PROOF
2 0 1 3 A N N U A L R E P O R T
P R O O F
28%
Woodford Reserve increased net
sales by 28% in fiscal year 2013
and showed great potential
internationally.
P R O O F
15%
Herradura net sales grew
15%, outpacing the global
tequila category’s low
single-digit growth.
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Brown-Forman is thriving.
There are lots of reasons: more than 143 years of
authenticity in North American whiskey, one of
spirits’ fastest-growing global categories; powerful
brands, led by iconic trademark Jack Daniel’s and
including names like Woodford Reserve, Southern
Comfort, Finlandia, Herradura and Sonoma-Cutrer,
among others; and a knack for growing those brands,
both by expanding to new geographies and by
creating new expressions.
Our beverages’ strength is measured in proof.
So are the strengths of our company and our
people, where the proof is in our brand successes,
our growing global presence, and our financial
performance. And as we look ahead, we’re
confident there’s more proof to come.
Please scan the page to the left with your
Layar-enabled smartphone for a short
video of CEO Paul Varga citing some proof
points on how Brown-Forman is thriving.
01
Brown-Forman 2013 Annual Report PRO OF IN WHIS KEY L EADERSHIP
JACK
DANIEL’S
Growing
an American
Icon
P R O O F
11%
Jack Daniel’s family of brands
grew global net sales by a strong,
balanced 11% globally (9% as
reported), including 10% in
the United States.
Scan this glass of Jack with a
Layar-enabled smartphone to view
one of our new Jack Daniel’s ads—
proof of continued investment in
B-F’s biggest brand.
02
Changes in net sales growth are presented in the Annual Report on a constant currency basis, with the as-reported changes noted where there is a difference. We use this measure
to understand the growth of the business with the cost or benefit of foreign currency movements removed. Please refer to “Use of Non-GAAP Financial Information” on the interior
back cover of this Annual Report for additional information.
*IWSR data references 2012 International Wine and Spirits Research.
Proof The Jack Daniel’s brand family: proving its value,
every day. This is what a whiskey leader looks like:
Jack Daniel’s Tennessee Whiskey going strong,
surpassing the 11 million 9L case mark and growing
net sales 7% (6% as reported), even with low single-
digit price increases; Tennessee Honey growing by
more than 70%, reaching 770,000 9L cases in just
its second full year; and super-premiums Gentleman
Jack and Jack Daniel’s Single Barrel posting net
sales growth in the mid teens. Jack Daniel’s Ready-
to-Serve (RTD and RTP) beverages grew net sales in
the mid single-digits, and new, limited-distribution
Jack Daniel’s Sinatra Select is a brand-building toast
from one icon to another. With only 7% value share*
of global whiskey according to IWSR, Jack has a long
runway for future growth.
P R O O F
425k
Our super-premium expression
Gentleman Jack surpassed 425,000
9L cases in fiscal year 2013 and
grew international net sales by 30%
(27% as reported) in fiscal
year 2013.
P R O O F
7%
A classic brand
excelling in the digital age,
Jack Daniel’s Black Label grew
net sales by 7% globally
(6% as reported).
03
Brown-Forman 2013 Annual Report PRO OF IN AUTHENTICIT Y
TRUE
TEQUILA
Casa Herradura
Brown-Forman’s super-premium
Herradura tequila brand grew net sales
by 20% in the United States
in fiscal year 2013.
P R O O F
100%
Casa Herradura—the Herradura
and el Jimador brands—makes
only authentic, 100% blue agave
tequilas, all hecho
en Mexico.
El Jimador’s New Mix RTDs
grew net sales by 14% in Mexico,
enjoying a #1 share in this large
and growing market.
Growing a tequila leader. Casa Herradura is real tequila.
Authentic, 100% blue agave tequila. And its brands,
led by Herradura and el Jimador, drove a record fiscal
year 2013 performance in the fast-growing global
tequila category. Herradura outgrew its super-premium
peers, up 15% globally, with solid growth in the United
States, Mexico, and select expansion markets worldwide.
El Jimador, Mexico’s number-one 100% blue agave
tequila, gained market share in the United States and
outpaced overall tequila category growth, and New Mix
RTDs posted their best year ever in fiscal year 2013.
04
Proof
PRO OF IN INVESTMENT
A WINNING
Attitude
Investing to stabilize Southern Comfort. “Championing
Being Your Awesome Self.” That’s the new attitude at
Southern Comfort, and it’s exactly what the brand did
in fiscal year 2013 with its bold strategy to revitalize
this original flavored brown spirit. From “Beach,”
the first commercial from the brand’s award-winning
“Whatever’s Comfortable” advertising campaign, to its
highly successful new Southern Comfort Bold Black
Cherry expression, the brand’s new approach began to
move the needle with a 5 point turnaround in underlying
sales trends in the United States in fiscal year 2013.
Scan the lower half of
this page with your Layar-
enabled smartphone to
view the award-winning
spot, “Beach,” proof of
our commitment to grow
Southern Comfort again.
P R O O F
39%
Southern Comfort saw
modest net sales growth in the
United States for the first time
in five years, up 1%.
Southern Comfort’s flavors,
including Lime and Cherry, were
bright spots, growing volumes by
39% in fiscal year 2013.
We believe the increased advertising
and promotion investment behind
a new campaign is turning around
Southern Comfort’s sales
in the United States.
Brown-Forman 2013 Annual Report
05
PRO OF IN PRESENCE
GLOBAL
thirst
P R O O F
3.3M
Finlandia achieved a record
3.3 million 9L case depletions
in fiscal year 2013.
P R O O F
99%
Tennessee Honey grew net sales
99% globally (98% as reported),
yet still represents just 7% of
Jack Daniel’s Tennessee
Whiskey sales.
Only beginning to realize our global potential. At
Brown-Forman, we believe we’re ideally positioned to
build momentum outside the United States, especially
with our key brands in emerging markets, strength
in fast-growing categories such as tequila and North
American whiskey, and a portfolio that emphasizes
premium and above. From the worldwide popularity
of the Jack Daniel’s brand, to Finlandia’s premium
vodka leadership and growth in Europe and Russia,
to the appeal and potential of Woodford Reserve’s
super-premium Kentucky bourbons, it’s a big world
with plenty of room to expand over the long term.
P R O O F
14%
The runway for Woodford
Reserve is long, given only 14%
of sales are generated outside
the United States.
E M E R G I N G M A R K E T S
12%
GROWTH IN
UNDERLYING
SALES*
(10% as reported) We enjoyed strong growth in the emerging
markets, thanks to strength in Russia and Eastern Europe,
Turkey, Brazil, Thailand, India, and Indonesia, among others.
D E V E L O P E D M A R K E T S
6%
GROWTH IN
UNDERLYING
SALES*
(3% as reported) In addition to the United States, our brand
portfolio grew faster than the industry in key developed markets
such as Germany, France, the United Kingdom, and Australia.
06
* Underlying change represents constant currency change further adjusted for items
that we believe do not reflect the underlying performance of our business. Please refer
to “Use of Non-GAAP Financial Information” on the interior back cover of this Annual
Report for additional information.
Proof PRO OF IN HERITAGE
P R O O F
200
years
Woodford Reserve: authentic,
super-premium bourbon
from Kentucky’s oldest
distillery site.
WORLD
CLASS
opportunity
We think the world’s going to love Woodford Reserve.
It’s made in Kentucky’s oldest distillery. It’s crafted in
small batches in copper pot stills. It’s consistently rated
as the top destination on the Kentucky Bourbon Trail.
Woodford Reserve is as authentic as bourbon gets, and
with the world’s taste for premium North American
whiskey driving record exports of U.S. spirits, the
opportunity is exciting, both within and outside of the
United States. Woodford is thriving in this environment,
depleting a record 250,000 9L cases in fiscal year 2013.
Scan the entire Woodford
Reserve page with your Layar-
enabled smartphone for a short
video message, “Globalization,
Tradition, and Innovation,”
from CEO Paul Varga.
Brown-Forman 2013 Annual Report
07
PRO OF IN NUMBERS
08
Proof JACK DANIEL’S FAMILY OF BRANDS
The Jack Daniel’s trademark had another strong year
across all its brands, including Tennessee Whiskey, which
delivered both volume and net sales growth despite
outpacing whiskey category price increases. The portfolio
has excellent balance around the iconic black label, from
super-premium expressions Gentleman Jack and Single
Barrel Select, to the wildly popular Tennessee Honey, to
the newly revamped Country Cocktails RTD line—a great
foundation for continued growth around the world.
770k
In its second full year, Jack Daniel’s
Tennessee Honey depleted 770,000
9L cases worldwide and grew net
sales 99% (98% as reported) in
fiscal year 2013.
24%
New flavors and packaging
helped Jack Daniel’s RTDs
grow U.S. net sales by 24%
in fiscal year 2013.
#1
Number-One New Spirit Brand was
just one of many accolades Jack Daniel’s
Tennessee Honey won in fiscal year 2013.
WHISKEY
Global interest in North American whiskeys is driving record
spirit exports, and bourbon is growing almost twice as fast as
total distilled spirits in the United States according to Nielsen
data—a terrific environment for Brown-Forman’s extraordinary
whiskey portfolio. Woodford Reserve’s volume approached
250,000 9L cases with the success of the 2013 Master’s
Collection Four Wood and Double Oaked expressions. Old
Forester grew net sales for the first time in many years, and
Early Times Whiskey saw its first volume growth in a decade.
60%
Almost 60% of Brown-
Forman volumes were in
the fast-growing whiskey
category.
19%
Our super- and ultra-premium whiskey
net sales jumped by 19% (18% as
reported), powered by Woodford
Reserve and Gentleman Jack.
18%
Early Times brands grew
18% (14% as reported)
globally in fiscal year 2013.
16 yrs
The Woodford Reserve distillery
celebrated its 16th consecutive
year of double-digit growth.
VODKA
LIQUEUR
Our vodka portfolio grew volume by more than 6% in fiscal
year 2013, led by Finlandia’s continued strong performance
in the United States. Chambord Flavored Vodka won a Gold
medal at the 2013 Spirits International Awards, and Little
Black Dress Vodkas received a number of awards.
Brown-Forman continued to invest in Southern Comfort in
fiscal year 2013—after launching its new television campaign,
the brand was the number-one spirits advertiser in the second
half of 2012—and gained some traction. Bold Black Cherry
started strong with 50,000 cases in its first year.
6%
Finlandia’s net sales grew 6%
(3% as reported) worldwide in
fiscal year 2013.
#1
Finlandia is the number-one
premium imported vodka in
Russia and Poland.
3pts
Southern Comfort’s global sales
trends improved by 3 points
(2 points as reported) from
–7% to –4% in fiscal year 2013.
5pts
Southern Comfort returned to
growth in the United States,
improving underlying net sales
trends by 5 points year over year.
TEQUILA
CHAMPAGNE & WINE
Tequila is projected to be one of the fastest-growing premium-
plus spirit categories globally over the next five years, and
we are well positioned to benefit, building on strength in the
United States and Mexico, and new offerings like Herradura Port
Cask Finish and el Jimador’s Blanco expression.
Fiscal year 2013 was another good year in the champagne
and wine categories, with Korbel California Champagne
achieving the second-highest volumes in its 130-year history
and Sonoma Coast Chardonnay remaining the number-one
super-premium chardonnay in U.S. retail sales.
11%
El Jimador grew net sales
a healthy 11% in the United
States in fiscal year 2013.
85%
85% of tequila category growth is
expected to come from the United
States over the next five years.
1.33M
Korbel Champagne grew
depletions by 4% to over
1.33 million 9L cases.
#1
Sonoma-Cutrer was voted
the number-one on-premise
chardonnay for the 22nd year.
09
Brown-Forman 2013 Annual Report Scan Paul Varga’s photograph with
your Layar-enabled smartphone for a
short video, “A Conversation with
Paul and Garvin.”
Our organic growth and strong ROIC drove
shareholder value over the last 12 months. But
our impressive 31% Total Shareholder Return
(TSR) was also underpinned by our track record of
deploying cash to benefit shareholders and by the
significant global growth opportunities we envision
for our business. On a relative basis, we were
pleased that Brown-Forman’s 31% TSR comfortably
outpaced the 12-month TSRs for our industry,
Consumer Staples, and the S&P500’s 16% return.
A BAL ANCED APPROACH
Something we strive to prove each and every day
at Brown-Forman is that we carry out our work
with a healthy sense of balance. We reason that
if we approach the business in a thoughtful,
balanced manner, we stand the best chance to
make consistently good decisions and to produce
results that are also well-balanced. I believe fiscal
year 2013 was solid proof of this.
Something we strive
to prove each and every day
at Brown-Forman is that we
carry out our work with a
healthy sense of balance.
As one good example, consider that our 8%
underlying net sales growth in fiscal year 2013
approximated last fiscal year’s 9% growth on the
same measure. However, our fiscal year 2013
underlying net sales growth was delivered with
an improved balance between volume and price.
While last year’s underlying net sales growth was
virtually 100% volume-driven, our fiscal year 2013
underlying sales growth was derived from a 60/40
split of volume and price/mix. This was a major
contributing factor to the company’s impressive
10% growth in underlying gross profit in fiscal
year 2013.
Beyond the purely financial benefits, pricing plays
an important role in reinforcing the quality and
Dear Shareholders,
It is again my pleasure to share
with you some observations on
Brown-Forman’s progress, and
I’m pleased to report that our
company remains in excellent
health following another superb
year. With the theme of this year’s
Annual Report being Proof, one
would expect our results to be
strong—and indeed they are.
Led again by the remarkable Jack Daniel’s
trademark, our company’s underlying operating
income growth rate accelerated to 13% in fiscal
year 2013 (14% as reported), comfortably
exceeding our estimate of the industry’s average
growth of roughly 8% on the same measure. Our
underlying operating income growth was fueled
by an 8% increase in underlying net sales (5% as
reported) that included nice contributions from
Woodford Reserve, Herradura, and Finlandia.
At the same time, our 22% Return on Invested
Capital (ROIC) continued to be at or near the very
top of a distilled spirit industry that continues to
perform well. In my view, the consistency of our
organic growth and strength of our returns on
capital, particularly when observed over longer
periods of time, are solid evidence, or proof, of a
company that balances risk and reward quite well.
10
Proof specialness of our brands, particularly the super-
premium and ultra-premium expressions. This too,
requires a sense of balance. Using Jack Daniel’s
Black Label as an example, consider the ongoing
need to simultaneously balance its enormous size,
Today, our non-U.S.
business represents 59%
of Brown-Forman’s underlying
net sales and this compares
to a mere 15% just a short
20 years ago.
popularity, and mainstream appeal with our desire
to ensure the brand is viewed as a very special,
super-premium product of exceptional quality
that can be aspired to for many, many more
generations. Balancing price/volume plays a role in
this, and so too does the way in which we market
this one-of-a-kind brand, striving regularly to honor
Jack Daniel’s cherished past while bringing equal
imagination to positioning it for tomorrow’s global
marketplace. Beyond price position, the brand’s
packaging, line extensions, and advertising and
promotion play important roles in assisting us
with this rather artistic balancing act.
Perhaps the most consistent and readily observed
balance at Brown-Forman today is the geographic
diversity of our business. Today, our non-U.S.
business represents 59% of Brown-Forman’s
underlying net sales, and this compares to a mere
15% just a short 20 years ago. This international
skew has been accomplished largely through
organic growth and has been accompanied by
the continued growth of our very successful U.S.
business, albeit at lower long-term rates than our
international growth. In fiscal year 2013, we were
again pleased with the breadth of our geographic
performance as underlying sales grew 6% in the
U.S., 12% in emerging markets, and 6% in more
developed international markets (3%, 10%, and
3%, respectively, as reported).
The primary driver of Brown-Forman’s geographic
breadth continues to be the unique global appeal
of the Jack Daniel’s trademark. Further proof
of this was provided in fiscal year 2013 as Jack
Daniel’s Tennessee Honey was successfully
launched into several international markets, while
continuing its impressive performance in its lead
market, the United States. Gentleman Jack, Jack
Daniel’s Single Barrel, and the Jack Daniel’s Ready-
to-Drink and Ready-to-Pour expressions added to
the trademark’s global presence with strong fiscal
year 2013 multi-country performances.
We believe that these balanced results are
derived from investments that are similarly
well-balanced. We define “investment” broadly
and comprehensively, striving to achieve an
optimal mix between the income statement
and the balance sheet, A&P and SG&A, and
acquisitions and innovation, to cite just a few
examples. We try not to employ a one-size-fits-all
brand building approach, opting instead to craft
business-building investment programs that are
customized to the unique circumstances of a
brand and/or geography. We believe that we need
In fiscal year 2013,
we were again pleased with
the breadth of our geographic
performance as underlying
sales grew 6% in the U.S.,
12% in emerging markets,
and 6% in more developed
international markets.
sufficient agility to build a portfolio of brands
around the world, and I believe that the considerably
different brand building models and resulting
investment mixes that we utilize for Finlandia in
Russia, Sonoma-Cutrer in the U.S., and Jack Daniel’s
RTDs in Australia are proof of an increasingly agile
and thoughtfully balanced company.
11
Brown-Forman 2013 Annual Report An important part of Building Forever is remembering our traditions, which include
playing an active, positive, visible role in a thriving community.
exciting, yet competitive and challenging world
of emerging markets. One of our ambitions for
the year 2020 is to ensure that the company’s
strategic position at that point will have it poised
for countless decades of continued success.
To ensure we easily remember this highest
ambition of our BF150 strategy, we borrow our
company initials and let the phrase “Building
Forever” declare our intent to be an enduring,
family-controlled enterprise.
In closing, let me thank you for your continued
interest and support. On behalf of my Brown-
Forman colleagues worldwide, I’m thrilled to be
able to share another year of balanced, excellent
results with you. We hope you will view our fiscal
year 2013 performance as solid evidence, or
proof, that we have taken yet another step toward
Building Forever.
Sincerely yours,
Paul C. Varga
Chairman and Chief Executive Officer
June 27, 2013
B F150 : B UIL DIN G F OR EVER
As we look ahead to our company’s 150th
anniversary in 2020, we’ve termed our strategies
aimed at that milestone year “Brown-Forman 150”
(or BF150). And while we will no doubt continue
to be balanced in our approach, this should not
be interpreted to mean we are lacking in bold
ambitions. Our longer-term plans call for exciting
brand and corporate development across the globe,
In an attractive and
competitive industry such
as ours, the imaginations
of our people are the
greatest differentiator.
led by the Jack Daniel’s trademark and bolstered
by a strong emphasis on our Southern Comfort,
Finlandia, Woodford Reserve, and Herradura
brands. These great trademarks will continue to
need an even larger supply of great ideas to fuel
their progress. In an attractive and competitive
industry such as ours, the imaginations of our
people are the greatest differentiator.
These next many years will require the continued
globalization of Brown-Forman as we further our
knowledge of the global marketplace, invest in
developing our local capabilities, and navigate the
12
Proof Financial Highlights
RETURN ON AVERAGE INVESTED CAPITAL
COMPOUND ANNUAL GROW TH RATE
as of April 30
as of April 30, 2013
24%
20%
16%
12%
8%
4%
0%
12%
9%
6%
3%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
35-Year
25-Year
15-Year
10-Year
5-Year
Net Sales
Operating Income
Diluted EPS
BROWN-FORMAN 15-YEAR RELATIVE STOCK PERFORMANCE VER SUS THE S&P 500
as of April 30, 2013
B-F Class B Shares
S&P 500 Index
600
400
200
0
1998
2001
2004
2007
2010
2013
Brown-Forman 2013 Annual Report
13
13
Brown-Forman 2013 Annual Report dividends, thanks to the special dividend paid in the
third quarter, and to the regular quarterly dividends. Like
the operational drivers, the seeds of this shareholder
focus were planted many years ago. Brown-Forman
has paid regular cash dividends since 1946, and has
increased them every year for 29 years, making us one
of 54 companies that is a member of the S&P 500
Dividend Aristocrats Index.
If prior generations could be here today, I’m sure
that they would agree that the company is thriving.
Brown-Forman is in bloom.
O UR LEAD ERSH IP
Both our Board of Directors and the Brown-Forman
Brown Family Shareholders Committee continue to
evolve, in each of their critical roles. This year in
particular, they and the company made investments of
time, creative energy, and resources in our governance
structures, disciplines, and expertise. Like nurturing a
brand, this work is evolving ahead of its time, putting
things in place now that anticipate future needs and
opportunities. Most recently, for instance, the Family
Education Subcommittee organized a governance
seminar for family members, the executive leadership
team, and directors with visiting professors from
the Family Business Center at Kellogg School of
Management. The year also included the recruitment
of younger family volunteers, including one from the
6th generation, onto a foundation that the company
established for environmental sustainability—the
DendriFund, whose name is fittingly patterned after
the neo-Latin prefix for “shaped like a tree.”
Leadership is expressed in many different ways by
all those who work at the company. Certainly it
starts at the top with Paul and his team, but it is
also reflected in the day-to-day contributions of over
4,000 employees around the world. Each of them
merits individual applause. The roots of our success
are deep, but the luster of today’s bloom is theirs.
Paul himself has been at the company for over
25 years, and has been the creative force of so many
of the long-term conversations that he now leads. His
leadership and the excellence of all those on his broad
team are proof positive of the long-term health of
the company, for the benefit of all shareholders who
share this long-term perspective and commitment to
prosperity and perpetuity.
With many thanks for your continued support,
Geo. Garvin Brown IV
Chairman of the Board
June 27, 2013
A F EW WORDS
FRO M G A RVIN BROW N
Brown-Forman has had another outstanding year.
The proof is in the numbers. Our top line grew 5% to
nearly $3.8 billion, and the bottom line grew 15% to a
number just shy of $600 million. Paul’s letter clearly
highlights the company’s strong results this past year.
The drivers of this growth and the balanced approach
taken by our leadership team and stakeholders to
achieve them merit extra applause.
The highlights of the year that stand out for me
include Brown-Forman’s ability to match price
increases with volume growth, to pair international
growth with dynamism in the United States, and to
combine our continuing success in building the iconic
Jack Daniel’s brand with other burgeoning success
stories, including—most importantly—our other
premium, super, and ultra-premium brands.
OUR RO O TS
The company did not create this sort of operational
success overnight. The foundations were laid many
years ago. Pricing power is thanks to a long-term
approach to building brand equity that stretches
back into the 1960s, when the essential elements of
Jack Daniel’s identity were consolidated. Our global
footprint is thanks to pioneering work in the late
1980s and ’90s—work that has seen its most recent
crescendo with the several route-to-market changes
led by Paul’s team. And the healthy spirits portfolio is
thanks to many things, including hard decisions that
newer shareholders might take for granted, like exiting
consumer durables and our mainstream wine assets
over the past years in order to focus entirely on the
premium wine and spirits industry.
The roots of our success extend well beyond the
domain of operational excellence. By way of example,
fiscal year 2013 was also a year when the company
returned well over $1 billion to its shareholders in
14
Proof Brown-Forman Board of Directors
From left:
Martin S. Brown, Jr., Sandra A. Frazier,
Geo. Garvin Brown IV, Paul C. Varga,
James S. Welch, Jr., Joan C. Lordi Amble,
John D. Cook, Patrick Bousquet-Chavanne,
Dace Brown Stubbs, and Bruce L. Byrnes
Not pictured: William E. Mitchell
Joan C. Lordi Amble (2)
Former Executive Vice President,
American Express Company
Patrick Bousquet-Chavanne (3,4)
Corporate Director of
Strategy Implementation
and Business Development,
Marks and Spencer Group, PLC
Geo. Garvin Brown IV (1,4,*,#)
Chairman of the Board and
Executive Vice President,
Brown-Forman Corporation
Martin S. Brown, Jr. (*,#)
Partner, Adams and Reese LLP
Bruce L. Byrnes (2,4)
Former Vice Chairman of the Board,
The Procter & Gamble Company
John D. Cook (2,3,4)
Director Emeritus,
McKinsey & Company
Sandra A. Frazier (*,#)
Partner, Tandem Public Relations, LLC
William E. Mitchell (2,3,5)
Managing Partner, Sequel Capital
Management, LLC; former Chairman,
President and Chief Executive Officer,
Arrow Electronics, Inc.
Dace Brown Stubbs (#)
Private Investor
Paul C. Varga (1,*)
Chairman and Chief Executive Officer,
Brown-Forman Corporation
James S. Welch, Jr. (1)
Vice Chairman,
Brown-Forman Corporation
(1)Member of Executive Committee of the Board of Directors, (2)Member of Audit Committee, (3)Member of Compensation Committee, (4)Member of Corporate Governance and
Nominating Committee, (5)Retirement effective July 25, 2013; (*)Member of Brown-Forman/Brown Family Shareholders Committee, (#)Member of Brown Family
Brown-Forman Executive Leadership
The senior executives pictured here have extensive global experience in a variety of industries and, combined, over 190 years
of varied, cross-functional service with Brown-Forman.
Donald C. Berg
Executive Vice President,
Chief Financial Officer
Geo. Garvin Brown IV
Chairman of the Board and
Executive Vice President
Matthew E. Hamel
Executive Vice President,
General Counsel and Secretary
Kirsten M. Hawley
Vice President, Director of Organization
and Leadership Development
John V. Hayes
Senior Vice President,
Managing Director – Jack Daniel’s
Jill A. Jones
Executive Vice President and President,
North America and Latin America
Michael J. Keyes
Senior Vice President and
President, North America Region
Philip A. Lichtenfels
Senior Vice President, Chief of Staff
Mark I. McCallum
Executive Vice President and
President, Europe, Africa, Asia-Pacific
and Travel Retail
Jane C. Morreau
Senior Vice President,
Chief Production Officer and
Head of Information Technology
Lisa P. Steiner
Senior Vice President,
Chief Human Resources Officer
Lee D. Tatum
Vice President, Chief of Staff
Paul C. Varga
Chairman and Chief Executive Officer
James S. Welch, Jr.
Vice Chairman
Lawson E. Whiting
Senior Vice President,
Chief Brands Officer
From left: John V. Hayes, Mark I. McCallum, Kirsten M. Hawley, Matthew E. Hamel,
Lawson E. Whiting, Michael J. Keyes, Jane C. Morreau, James S. Welch, Jr.,
Jill A. Jones, Donald C. Berg, Lisa P. Steiner, Paul C. Varga, and Lee D. Tatum
Not pictured: Geo. Garvin Brown IV and Philip A. Lichtenfels
Brown-Forman/Brown Family Shareholders Committee (Family Committee)
Family Committee members hold their March 2013 meeting at our company’s Louisville, Kentucky headquarters.
From left:
Ernie Patterson, Phil Lichtenfels,
Paul Varga (Co-Chair), Campbell Brown,
Augusta Brown Holland, Sandra Frazier,
Garvin Brown (Co-Chair), Mac Brown,
Austin Musselman, Jr., Martin Brown, Jr.,
Lee Tatum, Stuart Brown, and
Barbara Hurt
Other Family Committee members not
pictured: Dace Maki, Laura Frazier,
Laura Lee Gastis, and Tammy Godwin
(Recording Secretary)
15
Brown-Forman 2013 Annual Report Selected Financial Data
Dollars in millions, except per share amounts
Year Ended April 30,
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Continuing Operations:
Net sales
Gross profit
Operating income
Net income
Weighted average shares
used to calculate earnings
per share
- Basic
- Diluted
Earnings per share from
continuing operations
- Basic
- Diluted
Gross margin
Operating margin
Effective tax rate
1,992
2,195
2,412
2,806
3,282
3,192
3,226
3,404
3,614 3,784
1,024
1,156
1,308
1,481
1,695
1,577
1,611
1,724
1,795 1,955
383
243
445
339
563
395
602
400
685
440
661
435
710
449
855
572
788
513
898
591
227.5
228.3
228.9
230.4
229.6
225.7
221.8
218.4
214.5 213.4
228.7
229.7
231.4
232.8
231.6
227.1
222.9
219.8
216.1 215.0
1.07
1.06
1.49
1.48
1.73
1.71
1.74
1.72
1.91
1.89
1.92
1.91
2.02
2.01
2.61
2.60
2.39
2.37
2.77
2.75
51.4%
52.7%
54.2%
52.8%
51.6%
49.4%
50.0%
50.7%
49.7% 51.7%
19.2%
20.3%
23.3%
21.5%
20.9%
20.7%
22.0%
25.1%
21.8% 23.7%
33.1%
32.6%
29.3%
31.7%
31.7%
31.1%
34.1%
31.0%
32.5% 31.7%
Average invested capital
1,392
1,535
1,863
2,431
2,747
2,893
2,825
2,711
2,803 2,834
Return on average
invested capital
Total Company:
Cash dividends declared
per common share
18.5%
23.0%
21.9%
17.4%
17.2%
15.9%
16.6%
21.8%
19.1% 21.7%
0.43
0.49
0.56
0.62
0.69
0.75
0.78
1.49
0.89
4.98
Average stockholders’ equity
936
1,198
1,397
1,700
1,668
1,793
1,870
1,904
2,046 1,879
Total assets at April 30
2,376
2,649
2,728
3,551
3,405
3,475
3,383
3,712
3,477 3,626
Long-term debt at April 30
Total debt at April 30
Cash flow from operations
Return on average
stockholders’ equity
630
679
304
351
630
396
351
422
417
576
1,177
1,006
343
355
534
509
999
491
508
699
545
504
759
527
503
997
510 1,002
516
537
27.1%
25.7%
22.9%
22.9%
26.4%
24.2%
24.0%
30.0%
25.1% 31.4%
Total debt to total capital
38.3%
32.5%
26.9%
42.8%
36.8%
35.5%
26.9%
26.9%
19.8% 38.1%
Dividend payout ratio
38.2%
36.1%
40.0%
36.8%
35.8%
38.9%
38.7%
57.0%
37.4% 179.8%
NOTES:
1. Includes the consolidated results of Swift & Moore, Chambord, and Casa Herradura since their acquisitions in February 2006, May 2006, and
January 2007, respectively. Includes the results of our Hopland-based wine brands, which were sold in April 2011 but retained in our portfolio as
agency brands through December 2011.
