A NNU A L R E P OR T 2 015
“ We work really hard to maintain the integrity of our
brands. We are the last stop in making sure that every
case that goes out the door is the best it can possibly be.”
K AT IE H A R R I S
MANAGER, QUALIT Y CONTROL
E XCE P T IONA L
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0 / 1
RE SULT S
There is no spirit like the authentic American spirit found at Brown- Forman. We have an amazing
portfolio of brands, including Herradura, el Jimador, Finlandia, Southern Comfort, and Sonoma- Cutrer.
But it is our American whiskey portfolio that has been driving our exceptional results over the last few
years, led by Jack Daniel’s, Woodford Reserve, and Old Forester. Jack Daniel’s Tennessee Whiskey is one
of the most valuable brands in the world, selling more bottles than any other single expression at a price
point greater than $25.1 It is also the fastest-growing of the top 10 global brands based upon volume,1, 2
with 6% net sales3 growth (3% as reported) in fiscal 2015. Woodford Reserve’s family delivered over
30% net sales growth (33% as reported), while investments in Old Forester resulted in a net sales jump
of 35% (38% as reported), as bourbon enthusiasts rediscovered America’s first bottled bourbon. Our
patient investment posture is paying dividends. For example, our super- premium whiskey portfolio,
including Woodford Reserve, Gentleman Jack, and Jack Daniel’s Single Barrel, surpassed the one mil-
lion case milestone for the first time this year, and grew net sales by 16% (15% as reported). We are
uniquely positioned to leverage the American whiskey renaissance and create loyal consumers for the
Brown- Forman family of brands in any market, developed or emerging.
1. IWSR 2014 Data. 2. “Cases” or “volumes” refer to depletions on a 9L drinks equivalent basis. Please see the section titled Volume and Depletions under Management’s Discussion and Analysis
in the Form 10-K. 3. Changes in net sales growth are presented in the Annual Report on an underlying basis, with as-reported changes noted where there is a difference. We use this measure
to understand the growth of our business with the cost or benefi t of foreign currency movements and changes in distributor inventories removed. Please refer to “Use of Non-GAAP Financial
Information” on the last page of this Annual Report for additional information.
Jack Daniel was known for
his motto: “Every day we
make it, we’ll make it the best
we can.” His spirit continues
to guide the way we make
Jack Daniel’s Tennessee
Whiskey and all of our other
exceptional products.
Our commitment to diversity
and inclusion is not just in spirit,
but recognized as vital to our
overall business. Employee
resource groups (ERGs) are
one way that we bring this com-
mitment to life. SPLASH, for
example, an ERG centered on
African American/Black culture,
has instituted a format called
“Real Talks” to promote coura-
geous dialogue in a safe space
on what can be controversial
subjects. Accomplishments
like this — and those of our
other ERGs — provide assur-
ance that we are moving in the
right direction.
E XCE P T IONA L
“ Brown-Forman’s employees are creative and innovative. They’re
diverse in their makeup, diverse in their thinking, and diverse in the
way they solve problems, but they get to the same place, which is to
make great brands for the consuming public.”
C HR I S MOR R I S
MASTER DISTILLER, WHISKE Y INNOVATION
2 / 3
L O C AT I O N
Versailles, KY
Our founder, George Garvin Brown, created Old
Forester, stating, “There is nothing better in the market.”
Since then, we have carried forward that tradition of finely
crafting the best spirits in the market. Today, Brown-Forman
is the market leader in American whiskey with 4,400
employees around the world who embody our exceptional
spirit. We are proud of our heritage and passionate about
our brands. Through our teamwork and dedication, we
innovate to create new expressions and flavors, including
Jack Daniel’s Tennessee Honey and Woodford Reserve
Double Oaked; craft the barrels that contribute to the char-
acter and color of our spirits; and ensure quality control at
every step of production.
We also care deeply about the communities where
we live, work, and operate. Our support includes both
employee volunteerism and financial contributions to arts
organizations, addiction recovery centers, and humani-
tarian relief organizations. We are equally dedicated to
alcohol responsibility; environmental sustainability; and
providing a healthy, safe, ethical, and inclusive workplace
where employees can develop themselves as they grow
our business.
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E XCE P T IONA L
Our long- standing commitment to American whis-
key explains why we are now at the forefront of this global
renaissance and so well-positioned for continued indus-
try leadership. We appreciate that there is as much craft
involved in building exceptional brands as there is in mak-
ing great products. While the tools are different, the same
care is necessary to ensure a lasting impact in the mar-
ketplace. Whether through increasing social media use,
creating and sustaining traditions such as the annual
release of Old Forester Birthday Bourbon, or matching the
best talent to any particular assignment, we are focused on
reaching consumers who will develop a lifelong passion for
our iconic brands.
The Jack Daniel’s family of brands grew net sales
8% (5% as reported) in fiscal 2015, and has grown vol-
umes at a 7% compound annual growth rate since 1956.
Our disciplined approach to innovation and premiumiza-
tion has helped fuel these exceptional results, including
two million aggregate cases of Jack Daniel’s Tennessee
Honey, Jack Daniel’s Single Barrel, and Gentleman Jack in
fiscal 2015.
Now entering its fi fth year in the U.S. marketplace,
Jack Daniel’s Tennessee Honey grew net sales by 28%
globally (27% as reported). It is a great example of our
ability to drive sustainable growth by focusing on recruit-
ing new consumers into the Jack Daniel’s family, and it
allows us to participate in new drinking occasions. After
favorable market tests on Jack Daniel’s Tennessee Fire
earlier in fi scal 2015, we began the nationwide rollout in
the United States during the fourth quarter, with encour-
aging trade and consumer response.
4 / 5
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“ This facility and everybody in it feels like we are a part of this
revolution that’s going on. There’s a global increase in demand —
we’re a part of it. And we know the importance that the wood plays
in the supply chain, and ultimately in the production of whiskey.”
DE R R IC K C ONNOR
PL ANT DIRECTOR, JACK DANIEL’S COOPERAGE
Woodford Reserve still honors the spirit of early
master distillers, applying their small-batch
methods to create the Woodford Reserve family
of brands at one of America’s oldest working
distilleries. In partnership with The Nature
Conservancy, we are now focused on restoring
native vegetation on a portion of the 100-acre
distillery site to advance our environmental
stewardship of the property, further enhance
the visitor experience, and reduce maintenance.
The global bourbon boom is an excellent opportunity
to grow Old Forester around the world. Our renewed
focus on the brand includes building an urban distill-
ery and visitor destination on Louisville’s “Whiskey
Row” to showcase Old Forester’s craftsmanship
and authenticity. The release of new expressions,
such as Old Forester Whiskey Row 1870, and entry
into new markets such as the United Kingdom,
underscore the brand’s role in our continued leader-
ship of the American whiskey category.
“ There are a lot of people here that have family members who
work here. In fact, most people do. My grandfather was in charge
of making all the whiskey for 30 years. You can see people take
so much pride in their job as if there’s an anticipation of passing
down the quality of work that they do to their next generation.”
C HR I S F L E T C HE R
ASSOCIATE MASTER DISTILLER, JACK DANIEL’S
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Casa Herradura is one of
Mexico’s most historic tequila
producers, located on a 19th
century hacienda in Amatitán,
Mexico. Tequila Herradura
employs traditional production
methods, using only the best
blue agave and artisanal meth-
ods, such as slowly cooking the
agave in traditional clay ovens
and fermenting naturally with wild
yeast, and has a well- deserved
reputation as an industry inno-
vator, launching Herradura
Ultra in fi scal 2015 and helping
fuel net sales growth of 25%
(24% as reported) for Herradura.
Being responsible in every-
thing we do has always been
a part of Brown- Forman’s
exceptional spirit. We helped
create the fi rst spirits indus-
try trade association, the
Distilled Spirits Council of
the United States (DISCUS),
which established responsible
marketing principles for mem-
ber companies. We also led
the way for DISCUS to create
a public forum for people to
fi le complaints against alcohol
marketers, recognized by
the U.S. federal government
as a best practice.
E XCE P T IONA L
6 / 7
HE RI TAGE
While the world around us has changed dramatically
since our founding in 1870, some things have remained constant.
This includes the Brown family commitment to the company, our
leadership of American whiskey, and our exceptional spirit. We
are proud to be the only remaining publicly-traded American spir-
its company, and we are equally proud of our exceptionally rich
heritage. We have always known that our authentic American
whiskey brands are beyond compare. As a family- controlled
business, we have pursued our own vision and operated in
accordance with our values and a commitment to enriching
the experience of consumers by responsibly building beverage
alcohol brands. Our skill in crafting enduring brands has been
handed down through generations, ensuring that the greatest
care goes into every aspect of our products. Tradition will always
be our guide, with innovation and the ability to adapt to changing
consumer preferences driving us forward to achieve success for
generations to come.
ilas | Tequila He
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Canadian Whisk
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skey | Early Times
mus Vodk a | Pepe
ennessee Whiskey
on Eduardo Tequ
urbon Whisky | Ca
8 / 9
“ We have started to describe a success story that no
one else in the industry has been able to show.
Our position in the market is still fairly small— we have
so many untapped places in the world to take our
brands, while continuing to grow in the established
markets. The combination of all these things will keep
Brown-Forman growing for many, many years to come.”
T HOM A S HINR IC H S
PRESIDENT, EUROPE, NORTH ASIA & ANZSE A
E XCE P T IONA L
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Farms, vineyards, forests, and water provide
the foundation for the excellence of our
products, so our focus on environmental
sustainability makes clear sense. We aim
to develop breakthrough approaches in the
pursuit of our ambition to be a sustainability
leader. At the Brown- Forman Cooperage, for
example, no leftover scrap goes to waste,
with the bulk of the wood shavings ground
up to fuel the wood-fi red boiler, providing
steam for the manufacturing process and
generating up to 80% of the power needed
to run the facility. Our focus with Jack
Daniel’s is on optimizing logistics, reducing
glass packaging, and improving the energy
effi ciency of our production operations.
Efforts such as these helped us surpass
our previous 2020 greenhouse gas (GHG)
and water goals ahead of schedule, and
we are now committing ourselves to rise to
tougher challenges.
L O C AT I O N
Amsterdam, The Netherlands
F U T URE
As Brown- Forman enters new markets, launching
and growing brands globally, our exceptional spirit will help
us stand out in the world of beverage alcohol. We will
always honor our heritage and continue building a sustain-
able future by focusing on our craft. Strategic investments
in people, capacity, and brands strengthen our ability to
meet the world’s expanding appetite for our iconic and pre-
mium brands. In fiscal 2015, we made one of the largest
capital investments in the company’s history by increasing
production capacity at Jack Daniel’s and Woodford Reserve
distilleries, investing to meet anticipated demand over the
coming years. We will continue to look for future invest-
ment opportunities, like our new venture into Irish whiskey,
and in their absence, return excess cash to shareholders
through ongoing dividend and share buyback programs.
Above all, as we look to our exceptional future, we hold
ourselves accountable to our shareholders, employees,
consumers, and the communities in which we operate to
“Building Forever,” and fulfilling our goal as a company
to thrive and endure for future generations.
E XCE P T ION A L
Y E A R
Dear Brown- Forman Shareholders,
We believe these qualities, along-
side the quality of our products, are
The theme of this year’s annual report — Exceptional
the foundation of Brown- Forman’s
Spirit — is a phrase that communicates two important beliefs
Exceptional Spirit.
we have about our company.
First, it conveys our belief that Brown- Forman’s brands have
E XCEPTIONAL RESULTS
been extraordinarily well made since George Garvin Brown
founded the company in 1870 with an assurance of Old Forester’s
We look at our results from a variety
quality. Throughout the company’s history, this commitment
of perspectives to ensure that we
to quality has been a vital ingredient in Brown- Forman’s long-
are measuring ourselves compre-
standing success, and it remains a critical differentiator today
hensively. We regularly analyze and
as bourbons and American whiskeys enjoy category momentum
report our performance along multi-
and consumer interest not seen since 1970.
ple dimensions: quantitatively and
Paul C. Varga
Chairman and
Chief Executive Offi cer
June 23, 2015
Second, this year’s theme also describes the unique combi-
qualitatively, short-term and long-term, reported and underly-
nation of traits that make Brown- Forman the special place we
ing, top-line and bottom-line, and on an absolute and relative
believe it to be. What are some of these traits?
basis. I am pleased to report that fiscal 2015 was another year
of comprehensive and exceptional progress for Brown- Forman.
+ The Brown family’s controlling ownership, which inspires the
length of our view, our commitment to independence, and
In fiscal 2015, the company’s growth in net sales of 6% (4%
as reported) and operating income of 9% (6% as reported) again
the values evident in Brown- Forman’s culture.
significantly outpaced our industry competitive set, which on
+ A focused portfolio of brands led by the one and only Jack
average grew underlying operating income in the very low single
Daniel’s trademark.
+ Our geographic breadth, which simultaneously diversifies risk
and provides an enormous global consumer marketplace for
digits by our estimation. A strong relative performance in any
period is cause for celebration at Brown- Forman, but we are
even more proud of the consistency of our absolute and rela-
our pursuit of sustainable growth.
tive performance. Over the last four fiscal years, the company’s
+ Our tremendous track record of financial performance, which
compares favorably to the benchmarks within our industry and
underlying operating income has grown almost 50%, which we
estimate to be two-and-a-half times the rate of growth of our
the broader equity markets.
industry competitive set over the same period.
