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 23, 2004
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
Item 2.02. Results of Operations and Financial Condition
Brown-Forman Corporation issued a press release on November 23, 2004 reporting
results of its operations for the fiscal quarter ended October 31, 2004. 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 November 23, 2004
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 26, 2004 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President and
Assistant Corporate Secretary
Exhibit Index
99.1 Press Release, dated November 23, 2004, issued by Brown-Forman Corporation
Exhibit 99.1
FOR IMMEDIATE RELEASE
JACK DANIEL'S LEADS BROWN-FORMAN TO RECORD SECOND QUARTER RESULTS
Louisville, KY, November 23, 2004 - Brown-Forman Corporation reported diluted
earnings per share for its second quarter ended October 31, 2004 of $0.84, up
16% from the same period last year. The increase in quarterly earnings was
driven by excellent underlying profit growth from the company's premium spirits
portfolio, led by the strongest performance by Jack Daniel's Tennessee Whiskey
in many years, and benefits from a weaker U.S. dollar. Partially offsetting
these gains were lower profits from the company's portfolio of wine brands,
softness in the Consumer Durables segment, and incremental operating expenses in
the Beverage segment.
In addition to the impact of favorable foreign exchange, earnings growth in the
quarter was affected by a net increase in global trade inventories for the
company's premium spirits brands, introductory spending behind the company's new
low-carbohydrate wine products, incremental pension expense, and third party
advisory fees related to the prospective sale of the company's interest in
Glenmorangie plc announced last month. Excluding these factors, the company's
quarterly earnings per share grew 7%, as follows:
Reported EPS growth 16%
Adjustments:
Favorable foreign exchange (10%)
Net increase in trade inventories (4%)
Other, from above 5%
-----
Adjusted EPS growth 7%*
=====
*Beverages +11%; Consumer Durables (4%)
For the first six months of the fiscal year, earnings per share on a diluted
basis were $1.26, up 29% from the same period last year. The year-to-date
earnings compare favorably to last year due to robust growth for both Jack
Daniel's and Southern Comfort, favorable foreign exchange trends, the absence of
legal settlement expenses incurred in the first quarter of the prior year, and
profits from the company's new low-carbohydrate wine brands. These increases
were partially offset by continued weakness in the Consumer Durables segment.
Beverages
In the second quarter, Beverage segment revenue increased 14% and gross profit
increased 17%, fueled by volume growth and margin improvement for Jack Daniel's,
favorable foreign exchange rates, and an increase in global trade inventories
for the company's premium spirits brands. Advertising expenses were up 12% in
the quarter, due to increased investments behind the segment's premium spirits
brands designed to take advantage of the increasingly favorable consumer
environment for distilled spirits, particularly in the U.S., and spending to
support the segment's new low-carbohydrate wine brands. SG&A expenses were up
12%, as the segment recorded higher compensation expenses, incremental pension
expenses and the Glenmorangie transaction fees. Overall Beverage segment
operating income was up 22% for the quarter. Adjusting for the impact of foreign
exchange, higher net trade inventories for premium spirits, introductory
advertising investments behind the company's low-carbohydrate wine brands,
incremental pension expenses, and Glenmorangie transaction fees, Beverage
segment operating income grew 10% for the quarter.
Global depletions for Jack Daniel's increased in the high single digits for the
quarter, reflecting growth in nearly all markets, but most notably in the U.S.,
United Kingdom, Germany, South Africa, and China. (Depletions are shipments from
wholesale distributors to retailers, and are commonly regarded in the wine and
spirits industry as an approximate measure of consumer demand.) Shipment growth
for the brand was several percentage points higher than the quarter's depletion
growth, primarily as a result of distributors and importers increasing their
inventory positions more than expected in advance of the holiday season. In
addition to higher shipment volumes, Jack Daniel's global profitability was
boosted by favorable foreign exchange and underlying margin improvement. Jack
Daniel's last six and twelve month volume growth represents the best performance
by the brand in many years, and it has been driven by strong, consistent brand
investment, excellent marketing programs, and focused sales support in an
environment that is very favorable for premium spirits brands. Jack Daniel's
remains the company's single most important brand and its continued growth is
the company's top strategic priority.
Worldwide depletions for Southern Comfort grew in the low single digits for the
quarter, led by solid performance in the U.S. and Germany. Global depletions for
Finlandia Vodka were up in the mid single digits for the quarter, led by
increases in the U.S. and Poland, the brand's largest markets. Depletions for
Jack Daniel's ready-to-drink products were up strongly in the quarter, driven
primarily by continued robust growth in Australia.
Profits declined in the quarter for the company's wine brands, reflecting lower
volume and margins for Fetzer Premium Varietals and advertising investments
supporting the retail introduction of new low-carbohydrate wine brands. Initial
shipments to establish trade inventories of these new wines benefited this
fiscal year's first quarter.