2. Weighted average shares, earnings per share, and cash dividends declared per common share have been adjusted for a 2-for-1 stock split in
January 2004, a 5-for-4 stock split in October 2008, and a 3-for-2 stock split in August 2012.
3. Cash dividends declared per common share include special cash dividends of $0.67 per share in fiscal 2011 and $4.00 per share in fiscal 2013.
4. We define return on average invested capital as the sum of net income (excluding extraordinary items) and after-tax interest expense, divided by
average invested capital. Invested capital equals assets less liabilities, excluding interest-bearing debt.
5. We define return on average stockholders’ equity as net income applicable to common stock divided by average stockholders’ equity.
6. We define total debt to total capital as total debt divided by the sum of total debt and stockholders’ equity.
7. We define dividend payout ratio as cash dividends divided by net income.
16
Proof
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 002-26821
BROWN-FORMAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
850 Dixie Highway
Louisville, Kentucky
(Address of Principal Executive Offices)
61-0143150
(IRS Employer Identification No.)
40210
(Zip Code)
Registrant’s telephone number, including area code (502) 585-1100
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Common Stock (voting) $0.15 par value
Class B Common Stock (nonvoting) $0.15 par value
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value, as of the last business day of the most recently completed second fiscal quarter, of the voting and nonvoting equity held by nonaffiliates
of the registrant was approximately $9,400,000,000.
The number of shares outstanding for each of the registrant’s classes of Common Stock on June 17, 2013 was:
Class A Common Stock (voting)
Class B Common Stock (nonvoting)
84,487,042
129,303,321
Portions of the Proxy Statement of Registrant for use in connection with the Annual Meeting of Stockholders to be held July 25, 2013 are incorporated by reference
into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Part II
Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Part IV
Item 15.
Exhibits and Financial Statements Schedules
SIGNATURES
SCHEDULE II - Valuation and Qualifying Accounts
Page No.
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3
7
13
13
13
13
14
14
16
17
36
37
63
63
63
63
63
63
63
63
64
64
64
67
70
2
Item 1. Business
Overview
PART I
Brown-Forman Corporation (“Brown-Forman,” “Company,” “we,” “us,” or “our” below) was incorporated under the laws
of the State of Delaware in 1933, successor to a business founded in 1870 as a partnership and subsequently incorporated under
the laws of the Commonwealth of Kentucky in 1901. We primarily manufacture, bottle, import, export, market, and sell a wide
variety of alcoholic beverage brands. We are a controlled company under New York Stock Exchange rules, and the Brown family
owns a majority of our voting stock.
For additional information on our business, including the matters described below in this item, please see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of this report on Form 10-K.
Brands
Our principal brands are:
Jack Daniel’s Tennessee Whiskey
Jack Daniel’s Single Barrel
Jack Daniel’s Ready-to-Drinks
Jack Daniel’s Tennessee Honey
Jack Daniel’s Winter Jack
Gentleman Jack
Southern Comfort
Southern Comfort Ready-to-Drinks
Southern Comfort flavored line extensions
Finlandia Vodkas
Finlandia Ready-to-Drinks
Antiguo Tequila
el Jimador Tequilas
el Jimador New Mix Ready-to-Drinks
Herradura Tequilas
Pepe Lopez Tequilas
Woodford Reserve Bourbons
Canadian Mist Blended Canadian Whiskies
Chambord Liqueur
Chambord Vodka
Collingwood Canadian Whisky
Early Times Bourbon
Early Times flavored line extensions
Early Times Kentucky Whisky
Korbel California Champagnes*
Little Black Dress Vodkas
Maximus Vodkas
Old Forester Bourbon
Sonoma-Cutrer Wines
Tuaca Liqueur
* Not owned by Brown-Forman but represented by us in the United States and other select markets
The most important brand in our portfolio is Jack Daniel’s, which is the fifth-largest spirits brand and the largest selling
American whiskey brand in the world according to premium spirits volume statistics published in February 2013 by Impact
Databank, a well-known U.S. trade publication. Our other leading global brands are Finlandia, the sixth-largest selling vodka,
Southern Comfort, the third-largest selling liqueur, Canadian Mist, the fourth-largest selling Canadian whisky, and el Jimador, the
fourth-largest selling tequila, according to the recently published global volume statistics referenced above. We believe the statistics
used to rank these products are reasonably accurate.
Strategy
We endeavor to enrich the experience of life by responsibly building beverage alcohol brands that thrive and endure for
generations. “Building Forever” is part of our strategic vision - it reflects our long-term perspective and our desire to remain a
strong, independent company indefinitely. In the summer of 2010, we introduced our ten-year strategy, the Brown-Forman 150,
focused on driving sustainable growth toward the company’s 150th anniversary. Please see “Our Strategies and Objectives” in
Item 7. Management’s Discussion and Analysis for a description of our specific strategic ambitions.
Trademarks
We own numerous valuable trademarks that are essential to our business. Registrations of trademarks can generally be
renewed indefinitely as long as the trademarks are in use. Through licensing arrangements, we have authorized the use of some
of our trademarks for the primary purpose of enhancing brand awareness.
3
Ingredients and Other Supplies
The principal raw materials used in manufacturing and packaging our distilled spirits are corn, rye, malted barley, agave,
sugar, glass, cartons, PET (polyethylene terephthalate, used in non-glass containers), labels, and wood for barrels, which are used
for storage of whiskey and certain tequilas. A Finnish company distills and bottles Finlandia vodka for us. The principal raw
materials used in liqueurs are neutral spirits, sugar, and wine, while the principal raw materials used in our ready-to-drink products
are sugar, flavorings, neutral spirits, whiskey, tequila, or malt. Currently, none of these raw materials is in short supply, but shortages
in some of these can occur. The principal raw materials used in the production of wines are grapes, packaging materials and wood
for wine barrels. Our grape supply comes from a combination of owned vineyards located in California and external contracts
with independent growers. We believe that our relationships with our growers are good. From time to time, our agricultural
ingredients (corn, agave, and grapes) could be affected by weather and other forces that impact supply.
Due to aging requirements, production of whiskeys, certain tequilas, and other distilled spirits is scheduled to meet demand
in the future. Accordingly, our inventories may be larger in relation to sales and total assets than would be normal for most other
businesses.
For additional information on risks related to the availability of raw materials and the uncertainty inherent in supply/demand
forecasting, please see Item 1A. Risk Factors.
Seasonality
The peak season for our business is the fourth calendar quarter due to holiday buying. Approximately 31% of our net sales
for each of the fiscal years ended April 30, 2011, 2012, and 2013, were in the fourth calendar quarter.
Distribution
We use a variety of distribution models across the globe to deliver our products to our customers. In the United States, we
sell our brands either to distributors or to state governments that then sell to retail customers and consumers. We own and operate
distribution companies in Australia, Brazil, Canada, China, the Czech Republic, Germany, Korea, Mexico, Poland, Taiwan, and
Turkey, where we sell our products either directly to retail stores, to wholesalers, or in Canada, to provincial governments. In the
United Kingdom, we partner with another supplier, Bacardi, to sell a combined portfolio of our companies’ brands. In many other
markets, including France, Japan, Spain, Italy, Russia, and South Africa we rely on others to distribute our brands. Effective
January 1, 2014, we plan to begin operating our own distribution company in France.
International Markets
Our products are sold in more than 150 countries around the world. Our largest international markets include Australia, the
United Kingdom, Mexico, Germany, Poland, France, Russia, Japan, Turkey, Canada, Spain, Czech Republic, South Africa, Brazil
and Italy. Our fiscal 2013 net sales by geography were as follows:
United States
Europe
Australia
Other
41%
30%
14%
15%
For additional information about net sales in our largest markets, please refer to “Fiscal 2013 Market Highlights” in Part II,
Item 7 of this Report on Form 10-K. For information about the Company’s reportable segment and for additional geographic
information about net sales and long-lived assets, please refer to Note 15 of the Notes to Consolidated Financial Statements in
Part II, Item 8 of this Report on Form 10-K.
Competition
The distilled spirits industry is highly competitive. We compete against many global, regional, and local brands in a variety
of categories of beverage alcohol, but most of our brands compete primarily in the industry’s premium price category. We compete
based on taste, product quality, brand image, and price. While the industry is highly fragmented, other major players include
Bacardi Limited, Beam Inc., Davide Campari-Milano S.p.A., Diageo plc, LVMH Moët Hennessy Louis Vuitton S.A., Pernod
Ricard S.A., and Rémy Cointreau S.A.
4
Regulatory Environment
The Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the wine and spirits industry
in the United States with respect to production, blending, bottling, labeling, sales, advertising, and transportation of beverage
alcohol products. Similar regulatory regimes exist in each state, as well as in most of the non-U.S. jurisdictions in which our
products are sold. In addition, distilled spirits products are subject to customs duties and/or excise taxation in many markets,
including the U.S., at the federal, state and/or local level.
Under U.S. federal regulations, bourbon and Tennessee whiskeys must be aged for at least two years in new charred oak
barrels. We typically age all of our whiskeys between three and six years. Federal regulations also require that “Canadian” whisky
must be manufactured in Canada in compliance with Canadian laws. Mexican authorities regulate the production and bottling of
tequilas, which among other specifications, mandate minimum aging periods for anejo (one year) and reposado (two months)
tequilas. We comply with these regulations.
Our operations within and outside the United States are subject to various environmental protection statutes and regulations,
and our policy is to comply with all such regulatory requirements.
Employees and Executive Officers
As of April 30, 2013, we employed approximately 4,000 people, including approximately 200 employed on a part-time or
temporary basis. We believe our employee relations are good.
The following persons serve as executive officers of the Company as of June 27, 2013.
Name
Paul C. Varga
Donald C. Berg
James S. Welch, Jr.
Mark I. McCallum
Matthew E. Hamel
Jill Ackerman Jones
Brian P. Fitzgerald
Jane C. Morreau
Lisa P. Steiner
Lawson E. Whiting
Age
49
Principal Occupation and
Business Experience
Company Chairman and Chief Executive Officer since 2007. Chief Executive Officer since
2005.
58
54
58
53
48
40
54
54
44
Executive Vice President and Chief Financial Officer since 2008. Senior Vice President,
Director of Corporate Finance from 2006 to 2008.
Company Vice Chairman, Executive Director of Corporate Affairs, Strategy and Diversity
since 2012. Company Vice Chairman, Executive Director of Corporate Affairs, Strategy,
Diversity, and Human Resources from 2007 to 2012.
Executive Vice President, President for Europe, Africa, Middle East, Asia Pacific, and Travel
Retail since January 2013. Executive Vice President and Chief Operating Officer from 2009
through 2012. Executive Vice President and Chief Brands Officer from 2006 to 2009.
Executive Vice President, General Counsel, and Secretary since 2007.
Executive Vice President, President for North America and Latin America since January 2013.
Executive Vice President and Chief Production Officer from 2011 through 2012. Senior Vice
President, Chief Production Officer from 2007 to 2011. Vice President, Director of Finance,
Global Production from 2006 to 2007.
Senior Vice President, Chief Accounting Officer since January 2013. Vice President, Finance
Director of Greater Europe and Africa from 2009 through December 2012. Assistant Vice
President, Director Business Strategy and Analysis from 2007 to 2009.
Senior Vice President, Chief Production Officer and Head of Information Technology since
January 2013. Senior Vice President, Director of Financial Management, Accounting and
Technology from 2008 through December 2012. Senior Vice President and Controller from
2006 to 2008.
Senior Vice President, Chief Human Resources Officer since 2009. Senior Vice President,
Director of Global Human Resources from 2007 to 2009.
Senior Vice President, Chief Brands Officer since January 2013. Senior Vice President,
Managing Director Western Europe from 2011 through December 2012. Vice President,
Finance Director Western Europe from 2010 to 2011. Vice President, Finance Director North
America from 2009 to 2010. Vice President, Director Global Brands Strategy & Planning
from 2008 to 2009.
Available Information
You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In
5
addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding
issuers that file with the SEC at http://www.sec.gov.
Our website address is www.brown-forman.com. Please note that our website address is provided as an inactive textual
reference only. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments
to these reports are available free of charge on our website as soon as reasonably practicable after we electronically file those
reports with the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by
reference, unless such information is otherwise specifically referenced elsewhere in this report.
On our website, we have posted our Corporate Governance Guidelines, our Code of Conduct that applies to all directors
and employees, and our Code of Ethics that applies specifically to our senior financial officers. We have also posted on our website
the charters of our Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Executive
Committee of our Board of Directors. Copies of these materials are also available free of charge by writing to our Secretary,
Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210 or e-mailing him at Secretary@b-f.com.
Forward-Looking Statement Information. Certain matters discussed in this report, including the information presented
in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain statements,
estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as
“aim,” “anticipate,” “aspire,” “believe,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,”
“plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” and similar words identify forward-looking statements,
which speak only as of the date we make them. 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. By their nature, forward-looking statements
involve risks, uncertainties and other factors (many beyond our control) that could cause our actual results to differ materially
from our historical experience or from our current expectations or projections. These risks and uncertainties include those described
in Part I, Item 1A. Risk Factors and those described from time to time in our future reports filed with the Securities and Exchange
Commission, including:
• Unfavorable global or regional economic conditions, and related low consumer confidence, high unemployment, weak
credit or capital markets, sovereign debt defaults, sequestrations, austerity measures, higher interest rates, political
instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
• Risks associated with being a U.S.-based company with global operations, including political or civil unrest; local labor
policies and conditions; protectionist trade policies; compliance with local trade practices and other regulations, including
anti-corruption laws; terrorism; and health pandemics
•
Fluctuations in foreign currency exchange rates
• Changes in laws, regulations or policies - especially those that affect the production, importation, marketing, sale or
consumption of our beverage alcohol products
• Tax rate changes (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or
changes in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other
deductions) or accounting standards, and the unpredictability and suddenness with which they can occur
• Dependence upon the continued growth of the Jack Daniel’s family of brands
• Changes in consumer preferences, consumption or purchase patterns - particularly away from brown spirits, our premium
products, or spirits generally, and our ability to anticipate and react to them; decline in the social acceptability of beverage
alcohol products in significant markets; bar, restaurant, travel or other on-premise declines
•
Production facility, aging warehouse or supply chain disruption; imprecision in supply/demand forecasting
• Higher costs, lower quality or unavailability of energy, input materials or finished goods
• Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products,
or result in implementation-related or higher fixed costs
•
Inventory fluctuations in our products by distributors, wholesalers, or retailers
• Competitors’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions,
discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our
geographic markets or distribution networks
• Risks associated with acquisitions, dispositions, business partnerships or investments - such as acquisition integration,
or termination difficulties or costs, or impairment in recorded value
•
Insufficient protection of our intellectual property rights
6
•
•
•
Product counterfeiting, tampering, or recall, or product quality issues
Significant legal disputes and proceedings; government investigations (particularly of industry or company business,
trade or marketing practices)
Failure or breach of key information technology systems
• Negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects
• Business disruption, decline or costs related to organizational changes, reductions in workforce or other cost-cutting
measures, or our failure to attract or retain key executive or employee talent
Use of Non-GAAP Financial Information. Certain matters discussed in this report, including the information presented in
Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, include measures not
derived in accordance with generally accepted accounting principles (GAAP), including “constant-currency” and “underlying”
measures of changes in income statement line items. 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 in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,
under the heading, “Basis of Presentation and Use of Non-GAAP Measures.”
Item 1A. Risk Factors
We believe the following discussion identifies the most significant risks and uncertainties that could adversely affect our
business. If any of the following risks were actually to occur, our business, results of operations, cash flows, and financial condition
could be materially and adversely impacted. Additional risks not currently known to us, or that we currently deem to be immaterial,
also may materially adversely affect our business, results of operations, cash flows, and financial condition in future periods.
Unfavorable economic conditions could negatively affect our operations and results.
Unfavorable global or regional economic conditions, including for example the recent Eurozone financial crisis, could
adversely affect our operations and financial results. Many markets where our products are sold face significant economic
challenges, including low consumer confidence, high unemployment, budget deficits, burdensome governmental debt, austerity
measures, sequestrations, increased taxes, and weak financial, credit, and housing markets. Unfavorable economic conditions can
cause governments to increase taxes on beverage alcohol to raise revenue and/or reduce consumers’ willingness to make
discretionary purchases of beverage alcohol products, and/or pay for premium brands such as ours. In unfavorable economic
conditions, consumers may make more value-driven and price-sensitive purchasing choices and participate in more at-home
drinking occasions rather than at restaurants, bars, and hotels, which tend to favor many of our premium and super-premium
products.
Also, our suppliers, distributors, and retailers could experience cash flow problems, more costly or unavailable financing,
credit defaults, and other financial hardships, which could lead to distributor or retailer destocking, an increase in our bad debt
expense, or cause us to decrease the levels of unsecured credit that we provide to customers. Other potential negative ramifications
to our business from poor economic conditions include political instability, higher interest rates, an increase in the rate of inflation,
deflation, exchange rate fluctuations, credit or capital market instability, bank failures, and/or lower returns on pension assets or
lower discount rates for pension obligations (requiring higher contributions to our pension plans). For additional information with
respect to the effects of changes in the value of our benefit plan obligations and assets on our financial results, see “Pension and
other Postretirement Benefits” on page 35 of this report on Form 10-K.
Our global business is subject to a number of commercial, political, and financial risks, including foreign currency exchange
rate fluctuations.
Our products are sold in more than 150 countries around the world; accordingly, we are subject to risks associated with doing
business globally. We continue to expect our future growth rates in non-U.S. markets to surpass our growth rates in the United
States. Emerging regions, such as Eastern Europe, Latin America, Asia and Africa, as well as more developed markets, such as
the United Kingdom, France, Germany, and Australia, provide growth opportunities for us. If shipments of our products - particularly
Jack Daniel’s Tennessee Whiskey - to our global markets were to experience significant disruption, it could have a material adverse
affect on our financial results.
In addition, we are subject to potential business disruption caused by military conflicts, intergovernmental disputes, potentially
unstable governments or legal systems, civil or political upheaval or unrest, local labor policies and conditions, possible
expropriation, nationalization and/or confiscation of assets, problems with repatriation of foreign earnings, closure of markets to
imports, anti-American sentiment, terrorism in or outside the United States, health pandemics, and a significant reduction in global
7
travel. Our success will depend, in part, on our ability to overcome the challenges we encounter with respect to these risks and
other factors affecting U.S. companies with global operations.
The more we expand our business globally, the more exchange rate fluctuations relative to the U.S. dollar influence our
financial results. In markets other than the United States, we sell our products, and pay for some goods, services, and manpower
primarily in local currency. Since we sell more in local currencies than we purchase, we have a net exposure to changes in the
value of the U.S. dollar relative to those currencies. Thus, profits from our overseas businesses would be adversely affected if the
dollar were to strengthen against other currencies in our major markets, especially the euro, British pound sterling, Australian
dollar, Polish zloty, Mexican peso, Russian ruble, or Japanese yen. In an effort to buffer this effect, we use foreign currency
derivatives to reduce the impact of foreign currency fluctuations. While foreign currency derivatives may limit our exposure to
exchange rate fluctuations, there can be no assurance that we will be successful in mitigating our foreign currency risk. Over time,
our reported financial results generally will be hurt by a stronger U.S. dollar and improved by a weaker one. For additional
information with respect to foreign exchange effects on our business, please see “Foreign Exchange” on page 36 of this report on
Form 10-K.
National and local governments may adopt regulations or undertake investigations that could limit our business activities
and/or increase our costs.
Our business is subject to extensive regulatory requirements regarding production, importation, marketing and promotion,
labeling, distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or governmental policies,
or in the manner in which current ones are interpreted, could cause us to incur material additional costs or liabilities, and jeopardize
the growth of our business in the affected market. Specifically, governments may prohibit, or impose or increase limitations on,
advertising and promotional activities, or times or locations where beverage alcohol may be sold or consumed, or adopt other
measures that could limit our opportunities to reach consumers and/or sell our products. In the United States for example, the
National Transportation Safety Board has recently recommended the adoption by all 50 states of lower blood alcohol content
thresholds for drivers of 0.05%, versus the current 0.08%. In Europe, regulators in a number of countries have adopted or are
considering severe limitations on the marketing and sale of beverage alcohol, as well as the imposition of minimum pricing. Russia
has banned all television, newspaper, magazine, and Internet advertising (.ru websites) for beverage alcohol products. Turkey
recently adopted measures to ban all beverage alcohol advertising and increase restrictions on sales. Increases in regulation of this
nature could cause a substantial decline in consumer demand for our products in the affected market.
Certain countries in which we do business have a higher risk of corruption than others. While we are committed to doing
business in accordance with applicable anti-corruption laws, our Code of Conduct and Code of Ethics, and other Company policies,
we remain subject to the risk that an employee will violate our policies, or that any of our many affiliates or agents, such as
importers, wholesalers, distributors, or other business partners, may take action determined to be in violation of such anti-corruption
laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010, or local equivalent laws. Any
determination that our operations or activities are not, or were not, in compliance with U.S. or foreign laws or regulations could
result in investigations, interruption of business, loss of business partner relationships, suspension or termination of licenses and
permits (our own or a partner’s), imposition of fines, legal or equitable sanctions, negative publicity, and management distraction.
Further, our compliance with applicable anti-corruption laws, our code of conduct and ethics, and other Company policies could
result in higher operating costs versus other suppliers.
Additional regulation in the United States and other countries around climate change and other environmental issues could
increase our operating costs, due to the cost of compliance.
Tax increases and changes in tax rules could adversely affect our financial results.
Our business is sensitive to changes in both direct and indirect taxes. As a multinational company based in the United States,
we are more exposed to the impact of U.S tax changes than most of our major competitors, especially those that affect the net
effective corporate income tax rate. Tax changes that have been proposed in the past (but not enacted) by Congress or the present
administration exemplify this risk; they include repealing LIFO (last-in, first-out accounting treatment of inventory) for tax
purposes, decreasing or eliminating the ability of U.S.-based companies to receive a tax credit for foreign taxes paid, or to obtain
a current U.S. tax deduction for certain expenses in the United States related to foreign earnings, or decreasing or eliminating the
U.S. manufacturing deduction. Distilled spirits products are subject to excise taxation in many markets, including the United
States, at the country, state and/or local level. Any increase in excise taxes in markets where we sell our products could result in
increased prices and reduced consumer demand, and could encourage consumers to switch to lower-priced and/or lower-taxed
product categories such as local spirits, beer or wine, or to non-alcoholic beverages.
Our business operations are also subject to numerous duties or taxes that are not based on income, sometimes referred to as
“indirect taxes,” which include excise, sales or value-added taxes, property taxes and payroll taxes. Increases in or the imposition
of new indirect taxes on our operations or products would increase the cost of our products or, to the extent levied directly on
8
consumers, make our products less affordable, which could negatively affect our financial results by reducing purchases of our
products and encouraging consumers to switch to lower-priced and/or lower-taxed product categories. Our global business can
also be negatively affected by import and export duties, tariff barriers, and/or related local governmental economic protectionist
measures, and the suddenness and unpredictability with which these can occur. The recent global economic downturn has increased
our tax-related risks in many countries where we do business, as governmental entities could further increase taxes on beverage
alcohol products in an effort to replace lost revenues. New tax rules, accounting standards or pronouncements, and changes in
interpretation of existing ones, could also have a significant adverse effect on our business and financial results.
Our business performance is substantially dependent upon the continued health of Jack Daniel’s.
The Jack Daniel’s family of brands is the primary driver of our growth. Jack Daniel’s is an iconic global trademark with a
loyal consumer fan base, and we invest much effort and resources to protect and preserve the brand’s reputation for quality,
craftsmanship and responsibility. A brand’s reputational value is based in large part on consumer perceptions, and even an isolated
incident that causes harm - particularly one resulting in widespread negative publicity - could negatively influence these perceptions
and erode consumer trust and confidence in the brand. Significant damage to the Jack Daniel’s brand equity would adversely affect
our business. Given the importance of the Jack Daniel’s brand to our overall Company success, a significant or sustained decline
in volume or selling price of our Jack Daniel’s products would likely have a negative effect on our growth and our stock price.
Additionally, should we not be successful in our efforts to maintain and/or increase the relevance of the Jack Daniel’s brand in
the minds of today’s and tomorrow’s consumer, our business and operating results could suffer. For additional information on the
importance of the Jack Daniel’s family of brands to our business, please see “Fiscal 2013 Brand Highlights” on pages 24 and 25
of this report on Form 10-K.
Changes in consumer preferences and purchases, and our ability to anticipate and react to them, could negatively affect
our business results.
We are a branded consumer products company in a highly competitive market. Our success depends on our continued ability
to offer consumers highly appealing products. Consumer preferences and purchases may shift due to a host of factors, many of
which are difficult to predict, including changes in economic conditions, demographic and social trends, public health policies
and initiatives, changes in government regulation of beverage alcohol products, the potential legalization of marijuana use on a
more widespread basis within the United States, and changes in travel, leisure, dining, gifting, entertaining, and beverage
consumption trends. To continue to succeed we must anticipate and respond effectively to shifts in demographics, consumer
behavior, drinking tastes and drinking occasions. Our business results could be negatively affected by shifts in demographic trends,
specifically in the United States, where our base skews heavily toward non-Hispanic white consumers. In the coming years,
demographic cohorts other than non-Hispanic whites are expected to grow more quickly than the non-Hispanic white cohort. If
we fail to attract consumers from diverse backgrounds and ethnicities, our business results could suffer. Further, trends in the
United States for several years after 2014 indicate a slight decrease in the population segment aged 21 to 24; fewer potential
consumers in this age bracket could have a negative effect on industry growth rates and our business.
Our plans call for the continued growth of the Jack Daniel’s family of brands. Particularly, we plan to continue to grow Jack
Daniel’s Tennessee Honey sales in the United States this fiscal year and to expand this brand to more of our international markets.
Our plans also call for the Southern Comfort brand family to stabilize. If these plans are unsuccessful, or if we otherwise fail to
develop or implement effective business, portfolio and brand strategies, our growth, stock price, or financial results could suffer.
More broadly, if consumers shift away from spirits (particularly brown spirits), our premium priced brands, or our ready-to-drink
products, our financial results could be adversely affected. Improving our price position in certain markets and for certain brands
is part of our growth plan for fiscal 2014. In some markets, this will represent a second price increase in as many years. If consumers
or the trade react unfavorably to our pricing changes, our financial results may be negatively affected.
We believe that new products, line extensions, label and bottle changes, product reformulations, and similar product
innovations by both us and our competitors will compete increasingly for consumer drinking occasions. Product innovation is a
significant element of our growth strategy; however, there can be no assurance that we will continue to develop and implement
successful line extensions, packaging, formulation or flavor changes, or new products. Unsuccessful implementation or short-
lived popularity of our product innovations could result in inventory write-offs and other costs, and also could damage the
consumer’s perception of the brand family. Our inability to attract consumers to our product innovations relative to our competitors’
products - especially over time - could negatively affect our growth, business and financial results.
Production facility disruption or the inherent uncertainty in supply/demand forecasting could adversely affect our business,
particularly with respect to our aged products.