+ And perhaps most important, the diverse group of people
across the world who are committed to Brown- Forman’s endur-
Similar to many other U.S.-based companies that export their
products around the world, our reported results were softened by
ing success, something we refer to as “Building Forever.”
the U.S. dollar’s strong appreciation during the fiscal year. The
adverse effects of foreign exchange neg-
fiscal 2015, our super- premium and above
atively impacted our earnings-per-share
brands are becoming meaningful contrib-
growth by seven percentage points, and
utors to our growth. Woodford Reserve’s
we anticipate that at the dollar’s current
family of brands, Gentleman Jack, and
level, foreign exchange will again nega-
Jack Daniel’s Single Barrel collectively
tively impact the company’s reported
crossed one million cases this fiscal year
earnings in fiscal 2016. We believe that
and are growing net sales by 16% (15%
these currency headwinds were a major
as reported). These brands, as well as Old
contributing factor to our total shareholder
Forester, which grew net sales 35% (38%
return of 2% during fiscal 2015, trailing
as reported), have the history, heritage,
our benchmarks and European-based
and authenticity that position them well to
competitors. Because annual fluctuations
address the desires of the world’s growing
can occur, we focus on longer time hori-
legion of American whiskey advocates.
zons when creating our strategies and
Innovation has been a meaningful con-
measuring our results. As you can see in
tributor to our growth over the last few
the accompanying charts, Brown- Forman’s
three-year and ten-year performance met-
years, including Jack Daniel’s Tennessee
Honey, which grew net sales 28% globally
rics are top tier.
E XCEPTIONAL FOCUS —
OUR PORTFOLIO
(27% as reported)
during
its
fourth
year in the market.
In fiscal 2015, we
tested our second
At a time when consumers around the world
flavor extension of
are clamoring for authentic American whis-
the trademark, Jack
key, we feel fortunate to have one of the best
Daniel’s Tennessee
whiskey portfolios in the world, anchored by
Fire. The brand is
the iconic Jack Daniel’s trademark. Brown-
crafted by blending
Forman’s patient approach and commitment
Jack’s original red-
Consumers around the
world are clamoring for
authentic American whiskey,
and we feel fortunate to
have the leading portfolio.
to American whiskey becomes apparent
hot cinnamon liqueur with Jack Daniel’s
when you consider that for the 40 years
Tennessee Whiskey. Early reception from
in the United States from 1970 to 2010,
the trade and consumers has been quite
the category was declining as consumer
encouraging, performing above Jack
tastes moved toward white spirits. Today,
Daniel’s Tennessee Honey at similar points
American whiskey accounts for roughly
in that brand’s introduction. We are excited
60% of our total volumes. And while Jack
to have launched the brand nationwide
Daniel’s Tennessee Whiskey is our largest
in the United States this past spring, and
brand, with a volume of 12 million cases in
we will be testing it in a limited manner
10 / 11
outside of the United States in fiscal
Developed markets outside of the
evaluate Brown- Forman’s progress in a
2016. Jack Daniel’s Tennessee Honey
United States were somewhat mixed this
broad way. In addition to pursuing strong
has been particularly adept at bringing in
past year, but still grew net sales 4% (-1%
financial results each year, we also strive
new consumers and capturing new drink-
as reported). Results were powered by the
to demonstrate ways that we are positively
ing occasions, and we anticipate that Jack
United Kingdom, France, and Canada,
impacting our stakeholders and society at
Daniel’s Tennessee Fire will do the same.
while Germany and Australia experienced
large. During fiscal 2015, we advanced
slight declines. While our net sales growth
our long-term strategy that provides a
E XCEPTIONAL GEOGRAPHIC BREADTH
was disappointing relative to what we have
foundation for future growth. As part of
achieved in prior years, we believe it’s still
that, we plan to continue to demonstrate
Our results in fiscal 2015 were exception-
ahead of that of our peer group.
exceptional standards of corporate social
ally well balanced geographically, which
Brown- Forman’s emerging market net
responsibility. Along those lines, Brown-
we believe helps insulate us from the inev-
sales grew 9% (0% as reported), results
Forman was recognized in fiscal 2015 by
itable slowdowns and setbacks that occur
we feel are excellent in light of some eco-
the U.S. Environmental Protection Agency
in individual markets over time.
nomic softness in key countries such as
for our climate change leadership in set-
The United States, our largest and
Russia and Brazil. Jack Daniel’s grew at
ting a science-based, aggressive target on
most important market, delivered strong
an impressive 19% (7% as reported) rate
absolute greenhouse gas emissions. Also,
and accelerating growth in the year. In
in emerging markets, and while market
for the fifth year in a row, Brown- Forman
fact, our 8% net sales growth (10% as
shares remain low, consumer interest in
scored a perfect 100 on the Human
reported) allowed us to deliver the fourth
premium American whiskey is on the rise.
Rights Campaign’s Corporate Equality
straight year of market share gains in the
United States. Growth was led by the
Jack Daniel’s family of brands, with net
sales up 9% (11% as reported), but also
E XCEPTIONAL QUALITATIVE
PROGRESS
Index, which continues to raise the bar
on LGBT employment justice issues. And
in attending to our own employee culture,
we once again reported very high levels of
included over 30% growth from Woodford
Because our company’s highest pur-
employee engagement around the world in
Reserve and Old Forester (33% and 38%
pose is to “enrich the experience of life,”
2015, maintaining an enviable status as a
as reported, respectively).
we have very long-term ambitions and
Global Best Employer.
3-YEAR TOTAL
SHAREHOLDER RETURN*
10-YEAR TOTAL
SHAREHOLDER RETURN*
based on compound annual growth rate
based on compound annual growth rate
BFB
S&P 500
Consumer Staples
Pernod
Campari
Competitive Set
Diageo
Remy
BFB
Diageo
Competitive Set
Pernod
Campari
Consumer Staples
Remy
S&P 500
-10%
0%
10%
20%
0%
10%
20%
*Source: FactSet, as of April 30, 2015, in local currency, assuming dividends reinvested.
Note – The Competitive Set is a weighted average based upon each competitor’s last 12 months’ sales.
*Source: FactSet, as of April 30, 2015, in local currency, assuming dividends reinvested.
Note – The Competitive Set is a weighted average based upon each competitor’s last 12 months’ sales.
COMPOUND ANNUAL
GROWTH RATE
RETURN ON AVERAGE
INVESTED CAPITAL*
12 / 13
as of April 30, 2015
as of April 30, 2015
12%
9%
6%
3%
0%
25%
20%
15%
10%
5%
0%
35 -Year
25 -Year
15 -Year
10-Year
5 -Year
06 07 08 09 10 11 12 13 14 15
Net Sales
Operating Income
Diluted EPS
E XCEPTIONAL OPPORTUNIT Y
including $2.1 billion over the last three years. As part of this,
we have grown our dividend at an 8% compound annual growth
Brown- Forman has been a superb model of consistency, deliv-
rate over the last 30 years.
ering strong top-line and bottom-line growth across multiple
time frames, as seen from the accompanying chart. We enjoy
the benefits of working in a very attractive global industry that
E XCEPTIONAL SPIRIT
has strong defensive and offensive characteristics. With Brown-
In closing, and with an exceptional spirit of appreciation, let me
Forman’s position within the industry, we have historically
thank our employees around the world for their continued hard
enjoyed high margins, high returns on average invested capital,
work and excellent results. Because of their exceptional spirit,
and consistent growth — three characteristics that make for an
we feel we are wonderfully positioned for continuous comprehen-
excellent business.
sive progress for Brown- Forman. I also want to thank the Brown
Fortunately, we have one of the best brand portfolios in the
family and all of our stakeholders for their continued support of
business, and we believe we are still early in realizing our global
Brown- Forman. Your long-term commitment and constructive
growth potential. Interestingly, our growth has been so strong that
engagement allow us to create and execute the strategies nec-
we are experiencing what we refer to as a “high-class problem.”
essary to deliver the exceptional results I’m so pleased to share
In recent years, we have needed to step up our capital investment
with you today.
to meet our brand growth expectations over the coming decades.
Brown- Forman today is in the midst of a once-in-a-generation
Sincerely,
capital investment cycle across multiple areas, including distilling
capacity, barrel- making operations, warehouses, and homeplace
investments.
In addition to investing in our organic growth, and in the
absence of available, attractive acquisitions, we are able to more
aggressively return capital to shareholders through the combina-
Paul C. Varga
tion of ongoing dividend and share repurchase programs. Over
Chairman and Chief Executive Officer
the last decade, we have returned $4.3 billion to shareholders,
June 23, 2015
* We defi ne return on average invested capital as the sum of net income and after-tax interest expense, divided by average invested capital. Average invested capital equals assets less liabilities, excluding
interest-bearing debt, and is calculated using the average of the most recent 13 month-end balances. After-tax interest expense equals interest expense multiplied by one, minus our effective tax rate.
BROWN-FORMAN
BOARD OF DIRECTORS
Joan C. Lordi Amble (3) Retired Executive Vice President, American Express Company /
Patrick Bousquet-Chavanne (4,5) Executive Director of Marketing and International,
Marks and Spencer Group PLC / Geo. Garvin Brown IV (1,5,*, #) Chairman of the Board,
Brown-Forman Corporation / Martin S. Brown, Jr. (*, #) Attorney, Adams and Reese LLP /
Stuart R. Brown (*, #) Managing Partner, Typha Partners, LLC, and President, DendriFund,
Inc. / Bruce L. Byrnes (3,5) Retired Vice Chairman of the Board, The Procter & Gamble
Company / John D. Cook (2,4,5) Director Emeritus, McKinsey & Company / Sandra A.
Frazier (*, #) Founder and Partner, Tandem Public Relations, LLC / Augusta Brown
Holland (*, #) Founding Partner, Haystack Partners, LLC / Michael J. Roney (4) Chief
Executive Offi cer, Bunzl plc / Dace Brown Stubbs (6, #) Private Investor / Michael A.
Todman (3) Vice Chairman, Whirlpool International / Paul C. Varga (1,*) Chairman and
Chief Executive Offi cer, Brown-Forman Corporation / James S. Welch, Jr. (1) Vice
Chairman, Brown-Forman Corporation
(1) Member of Executive Committee of the Board of Directors, (2) Lead Independent Director, (3) Member of
Audit Committee, (4) Member of Compensation Committee, (5) Member of Corporate Governance and
Nominating Committee, (6) Not standing for re-election in July, (*) Member of Brown-Forman/Brown Family
Shareholders Committee, (#) Member of Brown family
From left: Lisa P. Steiner, Ralph E. de Chabert,
Alejandro A. Alvarez, John V. Hayes, Paul C. Varga,
Kirsten M. Hawley, James S. Welch, Jr., Michael A.
Masick, Lawson E. Whiting, Matthew E. Hamel,
Michael J. Keyes, Jill A. Jones, Jane C. Morreau,
Thomas Hinrichs, Mark I. McCallum
14 / 15
From left: Patrick Bousquet-Chavanne, Augusta Brown
Holland, Dace Brown Stubbs, Martin S. Brown, Jr.,
John D. Cook, Geo. Garvin Brown IV, Joan C. Lordi Amble,
James S. Welch, Jr., Paul C. Varga, Stuart R. Brown,
Sandra A. Frazier, Michael J. Roney, Bruce L. Byrnes,
and Michael A. Todman
BROWN-FORMAN
EXECUTIVE LEADERSHIP
The senior executives pictured here have extensive global experience
in a variety of industries and, combined, over 260 years of varied,
cross-functional service with Brown-Forman.
Alejandro A. Alvarez Senior Vice President, Chief Production Offi cer / Ralph E.
de Chabert Senior Vice President, Chief Diversity Offi cer / Matthew E. Hamel
Executive Vice President, General Counsel and Secretary / Kirsten M.
Hawley Senior Vice President, Chief Human Resources Offi cer / John V. Hayes
Senior Vice President, Chief Marketing Offi cer of Brown-Forman Brands /
Thomas Hinrichs Senior Vice President and President, Europe, North Asia,
Australia, New Zealand, and South East Asia / Jill A. Jones Executive Vice
President and President, North America, Latin America, India, Middle
East, and Africa and Global Travel Retail / Michael J. Keyes Senior Vice
President and President, North America Region / Michael A. Masick Vice
President, Director Corporate Strategy and Business Development / Mark I.
McCallum Executive Vice President and President, Jack Daniel’s Brands /
Jane C. Morreau Executive Vice President, Chief Financial Offi cer / Lisa P.
Steiner Senior Vice President, Chief of Staff / Paul C. Varga Chairman and
Chief Executive Offi cer / James S. Welch, Jr. Vice Chairman / Lawson E.
