailers.
Schedule A
Brown-Forman Corporation
Supplemental Information
Third Quarter EPS
F2006 F2007 B/(W)
Continuing Operations (reported) $0.972 $0.898 (8%)
Adjustments:
Australia distribution changes (0.139)
Gain on sale of winery assets (0.038)
Trade inventory adjustments 0.026
Foreign exchange (0.055)
Acquisitions 0.023
Continuing Operations (underlying) $0.795 $0.892 12%
Schedule B
Brown-Forman Corporation
Supplemental Information
Year-to-date January EPS
F2006 F2007 B/(W)
Continuing Operations (reported) $2.594 $2.664 3%
Adjustments:
Glenmorangie distribution termination (0.113)
Australia distribution changes (0.139)
Gain on sale of winery assets (0.038) (0.079)
Trade inventory adjustments (0.036) 0.008
Foreign exchange (0.114)
Acquisitions 0.026
Continuing Operations (underlying) $2.268 $2.505 10%
Notes to Schedule A and B:
Australia distribution changes - Refers to the gain recorded during fiscal 2006
associated with changes in our distribution operations in Australia. The gain
represents the receipt of a contractual termination payment, net of the loss of
gross profits associated with the change in timing of revenue recognition for
shipments to this now wholly-owned operation. We believe this item creates a
disproportionate effect on more underlying, core business results, making
comparisons difficult to understand for the reader. In addition, we believe that
excluding this gain provides helpful information in forecasting and planning the
growth expectations of the company.
Glenmorangie distribution termination - Refers to the gain recorded during
fiscal 2006 associated with consideration received from the brand owner for the
termination of the company's distribution and marketing rights for the
Glenmorangie family of brands. We believe this item created a disproportionate
effect on more underlying, core business results, making comparisons difficult
to understand for the reader. In addition, we believe that excluding this gain
provides helpful information in forecasting and planning the growth expectations
of the company.
Gain on sale of winery assets - Refers to the gain recorded during fiscal 2006
associated with the company's sale of the former Jekel winery, and 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 more underlying, core business results, making
comparisons difficult to understand for the reader. In addition, we believe that
excluding this gain provides helpful information in forecasting and planning the
growth expectations of the company.
Trade inventory adjustments - Refers to the financial impact of changes in
wholesale trade inventories for the company's brands in markets where we use
third-party distributors. It does not reflect any changes in markets where the
company directly controls the distribution of its brands, such as the UK,
Australia, Germany and Poland. 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.
Foreign exchange - 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 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.
Acquisitions - Refers to the various costs associated with the acquisition of
both the Casa Herradura brands and Chambord. We believe brand acquisitions can
create a disproportionate effect on more underlying, core business results,
making comparisons difficult to understand for the reader. In addition, we
believe that excluding the acquisition costs of Chambord and Casa Herradura
brands provide helpful information in forecasting and planning the growth
expectations of the company.
The company cautions that non-GAAP measures should be considered in addition to,
but not as a substitute for, the company's reported GAAP results.
Schedule C
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information
(Dollars in millions)
Three Months Ended
January 31,
2006 2007
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Net sales $627.6 $754.8
Excise taxes (132.8) (172.7)
Net sales (stripped of excise taxes) 494.8 582.1
Gross profit (as reported) 330.8 387.3
Gross margin (stripped net sales basis) 66.9% 66.5%
Nine Months Ended
January 31,
2006 2007
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Net sales $1,827.1 $2,115.4
Excise taxes (345.9) (446.1)
Net sales (stripped of excise taxes) 1,481.2 1,669.3
Gross profit (as reported) 985.4 1,118.9
Gross margin (stripped net sales basis) 66.5% 67.0%
Brown-Forman Corporation
Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Three Months Ended
January 31,
2006 2007 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $627.6 $754.8 20%
Gross profit 330.8 387.3 17%
Advertising expenses 84.7 94.2 11%
Selling, general, and
administrative expenses 113.3 129.2 14%
Other (income), net (32.5) (4.9)
Operating income 165.3 168.8 2%
Interest expense (income), net (0.3) 2.5
Income before income taxes 165.6 166.3 0%
Income taxes 45.5 54.7
Net income 120.1 111.6 (7%)
