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Brown-Forman Reports Strong First Half Results

Stocks in this article: BFB

Use of Non-GAAP Financial Information This press release includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), including constant currency net sales, underlying net sales and underlying operating income. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and also may be inconsistent with similar measures presented by other companies. Reconciliations of these measures to the most closely comparable GAAP measures, and reasons for the company’s use of these measures, are presented on Schedule A attached hereto.

 
 
 
 
 

Brown-Forman CorporationUnaudited Consolidated Statements of OperationsFor the Three Months October 31, 2012 and 2013(Dollars in millions, except per share amounts)

 
 

2012

 

2013

 

Change

 
Net sales $ 1,014 $ 1,079 6 %
Excise taxes 237 246 4 %
Cost of sales   252     257   2 %
Gross profit 525 576 10 %
Advertising expenses 107 111 4 %
Selling, general, and administrative expenses 159 162 2 %
Other (income) expense, net   (3 )   (8 )
Operating income 262 311 19 %
Interest expense, net   4     6  
Income before income taxes 258 305 18 %
Income taxes   85     99  
Net income $ 173   $ 206   19 %
 
Earnings per share:
Basic $ 0.81 $ 0.97 19 %
Diluted $ 0.80 $ 0.96 19 %
 
Gross margin 51.7 % 53.4 %
Operating margin 25.9 % 28.8 %
 
Effective tax rate 32.8 % 32.4 %
 
Cash dividends paid per common share $ 0.233 $ 0.255
 

Shares (in thousands) used in the calculation of earnings per share

Basic 213,276 213,587
Diluted 214,891 215,204
 
 
 
 
 
 

Brown-Forman CorporationUnaudited Consolidated Statements of OperationsFor the Six Months Ended October 31, 2012 and 2013(Dollars in millions, except per share amounts)

 
 

2012

 

2013

 

Change

 
Net sales $ 1,892 $ 1,975 4 %
Excise taxes 449 455 1 %
Cost of sales   454     467   3 %
Gross profit 989 1,053 7 %
Advertising expenses 199 214 8 %
Selling, general, and administrative expenses 308 318 3 %
Other (income) expense, net   (2 )   (7 )
Operating income 484 528 9 %
Interest expense, net   10     12  
Income before income taxes 474 516 9 %
Income taxes   154     167  
Net income $ 320   $ 349   9 %
 
Earnings per share:
Basic $ 1.50 $ 1.63 9 %
Diluted $ 1.49 $ 1.62 9 %
 
Gross margin 52.3 % 53.3 %
Operating margin 25.6 % 26.7 %
 
Effective tax rate 32.5 % 32.4 %
 
Cash dividends paid per common share $ 0.467 $ 0.510
 

Shares (in thousands) used in the calculation of earnings per share

Basic 213,220 213,634
Diluted 214,843 215,248
 
 
 
 
 
 

Brown-Forman CorporationUnaudited Condensed Consolidated Balance Sheets(Dollars in millions)

 
  April 30,   October 31,

2013

2013

Assets:
Cash and cash equivalents $ 204 $ 192
Accounts receivable, net 548 729
Inventories 827 901
Other current assets   242   211
Total current assets 1,821 2,033
 
Property, plant, and equipment, net 450 483
Goodwill 617 620
Other intangible assets 668 671
Other assets   70   75
Total assets $ 3,626 $ 3,882
 
Liabilities:
Accounts payable and accrued expenses $ 451 $ 513
Short-term borrowings 3 6
Current portion of long-term debt 2 1
Other current liabilities   17   22
Total current liabilities 473 542
 
Long-term debt 997 997
Deferred income taxes 180 199
Accrued postretirement benefits 280 242
Other liabilities   68   64
Total liabilities 1,998 2,044
 
Stockholders’ equity   1,628   1,838
 
Total liabilities and stockholders’ equity $ 3,626 $ 3,882
 
 
 
 
 
 

Brown-Forman CorporationUnaudited Condensed Consolidated Statements of Cash FlowsFor the Six Months Ended October 31, 2012 and 2013(Dollars in millions)

 
 

2012

 

2013

 
Cash provided by operating activities $ 165 $ 201
 
Cash flows from investing activities:
Additions to property, plant, and equipment   (39 )   (60 )
Cash used for investing activities (39 ) (60 )
 
Cash flows from financing activities:
Net issuance of debt 3 2
Acquisition of treasury stock -- (49 )
Dividends paid (100 ) (109 )
Other   3     3  
Cash used for financing activities (94 ) (153 )
 

Effect of exchange rate changes on cash and cash equivalents

  (1 )   --  
 
Net increase (decrease) in cash and cash equivalents 31 (12 )
 
Cash and cash equivalents, beginning of period   338     204  
 
Cash and cash equivalents, end of period $ 369   $ 192  
 
 
 
 
 
 

Schedule A

 
Brown-Forman Corporation
Supplemental Information (Unaudited)
           
 

Three Months Ended

Six Months Ended

Fiscal Year Ended

October 31, 2013 October 31, 2013 Apr 30, 2013
 
 
Reported change in net sales 6 % 4 % 5 %
Estimated net change in distributor inventories 1 % 2 % (1 %)
Impact of foreign currencies 1 % 1 % 1 %
Impact of Hopland-based wine business sale - - 2 %
 
Underlying change in net sales 8 % 7 % 8 %
 
 
Reported change in gross profit 10 % 7 % 9 %
Impact of foreign currencies 1 % - 1 %
Estimated net change in distributor inventories - 1 % (1 %)
Impact of Hopland-based wine business sale - - 1 %
 