Whiting Executive Vice President, Chief Brands and Strategy Offi cer,
Brown-Forman Brands
From left: Phil Lichtenfels, Garvin Brown (Co-Chair), Paul Varga (Co-Chair),
Tammy Godwin (Recording Secretary), Mac Brown, Stuart Brown, Martin
Brown, Jr., Sandra Frazier, Campbell Brown, Ernie Patterson, Jim Joy,
Marshall Farrer, Barbara Hurt, Chris Brown, and Augusta Brown Holland
(Other Family Committee members not pictured: Austin Musselman, Jr.,
Laura Frazier, and Laura Lee Gastis)
BROWN-FORMAN/BROWN
FAMILY SHAREHOLDERS
COMMITTEE
(FAMILY COMMITTEE)
Family Committee members hold their
May 2015 meeting at our company’s
Louisville, Kentucky, headquarters.
EXCEPTIONAL
COMPANY
Geo. Garvin Brown IV
Chairman of the Board
June 23, 2015
Depending on how hot the sum-
also announced another share buy-back
Brown- Forman’s market capitalization
mers are in Kentucky and Tennessee, and
program in fiscal 2015, the 10th since the
was just over $110 million. Today, the
how the coopers’ staves hold in the barrel,
mid-1980s, the decade when people in my
Jack Daniel’s family of brands is roughly
our whiskey can take up to a few years
generation would have begun to follow the
15 million cases on a drinks- equivalent
to mature. I’m always amazed at how
business more closely.
basis, and the market capitalization of the
much can change in the world during that
The investments have not been limited
company is around $20 billion.
time. In the financial media, for instance,
a whole new generation of buzzwords
to “property, plant, and equipment.” We
have also continued to make other invest-
Fifty years is not the sort of time horizon
that the average “activist investor” would
can come and go before a bottle of Jack
ments, the type that don’t make it onto
recommend any of us use. But it is the
Daniel’s is ready to leave Lynchburg. The
the balance sheet but that have an equally
benchmark that the fourth generation of
latest media debate among corporate
significant impact on long-term value
the Brown family has used.
governance pundits seems to be about
creation — investments in people.
As you read this report, and see the
whether “investor activism” helps or hurts
This year, for example, the Board con-
good news that Paul shares from his 11th
a company’s long-term performance. At
tinued a multi-year Brown family transition
year as CEO, I’m sure that you’ll agree
its heart, this is a debate about capital
with the election of Augusta Brown Holland
that Brown- Forman is very well positioned
allocation and time horizons, issues that
and Stuart R. Brown. Both are fifth-
and able to start down the path of another
Brown- Forman and its long-term share-
generation descendants of George Garvin
generation of growth and creativity. On
holders have focused on since 1870, or
Brown, who founded Brown- Forman in
behalf of your Board, please accept my
about 30 cycles of whiskey maturation.
1870. They joined their other cousins as
thanks for all of your long-term support; it
As our late Chairman Owsley Brown II
founding members of the Family Share-
used to say, “Plant trees, so that others
holders Committee in 2007, and since then
might enjoy their shade.” Knowing how
they have each helped fortify the strong
much today’s shareholders have bene-
and enduring relationship between long-
is the bedrock that makes this exceptional
story possible.
fited from that thinking, the Board and
term shareholders and the company.
With best regards,
the company have enjoyed planting their
As part of this process, Dace Brown
own trees recently. Capital allocation
Stubbs, the last member of the family’s
has included: breaking ground on a new
fourth generation to serve on the Board,
mill to cut staves for more barrels; the
has elected not to stand for re- election
new Jack Daniel Distillery in Lynchburg,
at the annual stockholders’ meeting
Tennessee, to meet the demands of our
in July. Like others in her generation,
Geo. Garvin Brown IV
new friends around the world; expansions
Dace has dedicated much of her time
Chairman of the Board
and improvements at Woodford Reserve’s
and energy to Brown- Forman, helping
June 23, 2015
visitors’ center and distillery in Versailles,
secure its long-term success and pros-
Kentucky; the first step toward entering
perity. Dace’s decision is all the more
the Irish whiskey category and building a
poignant, as her service this year marked
new distillery on the historic Slane Castle
the 50th year in which a member of
Estate in County Meath; and of course,
the fourth generation of the Brown fam-
the announcement that we are building a
ily has been on our Board. W.L. Lyons
new distillery for Old Forester, our founding
Brown and Owsley Brown Frazier each
brand, in the building that was our head-
joined the Board in 1965, when Jack
quarters between 1900 and 1919. We
Daniel’s sold roughly 600,000 cases and
SELECTED FINANCIAL DATA
Dollars in millions, except per share amounts
CONTINUING OPERATIONS:
YEAR ENDED APRIL 30,
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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
$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
3,946
2,078
971
659
4,096
2,183
1,027
684
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
213.5
215.1
211.6
213.1
$ 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
3.08
3.06
54.2%
52.8%
51.6%
49.4%
50.0%
50.7%
49.7%
51.7%
52.7%
23.3%
21.5%
20.9%
20.7%
22.0%
25.1%
21.8%
23.7%
24.6%
29.3%
31.7%
31.7%
31.1%
34.1%
31.0%
32.5%
31.7%
30.5%
3.23
3.21
53.3%
25.1%
31.7%
AVERAGE INVESTED CAPITAL
$1,863
2,431
2,747
2,893
2,825
2,711
2,803
2,834
3,131
3,196
RETURN ON AVERAGE INVESTED CAPITAL
21.9%
17.4%
17.2%
15.9%
16.6%
21.8%
19.1%
21.7%
21.6%
22.0%
16
–
17
TOTAL COMPANY:
YEAR ENDED APRIL 30,
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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
$ 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
1.09
1,817
4,103
997
1,002
1,005
537
649
RETURN ON AVERAGE STOCKHOLDERS’ EQUITY
22.9%
22.9%
26.4%
24.2%
24.0%
30.0%
25.1%
31.4%
36.3%
TOTAL DEBT TO TOTAL CAPITAL
26.9%
42.8%
36.8%
35.5%
26.9%
26.9%
19.8%
38.1%
33.1%
DIVIDEND PAYOUT RATIO
40.0%
36.8%
35.8%
38.9%
38.7%
57.0%
37.4%
179.8%
35.3%
1.21
2,040
4,193
748
1,188
608
33.5%
38.4%
37.5%
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 fi scal 2011 and $4.00 per share in fi scal 2013. 4. We defi ne return on average invested
capital as the sum of net income and after-tax interest expense, divided by average invested capital. Average invested capital equals assets less liabilities, excluding interest-bearing debt, and is
calculated using the average of the most recent 13 month-end balances. After-tax interest expense equals interest expense multiplied by one, minus our effective tax rate. 5. We defi ne return on
average stockholders’ equity as net income applicable to common stock divided by average stockholders’ equity. 6. We defi ne total debt to total capital as total debt divided by the sum of total
debt and stockholders’ equity. 7. We defi ne dividend payout ratio as cash dividends divided by net income.
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, 2015
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
OR
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
Securities registered pursuant to Section 12(g) of the Act: None
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
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 $14,300,000,000.
The number of shares outstanding for each of the registrant’s classes of Common Stock on June 15, 2015, was:
Class A Common Stock (voting)
Class B Common Stock (nonvoting)
84,528,000
122,483,629
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for use in connection with the Annual Meeting of Stockholders to be held July 23, 2015, are incorporated by
reference into Part III of this report.
1
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 and 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 and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statements Schedules
SIGNATURES
SCHEDULE II – Valuation and Qualifying Accounts
Page No.
4
11
17
18
18
18
19
21
22
43
45
72
72
72
72
72
72
72
73
73
76
79
2
Forward-Looking Statement Information. Certain matters discussed in this report, including the information presented
in Part II under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain
statements, estimates, or 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 under “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, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes,
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 commercial, political, and financial
risks; local labor policies and conditions; protectionist trade policies or economic or trade sanctions; compliance with local
trade practices and other regulations, including anti-corruption laws; terrorism; and health pandemics
Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar
•
• Changes in laws, regulations, or policies – especially those that affect the production, importation, marketing, labeling,
pricing, distribution, 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 (for example, 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 larger producers in favor of
smaller distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability
to anticipate or react to them; bar, restaurant, travel, or other on-premise declines; shifts in demographic trends; unfavorable
consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation
Production facility, aging warehouse, or supply chain disruption
Imprecision in supply/demand forecasting
• Decline in the social acceptability of beverage alcohol products in significant markets
•
•
• Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, labor, 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 higher implementation-related or 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, or 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
Inadequate protection of our intellectual property rights
Product recalls or other product liability claims; product counterfeiting, tampering, contamination, 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
•
• Our status as a family “controlled company” under New York Stock Exchange rules
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 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” include measures
not derived in accordance with U.S. generally accepted accounting principles (GAAP). These measures should not be considered
in isolation or as a substitute for any measure derived in accordance with GAAP, and also may be inconsistent with similar measures
presented by other companies. In Part II under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” the reasons for the company’s use of these measures are presented under the heading, “Non-GAAP Financial
Measures,” and reconciliations of these measures to the most closely comparable GAAP measures are presented under the heading
“Results of Operations – Year-Over-Year Comparisons.”
3
Item 1. Business
Overview
PART I
Brown-Forman Corporation (the “Company,” “Brown-Forman,” “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 later 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 beverages under recognized brands. We employ over 4,400 people on six continents, including about 1,300 people
in Louisville, Kentucky, USA, home of our world headquarters. We are the largest American-owned spirits and wine company
with global reach. We are a “controlled company” under New York Stock Exchange rules, and the Brown family owns a majority
of our voting stock.
For a discussion of recent developments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Executive Summary – Overview.”
Brands
Beginning in 1870 with Old Forester Bourbon Whisky – our founding brand – and spanning the generations since, we have
built a portfolio of more than 30 spirit, wine, and ready-to-drink cocktail (RTD) brands that includes some of the best-known and
most-loved trademarks in our industry. The most important brand in our portfolio is Jack Daniel’s Tennessee Whiskey, which is
the fourth-largest spirits brand of any kind and the largest selling American whiskey brand in the world, according to Impact
Databank’s “Top 100 Premium Spirits Brands Worldwide” list.1 In its second year on the list, Jack Daniel’s Tennessee Honey
moved up to 89th on the Worldwide Impact list, selling over 1.3 million nine-liter cases in calendar year 2014, up 34% from the
prior calendar year. Our other leading global brands on the Impact list are Finlandia, the seventh-largest-selling vodka; Southern
Comfort, the fourth-largest-selling liqueur; Canadian Mist, the fourth-largest-selling Canadian whisky; and el Jimador, the fourth-
largest-selling tequila.
Principal Brands
Jack Daniel’s Tennessee Whiskey
Jack Daniel’s RTDs
Jack Daniel’s Tennessee Honey
Gentleman Jack Rare Tennessee Whiskey
Jack Daniel’s Tennessee Fire
Jack Daniel’s Single Barrel
Jack Daniel’s Winter Jack
Jack Daniel’s Sinatra™ Select
Jack Daniel’s No. 27 Gold Tennessee Whiskey
Finlandia Vodkas
Finlandia RTDs
Southern Comfort
Southern Comfort flavored line extensions
Southern Comfort RTDs
Korbel California Champagnes2
Korbel California Brandy2
el Jimador Tequilas
el Jimador New Mix RTDs
Woodford Reserve Kentucky Bourbons
Canadian Mist Canadian Whisky
Herradura Tequilas
Sonoma-Cutrer California Wines
Early Times Kentucky Whisky
Early Times Fire Eater
Early Times Kentucky Bourbon
Chambord Liqueur
Pepe Lopez Tequila
Antiguo Tequila
Old Forester Kentucky Bourbon
Tuaca Liqueur
Collingwood Canadian Whisky
Santa Dose Cachaça
1Impact Databank, a well-known U.S. trade publication, published these industry statistics in February 2015.
2Not owned by Brown-Forman but sold by us under contract in the United States and other select markets.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations
– Fiscal 2015 Brand Highlights” for additional information regarding the performance of our brands.
Our vision in marketing is to “be the best brand builders in the industry … period.” We build our brands by investing in
programs that we believe create enduring connections with our consumers. These programs cover a wide spectrum of activities,
including media (TV, radio, print, outdoor, and, increasingly, digital and social media), consumer and trade promotions,
sponsorships, and visitor center programs at our distilleries and our winery. We expect to grow our sales and profits by consistently
4
delivering creative, responsible marketing programs that drive brand recognition, brand trial, brand loyalty, and, ultimately,
consumer demand around the world.
Markets
Our products are sold in more than 160 countries around the world. Our largest international markets include Australia, the
United Kingdom, Mexico, Germany, Poland, France, Russia, Turkey, Canada, and Japan. Over the last 10 years, we have greatly
expanded our international footprint. In fiscal 2015, we generated 57% of our net sales outside the United States compared to 40%
ten years ago. The United States, our largest, most important market, accounted for 43% of our net sales in fiscal 2015. We present
the percentage of total net sales by geographic area for our most recent three fiscal years and, to provide historical context, fiscal
2005, below:
Percentage of Total Net Sales by Geographic Area
United States
International:
Europe
Australia
Other
Total International
TOTAL
2005
...
60% ...
...
...
...
...
40% ...
