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 1, 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
Item 2.02. Results of Operations and Financial Condition
Brown-Forman Corporation issued a press release today, March 1, 2006 reporting
results of its operations for the fiscal quarter ended January 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 March 1, 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: March 1, 2006 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President and
Assistant Corporate Secretary
Exhibit Index
99.1 Press Release, dated March 1, 2006, issued by Brown-Forman Corporation,
reporting results of operations for the fiscal quarter ended January 31,
2006.
Exhibit 99.1
FOR IMMEDIATE RELEASE
BROWN-FORMAN REPORTS STRONG RESULTS FOR THE THIRD QUARTER
OF FISCAL 2006; INCREASES FULL YEAR GUIDANCE
Louisville, KY, March 1, 2006 - Brown-Forman Corporation reported adjusted
earnings from continuing operations of $0.80 per share(1) for the third quarter
ended January 31, 2006, up 12% from adjusted earnings of $0.72 per share in the
same period last year. This earnings increase was fueled by continued strong
growth in sales and profits for the company's Premium Global brands, most
notably Jack Daniel's Tennessee Whiskey. Adjusted results included in this
release represent management's view of the company's underlying business.
Excluding adjustments, reported third quarter earnings from continuing
operations declined 4%, to $0.98 per share, from $1.02 per share in the prior
year, reflecting the absence of a $0.39 per share gain recorded in the prior
year related to the company's sale of its shares in Glenmorangie plc.
Additionally, in the third quarter of this fiscal year the company recorded a
$0.14 per share net benefit related to changes in its Australian distribution
joint venture and a $0.04 per share gain on the sale of winery property.
Attached on page 4 of this earnings release is a supplemental schedule that
reconciles reported results to adjusted results.
Adjusted net sales and gross profit improved 10% and 13%, respectively, in the
quarter. Reported net sales and gross profit grew at lower rates (5% and 10%,
respectively), primarily due to unfavorable foreign exchange rates.
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(1) All per share amounts are calculated on a diluted basis unless otherwise
indicated.
Continued global volume and profit growth for Jack Daniel's, Fetzer Wines'
profit growth in the United States, and positive trends for Finlandia Vodka
(particularly in central Europe) were the primary factors contributing to the
quarter's growth. The increase in gross profit was accompanied by incremental
advertising investments behind the company's Premium Global portfolio and higher
investments in SG&A expenses, due in part to the impact of international
distribution changes.
Global depletions(2) for the company's total portfolio of brands were up in the
mid-single digits in the quarter with balanced growth across all geographies,
led by strength in many international markets. Depletions for the company's
Premium Global brands, consisting of Jack Daniel's, Southern Comfort, and
Finlandia, grew in the high single digits and represent approximately 60% of
total volumes. Depletions for the company's Mid-Priced Regional brands, which
include Canadian Mist, Early Times, Fetzer and Bolla, were flat, while
depletions of Super-Premium Developing brands continued to grow at a
double-digit rate in the quarter.
For the first nine months of the fiscal year, both reported and adjusted
earnings from continuing operations were up 14% over the prior year. Growth was
driven by positive volume trends and continued margin improvement for the
company's Premium Global brands. These improvements, combined with higher
profits from some of the company's Mid-Priced Regional brands (most notably
Fetzer) and volume and profit growth from its Super-Premium Developing brand
portfolio, more than offset increased advertising investments (primarily behind
the company's Premium Global brands) and higher SG&A spending.
--------
(2) Depletions are shipments from wholesale distributors to retail customers,
and are commonly regarded in the industry as an approximate measure of
consumer demand.
In the first nine months of fiscal 2006, Jack Daniel's worldwide depletions grew
in the high single digits. While this growth rate was slightly below that of the
prior year, the brand grew by more than 500,000 cases in the period. Substantial
volume gains were registered in the U.S., Asia, South Africa and nearly all
markets in Europe. Year-to-date depletions for Southern Comfort grew in the
mid-single digits, driven by the brand's continued progress in the U.S., while
Finlandia depletions grew at a double-digit rate, propelled by continued strong
growth in Poland and Russia.