Consumer Durables
Net sales for Consumer Durables declined 11% for the quarter, as the segment
experienced softness in each of its three channels of distribution -- wholesale,
retail, and direct-to-consumer. Operating profit of $13.4 million was 30% below
the prior year. Favorable year-to-date results from the company's kate spade
line of fine china and rigorous reductions in operating expenses were
insufficient to offset weakness in consumer demand throughout the tabletop and
giftware categories. This segment's full year performance is heavily dependent
on the holiday season, and, accordingly, the company remains cautious regarding
the outlook for the remainder of the year.
Earnings Outlook
Underlying business trends for the company's premium spirits brands remain
solid. However, excluding the gain on the prospective sale of the Glenmorangie
shareholding, the company expects modest growth in earnings per share for the
remainder of the fiscal year. This outlook reflects:
- a potential fourth quarter reduction in trade inventories as a result of
possible new distribution arrangements in several international markets;
- double-digit growth in advertising investments behind the company's spirits
brands;
- a continuation of intense price competition in the U.S. table wine category
and challenging business conditions for the Consumer Durables segment;
- modest benefits from foreign exchange; and
- higher pension expenses.
Brown-Forman is narrowing its guidance for fiscal 2005 diluted earnings per
share to a range of $2.38-$2.43, excluding the anticipated $0.36 to $0.38 per
share gain from the sale of its Glenmorangie shareholding.
Subsequent Event
On November 22, the company announced that it has reached agreement with the
Altia Corporation of Finland ("Altia") to acquire the remaining 20% of the
capital stock of Finlandia Vodka Worldwide Ltd. ("FVW") for 46.8 million euros
(or approximately $61 million at the current exchange rate). Brown-Forman and
Altia have jointly owned FVW since 2000.
Brown-Forman acquired 45% of FVW in 2000 and an additional 35% in 2002. The 2002
agreement granted Altia an option to require Brown-Forman to buy its remaining
interest in FVW during a two year window beginning December 31, 2004. The new
transaction reflects Altia's exercise of that option, and will give Brown-Forman
100% ownership of FVW. Closing is expected to occur in the company's third
quarter. Altia, the leading Finnish wine and spirits company, will continue to
produce the highly acclaimed vodka as exclusive supplier of Finlandia to
Brown-Forman.
Brown-Forman has marketed and sold Finlandia Vodka for Altia in the United
States since 1996. After it acquired a majority equity interest in 2002,
Brown-Forman assumed distribution and marketing responsibilities for the brand
in almost all global markets as well.
Conference Call
Brown-Forman will host a conference call to discuss its second quarter fiscal
2005 results today at 10:00 a.m. EST. 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. No password
is required. The company suggests that participants dial in approximately ten
minutes in advance of the 10:00 a.m. start of the conference call. A live audio
broadcast of the conference call will also be available by accessing
Brown-Forman's Internet Web site, www.brown-forman.com, and then clicking on the
"Investor Information" icon.
For those unable to participate in the live call, a replay will be available two
hours after completion of the conference by calling 800-642-1687 (U.S.) or
706-645-9291 (international). The identification code is 2303216. A recording of
the conference call will also be available on the Web site approximately one
hour after the conclusion of the conference call. The replays will be available
for at least thirty days after the conference call.
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, Lenox,
Dansk, and Gorham tableware and giftware and Hartmann Luggage.
IMPORTANT NOTE ON FORWARD-LOOKING STATEMENTS:
This news 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 the majority of our profits;
- a strengthening U.S. dollar against foreign currencies, especially the
British Pound;
- reduced bar, restaurant, hotel and travel business in wake of other terrorist
attacks, such as occurred on 9/11;
- developments in the class action lawsuits filed against Brown-Forman and
other spirits, beer and wine manufacturers alleging that our advertising
causes illegal consumption of alcohol by those under the legal drinking age,
or other attempts to limit alcohol marketing, through either litigation or
regulation;
- a dramatic change in consumer preferences, social trends or cultural trends
that results in the reduced consumption of our premium spirits brands;
- tax increases, whether at the federal or state level;
- increases in the price of grain and grapes;
- continued depressed retail prices and margins in our wine business because of
our excess wine inventories, existing grape contract obligations, and a
world-wide oversupply of grapes; and
- the effects on our Consumer Durables business of the general economy,
department store business, response rates in our direct marketing business,
and profitability of mall outlet operations.
Brown-Forman Corporation
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2003 2004 Change
------ ------ ------
Net Sales $724.5 $779.7 8%
Beverages 543.9 619.4 14%
Consumer Durables 180.6 160.3 (11%)
Gross Profit $364.1 $400.9 10%
Beverages 279.0 326.9 17%
Consumer Durables 85.1 74.0 (13%)
Advertising Expenses $95.0 $101.4 7%
Beverages 72.1 80.9 12%
Consumer Durables 22.9 20.5 (11%)
Selling, General, and
Administrative Expenses $131.7 $139.4 6%
Beverages 90.1 100.9 12%
Consumer Durables 41.6 38.5 (7%)
Other Expense (Income), net $(1.4) $ 1.1
Beverages (3.1) (0.5)
Consumer Durables 1.7 1.6
Operating Income $138.8 $159.0 15%
Beverages 119.8 145.6 22%
Consumer Durables 19.0 13.4 (30%)
Interest Expense, net 5.1 4.7
Income Before Income Taxes $133.7 $154.3 15%
Taxes on Income 45.5 51.7
Net Income $88.2 $102.6 16%
Earnings Per Share
- Basic $0.73 $0.84 16%
- Diluted $0.72 $0.84 16%
Note: Earnings per share have been restated to reflect the 2-for-1 stock split
effective in January 2004.