100%
Year ended April 30
2013
2014
2015
41%
41%
43%
30 %
14 %
15 %
59%
100%
32 %
12 %
15 %
59%
100%
31 %
11 %
15 %
57%
100%
For details about net sales in our largest markets, refer to “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Fiscal 2015 Market Highlights.” For details about our reportable segment and for additional
geographic information about net sales and long-lived assets, refer to Note 13 to the Consolidated Financial Statements in “Item 8.
Financial Statements and Supplementary Data.” For details on risks related to our global operations, see “Item 1A. Risk Factors.”
Distribution Network and Customers
Our distribution network, which we sometimes refer to as our “route-to-consumer,” takes a variety of forms, depending on
(a) a market’s laws and regulatory framework for trade in beverage alcohol, (b) our assessment of a market’s long-term attractiveness
and competitive dynamics, (c) the relative profitability of distribution options available to us, (d) the structure of the retail and
wholesale trade in the market, and (e) our portfolio’s development stage in the market. As these factors change, we evaluate our
route-to-consumer strategy and, from time to time, adopt a different model.
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 route-to-consumer models. We own and operate distribution companies in 11
markets: Australia, Brazil, Canada, China, the Czech Republic, France, Germany, South Korea, Mexico, Poland, and Turkey. In
these markets, we sell our products 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 Limited, to sell a portfolio of both companies’
brands. In many other markets, including Italy, Japan, Russia, South Africa, and Spain, we rely on others to distribute our brands,
generally under fixed-term distribution contracts.
We believe that our customer relationships are good. We believe our exposure to concentrations of credit risk is limited due
to the diverse geographic areas covered by our operations.
Seasonality
Holiday buying makes the fourth calendar quarter the peak season for our business. Approximately 31% of our net sales for
fiscal year ended April 30, 2013, was in the fourth calendar quarter. For the fiscal years ended April 30, 2014, and April 30, 2015,
approximately 32% of our net sales were in the fourth calendar quarter.
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Competition
Trade information indicates that we are one of the largest global suppliers of premium wine and spirits. According to
International Wine & Spirit Research, for calendar year 2014, the ten largest global spirits companies controlled less than 20% of
the total global market for spirits (on a volume basis). While we believe that the overall market environment offers considerable
growth opportunities for us, our industry is now, and will remain, 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-
and-higher price categories. Our competitors include major global wine and spirits companies, such as Bacardi Limited, Beam
Suntory 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. In addition, particularly in the United States, we increasingly compete with (a) national companies, and (b)
entrepreneurs, many of whom are recent entrants to the industry – typically with small-batch or craft spirit brands.
Brand recognition, brand provenance, quality of product and packaging, availability, taste, and price are factors that affect
consumers’ choices among competing brands in our industry. Several factors influence consumers’ buying decisions, including:
advertising; promotions; merchandising in bars, restaurants, and shops; expert or celebrity endorsement; social media and word-
of-mouth; and the timing and relevance of new product introductions. Although some of our competitors have substantially greater
resources than we do, we believe that our competitive position is strong, particularly as it relates to brand recognition, quality,
availability, and relevance of new product introductions.
Ingredients and Other Supplies
The principal raw materials used in manufacturing and packaging our distilled spirits are water, 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 storing whiskey and certain tequilas. The principal raw materials used in liqueurs are neutral spirits, sugar, and wine,
while the principal raw materials used in our RTD products are sugar, flavorings, neutral spirits, whiskey, tequila, and malt. The
principal raw materials used in producing wines are grapes, packaging materials, and wood barrels. Our grape supply comes from
a combination of owned vineyards located in California and contracts with independent growers. We believe that our relationships
with our growers are good. Currently, none of these raw materials is in short supply, but shortages in some of these could occur.
From time to time, our agricultural ingredients (corn, rye, malted barley, agave, and grapes) could be adversely affected by weather
and other forces that might constrain supply.
Due to aging requirements, we must schedule production of whiskeys, certain tequilas, and other distilled spirits to meet
demand years in the future. As a result, our inventories may be larger in relation to sales and total assets than would be normal for
many other businesses.
For details on risks related to the availability of raw materials and the uncertainty inherent in supply/demand forecasting,
see “Item 1A. Risk Factors.”
Intellectual Property
Our intellectual property rights include trademarks, copyrights, proprietary packaging and trade dress, proprietary
manufacturing technologies, know-how, and some patents. Our intellectual property, especially our trademarks, are essential to
our business. We register our trademarks very broadly, some of them in every country where registration is possible. We register
others where we sell or expect to sell our products. We protect our intellectual property rights vigorously but fairly. We have
licensed some of our trademarks to third parties for use on products and services other than alcoholic beverages, which we believe
enhances the awareness and protection of our brands.
For details on risks related to the protection of our intellectual property, see “Item 1A. Risk Factors.” For additional
information regarding our most important brands, see “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Results of Operations – Fiscal 2015 Brand Highlights.”
Regulatory Environment
The production, storage, transportation, distribution, and sale of our products are subject to regulation by federal, state, local,
and foreign authorities. Various countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in
whole or in part.
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 where we sell our
products. In addition, distilled spirits products are subject to customs duties or excise taxation in many markets, including in the
United States, at the federal, state, or local level.
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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 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 extra anejo (three years), 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 those regulatory requirements.
Strategy
Five years ago, we introduced our “Brown-Forman 150” long-term strategy, focused on driving sustainable growth toward
our 150th anniversary in 2020. The B-F Arrow is an articulation of our core principles: our purpose as well as the vision, values,
and behaviors that we expect all of our employees to embrace and exhibit.
While these core principles are constant and powerful means of connecting our stakeholders to a shared vision of “Building
Forever”, we continue to refresh our strategies to reflect current realities. The strategic ambitions described below both demonstrate
a sustained focus on several drivers of our recent growth, which we believe remain relevant, and acknowledge the new and changing
opportunities of today.
We continually seek to build brands and businesses that can create shareholder value. An excellent business for B-F is one
that delivers strong growth, solid margins, and high returns. Given our growing size and scale, we are focusing on building brands
that can be meaningful for our company over time. While our first priority is to drive the organic growth of our premium spirits
portfolio, we will pursue innovation and consider acquisitions that meet our rigorous criteria as opportunities arise.
The Jack Daniel’s family of brands, including Jack Daniel’s Tennessee Whiskey, is our most valuable asset. We will always
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. As product innovation has become increasingly important to the trademark in recent years, we will continue to evaluate
opportunities to grow the Jack Daniel’s family of brands through careful, thoughtful line extensions.
We are the global leader in American whiskey, and we will pursue growth in the broader global, premium whiskey category
when it makes sense. We believe that we can leverage our whiskey-making knowledge, production assets, trademarks, brand-
building skills, and other capabilities to accomplish this objective. We will focus on the global growth of our most important
whiskey, Jack Daniel’s. In addition, we expect to accelerate the growth of our other whiskey brands around the world, including
Woodford Reserve and Old Forester, and to enter other attractive whiskey categories, as illustrated by our recently-announced
plans for Slane Castle. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Executive Summary” for details about our acquisition of Slane Castle Irish Whiskey Limited.
We aim to grow Finlandia and Herradura. We plan to focus primarily on growing Finlandia in Poland, Russia, and other parts
of eastern Europe. We will work to expand the reach of Herradura tequila to new consumers, emphasizing Mexico, the United
States, and other select, high-potential markets. We are taking steps to reposition el Jimador tequila as a more premium brand in
Mexico, its largest market; as a result, volumes will likely decline in Mexico in the short term, we expect overall performance of
the brand to improve there over time. We also will continue our efforts to enhance and broaden the consumer appeal of the Southern
Comfort brand.
7
The United States remains our largest market, and continuing to grow in this market is important to our long-term success.
We expect to drive this growth through stronger participation in fast-growing spirits categories such as flavored whiskey, super-
premium bourbon, and tequila; continued product and packaging innovation; continued route-to-consumer proficiency; and brand
building within growing consumer segments, with increasing emphasis on multicultural marketing.
Over the last two decades, our business outside the United States has grown more quickly than our business within it. Although
fiscal 2015 was an exception to this trend, as our net sales in the United States grew faster than outside the United States, we
expect the longer-term trend to resume. Our ability to achieve our long-term growth objectives requires further development of
our business globally, especially in emerging markets. We expect to grow our business in developed markets such as France,
Germany, and the United Kingdom, and in emerging markets such as Mexico, Poland, Russia, and Turkey. We also expect
increasingly significant contributions to our growth from other emerging markets such as Brazil, China, Southeast Asia, Africa,
and eastern Europe. We will continue to pursue route-to-consumer strategies that will expand our access to and understanding of
consumers in these diverse markets.
We believe that having a long-term-focused, committed, engaged shareholder base gives us an important strategic advantage,
particularly in a business with aged products and multi-generational brands. So we plan to continue our engagement with our
shareholders, including 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.
Corporate Responsibility
In pursuing all of the objectives described above, we will strive to be responsible in everything we do. Our history of
responsibility began in 1870, when our founder, George Garvin Brown, first sold medicinal whisky in glass bottles to ensure
quality and safety – an innovative idea during a time when whisky was usually sold by the barrel. Today, achieving Brown-
Forman’s business purpose, “enriching the experience of life,” is possible only within a context of corporate responsibility. This
means promoting responsible consumer enjoyment of our brands; working to reduce alcohol abuse and misuse; protecting the
environment; providing a healthy, safe, and inclusive workplace; and contributing to the global communities where we operate.
Alcohol Responsibility. We promote responsible consumption of our products, as we believe this will enhance our relationships
with consumers, business partners, stakeholders, and society at large and is essential for the long-term prosperity of our company
and our industry. When abused or misused, alcohol can contribute to significant harm both to individuals and the community. We
appreciate the need for governments to regulate our industry appropriately and effectively, taking into account national
circumstances and local cultures. Along with others and through partnership, we want to be part of the solution to real and complex
problems such as underage drinking, drunk driving, and overconsumption.
As a significant player in the global beverage alcohol industry, we foster collective action with our peers. Working together
with other producers, we are able to leverage our views on a scale that can create change. For example, we are working with the
13 other industry leaders that signed the Beer, Wine, and Spirits Producers’ Commitments to Reduce Harmful Drinking. In its
second year, calendar 2014, the group made significant progress. We increased outreach to governments and other stakeholders
on strengthening legal purchase age, launched the first ever Digital Guiding Principles for digital advertising, and developed
guidelines for responsible retailing. Our progress on these commitments will be reported annually and more information can be
found at www.producerscommitments.org.
Since 2009, we have hosted an open forum sharing our point of view and encouraged engagement of others on
www.OurThinkingAboutDrinking.com. In the United States, we support The Ad Council’s “Buzzed Driving is Drunk Driving”
campaigns, designated driver services such as BeMyDD, and the Responsible Retailing Forum, which brings together diverse
stakeholders seeking to reduce underage sales, among other initiatives. With respect to our consumer relationships, we seek to
communicate through responsible advertising content and placement, relying on our comprehensive internal marketing code and
adhering to industry marketing and advertising guidelines. We also are founding members of, and contribute significant resources
to, the Foundation for Advancing Alcohol Responsibility, an organization created by spirits producers to combat harmful use of
alcohol. While this is a U.S. organization, we actively participate in similar organizations in other markets, such as DrinkWise in
Australia, BSI in Germany, The Portman Group in the United Kingdom, and FISAC in Mexico. In the European Union, we helped
form the Responsible Marketing Pact with seven other major beverage alcohol manufacturers to develop industry-led standards
for responsible advertising and marketing. The standards focus on decreasing exposure of those under legal drinking age to alcohol-
related advertisements. We also recognize that some individuals can’t or shouldn’t drink beverage alcohol and respect the choice
of those who don’t drink for whatever reason. To this end, we have an internal employee resource group called SPIRIT that exists
to create an environment where all employees and guests feel welcome, regardless of whether they choose to drink.
8
Environmental Sustainability. We are pleased to have surpassed our previous 2020 greenhouse gas (GHG) and water goals
ahead of schedule, and we have recently committed to a tougher challenge. In calendar 2014, we set new, more ambitious
environmental sustainability goals, focused on reducing our absolute greenhouse gas emissions by 15%, sending zero waste to
landfill, and reducing our water use and wastewater discharges per unit of product by 30%. These new goals support our ambition
to be a sustainability leader within our industry and in the countries where we have a significant presence. In calendar 2015,
Brown-Forman received a Climate Leadership Award from the U.S. Environmental Protection Agency for Excellence in
Greenhouse Gas Management (known as a Goal Setting Certificate). Brown-Forman was one of eight companies recognized for
setting aggressive GHG goals. Brown-Forman Tequila Mexico was recognized by the Mexican Environmental Protection Agency
(Procuraduría Federal de Protección al Ambiente) with the Level 2 Clean Industry Certificate. In addition to recognizing waste
reduction efforts, the award reflects Casa Herradura’s broad commitment to environmental stewardship, including energy and
emissions reductions, water conservation and treatment, and more. Casa Herradura is the first tequila distillery, and only the third
company in the state of Jalisco, to receive this honor.
Diversity, Inclusion, and Human Rights. We believe that having a diverse and inclusive workforce is central to our success.
As we work to increase the relevance and appeal of our brands to diverse consumer groups, we need a diversity of experiences
and outlooks within our own workforce. We also want employees to feel comfortable in contributing their whole selves and
different perspectives to the work they do. Over the past year, we’ve made progress with diverse representation at a senior level.
