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): November 29, 2007 (November 29, 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
On November 29, 2007, Brown-Forman Corporation issued a press release reporting
results of its operations for the fiscal quarter ended October 31, 2007. A copy
of this press release is attached hereto as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits
(d) The following Exhibit is furnished as part of this Current Report on
Form 8-K.
99.1 Brown-Forman Corporation Press Release dated November 29, 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: November 29, 2007 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President and
Assistant Corporate Secretary
Exhibit Index
Exhibit
Number Description
99.1 Brown-Forman Corporation Press Release dated November 29, 2007
Exhibit 99.1
FOR IMMEDIATE RELEASE
BROWN-FORMAN REPORTS EARNINGS PER SHARE GROWTH FOR THE QUARTER OF 4%, UNDERLYING
OPERATING INCOME UP 6%
Louisville, KY, November 29, 2007 - Brown-Forman Corporation reported diluted
earnings per share for its second quarter ended October 31, 2007, of $1.04, up
4% compared to the same prior year period.(1) Higher quarterly earnings reflect
accelerated double-digit international profit growth for the company's Jack
Daniel's Tennessee Whiskey, Finlandia vodka, and Southern Comfort brands. Strong
international consumer trends, particularly in Europe, a weaker U.S. dollar,
higher global trade inventory levels, and the acquisition of Casa Herradura(2),
contributed to the 16% reported growth in operating income for the quarter.
Excluding the benefits of a weaker U.S. dollar, higher trade inventories,
acquired brands, and the absence of last year's gain associated with the sale of
winery assets in Italy, underlying(3) operating income was up 6% in the quarter.
Net sales in the quarter increased 23% to $893 million, while gross profit also
expanded 23% to $470 million. The addition of acquired brands, significant gains
in consumer demand internationally for the company's premium global brands, and
favorable foreign currency trends fueled these improvements. The company's gross
margin on a stripped net sales basis (gross profit as a percentage of net sales
excluding excise tax) was 65.7%, unchanged when compared to the same prior-year
period, as foreign exchange benefits and the continued shift in mix of our
business to higher margin international markets were offset by the addition of
lower margin Mexican business and higher costs from rising grain and energy
prices.
--------
(1) All financial and statistical information in this press release relates to
continuing operations of the company unless otherwise stated. Earnings per
share refers to diluted earnings per share.
(2) References to Casa Herradura include all brands (el Jimador, Herradura,
New Mix, Antiguo, Suave 35 and other brands) and operations acquired in
January 2007.
(3) Underlying growth represents reported financial results in accordance with
GAAP, adjusted for certain items. A reconciliation from reported to
underlying net sales, gross profit, operating income, and earnings per share
(non-GAAP measures) for the quarter and year-to-date, and the reasons why
management believes these adjustments to be useful to the reader, are
included in Schedule A and the Notes to this press release.
Advertising expenses increased $20 million, or 22%, in the quarter, reflecting
additional investments behind the company's premium global brands (Jack
Daniel's, Southern Comfort and Finlandia), new investments in support of
acquired brands, and the effects of a weaker U.S. dollar. SG&A expenses
increased approximately $26 million, or 21%, largely driven by the Casa
Herradura acquisition and the resulting addition of a sales, marketing, and
distribution infrastructure in Mexico, and a weaker U.S. dollar.
Jack Daniel's global depletions(4) grew in the low-single digits in the quarter
as mid-single digit gains internationally more than offset a modest quarterly
decline in the U.S. The brand's first half global depletions grew in the
mid-single digits, driven by 9% volume growth in international markets. Strong
double-digit volume gains were recorded in the first half of the fiscal year for
both the Gentleman Jack and the Jack Daniel's & Cola brand extensions.
Globally, Southern Comfort volumes grew at a low-single digit rate in the
quarter, as double-digit increases in the U.K. and South Africa offset a
low-single digit decline in the U.S. For the first half of the fiscal year, the
brand's depletions grew 10% internationally. Global Finlandia volumes continued
to grow at an impressive double-digit rate in the quarter as the brand sustained
its four-year trend of strong performance in Eastern Europe. Depletions for our
super-premium developing brands increased at a high-single digit rate in the
quarter, led by Woodford Reserve, Sonoma-Cutrer, and Chambord. Depletions for
the company's mid-priced regional brands declined at a low-single digit rate in
the quarter.
--------
(4) Depletions are shipments from wholesale distributors to retail customers,
and are commonly regarded in the industry as an approximate measure of
consumer demand.
For the first six months of the fiscal year, reported diluted earnings per share
were $1.81, up 2% over the prior-year period. Operating income for the first
half of the fiscal year increased 13% on a reported basis. Adjusting reported
results for favorable benefits from foreign currency fluctuations, acquisitions,
trade inventory fluctuations, and last year's net gain on the sale of winery
assets, operating income grew 7% for the first half of this fiscal year. Solid
international consumer demand for Jack Daniel's, Southern Comfort, and
Finlandia, and improved volumes and profits from several other brands including
Gentleman Jack, Bonterra, Korbel, and Woodford Reserve drove this underlying
growth.
