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 22, 2005
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 today, November 22, 2005
reporting results of its operations for the fiscal quarter ended October 31,
2005. 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 22, 2005
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 22, 2005 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President and
Assistant Corporate Secretary
Exhibit Index
99.1 Press Release, dated November 22, 2005, issued by Brown-Forman
Corporation, reporting results of operations for the fiscal quarter ended
October 31, 2005.
Exhibit 99.1
FOR IMMEDIATE RELEASE
BROWN-FORMAN'S EARNINGS FROM CONTINUING OPERATIONS
INCREASE 19% IN THE SECOND QUARTER
Louisville, KY, November 22, 2005 - Brown-Forman Corporation reported earnings
per share from continuing operations for its second quarter ended October 31,
2005 of $0.91, up 19% from the same period last year. These strong results
reflect organic profit growth from the company's premium global portfolio, led
by another outstanding performance from Jack Daniel's Tennessee Whiskey.
Continuing operations do not include results from Lenox, Inc., the company's
former subsidiary, which was sold to Department 56, Inc. on September 1, 2005.
Results from these discontinued operations are not reflected in this press
release unless expressly stated.
Continuing Operations
Strong underlying performance from the company's premium global brands
portfolio, which includes Jack Daniel's, Southern Comfort and Finlandia, and
improved profits from several of the company's mid-priced regional wine brands
drove earnings growth in the quarter. Quarterly earnings per share growth also
benefited from a lower effective tax rate, lower net interest expense
(attributable to higher cash balances), and the absence of prior year expenses
associated with both the introduction of low-carbohydrate wine brands and the
sale of the company's Glenmorangie shareholding. An anticipated reduction in
global trade inventories tempered earnings growth in the quarter. Adjusting for
these factors, the company's underlying earnings per share growth for the
quarter was 16%, as follows:
Second Quarter Diluted EPS Growth from Continuing Operations 19%
Net reduction in global trade inventories 9%
Lower net interest and effective tax rate (5%)
Capital gain treatment (termination of
Glenmorangie distribution rights) (5%)
Absence of prior year expenses (2%)
Second Quarter Adjusted EPS Growth from Continuing Operations(1) 16%
In the second quarter revenues and gross profit increased 6% and 8%,
respectively, fueled by volume growth and margin improvement for Jack Daniel's,
higher profits for several of the company's super-premium developing brands, and
continued growth for Finlandia and Southern Comfort. Advertising expenses were
up 7% in the quarter due to increased investments behind the company's premium
global brands. SG&A expenses were up 4%, as the quarterly comparison benefited
from the prior year recording of incremental incentive compensation expense.
Operating income from continuing operations increased 11% over the prior year
period.
Leading the company's premium global brand portfolio, Jack Daniel's worldwide
depletion growth rate was in the high-single digits for the quarter, with
mid-single digit growth in the U.S. and the United Kingdom, and double-digit
gains in Germany, Spain, France, South Africa, China, and Japan. (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 below the quarter's
depletion growth rate as a result of distributors and importers reducing their
inventory positions following relatively high levels of trade inventory at the
end of the first quarter of fiscal 2006.
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(1) Management believes that disclosing this measure of earnings per share
growth is important because it more accurately reflects the underlying
operations of the company.
Depletions for Southern Comfort grew in the mid-single digits globally for the
quarter, driven by the brand's continued gains in the U.S. Finlandia delivered
double-digit depletion growth for the quarter, with particular strength in
Poland and Russia.
Improving trends were registered in the second quarter for several of the
company's mid-priced regional brands. Fetzer recorded mid-single digit depletion
growth in the quarter, and consumer measures for the brand continue to
strengthen heading into the important holiday season. Korbel depletion growth
improved to the mid-single digits, while depletions for Canadian Mist, Early
Times and Bolla declined over the prior year period. Super-premium developing
brands Sonoma-Cutrer, Appleton, Tuaca and Woodford Reserve each posted
double-digit depletion growth for the quarter.