Three women serve on our Board of Directors, and in fiscal 2015, Michael A. Todman became our first African-American director.
Four out of 15 members of our Executive Leadership Team are women; two of the 15 members are minorities, appointed over the
last two years. In 2015, Brown-Forman was once again awarded a perfect score of 100% in the Corporate Equality Index by the
Human Rights Campaign, a civil rights organization promoting equality for lesbian, gay, bisexual, and transgender Americans.
This makes us one of the “Best Places to Work for LGBT equality” in the United States for the fifth consecutive year. Our employee
resource groups have been the core of our diversity culture by supporting employees’ growth while enhancing their contributions.
In the marketplace, we focus on promoting fair and ethical business practices. We remain committed to the guidelines set
forth in our Global Human Rights Statement, defining our commitment to respecting the fundamental rights inherent to all human
beings. We share our human rights policies and practices with our suppliers through our Suppliers Guide to Human Rights.
Community Involvement. Our approach to philanthropy reflects our values as a corporate citizen. Our civic engagement
supports non-profit organizations that make a positive impact and improve the lives of individuals and the vitality of our
communities. We target our support in six general areas: arts and culture, education, environment, social services, alcohol
responsibility, and community development. While our focus is in our hometown of Louisville, Kentucky, our civic engagement
activities extend to the communities around the globe where our employees live, work, and raise their families. In 2015, we donated
more than $10.5 million in cash, logged approximately 20,000 volunteer hours, and had over 130 employees serve on boards of
directors of 190 non-profit organizations.
Our Corporate Responsibility reports are available at www.brown-forman.com/responsibility.
Employees and Executive Officers
As of April 30, 2015, we employed approximately 4,400 people, including about 200 employed on a part-time or temporary
basis. Approximately 17% of our employees in the United States are represented by a union. We believe our employee relations
are good.
9
The following persons serve as executive officers of the Company as of June 17, 2015.
Name
Paul C. Varga
Jane C. Morreau
Age
51
56
Principal Occupation and Business Experience
Company Chairman and Chief Executive Officer since 2007. Chief Executive Officer since
2005.
Executive Vice President and Chief Financial Officer since 2014. Senior Vice President, Chief
Production Officer, and Head of Information Technology from 2013 to 2014. Senior Vice
President, Director of Financial Management, Accounting and Technology from 2008 to 2013.
James S. Welch, Jr.
56
Matthew E. Hamel
Jill Ackerman Jones
Mark I. McCallum
55
49
60
Lawson E. Whiting
46
Alejandro “Alex”
Alvarez
Ralph De Chabert
Brian P. Fitzgerald
Kirsten M. Hawley
Thomas Hinrichs
Lisa P. Steiner
47
68
42
45
53
55
Available Information
Company Vice Chairman, Executive Director Corporate and Civic Affairs since February
2015. Company Vice Chairman, Executive Director of Corporate Affairs, Strategy, and
Diversity from 2012 to 2015. Company Vice Chairman, Executive Director of Corporate
Affairs, Strategy, Diversity, and Human Resources from 2007 to 2012.
Executive Vice President, General Counsel, and Secretary since 2007.
Executive Vice President, President for North America, Latin America, IMEA, and Global
Travel Retail since February 2015. Executive Vice President, President for North America
and Latin America Regions from 2013 to 2015. Executive Vice President, Chief Production
Officer from 2007 to 2012.
Executive Vice President, President Jack Daniel’s Brands since February 2015. Executive
Vice President, President for Europe, Africa, Middle East, Asia Pacific, and Travel Retail
from 2013 to 2015. Executive Vice President, Chief Operating Officer from 2009 to 2013.
Executive Vice President and Chief Brands Officer from 2006 to 2009.
Executive Vice President, Chief Brands and Strategy Officer since February 2015. Senior
Vice President, Chief Brands Officer from 2013 to 2015. Senior Vice President, Managing
Director Western Europe from 2011 to 2013. Vice President, Finance Director Western Europe
from 2010 to 2011. Vice President, Finance Director North America from 2009 to 2010.
Senior Vice President, Chief Production Officer since 2014. Vice President, General Manager
Brown-Forman Tequila Mexico Operations from 2008 to 2014.
Senior Vice President, Chief Diversity Officer since 2007.
Senior Vice President, Chief Accounting Officer since 2013. Vice President, Finance Director
of Greater Europe and Africa from 2009 to 2013.
Senior Vice President, Chief Human Resources Officer since February 2015. Senior Vice
President, Director of HR Business Partnerships from 2013 to 2015. Vice President,
Director Organization and Leader Development 2011 to 2013. Assistant Vice President,
Director Employee Engagement from 2009 to 2011.
Senior Vice President, President for Europe, North Asia, and ANZSEA since February
2015. Senior Vice President, Managing Director Europe from 2013 to 2015. Senior Vice
President, Managing Director Greater Europe and Africa from 2006 to 2013.
Senior Vice President, Chief of Staff and Director of Global Corporate Communications and
Services since February 2015. Senior Vice President, Chief Human Resources Officer from
2009 to 2015. Senior Vice President, Director of Global Human Resources from 2007 to 2009.
You can read and copy any materials that we file with the SEC in its 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 addition, the
SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file
with the SEC at www.sec.gov.
Our website address is www.brown-forman.com. 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 that 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. If we amend or waive any of the
provisions of our Code of Conduct or our Code of Ethics applicable to our principal executive officer, principal financial officer,
principal accounting officer, or controller that relates to any element of the definition of “code of ethics” enumerated in Item 406
(b) of Regulation S-K under the Securities Act of 1934 Act, we intend to disclose these actions on our website. We have also posted
on our website our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee,
10
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 emailing him at Secretary@b-f.com.
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, or financial condition
could be materially and adversely affected. Additional risks not currently known to us, or that we currently deem to be immaterial,
could also materially and adversely affect our business, results of operations, cash flows, or financial condition.
Unfavorable economic conditions could negatively affect our operations and results.
Unfavorable global or regional economic conditions, including uncertainty caused by unstable geopolitical environments in
many parts of the world, such as Russia and Ukraine, could adversely affect our business and financial results. While the major
economic disruptions of the 2008-2009 financial crisis have largely subsided, many markets where our products are sold still face
significant economic challenges resulting from the global economic downturn that followed, including low consumer confidence,
high unemployment, budget deficits, burdensome governmental debt, austerity measures, increased taxes, and weak financial,
credit, and housing markets. Unfavorable economic conditions such as these can cause governments to increase taxes on beverage
alcohol to attempt to raise revenue or reduce consumers’ willingness to make discretionary purchases of beverage alcohol products
or pay for premium brands such as ours. In unfavorable economic conditions, consumers may make more value-driven and price-
sensitive purchasing choices and drink more at home rather than at restaurants, bars, and hotels, which tend to favor many of our
premium and super-premium products.
Unfavorable economic conditions could also adversely affect our suppliers, distributors, and retailers, who in turn could
experience cash flow problems, more costly or unavailable financing, credit defaults, and other financial hardships. This could
lead to distributor or retailer destocking, increase our bad debt expense, or cause us to increase the levels of unsecured credit that
we provide to customers. Other potential negative consequences to our business from poor economic conditions include higher
interest rates, an increase in the rate of inflation, deflation, exchange rate fluctuations, credit or capital market instability, or lower
returns on pension assets or lower discount rates for pension obligations (requiring higher contributions to our pension plans). For
details on the effects of changes in the value of our benefit plan obligations and assets on our financial results, see Note 9 to the
Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Our global business is subject to commercial, political, and financial risks, including foreign currency exchange rate
fluctuations.
Our products are sold in more than 160 countries; accordingly, we are subject to risks associated with doing business globally,
including commercial, political, and financial risks. In the long-term, we continue to expect our 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 due to these risks or for other reasons, it could have a material adverse effect on our financial results.
In addition, we are subject to potential business disruption caused by military conflicts; potentially unstable governments
or legal systems; civil or political upheaval or unrest; local labor policies and conditions; possible expropriation, nationalization,
or confiscation of assets; problems with repatriation of foreign earnings; economic or trade sanctions; closure of markets to imports;
anti-American sentiment; terrorism or other types of violence in or outside the United States; health pandemics; and a significant
reduction in global travel. For example, Mexico is a key commercial and production country for some of our products, and an
outbreak of violence there could disrupt our operations. In addition, our ability to sell into Russia depends on our products being
imported, and any economic or trade sanctions could materially adversely affect our operations there. 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 many markets outside the United States, we sell our products and pay for some goods, services, and labor
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. Over time, our reported financial results generally will be hurt by a stronger
U.S. dollar and improved by a weaker one. For instance, profits from our overseas businesses for the 2015 fiscal year were adversely
impacted by the recent strengthening of the U.S. dollar against currencies in our major markets, including the euro, British pound
sterling, Ukrainian hryvnia, and Australian dollar. We do not attempt to hedge all of our foreign currency risk. We may, from time
to time, attempt to hedge foreign currency risk, but, even in those cases, we may not be successful in limiting foreign currency
11
risk through the use of foreign currency derivatives or other means. For details on how foreign exchange affects our business, see
“Item 7A. Quantitative and Qualitative Disclosures about Market Risk - Foreign Exchange.”
National and local governments may adopt regulations or undertake investigations that could limit our business activities
or increase our costs.
Our business is subject to extensive regulatory requirements regarding production, exportation, 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 or sell our products. In Europe, for example, regulators
in a number of countries have adopted or are considering severe limitations on the marketing and sale of beverage alcohol. For
example, some countries have banned all television, newspaper, magazine, and internet advertising for beverage alcohol products.
Increases in regulation of this nature could cause a substantial decline in consumer awareness for our products in the affected
markets.
Some 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 and other 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 international
trade, money laundering, anti-corruption, or other laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery
Act 2010, or equivalent local 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 those of our partners), imposition of fines, legal or equitable sanctions,
negative publicity, and management distraction. Further, our compliance with applicable anti-corruption or other laws, our Code
of Conduct and Code of Ethics, and our other policies could result in higher operating costs compared to those of other suppliers.
Additional regulation in the United States and other countries addressing climate change, use of water, and other environmental
issues could increase our operating costs. Increasing regulation of fuel emissions could increase the cost of energy, including fuel,
required to operate our facilities or transport and distribute our products, thereby substantially increasing the distribution and
supply chain costs associated with our products.
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 effective
corporate income tax rate. Certain tax changes that have been or are currently proposed by the U.S. Congress or the President
exemplify this risk, including 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, changing the U.S. tax treatment of income related to foreign
intangibles, decreasing or eliminating the U.S. manufacturing deduction, or changing the rules relating to the depreciation of
capital expenditures or the deduction of advertising expenses.
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 taxes, 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 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 or lower-taxed product categories or to drink less. For
example, certain jurisdictions such as Australia have increased and may continue to increase excise taxes on beverage alcohol
products, which could increase the cost of our products to consumers and could reduce consumer demand in those jurisdictions. Our
global business can also be negatively affected by import and export duties, tariff barriers, and related local governmental
protectionist measures, and the suddenness and unpredictability with which these can occur. As governmental entities look for
increased sources of revenue, it is possible that they may increase taxes on beverage alcohol products. 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 the Jack Daniel’s family of brands.
The Jack Daniel’s family of brands is the primary driver of our revenue and growth. Jack Daniel’s is an iconic global trademark
with a loyal consumer fan base, and we invest much effort and many resources to protect and preserve the brand’s reputation for
12
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 adversely influence
these perceptions and erode consumer trust and confidence in the brand. Significant damage to the brand equity of Jack Daniel’s
would adversely affect our business. Given the importance of Jack Daniel’s to our overall success, a significant or sustained decline
in volume or selling price of our Jack Daniel’s products would have a negative effect on our growth and our stock price. Additionally,
should we not be successful in our efforts to maintain or increase the relevance of the Jack Daniel’s brand in the minds of current
and future consumers, our business and operating results could suffer. For details on the importance of the Jack Daniel’s family
of brands to our business, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- Results of Operations - Fiscal 2015 Brand Highlights.”
Changes in consumer preferences and purchases, and our ability to anticipate or react to them, could negatively affect
our business results.
We are a branded consumer products company in a highly competitive market, and our success depends on our continued
ability to offer consumers appealing, high-quality 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 or elsewhere, and changes in travel, leisure, dining, gifting, entertaining,
and beverage consumption trends. Consumers also may begin to prefer the products of competitors or may generally reduce their
demand for brands produced by larger companies. For example, smaller local distilleries are experiencing accelerated growth as
a result of shifting consumer preferences toward locally-produced, regionally-sourced products. In addition, we could experience
unfavorable business results if we fail to attract consumers from diverse backgrounds and ethnicities in the United States and in
our other non U.S. markets. Forecasts in the United States for several years after 2015 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. To continue to succeed, we must anticipate or react effectively to shifts in demographics, consumer behavior, consumer
preferences, drinking tastes, and drinking occasions.