Some of our largest brands, including Jack Daniel’s Tennessee Whiskey and Finlandia Vodka, are produced at a single
location. If there were a catastrophic event causing physical damage, disruption, or failure at one of our major distillation or bottling
facilities, our business could be adversely affected. Further, because whiskies and some tequilas are aged for various periods, we
9
maintain a substantial inventory of aged and maturing products in warehouses at a handful of different sites. The loss of a substantial
amount of aged inventory - through fire, other natural or man-made disaster, contamination, or otherwise - could result in a
significant reduction in supply of the affected product or products. If we experienced a disruption in the supply of new oak barrels
in which to age our whiskies, our business could suffer. A consequence of any of these or other supply or supply chain disruptions
could be our inability to meet consumer demand for the affected products for a period of time. In addition, insurance proceeds
may be insufficient to cover the replacement value of our inventory of maturing products and other assets if they were to be lost.
Disaster recovery plans may not prevent business disruption, and reconstruction of any damaged facilities could last for a significant
period of time.
There is an inherent risk of forecasting imprecision in determining the quantity of maturing stock to store in a given year
for future consumption. The forecasting strategies we use to balance product supply with fluctuations in consumer demand may
not be effective for particular years, products or markets. There are a number of levers that we use, including price, to balance
available supply with fluctuations in consumer demand, but we cannot be sure whether the levers will create the desired balance
for particular years, products or markets. As a consequence, we may be unable to meet consumer demand for the affected products
for a period of time. Furthermore, not having our products in the market on a consistent basis may adversely affect our brand
equity and future sales.
Higher costs or unavailability of materials could adversely affect our financial results, as could our inability to obtain
certain finished goods.
Our products use a number of materials and ingredients that we purchase from third-party suppliers. Our ability to make and
sell our products depends upon the availability of the raw materials, product ingredients, finished product, glass, bottles, cans,
bottle closures, packaging, and other materials used to produce and package them. Without sufficient quantities of one or more
key materials, our operations and financial results could suffer. For instance, only a few glass producers make bottles on a scale
sufficient for our requirements, and a single producer supplies most of our glass requirements. Similarly, a Finnish company distills
and bottles Finlandia Vodka for us. If any of our key suppliers were no longer able to meet our timing, quality or capacity
requirements, ceased doing business with us, or raised prices, and we could not develop alternative cost-effective sources of supply
or production, our operations and financial results could suffer.
Higher costs or insufficient availability of suitable grain, agave, water, grapes, wood, glass, closures, and other input materials
and/or associated labor costs may adversely affect our financial results, since we may not be able to pass along such cost increases
or shortages through higher prices to customers. Similarly, when energy costs rise, our transportation, freight and other operating
costs, such as distilling and bottling expenses, also may increase. Our financial results may be adversely affected if we are not
able to pass along energy cost increases through higher prices to our customers.
Weather, the effects of climate change, diseases and other agricultural uncertainties that affect the mortality, health, yield,
quality or price of the various raw materials used in our products also present risks for our business, including in some cases
potential impairment in the recorded value of our inventory. Changes in frequency or intensity of weather can disrupt our supply
chain as well, which may affect production operations, insurance costs and coverage, as well as the timely delivery of our products
to customers. As water is one of the major components of our products, the quality and quantity of the water available for use is
important to our ability to operate our business. If hydrologic cycle patterns change, and droughts become more common or severe,
or if the water supply were interrupted for other reasons, there might be a scarcity of desirable water in some of the key production
regions for our products, including Tennessee, Kentucky, Finland, Canada, Mexico, and California.
If the social acceptability of our products declines or governments adopt policies disadvantageous to beverage alcohol, our
business could be adversely affected.
Our ability to market and sell our products depends heavily on societal attitudes toward drinking and governmental policies
that both flow from and affect those attitudes. In recent years, there has been increased social and political attention directed at
the beverage alcohol industry. The recent attention has focused largely on public health concerns related to alcohol abuse, including
drunk driving, underage drinking, and the negative health impacts of the abuse and misuse of beverage alcohol. While most people
who drink enjoy alcoholic beverages in moderation, it is commonly known and well reported that excessive levels or inappropriate
patterns of drinking can lead to increased risk of a myriad of health conditions and, for certain people, can result in alcohol
dependence. The alcohol industry critics in the United States, Europe and other countries around the world increasingly seek
governmental measures to make beverage alcohol products more expensive, less available, and/or more difficult to advertise and
promote. If future research indicated more widespread serious health risks associated with alcohol consumption - particularly with
moderate consumption - or if for any reason the social acceptability of beverage alcohol were to decline significantly, sales of our
products could decrease.
10
We face substantial competition in our industry, and consolidation among beverage alcohol producers, wholesalers or
retailers, or changes to our route-to-consumer model, could hinder the marketing, sale and distribution of our products.
We use different business models to market and distribute our products in different countries around the world. In the United
States, we sell our products either to distributors for resale to retail outlets or, in those states that control alcohol sales, to state
governments who then sell them to retail customers and consumers. In our non-U.S. markets, we use a variety of route-to-consumer
models - including, in many markets, reliance on others to market and sell our products. Consolidation among spirits producers,
distributors, wholesalers or retailers could create a more challenging competitive landscape for our products. In addition, it could
hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands both during
transition periods and after, as our brands might represent a smaller portion of the new business portfolio. Expansion into new
product categories by other suppliers, or innovation by new entrants into the market could increase competition for our products.
Changes to our route-to-consumer partner or method in important markets could result in temporary or longer-term sales disruption,
could result in implementation-related or higher fixed costs, and could negatively impact other business relationships we might
have with that partner. Distribution network disruption and/or fluctuations in our product inventory levels at distributors,
wholesalers, or retailers could negatively affect our results for a particular period. Further, while we believe that our size relative
to that of our competitors currently gives us sufficient scale to succeed, we nevertheless face a risk that a continuing consolidation
of the large beverage alcohol companies could put us at a competitive disadvantage.
Our competitors may respond to industry and economic conditions more rapidly or effectively than we do. Other suppliers,
as well as wholesalers and retailers of our brands, offer products that compete directly with ours for shelf space, promotional
displays, and consumer purchases. Pricing (including price promotions, discounting, couponing and free goods), marketing, new
product introductions, entry into our distribution networks, and other competitive behavior by other suppliers, and by wholesalers
and retailers who sell their products against ours, could adversely affect our sales, margins, and profitability. While we seek to
take advantage of the efficiencies and opportunities that large retail customers can offer, large retail customers often seek lower
pricing, purchase volume flexibility, and to represent a large number of competing products. If their leverage continues to increase,
it could negatively impact our financial results.
We might not succeed in our strategies for acquisitions and dispositions.
From time to time, we acquire or invest in additional brands or businesses. We expect to continue to seek acquisition and
investment opportunities that we believe will increase long-term shareholder value, but we may not be able to find and purchase
brands or businesses at acceptable prices and terms. Acquisitions involve risks and uncertainties, including potential difficulties
integrating acquired brands and personnel; the possible loss of key customers and/or employees most knowledgeable about the
acquired business; implementing and maintaining consistent U.S. public company standards, controls, procedures, policies and
information systems; exposure to unknown liabilities; business disruption; and management distraction. Acquisitions, investments
or joint ventures could also lead us to incur additional debt and related interest expenses, issue additional shares, and become
exposed to contingent liabilities, as well as lead to dilution in our earnings per share and reduction in our return on average invested
capital. We could incur future restructuring charges or record impairment losses on the value of goodwill and/or other intangible
assets resulting from previous acquisitions, which may also negatively affect our financial results.
We also evaluate from time-to-time the potential disposition of assets or businesses that may no longer meet our growth,
return and/or strategic objectives. In selling assets or businesses, we may not get a price or terms as favorable as we anticipated.
We could also encounter difficulty in finding buyers on acceptable terms in a timely manner, which could delay our accomplishment
of strategic objectives. Expected cost savings from reduced overhead relating to the sold assets may not materialize, and the
overhead reductions could temporarily disrupt our other business operations. Any of these outcomes could hurt our financial
performance.
Inadequate protection of our intellectual property rights, counterfeiting, product tampering, or product recalls could
adversely affect our business prospects.
Our brand names, trademarks, and related intellectual property rights are critical assets, and our business depends on our
successful protection of them. We devote substantial resources to protecting our intellectual property rights around the world, and
consistently challenge those who imitate our products. Although we believe that our intellectual property rights are legally protected
in the markets in which we do business, the ability to register and enforce intellectual property rights varies greatly from country
to country. We cannot be certain that trademark registrations in our favor will be issued in every country in which we wish to sell
a particular product or that protective decisions by courts or trademark offices will be in our favor.
Many global spirits brands, including ours, experience problems with product counterfeiting and other forms of trademark
infringement, especially in Asia and Eastern European markets. We work cooperatively with other spirits industry leaders via our
membership in the International Federation of Spirits Producers (IFSP) to combat spirits counterfeiting. While we believe the
IFSP generally to be an effective organization, IFSP efforts are subject to cooperation with local authorities and courts in some
11
markets. Despite our and IFSP’s efforts, confusingly similar, lower quality, or even counterfeit product that is harmful to consumers
could reach the market and adversely affect our intellectual property rights, brand equity, corporate reputation, and/or financial
results. In addition, the industry as a whole could suffer negative effects related to the manufacture, sale and consumption of
illegally produced beverage alcohol.
Sales of one or more of our products also could diminish due to a scare over product tampering or contamination. Actual
contamination, whether deliberate or accidental, could lead to inferior product quality and even illness, injury or death to consumers,
potential liability claims and material loss. Should a product recall become necessary, or we voluntarily recall product in the event
of contamination, damage, or other quality issue, sales of the affected product or our broader portfolio of brands could be adversely
affected. A significant product liability judgment or widespread product recall may negatively impact the sales and profitability
of the affected brand or brands for a period of time depending on product availability, competitive reaction and consumer attitudes.
Even if a product liability claim is unsuccessful or is not fully pursued, resulting negative publicity could adversely affect our
reputation with existing and potential customers and our corporate and brand image.
Litigation and legal disputes could expose our business to financial and reputational risk.
Major private or governmental litigation challenging the production, promotion, distribution or sale of beverage alcohol or
specific brands, could affect our ability to sell products. Because litigation and other legal proceedings can be costly to defend,
even actions that are ultimately decided in our favor could have a negative impact on our business reputation or financial results.
Several years ago, a series of putative class action cases was filed against several beverage alcohol companies, including Brown-
Forman, alleging that large producers intentionally focused advertising and promotion at under-age consumers. All of the cases
were either dismissed or withdrawn at early stages - but only after considerable effort and expense. Other lawsuits have been
brought against beverage alcohol companies alleging problems related to alcohol abuse, negative health consequences from
drinking, problems from alleged marketing or sales practices, or underage drinking. While these lawsuits have been largely
unsuccessful in the past, others may succeed in the future. We could also experience employment-related class actions,
environmental claims, commercial disputes, product liability actions stemming from a beverage or container production defect,
a whistleblower suit, or other major litigation that could adversely affect our business results, particularly to the extent the losses
or expenses were not insurable or insured.
Governmental actions around the world to enforce trade practice, anti-corruption, competition, tax, environmental and other
laws are also a continuing risk for global companies such as ours. In addition, as a U.S. public company we are exposed to the
risk of shareholder class action suits, particularly following a precipitous drop in the share price of our stock. Adverse developments
in major lawsuits concerning these or other matters could have a material adverse effect on our business.
A failure of one or more of our key information technology systems, networks, processes, associated sites or service providers
could have a material adverse impact on our business.
We rely on information technology (IT) systems, networks, and services, including internet sites, data hosting and processing
facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of
which are managed, hosted, provided and/or used by third-parties or their vendors, to assist us in the management of our business.
The various uses of these IT systems, networks, and services include, but are not limited to: hosting our internal network and
communication systems; ordering and managing materials from suppliers; supply/demand planning; production; shipping product
to customers; hosting our branded websites and marketing products to consumers; collecting and storing customer, consumer,
employee, investor, and other data; processing transactions; summarizing and reporting results of operations; hosting, processing,
and sharing confidential and proprietary research, business plans, and financial information; complying with regulatory, legal or
tax requirements; providing data security; and handling other processes necessary to manage our business.
Increased IT security threats and more sophisticated cyber crime pose a potential risk to the security of our IT systems,
networks, and services, as well as the confidentiality, availability, and integrity of our data. If the IT systems, networks, or service
providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information, due
to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity
plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations
and reputational, competitive and/or business harm, which may adversely affect our business operations and/or financial condition.
In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial
and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, our
employees, customers, suppliers or consumers. In any of these events, we could also be required to spend significant financial and
other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems.
Negative publicity could affect our stock price and business performance.
Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance, or
12
prospects could negatively affect our corporate reputation, stock price, ability to attract high quality talent, and/or the performance
of our business, regardless of its accuracy or inaccuracy. Adverse publicity or negative commentary on social media outlets could
cause consumers to avoid our brands and/or choose brands offered by our competitors, which could negatively affect our financial
results.
Our failure to attract or retain key executive or employee talent could adversely affect our business.
Our success depends upon the efforts and abilities of our senior management team, other key employees, and a high-quality
employee base, as well as our ability to attract, motivate, reward, and retain them. Difficulties in hiring or retaining key executive
or employee talent, or the unexpected loss of experienced employees could have an adverse impact our business performance. In
addition, we could experience business disruption and/or increased costs related to organizational changes, reductions in workforce,
or other cost-cutting measures.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Significant properties are as follows:
Owned facilities:
• Office facilities:
•
•
• Corporate offices (including renovated historic structures) — Louisville, Kentucky
Production and warehousing facilities:
• Lynchburg, Tennessee
• Louisville, Kentucky
• Collingwood, Canada
• Woodford County, Kentucky
• Windsor, California
• Cour-Cheverny, France
• Amatitán, Mexico
Stave and heading mills:
• Clifton, Tennessee
•
Stevenson, Alabama
• Cooperages:
• Louisville, Kentucky
• Decatur, Alabama (under construction)
Leased facilities:
•
Stave and heading mill in Jackson, Ohio
We lease office space in various markets that we use for administrative operations. The lease terms expire at various dates
and are generally renewable. We believe that our facilities are in good condition and are adequate for our business.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not Applicable.
13
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Class A and Class B common stock is traded on the New York Stock Exchange (symbols “BFA” and “BFB,” respectively).
As of May 31, 2013, there were 2,854 holders of record of Class A common stock and 5,641 holders of record of Class B common
stock.
The following table sets forth, for the quarterly periods indicated, the high and low sales prices per share for the Company’s
Class A and Class B common stock, as reported on the New York Stock Exchange, and dividend per share information:
Fiscal 2012
Fiscal 2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
$ 49.43
44.97
51.50
46.15
$ 50.47
40.17
51.71
41.43
$ 54.35
46.88
55.69
48.44
56.97
51.11
58.17
52.35
$ 56.97
40.17
58.17
41.43
$ 63.82
54.27
65.33
55.43
$ 69.20
58.67
67.91
60.44
$ 68.50
59.79
71.00
60.90
$ 74.41
65.31
71.99
63.84
$ 74.41
54.27
71.99
55.43
0.43
0.21
—
0.21
0.47
0.23
—
0.23
0.89
0.89
0.47
0.23
—
0.23
4.51
4.26
—
0.26
4.98
4.98
Market price per
share:
Class A high
Class A low
Class B high
Class B low
Cash dividends
per share:
Declared
Paid
Notes:
Quarterly amounts may not add to amounts for the year due to rounding.
Per share amounts have been adjusted for a 3-for-2 stock split in August 2012.
Cash dividends per share include a special dividend of $4.00 per share paid in December 2012.
14
Stock Performance Graph
The graph below compares the cumulative total shareholder return of our Class B Common Stock for the last five years with
the Standard & Poor’s 500 Stock Index, Dow Jones U.S. Consumer Goods Index, and the Dow Jones U.S. Food & Beverage
Index. The information presented assumes an initial investment of $100 on April 30, 2008, and that all dividends were reinvested.
The cumulative returns shown on the graph represent the value that these investments would have had on April 30 in the years
since 2008.
15
Item 6. Selected Financial Data
The following selected financial data for each of the fiscal years in the ten-year period ended April 30, 2013, should be read
in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our
Consolidated Financial Statements and Notes thereto contained in Item 8. Financial Statements and Supplementary Data of this
report on Form 10-K.
Year Ended April 30,
Continuing Operations:
Net sales
Gross profit
Operating income
Net income
Weighted average shares used to
calculate earnings per share
— Basic
— Diluted
Earnings per share from continuing
operations
— Basic
— Diluted
Gross margin
Operating margin
Effective tax rate
Average invested capital
Return on average invested capital
Total Company:
Cash dividends declared per common
share
Average stockholders’ equity
Total assets at April 30
Long-term debt at April 30
Total debt at April 30
Cash flow from operations
BROWN-FORMAN CORPORATION
SELECTED FINANCIAL DATA
(Dollars in millions, except per share amounts)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$1,992
$1,024
$ 383
$ 243
2,195
1,156
445
339
2,412
1,308
563
395
2,806
1,481
602
400
3,282
1,695
685
440
3,192
1,577
661
435
3,226
1,611
710
449
3,404
1,724
855
572
3,614
1,795
788
513
3,784
1,955
898
591
227.5
228.7
228.3
229.7
228.9
231.4
230.4
232.8
229.6
231.6
225.7
227.1
221.8
222.9
218.4
219.8
214.5
216.1
213.4
215.0
$ 1.07
$ 1.06
1.49
1.48
1.73
1.71
1.74
1.72
1.91
1.89
1.92
1.91
2.02
2.01
2.61
2.60
2.39
2.37
2.77
2.75
51.4% 52.7% 54.2% 52.8% 51.6% 49.4% 50.0% 50.7% 49.7% 51.7%
19.2% 20.3% 23.3% 21.5% 20.9% 20.7% 22.0% 25.1% 21.8% 23.7%
33.1% 32.6% 29.3% 31.7% 31.7% 31.1% 34.1% 31.0% 32.5% 31.7%
$1,392
1,535
1,863
2,431
2,747
2,893
2,825
2,711
2,803
2,834
18.5% 23.0% 21.9% 17.4% 17.2% 15.9% 16.6% 21.8% 19.1% 21.7%
$ 0.43
$ 936
$2,376
$ 630
$ 679
$ 304
0.49
1,198
2,649
351
630
396
0.56
1,397
2,728
351
576
343
0.62
1,700
3,551
422
0.69
1,668
3,405
417
1,177
1,006
355
534
0.75
1,793
3,475
509
999
491
0.78
1,870
3,383
508
699
545
1.49
1,904
3,712
504
759
527
0.89
2,046
3,477
503
510
516
4.98
1,879
3,626
997
1,002
537
Return on average stockholders’ equity
27.1% 25.7% 22.9% 22.9% 26.4% 24.2% 24.0% 30.0% 25.1% 31.4%
Total debt to total capital
Dividend payout ratio
Notes:
38.3% 32.5% 26.9% 42.8% 36.8% 35.5% 26.9% 26.9% 19.8% 38.1%
38.2% 36.1% 40.0% 36.8% 35.8% 38.9% 38.7% 57.0% 37.4% 179.8%
1.
Includes the consolidated results of Swift & Moore, Chambord, and Casa Herradura since their acquisitions in February 2006, May 2006, and January
2007, respectively. Includes the results of our Hopland-based wine brands, which were sold in April 2011 but retained in our portfolio as agency brands
through December 2011.
2. Weighted average shares, earnings per share, and cash dividends declared per common share have been adjusted for a 2-for-1 stock split in January 2004,
a 5-for-4 stock split in October 2008, and a 3-for-2 stock split in August 2012.
3. Cash dividends declared per common share include special cash dividends of $0.67 per share in fiscal 2011 and $4.00 per share in fiscal 2013.
4. We define return on average invested capital as the sum of net income (excluding extraordinary items) and after-tax interest expense, divided by average
invested capital. Invested capital equals assets less liabilities, excluding interest-bearing debt.
5. We define return on average stockholders’ equity as net income applicable to common stock divided by average stockholders’ equity.
6. We define total debt to total capital as total debt divided by the sum of total debt and stockholders’ equity.
7. We define dividend payout ratio as cash dividends divided by net income.
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended
to help the reader understand Brown-Forman, our operations, and our present business environment. MD&A is provided as a
supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes
thereto contained in Item 8. Financial Statements and Supplementary Data of this report on Form 10-K.
EXECUTIVE OVERVIEW
Brown-Forman Corporation is a diversified producer and marketer of high-quality consumer beverage alcohol brands. We
are one of the largest American-owned wine and spirits companies with global reach.
OUR STRATEGIES AND OBJECTIVES
The B-F Arrow is an articulation of our vision, mission, values, and behaviors. On the arrow’s target is the phrase “Building
Forever,” reflecting our long-term perspective and our desire to remain a strong, independent company indefinitely.
In the summer of 2010, we introduced our ten-year strategy, the Brown-Forman 150, focused on driving sustainable growth
toward the company’s 150th anniversary. We do not consider our strategy to be static. So, as time passes and the environment
around us unfolds, we revisit and evolve our strategy to reflect current realities. Our strategic ambitions are discussed below.
The Jack Daniel’s family of brands, including Jack Daniel’s Tennessee Whiskey, is our most valuable asset. We will work
to keep Jack Daniel’s Tennessee Whiskey strong, healthy, and relevant to consumers worldwide, and to take advantage of the
abundant opportunities for growing the Jack Daniel’s family of brands across countries, price points, channels, and consumer
groups.
We aspire to become a global leader in whiskey. We recognize that whiskey is the most attractive global spirits category,
and we believe we can leverage our whiskey-making knowledge, assets, and capabilities to accomplish this objective. We will
strive to grow Jack Daniel’s globally, as well as our other whiskey brands, led by Woodford Reserve, in key markets, and we will
consider acquisitions and innovations within the whiskey category. We will continue our efforts to enhance and broaden consumer
appeal of the Southern Comfort trademark.
We aim to grow Finlandia and Herradura. We plan to focus Finlandia in Poland, Russia, Eastern Europe, and the United
States, and look to add other vodka brands either through acquisition or innovation, especially in the premium and super-premium
price categories. We will work to expand the reach of our tequila brands, Herradura and el Jimador, to new consumers, emphasizing
Mexico, the United States, and a few other high-potential markets.
We will consider entering growing, profitable, local spirit categories in key markets. Realizing this potential will require
innovative products and packaging to seize new business opportunities and to leverage our brands into new consumption occasions.
The United States remains our largest market, and continuing to grow this market is important to our long-term success. We
expect to effect this growth through stronger participation in fast-growing spirits categories such as flavored whiskey, super-
premium bourbon, vodka, and tequila; continued product and packaging innovation; continued route-to-consumer proficiency;
and brand building among growing consumer segments.
For more than two decades, our business outside the United States has grown more quickly than our business within it.
Continuing this trend is important to our overall growth in the next decade, especially in emerging markets. To realize this strategy,
17
we expect to grow our portfolio in developed markets such as France, Australia, the United Kingdom, and Germany and in emerging
markets such as Poland, Mexico, and Russia. And we expect other emerging markets such as Brazil, China, Southeast Asia, Africa,
and Eastern Europe to gain significantly in importance. We will continue to strive to develop and employ route-to-consumer
strategies that will expand our access to and understanding of consumers.
We believe that having a long-term focused, committed, and engaged shareholder base provides us with an important strategic
advantage, particularly in a business with aged products and multi-generational brands. As such, we plan to continue our engagement
with our controlling family shareholders.
Recognizing the strong cash generating capacity and the capital efficiency of our business, we will continue to pursue what
we believe to be well-balanced capital deployment strategies aimed at perpetuating Brown-Forman’s strength and independence.
We try to be responsible in everything we do - from reducing our environmental footprint to managing how we market our
brands. We believe that this responsibility is also a rich source of opportunity: It allows us to build stronger consumer relationships
and enduring brands, make our products more efficiently, and maintain the trust required for our commercial freedoms. We have
a comprehensive environmental sustainability strategy, which includes (a) assessing climate change risks related to the availability
and prices of our key agricultural inputs, including grains, agave, and grapes, and (b) mitigating these risks where appropriate.
Environmental stewardship through our entire product life cycle is central to our broader social responsibilities, as is our
commitment to contribute to the quality of life in the communities where our employees live, work, and raise their families. For
more information on our commitment to responsibility, please see our forthcoming Corporate Responsibility Report, which will
be published later this summer.
OUR OPERATIONS
We employ approximately 4,000 people on six continents. We are headquartered in Louisville, Kentucky, USA, where we
employ about 1,200 people. We have sales and marketing operations in Louisville, London, Sydney, Hamburg, Guadalajara,
Prague, and Warsaw, as well as in over 30 other cities around the globe.
Our production facilities include distillery, bottling, and warehousing operations in Louisville and Versailles, Kentucky, and
in Lynchburg, Tennessee, and distilling and warehousing operations in Collingwood, Canada. Our main tequila production facility
is at Casa Herradura in Amatitán, Mexico. We also have production facilities in Cour-Cheverny, France; and Windsor, California,
and contract production in Australia, Belgium, Finland, Mexico, the Netherlands, Poland, South Africa, and the United States. We
believe our Brown-Forman Cooperage operation in Louisville is the world’s largest producer of whiskey barrels. We have a new
cooperage under construction in Decatur, Alabama. Our saw mills in Stevenson, Alabama; Clifton, Tennessee; and Jackson, Ohio,
supply the cooperage with wood.
OUR MARKETS
Our products are sold in more than 150 countries around the world. Our largest international markets include Australia, the
United Kingdom, Mexico, Germany, Poland, France, Russia, Japan, Turkey, Canada, Spain, Czech Republic, South Africa, Brazil
and Italy. Our fiscal 2013 net sales by geography were as follows:
United States
Europe
Australia
Other
41%
30%
14%
15%
Over the last 10 years, we have greatly expanded our international footprint. In fiscal 2013, we generated 59% of our net
sales outside the United States compared to less than one-third 10 years ago. The United States remains our largest, most important
market, contributing 41% of our net sales in fiscal 2013, compared to 42% in fiscal 2012.
OUR DISTRIBUTION NETWORK AND OUR CUSTOMERS
In the United States, which generally prohibits wine and spirits manufacturers from selling their products directly to
consumers, we sell our brands either to distributors or (in states that directly control alcohol sales) to state governments that then
sell to retail customers and consumers. In some states, we have distribution contracts; these contracts typically have no fixed term,
but we can terminate them at any time if we pay a terminated distributor a fee (primarily based on a percentage of purchases over
time). Some state franchise statutes limit our ability to terminate distributors or mandate a payment to a terminated distributor.
Outside the United States, we use a variety of distribution models based on (1) a market’s long-term attractiveness and
competitive dynamics, (2) our portfolio’s development stage in that market, and (3) the structure of the retail and wholesale trade
in the market. As market dynamics change or our business changes, we evaluate our distribution strategy and, from time to time,
18
evolve our model. We own and operate distribution companies in 11 markets, including Australia, Brazil, Canada, China, the
Czech Republic, Germany, Korea, Mexico, Poland, Taiwan, and Turkey. We announced in fiscal 2013 that we plan to begin
operating our own distribution company in France in January 2014. In these markets, we sell our products either directly to retail
stores, to wholesalers, or in Canada, to provincial governments. In the United Kingdom, we partner in a cost-sharing arrangement
with another supplier, Bacardi, to sell a combined portfolio of our companies’ brands. In many other markets, including France,
Japan, Spain, Italy, Russia, and South Africa, we rely on others to distribute our brands. In most of these countries, we have fixed-
term distribution contracts. During fiscal 2014, we plan to review our route-to-consumer arrangements in a number of countries
where our contracts are due to expire, including Russia and South Africa.
Consolidation among our distributors or among international spirits producers could affect the distribution of our products.
Such a consolidation could reduce attention to our brands, make our brands a smaller portion of a distributor’s business, or otherwise
change the competitive environment. We expect to continue to pursue strategies and partnerships that will improve our in-market
brand-building efforts. But in the short term, if we change our route-to-consumer in a market, we could experience temporary
sales disruptions, transition expenses, and costs of establishing infrastructure that more than offset initial margin gains. For example,
we expect this could be the case in fiscal 2014 as we establish our distribution company in France.
OUR BRANDS
We have more than 30 brands, including Jack Daniel’s and its related brands; Finlandia; Southern Comfort; Herradura; el
Jimador; New Mix; Canadian Mist; Chambord; Tuaca; Woodford Reserve; Sonoma-Cutrer; and Korbel Champagne.