For the first six months of the fiscal year, diluted earnings per share were
$1.62, up 30% from the $1.25 earned in the same period last year. Year-to-date
results benefited from solid growth for Jack Daniel's, Southern Comfort, and
Finlandia, and improved profits from Fetzer and the Jack Daniel's & Cola
ready-to-drink product that is sold primarily in Australia. Adjusting
year-to-date results for profits associated with the early termination of
Glenmorangie marketing and distribution rights, the net increase in global trade
inventory levels, the absence of income associated with the introduction of
low-carbohydrate wine brands in the prior year period, the absence of advisory
fees related to the prior year sale of the company's Glenmorangie shareholding,
lower net interest and a lower effective tax rate, earnings per share for the
first half of fiscal 2006 increased approximately 16%, as follows:
Year-to-Date Diluted EPS Growth from Continuing Operations 30%
Glenmorangie consideration (9%)
Net increase in global trade inventories (3%)
Lower net interest and lower effective tax rate (3%)
Absence of low-carbohydrate wines / Glenmorangie fees 1%
Year-to-Date Adjusted EPS Growth from Continuing Operations(2) 16%
Foreign exchange had no material effect on the company's performance in
quarterly or year-to-date results.
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(2) Management believes that disclosing this measure of earnings per share
growth is important because it more accurately reflects the underlying
operations of the company.
Earnings Outlook
Based on continued strong consumer demand for our premium global brands, the
company is increasing its earnings estimate for the fiscal year that ends April
30, 2006. The company's previous estimate for earnings per share from continuing
operations was in the range of $2.70 - $2.80, which included a net $0.05 per
share benefit related to the early termination of distribution rights for the
Glenmorangie family of brands. Excluding this $0.05 benefit, the
previously-communicated range was $2.65 to $2.75 per share. The company now
expects fiscal 2006 earnings per share from continuing operations in the range
of $2.73 to $2.79, which represents full year growth of 13-15% over comparable
prior year earnings. This earnings estimate excludes both the net benefit of the
Glenmorangie termination and an anticipated net favorable impact from
restructuring the company's Australian distributor which is expected to occur in
the second half of this fiscal year. The company expects a more moderate growth
rate in earnings per share for the second half of the fiscal year, reflecting
further reductions in global trade inventory levels, additional transition
expenses associated with changes in global distribution, incremental brand
investments designed to sustain long term business momentum, and the anticipated
unfavorable impact of the strengthening U.S. dollar.
Brown-Forman will host a conference call to discuss second quarter 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 and ask for the Brown-Forman
call. 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.
For those unable to participate in the live call, a replay will be available by
calling 800-642-1687 (U.S.) or 706-645-9291 (international). The identification
code is 2525857. A digital audio recording of the conference call will also be
available on the Web site (www.brown-forman.com) approximately one hour after
the conclusion of the conference call. The replay will be available for at least
30 days following 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, 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 the majority of our profits;
- lower consumer confidence or purchasing in the United States associated with
the aftermath of hurricanes Katrina, Rita and Wilma, all of which occurred
this year;
- tax increases, whether at the federal or state level or in major
international markets and/or tariff barriers or other restrictions affecting
beverage alcohol;
- restrictions on 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 advertising
causes illegal consumption of alcohol by those under the legal drinking age;
- a strengthening U.S. dollar against foreign currencies, especially the
British Pound;
- reduced bar, restaurant, hotel and travel business in wake of terrorist
attacks or threats, such as occurred in September, 2001 in the U.S. and in
July, 2005 in London;
- lower consumer confidence or purchasing associated with rising energy prices;
- a decline in U.S. spirits consumption as might be indicated by recent
published trends suggesting a slight reduction in the growth rate of
distilled spirits consumption;
- 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 our products;
- increases in the price of energy or raw materials, including grapes, grain,
wood, glass, and plastic;
- excess wine inventories or a further world-wide oversupply of grapes.