Our plans call for the continued growth of the Jack Daniel’s family of brands. In particular, we plan to continue to grow Jack
Daniel’s Tennessee Honey sales globally and to launch Jack Daniel’s Tennessee Fire in the United States this fiscal year. 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
such as American whiskey and bourbon), our premium-priced brands, or our RTD products, our financial results could be adversely
affected.
We believe that new products, line extensions, label and bottle changes, product reformulations, and similar product
innovations by both our competitors and us 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, reduction in profits from one year
to the next, and also could damage consumers’ 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 could adversely affect our business.
Some of our largest brands, including the Jack Daniel’s family of brands and Finlandia Vodka, are produced at a single
location. A catastrophic event causing physical damage, disruption, or failure at one of our major distillation or bottling facilities
could adversely affect our business. Further, because whiskeys and some tequilas are aged for various periods, we 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 significantly reduce the
supply of the affected product or products. 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 require a significant amount
of time.
The inherent uncertainty in supply/demand forecasting could adversely affect our business, particularly with respect to
our aged products.
There is an inherent risk of forecasting imprecision in determining the quantity of aged and maturing products to produce
and hold in inventory in a given year for future sale. The forecasting strategies we use to balance product supply with fluctuations
13
in consumer demand may not be effective for particular years or products. We cannot be sure that we will be successful in using
various levers, such as price, to create the desired balance of available supply and consumer demand for particular years or products.
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 suppliers. Our ability to make and sell our
products depends upon the availability of the raw materials, product ingredients, finished products, wood, 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 business 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. In addition, if we experienced a disruption in the supply of American oak logs to produce the
new charred oak barrels in which we age our whiskeys, our production capabilities would be compromised. If any of our key
suppliers were no longer able to meet our timing, quality, or capacity requirements, ceased doing business with us, or significantly
raised prices, and we could not promptly 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,
or higher associated labor costs or insufficient availability of labor, may adversely affect our financial results, because we may
not be able to pass along such cost increases or the cost of such shortages through higher prices to customers without reducing
demand or sales. 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 without reducing demand or sales.
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 weather patterns or intensity 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.
Water is one of the major components of our products, so the quality and quantity of available water is important to our
ability to operate our business. If droughts become more common or severe, or if our water supply were interrupted for other
reasons, high-quality water could become scarce in some key production regions for our products, including Tennessee, Kentucky,
California, Finland, Canada, and Mexico.
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, increased social and political attention has been directed at the
beverage alcohol industry. For example, there remains continued attention 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 range of health conditions and, for certain
people, can result in alcohol dependence. Some academics and public health officials as well as critics of the alcohol industry in
the United States, Europe, and other countries continue to seek governmental measures to make beverage alcohol products more
expensive, less available, 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.
14
Significant additional labeling or warning requirements or limitations on the availability of our products could inhibit
sales of affected products.
Various jurisdictions have adopted or may seek to adopt significant additional product labeling or warning requirements or
limitations on the availability of our products relating to the content or perceived adverse health consequences of some of our
products. Several such labeling regulations or laws require warnings on any product with substances that the state lists as potentially
causing cancer or birth defects. Our products already raise health and safety concerns for some regulators, and heightened
requirements could be imposed. If additional or more severe requirements of this type become applicable to one or more of our
major products under current or future health, environmental, or other laws or regulations, they could inhibit sales of such products.
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, or 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, suppliers, or retailers could create a more challenging competitive landscape for our products.
Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources
allocated to our brands both during and after transition periods, because 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 in our product categories. For example, we are experiencing increased competition for some of our products
from new entrants in the small-batch or craft spirits category. Changes to our route-to-consumer models or partners in important
markets could result in temporary or longer-term sales disruption, could result in higher costs, and could negatively affect other
business relationships we might have with that partner. Disruption of our distribution network or fluctuations in our product
inventory levels at distributors, wholesalers, or retailers could negatively affect our results for a particular period. Further, while
we currently believe we have sufficient scale to succeed relative to our major competitors, we nevertheless face a risk that continuing
consolidation of 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, 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 and purchase volume flexibility,
offer competing own-label products, and represent a large number of other competing products. If the buying power of these large
retail customers continues to increase, it could negatively affect 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 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 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, or strategic objectives. In selling assets or businesses, we may not get prices 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 negatively affect our
financial performance.
15
Inadequate protection of our intellectual property rights or counterfeiting could adversely affect our business prospects.
Our brand names, trademarks, and related intellectual property rights are critical assets, and our business depends on our
protecting them successfully. We may be unsuccessful in protecting our intellectual property rights around the world or in
challenging 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 from country to country.
We may not be able to secure trademark registrations in every country in which we wish to sell a particular product, and we may
not get favorable protective decisions by courts or trademark offices.
Many global spirits brands, including our brands, experience problems with product counterfeiting and other forms of
trademark infringement. We work cooperatively with other spirits industry companies through 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 is not active in every market and its efforts are subject to cooperation with local authorities and courts in the
markets where it is active. Despite our and IFSP’s efforts, confusingly similar, lower-quality, or even counterfeit products harmful
to consumers could reach the market and adversely affect our intellectual property rights, brand equity, corporate reputation, 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.
Product recalls or other product liability claims could materially and adversely affect our sales.
The success of our brands depends upon the positive image that consumers have of those brands. We could decide to, or be
required to, recall products due to suspected or confirmed product contamination, product tampering, spoilage, or other quality
issues. Any of these events could adversely affect our sales. 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 a 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. 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, marketing, 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. 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 if there is negative
publicity or to the extent the losses or expenses were not insurable or insured.
Governmental actions around the world to enforce trade practice, money laundering, anti-corruption, competition, tax,
environmental, and other laws are also a continuing compliance risk for global companies such as ours. In addition, as a U.S.
public company we are exposed to the risk of securities-related 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 or corruption 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, or used by third parties or their vendors, to help us manage 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.
16
Increased IT security threats and more sophisticated cyber crime pose a potential risk to the security of our IT systems,
networks, and services including those that are managed, hosted, provided, or used by third-parties, 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 and timely address these failures,
we may suffer interruptions in our ability to manage operations and reputational, competitive, or business harm, which may
adversely affect our business operations 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 publicity, whether accurate or not, related to our industry or to us or our brands, marketing, personnel, operations,
business performance, or prospects could negatively affect our corporate reputation, stock price, ability to attract high-quality
talent, or the performance of our business. Adverse publicity or negative commentary on social media outlets, particularly any
such negative commentary on social media outlets that goes “viral,” could cause consumers to react by avoiding our brands or
choosing brands offered by our competitors, which could materially 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 other employee talent, or the unexpected loss of experienced employees, could have an adverse impact on our business
performance.
The Brown family has the ability to control the outcome of matters submitted for stockholder approval.
We are considered a “controlled company” under New York Stock Exchange rules. Controlled companies are exempt from
New York Stock Exchange listing standards that require a board composed of a majority of independent directors, a fully independent
nominating/corporate governance committee, and a fully independent compensation committee. We avail ourselves of the
exemptions from having a board composed of a majority of independent directors and a fully independent nominating/corporate
governance committee. Notwithstanding the available exemption, our Compensation Committee is composed exclusively of
independent directors. As a result of our use of some “controlled company” exemptions, our corporate governance practices differ
from those of non-controlled companies, which are subject to all of the New York Stock Exchange corporate governance
requirements.
A substantial majority of our voting stock is controlled by members of the Brown family, and collectively, they have the
ability to control the outcome of stockholder votes, including the election of all of our directors and the approval or rejection of
any merger, change of control, or other significant corporate transaction. 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. This advantage could be eroded or lost, however, should Brown family members cease, collectively,
to be controlling stockholders of the Company. We desire to remain independent and family-controlled, and we believe the Brown
family stockholders share these interests. However, the Brown family’s interests may not always be aligned with other stockholders’
interests. By exercising their control, the Brown family could cause the Company to take actions that are at odds with the investment
goals of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock price.
Item 1B. Unresolved Staff Comments
None.
17
Item 2. Properties
Company-owned production facilities include distilleries, a winery, a concentrate plant, bottling plants, warehousing
operations, saw mills, and cooperages. We also have agreements with other parties for contract production in Australia, Belgium,
China, Estonia, Finland, Mexico, the Netherlands, South Africa, and the United States.
In addition to Company-owned corporate offices in Louisville, Kentucky, we lease office space for use in our sales, marketing,
and administrative operations in the United States and in over 40 other cities around the globe. The lease terms expire at various
dates and are generally renewable. Our most significant office locations outside Louisville are:
• United States: Irvine, California; Irving, Texas; Atlanta, Georgia; and Baltimore, Maryland.
•
International: Guadalajara, Mexico; Sydney, Australia; Hamburg, Germany; Paris, France; Warsaw, Poland; London,
United Kingdom; Prague, Czech Republic; Mexico City, Mexico; São Paulo, Brazil; Amsterdam, Netherlands; and Hong
Kong.
Location
United States:
Significant Properties
Principal Activities
Notes
Louisville, Kentucky
Corporate offices
Includes several renovated historic structures
Distilling, bottling, warehousing
Cooperage
Brown-Forman Cooperage
Lynchburg, Tennessee
Distilling, bottling, warehousing Home of the Jack Daniel’s family of brands
Visitors’ center
Woodford County, Kentucky Distilling, bottling, warehousing Home of Woodford Reserve
Windsor, California
Winery, bottling, warehousing
Home of Sonoma-Cutrer
Visitors’ center
Decatur, Alabama
Clifton, Tennessee
Visitors’ center
Cooperage
Stave and heading mill
Stevenson, Alabama
Stave and heading mill
Jack Daniel Cooperage
Spencer, Indiana
Jackson, Ohio
International:
Stave and heading mill
Stave and heading mill
Acquired in first quarter fiscal 2016
Land is leased from a third party
Collingwood, Canada
Distilling, warehousing
Home of Canadian Mist
Cour-Cheverny, France
Distilling, bottling, warehousing Home of Chambord
Amatitán, Mexico
Distilling, bottling, warehousing Home of our tequilas and New Mix RTDs
Visitors’ center
We believe that our facilities are in good condition and are adequate for our business.
Item 3. Legal Proceedings
We operate in a litigious environment and we are sued in the normal course of business. We do not anticipate that any
currently pending suits will have, individually or in the aggregate, a material adverse effect on our financial position, results of
operations, or liquidity.
Item 4. Mine Safety Disclosures
Not applicable.
18
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 (under the symbols “BFA” and “BFB,”
respectively). As of May 31, 2015, there were 2,712 holders of record of Class A common stock and 5,265 holders of record of
Class B common stock. Because of overlapping ownership between classes, as of May 31, 2015, we had only 5,877 distinct record
holders.
The following table sets forth, for the quarterly periods indicated, the high and low sales prices per share for our Class A
and Class B common stock, as reported on the New York Stock Exchange composite tape, and dividend per share information:
Fiscal 2014
Fiscal 2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
Market price per share:
Class A high
Class A low
Class B high
Class B low
$ 75.47
67.00
74.29
66.44
$ 74.65
65.46
74.96
66.41
$ 79.83
71.00
80.76
72.11
Cash dividends per share:
Declared
Paid
0.51
0.26
—
0.26
0.58
0.29
91.00
74.67
91.15
75.54
—
0.29
$ 91.00
65.46
91.15
66.41
$ 95.29
85.98
97.15
86.48
$ 93.09
81.38
93.62
81.89
$ 98.00
85.33
97.97
85.43
$ 95.23
86.85
93.99
86.71
$ 98.00
81.38
97.97
81.89
1.09
1.09
0.58
0.29
—
0.29
0.63
0.32
—
0.32
1.21
1.21
Note: Quarterly amounts do not add to amounts for the year due to rounding.
Equity Compensation Plan Information
The following table summarizes information as of April 30, 2015, relating to our equity compensation plans pursuant to
which grants of stock options, stock appreciation rights, restricted stock, market value units, performance units or other equity
awards have been made.
Plan Category
Equity compensation plans approved by
Class A common stockholders
Number of Securities
to Be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights1
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights2
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
1,901,441
$48.46
7,253,166
1Includes 1,773,777 Class B common shares to be issued upon exercise of stock-settled stock appreciation rights (SSARs); 81,322 Class B
common restricted stock units (RSUs); 21,506 Class A common deferred stock units (DSUs); and 24,836 Class B common DSUs issued under
the Brown-Forman 2004 or 2013 Omnibus Compensation Plans. Does not include issued shares of performance-based restricted stock. SSARs
are exercisable for an amount of our common stock with a value equal to the increase in the fair market value of the common stock from the
date the SSARs were granted. The fair market value of our common stock at fiscal year-end has been used for the purposes of reporting the
number of shares to be issued upon exercise of the 3,817,206 SSARs outstanding at fiscal year-end.
2RSUs and DSUs do not have an exercise price because their value depends on continued employment or service over time, and are to be settled
for shares of Class B common stock. Accordingly, these have been disregarded for purposes of computing the weighted-average exercise price.
19
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, the 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, 2010, 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 2010.