The most important brand in our portfolio is Jack Daniel’s, which is the fifth-largest spirits brand and the largest selling
American whiskey brand in the world according to premium spirits volume statistics published in February 2013 by Impact
Databank, a well-known U.S. trade publication. Our other leading global brands are Finlandia, the sixth-largest selling vodka,
Southern Comfort, the third-largest selling liqueur, Canadian Mist, the fourth-largest selling Canadian whisky, and el Jimador, the
fourth-largest selling tequila, according to the recently published global volume statistics referenced above. We believe the statistics
used to rank these products are reasonably accurate.
We support our brands with extensive marketing programs aimed to increase brand recognition, brand loyalty, and consumer
purchases. Our objectives for growing sales and earnings are based on expanding the reach of our brands geographically, introducing
new brand offerings, increasing prices, acquiring brands, and divesting non-core and under-performing assets. Over the past several
years, we have made significant advances in each of these areas, including:
•
•
•
•
•
•
•
•
•
•
•
•
expanding international sales;
developing new line extensions in our Jack Daniel’s family of brands, including most importantly Jack Daniel’s Tennessee
Honey, Jack Daniel’s Winter Jack, and Gentleman Jack & Cola ready-to-drinks (RTD);
developing new flavors for our vodkas (Chambord Flavored Vodka, Little Black dress vodkas, new Finlandia flavors);
new flavor line extensions for the Southern Comfort trademark (Southern Comfort Lime and Southern Comfort Black
Cherry); and various ready-to-pour (RTP) and RTD offerings;
acquiring the Casa Herradura tequila brands1 and Chambord liqueur in fiscal 2007;
implementing targeted price increases;
completing the divestiture of our consumer durables business in fiscal 2007;
divesting wine assets including (a) our Italian wine brands, Bolla and Fontana Candida, in fiscal 2009; and (b) our
Hopland-based wine business in fiscal 2011.
We built on these objectives in fiscal 2013 as we achieved record net sales by:
continuing our international growth;
increasing prices more broadly and to a greater extent than in recent years;
introducing several of our successful innovations in a number of markets around the world, most notably Jack Daniel’s
Tennessee Honey in the United Kingdom, Australia, Poland and South Africa;
launching Jack Daniel’s Sinatra Select, an ultra-premium line extension for the Jack Daniel’s family of brands;
developing new packaging and flavors for a number of brands in our portfolio.
Total volumes for the brands in our portfolio were approximately 38 million nine-liter cases in fiscal 2013, up 4% compared
to volumes in fiscal 2012 for comparable brands. As shown in the table on page 24, eight of our brands had volumes of more than
one million nine-liter cases in fiscal 2013.
1 Brands include el Jimador, Herradura, New Mix (a tequila-based RTD product), Antiguo, and Suave 35.
19
OUR COMPETITION
We operate in a highly competitive industry. We compete against many global, regional, and local brands in a variety of
categories of beverage alcohol, but most of our brands compete primarily in the industry’s premium and higher price categories.
While the industry is highly fragmented, other major players include Bacardi Limited, Beam Inc., Davide Campari-Milano S.p.A.,
Diageo PLC, LVMH Moët Hennessy Louis Vuitton S.A., Pernod Ricard S.A., and Rémy Cointreau S.A. Trade information indicates
that we are one of the largest suppliers of wine and spirits in the United States. According to International Wine & Spirit Research,
for calendar year 2012, the ten largest global spirits companies (on a volume basis) controlled less than 20% of the total global
market for spirits. We believe the overall market environment offers considerable growth opportunities for exceptional builders
of high-quality wine and spirits brands.
OUR BUSINESS ENVIRONMENT
We believe that Brown-Forman’s long-term prospects are excellent. With only approximately 1% share of the global spirits
market, we believe our company has attractive growth opportunities around the world. We expect that demand for spirits and wine
will continue to grow in many of our largest markets over the medium- and long-term. Markets outside the United States accounted
for less than one-third of our net sales in fiscal 2003; today our international business contributes 59% to our net sales. We see
great opportunities for growth not only in emerging markets such as Brazil, Russia, India, and China, but also in economically
developed ones such as the United Kingdom, France, and Australia. Favorable demographic trends in Asia and many other emerging
markets encourage us as well.
Several of our major brands have enjoyed long lives. For example, Jack Daniel received a license for his distillery in 1866,
and the Herradura and Old Forester brands originated in 1870. We believe many of these brands can continue to grow for decades
to come. We also expect innovations, some of them line extensions of our established brands, to add to our growth.
Public attitudes; government policies. While we are optimistic about our growth opportunities, our ability to market and
sell our products depends heavily on society’s attitudes toward drinking and government policies. A number of organizations blame
alcohol manufacturers for the problems associated with alcohol misuse. Some critics claim that beverage alcohol companies
intentionally market their products to encourage underage drinking. Legal or regulatory measures directed in response against
beverage alcohol (including limitations on its advertising, promotion, sales and consumption) could adversely affect our sales and
business prospects.
Illegal alcohol consumption by underage drinkers and abusive drinking by a minority of adult drinkers give rise to public
issues of great significance. Alcohol industry critics seek governmental measures to make beverage alcohol more expensive, less
available, and more difficult to advertise and promote. We believe these strategies are ineffective and ill-advised. In our view,
society is more likely to curb alcohol abuse by better educating consumers about beverage alcohol and moderate drinking than
by restricting alcohol advertising and sales, or by imposing punitive taxes.
We strongly oppose underage and abusive drinking. We carefully target our products only to adults of legal drinking age.
We have developed a comprehensive internal marketing code and also adhere to marketing and advertising guidelines of the
Distilled Spirits Council of the United States, the Wine Institute, and the European Forum for Responsible Drinking, among others.
We contribute significant resources to the Century Council, an organization that we and other spirits producers created in 1991 to
combat alcohol misuse, including drunk driving and underage drinking. We actively participate in similar organizations in other
markets.
Regulatory measures against our industry are of particular concern in Europe, where many countries are considering more-
restrictive alcohol policies, such as potential bans or severe limitations on advertising. For example, both Russia and Turkey have
recently adopted measures that ban many forms of beverage alcohol advertising and increase restrictions on sales.
In early 2011, the World Health Assembly (the governing body of the World Health Organization) approved a global strategy
for combating the harmful use of alcohol. The strategy contains a menu of policy options that member states can tailor to their
cultures and context. Importantly, the strategy recognizes the beverage alcohol industry as a legitimate stakeholder and puts the
focus on reducing “harmful” or “excessive” use and abuse and not on drinking per se. We view this development as largely positive.
An important commitment of the beverage alcohol industry is the implementation of the Global Actions on Harmful Drinking
in the areas of preventing drunk driving, increasing uptake of self-regulation, and fighting non-commercial alcohol. The
International Center for Alcohol Policies, a non-profit organization, is managing this significant effort now under way in 18
countries. Major producers of beverage alcohol, including Brown-Forman, support this initiative. In addition, our CEO has joined
CEOs from several other large global beverage alcohol companies to put in writing five commitments they would undertake to
further combat the harmful use of alcohol.
20
We feel so strongly about the issue of responsible drinking that, since 2009, we have operated a website,
OurThinkingAboutDrinking.com, to present a public forum on the social issues implicated by youth and alcohol, drinking and
driving, alcohol and health, overconsumption, and beverage alcohol marketing and access.
Policy objectives. Broadly speaking, we seek two things:
1.
recognition that beverage alcohol should be regarded like other products that have inherent benefits and risks, and
2. equal treatment for distilled spirits, wine, and beer - all forms of beverage alcohol - by governments and their agencies.
We recognize that beverage alcohol, when misused or abused, can contribute to social and health issues. But we also believe
strongly that beverage alcohol should be viewed like other consumer products - such as food and motor vehicles - that can also
be hazardous if misused. Beverage alcohol plays an important part in enriching the lives of the vast majority of those who choose
to drink. That is why we stress responsible consumption as we promote our brands. It is also why we discourage underage drinking
and irresponsible drinking, including drunk driving. The optimal way to discourage alcohol misuse and abuse is by partnering
with parents, schools, law enforcement, and other concerned stakeholders.
Distilled spirits, wine, and beer are all forms of beverage alcohol, and governments should treat them equally. But generally,
and especially in the United States, distilled spirits are taxed far more punitively than beer per ounce of alcohol, and are subject
to tighter restrictions on where and when consumers can buy them. Compared with beer and wine, distilled spirits are also denied
the right to advertise in some venues. Achieving greater cultural acceptance of our products and parity with beer and wine in
having access to consumers is a major goal that we share with other distillers. We seek both fairer distribution rules (such as Sunday
sales in those U.S. states that still ban them) and laws that permit product tasting, so that consumers can sample our products and
buy them more easily. We encourage rules that liberalize international trade, so that we can expand our business more globally.
As we explain below, we oppose tax increases that make our products more expensive for consumers, and seek to reduce the tax
advantage that beer currently enjoys.
Taxes. Recent proposals in the United States, at both the state and federal levels, to increase taxes on beverage alcohol to
generate revenue cause us considerable concern. Beverage alcohol is already taxed separately and substantially through state and
federal excise taxes (FET), above and beyond corporate income taxes on their producers. Some U.S. states also charge sales tax
on distilled spirits, even though they already collect state excise taxes. The U.S. FET for spirits per ounce of pure alcohol is twice
that for beer. Besides placing a disproportionate tax burden on spirits, any FET increase would have a negative economic effect
on the hospitality industry and its millions of workers. Depending on the states affected and the amount of the increase, state tax
increases could negatively affect our business results significantly as well.
According to a March 2013 report by Impact Databank, only three of the top ten premium global spirits companies in 2012
were based in the United States. Several former U.S.-based beverage companies have been acquired by foreign companies over
the years and shifted employment and trademark ownership to countries with more favorable tax regimes. Our fiscal 2013 effective
corporate income tax rate was 31.7%, compared to recent annual effective rates ranging from 13% to 18% for our largest foreign
competitors. Obviously, this is a significant economic disadvantage for us. Current discussions in the U.S. Congress about income
tax reform make it very difficult to predict our future income tax environment.
The Obama administration has repeatedly proposed to Congress the repeal of the LIFO (last-in, first-out) treatment of
inventory, an accepted tax and accounting practice in the United States for over 70 years. We strongly oppose this repeal because
LIFO is designed to minimize artificial inflation gains and to reflect replacement costs accurately. LIFO is particularly important
to companies like ours, whose aging process requires some distilled spirits to be held in inventory for several years before being
sold. As contemplated, LIFO repeal would also result in an unprecedented “recapture” of tax benefits received in prior years - in
effect, it would likely be the largest ever retroactive tax increase.
We also face the risk of increased tax rates and tax law changes in many of our international markets. This risk increases as
we expand the scale of our business outside the United States, as governments impose austerity measures to cope with economic
difficulties (such as in several European countries), and as some countries consider increasing taxes to generate revenue or
discourage excess consumption.
OUR FISCAL 2014 EARNINGS OUTLOOK
Although the global macroeconomic environment remains uncertain, we expect that the positive trends experienced for our
business in fiscal 2013 will continue in fiscal 2014. We expect high single-digit growth in both reported and underlying net sales,
driven by the continued global expansion of the Jack Daniel’s family of brands, including both Tennessee Whiskey and Tennessee
Honey. Our focus on super-premium brands including Herradura, Woodford Reserve, Gentleman Jack, and Jack Daniel’s Single
Barrel, along with continued growth in Finlandia and an improvement in Southern Comfort’s results, should also contribute to the
projected net sales growth. Net sales growth includes expected price increases in the low single-digit range, which should help
offset modest cost of goods inflation. We expect operating expense growth in the high single digits (including costs related to the
21
start-up of our distribution company in France), which would result in expected underlying operating income growth of between
9% and 11% (7% and 14% on an as-reported basis). We are establishing a guidance range of $2.80 to $3.00 for our expected fiscal
2014 diluted earnings per share, compared to fiscal 2013 diluted earnings per share of $2.75. Our fiscal 2014 guidance range
includes expected unfavorable effects totaling $0.08 per diluted share due to the change in net inventories related to our route-to-
consumer change in France and the anticipated adverse impact of foreign exchange.
BASIS OF PRESENTATION AND USE OF NON-GAAP MEASURES
RESULTS OF OPERATIONS
When discussing volume, unless otherwise specified, we refer to “depletions,” a term that is commonly used in the beverage
alcohol industry. We define “depletions” as either (a) our shipments directly to retailers or wholesalers, or (b) shipments from our
third-party distributor customers to retailers and wholesalers. Because we generally record revenues when we ship our products
to our customers, our reported sales for a period do not necessarily reflect actual consumer purchases during that period. We believe
that our depletions measure volume in a way that more closely reflects consumer demand than our shipments do.
Volume is generally measured on a nine-liter equivalent unit basis. At times, we use a “drinks equivalent” measure for volume
when comparing single-serve ready-to-drink (RTD) or ready-to-pour (RTP) brands to a parent brand. “Drinks-equivalent” is RTD /
RTP nine-liter case equivalent volume divided by 10.
“Constant currency” change is a non-GAAP measure that represents the percentage change in financial results reported in
accordance with GAAP in the United States but with the cost or benefit of currency movements removed. We use this measure to
understand the growth of the business on a constant dollar basis, as fluctuations in exchange rates can distort the underlying growth
both positively and negatively. (In this report, “dollar” always means the U.S. dollar unless clearly denoted otherwise.) To neutralize
the effect of foreign exchange fluctuations when comparing across periods, we translate current year results at prior-year rates.
“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 fiscal 2012 and fiscal 2013,
we adjust constant-currency change for estimated net changes in trade inventories and the absence of Hopland-based wine business.
These items are defined below.
“Estimated net change in trade inventories” refers to the estimated financial impact of changes in distributor inventories for
our brands. We compute this effect using our estimated depletion trends and by separately identifying distributor inventory changes
in our explanation of changes for our key measures. We then adjust the percentage variances from the prior year to the current
year for our key measures. We believe that separately identifying the impact of this item helps to explain how varying levels of
distributor inventories can affect our business.
“Absence of Hopland-based wine business” refers to the exclusion of results from our divested Hopland, California-based
wine business, which was sold to Viña Concha y Toro S.A in April 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. Although we sold these brands in April 2011, we retained
them in our portfolio as agency brands through December 31, 2011. We believe that excluding their effect on operating results
from fiscal 2012 versus fiscal 2013 provides helpful information in forecasting and planning the growth expectations of the
company.
“Absence of dispute settlement” refers to the exclusion of the impact of the favorable resolution of a dispute in an international
market relating to the importation of our brands that was settled during fiscal 2011.
FISCAL 2013 HIGHLIGHTS
In fiscal 2013, net sales increased 5% to $3.8 billion (8% on an underlying basis), operating income increased 14% to $898
million (13% on an underlying basis), and diluted earnings per share increased 16% to $2.75 compared to $2.37 in the prior year
period. We generated what we believe to be an industry-leading total shareholder return (TSR) of 31% versus the S&P 500’s TSR
of 16% for the 12 months ending April 30, 2013. We also produced what we believe to be an industry-leading return on invested
capital of nearly 22%. We accomplished this by focusing on organic growth, geographic expansion, brand innovation, careful
portfolio management, and strategic investments in emerging markets. During fiscal 2013, we paid $1.1 billion in dividends to
our shareholders, consisting of regular quarterly dividends and the $4.00 per share special dividend.
22
FISCAL 2013 MARKET HIGHLIGHTS
The following table presents share of total net sales and net sales growth by geography and for our top ten countries for fiscal
2013:
Market
United States
Europe
United Kingdom
Germany
Poland
France
Russia
Turkey
Australia
Other
Mexico
Japan
% Growth vs Fiscal 2012
% of Fiscal
2013 Net Sales
As-reported
Net Sales
41%
30%
9%
5%
4%
2%
2%
1%
14%
15%
6%
1%
3%
7%
3%
6%
1%
5%
30%
31%
6%
5%
7%
14%
Constant
Currency Net
Sales
8%1
9%
4%
13%
5%
13%
36%
38%
6%
7%
8%
18%
1 Sales from the Hopland-based wine business in fiscal 2012 have been excluded in calculating constant-currency net sales growth.
The United States, our largest, most important market, accounted for 41% of our as-reported net sales in fiscal 2013 and
42% in fiscal 2012. In fiscal 2013, net sales increased 3% on an as-reported basis. Excluding the effect of the Hopland-based wine
business, constant-currency net sales grew 8%. A combination of both higher volumes and pricing contributed to net sales growth
in the United States. Net sales growth in the United States was driven by the Jack Daniel’s family of brands, Woodford Reserve,
and Herradura, among other brands.
Europe accounted for 30% of our net sales in fiscal 2013 and 27% in fiscal 2012. For fiscal 2013, net sales in Europe were
up 7% on an as-reported basis. After adjusting for the effects of a stronger dollar, constant-currency net sales in Europe were up
9%. Our net sales growth in Europe was broad-based and included gains in all of our largest markets including the United Kingdom,
Germany, Poland, France, Russia and Turkey. Overall trading conditions for the industry remained positive in some parts of Europe
but were weak in others, as consumers remained cautious regarding the economic outlook. Many Western European economies
continued to struggle in fiscal 2013, including those in Spain, Italy and Ireland, where overall total distilled spirits consumption
declined again. Many Eastern Europe economies experienced positive trends, as consumers seemed increasingly to favor premium
imported spirits generally and the whiskey category specifically.
Australia accounted for 14% of net sales in fiscal 2013 and 13% in fiscal 2012. For fiscal 2013, net sales were up 6% on
both an as-reported and a constant-currency basis. During fiscal 2013, our growth was driven primarily by the Jack Daniel’s family
of brands, including substantial contributions from recent innovations launched there (Gentleman Jack & Cola RTD and Jack
Daniel’s Tennessee Honey, launched in fiscal 2013; Jack Daniel’s 1907 Whiskey launched in fiscal 2012). Australian sales growth
was negatively affected by the Southern Comfort family of brands, which declined by about 10% on both an as-reported and a
constant-currency basis.
Net sales for our other markets constituted 15% of our total net sales in fiscal 2013 compared to 17% in fiscal 2012 and
grew 5% in fiscal 2013 on an as-reported basis and 7% on a constant-currency basis. This increase was driven by broad growth
across most of our other markets, but primarily by Mexico, Southeast Asia, Japan, Brazil and Africa. Net sales declines in some
markets, including Canada, China and Korea, partially offset the gains.
23
FISCAL 2013 BRAND HIGHLIGHTS
The following table highlights our major brands’ worldwide volume results for fiscal 2013:
Jack Daniel’s Family
Jack Daniel’s Tennessee Whiskey
Jack Daniel’s RTDs/RTP1
El Jimador New Mix RTDs2
Finlandia
Southern Comfort Family
Canadian Mist Family
Korbel Champagnes
El Jimador
Super-Premium Other3
Nine-Liter
Cases
(millions)
19
11
7
6
3
2
2
1
1
1
% Change
vs. 2012
6 %
3 %
5 %
6 %
5 %
(5)%
(3)%
3 %
0 %
6 %
1 Jack Daniel’s RTD and RTP products include all RTD line extensions of Jack Daniel’s, such as Jack Daniel’s & Cola, Jack
Daniel’s & Diet Cola, Jack & Ginger, Jack Daniel’s Country Cocktails, Gentleman Jack & Cola, and the seasonal Jack Daniel’s
Winter Jack RTP.
2 El Jimador New Mix is a tequila-based RTD brand sold in Mexico; also includes el Jimador RTD.
3 Includes Chambord liqueur and flavored vodka, Herradura, Sonoma-Cutrer, Tuaca, and Woodford Reserve.
In fiscal 2013, the Jack Daniel’s family of brands, which includes Jack Daniel’s Tennessee Whiskey, Gentleman Jack,
Jack Daniel’s Single Barrel, Jack Daniel’s Tennessee Honey, the seasonal Jack Daniel’s Winter Jack RTP, and RTD products
such as Jack Daniel’s & Cola, Jack Daniel’s & Diet Cola, Jack Daniel’s & Ginger, Gentleman Jack & Cola and Jack Daniel’s
Country Cocktails, grew volumes 6% globally on both a nine-liter case basis on a drinks-equivalent basis. Net sales of the brand
family grew 9% on an as-reported basis and 11% on a constant-currency basis in fiscal 2013. Jack Daniel’s line extensions grew
at a faster rate than Jack Daniel’s Tennessee Whiskey itself, primarily because of the successful introduction of Jack Daniel’s
Tennessee Honey in several international markets and its continued growth in the United States during fiscal 2013.
Jack Daniel’s Tennessee Whiskey (JDTW) is the signature brand in our portfolio, and we believe it to be one of the largest,
most profitable spirits brands in the world. JDTW grew volume for the 21st consecutive year and outpaced the combined volume
growth of the top 25 premium spirits brands during calendar 2012 (according to a February 2013 report by Impact Databank, a
well-known U.S. trade publication). That achievement underscores the brand’s premium, iconic image and reinforces our belief
in its long-term appeal and sustained growth potential. JDTW grew volume 3% globally to eclipse 11 million 9-liter cases during
fiscal 2013, despite broad-based price increases and deliberate reductions of less profitable units, such as value-added and gift
packs, in many markets. JDTW net sales grew 6% on an as-reported and 7% on a constant-currency basis, at a faster rate than
volume gains owing to price increases and favorable mix. The brand grew volumes about 2% in its largest market, the United
States, but decreased 11% in the United Kingdom after a substantial price increase was implemented in that market. Jack Daniel’s
experienced double-digit volume growth in five of its top ten volume markets, including Germany, France, Poland, Russia and
Turkey. Beyond the top ten markets, Jack Daniel’s grew volume broadly in the mid-single digits. Notable volume milestones
reached or exceeded during fiscal 2013 for JDTW were: Germany reached 600,000 nine-liter cases; Poland surpassed 200,000
nine-liter cases; and, the emerging markets of sub-Saharan Africa exceeded 100,000 nine-liter cases.
Because JDTW generates a significant percentage of our total net sales, it is our top priority. We remain encouraged by the
brand’s resilience over the past few years in the face of a challenging economic environment and the opportunities for continued
growth in both emerging and developed markets. In fiscal 2013, we implemented price increases in many markets around the
world, generally in the low-single digits, but higher in some markets, and, in many markets, for the first time in several years.
Our price increase plans in fiscal 2014 are somewhat more modest, but include low single-digit increases in many markets across
the globe. We believe that the environment remains suitable in many markets for us to increase the price of this premium brand,
but we are uncertain how the trade and consumers will react - especially in those markets where we took price increases during
fiscal 2013. We intend to monitor the reaction closely and to be flexible in adapting where necessary.
In late fiscal 2011, we introduced a new line extension in the United States, Jack Daniel’s Tennessee Honey. In fiscal 2012,
the brand’s first full year of business, the brand exceeded 450,000 nine-liter cases. In fiscal 2013, the brand grew volumes double-
digits in the United States and was named to Impact’s “Hot Brands” list for calendar 2012 for the second consecutive year. In
24
addition, we successfully launched Jack Daniel’s Tennessee Honey in several important international markets, including the United
Kingdom, Australia, Poland and South Africa. Globally, the brand exceeded 770,000 nine-liter cases and nearly doubled net sales
in fiscal 2013, its second full year after launch. In fiscal 2014, we plan to continue the international expansion of Jack Daniel’s
Tennessee Honey to new markets.
The Jack Daniel’s RTD brands grew volume 5% in fiscal 2013 (on top of a 12% increase in fiscal 2012), and net sales
increased 5% on an as-reported basis and 7% on a constant-currency basis. Among the best-performing markets was the United
States, which managed 24% net sales growth on an as-reported basis in fiscal 2013, driven by a resurgent Jack Daniel’s Country
Cocktails business. Germany, the United Kingdom and Mexico all grew Jack Daniel’s RTD volumes double digits in fiscal 2013.
Australia grew net sales in the low single digits on both an as-reported and constant-currency basis. Volumes in Japan were
significantly lower in fiscal 2013 because we discontinued the Jack Daniel’s & Soda RTD launched in fiscal 2012. We believe
Jack Daniel’s RTDs will continue to provide a growth opportunity for us, as they offer not only an appealing, great-tasting,
convenient expression of the brand but also an effective marketing tool for the parent brand.
Net sales of both Gentleman Jack and Jack Daniel’s Single Barrel grew at double-digit rates on both an as-reported and a
constant-currency basis, fueled by international expansion of these brands. Gentleman Jack’s volume surpassed 425,000 nine-liter
cases globally as net sales grew 17% on an as-reported basis and 18% on a constant-currency basis. In the United States, Gentleman
Jack increased prices and grew volumes in the mid-single digits. At the end of fiscal 2013, we developed a new advertising
campaign for fiscal 2014 called “The Order of the Gentleman,” the first ever use of television for this brand.
In fiscal 2013, the Finlandia family of brands grew net sales by 3% on an as-reported basis and 6% on a constant-currency
basis, driven largely by volume growth. Finlandia managed to grow volumes in its largest market, Poland, despite a contracting
premium vodka category. Russia was the most important driver of net sales growth for Finlandia. In Russia, the brand grew volume
over 30% to surpass 350,000 nine-liter cases and gained market share in the premium segment of the vodka market. Israel and
several other countries in Europe and North America grew Finlandia volumes and net sales on an as-reported basis during fiscal
2013.
The Southern Comfort family of brands global volume declined 5% in fiscal 2013, while net sales declined 5% on an as-
reported basis and 4% on a constant-currency basis (an improvement over fiscal 2012, when constant-currency net sales declined
by 7%). In fiscal 2013, we launched the new “Whatever’s Comfortable” consumer engagement campaign in the United States. We
significantly increased our total advertising spending on Southern Comfort in the United States, and we devoted a larger percentage
of our spending to media investment. We believe that this strategy helped to reverse in fiscal 2013 the previously negative net
sales trend, as the brand grew net sales in the United States by 1% on both an as-reported and a constant-currency basis. Outside
the United States, Southern Comfort struggled in its top international markets as volume and net sales declined in the United
Kingdom, Australia and Germany. Encouraged by the combined impact of our new consumer engagement campaign, increased
investment, and reallocation of investment in the United States, we plan to test and implement similar elements in Southern
Comfort’s top international markets in fiscal 2014.
Our tequila portfolio grew net sales 7% on both an as-reported basis and a constant currency basis in fiscal 2013. Super-
premium Herradura remained strong, and grew net sales on both an as-reported and constant-currency basis double digits globally
for the third consecutive year. In the United States, Herradura outpaced the competitive set and grew market share with a 20%
increase in net sales on both an as-reported and a constant-currency basis during fiscal 2013. El Jimador grew net sales globally
by 2% on both an as-reported and a constant-currency basis on flat volume. Outside Mexico, the brand grew volumes 11%, driving
net sales growth of 13% on an as-reported basis and 14% on a constant-currency basis. These gains were partially offset by mid-
single-digit declines in volume and net sales in Mexico as a result of pricing pressure in a difficult competitive environment. El
Jimador New Mix RTDs increased net sales by 13% on both an as-reported and a constant-currency basis. New Mix delivered
this growth on a 7% volume increase and higher pricing. New Mix remains the market leader in Mexico’s RTD category and an
important driver of our business in this country. We remain focused on developing our tequila portfolio in the United States (where
we see considerable potential for growth); strengthening our position in Mexico; and selectively building our presence in higher-
value tequila markets throughout the world, such as Russia and Brazil.
Woodford Reserve, our super-premium bourbon brand, grew volume by 26% during fiscal 2013. We substantially increased
our advertising investment in Woodford Reserve in its most important market, the United States, to support the brand’s growth.
Looking ahead, we believe that Woodford is well-positioned to capture its share of the fast-growing super-premium bourbon
segment in the United States and to capitalize on renewed interest in bourbon around the world. We will continue to devote
substantial resources to Woodford to support its future growth potential.
FISCAL 2013 COMPARED TO FISCAL 2012
Net sales of $3.8 billion increased 5%, or $170 million, compared to fiscal 2012. On an underlying basis, net sales increased
by 8%. We continued to expand our international footprint, as reported net sales outside the United States grew faster at 6%
25
compared to 3% net sales growth in the United States. The year-over-year comparison of our net sales in the United States was
hurt by the absence of approximately $83 million in sales of Hopland-based wine brands in fiscal 2012.
The major factors driving our fiscal 2013 change in net sales were:
Underlying change in net sales
Volume
Net price/mix
Estimated net change in trade inventories
Foreign exchange
Absence of Hopland-based wine business
Reported change in net sales
Total differs due to rounding.