Brown-Forman Corporation
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Six Months Ended
October 31,
2003 2004 Change
------- ------- ------
Net Sales $1,256.2 $1,357.7 8%
Beverages 966.7 1,094.0 13%
Consumer Durables 289.5 263.7 (9%)
Gross Profit $635.5 $698.5 10%
Beverages 500.3 577.4 15%
Consumer Durables 135.2 121.1 (10%)
Advertising Expenses $172.5 $182.0 5%
Beverages 128.7 142.1 10%
Consumer Durables 43.8 39.9 (9%)
Selling, General, and
Administrative Expenses $260.9 $272.7 5%
Beverages 179.4 193.1 8%
Consumer Durables 81.5 79.6 (2%)
Other Expense (Income), net $11.2 $ 2.0
Beverages 8.3 (1.1)
Consumer Durables 2.9 3.1
Operating Income $190.9 $241.8 27%
Beverages 183.9 243.3 32%
Consumer Durables 7.0 (1.5) N/M
Interest Expense, net 10.0 9.5
Income Before Income Taxes $180.9 $232.3 28%
Taxes on Income 61.5 77.8
Net Income $119.4 $154.5 29%
Earnings Per Share
- Basic $0.98 $1.27 29%
- Diluted $0.98 $1.26 29%
Note: Earnings per share have been restated to reflect the 2-for-1 stock split
effective in January 2004.
Brown-Forman Corporation
Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, October 31,
2004 2004
-------- --------
Assets:
Cash and cash equivalents $ 67.7 $ 85.8
Accounts receivable, net 348.6 488.7
Inventories 557.2 601.7
Other current assets 110.0 99.8
-------- --------
Total current assets 1,083.5 1,276.0
Property, plant, and equipment, net 515.2 507.6
Prepaid pension cost 118.2 118.6
Trademarks and brand names 246.6 249.1
Goodwill 314.6 318.4
Other assets 97.9 94.0
-------- --------
Total assets $2,376.0 $2,563.7
======== ========
Liabilities:
Commercial paper $ 49.5 $ 26.8
Accounts payable and accrued expenses 271.5 344.9
Current portion of long-term debt -- 30.0
Accrued taxes on income 48.0 82.0
-------- --------
Total current liabilities 369.0 483.7
Long-term debt 630.0 601.1
Deferred income taxes 122.2 100.5
Accrued postretirement benefits 136.7 141.3
Other liabilities 33.0 34.3
-------- --------
Total liabilities 1,290.9 1,360.9
Stockholders' equity 1,085.1 1,202.8
-------- --------
Total liabilities and stockholders' equity $2,376.0 $2,563.7
======== ========
Brown-Forman Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Six Months Ended
October 31,
2003 2004
------- -------
Cash provided by operating activities 55.4 112.4
Cash flows from investing activities:
Additions to property, plant, and equipment (29.1) (21.5)
Other (3.2) (1.7)
------- -------
Cash used for investing activities (32.3) (23.2)
Cash flows from financing activities:
Net increase (decrease) in debt 19.3 (22.2)
Dividends paid (45.5) (51.7)
Other 5.6 2.8
------- -------
Cash used for financing activities (20.6) (71.1)
------- -------
Net increase in cash and cash equivalents 2.5 18.1
Cash and cash equivalents, beginning of period 72.0 67.7
------- -------
Cash and cash equivalents, end of period $ 74.5 $ 85.8
======= =======
Brown-Forman Corporation
Supplemental Information
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2003 2004
------ ------
Depreciation and amortization $14.3 $14.8
Excise taxes $98.1 $109.6
Effective tax rate 34.0% 33.5%
Cash dividends paid per common share $0.1875 $0.2125
Shares (in thousands) used in the
calculation of earnings per share
- Basic 121,315 121,737
- Diluted 121,841 122,417
Six Months Ended
October 31,
2003 2004
------ ------
Depreciation and amortization $27.4 $28.9
Excise taxes $169.9 $191.6
Effective tax rate 34.0% 33.5%
Cash dividends paid per common share $0.375 $0.425
Shares (in thousands) used in the
calculation of earnings per share
- Basic 121,266 121,708
- Diluted 121,774 122,409
These figures have been prepared in accordance with the company's customary
accounting practices. Share and per share data has been restated to reflect the
2-for-1 stock split effective in January 2004.