Share Repurchase Program
As announced yesterday, the company's Board of Directors has authorized the
repurchase of up to $200 million of outstanding Class A and Class B common stock
over the next 12 months, subject to market and certain other conditions. Under
this plan, the company can repurchase shares from time to time for cash in open
market purchases, block transactions, and privately negotiated transactions.
Full-Year Outlook
The company is narrowing the range of its full-year earnings outlook for fiscal
2008 to $3.42 to $3.54 per diluted share, representing forecasted growth of 9%
to 13% over comparable prior year earnings of $3.14 per share. This outlook
includes expected earnings dilution of $0.13 to $0.18 associated with the
acquisition of Casa Herradura, which is unchanged from prior guidance, and
excludes any potential benefit from share repurchases during the remainder of
this fiscal year. Despite a more challenging environment in the U.S. and the
company's expectation for higher energy and grain costs, this revised outlook
anticipates additional foreign exchange benefits, solid underlying gross profit
growth (particularly outside the U.S.), moderating increases in operating
expenses, and a lower tax rate in the second half of the fiscal year.
Brown-Forman will host a conference call to discuss second quarter results at
10:00 a.m. (EDT) 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 23915963. 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
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:
- changes in general economic conditions, particularly in the United States
where we earn about half of our profits, including higher energy prices,
declining home prices, deterioration of the sub-prime lending market, or
other factors;
- lower consumer confidence or purchasing related to changes in economic
conditions, major natural disasters, terrorist attacks or widespread outbreak
of infectious diseases;
- 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 in international
markets;
- 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;
- 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, 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;
- adverse impact on performance and reported results as a consequence of
integrating acquisitions and ensuring their conformance 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 and agricultural uncertainties that adversely
affect the supply of grapes, agave, grain and 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 as a result of state or federal investigations of
beverage alcohol industry trade practices of suppliers, distributors and
retailers.
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2006 2007 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $727.1 $893.4 23%
Gross profit 382.6 470.0 23%
Advertising expenses 92.2 112.6 22%
Selling, general, and
administrative expenses 120.9 146.7 21%
Amortization expense -- 1.3
Other (income), net (13.2) (3.2)
Operating income 182.7 212.6 16%
Interest expense, net 1.9 12.2
Income before income taxes 180.8 200.4 11%
Income taxes 56.1 70.9
Net income 124.7 129.5 4%
Earnings per share:
Basic 1.02 1.05 3%
Diluted 1.00 1.04 4%
DISCONTINUED OPERATIONS
Net loss $(0.9) $(0.1)
Loss per share:
Basic (0.01) --
Diluted (0.01) --
TOTAL COMPANY
Net income $123.8 $129.4 4%
Earnings per share:
Basic 1.01 1.05 4%
Diluted 1.00 1.04 4%
(more)
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Six Months Ended
October 31,
2006 2007 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $1,360.5 $1,632.5 20%
Gross profit 731.6 861.0 18%
Advertising expenses 173.0 206.5 19%
Selling, general, and
administrative expenses 248.9 289.7 16%
Amortization expense -- 2.6
Other (income), net (15.2) (5.9)
Operating income 324.9 368.1 13%
Interest expense, net 2.9 23.4
Income before income taxes 322.0 344.7 7%
Income taxes 102.7 119.9
Net income 219.3 224.8 3%
Earnings per share:
Basic 1.79 1.82 2%
Diluted 1.77 1.81 2%
DISCONTINUED OPERATIONS
Net loss $(1.7) $(0.2)
Loss per share:
Basic (0.01) --
Diluted (0.01) --
TOTAL COMPANY
Net income $217.6 $224.6 3%
Earnings per share:
Basic 1.77 1.82 3%
Diluted 1.75 1.81 3%
(more)
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, October 31,
2007 2007
------- -------
Assets:
Cash and cash equivalents $ 282.8 $ 192.7
Short-term investments 85.6 --
Accounts receivable, net 403.7 535.1
Inventories 694.4 733.6
Other current assets 168.7 133.8
------- -------
Total current assets 1,635.2 1,595.2
Property, plant, and equipment, net 506.3 506.2
Goodwill and other intangible assets 1,354.1 1,382.7
Prepaid pension cost 23.0 24.3
Other assets 32.8 37.9
------- -------
Total assets $3,551.4 $3,546.3
======= =======
Liabilities:
Accounts payable and accrued expenses $ 361.1 $ 424.0
Accrued income taxes 27.0 --
Payable to shareholders 203.7 --
Short-term borrowings 401.1 345.1
Current portion of long-term debt 354.0 354.0
------- -------
Total current liabilities 1,346.9 1,123.1
Long-term debt 421.9 418.2