5%
3%
Change
vs. 2012
8 %
1 %
(1)%
(2)%
5 %
We attribute our 8% underlying growth in net sales during fiscal 2013 primarily to the strong performance of the Jack Daniel’s
family of brands and the performance of several other brands, including, Woodford Reserve, Finlandia, New Mix, Herradura and
agency brands. In fiscal 2013, net sales growth of the Jack Daniel’s family of brands benefitted from (a) volume growth and price
increases of Jack Daniel’s Tennessee Whiskey across many markets including the United States; (b) expansion of Jack Daniel’s
Tennessee Honey to markets outside the United States and its continued growth in the United States; and (c) continued growth of
line extensions including Gentleman Jack and the line of Jack Daniel’s RTDs. These gains were partially offset by declines in net
sales for a few brands, most notably Southern Comfort. Our change in reported sales was reduced by the negative impact of foreign
exchange and the absence of Hopland-based wine business. Reported sales benefitted from an estimated increase in trade inventories
in Japan, the United States and across many markets in Europe.
We experienced the most significant growth in net sales on both an as-reported and a constant-currency basis in the United
States, Australia, Germany, Russia, Mexico, the United Kingdom, Turkey, Poland, and France, while net sales declined in some
countries, including Canada, China and Korea.
Cost of sales of $894 million decreased $34 million, or 4%, during fiscal 2013. Growth in sales volume resulted in cost of
sales increases for the period, while higher transportation and input costs, including grain and glass, were mostly offset by lower
value-added package expense and manufacturing efficiencies. Additionally, the transition services agreement with the buyer of
Fetzer Vineyards (which included Fetzer winery, bottling facility and vineyards, as well as the Fetzer brand and other Hopland,
California based wines) expired on December 31, 2011, resulting in lower costs compared to the prior year. Foreign exchange
favorably affected cost of sales. The following table highlights the major changes in costs for the year:
Volume growth and new products
Foreign exchange
Cost increases / mix
Absence of Hopland-based wine business
Reported change in cost of sales
Change
vs. 2012
4 %
(1)%
0 %
(7)%
(4)%
Gross profit of $1,955 million increased $160 million, or 9%, during fiscal 2013. Gross profit was hurt by the absence of
gross profit associated with the Hopland-based wine business sale and foreign exchange. The same factors that drove the increase
in underlying net sales for the year also contributed to the underlying growth in gross profit for the same period. Similarly, the
increase in cost of goods for the year related to volume growth and new products partially offset the underlying growth in net sales
for the same period. The following table summarizes the major factors that contributed to gross profit growth for the year:
Underlying change in gross profit
Estimated net change in trade inventories
Foreign exchange
Absence of Hopland-based wine business
Reported change in gross profit
26
Change
vs. 2012
10 %
1 %
(1)%
(1)%
9 %
Gross margin (gross profit divided by net sales) improved to 51.7% in fiscal 2013 from 49.7% in fiscal 2012. About half of
the improvement was derived from the absence of the lower-margin Hopland-based wine business in our fiscal 2013 results. The
other half of the gross margin increase was driven by higher pricing and a favorable mix shift.
Advertising expenses of $408 million were up $13 million, or 3%, due in part to increased investments in media for Southern
Comfort in the United States; and support for the introduction of line extensions, notably Jack Daniel’s Tennessee Honey in the
United Kingdom, Australia and South Africa and its continued growth in the United States. We also increased advertising investment
behind Woodford Reserve in the United States and our vodka portfolio in Europe. Overall advertising spending excluding the
effect of the absence the Hopland-based wine business and the effect of foreign exchange was up 6%.
Underlying change in advertising
Foreign exchange
Absence of Hopland-based wine business
Reported change in advertising
Change
vs. 2012
6 %
(2)%
(1)%
3 %
Selling, general, and administrative (SG&A) expenses increased $40 million, or 7%, as shown in the following table:
Underlying change in SG&A
Foreign exchange
Reported change in SG&A
Change
vs. 2012
8 %
(1)%
7 %
Inflation on salary and benefit-related expenses, costs related to a leadership reorganization during fiscal 2013, and higher
pension costs all contributed to the year-over-year increase in selling, general and administrative expenses. During fiscal 2013,
we also invested to enhance our organizational capabilities for our emerging markets - notably in China, India and Africa.
Operating income was $898 million in fiscal 2013, an increase of $110 million, or 14%, over fiscal 2012. Underlying
operating income growth of 13% resulted from the higher rate of underlying gross profit growth compared to the lower rate of
growth in advertising and SG&A expenses (which we refer to as “operating expense leverage”)
The reported change in operating income was reduced by the unfavorable effect of foreign exchange and the absence of
operating income from the Hopland-based wine business. Operating income benefitted from the effect of an estimated increase
in trade inventories.
The following table summarizes the major factors contributing to the increase in operating income:
Underlying change in operating income
Estimated net change in trade inventories
Foreign exchange
Sale of Hopland-based wine business
Reported change in operating income
Change
vs. 2012
13 %
3 %
(1)%
(1)%
14 %
Operating margin (operating income divided by net sales) grew to 23.7% in fiscal 2013 from 21.8% in fiscal 2012. The same
factors that drove the increase in our gross margin benefitted our operating margin. In addition, our operating margin was helped
by operating expense leverage.
Interest expense (net) increased by $5 million compared to fiscal 2012, due to a $9 million charge for the early redemption
of our $250 million 5% notes due February 1, 2014 and higher levels of debt, offset by the absence of our $250 million 5.2% notes
that matured on April 1, 2012.
Our effective tax rate for fiscal 2013 was 31.7% compared to 32.5% in fiscal 2012. The decrease in our effective tax rate
was driven primarily by the beneficial impact of increased foreign earnings, lower state income taxes and the benefit of discrete
items.
27
Diluted earnings per share were $2.75 in fiscal 2013, up 16% from the diluted earnings per share reported for fiscal 2012,
as adjusted for the 3-for-2 stock split effected in August 2012. This increase resulted from the same factors that contributed to the
increase in operating income and was also helped by the lower effective tax rate but was hurt by higher net interest expense.
FISCAL 2012 COMPARED TO FISCAL 2011
Net sales of $3.6 billion increased 6%, or $210 million, compared to fiscal 2011. The major factors driving our fiscal 2012
change in net sales were:
Underlying change in net sales
Volume
Net price/mix
Estimated net change in trade inventories
Sale of Hopland-based wine business
Reported change in net sales
10 %
(1)%
Change
vs. 2011
9 %
(1)%
(2)%
6 %
Our underlying net sales grew 9% during fiscal 2012 primarily to (a) the strong performance of the Jack Daniel’s family of
brands, reflecting the successful introduction of Jack Daniel’s Tennessee Honey in the United States, acceleration in the growth
of Jack Daniel’s Tennessee Whiskey globally, and the international expansion of Gentleman Jack, Jack Daniel’s Single Barrel,
and Jack Daniel’s RTD products; and (b) the performance of Finlandia, agency brands, Woodford Reserve, New Mix, and Herradura.
These gains were partially offset by declines in net sales (a) for some brands including Southern Comfort, Canadian Mist, and
Korbel; and (b) for Fetzer (which we sold in April 2011 but marketed as an agency brand through December 2011). We experienced
the most significant underlying growth in net sales in the United States, Mexico, Germany, Russia, Australia, the United Kingdom,
France, Turkey, and Brazil, while net sales declined in some countries, including China, Italy, and Korea.
Jack Daniel’s Tennessee Whiskey registered volume growth for the 20th consecutive year, up 8% globally. The introduction
of the Jack Daniel’s Tennessee Honey boosted our overall growth in the United States. Jack Daniel’s RTDs grew volumes 12%
globally, fueled by strong gains in Germany, Mexico, and the United Kingdom as well as continued expansion into other markets.
Gentleman Jack and Jack Daniel’s Single Barrel volumes grew at a double-digit rate fueled by international expansion. Worldwide
volumes for Finlandia grew 7%, benefitting from higher volumes in Russia, due in part to soft comparisons a year earlier resulting
from disruption following a distribution change. The el Jimador brand grew 1% globally. Worldwide volumes for Southern
Comfort’s family of brands declined 2%, caused in part by increased competition from flavored whiskeys, flavored vodkas, and
spiced rums. Overall volume performance during fiscal 2012 was mixed for the other brands in our portfolio. Several of our super-
premium brands registered volume gains, including Herradura, Woodford Reserve, and Sonoma-Cutrer. Meanwhile, Canadian
Mist and Early Times recorded volume declines.
Cost of sales of $928 million increased $66 million, or 8%, during fiscal 2012. Volumetric growth, higher input costs
(including corn and glass), and an increase in fuel costs were the main contributors to growth in costs of sales for the year.
Additionally, the transition services agreement with the buyer of Fetzer Vineyards (which included the Fetzer winery, its bottling
facility and vineyards, as well as the Fetzer brand and other Hopland, California-based wines) expired on December 31, 2011,
resulted in lower costs compared to the prior year. The following table highlights the major changes in cost of sales for the year:
Underlying change in cost of sales
Cost increases / mix
Sale of Hopland-based wine business
Reported change in cost of sales
Change
vs. 2011
7 %
3 %
(2)%
8 %
Gross profit of $1,795 million increased $71 million, or 4%, during fiscal 2012. Gross profit was reduced by the absence
of gross profit associated with the Hopland-based wine business sale and foreign exchange. The same factors that drove the increase
in underlying net sales for the year also contributed to the underlying growth in gross profit for the same period. Similarly, the
same factors that contributed to the increase in cost of goods for the year partially offset the underlying growth in net sales for the
same period. The following table summarizes the major factors that contributed to gross profit growth for the year:
28
Underlying change in gross profit
Foreign exchange
Sale of Hopland-based wine business
Reported change in gross profit
Change
vs. 2011
8 %
(1)%
(3)%
4 %
The higher cost of sales and a significantly lower gross margin earned from the Hopland-based wine business this year were
the primary factors driving gross margin of 49.7%, down from 50.7% in the prior-year period.
Advertising expenses of $395 million were up $29 million, or 8%, due in part to (a) increased investments behind el Jimador,
Finlandia, and agency brands in Mexico and Brazil; and (b) support for the introduction of line extensions (notably Jack Daniel’s
Tennessee Honey in the United States, Jack Daniel’s & Soda in Japan, Jack Daniel’s RTD geographic expansions, and Southern
Comfort Fiery Pepper in the United States). Overall advertising spending excluding the effect of the sale of Hopland-based wine
business was up 9%.
Change
vs. 2011
Underlying change in advertising
Sale of Hopland-based wine business
Reported change in advertising
Selling, general, and administrative expenses increased $36 million, or 6%, as shown in the following table:
Change
vs. 2011
Underlying change in SG&A
Foreign exchange
Absence of dispute settlement
Reported change in SG&A
9 %
(1)%
8 %
6 %
1 %
(1)%
6 %
Inflation on salary and benefit related expenses, foreign exchange, investments in organizational capabilities in emerging
markets such as China, and the establishment of our own route-to-consumer structure in Turkey contributed to the year over year
increase in selling, general and administrative expenses.
Other income decreased $75 million in fiscal 2012, due primarily to the absence of the $53 million pre-tax gain we realized
on the sale of Hopland-based wine business, of which $62 million2 was reflected in other income.
Operating income was $788 million in fiscal 2012, a decline of $67 million, or 8%, over fiscal 2011. Operating income
benefitted from 9% underlying operating income growth but was hurt both by the absence of the gain on sale and reduction in
profits associated with the Hopland-based wine business, which was sold in April 2011, and by foreign exchange.
The chart below summarizes the major factors contributing to the decrease in operating income for the year and identifies
our underlying operating income growth for fiscal 2012 of 9%.
Underlying change in operating income
Absence of dispute settlement
Estimated net change in trade inventories
Foreign exchange
Sale of Hopland-based wine business
Reported change in operating income
Change
vs. 2011
9 %
(1)%
(1)%
(3)%
(12)%
(8)%
2 See Note 13 to our consolidated financial statements for a breakdown of the details of the gain reflected in our accompanying
consolidated statement of operations.
29
The underlying growth in operating income was driven by (a) higher consumer demand for Jack Daniel’s Tennessee Whiskey
internationally, particularly in the Russia, Germany, France, and the United Kingdom; (b) the introduction of Jack Daniel’s
Tennessee Honey in the United States; (c) continued gains for Jack Daniel’s RTD products in Germany, Mexico, and the United
Kingdom and from expansion into other markets including Poland, Japan, and South Africa, and price gains in Germany and
Australia; (d) growth of Finlandia; and (e) gains for several other brands, including Gentleman Jack, Jack Daniel’s Single Barrel,
Woodford Reserve, New Mix, Herradura, and agency brands. These positive factors were partially offset by an increase in operating
expenses. Investment in advertising behind our brands, inflation in selling, general and administrative expenses, mainly salary
and benefit related, investment in organizational capabilities in emerging markets such as China, and the establishment of our own
route-to-consumer structure in Turkey contributed to the year over year increase in operating expenses.
Interest expense (net) increased by $2 million compared to fiscal 2011, reflecting higher long-term debt offset partially by
lower short-term borrowings and additional swaps to a floating rate on our bonds due 2014.
Our effective tax rate for fiscal 2012 was 32.5% compared to 31.0% in fiscal 2011. The increase in our effective tax rate
was driven primarily by the absence of an adjustment made during fiscal 2011 to reverse $8 million of income tax expense that
we incorrectly recognized in prior periods. We believe the impact of this error and the cumulative out-of-period adjustment to
correct the error were insignificant to our consolidated financial statements for that period and any prior periods.
Diluted earnings per share decreased 9% to $2.37 in fiscal 2012. This decline resulted from the same factors that contributed
to the decrease in operating income and was also hurt by higher net interest expense and a higher effective tax rate. These factors
were only partially offset by fewer shares outstanding after share repurchases.
30
OTHER KEY PERFORMANCE MEASURES
Our goal is to increase the value of our shareholders’ investment consistently and sustainably over the long term. We believe
that the long-term relative performance of our stock is a good indication of our success in delivering attractive returns to shareholders.
Total shareholder return. An investment made in Brown-Forman Class B common stock over terms of one, three, five,
and ten years would have significantly outperformed the returns of the S&P 500 over the same periods. Specifically, a $100
investment in our Class B stock on April 30, 2003, would have grown to approximately $359 by the end of fiscal 2013, assuming
reinvestment of all dividends and ignoring personal taxes and transaction costs. As shown in the following graph, that represents
an annualized return of 16% over the 10-year period, compared to a comparable ten-year return in an investment in the S&P 500
of 8%. A more recent investment in Brown-Forman Class B common stock (one year ago) would have provided a very strong
return of 31% over the prior year, outpacing the 16% return of the S&P 500 for the same period.
Return on average invested capital. Our return on average invested capital increased from 19.1% in fiscal 2012 to 21.7%
in fiscal 2013, driven largely by higher net income and a relatively smaller increase in invested capital. We believe these returns
surpassed those reported by our wine and spirits competitors during the same period. Excluding the effect of any future acquisitions,
we expect our return on average invested capital to increase over the longer term even as we invest in property, plant and equipment,
and working capital to support our expected growth. This expectation is based on our positive outlook for earnings growth, given
the growth opportunities for our brands around the world and our continued careful management of our investments in them.
31
LIQUIDITY AND CAPITAL RESOURCES
Our ability to generate cash from operations consistently is one of our most significant financial strengths. Our strong cash
flows enable us to pay dividends, make appropriate capital investments, pursue brand-building programs, and make strategic
acquisitions that we believe will enhance shareholder value. Investment-grade ratings (A1 by Moody’s, A+ by Fitch, and A- by
Standard & Poor’s) provide us with financial flexibility when accessing global credit markets. We believe cash flows from
operations are more than adequate to meet our expected operating and capital requirements.
CASH FLOW SUMMARY
(Dollars in millions)
Operating activities
Investing activities:
Sale of business
Additions to property, plant, and equipment
Sale of property, plant, and equipment
Other
Financing activities:
Net issuance (repayment) of debt
Acquisition of treasury stock
Dividends paid
Other
Foreign exchange effect
Change in cash and cash equivalents
2011
2012
2013
$
527
$
516
$
537
234
(39)
12
(4)
203
57
(136)
(326)
(1)
(406)
11
335
$
—
(58)
—
(10)
(68)
(248)
(220)
(192)
(2)
(662)
(15)
(229) $
—
(95)
—
(2)
(97)
493
—
(1,063)
(6)
(576)
2
(134)
$
Cash and cash equivalents decreased $134 million in fiscal 2013 compared to a decrease of $229 million in fiscal 2012, as
an increase in cash from operations combined with a decrease in cash used for financing activities significantly exceeded an
increase in cash used for investing activities compared to last year. Cash provided by operations was $537 million, up from $516
million in fiscal 2012, reflecting higher earnings offset partially by a larger increase in working capital.
Cash used for investing activities increased $29 million during fiscal 2013, primarily reflecting a $37 million increase in
capital expenditures due largely to investments to expand production capacity at Jack Daniel’s Distillery and Sonoma-Cutrer. Cash
used for other investing activities during fiscal 2013 declined $8 million, largely reflecting the $7 million acquisition of the
Maximus brand name during fiscal 2012.
Cash used for financing activities was $576 million during fiscal 2013, down $86 million from $662 million for the prior
year. The fiscal 2013 amount of $576 consists largely of dividend payments of $1,063 million (including $854 million related to
a $4.00 per share special dividend paid in December 2012) offset partially by $747 million in proceeds from bonds issued in
December 2012 to fund the special dividend payment. It also includes the early redemption in February 2013 of our $250 million
5% notes due in February 2014. The fiscal 2012 amount of $662 million consisted largely of the repayment of $250 million in
debt that matured in April 2012, the acquisition of $220 million in treasury stock (including $219 million as part of a share
repurchase program that expired in November 2011), and dividend payments of $192 million.
The impact on cash and cash equivalents as a result of exchange rate changes was an increase of $2 million in fiscal 2013
compared to a decrease of $15 million in fiscal 2012.
In comparing fiscal 2012 with fiscal 2011, cash provided by operating activities decreased $11 million, primarily reflecting
a reduction in reported earnings due in part to lower profits associated with the Hopland-based wine brands and higher inventory
levels. Cash used for investing activities increased $271 million compared to fiscal 2011, reflecting the absence of $234 million
cash proceeds received from the sale of the Hopland-based wine business and an increase in capital investments. Cash used for
financing activities increased $256 million, primarily reflecting the repayment of $250 million in debt that matured in April 2012
and an $84 million increase in share repurchases of our common stock, partially offset by the non-recurrence of a $145 million
special cash dividend paid in fiscal 2011. The impact on cash and cash equivalents as a result of exchange rate changes was a
decrease of $15 million in fiscal 2012 compared to an increase of $11 million in fiscal 2011.
32
Capital expenditures. Investments in property, plant, and equipment were $39 million in fiscal 2011, $58 million in fiscal
2012, and $95 million in fiscal 2013. Expenditures over the three-year period included investments to maintain, expand, and
improve production efficiency, to reduce costs, and to build our brands. Capital investments were higher in fiscal 2013 compared
to the prior two fiscal years reflecting continued spending to begin expansion of our production operations to support the growing
demand for Jack Daniel’s family of brands and Sonoma-Cutrer.
We expect capital expenditures for fiscal 2014 to increase significantly to a range of $140 million to $160 million, and that
these investments will be funded by cash provided by operations. Our capital spending plans for fiscal 2014 include investments
to expand further the production capacity at Jack Daniel’s and to complete a new cooperage facility in Decatur, Alabama. Our
capital plan in fiscal 2014 also includes investment to complete the capacity expansion of our Sonoma-Cutrer winery and projects
that we expect will provide cost savings opportunities, mitigate risk, and comply with regulations. As we look at our capital
expenditures requirement beyond fiscal 2014, we expect our spending to range from $80 million to $100 million in fiscal 2015
as we complete our production capacity expansion at Jack Daniel’s and invest in our facilities in Versailles, Kentucky, to support
the growth of Woodford Reserve. We expect our capital expenditures to return to a more normal level of $50 million to $70 million
in fiscal 2016.
Share repurchases. During fiscal 2011 and 2012, we repurchased shares of our Class A and Class B common stock under
two separate repurchase programs. The results of those share repurchase programs are summarized in the following table.
Dates
Shares Purchased
Starting
June 2010
March 2011
Ending
December 2010
November 2011
Class A
31,304
459,464
Class B
2,916,686
4,599,252
$
$
Average Price Per
Share, Including
Brokerage Commissions
Total Spent on
Stock Repurchase
Program
Class A
Class B
(Millions)
39.93
46.03
$
$
39.73
46.29
$
$
117.1
234.0
Liquidity. We continue to manage liquidity conservatively to meet current obligations, fund capital expenditures, and
maintain dividends, while reserving adequate debt capacity for acquisition opportunities. In fiscal 2013, we enhanced our liquidity
by issuing $750 million of unsecured notes, with the proceeds used as partial funding of the $4.00 per share special cash dividend
paid in December 2012.
We have access to several liquidity sources to supplement our cash flow from operations. Our commercial paper program
continues to fund our short-term credit needs. This program is supported by our $800 million bank credit facility, which was
extended from November 2016 to November 2017 during fiscal 2013. We could also satisfy our liquidity needs by drawing on
the facility. Under extreme market conditions, one or more participating banks may not be able to fully fund this credit facility.
In addition to our cash flow from operations, we believe that the markets for investment-grade bonds and private placements are
very accessible and provide a source of long-term financing that could provide for any additional liquidity needs.
We have high credit standards when initiating transactions with counterparties and closely monitor our counterparty risks
with respect to our cash balances and derivative contracts. If a counterparty’s credit quality were to deteriorate below our credit
standards, we would either liquidate exposures or require the counterparty to post appropriate collateral.
As of April 30, 2013, we had total cash and cash equivalents of $204 million. Of this amount, $88 million was held by
foreign subsidiaries whose earnings we expect to reinvest indefinitely outside of the United States. We do not expect to need the
cash generated by those foreign subsidiaries to fund our domestic operations. However, in the unforeseen event that we repatriate
cash from those foreign subsidiaries, we would be required to provide for and pay U.S. taxes on permanently repatriated funds.
As discussed above, we received proceeds of $747 million ($750 million principal amount, less discounts) from bonds issued
in December 2012. The $750 million consisted of $250 million of 1.00% notes due in fiscal 2018, $250 million of 2.25% notes
due in fiscal 2023, and $250 million of 3.75% notes due in fiscal 2043.
On February 25, 2013, we redeemed, in full, our $250 million 5% notes due in fiscal 2014 by exercising a “make-whole”
call provision of the notes. We used a combination of cash and short-term borrowing to fund the redemption.
As announced on May 23, 2013, our Board of Directors declared a regular quarterly cash dividend of $0.255 per share on
our Class A and Class B common stock. Stockholders of record on June 5, 2013 will receive the dividend on July 1, 2013.
We believe our current liquidity position is strong and sufficient to meet all of our financial commitments for the foreseeable
future. Our $800 million bank credit facility’s quantitative covenant requires our ratio of consolidated EBITDA (as defined in the
agreement) to consolidated interest expense to be at least 3 to 1. At April 30, 2013, with a ratio of 26 to 1, we were well within
the covenant’s parameters.
33
LONG-TERM OBLIGATIONS
We have long-term obligations related to contracts, leases, borrowing arrangements, and employee benefit plans that we
enter into in the normal course of business (see Notes 4, 7, and 11 to the accompanying consolidated financial statements). The
following table summarizes the amounts of those obligations as of April 30, 2013, and the years when those obligations must be
paid:
LONG-TERM OBLIGATIONS1
(Dollars in millions)
Long-term debt
Interest on long-term debt
Grape purchase obligations
Operating leases
Postretirement benefit obligations2
Agave purchase obligations3
Total
Total
2014
2015-
2018
After
2018
$
$
1,002
362
14
43
37
n/a
1,458
$
$
2
24
6
17
37
n/a
86
$
$
500
80
7
25
n/a
n/a
612
$
$
500
258
1
1
n/a
n/a
760
1 Excludes liabilities for tax uncertainties, as we cannot reasonably predict the ultimate amount or timing of settlement.
2 As of April 30, 2013, we have unfunded pension and other postretirement benefit obligations of $284 million. Because we
cannot determine the specific periods in which those obligations will be funded, the table above reflects no amounts related
to those obligations other than the $37 million of expected contributions (including $30 million of expected discretionary
contributions) in fiscal 2014.
3 As discussed in Note 4 to the accompanying consolidated financial statements, we have obligations to purchase agave, a plant
whose sap forms the raw material for tequila. Because we cannot determine the specific periods in which those obligations
will be paid, the above table reflects no amounts related to those obligations. As of April 30, 2013, based on current market
prices, obligations under these contracts totaled $8 million.
We expect to meet these obligations with internally generated funds.
CRITICAL ACCOUNTING ESTIMATES
Our financial statements reflect some estimates involved in applying the following critical accounting policies that entail
uncertainties and subjectivity. Using different estimates could have a material effect on our operating results and financial condition.
Goodwill and other intangible assets. We have obtained most of our brands by acquiring other companies. Upon acquisition,
the purchase price is first allocated to identifiable assets and liabilities, including intangible brand names and trademarks (“brand
names”), based on estimated fair value, with any remaining purchase price recorded as goodwill. We do not amortize goodwill or
intangible assets with indefinite lives. We consider all of our brand names to have indefinite lives.
We assess our goodwill and other indefinite-lived assets for impairment at least annually. If the fair value of an asset is less
than its book value, we write it down to its estimated fair value. We evaluate goodwill for impairment if the book value of its
reporting unit exceeds its estimated fair value. We estimate the fair value of a reporting unit using discounted estimated future
cash flows. We typically estimate the fair value of a brand name using the “relief from royalty” method. We also consider market
values for similar assets when available.
Considerable management judgment is necessary to estimate fair value, including making assumptions about future cash
flows, discount rates, and royalty rates. Based on our long-term assumptions, we believe none of our goodwill or other intangibles
are impaired.
With regard to the Chambord brand name however, its estimated fair value exceeded its book value of $116 million by
approximately $10 million as of January 31, 2013, the test date for impairment. While the brand is growing outside the U.S., and
we have a number of initiatives that we anticipate will drive growth for the brand globally, we have lower expectations for the
brand in the core U.S. market. Future events or even slight changes in the assumptions used to estimate the fair value of this brand
name could significantly change its estimated fair value, which could result in a future impairment charge. For example, a 50-
basis point increase in our cost of capital, a key assumption in which a small change can have a significant effect, would decrease
the fair value of the Chambord brand name by $13 million. This would result in a non-cash brand name impairment charge.
34
Property, plant, and equipment. We depreciate our property, plant, and equipment on a straight-line basis using our estimates
of useful life, which are 20–40 years for buildings and improvements; 3–10 years for machinery, equipment, vehicles, furniture,
and fixtures; and 3–7 years for capitalized software.
We assess our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the
carrying value of those assets may not be recoverable. When we do not expect to recover the carrying value of an asset (or asset
group) through undiscounted future cash flows, we write it down to its estimated fair value. We determine fair value using discounted
estimated future cash flows, considering market values for similar assets when available. Considerable management judgment is
necessary to assess impairment and estimate fair value.
Pension and other postretirement benefits. We sponsor various defined benefit pension plans as well as postretirement plans
providing retiree health care and retiree life insurance benefits. Benefits are based on factors such as years of service and
compensation level during employment. We expense the benefits expected to be paid over employees’ expected service. This
requires us to make assumptions to determine the net benefit expense and obligations, such as interest rates, return on plan assets,
the rate of salary increases, expected service, and health care cost trend rates.
The assets, obligations, and assumptions used to measure pension and retiree medical expenses are determined at the
beginning of the year (“measurement date”). Because obligations are measured on a discounted basis, the discount rate is a
significant assumption. It is based on interest rates for high-quality, long-term corporate debt at each measurement date. The
expected return on pension plan assets reflects expected capital market returns for each asset class, which are based on historical
returns, adjusted for the expected effects of diversification and active management (net of fees) of the assets. The other assumptions
also reflect our historical experience and management’s best judgment regarding future expectations.
We review our assumptions on each annual measurement date. As of April 30, 2013, we have decreased the discount rate
for pension obligations from 4.92% to 4.08%, and for other postretirement benefit obligations from 4.84% to 4.36%. We have
also decreased the expected return on plan assets from 7.75% to 7.50% as a result of lower capital markets return expectations for
our current asset allocation. Using these assumptions, we estimate our pension and postretirement benefit expense for fiscal 2014
will be approximately $51 million, compared to $49 million for fiscal 2013. A decrease/increase of 25 basis points in the assumed
discount rate would increase/decrease the fiscal 2014 expense by approximately $3 million. A decrease/increase of 25 basis points
in the assumed return on plan assets would increase/decrease the fiscal 2014 expense by approximately $1 million.