Paul Varga, the company's chief executive officer stated, "We are pleased with
yet another quarter of strong organic growth. Our gross profit growth is solid
across both brands and geographies. This performance is due to consistent
long-term investments, our diligent resource allocation process, an environment
conducive to our brand building, and the focused effort of our employees
worldwide. We continue to see growth opportunities ahead."
Earnings Outlook from Continuing Operations
Based on strong third quarter results, the company is increasing its fiscal 2006
full year outlook from continuing operations. The company now expects earnings
in the range of $2.79 to $2.85 per share compared to the previously communicated
projected range of $2.73 to $2.79 per share. Consistent with the previous
guidance, this outlook excludes the net benefit from the early termination of
the company's distribution rights to the Glenmorangie family of brands, the net
effect of changes in the company's Australian distribution joint venture, and
the sale of winery property in California. Prior year adjusted earnings were
$2.42 per share, which excluded the gain on the sale of Glenmorangie shares and
trade inventory reductions related to distribution changes in Europe.
This revised full year guidance implies a range of earnings from continuing
operations for the fourth quarter of $0.48 to $0.54 per share, versus last
year's adjusted earnings of $0.54 per share, reflecting the expectation of
reductions in global trade inventory levels, incremental brand and SG&A
investments, and unfavorable foreign exchange effects.
SUPPLEMENTAL SCHEDULE
Except per share data, amounts in million U.S. Dollars
Three Months Ended January 31, Nine Months Ended January 31
Continuing Operations* 2005 2006 % Change 2005 2006 % Change
Net Sales $607.1 $636.8 5% $1,715.6 $1,850.0 8%
Glenmorangie distribution termination (4.0) -- (12.4) (4.2)
Trade inventory levels 3.7 6.7 8.2 (0.5)
Foreign exchange -- 24.0 -- 28.4
------ ------ -------- --------
Adjusted Net Sales (a) $606.8 $667.5 10% $1,711.4 $1,873.8 9%
Gross Profit $305.0 $334.4 10% $888.9 $994.8 12%
Glenmorangie distribution termination (1.2) 0.1 (4.1) (1.4)
Trade inventory levels 5.9 5.5 5.8 (0.8)
Foreign exchange -- 11.2 -- 15.3
All other, net 2.2 -- 1.3 --
------ ------ -------- --------
Adjusted Gross Profit (b) $311.9 $351.2 13% $892.0 $1,007.9 13%
Operating Income $117.4 $165.7 41% $358.4 $460.1 28%
Glenmorangie - net impact (0.4) 0.2 (1.6) (12.5)
Australian distributor transition -- (14.1) -- (14.1)
Gain on sale of winery -- (4.6) -- (4.6)
Trade inventory levels 5.9 (3.7) 5.8 (10.1)
Foreign exchange -- 7.0 -- 10.1
All other, net 10.3 -- 9.4 --
------ ------ ------ ------
Adjusted Operating Income (c) $133.1 $150.3 13% $372.1 $428.9 15%
Earnings Per Share (Diluted) $1.02 $0.98 (4%) $2.27 $2.59 14%
Glenmorangie - net impact (0.40) -- (0.39) (0.11)
Australian distributor transition -- (0.14) -- (0.14)
Gain on sale of winery -- (0.04) -- (0.04)
Trade inventory levels 0.03 (0.02) 0.03 (0.05)
Lower net interest and effective tax rate -- (0.02) -- (0.05)
Foreign exchange -- 0.04 -- 0.05
All other, net 0.06 -- 0.06 --
----- ----- ----- -----
Adjusted Earnings Per Share (d) $0.72 $0.80 12% $1.96 $2.25 14%
*Continuing operations do not include results from Lenox, Inc., the company's former subsidiary, which was sold on
September 1, 2005. Results from discontinued operations, which include both the results of divested operations through the date
of the sale and the remaining operations classified as discontinued, are not reflected in this release unless expressly stated.