Earnings per share:
Basic 0.984 0.907 (8%)
Diluted 0.972 0.898 (8%)
DISCONTINUED OPERATIONS
Net income (loss) $0.4 $ (6.5)
Earnings (loss) per share:
Basic 0.003 (0.052)
Diluted 0.003 (0.052)
TOTAL COMPANY
Net income $120.5 $105.1 (13%)
Earnings per share:
Basic 0.987 0.855 (13%)
Diluted 0.975 0.846 (13%)
(more)
Brown-Forman Corporation
Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Nine Months Ended
January 31,
2006 2007 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $1,827.1 $2,115.4 16%
Gross profit 985.4 1,118.9 14%
Advertising expenses 243.2 267.2 10%
Selling, general, and
administrative expenses 328.5 378.1 15%
Other (income), net (46.7) (20.1)
Operating income 460.4 493.7 7%
Interest expense, net 3.7 5.4
Income before income taxes 456.7 488.3 7%
Income taxes 136.8 157.4
Net income 319.9 330.9 3%
Earnings per share:
Basic 2.621 2.694 3%
Diluted 2.594 2.664 3%
DISCONTINUED OPERATIONS
Net loss $(77.8) $ (8.2)
Loss per share:
Basic (0.637) (0.066)
Diluted (0.631) (0.066)
TOTAL COMPANY
Net income $242.1 $322.7 33%
Earnings per share:
Basic 1.984 2.628 32%
Diluted 1.963 2.598 32%
(more)
Brown-Forman Corporation
Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, January 31,
2006 2007
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Assets:
Cash and cash equivalents $ 474.8 $ 253.9
Short-term investments 159.9 149.8
Accounts receivable, net 322.8 485.2
Inventories 511.5 700.6
Other current assets 140.0 124.7
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Total current assets 1,609.0 1,714.2
Property, plant, and equipment, net 425.3 496.7
Goodwill 191.8 678.8
Other intangible assets 324.9 684.6
Prepaid pension cost 142.3 133.4
Other assets 35.0 37.2
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Total assets $2,728.3 $3,744.9
======= =======
Liabilities:
Accounts payable and accrued expenses $ 289.4 $ 363.8
Accrued income taxes 48.5 55.0
Dividends payable -- 37.2
Short-term borrowings 225.0 875.8
Other current liabilities 6.3 5.9
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Total current liabilities 569.2 1,337.7
Long-term debt 349.4 369.3
Deferred income taxes 132.8 140.6
Accrued postretirement benefits 77.5 82.1
Other liabilities 36.3 26.0
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Total liabilities 1,165.2 1,955.7
Stockholders' equity 1,563.1 1,789.2
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Total liabilities and stockholders' equity $2,728.3 $3,744.9
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(more)
Brown-Forman Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Nine Months Ended
January 31,
2006 2007
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Cash flows from operating activities:
Continuing operations $265.2 $268.9
Discontinued operations (21.8) 8.7
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Cash provided by operating activities 243.4 277.6
Cash flows from investing activities:
Acquisition of businesses -- (1,045.5)
Net (increase) decrease in short-term investments (229.7) 10.1
Proceeds from sale of discontinued operations 196.5 --
Additions to property, plant, and equipment (32.9) (39.1)
Other 4.2 (17.3)
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Cash (used for) investing activities (61.9) (1,091.8)
Cash flows from financing activities:
Net (decrease) increase in debt (30.0) 666.1
Dividends paid (94.0) (106.1)
Other 13.8 31.8
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Cash (used for) provided by
financing activities (110.2) 591.8
Effect of exchange rate changes
on cash and cash equivalents -- 1.5
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Net increase (decrease) in cash and cash equivalents 71.3 (220.9)
Cash and cash equivalents, beginning of period 294.9 474.8
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Cash and cash equivalents, end of period $366.2 $253.9
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(more)
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information
(Dollars in millions, except per share amounts)
Three Months Ended
January 31,
2006 2007
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Depreciation and amortization $10.3 $11.7
Excise taxes $132.8 $172.7
Effective tax rate 27.5% 32.9%
Cash dividends paid per common share $0.2800 $0.3025
Shares (in thousands) used in the
calculation of earnings per share
- Basic 122,116 122,964
- Diluted 123,558 124,230
Nine Months Ended
January 31,
2006 2007
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Depreciation and amortization $31.4 $31.8
Excise taxes $345.9 $446.1
Effective tax rate 30.0% 32.2%
Cash dividends paid per common share $0.7700 $0.8625
Shares (in thousands) used in the
calculation of earnings per share
- Basic 122,027 122,810
- Diluted 123,321 124,189
These figures have been prepared in accordance with the company's customary
accounting practices.