Income taxes. Our effective tax rate is based on our income and the statutory tax rates in the many jurisdictions where we
do business. In fiscal 2013, our effective income tax rate was 31.7%, compared to 32.5% in fiscal 2012. The decrease in our
effective tax rate was driven primarily by the beneficial impact of increased foreign earnings, lower state income taxes and the
benefit of discrete items.
Significant judgment is required in evaluating our tax positions. We establish liabilities when some positions are likely to
be challenged and may not succeed, despite our belief that our tax return positions are fully supportable. We adjust these liabilities
in light of changing circumstances, such as the progress of a tax audit. We believe current liabilities are appropriate for all known
contingencies, but this situation could change.
Years can elapse before we can resolve a particular matter for which we have established a tax liability. Although predicting
the final outcome or the timing of resolution of any particular tax matter can be difficult, we believe our liabilities reflect the likely
outcome of known tax contingencies. Unfavorable settlement of any particular issue could require use of our cash; conversely, a
favorable resolution could result in either reduced cash tax payments, or the reversal of previously established liabilities, or some
combination of these, which could reduce our effective tax rate.
Contingencies. We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs
seek substantial damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which
take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a
reasonable estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not
believe these loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position,
results of operations, or liquidity. No material accrued loss contingencies are recorded as of April 30, 2013.
Recent accounting pronouncements. During fiscal 2013, we adopted new accounting guidance for the presentation of
comprehensive income and for testing goodwill and other indefinite-lived intangible assets for impairment. Our adoption of the
new accounting guidance had no material impact on our financial statements.
New guidance for disclosures about offsetting assets and liabilities and for reporting amounts reclassified out of accumulated
other comprehensive income will become effective for us during fiscal 2014. We do not expect our adoption of this guidance to
have a material impact on our financial statements.
35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
OUR MARKET RISKS
We are exposed to market risks arising from adverse changes in (a) foreign exchange rates, (b) commodity prices affecting
the cost of our raw materials and energy, and (c) interest rates. We try to manage risk responsibly through a variety of strategies,
including production initiatives and hedging strategies. Our foreign currency hedging contracts are subject to changes in exchange
rates, our commodity forward purchase contracts are subject to changes in commodity prices, and some of our debt obligations
are subject to changes in interest rates. We discuss these exposures below and also provide a sensitivity analysis as to the effect
the changes could have on our results of operations. Please refer to Notes 8 and 10 for additional information.
Please see Note 4 to our consolidated financial statements for details on our grape and agave purchase obligations, which
are exposed to commodity price risk, and “Critical Accounting Estimates” in Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of our pension and other postretirement plans’ exposure to interest
rate risks. Also, please see Item 1A. Risk Factors for details on how economic conditions affecting market risks also affect the
demand for and pricing of our products and how we are affected by fluctuations in foreign currency exchange rates.
Foreign Exchange. The more we expand our business outside the United States, the more our financial results will be
exposed to exchange rate fluctuations. This exposure includes sales of our brands in currencies other than the dollar and the cost
of goods, services, and manpower we purchase in currencies other than the dollar. Because we sell more in local currencies than
we purchase, we have a net exposure to changes in the dollar’s value. To buffer these exchange rate fluctuations, we regularly
hedge a portion of our foreign currency exposure. But over the long term, our reported financial results will generally be hurt by
a stronger dollar and helped by a weaker dollar.
We estimate that our foreign currency revenue for our largest exposures will exceed our foreign currency expenses by
approximately $660 million in fiscal 2014. Foreign exchange rates also affect the carrying value of our foreign-currency-
denominated assets and liabilities.
If we did not hedge these foreign currency exposures, our results of operations and financial position would improve when
the dollar weakens against foreign currencies and decline when the dollar strengthens against them. But we routinely use foreign
currency forward and option contracts to hedge our transactional foreign exchange risk and, in some circumstances, our net asset
exposure. If these contracts remain effective, we will not recognize any unrealized gains or losses until we either recognize the
underlying hedged transactions in earnings or convert the underlying hedged net asset exposures. At April 30, 2013, our total
foreign currency hedges had a notional value of $686 million, with a maximum term outstanding of 24 months, and a net unrealized
gain of $1 million.
As of April 30, 2013, we hedged approximately 60% of our total transactional exposure to foreign exchange fluctuations in
2014 for our major currencies by entering into foreign currency forward and option contracts. Considering these hedges, we
estimate that a 10% increase in the average value of the dollar in 2014 relative to the fiscal 2013 effective exchange rates for our
significant currency exposures would reduce our fiscal 2014 operating income by approximately $27 million. Conversely, a 10%
decline in the value of the dollar relative to fiscal 2013 effective rates would increase our fiscal 2014 operating income by
approximately $27 million.
Commodity Prices. Commodity prices are affected by weather, supply and demand, and other geopolitical and economic
variables. To reduce price volatility, we use deliverable contracts for corn (in which we take physical delivery of the corn underlying
each contract), rather than futures contracts and options. We expect to mitigate the effect of some of the increases in our raw
material costs throughout ongoing production and cost saving initiatives, and targeted increases in prices for our brands.
Interest Rates. Our cash and cash equivalents ($204 as of April 30, 2013) and variable-rate debt ($5 as of April 30, 2013)
are exposed to the risk of changes in interest rates. Based on the April 30, 2013, net balance of these items, a 1% point decrease
in interest rates would result in $2 million less net interest income.
36
Item 8. Financial Statements and Supplementary Data
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
Year Ended April 30,
Net sales
Excise taxes
Cost of sales
Gross profit
Advertising expenses
Selling, general, and administrative expenses
Amortization expense
Other (income) expense, net
Operating income
Interest income
Interest expense
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
2011
2012
2013
$
$
$
$
3,404
818
862
1,724
366
574
5
(76)
855
3
29
829
257
572
2.61
2.60
$
$
$
$
3,614
891
928
1,795
395
610
3
(1)
788
3
31
760
247
513
2.39
2.37
$
$
$
$
3,784
935
894
1,955
408
650
—
(1)
898
3
36
865
274
591
2.77
2.75
The accompanying notes are an integral part of the consolidated financial statements.
37
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
2011
2012
2013
$
572
$
513
$
591
Year Ended April 30,
Net income
Other comprehensive income (loss), net of tax (cost) benefit:
Foreign currency translation adjustment, net of tax of $(9), $7, and $1
in 2011, 2012, and 2013, respectively
Amounts related to postretirement benefit plans:
Net actuarial gain (loss) and prior service cost, net of tax of $(9),
$42, and $16 in 2011, 2012, and 2013, respectively
Reclassification to earnings, net of tax of $(8), $(8), and $(15) in
2011, 2012, and 2013, respectively
Amounts related to cash flow hedges:
Net (loss) gain on hedging instruments, net of tax of $10, $(3), and
$(4) in 2011, 2012, and 2013, respectively
Reclassification to earnings, net of tax of $(3) in 2012 and $1 in
2013
Net other comprehensive income (loss)
Comprehensive income
$
37
13
12
(17)
—
45
617
$
(55)
(67)
12
6
5
(99)
414
$
17
(16)
15
3
—
19
610
The accompanying notes are an integral part of the consolidated financial statements.
38
BROWN-FORMAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
April 30,
2012
2013
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $9 in 2012 and $9 in 2013
Inventories:
ASSETS
Barreled whiskey
Finished goods
Work in process
Raw materials and supplies
Total inventories
Current deferred tax assets
Other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Other intangible assets
Deferred tax assets
Other assets
Total assets
Accounts payable and accrued expenses
Accrued income taxes
Current deferred tax liabilities
Short-term borrowings
Current portion of long-term debt
Total current liabilities
LIABILITIES
Long-term debt, less unamortized discount of $1 in 2012 and $3 in 2013
Deferred tax liabilities
Accrued pension and other postretirement benefits
Other liabilities
Total liabilities
Commitments and contingencies
Common stock:
STOCKHOLDERS’ EQUITY
Class A, voting, $0.15 par value (57,000,000 and 85,000,000 shares authorized in 2012 and 2013,
respectively; 56,964,000 and 85,000,000 shares issued in 2012 and 2013, respectively)
Class B, nonvoting, $0.15 par value (100,000,000 and 400,000,000 shares authorized in 2012 and
2013, respectively; 99,363,000 and 142,313,000 shares issued in 2012 and 2013, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income, net of tax:
Pension and other postretirement benefits adjustment
Cumulative translation adjustment
Unrealized loss on cash flow hedge contracts
Treasury stock, at cost (14,253,000 and 13,606,000 shares in 2012 and 2013, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
338
475
388
159
115
50
712
36
188
204
548
456
177
137
57
827
29
213
1,749
1,821
$
$
399
617
668
6
38
3,477
386
10
1
4
3
404
503
158
278
65
450
617
668
14
56
3,626
451
10
7
3
2
473
997
180
280
68
1,408
1,998
9
15
49
13
21
71
3,031
2,500
(220)
(7)
(3)
(805)
2,069
$
3,477
$
(221)
10
—
(766)
1,628
3,626
The accompanying notes are an integral part of the consolidated financial statements.
39
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Year Ended April 30,
Cash flows from operating activities:
2011
2012
2013
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
572
$
513
$
591
Gain on sale of business
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
Other, net
Changes in assets and liabilities, excluding the effects of sale of business:
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued expenses
Accrued income taxes
Noncurrent assets and liabilities
Cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of business
Additions to property, plant, and equipment
Proceeds from sale of property, plant, and equipment
Acquisition of brand names and trademarks
Computer software expenditures
Cash provided by (used for) investing activities
Cash flows from financing activities:
Net change in short-term borrowings
Repayment of long-term debt
Proceeds from long-term debt
Debt issuance costs
Net payments related to exercise of stock-based awards
Excess tax benefits from stock-based awards
Acquisition of treasury stock
Dividends paid
Cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash paid for:
Interest
Income taxes
(38)
56
9
27
(2)
(57)
(42)
(2)
21
7
(24)
527
234
(39)
12
(1)
(3)
203
(188)
(3)
248
(2)
(7)
8
(136)
(326)
(406)
11
335
232
567
26
203
$
$
$
—
49
9
53
1
2
(88)
19
19
(13)
(48)
516
—
(58)
—
(7)
(3)
(68)
4
(252)
—
—
(10)
8
(220)
(192)
(662)
(15)
(229)
567
338
33
203
$
$
$
—
51
11
26
2
(65)
(105)
(22)
58
17
(27)
537
—
(95)
—
(1)
(1)
(97)
(1)
(253)
747
(7)
(16)
17
—
(1,063)
(576)
2
(134)
338
204
32
252
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
40
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share amounts)
2011
2012
2013
Year Ended April 30,
Class A Common Stock:
Balance at beginning of year
Stock split
Balance at end of year
Class B Common Stock:
Balance at beginning of year
Stock split
Balance at end of year
Additional Paid-in Capital:
Balance at beginning of year
Stock-based compensation expense
Loss on issuance of treasury stock issued under compensation plans
Excess tax benefits from stock-based awards
Balance at end of year
Retained Earnings:
Balance at beginning of year
Stock split
Net income
Cash dividends ($1.49, $0.89, and $4.98 per share in 2011, 2012, and
2013, respectively)
Loss on issuance of treasury stock issued under compensation plans
Balance at end of year
Accumulated Other Comprehensive (Loss) Income, Net of Tax:
Balance at beginning of year
Net other comprehensive (loss) income
Balance at end of year
Treasury Stock, at Cost:
Balance at beginning of year
Stock split
Acquisition of treasury stock
Stock issued under compensation plans
Balance at end of year
Total Stockholders’ Equity
Class A Common Shares Outstanding (in thousands):
Balance at beginning of year
Stock split
Acquisition of treasury stock
Stock issued under compensation plans
Balance at end of year
Class B Common Shares Outstanding (in thousands):
Balance at beginning of year
Stock split
Acquisition of treasury stock
Stock issued under compensation plans
Balance at end of year
Total Common Shares Outstanding (in thousands)
$
$
9
—
9
15
—
15
59
9
(21)
8
55
2,464
—
572
(326)
—
2,710
(176)
45
(131)
(476)
—
(136)
14
(598)
$
9
—
9
15
—
15
55
9
(23)
8
49
2,710
—
513
(192)
—
3,031
(131)
(99)
(230)
(598)
—
(220)
13
(805)
$
2,060
$
2,069
$
56,601
—
(40)
—
56,561
90,362
—
(2,200)
267
88,429
144,990
56,561
—
(310)
—
56,251
88,429
—
(2,851)
245
85,823
142,074
9
4
13
15
6
21
49
11
(6)
17
71
3,031
(18)
591
(1,063)
(41)
2,500
(230)
19
(211)
(805)
8
—
31
(766)
1,628
56,251
28,149
—
46
84,446
85,823
42,951
—
487
129,261
213,707
The accompanying notes are an integral part of the consolidated financial statements.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, except Per Share Data)
1. ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United
States (GAAP). We also apply the following accounting policies when preparing our consolidated financial statements:
Principles of consolidation. Our consolidated financial statements include the accounts of all subsidiaries in which we have
a controlling financial interest. We use the equity method to account for investments in affiliates over which we can exercise
significant influence (but not control). We carry all other investments in affiliates at cost. We eliminate all intercompany transactions.
Cash equivalents. Cash equivalents include bank demand deposits and all highly liquid investments with original maturities
of three months or less.
Allowance for doubtful accounts. We evaluate the collectability of accounts receivable based on a combination of factors.
When we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a
specific allowance to reduce the net recognized receivable to the amount we believe will be collected. We write off the uncollectable
amount against the allowance when we have exhausted our collection efforts.
Inventories. We state inventories at the lower of cost or market, with approximately 58% of consolidated inventories being
valued using the last-in, first-out (LIFO) method. We value the remainder primarily using the first-in, first-out (FIFO) method.
FIFO cost approximates current replacement cost. If we had used the FIFO method for all inventories, they would have been $213
and $209 higher than reported at April 30, 2012 and 2013, respectively.
Because we age most of our whiskeys in barrels for three to six years, we bottle and sell only a portion of our whiskey
inventory each year. Following industry practice, we classify all barreled whiskey as a current asset. We include warehousing,
insurance, ad valorem taxes, and other carrying charges applicable to barreled whiskey in inventory costs.
We classify bulk wine and agave inventories as work in process.
Property, plant, and equipment. We state property, plant, and equipment at cost less accumulated depreciation. We calculate
depreciation on a straight-line basis using our estimates of useful life, which are 20–40 years for buildings and improvements; 3–
10 years for machinery, equipment, vehicles, furniture, and fixtures; and 3–7 years for capitalized software.
We assess our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the
carrying value of those assets may not be recoverable. When we do not expect to recover the carrying value of an asset (or asset
group) through undiscounted future cash flows, we write it down to its estimated fair value. We determine fair value using discounted
estimated future cash flows, considering market values for similar assets when available.
When we retire or dispose of property, plant, and equipment, we remove its cost and accumulated depreciation from our
balance sheet and reflect any gain or loss in operating income. We expense the costs of repairing and maintaining our property,
plant, and equipment as we incur them.
Goodwill and other intangible assets. We have obtained most of our brands by acquiring other companies. Upon acquisition,
the purchase price is first allocated to identifiable assets and liabilities, including intangible brand names and trademarks (“brand
names”), based on estimated fair value, with any remaining purchase price recorded as goodwill. We do not amortize goodwill or
intangible assets with indefinite lives. We consider all of our brand names to have indefinite lives.
We assess our goodwill and other indefinite-lived intangible assets for impairment at least annually. If the fair value of an
asset is less than its book value, we write it down to its estimated fair value. We evaluate goodwill for impairment if the book
value of its reporting unit exceeds its estimated fair value. We estimate the fair value of a reporting unit using discounted estimated
future cash flows. We typically estimate the fair value of a brand name using the “relief from royalty” method. We also consider
market values for similar assets when available. Considerable management judgment is necessary to estimate fair value, including
the selection of assumptions about future cash flows, discount rates, and royalty rates.
Foreign currency translation. The U.S. dollar is the functional currency for most of our consolidated operations. For those
operations, we report all gains and losses from foreign currency transactions in current income. The local currency is the functional
currency for some foreign operations. For those investments, we report cumulative translation effects as a component of
accumulated other comprehensive income (loss), a component of stockholders’ equity.
42
Revenue recognition. We recognize revenue when title and risk of loss pass to the customer, typically when the product is
shipped. Some sales contracts contain customer acceptance provisions that grant a right of return on the basis of either subjective
or objective criteria. We record revenue net of estimated sales returns, allowances, and discounts.
Excise taxes. Our sales are subject to excise taxes, which we collect from our customers and remit to governmental authorities.
We present these taxes on a gross basis (included in net sales and costs before gross profit) in the consolidated statement of
operations.
Cost of sales. Cost of sales includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods
sold during the period.
Shipping and handling fees and costs. We report the amounts we bill to our customers for shipping and handling as net
sales, and we report the costs we incur for shipping and handling as cost of sales.
Advertising costs. We expense the costs of advertising during the year when the advertisements first take place.
Selling, general, and administrative expenses. Selling, general, and administrative expenses include the costs associated
with our sales force, administrative staff and facilities, and other expenses related to our non-manufacturing functions.
Income taxes. We base our annual provision for income taxes on the pre-tax income reflected in our consolidated statement
of operations. We establish deferred tax liabilities or assets for temporary differences between financial and tax reporting bases
and subsequently adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We
record a valuation allowance as necessary to reduce a deferred tax to the amount that we believe is more likely than not to be
realized. We do not provide deferred income taxes on undistributed earnings of foreign subsidiaries that we expect to permanently
reinvest.
We assess our uncertain income tax positions using a two-step process. First, we evaluate whether the tax position will more
likely than not, based on its technical merits, be sustained upon examination, including resolution of any related appeals or litigation.
For a tax position that does not meet this first criterion, we recognize no tax benefit. For a tax position that does meet the first
criterion, we recognize a tax benefit in an amount equal to the largest amount of benefit that we believe has more than a 50%
likelihood of being realized upon ultimate resolution.
Earnings per share. We calculate basic earnings per share by dividing net income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted earnings per share further includes the dilutive
effect of stock-based compensation awards, including stock options, stock-settled stock appreciation rights, restricted stock units,
deferred stock units, and shares of restricted stock. We calculate that dilutive effect using the “treasury stock method” (as defined
by GAAP).
Some of the stock-based awards have non-forfeitable rights to dividends declared on common stock. As a result, those awards
are considered participating securities in the calculation of earnings per share.
The following table presents information concerning basic and diluted earnings per share:
Basic and diluted net income
Income allocated to participating securities
Net income available to common stockholders
Share data (in thousands):
Basic average common shares outstanding
Dilutive effect of stock-based awards
Diluted average common shares outstanding
Basic earnings per share
Diluted earnings per share
2011
2012
2013
$
$
$
$
572
(1)
571
$
$
513
—
513
$
$
218,405
1,365
219,770
214,529
1,554
216,083
2.61
2.60
$
$
2.39
2.37
$
$
591
—
591
213,369
1,617
214,986
2.77
2.75
We excluded common stock-based awards for approximately 595,000 shares, 436,000 shares, and 398,000 shares from the
calculation of diluted earnings per share for 2011, 2012, and 2013, respectively, because they were not dilutive for those periods
under the treasury stock method.
43
We try to limit the source of shares for stock-based compensation awards to treasury shares that we purchase from time to
time on the open market (at times in connection with a publicly announced share repurchase program), in private transactions, or
otherwise. If we determine that the timing of such purchases may unduly affect the market price of the shares, the purchases may
be spread over a period of time sufficient to minimize such effect. We may use newly-issued shares to cover exercises or redemptions
of awards, and then purchase an equal number of shares on the open market or otherwise as quickly as is reasonably practicable
thereafter. This practice minimizes long-term dilution to our stockholders.
Estimates. To prepare financial statements that conform with GAAP, our management must make informed estimates that
affect how we report revenues, expenses, assets, and liabilities, including contingent assets and liabilities. Actual results could
(and probably will) differ from these estimates.
Recent accounting pronouncements. During fiscal 2013, we adopted new accounting guidance for the presentation of
comprehensive income and for testing goodwill and other indefinite-lived intangible assets for impairment. Our adoption of the
new accounting guidance had no material impact on our financial statements.
New guidance for disclosures about offsetting assets and liabilities and for reporting amounts reclassified out of accumulated
other comprehensive income will become effective for us during fiscal 2014. We do not expect our adoption of this guidance to
have a material impact on our financial statements.
2. BALANCE SHEET INFORMATION
Supplemental information on our year-end balance sheets is as follows:
April 30,
Other current assets:
Prepaid taxes
Other
Property, plant, and equipment:
Land
Buildings
Equipment
Construction in process
Less accumulated depreciation
Accounts payable and accrued expenses:
Accounts payable, trade
Accrued expenses:
Advertising and promotion
Compensation and commissions
Excise and other non-income taxes
Self-insurance losses
Postretirement benefits
Interest
Other
2012
2013
$
$
$
$
$
$
120
68
188
70
330
454
21
875
476
399
120
64
87
58
10
6
5
36
266
386
$
$
$
$
$
$
123
90
213
70
351
487
48
956
506
450
133
85
106
65
11
6
9
36
318
451
44
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows the changes in the amounts recorded as goodwill (which includes no accumulated impairment
losses) over the past two years:
Balance as of April 30, 2011
Foreign currency translation adjustment
Balance as of April 30, 2012
Foreign currency translation adjustment
Balance as of April 30, 2013
$
$
625
(8)
617
—
617
As of April 30, 2012 and 2013, our other intangible assets consisted of trademarks and brand names, all with indefinite
useful lives.
Amortization expense related to finite-lived intangible assets (which expired during 2012) was $5 in 2011 and $3 in 2012.
4. COMMITMENTS
We made rental payments for real estate, vehicles, and office, computer, and manufacturing equipment under operating
leases of $22, $22, and $22 during 2011, 2012, and 2013, respectively. We have commitments related to minimum lease payments
of $17 in 2014, $11 in 2015, $7 in 2016, $6 in 2017, $1 in 2018, and $1 after 2018.
We have contracted with various growers and wineries to supply some of our future grape and bulk wine requirements.
Many of these contracts call for prices to be adjusted annually up or down, according to market conditions. Some contracts set a
fixed purchase price that might be higher or lower than prevailing market price. We have total purchase obligations related to both
types of contracts of $6 in 2014, $3 in 2015, $2 in 2016, $2 in 2017, $0 in 2018, and $1 after 2018.
We also have contracts for the purchase of agave, which is used to produce tequila. These contracts provide for prices to be
determined based on market conditions at the time of harvest, which, although not specified, is expected to occur over the next
10 years. As of April 30, 2013, based on current market prices, obligations under these contracts totaled $8.
5. CONTINGENCIES
We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs seek substantial
damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which take years to
adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a reasonable
estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not believe
these loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position, results
of operations, or liquidity. No material accrued loss contingencies are recorded as of April 30, 2013.
6. CREDIT FACILITIES
We have a committed revolving credit agreement with various U.S. and international banks for $800 that expires in November
2017. Its most restrictive quantitative covenant requires that our consolidated EBITDA (as defined in the agreement) to consolidated
interest expense not be less than a ratio of 3 to 1. At April 30, 2013, we were well within this covenant’s parameters and had no
borrowing outstanding under this facility.
45
7. DEBT
Our long-term debt (net of unamortized discount) consisted of:
April 30,
5.00% notes, due in fiscal 2014
2.50% notes, due in fiscal 2016
1.00% notes, due in fiscal 2018
2.25% notes, due in fiscal 2023
3.75% notes, due in fiscal 2043
Other
Less current portion
2012
2013
251
249
—
—
—
6
506
3
503
$
$
—
249
249
249
250
2
999
2
997
$
$
Debt payments required over the next five fiscal years consist of $2 in 2014, $0 in 2015, $250 in 2016, $0 in 2017, $250 in
2018, and $500 after 2018.
On February 25, 2013, we redeemed, in full, our 5.00% notes due in fiscal 2014 by exercising a “make whole” call provision
of the notes. In connection with the redemption, we incurred costs of $9, which is reflected as interest expense in the accompanying
consolidated statement of operations.
8. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement
date. We categorize the fair values of assets and liabilities into three levels based upon the assumptions (inputs) used to determine
those values. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management
judgment. The three levels are:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 – Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities
in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other
inputs that are observable or can be derived from or corroborated by observable market data.
• Level 3 – Unobservable inputs that are supported by little or no market activity.
46
The following table summarizes the assets and liabilities measured at fair value on a recurring basis:
Level 1
Level 2
Level 3
Total
April 30, 2012:
Assets:
Currency derivatives
Interest rate swaps
Liabilities:
Commodity derivatives
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
April 30, 2013:
Assets:
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
$
— $
—
$
1
2
— $
—
1
—
—
—
—
—
—
—
—
—
—
7
4
3
534
5
4
3
2
1,011
—
—
—
—
—
—
—
—
—
—
1
2
1
7
4
3
534
5
4
3
2
1,011
We determine the fair values of our commodity derivatives (futures and options) primarily using quoted contract prices on
futures exchange markets. For these instruments, we use the closing contract price as of the balance sheet date. We determine the
fair values of our currency derivatives (forwards and options) and interest rate swaps using standard valuation models. The
significant inputs used in these models are readily available in public markets or can be derived from observable market transactions.
Inputs used in these standard valuation models include the applicable exchange rate, forward rates, and discount rates for the
currency derivatives, and include interest-rate yield curves for the interest rate swaps. The standard valuation model for foreign
currency options also uses implied volatility as an additional input. The discount rates are based on the historical U.S. Treasury
rates, and the implied volatility specific to individual foreign currency options is based on quoted rates from financial institutions.
The fair value of short-term borrowings approximates the carrying value. We determine the fair value of long-term debt
primarily based on the prices at which similar debt has recently traded in the market and also considering the overall market
conditions on the date of valuation.
We measure some assets and liabilities at fair value on a nonrecurring basis. That is, we do not measure them at fair value
on an ongoing basis, but we do adjust them to fair value in some circumstances (for example, when we determine that an asset is
impaired). The fair values of assets and liabilities measured at fair value on a nonrecurring basis during the periods presented in
these financial statements were not material as of April 30, 2013.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, cash equivalents, and short-term borrowings approximate the carrying amounts due to the short
maturities of these instruments. We determine the fair values of derivative financial instruments and long-term debt as discussed
in Note 8.
47
Below is a comparison of the fair values and carrying amounts of these instruments:
April 30,
Assets:
Cash and cash equivalents
Commodity derivatives
Currency derivatives
Interest rate swaps
Liabilities:
Commodity derivatives
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
2012
2013
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
338
—
1
2
1
7
4
3
503
$
338
—
1
2
1
7
4
3
534
$
204
—
5
—
—
4
3
2
997
204
—
5
—
—
4
3
2
1,011
10. DERIVATIVE FINANCIAL INSTRUMENTS
Our multinational business exposes us to global market risks, including the effect of fluctuations in currency exchange rates,
commodity prices, and interest rates. We use derivatives to help manage financial exposures that occur in the normal course of
business. We formally document the purpose of each derivative contract, which includes linking the contract to the financial
exposure it is designed to mitigate. We do not hold or issue derivatives for trading purposes.
We use currency derivative contracts to limit our exposure to the currency exchange risk that we cannot mitigate internally
by using netting strategies. We designate most of these contracts as cash flow hedges of forecasted transactions (expected to occur
within three years). We record all changes in the fair value of cash flow hedges (except any ineffective portion) in accumulated
other comprehensive income (AOCI) until the underlying hedged transaction occurs, at which time we reclassify that amount into
earnings. We assess the effectiveness of these hedges based on changes in forward exchange rates. The ineffective portion of the
changes in fair value of our hedges (recognized immediately in earnings) during the periods presented in this report was not
material.
We do not designate some of our currency derivatives as hedges because we use them to at least partially offset the immediate
earnings impact of changes in foreign exchange rates on existing assets or liabilities. We immediately recognize the change in fair
value of these contracts in earnings.
We had outstanding currency derivatives, related primarily to our euro, British pound, and Australian dollar exposures, with
notional amounts totaling $510 and $686 at April 30, 2012 and 2013, respectively.
Prior to July 31, 2012, we utilized exchange-traded futures and options contracts to mitigate our exposure to corn price
volatility. Because we did not designate these contracts as hedges for accounting purposes, we immediately recognized changes
in their fair value in earnings. We had outstanding exchange-traded futures and options contracts on approximately two million
bushels of corn as of April 30, 2012. Effective July 31, 2012, we instead use forward purchase contracts with suppliers to protect
against corn price volatility. We expect to physically take delivery of the corn underlying each contract and use it for production
over a reasonable period of time. Accordingly, we account for these contracts as normal purchases rather than derivative instruments.