USE OF NON-GAAP FINANCIAL INFORMATION
This press release includes financial measures that were not derived in
accordance with generally accepted accounting principles ("GAAP"). These
measures should not be considered in isolation or as a substitute for any
measure derived in accordance with GAAP, and may be inconsistent with similar
measures presented by other companies. Reconciliation of these measures to GAAP
measures, and reasons for the company's uses of these measures, are presented
here.
(a) Adjusted Net Sales is net sales derived in accordance with GAAP, excluding
the impact of both changes in foreign exchange rates and global trade
inventories, and net revenues from Glenmorangie and its family of brands
which the company formerly distributed in the U.S. and several international
markets. Management believes that disclosing this measure is important
because it more accurately reflects the underlying or organic net sales of
the company.
(b) Adjusted Gross Profit is gross profit derived in accordance with GAAP,
excluding the impact of both changes in foreign exchange rates and global
trade inventories, and gross profits from Glenmorangie and its family of
brands which the company formerly distributed in the U.S. and several
international markets. Management believes that disclosing this measure is
important because it more accurately reflects the underlying or organic
gross profit of the company.
(c) Adjusted Operating Income is operating income derived in accordance with
GAAP, excluding the impact of both changes in foreign exchange rates and
global trade inventories, the favorable impact of changes in the company's
Australian distribution operation, the sale of winery property located in
California, and the impact of items associated with the company's interest
in and representation of the Glenmorangie family of brands and other items
(e.g., higher incentive compensation in the prior year; asset impairment
associated with the company's minority interest in a small Mexican tequila
company). Management believes that disclosing this measure is important
because it more accurately reflects the underlying or organic operating
income of the company.
(d) Adjusted Earnings Per Share is Earnings Per Share derived in accordance with
GAAP, adjusted for the impact of both changes in foreign exchange rates and
global trade inventories, period-to-period changes in the company's
effective tax rate and interest expense, the favorable impact of changes in
the company's Australian distribution operation, the sale of winery property
located in California, and the impact of items associated with the company's
interest in and representation of the Glenmorangie family of brands, as well
as several other miscellaneous items. Management believes that disclosing
this measure is important because it more accurately reflects the underlying
or organic earnings per share growth of the company.
Brown-Forman will host a conference call to discuss third 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 5719061. A digital audio recording of the conference call will also be
available on the Brown-Forman website 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 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;
- 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 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;
- 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
January 31,
2005 2006 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $607.1 $636.8 5%
Gross profit 305.0 334.4 10%
Advertising expenses 76.8 85.0 11%
Selling, general, and
administrative expenses 109.3 116.1 6%
Other expense (income), net 1.5 (32.4)
Operating income 117.4 165.7 41%
Gain on sale of investment
in affiliate 73.5 --
Interest expense (income), net 2.0 (0.3)
Income before income taxes 188.9 166.0 (12%)
Income taxes 64.5 45.6
Net income 124.4 120.4 (3%)
Earnings per share:
Basic 1.02 0.99 (4%)
Diluted 1.02 0.98 (4%)
DISCONTINUED OPERATIONS
Net income (loss) $(29.4) $ 0.1
Earnings (loss) per share:
Basic (0.24) --
Diluted (0.24) --
TOTAL COMPANY
Net income $ 95.0 $120.5 27%
Earnings per share:
Basic 0.78 0.99 26%