Share Repurchases
The following table provides information about shares of our common stock that we acquired during the quarter ended
April 30, 2015:
Period
February 1, 2015 - February 28, 2015
March 1, 2015 - March 31, 2015
April 1, 2015 - April 30, 2015
Total
Total
Number of
Shares
Purchased
152,944
815,595
1,154,886
2,123,425
Average
Price Paid
per Share
$88.91
$88.71
$91.59
$90.29
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet Be
Purchased under the
Plans or Programs
152,944
815,595
1,154,886
2,123,425
$
$
$
170,000,000
1,097,700,000
991,900,000
As we announced on October 15, 2014, our Board of Directors authorized us to repurchase up to $250 million of our
outstanding Class A and Class B common shares from October 15, 2014, through October 14, 2015, subject to market and other
conditions. As we announced on March 25, 2015, the Board approved a $1 billion increase to the share repurchase authorization
and extended it through March 24, 2016, subject to market and other conditions. The shares presented in the table above were
acquired under these Board authorizations.
20
Item 6. Selected Financial Data
This selected financial data 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 the accompanying Notes contained in “Item
8. Financial Statements and Supplementary Data.”
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)
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
$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
3,946
2,078
971
659
4,096
2,183
1,027
684
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
213.5
215.1
211.6
213.1
$ 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
3.08
3.06
3.23
3.21
54.2% 52.8% 51.6% 49.4% 50.0% 50.7% 49.7% 51.7% 52.7% 53.3%
23.3% 21.5% 20.9% 20.7% 22.0% 25.1% 21.8% 23.7% 24.6% 25.1%
29.3% 31.7% 31.7% 31.1% 34.1% 31.0% 32.5% 31.7% 30.5% 31.7%
$1,863
2,431
2,747
2,893
2,825
2,711
2,803
2,834
3,131
3,196
21.9% 17.4% 17.2% 15.9% 16.6% 21.8% 19.1% 21.7% 21.6% 22.0%
$ 0.56
$1,397
$2,728
$ 351
0.62
1,700
3,551
422
0.69
1,668
3,405
417
$ 576
1,177
1,006
$ 343
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
1.09
1,817
4,103
997
1.21
2,040
4,193
748
1,002
1,005
1,188
537
649
608
Return on average stockholders’ equity
22.9% 22.9% 26.4% 24.2% 24.0% 30.0% 25.1% 31.4% 36.3% 33.5%
Total debt to total capital
Dividend payout ratio
26.9% 42.8% 36.8% 35.5% 26.9% 26.9% 19.8% 38.1% 33.1% 38.4%
40.0% 36.8% 35.8% 38.9% 38.7% 57.0% 37.4% 179.8% 35.3% 37.5%
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 and after-tax interest expense, divided by average invested capital. Average invested
capital equals assets less liabilities, excluding interest-bearing debt and is calculated using the average of the most recent 13 month-end balances. After-
tax interest expense equals interest expense multiplied by one minus our effective tax rate.
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.
21
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, our financial results, and our current 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 contained in “Item 8. Financial Statements and Supplementary Data.”
Volume and Depletions
When discussing volume, unless otherwise specified, we refer to “depletions,” a term 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 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 to distributor customers do.
Volume is discussed on a nine-liter equivalent unit basis (nine-liter cases) unless otherwise specified. 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 spirits brand. “Drinks-equivalent” depletions are RTD and RTP nine-liter cases converted to nine-liter cases of a parent
brand on the basis of the number of drinks in one nine-liter case of the parent brand. To convert RTD volumes from a nine-liter
case basis to a drinks-equivalent nine-liter case basis, RTD nine-liter case volumes are divided by 10, while RTP nine-liter case
volumes are divided by 5.
Non-GAAP Financial Measures
We use certain financial measures in this report that are not measures of financial performance under GAAP. These non-
GAAP measures, which are defined below, should be viewed as supplements to (not substitutes for) our results of operations and
other measures reported under GAAP. The non-GAAP measures we use in this report may not be defined and calculated by other
companies in the same manner.
We present changes in certain income statement line-items that are adjusted to an “underlying” basis, which we believe
assists in understanding both our performance from period to period on a consistent basis, and the trends of our business. Non-
GAAP “underlying” measures include changes in (a) underlying net sales, (b) underlying cost of sales, (c) underlying excise taxes,
(d) underlying gross profit, (e) underlying advertising expenses, (f) underlying selling, general, and administrative expenses, and
(g) underlying operating income. To calculate each of these measures, we adjust for (a) foreign currency exchange and (b) if
applicable, estimated net changes in distributor inventories. We explain these adjustments below.
•
•
“Foreign exchange.” We calculate the percentage change in our income statement line-items in accordance with GAAP
and adjust to exclude the cost or benefit of currency fluctuations. Adjusting for foreign exchange allows us to understand
our business on a constant dollar basis, as fluctuations in exchange rates can distort the underlying trend both positively
and negatively. (In this report, “dollar” always means the U.S. dollar unless stated otherwise.) To eliminate the effect of
foreign exchange fluctuations when comparing across periods, we translate current year results at prior-year rates.
“Estimated net change in distributor inventories.” This measure refers to the estimated net effect of changes in distributor
inventories on changes in our measures. For each period being compared, we estimate the effect of distributor inventory
changes on our results using depletion information provided to us by our distributors. We believe that this adjustment
reduces the effect of varying levels of distributor inventories on changes in our measures and allows us to understand
better our underlying results and trends.
Management uses “underlying” measures of performance to assist it in comparing and measuring our performance from
period to period on a consistent basis, and in comparing our performance to that of our competitors. We also use underlying
measures as metrics of management incentive compensation calculations. Management also uses underlying measures in its
planning and forecasting and in communications with the board of directors, stockholders, analysts, and investors concerning our
financial performance. We have provided reconciliations of the non-GAAP measures adjusted to an “underlying” basis to their
nearest GAAP measures in the tables below under “Results of Operations – Year-Over-Year Comparisons” and have consistently
applied the adjustments within our reconciliations in arriving at each non-GAAP measure.
We also use the following additional non-GAAP financial measures:
“Net debt.” This measure refers to the sum of (a) long-term debt, (b) the current portion of long-term debt, and (c) short-
term borrowings, less (d) cash and cash equivalents. Management uses net debt as an additional measure of liquidity.
“Return on average invested capital.” This measure refers to the sum of net income and after-tax interest expense, divided
by average invested capital. Average invested capital equals assets less liabilities, excluding interest-bearing debt and is calculated
22
using the average of the most recent 13 month-end balances. After-tax interest expense equals interest expense multiplied by one
minus our effective tax rate. We consider return on average invested capital to be a meaningful indicator of how effectively and
efficiently we use invested capital in our business.
23
Our MD&A includes the following sections:
EXECUTIVE SUMMARY
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
LONG-TERM OBLIGATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Overview
EXECUTIVE SUMMARY
24
30
39
42
42
Over the past several years, including fiscal 2015, we have made progress toward realizing the ambitions of our long-term
strategy, which was first set forth in fiscal 2010 and has evolved along with our business since then. Here is a discussion of recent
developments:
• We have further developed the Jack Daniel’s family of brands through innovations designed to create new demand for
products from the world’s foremost maker of American whiskey. These efforts resulted in the successful launch of Jack
Daniel’s Tennessee Honey (JDTH) and a series of ultra-premium-priced line extensions. We began testing Jack Daniel’s
Tennessee Fire in the United States in April 2014 in three states, expanded to five additional states during the second
quarter of fiscal 2015, and, encouraged by the positive consumer reaction, launched the line extension nationwide in the
fourth quarter of fiscal 2015. At the same time, we have invested steadily in our core Jack Daniel’s Tennessee Whiskey
(JDTW) brand to support its growth broadly around the world and to support our price increases in recent years.
We have been expanding our production capacity for the Jack Daniel’s family of brands so that we can satisfy expected
demand. In fiscal 2014, we completed construction of the Jack Daniel Cooperage in Decatur, Alabama. We believe that
we were already the largest maker of new whiskey barrels in the world before the new cooperage significantly added to
our capacity. We believe that our ownership of new whiskey barrel manufacturing facilities is unique among our
competitors, and that our control over this critical input to the whiskey-making process gives us a competitive advantage.
We announced a major expansion of our distilling capacity in August 2013, and we expect to complete construction of
a new distillery on our property in Lynchburg, Tennessee, during the first quarter of fiscal 2016. The next stage of our
expansion in Lynchburg will add bottling capacity and finished product warehousing over a two-year period, to be
completed in fiscal 2017.
• The recent growth of the Jack Daniel’s family of brands is the most important measure of our progress toward becoming
a global leader in whiskey. Woodford Reserve’s growth has also helped us move forward on this ambition, as this super-
premium brand grew volume at a compound annual rate of more than 22% from fiscal 2010 to fiscal 2015 – more than
doubling its volume to just under 400,000 nine-liter cases in fiscal 2015. In June 2013, we announced a more than $35
million expansion at our Woodford Reserve Distillery to support our expected growth. During fiscal 2014, we completed
a renovation of our visitors’ center at the Woodford Reserve Distillery to better serve the large and growing number of
Woodford Reserve brand lovers who visit annually. As part of the expansion, during fiscal 2015, we completed the
construction of two new warehouses.
• Brown-Forman was founded in 1870 with Old Forester, the world’s first bottled bourbon brand. Old Forester has remained
a favorite among true bourbon aficionados while attracting a new generation of fans; its underlying net sales increased
a substantial 35% (38% reported) in fiscal 2015. We plan to leverage the current momentum of Old Forester and the
favorable trends in American whiskeys to develop Old Forester as a national and international iconic bourbon brand. In
support of this ambition, we announced the construction of the Old Forester Distillery and urban bourbon experience in
fiscal 2014, and in May 2015 purchased two historic buildings on Main Street in Louisville for its location. We expect
to open the Old Forester Distillery in the fall of 2016 and anticipate investing approximately $45 million in this project.
• We divested our Hopland-based wine brands in 2011, leaving us with a portfolio primarily focused on spirits. We have
not made any material acquisitions since then (but see the next paragraph for a description of a recent minor acquisition).
During this time, we have pursued growth of our spirits portfolio mostly through organic growth, with innovation playing
a key role. In addition to our successful efforts to develop and introduce new products and line extensions for the Jack
Daniel’s family of brands, we have pursued growth through innovation in the rest of our portfolio. Notable introductions
have included Southern Comfort Lime (introduced in fiscal 2011) and Woodford Reserve Double Oaked (fiscal 2012).
In fiscal 2015, we launched Herradura Ultra in Mexico during our second quarter and Southern Comfort Caramel in the
United States during our third quarter.
24
•
•
In June 2015 (fiscal 2016), we purchased all of the shares of Slane Castle Irish Whiskey Limited and announced our
plans to invest $50 million to build a new distillery, construct warehouses, and develop a consumer experience, on the
historic Slane Castle Estate in Ireland. We decided to add an Irish whiskey to our portfolio because it has been one of the
fastest-growing components of the global whiskey category recently, and we believe that with our expertise in whiskey
making, the new whiskeys from the Slane Castle Irish Whiskey Distillery will have a bright future. We plan to open the
Slane Castle Whiskey Distillery in late 2016 and to introduce new Irish whiskeys in the spring of 2017, initially using
high-quality whiskey purchased from other Irish distilleries and then finished to Slane’s specifications while the whiskey
made at the new Slane Distillery matures.
Since 2010, we have pursued international growth both in our larger, developed markets and with increasing focus in the
emerging world. Our most visible progress has been the evolution of our route-to-consumer strategy in several key
markets. We set up new distribution companies in three of our current top ten countries (Germany, France, and Turkey)
and also in Brazil, a market that we believe is among our most promising long-term growth opportunities. We have added
substantially to our employee base outside the United States, mostly in markets where we evolved our route-to-consumer
strategy.
• Our capital deployment initiatives have been focused on (1) enabling the expected future growth of our existing businesses
through investments in our production capacity and innovation (discussed above) as well as in resources needed to grow
our existing portfolio (advertising and promotions, and SG&A) and (2) returning cash to our shareholders. From fiscal
2010 through 2015, we have returned over $3.2 billion to our shareholders through $1.2 billion in regular quarterly
dividends, $1.0 billion in two special dividends, and $1 billion through share repurchases.
25
Summary and Timing of Recent Developments
Fiscal
year
2011
2012
2013
2014
PORTFOLIO
ROUTE-TO-CONSUMER
PRODUCTION
Introduced Jack Daniel’s
Tennessee Honey in April
Introduced Southern Comfort
Lime
Sold Hopland-based wine brands
and properties
Started distribution operations in
Germany
Started distribution operations in
Brazil
Introduced Woodford Reserve
Double Oaked
Started distribution operations in
Turkey
Introduced Jack Daniel’s Winter
Jack
Introduced Jack Daniel’s Sinatra
Select
Introduced Jack Daniel’s
Tennessee Rye Whiskey
Announced plans for the Jack
Daniel Cooperage
Introduced Jack Daniel’s No. 27
Gold Tennessee Whiskey
Started distribution operations in
France
Announced capacity expansion at
the Woodford Reserve Distillery
Introduced Jack Daniel’s
Tennessee Fire (limited test)
2015
Introduced Herradura Ultra in
Mexico in the second quarter
Introduced Southern Comfort
Caramel in the United States
(Q3)
Introduced Jack Daniel’s
Tennessee Fire nationwide in the
United States (Q4)
Announced capacity expansion at
the Jack Daniel Distillery
Opened the Jack Daniel
Cooperage
Announced plans for the Old
Forester Distillery and bourbon
experience
Completed new barrel
warehouses at Jack Daniel's and
Woodford Reserve
2016
Announced purchase of Slane
Castle Irish Whiskey Limited in
the first quarter
Announced plans for the
construction of new distillery at
Slane Castle in Ireland
26
Fiscal 2015 Financial Highlights
Summary of Operating Performance Fiscal 2013 - 2015
Fiscal year ended April 30
2013
2014
2015
2014 vs.