From time to time, we manage our interest rate risk with swap contracts. We had fixed-to-floating interest rate swaps with
total notional values of $125 outstanding as of April 30, 2012, with maturities matching those of our bonds. These swaps were
designated as fair value hedges. The change in fair value of the swaps not related to accrued interest was offset by a corresponding
adjustment to the carrying values of the bonds. No such swaps were outstanding at April 30, 2013.
48
The following table presents the fair values of our derivative instruments as of April 30, 2012 and 2013. The fair values are
presented below on a gross basis, while the fair values of those instruments that are subject to master settlement arrangements are
presented on a net basis in the accompanying consolidated balance sheets, in conformity with GAAP.
Classification
Fair Value of
Derivatives in a
Gain Position
Fair Value of
Derivatives in a
Loss Position
April 30, 2012:
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Designated as fair value hedges:
Interest rate swaps
Not designated as hedges:
Commodity derivatives
April 30, 2013:
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
Other assets
Accrued expenses
Other liabilities
$
Other assets
Accrued expenses
Other current assets
Other assets
Accrued expenses
Other liabilities
Accrued expenses
$
1
2
—
2
—
6
2
2
—
—
The following table presents the amounts affecting our consolidated statements of operations in 2012 and 2013:
Classification
2012
2013
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI
Net gain (loss) reclassified from AOCI into income
Interest rate swaps designated as fair value hedges:
Net gain (loss) recognized in income
Net gain (loss) recognized in income
Derivatives not designated as hedging instruments:
n/a
Net sales
$
Interest expense
Other income
Currency derivatives — net gain (loss) recognized in income
Currency derivatives — net gain (loss) recognized in income
Commodity derivatives — net gain (loss) recognized in income
Net sales
Other income
Cost of sales
$
9
(8)
3
(1)
9
(2)
(3)
—
(7)
(2)
—
(1)
(2)
—
(5)
(1)
(1)
7
1
2
—
—
(2)
4
We expect to reclassify $1 of deferred net losses recorded in AOCI as of April 30, 2013, to earnings during fiscal 2014. This
reclassification would offset the anticipated earnings impact of the underlying hedged exposures. The actual amounts that we
ultimately reclassify to earnings will depend on the exchange rates in effect when the underlying hedged transactions occur. The
maximum term of outstanding derivative contracts was 24 months at both April 30, 2012 and 2013.
Credit risk. We are exposed to credit-related losses if the other parties to our derivative contracts breach them. This credit
risk is limited to the fair value of the contracts. To manage this risk, we enter into contracts only with major financial institutions
that have earned investment-grade credit ratings, we have established counterparty credit guidelines that are regularly monitored
and that provide for reports to senior management according to prescribed guidelines, and we monetize contracts when we believe
it is warranted. Because of these safeguards, we believe the risk of loss from counterparty default to be immaterial.
Some of our derivative instruments require us to maintain a specific level of creditworthiness, which we have maintained.
If our creditworthiness were to fall below that level, then the counterparties to our derivative instruments could request immediate
payment or collateralization for derivative instruments in net liability positions. The aggregate fair value of all derivatives with
creditworthiness requirements that were in a net liability position was $4 and $2 at April 30, 2012 and 2013, respectively.
49
11. PENSION AND OTHER POSTRETIREMENT BENEFITS
We sponsor various defined benefit pension plans as well as postretirement plans providing retiree health care and retiree
life insurance benefits. Below, we discuss our obligations related to these plans, the assets dedicated to meeting the obligations,
and the amounts we recognized in our financial statements as a result of sponsoring these plans.
Obligations. We provide eligible employees with pension and other postretirement benefits based on factors such as years
of service and compensation level during employment. The pension obligation shown below (“projected benefit obligation”)
consists of: (a) benefits earned by employees to date based on current salary levels (“accumulated benefit obligation”); and
(b) benefits to be received by employees as a result of expected future salary increases. (The obligation for medical and life
insurance benefits is not affected by future salary increases.) The following table shows how the present value of our obligation
changed during each of the last two years.
Obligation at beginning of year
Service cost
Interest cost
Net actuarial loss (gain)
Plan amendments
Retiree contributions
Benefits paid
Obligation at end of year
Pension
Benefits
Medical and Life
Insurance Benefits
2012
2013
2012
2013
$
$
613
16
34
89
1
—
(26)
727
$
$
727
20
35
45
4
—
(48)
783
$
$
56
2
3
4
—
2
(5)
62
$
$
62
2
3
10
—
2
(5)
74
Service cost represents the present value of the benefits attributed to service rendered by employees during the year. Interest
cost is the increase in the present value of the obligation due to the passage of time. Net actuarial loss (gain) is the change in value
of the obligation resulting from experience different from that assumed or from a change in an actuarial assumption. (We discuss
actuarial assumptions used at the end of this note.) Plan amendments may also change the value of the obligation.
As shown in the previous table, the change in the value of our pension and other postretirement benefit obligations also
includes the effect of benefit payments and retiree contributions. Expected benefit payments (net of retiree contributions) over the
next 10 years are as follows:
2014
2015
2016
2017
2018
2019 — 2023
Pension
Benefits
Medical and Life
Insurance Benefits
$
$
44
44
45
47
49
265
3
3
3
3
4
20
50
Assets. We specifically invest in certain assets to fund our pension benefit obligations. Our investment goal is to earn a total
return that, over time, will grow assets sufficiently to fund our plans’ liabilities, after providing appropriate levels of contributions
and accepting prudent levels of investment risk. To achieve this goal, plan assets are invested primarily in funds or portfolios of
funds actively managed by outside managers. Investment risk is managed by company policies that require diversification of asset
classes, manager styles, and individual holdings. We measure and monitor investment risk through quarterly and annual
performance reviews, and through periodic asset/liability studies.
Asset allocation is the most important method for achieving our investment goals and is based on our assessment of the
plans’ long-term return objectives and the appropriate balances needed for liquidity, stability, and diversification. The following
table shows the fair value of pension plan assets by category, as well as the actual and target allocations, as of April 30, 2012 and
2013. (Fair value levels are defined in Note 8.)
Level 1
Level 2
Level 3
Total
Actual
Target
Allocation by Asset Class
April 30, 2012:
Commingled trust funds(a):
Equity funds
Fixed income funds
Real estate funds
Total commingled trust funds
Hedge funds(b)
Private equity(c)
Total
April 30, 2013:
Commingled trust funds:
Equity funds
Fixed income funds
Real estate funds
Total commingled trust funds
Hedge funds
Private equity
Total
$
$
$
$
— $
—
—
—
—
—
— $
— $
—
—
—
—
—
— $
239
183
19
441
—
—
441
279
199
20
498
—
—
498
$
$
$
$
— $
—
26
26
24
17
67
$
— $
—
28
28
26
21
75
$
239
183
45
467
24
17
508
279
199
48
526
26
21
573
47%
36%
9%
92%
5%
3%
100%
49%
35%
8%
92%
4%
4%
100%
47%
35%
8%
90%
5%
5%
100%
47%
35%
8%
90%
5%
5%
100%
(a) Commingled trust fund valuations are based on the net asset value (NAV) of the funds as determined by the administrator
of the fund and reviewed by us. NAV represents the underlying assets owned by the fund, minus liabilities and divided by
the number of shares or units outstanding.
(b) Hedge fund valuations are based primarily on the NAV of the funds as determined by fund administrators and reviewed
by us. During our review, we determine whether it is necessary to adjust a valuation for inherent liquidity and redemption
issues that may exist within a fund’s underlying assets or fund unit values.
(c) As of April 30, 2012 and 2013, consists only of limited partnership interests, which are valued at the percentage ownership
of total partnership equity as determined by the general partner. These valuations require significant judgment due to the
absence of quoted market prices, the inherent lack of liquidity, and the long-term nature of these investments.
51
The following table shows how the fair value of the Level 3 assets changed during each of the last two years.
Balance as of May 1, 2011
Return on assets held at end of year
Return on assets sold during year
Purchases and settlements
Sales and settlements
Balance as of April 30, 2012
Return on assets held at end of year
Purchases and settlements
Sales and settlements
Balance as of April 30, 2013
Real Estate
Funds
Hedge
Funds
Private
Equity
Total
$
$
9
3
—
14
—
26
2
—
—
28
$
$
24
(1)
1
—
—
24
2
—
—
26
$
$
16
—
—
3
(2)
17
2
4
(2)
21
$
$
49
2
1
17
(2)
67
6
4
(2)
75
The following table shows how the total fair value of all pension plan assets changed during each of the last two years. (We
do not have assets set aside for postretirement medical or life insurance benefits.)
Fair value at beginning of year
Actual return on plan assets
Retiree contributions
Company contributions
Benefits paid
Fair value at end of year
Pension
Benefits
Medical and Life
Insurance Benefits
2012
2013
2012
2013
$
$
467
27
—
40
(26)
508
$
$
508
68
—
45
(48)
573
$
$
— $
—
2
3
(5)
— $
—
—
2
3
(5)
—
We currently expect to contribute $34 to our pension plans and $3 to our postretirement medical and life insurance benefit
plans during 2014.
Funded status. The funded status of a plan refers to the difference between its assets and its obligations. The following table
shows the funded status of our plans.
Assets
Obligations
Funded status
Pension
Benefits
Medical and Life
Insurance Benefits
2012
2013
2012
2013
$
$
$
508
(727)
(219) $
$
573
(783)
(210) $
— $
(62)
(62) $
—
(74)
(74)
52
The funded status is recorded on the accompanying consolidated balance sheets as follows:
Other assets
Accounts payable and accrued expenses
Accrued postretirement benefits
Net liability
Accumulated other comprehensive loss:
Net actuarial loss (gain)
Prior service cost
Pension
Benefits
Medical and Life
Insurance Benefits
2012
2013
2012
2013
$
$
$
$
$
3
(3)
(219)
(219) $
346
4
350
$
$
$
2
(3)
(209)
(210) $
336
7
343
$
$
— $
(3)
(59)
(62) $
1
6
7
$
$
—
(3)
(71)
(74)
11
5
16
The following table compares our pension plans that have assets in excess of their accumulated benefit obligations with
those whose assets are less than their obligations. (As discussed above, we have no assets set aside for postretirement medical or
life insurance benefits.)
Plan Assets
Accumulated
Benefit
Obligation
Projected
Benefit
Obligation
2012
2013
2012
2013
2012
2013
Plans with assets in excess of accumulated
benefit obligation
Plans with accumulated benefit obligation
in excess of assets
Total
$
$
49
$
52
$
45
$
48
$
46
$
459
508
$
521
573
$
598
643
$
647
695
$
681
727
$
50
733
783
Pension expense. The following table shows the components of the pension expense recognized during each of the last
three years. The amount for each year includes amortization of the prior service cost and net actuarial loss included in accumulated
other comprehensive loss as of the beginning of the year.
Service cost
Interest cost
Special termination benefits
Expected return on plan assets
Amortization of:
Prior service cost
Net actuarial loss
Net expense
Pension Benefits
2011
2012
2013
$
$
16
33
1
(36)
1
18
33
$
$
16
34
—
(40)
1
19
30
$
$
20
35
—
(41)
1
28
43
The prior service cost represents the cost of retroactive benefits granted in plan amendments and is amortized on a straight-
line basis over the average remaining service period of the employees expected to receive the benefits. The net actuarial loss results
from experience different from that assumed or from a change in actuarial assumptions (including the difference between actual
and expected return on plan assets), and is amortized over at least that same period. The estimated amount of prior service cost
and net actuarial loss that will be amortized from accumulated other comprehensive loss into pension expense in 2014 is $1 and
$31, respectively.
53
Other postretirement benefit expense. The following table shows the components of the postretirement medical and life
insurance benefit expense that we recognized during each of the last three years.
Service cost
Interest cost
Amortization of prior service cost
Net expense
Medical and Life Insurance Benefits
2011
2012
2013
$
$
1
3
—
4
$
$
2
3
—
5
$
$
2
3
1
6
Other comprehensive (income) loss. Changes in the funded status of our benefit plans that are not recognized in net income
(as pension and other postretirement benefit expense) are instead recognized in other comprehensive (income) loss. Other
comprehensive (income) loss is also adjusted to reflect the amortization of the prior service cost and net actuarial gain or loss,
which is a component of net pension and other postretirement benefit expense, from accumulated other comprehensive (income)
loss to net income. The following table shows the amounts recognized in other comprehensive (income) loss during each of the
last three years:
Pension Benefits
Medical and Life
Insurance Benefits
2011
2012
2013
2011
2012
2013
Prior service cost
Actuarial (gain) loss
Amortization reclassified to net income:
$
— $
(18)
$
1
102
$
4
18
$
5
(10)
Prior service cost
Net actuarial loss
Net amount recognized in other
comprehensive (income) loss
(1)
(18)
(1)
(19)
(1)
(28)
—
—
$
(37) $
83
$
(7) $
(5) $
4
$
— $
4
—
—
—
10
(1)
—
9
Assumptions and sensitivity. We use various assumptions to determine the obligations and expense related to our pension
and other postretirement benefit plans. The assumptions used in computing benefit plan obligations as of the end of the last two
years were as follows:
Discount rate
Rate of salary increase
Pension
Benefits
Medical and Life
Insurance Benefits
2012
2013
2012
2013
4.92%
4.00%
4.08%
4.00%
4.84%
n/a
4.36%
n/a
Here are the assumptions we used in computing benefit plan expense during each of the last three years:
Discount rate
Rate of salary increase
Expected return on plan assets
Pension Benefits
Medical and Life
Insurance Benefits
2011
2012
2013
2011
2012
2013
5.91%
4.00%
8.50%
5.67%
4.00%
8.25%
4.92%
4.00%
7.75%
5.78%
n/a
n/a
5.59%
n/a
n/a
4.84%
n/a
n/a
The discount rate represents the interest rate used to discount the cash-flow stream of benefit payments to a net present value
as of the current date. A lower assumed discount rate increases the present value of the benefit obligation. We determined the
discount rate using a yield curve based on the interest rates of high-quality debt securities with maturities corresponding to the
expected timing of our benefit payments.
The assumed rate of salary increase reflects the expected average annual increase in salaries as a result of inflation, merit
increases, and promotions over the service period of the plan participants. A lower assumed rate decreases the present value of
the benefit obligation.
54
The expected return on plan assets represents the long-term rate of return that we assume will be earned over the life of the
pension assets. The assumption reflects expected capital market returns for each asset class, which are based on historical returns,
adjusted for the expected effects of diversification and active management (net of fees).
The assumed health care cost trend rates as of the end of the last two years were as follows:
Health care cost trend rate assumed for next year:
Present rate before age 65
Present rate age 65 and after
Medical and Life
Insurance Benefits
2012
2013
8.0%
8.0%
8.0%
7.0%
We project health care cost trend rates to decline gradually to 5.0% by 2021 and to remain level after that. Assumed health
care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A 1% increase in assumed
health care cost trend rates would have increased the accumulated postretirement benefit obligation as of April 30, 2013, by $11
and the aggregate service and interest costs for 2013 by $1. A 1% decrease in assumed health care cost trend rates would have
decreased the accumulated postretirement benefit obligation as of April 30, 2013, by $9 and the aggregate service and interest
costs for 2013 by $1.
Savings plans. We also sponsor various defined contribution benefit plans that in total cover substantially all U.S. employees.
Employees can make voluntary contributions in accordance with their respective plans, which include a 401(k) tax deferral option.
We match a percentage of each employee’s contributions in accordance with the plans’ terms. We expensed $9, $8, and $9 for
matching contributions during 2011, 2012, and 2013, respectively.
International plans. The information presented above for defined benefit plans and defined contribution benefit plans reflects
amounts for U.S. plans only. Information about similar international plans is not presented due to immateriality.
12. STOCK-BASED COMPENSATION
The Brown-Forman 2004 Omnibus Compensation Plan is our incentive compensation plan, which is designed to reward its
participants (including our eligible officers, employees, and non-employee directors) for company performance. Under the Plan,
we can grant stock-based incentive awards for up to 11,150,000 shares of common stock to eligible participants until July 22,
2014. As of April 30, 2013, awards for 6,016,000 shares remain available for issuance under the Plan. We try to limit the source
of shares delivered to participants under the Plan to treasury shares that we purchase from time to time on the open market, in
private transactions, or otherwise.
The following table presents information about stock options and stock-settled stock appreciation rights (SSARs) granted
under the Plan as of April 30, 2013, and for the year then ended:
Outstanding at May 1, 2012
Granted
Exercised
Forfeited or expired
Outstanding at April 30, 2013
Exercisable at April 30, 2013
Number of
Underlying
Shares
(in thousands)
Weighted
Average
Exercise Price
per Award
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
5,446
544
(1,367)
(36)
4,587
2,831
$
$
$
31.97
58.70
24.56
48.84
37.22
30.98
5.1
3.6
$
$
152
111
The total intrinsic value of options and SSARs exercised during 2011, 2012, and 2013 was $25, $29 and $52, respectively.
55
We grant stock options and SSARs at an exercise price equal to the market price of the underlying stock on the grant date.
Stock options and SSARs become exercisable after 3 years from the first day of the fiscal year of grant and expire 7 years after
that date. The grant-date fair values of these awards granted during 2011, 2012, and 2013 were $7.94, $9.40, and $10.70 per award,
respectively. We estimated the fair values using the Black-Scholes pricing model with the following assumptions:
Risk-free interest rate
Expected volatility
Expected dividend yield
Expected term (years)
2011
2012
2013
2.1%
23.7%
1.9%
6
1.9%
23.6%
1.9%
6
0.9%
22.9%
1.9%
6.5
We have also granted restricted stock units (RSUs), deferred stock units (DSUs), and shares of performance-based restricted
stock (PBRS) under the Plan. Approximately 314,000 shares underlying these awards, with a weighted-average remaining vesting
period of 1.6 years, were nonvested at April 30, 2013. The following table summarizes the changes in the number of shares
underlying these awards during 2013:
Nonvested at May 1, 2012
Granted
Adjusted for dividends or performance
Vested
Forfeited
Nonvested at April 30, 2013
Number of
Underlying Shares
(in thousands)
Weighted
Average
Fair Value at
Grant Date
295
85
12
(76)
(2)
314
$
$
38.25
63.15
42.86
32.51
56.70
46.41
The total fair value of RSUs, restricted stock, and DSUs vested during 2011, 2012, and 2013 was $9, $2, and $5, respectively.
As previously announced, we paid a special cash dividend of $4.00 per common share in December 2012. According to the
original terms of the Plan, awards outstanding on the ex-dividend date of the special dividend were adjusted to preserve the value
of those awards. These adjustments are reflected retrospectively in the amounts presented above.
The accompanying consolidated statements of operations reflect compensation expense related to stock-based incentive
awards on a pre-tax basis of $9 in 2011, $9 in 2012, and $11 in 2013, partially offset by deferred income tax benefits of $4 in
2011, $4 in 2012, and $4 in 2013. As of April 30, 2013, there was $9 of total unrecognized compensation cost related to non-
vested stock-based compensation. That cost is expected to be recognized over a weighted-average period of 1.8 years.
13. SALE OF HOPLAND-BASED WINE BUSINESS
In fiscal 2011, we sold our Hopland-based wine business for $234 in cash. As a result, we recognized a gain on sale (net of
transaction costs and income taxes) of $38, which is reflected in the accompanying consolidated statement of operations as follows:
Net sales
Selling, general, and administrative expenses
Other income
Income taxes
Net gain
$
$
(3)
(6)
62
(15)
38
The sale included 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.
14. INCOME TAXES
We incur income taxes on the earnings of our U.S. and foreign operations. The following table, based on the locations of
the taxable entities from which sales were derived (rather than the location of customers), presents the U.S. and foreign components
of our income before income taxes:
56
United States
Foreign
2011
2012
2013
$
$
696
133
829
$
$
660
100
760
$
$
751
114
865
The income shown above was determined according to financial accounting standards. Because those standards sometimes
differ from the tax rules used to calculate taxable income, there are differences between: (a) the amount of taxable income and
pretax financial income for a year; and (b) the tax bases of assets or liabilities and their amounts as recorded in our financial
statements. As a result, we recognize a current tax liability for the estimated income tax payable on the current tax return, and
deferred tax liabilities (income tax payable on income that will be recognized on future tax returns) and deferred tax assets (income
tax refunds from deductions that will be recognized on future tax returns) for the estimated effects of the differences mentioned
above.
Deferred tax assets and liabilities as of the end of each of the last two years were as follows:
2012
2013
April 30,
Deferred tax assets:
Postretirement and other benefits
Accrued liabilities and other
Inventories
Loss and credit carryforwards
Valuation allowance
Total deferred tax assets, net
Deferred tax liabilities:
Intangible assets
Property, plant, and equipment
Other
Total deferred tax liabilities
Net deferred tax liability
$
$
$
127
24
12
35
(24)
174
(228)
(49)
(14)
(291)
(117) $
136
26
8
39
(25)
184
(258)
(50)
(20)
(328)
(144)
The $25 valuation allowance at April 30, 2013, relates primarily to a $13 net operating loss in Brazil, which can be carried
forward indefinitely, and an $8 non-trading loss carryforward generated by Brown-Forman Beverages Europe during fiscal 2009
in the U.K. Although the non-trading losses can be carried forward indefinitely, we know of no significant transactions that will
let us use them. We reduced the valuation allowance related to this item in fiscal 2013, primarily by realizing non-recurring non-
trading gains. The remaining valuation allowance relates primarily to other foreign net operating losses that expire between fiscal
2015 and 2022. We are currently unaware of any significant transactions that will allow us to utilize these losses.
As of April 30, 2013, the gross amounts of loss and credit carryforwards include a U.K. non-trading loss of $36 (no expiration);
other foreign net operating losses of $75 ($18 of which expire in varying amounts between 2015 and 2022 and $57 of which do
not expire); state net operating losses of $46 (expiring in varying amounts between 2026 and 2033); and foreign credit carryforwards
of $6 (expiring between fiscal 2014 and 2017).
Deferred tax liabilities were not provided on undistributed earnings of foreign subsidiaries ($542 and $641 at April 30, 2012
and 2013, respectively) because we expect these undistributed earnings to be reinvested indefinitely overseas. If these amounts
were not considered permanently reinvested, additional deferred tax liabilities of approximately $121 and $141 would have been
provided as of April 30, 2012 and 2013, respectively.
Total income tax expense for a year includes the tax associated with the current tax return (“current tax expense”) and the
change in the net deferred tax asset or liability (“deferred tax expense”). Our total income tax expense for each of the last three
years was as follows:
57
Current:
U.S. federal
Foreign
State and local
Deferred:
U.S. federal
Foreign
State and local
2011
2012
2013
$
$
$
171
41
18
230
46
(1)
(18)
27
257
$
$
$
160
24
10
194
48
—
5
53
247
$
$
$
197
41
10
248
23
1
2
26
274
Our consolidated effective tax rate usually differs from current statutory rates due to the recognition of amounts for events
or transactions that have no tax consequences. The following table reconciles our effective tax rate to the federal statutory tax rate
in the United States:
U.S. federal statutory rate
State taxes, net of U.S. federal tax benefit
Income taxed at other than U.S. federal statutory rate
Tax benefit from U.S. manufacturing
Capital loss benefit
Nondeductible goodwill on sale of wine business
Other, net
Effective rate
Percent of Income Before Taxes
2011
2012
2013
35.0 %
1.1 %
(1.6)%
(2.2)%
(2.7)%
2.1 %
(0.7)%
31.0 %
35.0 %
1.3 %
(1.2)%
(2.2)%
— %
— %
(0.4)%
32.5 %
35.0 %
1.0 %
(1.4)%
(2.1)%
— %
— %
(0.8)%
31.7 %
During fiscal 2011, we recorded an adjustment to reverse $8 of income tax expense that was incorrectly recognized in prior
periods. We believe the impact of this error and the cumulative out of period adjustment to correct the error is insignificant to our
consolidated financial statements for that period and any prior periods.
At April 30, 2013, we had $11 of gross unrecognized tax benefits, $7 of which would reduce our effective income tax rate
if recognized. A reconciliation of the beginning and ending unrecognized tax benefits follows:
Unrecognized tax benefits at beginning of year
Additions for tax positions provided in prior periods
Additions for tax positions provided in current period
Decreases for tax positions provided in prior years
Settlements of tax positions in the current period
Lapse of statutes of limitations
Unrecognized tax benefits at end of year
2011
2012
2013
$
$
35
1
14
(4)
(5)
(1)
40
$
$
40
—
7
(5)
(27)
(2)
13
$
$
13
2
1
(1)
(3)
(1)
11
We record interest and penalties related to unrecognized tax benefits as a component of our income tax provision. Total
gross interest and penalties of $11, $3 and $2 were accrued as of April 30, 2011, 2012 and 2013, respectively. The impact of interest
and penalties on our effective tax rates for 2011, 2012 and 2013 was not material.
We file income tax returns in the United States, including several state and local jurisdictions, as well as in several other
countries in which we conduct business. The major jurisdictions and their earliest fiscal years that are currently open for tax
examinations are 2006 in the United States, 2009 in Ireland and Italy, 2008 in Australia and Poland, 2007 in Finland, 2003 in the
U.K., and 2002 in Mexico. The audit of our fiscal 2011 U.S. federal tax return was concluded during the current fiscal year. In
addition, we are participating in the Internal Revenue Service’s Compliance Assurance Program for our fiscal 2012 and 2013 tax
years.
58
We believe it is reasonably possible that the gross unrecognized tax benefits may increase by approximately $1 in the next
12 months as a result of tax positions taken in the current period, net of decreases for tax positions in prior periods.
15. SUPPLEMENTAL INFORMATION
The following table presents net sales by product category:
Net sales:
Spirits
Wine
The following table presents net sales by geography:
Net sales:
United States
Europe
Australia
Other
2011
2012
2013
$
$
$
$
2011
3,102
302
3,404
1,525
981
429
469
3,404
$
$
$
$
2012
3,374
240
3,614
1,522
1,073
482
537
3,614
$
$
$
$
2013
3,613
171
3,784
1,562
1,147
510
565
3,784
Net sales are attributed to countries based on where customers are located.
The net book value of property, plant, and equipment located in Mexico was $55 and $54 as of April 30, 2012 and 2013,
respectively. Other long-lived assets located outside the United States are not significant.
We have concluded that the company’s business constitutes a single operating segment.
16. CASH DIVIDENDS
We paid total cash dividends per share of $1.49, $0.89, and $4.98 during 2011, 2012, and 2013, respectively. Those amounts
included special cash dividends per share of $0.67 in 2011 and $4.00 in 2013. The remaining amounts consisted of regular quarterly
cash dividends.
17. STOCK SPLIT
On June 14, 2012, our Board of Directors authorized a 3-for-2 stock split for outstanding shares of the Company’s Class A
and Class B common stock, subject to stockholder approval of an amendment to the Company’s Restated Certificate of Incorporation
to increase the number of authorized shares of Class A and Class B common stock. The amendment, which was approved by
stockholders on July 26, 2012, increased the authorized number of Class A Common Stock to 85,000,000 from 57,000,000 and
the authorized number of Class B Common Stock to 400,000,000 from 100,000,000.
The stock split, which was effected as a stock dividend, resulted in the Company issuing one new share of Class A common
stock for each two shares of Class A common stock outstanding and one new share of Class B common stock for each two shares
of Class B common stock outstanding. The stock split was paid on August 10, 2012, to stockholders of record as of August 3,
2012. The stock split was not applied to the Company’s treasury shares.
As a result of the stock split, we reclassified approximately $10 from the Company’s retained earnings account to its common
stock accounts during 2013. The $10 represents the $0.15 par value per share of the new shares issued in the stock split. Also, we
adjusted retained earnings and treasury stock by approximately $8 to reflect the book value (at cost) of treasury shares issued in
connection with the stock split.
Previously reported share and per share amounts have been restated in the accompanying financial statements and related
notes to reflect the stock split.