Deferred income taxes 56.6 61.7
Accrued postretirement benefits 122.8 127.6
Other liabilities 29.8 65.7
------- -------
Total liabilities 1,978.0 1,796.3
Stockholders' equity 1,573.4 1,750.0
------- -------
Total liabilities and stockholders' equity $3,551.4 $3,546.3
======= =======
(more)
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(including cash flows from discontinued operations)
(Dollars in millions)
Six Months Ended
October 31,
2006 2007
------- -------
Cash flows from operating activities:
Continuing operations $103.4 $197.8
Discontinued operations 3.4 (0.2)
------- -------
Cash provided by operating activities 106.8 197.6
Cash flows from investing activities:
Acquisition of business (250.6) 1.6
Acquisition of brand name -- (12.0)
Net (increase) decrease in short-term investments (30.3) 85.6
Additions to property, plant, and equipment (21.1) (24.2)
Other 11.2 (3.0)
------- -------
Cash (used for) provided by
investing activities (290.8) 48.0
Cash flows from financing activities:
Net decrease in debt (30.2) (60.9)
Special distribution to shareholders -- (203.7)
Dividends paid (68.8) (74.7)
Acquisition of treasury stock -- (22.6)
Other 30.3 20.3
------- -------
Cash (used for) financing activities (68.7) (341.6)
Effect of exchange rate changes
on cash and cash equivalents 0.5 5.9
------- -------
Net decrease in cash and cash equivalents (252.2) (90.1)
Cash and cash equivalents, beginning of period 474.8 282.8
------- -------
Cash and cash equivalents, end of period $222.6 $192.7
======= =======
(more)
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2006 2007
------ ------
Net sales $727.1 $893.4
Excise taxes $145.0 $177.8
Net sales (stripped of excise taxes) $582.1 $715.6
Gross profit (as reported) $382.6 $470.0
Gross margin (as reported) 52.6% 52.6%
Gross margin (stripped net sales basis)* 65.7% 65.7%
Effective tax rate 31.0% 35.4%
Cash dividends paid per common share $0.2800 $0.3025
Shares (in thousands) used in the
calculation of earnings per share
- Basic 122,873 123,311
- Diluted 124,291 124,534
* 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.
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Six Months Ended
October 31,
2006 2007
------ ------
Net sales $1,360.5 $1,632.5
Excise taxes $273.4 $329.8
Net sales (stripped of excise taxes) $1,087.1 $1,302.7
Gross profit (as reported) $731.6 $861.0
Gross margin (as reported) 53.8% 52.7%
Gross margin (stripped net sales basis)* 67.3% 66.1%
Effective tax rate 31.9% 34.8%
Cash dividends paid per common share $0.5600 $0.6050
Shares (in thousands) used in the
calculation of earnings per share
- Basic 122,742 123,254
- Diluted 124,178 124,475
* 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 Six Months
Ended Ended
October 31, 2007 October 31, 2007
Net sales from acquisitions 9% 8%
UNDERLYING NET SALES GROWTH 7% 7%
Favorable foreign currency fluctuations 5% 4%
Estimated net change in trade inventories 2% 1%
----- -----
Reported net sales growth 23% 20%
===== =====
UNDERLYING GROSS PROFIT GROWTH 7% 7%
Gross profit from acquisitions 7% 6%
Favorable foreign currency fluctuations 6% 4%
Estimated net change in trade inventories 3% 1%
----- -----
Reported gross profit growth 23% 18%
===== =====
UNDERLYING OPERATING INCOME GROWTH 6% 7%
Favorable foreign currency fluctuations 7% 6%
Operating income from acquisitions 2% 2%
Estimated net change in trade inventories 7% 1%
Absence of gain on winery sale (6%) (3%)
----- -----
Reported operating income growth 16% 13%
===== =====
UNDERLYING DILUTED EARNINGS PER SHARE GROWTH 5% 7%
Favorable foreign currency fluctuations 6% 6%
Estimated net change in trade inventories 6% 1%
Higher tax rate (2%) (1%)
Absence of interest income (1%) (2%)
Aquisitions (operating income net of interest expense) (2%) (4%)
Absence of gain on winery sale (8%) (5%)
----- -----
Reported diluted earnings per share growth 4% 2%
===== =====
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 of these acquisitions
provides helpful information in forecasting and planning the growth expectations
of the company.
Favorable foreign currency fluctuations - 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.
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 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.
Absence of interest income - Refers to the absence of interest income in fiscal
2008 that was earned in fiscal 2007 on the cash proceeds from the sale of Lenox,
which was distributed to shareholders in May of 2007. We believe adjusting for
this interest income, which was earned by temporarily investing the proceeds
from the sale of a segment of our business, allows management and investors to
understand better the company's underlying growth.
Higher tax rate - Refers to the impact on second quarter and year-to-date
results due to the timing of certain tax related events that affected
comparisons. We believe adjusting for the impact of the higher tax rate better
reflects the underlying earnings 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.