- 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 Income
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2004 2005 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $627.2 $665.8 6%
Gross profit 330.5 357.4 8%
Advertising expenses 81.5 87.4 7%
Selling, general, and
administrative expenses 105.5 110.2 4%
Other expense (income), net (0.4) (0.4)
Operating income 143.9 160.2 11%
Interest expense, net 4.7 1.3
Income before income taxes 139.2 158.9 14%
Income taxes 45.8 46.8
Net income 93.4 112.1 20%
Earnings per share:
Basic 0.76 0.92 20%
Diluted 0.76 0.91 19%
DISCONTINUING OPERATIONS
Net income (loss) $ 8.0 $(3.3)
Earnings (loss) per share:
Basic 0.07 (0.03)
Diluted 0.07 (0.03)
TOTAL COMPANY
Net income $101.4 $108.8 7%
Earnings per share:
Basic 0.83 0.89 7%
Diluted 0.83 0.88 7%
Brown-Forman Corporation
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Six Months Ended
October 31,
2004 2005 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $1,108.5 $1,213.2 9%
Gross profit 583.9 660.4 13%
Advertising expenses 143.1 159.7 12%
Selling, general, and
administrative expenses 201.8 220.5 9%
Other expense (income), net (0.8) (14.2)
Operating income 239.8 294.4 23%
Interest expense, net 9.6 4.0
Income before income taxes 230.2 290.4 26%
Income taxes 77.0 90.4
Net income 153.2 200.0 30%
Earnings per share:
Basic 1.25 1.64 30%
Diluted 1.25 1.62 30%
DISCONTINUING OPERATIONS
Net loss $(0.6) $(78.4)
Loss per share:
Basic -- (0.64)
Diluted -- (0.63)
TOTAL COMPANY
Net income $152.6 $121.6 (20%)
Earnings per share:
Basic 1.25 1.00 (20%)
Diluted 1.25 0.99 (21%)
Brown-Forman Corporation
Condensed Consolidated Balance Sheets
(includes discontinued operations)
(Dollars in millions)
April 30, October 31,
2005 2005
-------- --------
Assets:
Cash and cash equivalents $ 294.9 $ 451.9
Accounts receivable, net 295.9 405.0
Inventories 469.9 522.5
Current assets held for sale 157.6 9.8
Other current assets 96.9 94.5
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Total current assets 1,315.2 1,483.7
Property, plant, and equipment, net 417.9 417.3
Trademarks and brand names 334.2 331.3
Goodwill 192.7 188.1
Noncurrent assets held for sale 217.9 7.4
Other assets 171.2 164.0
------- -------
Total assets $2,649.1 $2,591.8
======= =======
Liabilities:
Accounts payable and accrued expenses $ 264.2 $ 299.7
Accrued income taxes 41.9 37.3
Current portion of long-term debt 279.3 249.7
Current liabilities held for sale 52.7 3.8
------- -------
Total current liabilities 638.1 590.5
Long-term debt 351.5 351.8
Deferred income taxes 157.8 146.3
Accrued postretirement benefits 77.6 80.5
Noncurrent liabilities held for sale 82.9 --
Other liabilities 31.2 22.7
------- -------
Total liabilities 1,339.1 1,191.8
Stockholders' equity 1,310.0 1,400.0
------- -------
Total liabilities and stockholders' equity $2,649.1 $2,591.8
======= =======
Brown-Forman Corporation
Condensed Consolidated Statements of Cash Flows
(including cash flows from discontinued operations)
(Dollars in millions)
Six Months Ended
October 31,
2004 2005
------ ------
Cash provided by operating activities $111.4 $ 65.9
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- 196.5
Additions to property, plant, and equipment (21.5) (22.4)
Other (1.7) (0.7)
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Cash provided by (used for) investing activities (23.2) 173.4
Cash flows from financing activities:
Net decrease in debt (22.2) (30.0)
Dividends paid (51.7) (59.8)
Other 3.8 7.5
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Cash used for financing activities (70.1) (82.3)
------- -------
Net increase in cash and cash equivalents 18.1 157.0
Cash and cash equivalents, beginning of period 67.7 294.9
------- -------
Cash and cash equivalents, end of period $85.8 $451.9
======= =======
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2004 2005
------ ------
Depreciation and amortization $10.7 $10.9
Excise taxes $109.6 $115.4
Effective tax rate 32.9% 29.5%
Cash dividends paid per common share $0.213 $0.245
Shares (in thousands) used in the
calculation of earnings per share
Basic 121,737 122,016
Diluted 122,417 123,242
Six Months Ended
October 31,
2004 2005
------ ------
Depreciation and amortization $21.1 $21.7
Excise taxes $191.6 $213.0
Effective tax rate 33.4% 31.1%
Cash dividends paid per common share $0.425 $0.490
Shares (in thousands) used in the
calculation of earnings per share
Basic 121,708 121,978
Diluted 122,409 123,199
These figures have been prepared in accordance with the company's customary
accounting practices.