59
Part II
QUARTERLY FINANCIAL INFORMATION
(Expressed in millions, except per share amounts)
First
Quarter
840
$
420
118
0.54
0.54
Second
Quarter
$ 1,014
502
158
0.73
0.73
Fiscal 2012
Third
Quarter
959
$
451
133
0.63
0.62
Fourth
Quarter
801
$
422
105
0.49
0.49
Year
$ 3,614
1,795
513
2.39
2.37
First
Quarter
878
$
464
147
0.69
0.69
Second
Quarter
$ 1,014
524
173
0.81
0.80
Fiscal 2013
Third
Quarter
$ 1,027
507
158
0.74
0.73
Fourth
Quarter
866
$
460
113
0.53
0.52
Year
$ 3,784
1,955
591
2.77
2.75
0.43
0.21
—
0.21
0.47
0.23
—
0.23
0.89
0.89
0.47
0.23
—
0.23
4.51
4.26
—
0.26
4.98
4.98
49.43
44.97
51.50
46.15
50.47
40.17
51.71
41.43
54.35
46.88
55.69
48.44
56.97
51.11
58.17
52.35
56.97
40.17
58.17
41.43
63.82
54.27
65.33
55.43
69.20
58.67
67.91
60.44
68.50
59.79
71.00
60.90
74.41
65.31
71.99
63.84
74.41
54.27
71.99
55.43
Net sales
Gross profit
Net income
Basic EPS
Diluted EPS
Cash dividends
per share:
Declared
Paid
Market price per
share:
Class A high
Class A low
Class B high
Class B low
Notes:
Quarterly amounts may not add to amounts for the year due to rounding.
Per share amounts have been adjusted for a 3-for-2 stock split in August 2012.
Cash dividends per share include a special dividend of $4.00 per share paid in December 2012.
60
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
REPORTS OF MANAGEMENT
Our management is responsible for the preparation, presentation, and integrity of the financial information presented in this
Annual Report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted
in the U.S., including amounts based on management’s best estimates and judgments. In management’s opinion, the consolidated
financial statements fairly present the Company’s financial position, results of operations, and cash flows.
The Audit Committee of the Board of Directors, which is composed of independent directors, meets regularly with the
independent registered public accounting firm, PricewaterhouseCoopers LLP (PwC), internal auditors, and representatives of
management to review accounting, internal control structure, and financial reporting matters. The internal auditors and PwC have
full, free access to the Audit Committee. As set forth in our Code of Conduct and Compliance Guidelines, we are firmly committed
to adhering to the highest standards of moral and ethical behaviors in our business activities.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with accounting principles generally accepted in the U.S.
As of the end of our fiscal year, management conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting based on the framework and criteria in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s
internal control over financial reporting was effective as of April 30, 2013. The effectiveness of the Company’s internal control
over financial reporting as of April 30, 2013, has been audited by PwC, as stated in their report that appears on page 62.
Dated:
June 27, 2013
By:
/s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer and Chairman of the Company
By:
/s/ Donald C. Berg
Donald C. Berg
Executive Vice President and Chief Financial Officer
61
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Brown-Forman Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash
flows, stockholders’ equity, and comprehensive income present fairly, in all material respects, the financial position of Brown-
Forman Corporation and its subsidiaries (the “Company”) at April 30, 2013 and April 30, 2012, and the results of their operations
and their cash flows for each of the three years in the period ended April 30, 2013 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of April 30, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in “Management’s Report on Internal Control over
Financial Reporting” appearing under Part II, Item 9A of this report on Form 10-K. Our responsibility is to express opinions on
these financial statements, on this financial statement schedule, and on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Louisville, KY
June 27, 2013
62
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer (CEO) and the Chief Financial Officer
(CFO) of Brown-Forman (its principal executive and principal financial officers) have evaluated the effectiveness of the company’s
“disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO concluded that the company’s
disclosure controls and procedures: are effective to ensure that information required to be disclosed by the company in the reports
filed or submitted by it under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms; and include controls and procedures designed to ensure that information required to be disclosed
by the company in such reports is accumulated and communicated to the company’s management, including the CEO and the
CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal control over
financial reporting during the quarter ended April 30, 2013 that has materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting
Firm. The report of management on our internal control over financial reporting as of April 30, 2013 and the report of our
independent registered public accounting firm on our internal control over financial reporting are set forth in Part II, Item 8.
“Financial Statements and Supplementary Data” in this report on Form 10-K.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information on the Company’s Executive Officers is included under the caption “Employees and Executive Officers” in
Part I of this Report on Form 10-K. For the other information required by this item, please see the following sections of our
definitive proxy statement for the Annual Meeting of Stockholders to be held July 25, 2013, which information is incorporated
into this report by reference: (a) “Election of Directors” (for biographical information on directors and family relationships);
(b) “Code of Conduct” (for information on our Code of Ethics); (c) “Section 16(a) Beneficial Ownership Reporting
Compliance” (for information on compliance with Section 16 of the Exchange Act); (d) “Corporate Governance and Nominating
Committee” (for information on the procedures by which security holders may recommend nominees to the Company’s Board of
Directors); and (e) “Corporate Governance” (for information on our Audit Committee).
Item 11. Executive Compensation
For the information required by this item, please refer to the following sections of our definitive proxy statement for the
Annual Meeting of Stockholders to be held July 25, 2013, which information is incorporated into this report by reference:
(a) “Executive Compensation;” (b) “Director Compensation;” and (c) “Compensation Committee Interlocks and Insider
Participation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For the information required by this item, please refer to the following sections of our definitive proxy statement for the
Annual Meeting of Stockholders to be held July 25, 2013, which information is incorporated into this report by reference: (a)
“Stock Ownership;” and (b) “Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual
Meeting of Stockholders to be held July 25, 2013, which information is incorporated into this report by reference: (a) “Certain
Relationships and Related Transactions;” and (b) “Independent Directors.”
63
Item 14. Principal Accountant Fees and Services
For the information required by this item, refer to the sections entitled “Fees Paid to Independent Registered Public Accounting
Firm” and “Audit Committee Pre-Approval Policies and Procedures” of our definitive proxy statement for the Annual Meeting
of Stockholders to be held July 25, 2013, which information is incorporated into this report by reference.
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)(1)
Financial Statements
The following documents are included in Item 8 of this report:
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statement Schedule:
(a)(2)
Schedule II — Valuation and Qualifying Accounts
Page
37
39
40
41
38
42
62
70
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission have been omitted either because they are not required under the related instructions, because the information required
is included in the consolidated financial statements and notes thereto, or because they are not applicable.
(a)(3) Exhibits:
The following documents are filed with this Report:
Exhibit Index
12
21
23
31.1
31.2
32
Ratio of Earnings to Fixed Charges.
Subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (not considered to be filed).
64
The following documents have been previously filed:
Exhibit Index
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Restated Certificate of Incorporation of registrant, which is incorporated into this report by reference to Exhibit
3.1 of Brown-Forman Corporation’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2012 filed
on September 5, 2012 (File No. 002-26821).
By-laws of registrant, as amended on May 28, 2009, which is incorporated into this report by reference to
Exhibit 3(ii) of Brown-Forman Corporation’s Form 8-K filed on May 29, 2009 (File No. 002-26821).
Indenture dated as of April 2, 2007 between Brown-Forman Corporation and U.S. Bank National Association,
as Trustee, which is incorporated into this report by reference to Exhibit 4.1 of Brown-Forman Corporation’s
Form 8-K filed on April 3, 2007 (File No. 002-26821).
First Supplemental Indenture dated as of December 13, 2010, between Brown-Forman Corporation and U.S.
Bank National Association, as Trustee, which is incorporated into this report by reference to Exhibit 4.2 of
Brown-Forman Corporation’s Form S-3ASR Registration Statement filed on December 13, 2010 (File No.
333-171126).
Form of 2.5% Note due 2016, which is incorporated into this report by reference to Exhibit 4.4 of Brown-
Forman Corporation’s Form 8-K filed on December 16, 2010 (File No. 002-26821).
Officer’s Certificate dated December 16, 2010, pursuant to Sections 1.02, 2.02 and 3.01 of the Indenture Dated
as of April 2, 2007, setting forth the terms of the 2.5% Notes due 2016, which is incorporated into this report
by reference to Exhibit 4.3 of Brown-Forman Corporation’s Form 8-K filed on December 16, 2010 (File No.
002-26821).
Form of 1.000% Note due 2018, which is incorporated into this report by reference to Exhibit 4.4 of Brown-
Forman Corporation’s Form 8-K filed on December 12, 2012 (File No. 002-26821).
Form of 2.250% Note due 2023, which is incorporated into this report by reference to Exhibit 4.5 of Brown-
Forman Corporation’s Form 8-K filed on December 12, 2012 (File No. 002-26821).
Form of 3.750% Note due 2043, which is incorporated into this report by reference to Exhibit 4.6 of Brown-
Forman Corporation’s Form 8-K filed on December 12, 2012 (File No. 002-26821).
Officer’s Certificate dated December 12, 2012, pursuant to Sections 1.01, 2.02 and 3.01 of the Indenture Dated
as of April 2, 2007, as supplemented by the supplemental indenture dated as of December 13, 2010 between
Brown-Forman Corporation and U.S. Bank National Association, as trustee setting forth the terms of the 1.000%
Notes due 2018, the 2.250% Notes due 2023, and the 3.750% Notes due 2043, which is incorporated into this
report by reference to Exhibit 4.3 of Brown-Forman Corporation’s Form 8-K filed on December 12, 2012 (File
No. 002-26821).
A description of the Brown-Forman Savings Plan, which is incorporated into this report by reference to page
10 of Brown-Forman Corporation’s definitive proxy statement filed on June 27, 1996 in connection with its
1996 Annual Meeting of Stockholders (File No. 001-00123).*
A description of the Brown-Forman Corporation Nonqualified Savings Plan, which is incorporated into this
report by reference to Exhibit 4.1 of Brown-Forman Corporation’s Form S-8 Registration Statement filed on
September 24, 2010 (File No. 333-169564).*
Brown-Forman Corporation Non-Employee Director Deferred Stock Unit Program, which is incorporated into
this report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on September 23, 2010
(File No. 002-26821).*
Brown-Forman Corporation 2004 Omnibus Compensation Plan, as amended, which is incorporated into this
report by reference to Exhibit A of Brown-Forman Corporation’s proxy statement filed on June 26, 2009, in
connection with its 2009 Annual Meeting of Stockholders (File No. 002-26821).*
Form of Employee Stock Appreciation Right Award, which is incorporated into this report by reference to
Exhibit 10(g) of Brown-Forman Corporation’s Form 8-K filed on August 2, 2006 (File No. 002-26821).*
Form of Non-Employee Director Stock Appreciation Right Award, which is incorporated into this report by
reference to Exhibit 10(i) of Brown-Forman Corporation’s Form 8-K filed on August 2, 2006 (File No.
002-26821).*
2010 Form of Employee Stock-Settled Stock Appreciation Right Award Agreement, which is incorporated into
this report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File
No. 002-26821).*
2010 Form of Non-Employee Director Stock-Settled Stock Appreciation Right Award Agreement, which is
incorporated into this report by reference to Exhibit 10.2 of Brown-Forman Corporation’s Form 8-K filed on
July 23, 2010 (File No. 002-26821).*
2010 Form of Restricted Stock Award Agreement, which is incorporated into this report by reference to Exhibit
10.3 of Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File No. 002-26821).*
2010 Form of Restricted Stock Unit Award Agreement, which is incorporated into this report by reference to
Exhibit 10.4 of Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File No. 002-26821).*
65
Exhibit Index
10.11
10.12
10.13
10.14
10.15
14
101
*
**
Summary of Director and Named Executive Officer Compensation.**
Brown-Forman Corporation Amended and Restated Supplemental Executive Retirement Plan and First
Amendment thereto, which is incorporated into this report by reference to Exhibit 10(a) of Brown-Forman
Corporation’s Annual Report on Form 10-K for the year ended April 30, 2010, filed on June 25, 2010 (File No.
002-26821).
Second Amendment to the Brown-Forman Corporation Amended and Restated Supplemental Executive
Retirement Plan, which is incorporated into this report by reference to Exhibit 10(a) of Brown-Forman
Corporation’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2011, filed on March 9, 2011
(File No. 002-26821).
Five-Year Credit Agreement, dated as of November 18, 2011, among Brown-Forman Corporation, certain
borrowing subsidiaries and certain lenders party thereto, Barclays Capital as Syndication Agent, Bank of
America, N.A. and Citibank, N.A., as Co-Documentation Agents, U.S. Bank National Association, as
Administrative Agent, and U.S. Bank National Association, Barclays Capital, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Citigroup Global Markets Inc. as Joint Lead Arrangers and Joint Bookrunners, which
is incorporated into this report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed
on November 21, 2011 (File No. 002-26821).
Letter Agreement between Brown-Forman Corporation and John K. Sirchio dated December 20, 2012, which
is incorporated into this report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed
on December 20, 2012 (File No. 002-26821).
Code of Ethics for Senior Financial Officers, which is incorporated into this report by reference to
Exhibit 14 of Brown-Forman Corporation’s Form 10-K filed on July 2, 2004 (File No. 002-26821).
The following materials from Brown-Forman Corporation’s Annual Report on Form 10-K for the fiscal year
ended April 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (a) Consolidated
Statements of Operations, (b) Consolidated Balance Sheets, (c) Consolidated Statements of Cash Flows, (d)
Consolidated Statements of Stockholders Equity, (e) Consolidated Statements of Comprehensive Income, and
(f) Notes to Consolidated Financial Statements.
Indicates management contract, compensatory plan or arrangement.
Incorporated by reference to the sections entitled “Executive Compensation” and “Director Compensation” in the Proxy
Statement distributed in connection with our Annual Meeting of Stockholders to be held on July 25, 2013, which is being
filed in conjunction with this Annual Report on Form 10-K. (Fiscal 2013 compensation policies with respect to the
company’s directors and named executive officers will remain in effect until the company’s Compensation Committee
determines fiscal year 2014 compensation at its July 2013 meeting.)
66
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BROWN-FORMAN CORPORATION
(Registrant)
/s/ Paul C. Varga
By: Paul C. Varga
Chief Executive Officer and
Chairman of the Company
Date: June 27, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities on June 27, 2013 as indicated:
/s/ Geo. Garvin Brown IV
By: Geo. Garvin Brown IV
Director, Chairman of the Board
/s/ Paul C. Varga
By:
Paul C. Varga
Director, Chief Executive Officer,
and Chairman of the Company
/s/ Joan C. Lordi Amble
By:
Joan C. Lordi Amble
Director
/s/ Patrick Bousquet-Chavanne
By:
Patrick Bousquet-Chavanne
Director
67
/s/ Martin S. Brown, Jr.
By: Martin S. Brown, Jr.
Director
/s/ Bruce L. Byrnes
By: Bruce L. Byrnes
Director
/s/ John D. Cook
By:
John D. Cook
Director
/s/ Sandra A. Frazier
By: Sandra A. Frazier
Director
/s/ William E. Mitchell
By: William E. Mitchell
Director
/s/ Dace Brown Stubbs
By: Dace Brown Stubbs
Director
/s/ James S. Welch, Jr.
By:
James S. Welch, Jr.
Director
68
/s/ Donald C. Berg
By: Donald C. Berg
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
/s/ Brian P. Fitzgerald
By: Brian P. Fitzgerald
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
69
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 2011, 2012, and 2013
(Expressed in millions)
Col. A
Description
Col. B
Balance at
Beginning
of Period
Col. C(1)
Additions
Charged to
Costs and
Expenses
Col. C(2)
Additions
Charged to
Other
Accounts
Col. D
Col. E
Deductions
Balance
At End
of Period
2011
Allowance for Doubtful Accounts
Accrued Restructuring Costs
2012
Allowance for Doubtful Accounts
2013
Allowance for Doubtful Accounts
$
$
$
$
16
2
18
9
$
$
$
1
—
—
2
1 (1)
—
—
—
$
$
$
—
2 (2) $
9 (3) $
2 (3) $
18
—
9
9
(1) Foreign currency translation adjustment charged to accumulated other comprehensive income.
(2) Special termination benefit payments and amounts reclassified to accrued postretirement benefits.
(3) Doubtful accounts written off, net of recoveries.
70
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratio of earnings to fixed charges for the periods indicated. Earnings consist of
income from continuing operations before income taxes, excluding undistributed minority interest in income of affiliates and fixed
charges. Fixed charges consist of interest charges, whether expensed or capitalized and is inclusive of that portion of tax reserves
we believe to be representative of interest and that portion of rental expense we believe to be representative of interest.
Ratio of earnings to fixed charges
For the Years Ended April 30,
2009
15.6x
2010
18.1x
2011
22.3x
2012
22.1x
2013
20.9x
SUBSIDIARIES OF THE REGISTRANT
Percentage of
State or Jurisdiction
Securities Owned
Of Incorporation
Exhibit 21
Name
Amercain Investments, C.V.
AMG Trading, L.L.C.
B-F Korea, L.L.C.
BFC Tequila Limited
Brown-Forman Arrow Continental Europe, L.L.C.
Brown-Forman Australia Pty. Ltd.
Brown-Forman Beverages Europe, Ltd.
Brown-Forman Beverages Japan, L.L.C.
Brown-Forman Beverages North Asia, L.L.C.
Brown-Forman Beverages Worldwide, Comercio de Bebidas Ltda.
Brown-Forman Czech & Slovak Republics, s.r.o.
Brown-Forman Deutschland GmbH
Brown-Forman Dutch Holding, B.V.
Brown-Forman Environmental Sustainability Foundation
Brown-Forman Holding Mexico S.A. de C.V.
Brown-Forman Hong Kong Ltd.
Brown-Forman Hungary 1 Kft.
Brown-Forman Hungary 2 Kft.
Brown-Forman International, Inc.
Brown-Forman Italy, Inc.
Brown-Forman Korea Ltd.
Brown-Forman Netherlands, B.V.
Brown-Forman Polska Sp. z o.o.
Brown-Forman Spirits (Shanghai) Co., Ltd.
Brown-Forman Spirits Trading, L.L.C.
Brown-Forman Tequila Mexico, S. de R.L. de C.V.
Brown-Forman Thailand, L.L.C.
Brown-Forman Worldwide, L.L.C.
Brown-Forman Worldwide (Shanghai) Co., Ltd.
Canadian Mist Distillers, Limited
Chambord Liqueur Royale de France
Clintock Limited
Cosesa-BF S. de R.L. de C.V.
Distillerie Tuoni e Canepa Srl
Early Times Distillers Company
Finlandia Vodka Worldwide Ltd.
Jack Daniel Distillery, Lem Motlow, Prop., Inc.
Jack Daniel's Properties, Inc.
Limited Liability Company Brown-Forman Ukraine
Longnorth Limited
Magnolia Investments, Inc.
Sonoma-Cutrer Vineyards, Inc.
Southern Comfort Properties, Inc.
Valle de Amatitan, S.A. de C.V.
Washington Investments, L.L.C.
100% (1)
100%
100% (2)
100% (3)
100%
100%
100% (2)
100%
100%
100% (4)
100% (5)
100% (6)
100% (2)
100%
100% (7)
100% (8)
100%
100% (9)
100%
100%
100% (8)
100% (10)
100% (5)
100% (11)
100% (12)
100% (13)
100%
100%
100% (14)
100%
100%
100% (3) (15)
100% (16)
100% (17)
100%
100%
100% (18)
100%
100%
100% (10) (15)
100%
100%
100%
100% (13)
100%
Netherlands
Delaware
Delaware
Ireland
Kentucky
Australia
United Kingdom
Delaware
Delaware
Brazil
Czech Republic
Germany
Netherlands
Delaware
Mexico
Hong Kong
Hungary
Hungary
Delaware
Kentucky
Korea
Netherlands
Poland
China
Turkey
Mexico
Delaware
Delaware
China
Ontario, Canada
France
Ireland
Mexico
Italy
Delaware
Finland
Tennessee
Delaware
Ukraine
Ireland
Delaware
California
California
Mexico
Kentucky
The companies listed above constitute all active subsidiaries in which Brown-Forman Corporation owns, either directly or
indirectly, the majority of the voting securities. No other active affiliated companies are controlled by Brown-Forman Corporation.
(1) Owned 99% by Brown-Forman Hungary 1 Kft. and 1% by Brown-Forman Hungary 2 Kft.
(2) Owned by Brown-Forman Netherlands, B.V.
(3) Owned by Longnorth Limited.
(4) Owned 99% by Brown-Forman Corporation and 1% by Early Times Distillers Company.
(5) Owned 81.8% by Brown-Forman Netherlands, B.V. and 18.2% by Brown-Forman Beverages Europe, Ltd.
(6) Owned by Brown-Forman Beverages Europe, Ltd.
(7) Owned 52.01% by Brown-Forman Netherlands, B.V. and 47.99% by Brown-Forman Corporation.
(8) Owned by B-F Korea, L.L.C.
(9) Owned by Brown-Forman Hungary 1 Kft.
(10) Owned by Amercain Investments C.V.
(11) Owned by Brown-Forman Hong Kong Ltd.
(12) Owned 90% by AMG Trading, L.L.C. and 10% by Brown-Forman Worldwide, L.L.C.
(13) Owned 99% by Brown-Forman Holding Mexico S.A. de C.V. and 1% by Early Times Distillers Company.
(14) Owned by Brown-Forman Beverages North Asia, L.L.C.
(15)
Includes qualifying shares assigned to Brown-Forman Corporation.
Owned 99.9972% by Brown-Forman Holding Mexico S.A. de C.V. and 0.00277% by Early Times Distillers
Company.
(16)
(17) Owned 63% by Brown-Forman Italy, Inc. and 37% by Brown-Forman Netherlands, B.V.
(18) Owned by Jack Daniel's Properties, Inc.
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-171126) and Form
S-8 (No. 333-38649, 333-74567, 333-89294, 333-126988, 333-117630, and 333-169564) of Brown-Forman Corporation of our
report dated June 27, 2013 relating to the financial statements, financial statement schedule, and the effectiveness of internal
control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
June 27, 2013
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Paul C. Varga, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Brown-Forman Corporation;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated:
June 27, 2013
By:
/s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer and
Chairman of the Company
Exhibit 31.2
1.
2.
3.
4.
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Donald C. Berg, certify that:
I have reviewed this Annual Report on Form 10-K of Brown-Forman Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated:
June 27, 2013
By:
/s/ Donald C. Berg
Donald C. Berg
Executive Vice President and Chief
Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Brown-Forman Corporation (“the Company”) on Form 10-K for the period ended
April 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in
the capacity as an officer of the Company, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated:
June 27, 2013
By:
By:
/s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer and
Chairman of the Company
/s/ Donald C. Berg
Donald C. Berg
Executive Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report.
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Corporate Information
Corporate Headquarters
850 Dixie Highway / Louisville, Kentucky 40210 / (502) 585-1100
www.brown-forman.com / brown-forman@b-f.com
Listed
New York Stock Exchange — BFA/BFB
Stockholders
As of April 30, 2013, there were 2,871 holders of record of Class A
Common Stock and 5,648 holders of record of Class B Common Stock.
Stockholders reside in all 50 states and in 25 foreign countries.
Registrar, Transfer Agent, and Dividend Disbursing Agent
Computershare
web.queries@computershare.com
(800) 622-6757 (U.S., Canada, Puerto Rico)
(781) 575-4735 (International)
P.O. Box 43078 / Providence, Rhode Island 02940-3078
Employees
As of April 30, 2013, Brown-Forman employed about 4,000 people,
including approximately 200 on a part-time or temporary basis.
Brown-Forman Corporation is committed to equality of opportunity in
all aspects of employment. Brown-Forman Corporation provides full
and equal employment opportunities to all employees and potential
employees without regard to race, color, religion, national or ethnic
origin, veteran status, age, gender, gender identity or expression,
sexual orientation, genetic information, physical or mental disability
or any other legally protected status. This nondiscrimination policy
applies to all terms, conditions and privileges of employment, such
as those pertaining to selection, training, transfer, promotion,
compensation, and educational assistance programs. It is also
the policy of Brown-Forman to prohibit all forms of sexual and
other harassment.
Form 10-K
Our 2013 Form 10-K is included with this 2013 Annual Report in its
entirety except for certain exhibits. Interested stockholders may obtain
without charge a copy of our Form 10-K, or a copy of any exhibit, upon
written request to: Stockholder Services, Brown-Forman Corporation,
850 Dixie Highway, Louisville, Kentucky 40210. The Form 10-K can
also be downloaded from the Company’s website at www.brown-forman.
com. Click on the Investor Relations section of the website and then on
Financial Reports and Filings to view the Form 10-K, as well as other
important documents.
Forward-Looking Statements
This 2013 Annual Report, the embedded electronic content, and
the Fiscal 2013 Videos referenced herein contain “forward-looking
statements” as defined under U.S. federal securities laws. By their nature,
forward-looking statements involve risks, uncertainties and other factors
(many beyond our control) that could cause our actual results to differ
materially from our historical experience or from our current expectations
or projections. 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. For a description of these risks
and uncertainties please see “Forward-Looking Statement Information”
in Part I, Item 1, Business and Item 1A, Risk Factors of the Form 10-K
included with this 2013 Annual Report.
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Use of Non-GAAP Financial Information
Certain matters discussed in this Annual Report include measures not
derived in accordance with generally accepted accounting principles
(“GAAP”), including “constant currency change” and “underlying” changes
in income statement line items. Reconciliations of these measures to the
most closely comparable GAAP measures, and reasons for the company’s
use of these measures, are presented in Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
under the heading, “Basis of Presentation and Use of Non-GAAP Measures”
of the Form 10-K incorporated into this 2013 Annual Report.
Counsel
Stoll Keenon Ogden PLLC, Louisville, Kentucky
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Stock Performance Graph
This graph compares the cumulative total shareholder return of our
Class B Common Stock against the Standard & Poor’s 500 Stock Index,
the Dow Jones U.S. Consumer Goods Index, and the Dow Jones U.S.
Food & Beverage Index. The graph assumes $100 was invested on
April 30, 2008, and that all dividends were reinvested. The cumulative
returns shown on the graph represent the value that these investments
would have had on April 30 in the years since 2008.
INDEXED TOTAL SHAREHOLDER RETURN
as of April 30, 2013, dividends reinvested
200
150
100
50
2008
2009
2010
2011
2012
2013
$100
$100
$100
$100
$ 87
$ 65
$ 75
$ 78
$112
$ 90
$104
$101
$143
$105
$125
$122
$175
$110
$137
$133
$231
$129
$167
$165
BF Class B Shares
Dow Jones U.S. Consumer Goods
S&P 500 Index
Dow Jones U.S. Food and Beverage
Fiscal 2013 Videos
To see and hear Brown-Forman Chairman and CEO Paul Varga and Board
Chairman Geo. Garvin Brown IV discuss highlights of the company’s fiscal
year 2013 performance, please go to brown-forman.com and look for the
link to the video clips.
Environmental Stewardship
As a responsible corporate citizen, Brown-Forman is committed to
environmental stewardship and sustainability. Our environmental efforts
focus primarily on the efficient use of natural resources, conserving
energy and water, and minimizing waste. This Annual Report is printed
on FSC®-certified paper.
Corporate Responsibility
at Brown-Forman
Our highest purpose is to enrich the experience
of life. We can achieve that purpose only through
leadership in corporate responsibility.
Promoting responsible enjoyment of our
brands; working to reduce alcohol abuse and
misuse; protecting the environment; providing
a healthy, safe, ethical, and inclusive workplace;
and contributing to the communities where we
operate worldwide are fundamental priorities that
define corporate responsibility at Brown-Forman.
An important part of our work on alcohol
responsibility is reflected in Our Thinking About
Drinking: The Issues Forum, where we share our
perspective and positions on alcohol topics and
invite your comments, opinions, and ideas.
www.ourthinkingaboutdrinking.com
Our Environmental Sustainability Roadmap
outlines how we will responsibly manage our
environmental footprint as we grow the company,
including specific reduction targets for 2020.
OUR 2020 GOALS :
30%
LESS
ENERGY USE
PER UNIT
30% LESS
WASTEWATER
PER UNIT
30%
LESS
GHG EMISSIONS
PER UNIT
LANDFILL
0 WASTE TO
Employee resource groups actively provide
the heart and soul of our broad diversity and
inclusion strategy. We support the communities
where we live, work, and operate through financial
contributions and employee involvement.
2012 CHA RITA BLE CON TR IBUTION S
$10M
ALMOST $10 MILLION OF
TOTAL CASH CONTRIBUTIONS
Go to www.brown-forman.com/responsibility
to learn more about our company’s social
and environmental ambitions, goals, activities,
and performance.
850 Dixie Highway
Louisville, Kentucky 40210
www.brown-forman.com
P R O O F
31%
Finlandia grew volume
by 31% in Russia, adding
over 83,000 cases in that
market alone.
P R O O F
55%
Jack Daniel’s Tennessee Whiskey
continued to grow, with 55% of
9L case volume coming from
outside the United States.