Underlying change in gross profit 11 % 8 % 10 %
 
Reported change in advertising 4 % 8 % 3 %
Impact of foreign currencies 1 % - 2 %
Impact of Hopland-based wine business sale - - 1 %
 
Underlying change in advertising 5 % 8 % 6 %
 
Reported change in SG&A 2 % 3 % 7 %
Impact of Hopland-based wine business sale - - -
Impact of foreign currencies - 1 % 1 %
 
Underlying change in SG&A 2 % 4 % 8 %
 
Reported change in operating income 19 % 9 % 14 %
Estimated net change in distributor inventories 2 % 4 % (3 %)
Impact of Hopland-based wine business sale - - 1 %
Impact of foreign currencies - (1 %) 1 %
 
Underlying change in operating income 21 % 13 % 13 %
 
Note: Totals may differ due to rounding
 
 

Notes:

Impact of foreign currencies: refers to net gains and losses incurred by the company relating to sales and purchases in currencies other than the U.S. Dollar. Brown-Forman uses 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 the business (both positively and negatively). To neutralize the effect of foreign exchange fluctuations, the company has translated current year results at prior year rates. While Brown-Forman recognizes that foreign exchange volatility is a reality for a global company, it routinely reviews its performance on a constant dollar basis. The company believes this allows both management and investors to understand better Brown-Forman’s growth trends.

 

Hopland-based wine business sale – Refers to the company’s April 2011 sale of its Hopland, California-based wine business to Viña Concha y Toro S.A., which remained as agency brands through December 31, 2011. Included in this sale were the Fetzer winery, bottling facility, and vineyards, as well as the Fetzer brand and other Hopland, California-based wines, including Bonterra, Little Black Dress, Jekel, Five Rivers, Bel Arbor, Coldwater Creek, and Sanctuary. Also included in the sale was a facility in Paso Robles, California.

 

“Estimated net change in trade inventories” refers to the estimated financial impact of changes in distributor inventories for the company’s brands. This impact is calculated using depletion information provided to the company by its distributors to estimate the effect of distributor inventory changes on changes in the company’s key measures. The company believes that separately identifying the impact of this item presents a more accurate picture of underlying demand for the business.

 

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 B

 

Brown-Forman Corporation Supplemental Information (Unaudited) Six Months Ended October 31, 2013

 
  % Change vs. YTD FY13

Depletions 1

 

Net Sales 2

Brand   9-Liter  

Equivalent

Conversion 3

  Reported  

Constant

Currency

  Underlying
Jack Daniel’s Family   4 %   6 %   7 %   8 %   10 %

Jack Daniel’s Family of Whiskey Brands 4

  7 %   7 %   8 %  

9

%  

11

%

Jack Daniel’s RTD/RTP 5

  0 %   0 %   2 %   7 %   4 %
el Jimador Family   (17 %)   (8 %)   (7 %)   (8 %)   (5 %)
el Jimador   (3 %)   (3 %)   (3 %)   (3 %)   2 %

New Mix RTD 6

  (20 %)   (20 %)  

(13

%)  

(15

%)  

(15

%)
Finlandia Family   2 %   3 %   (1 %)   (2 %)   1 %
Finlandia   3 %   3 %   (1 %)   (2 %)   2 %
Finlandia RTD   (7 %)   (7 %)   (4 %)   (7 %)   (8 %)
Southern Comfort Family   (4 %)   (5 %)   (6 %)   (5 %)   (4 %)

Southern Comfort 7

  (5 %)   (5 %)   (6 %)   (6 %)   (4 %)
Southern Comfort RTD/RTP   (2 %)   (2 %)   (5 %)   2 %   (2 %)
Canadian Mist   1 %   1 %   (1 %)   (1 %)   1 %
Korbel Champagne   4 %   4 %   3 %   3 %   8 %

Super-Premium Other 8

  4 %   4 %   6 %   6 %   8 %
Rest of Brand Portfolio

(excl. Discontinued Brands)

  (4 %)   (4 %)   (2 %)   (2 %)   1 %
Total Portfolio   (1 %)   3 %   4 %   5 %   7 %
 

Note: Totals may differ due to rounding

 

__________________ 1 Depletions are shipments direct to retail or from distributors to wholesale and retail customers, and are commonly regarded in the industry as an approximate measure of consumer demand

2 Net sales is a shipment based metric; shipments and depletions can be different due to timing.  Constant currency change is a non-GAAP measure that represents the percentage change in financial results reported in accordance with GAAP, but with the impact of foreign currency fluctuations removed.  Underlying change is a non-GAAP measure that represents constant currency change further adjusted for items that we believe do not reflect the underlying performance of our business.  To calculate underlying change for the first half of fiscal 2014, we adjust constant currency change for estimated net changes in trade inventories.  Please see the Notes to Schedule A of this press release for additional information on the impact of foreign currencies and estimated net change in distributor inventories and the reasons why we believe that the presentation of these non-GAAP financial measures provides useful information to investors

3 Equivalent conversion depletions represent the conversion of ready-to-drink (RTD) brands to a similar drinks equivalent as the parent brand for various trademark families. RTD volume is divided by 10

4 Jack Daniel’s brand family excluding RTD/RTP line extensions

5 Refers to all RTD and ready-to-pour (RTP) line extensions of Jack Daniel’s

6 RTD brand produced with el Jimador tequila

7 Includes Southern Comfort, Southern Comfort Reserve, and Southern Comfort flavors

8 Includes Sonoma-Cutrer, Herradura, Woodford Reserve Family, Tuaca Family and Chambord liqueur and flavored vodka





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