Diluted 0.78 0.98 26%
Brown-Forman Corporation
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Nine Months Ended
January 31,
2005 2006 Change
------ ------ ------
CONTINUING OPERATIONS
Net sales $1,715.6 $1,850.0 8%
Gross profit 888.9 994.8 12%
Advertising expenses 219.9 244.7 11%
Selling, general, and
administrative expenses 311.2 336.6 8%
Other income, net (0.6) (46.6)
Operating income 358.4 460.1 28%
Gain on sale of investment
in affiliate 72.3 --
Interest expense, net 11.6 3.8
Income before income taxes 419.1 456.3 9%
Income taxes 141.5 136.7
Net income 277.6 319.6 15%
Earnings per share:
Basic 2.28 2.62 15%
Diluted 2.27 2.59 14%
DISCONTINUED OPERATIONS
Net loss $(30.0) $(77.5)
Loss per share:
Basic (0.25) (0.64)
Diluted (0.25) (0.63)
TOTAL COMPANY
Net income $247.6 $242.1 (2%)
Earnings per share:
Basic 2.03 1.98 (2%)
Diluted 2.02 1.96 (3%)
Brown-Forman Corporation
Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, January 31,
2005 2006
-------- --------
Assets:
Cash and cash equivalents $ 294.9 $ 366.2
Short-term investments -- 229.7
Accounts receivable, net 295.9 312.6
Inventories 469.9 519.8
Current assets held for sale 157.6 9.3
Other current assets 96.9 92.2
------- -------
Total current assets 1,315.2 1,529.8
Property, plant, and equipment, net 417.9 418.1
Trademarks and brand names 334.2 331.7
Goodwill 192.7 188.6
Noncurrent assets held for sale 217.9 7.0
Other assets 171.2 179.4
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Total assets $2,649.1 $2,654.6
======= =======
Liabilities:
Accounts payable and accrued expenses $ 264.2 $ 261.2
Dividends payable -- 34.2
Accrued income taxes 41.9 42.3
Current portion of long-term debt 279.3 249.5
Current liabilities held for sale 52.7 3.8
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Total current liabilities 638.1 591.0
Long-term debt 351.5 351.9
Deferred income taxes 157.8 146.1
Accrued postretirement benefits 77.6 77.5
Noncurrent liabilities held for sale 82.9 --
Other liabilities 31.2 26.5
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Total liabilities 1,339.1 1,193.0
Stockholders' equity 1,310.0 1,461.6
------- -------
Total liabilities and stockholders' equity $2,649.1 $2,654.6
======= =======
Brown-Forman Corporation
Condensed Consolidated Statements of Cash Flows
(including cash flows from discontinued operations)
(Dollars in millions)
Nine Months Ended
January 31,
2005 2006
------ ------
Cash provided by operating activities $342.0 $243.4
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- 196.5
Proceeds from sale of investment in affiliate 92.7 --
Investment in short-term securities -- (229.7)
Acquisition of minority interest in subsidiary (63.6) --
Additions to property, plant, and equipment (31.0) (33.6)
Other 5.4 4.9
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Cash provided by (used for) investing activities 3.5 (61.9)
Cash flows from financing activities:
Net decrease in debt (47.0) (30.0)
Dividends paid (81.6) (94.0)
Other 4.9 13.8
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Cash used for financing activities (123.7) (110.2)
------- -------
Net increase in cash and cash equivalents 221.8 71.3
Cash and cash equivalents, beginning of period 67.7 294.9
------- -------
Cash and cash equivalents, end of period $289.5 $366.2
======= =======
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information
(Dollars in millions, except per share amounts)
Three Months Ended
January 31,
2005 2006
------ ------
Depreciation and amortization $11.7 $10.6
Excise taxes $127.8 $132.8
Effective tax rate 34.1% 27.5%
Cash dividends paid per common share $0.245 $0.280
Shares (in thousands) used in the
calculation of earnings per share
Basic 121,755 122,116
Diluted 122,482 123,558
Nine Months Ended
January 31,
2005 2005
------ ------
Depreciation and amortization $32.8 $32.3
Excise taxes $319.4 $345.9
Effective tax rate 33.8% 30.0%
Cash dividends paid per common share $0.670 $0.770
Shares (in thousands) used in the
calculation of earnings per share
Basic 121,723 122,027
Diluted 122,432 123,321
These figures have been prepared in accordance with the company's customary
accounting practices.