2013
2015 vs.
2014
2014 vs.
2013
2015 vs.
2014
Reported Change
Underlying Change1
Net sales
Excise taxes
Cost of sales
Gross profit
Advertising
SG&A
Operating income
Gross margin
Operating margin
Interest expense, net
Effective tax rate
Diluted earnings per share
Return on average invested capital2
$ 3,784
$ 3,946
$ 4,096
935
894
955
913
962
951
1,955
2,078
2,183
408
650
898
51.7%
23.7%
33
31.7%
2.75
21.7%
$
$
$
436
686
971
52.7%
24.6%
24
30.5%
3.06
21.6%
437
697
$ 1,027
53.3%
25.1%
25
31.7%
3.21
22.0%
$
$
$
$
$
4 %
2 %
2 %
6 %
7 %
6 %
8 %
1.0pp
0.9pp
(27 )%
(1.2)pp
11 %
(0.1)pp
4 %
1 %
4 %
5 %
— %
2 %
6 %
0.6pp
0.5pp
6 %
1.2pp
5 %
0.4pp
6%
5%
3%
8%
8%
6%
11%
6%
5%
7%
7%
5%
4%
9%
1See “Non-GAAP Financial Measures” above for details on our use of “underlying changes” for net sales, excise taxes, cost of sales,
gross profit, advertising expenses, SG&A expenses, and operating income, including how these measures are calculated and the reasons
why we think this information is useful to readers.
2See “Non-GAAP Financial Measures” above for details on our use of “return on average invested capital,” including how this measure
is calculated and the reasons why we think this information is useful to readers.
In fiscal 2015 compared to fiscal 2014, we grew our underlying net sales by 6% (4% reported), increased underlying operating
income by 9% (6% reported), and delivered a 5% increase in diluted earnings per share. We improved our margins in fiscal 2015,
as we added 60 basis points to our gross margin and 50 basis points to our operating margin. These operating results were driven
largely by our American whiskey portfolio, led by the Jack Daniel’s family of brands. Our net sales growth was driven by the
United States, France, and emerging markets while the rest of the developed international markets grew more slowly. Foreign
exchange negatively affected our reported operating results. In fiscal 2015, our return on average invested capital improved
modestly, despite near record levels of capital spending of $120 million in our capacity expansion projects and increased working
capital related to our maturing whiskey inventory. Also during fiscal 2015, we returned $718 million in cash to our shareholders
through dividend payments of $256 million and share repurchases of $462 million, while maintaining investment-grade credit
ratings.
Outlook
Looking ahead to fiscal 2016, we are optimistic about our prospects for continued net sales and operating income growth,
and we expect to make further progress toward our strategic ambitions. We describe below the trends, developments, and
uncertainties that we expect to affect our business.
• Favorable American whiskey trends. We believe that the market for American whiskey is growing faster than total distilled
spirits globally and that premium American whiskey is among the best-performing components of the broader whiskey
category.1 We face strong competition, and the size of the opportunity is bringing new entrants to the market. Even so,
we believe that our whiskey brands are poised to benefit from this trend, including Jack Daniel’s Tennessee Whiskey,
Woodford Reserve, and Old Forester. Furthermore, we believe that we are well positioned to access emerging
1 The IWSR, 2014 data.
27
growth opportunities driven by consumer trends affecting the category, including increased interest in luxury, craft, and
small-batch whiskeys. We believe that we can benefit from these trends with our existing portfolio of American whiskeys,
and – when our assessment of opportunity supports it – we expect to bring other new products and line extensions to the
market.
• Growing importance of flavored whiskeys. Flavored whiskey continues to be the fastest-growing category of whiskey.1
Because we essentially concluded the global rollout of Jack Daniel’s Tennessee Honey in fiscal 2015, its growth rates
are slowing; however, we expect it will still be an important contributor to our growth in fiscal 2016. Additionally, since
the rollout of Jack Daniel’s Tennessee Honey, cinnamon flavors have become the largest component of the flavored
whiskey category. Accordingly, we anticipate that Jack Daniel’s Tennessee Fire, recently launched nationwide in the
United States, will be an important contributor of growth for the Jack Daniel’s family of brands in fiscal 2016.
• Uncertain reaction to our pricing plans. During fiscal years 2013 and 2014, and to a lesser extent in fiscal 2015, our
operating results have benefited from price increases for several of our brands, including, most importantly, JDTW. Higher
pricing has contributed strongly to net sales growth, gross margin improvement, and operating profit improvement over
the past three years. Looking ahead, we anticipate volume will be the more significant driver of growth compared with
the last few years. We plan to increase prices in fiscal 2016, but not as much as in recent years. We generally have not
raised prices in international markets in response to the strengthened U.S. dollar, however, we have recently increased
prices in Russia and certain other markets. Overall, we believe that our balanced approach to pricing will continue to
support net sales growth, but we are unsure how our customers and consumers will react – especially in those markets
where we have increased prices recently. We may need to reduce prices if consumers react negatively to our price increases
or to changes in relative pricing compared to our main competitors.
• Uncertain increase in costs of sales. We expect that freight, logistics, and raw materials costs will generally increase in
the low single digits during fiscal 2016. Our cost of sales are somewhat sensitive to variation in prices of certain
commodities, including prices of corn, natural gas, oil, and wood used in our barrels, among others. Wood barrels are an
essential input to our whiskeys, and we believe that our vertical integration with respect to the manufacture of barrels
ensures high quality and consistent, timely availability for our whiskey distilleries. In addition to our cooperages where
we assemble finished barrels, we currently manufacture wood staves and headings at three mills and will be adding to
capacity with a fourth mill acquired in the first quarter of fiscal 2016.
Current dynamics in the markets for American white oak logs and partially-processed barrel components, such as wood
staves and headings (collectively, wood inputs), have led to simultaneously higher demand and lower supply resulting
in, from time to time, higher prices. While many factors are driving demand, among these is the recent and sustained rise
in the popularity of whiskey, particularly American whiskey. While American white oak, the raw material used to make
our barrels, is not in short supply, we believe that supply of wood inputs is constrained primarily by stave and heading
mill capacity, and to a lesser extent, by logging capacity. These market forces could cause prices for wood inputs to rise,
which could lead to higher cost of sales for our whiskeys. We believe that our investments in barrel manufacturing partially
mitigate this risk.
• Uncertain impact of excise taxes and government regulations restricting trade in wine and spirits. From time to time,
governments increase excise taxes or duties on spirits and introduce other regulatory measures that either restrict our
ability to sell and market our brands or raise the cost of our doing so. In fiscal 2016, we are aware of several enacted (or
proposed and likely-to-be-enacted) excise tax increases. Whenever practicable, we increase our prices to the extent of
those tax increases. We do not believe that any one known or expected excise tax increase will have a significant negative
effect on our results, nor do we expect that they collectively will. But because excise tax increases can lead to inflation
in consumer prices, the cumulative effect over time in a given market could soften demand for our products. For example,
excise taxes in Australia have steadily increased because they are indexed to the consumer price index and adjusted twice
a year – cumulatively increasing 20% since 2008, to the point where excise taxes on spirits in Australia are currently over
50% higher than the average of other OECD countries. We believe that this situation negatively affected consumer demand
and contributed to the slowdown in our results there in fiscal 2015. Although calls for excise tax reform in Australia have
been raised, we believe the country is currently planning on continued increases.
• Emerging-market uncertainty. During fiscal 2015, we grew net sales in emerging markets, led by the Jack Daniel’s family
of brands, while our competition reported generally stable results in emerging markets. We experienced challenges in
Poland and to a lesser extent in Mexico and Russia but, collectively, our emerging markets have grown net sales consistently
and at higher rates than our developed markets in recent years. We expect this to continue, but we are cautious about our
1 The IWSR, 2014 data.
28
growth outlook given the geopolitical uncertainty in Russia and Ukraine. These two countries, and more broadly the
emerging markets in eastern Europe and central Asia, have been important to our emerging markets net sales growth in
recent years, including in fiscal 2015.
• Foreign currency headwinds anticipated to continue. The more we expand our business globally, the more exchange rate
fluctuations relative to the U.S. dollar influence our financial results. We sell more in local currencies than we purchase
– for example, Jack Daniel’s Tennessee Whiskey can be produced only in Tennessee. Accordingly, we have a net exposure
to changes in the value of the U.S. dollar relative to other currencies. Additionally, the U.S. dollar is the functional currency
for most of our consolidated operations. Our reported results were significantly affected in fiscal 2015 by negative foreign
exchange due to the strength of the U.S. dollar, and we anticipate our fiscal 2016 results will be negatively affected as
well. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” for more information about foreign
exchange and our business.
We believe that we are well-positioned to take advantage of the opportunities and to address the challenges related to the
trends and uncertainties noted above. However, we may not succeed in taking full advantage of these opportunities, and any of
these challenges could have a material adverse effect on our business.
See ‘‘Item 1A. Risk Factors’’ for details about risks and uncertainties that could affect our business or results.
29
RESULTS OF OPERATIONS – FISCAL 2015 MARKET HIGHLIGHTS
The following table shows net sales results for our ten largest markets, summarized by geographic area, for the fiscal year
ended April 30, 2015, compared to the prior fiscal year. We discuss the most significant changes in net sales for each geography.
Top 10 Markets - Percentage of Fiscal 2015 Total Net Sales and Fiscal 2015 Net Sales Growth by Geographic Area
Markets
United States
Europe
United Kingdom
Germany
Poland
France
Russia
Turkey
Rest of Europe
Australia
Other
Mexico
Canada
Rest of Other
TOTAL
* Totals may differ due to rounding
Net Sales1 % Change vs. 2014
Reported
Foreign
Exchange
Net Chg in
Est.
Distributor
Inventories
Underlylng
10 %
1 %
2 %
(9 )%
(14 )%
77 %
(6 )%
19 %
(2 )%
(8)%
4 %
(3 )%
1 %
10 %
4 %
—%
6%
4 %
7 %
7 %
12 %
2 %
13 %
7 %
7%
4%
6 %
6 %
3 %
3%
(2)%
(1)%
— %
— %
— %
(47 )%
7 %
— %
2 %
— %
1 %
— %
3 %
2 %
(1)%
8 %
6 %
5 %
(2 )%
(7 )%
42 %
4 %
32 %
7 %
(1)%
10 %
3 %
10 %
15 %
6 %
% of Fiscal
2015 Net Sales
43%
31%
9 %
4 %
4 %
3 %
2 %
2 %
8 %
11%
15%
6 %
1 %
8 %
100%
1See “Non-GAAP Financial Measures” above for details on our use of “underlying change” in net sales, including how this measure is
calculated and the reasons why we think this information is useful to readers.
The United States, our largest and most important market, accounted for 43% of our reported net sales in fiscal 2015 and
41% of net sales in fiscal 2014. In fiscal 2015, underlying net sales in the United States increased 8%, driven by the Jack Daniel’s
family of brands, including JDTW volume growth and price/mix improvement, JDTH volume growth, as well as volumes from
the new line extension, Jack Daniel’s Tennessee Fire. Volume growth for Woodford Reserve also contributed to the underlying
net sales growth, while lower volumes from Southern Comfort and Canadian Mist partially offset these gains. Overall, we believe
our brands grew market share in fiscal 2015 in both the on-premise and off-premise markets.
Europe accounted for 31% of our net sales in fiscal 2015, decreasing from 32% in fiscal 2014. Reported net sales were hurt
across Europe by foreign exchange due to the dollar strengthening against all currencies. For fiscal 2015, underlying net sales in
Europe were up 6%, driven by gains in France, the United Kingdom, Turkey, Russia, and smaller markets, partially offset by
declines in Poland and Germany.
•
•
In France, underlying net sales growth was primarily driven by higher direct-to-trade prices for JDTW associated with
our fiscal 2014 route-to-consumer change. In addition, volumetric gains on JDTH, which was introduced in the second
half of fiscal 2014, boosted net sales. (Underlying net sales growth was lower than reported net sales growth after
excluding the effect of a favorable comparison to the prior year, when our former distributor reduced its inventory
ahead of our January 2014 route-to-consumer change.)
In the United Kingdom, underlying net sales growth was driven by higher volumes of JDTH and JDTW, and to a lesser
extent, by Jack Daniel’s RTDs/RTPs. These gains were only partially offset by declines in Finlandia and Southern
Comfort.
30
•
•
•
In Turkey, underlying net sales growth was driven by JDTW volume and price increases and a more favorable customer
mix.
In Russia, underlying net sales growth was driven by higher volumes of JDTW.
In Poland, volumes were lower compared with those of the prior year, which included a buy-in prior to a 15% excise
tax increase not repeated in fiscal 2015, as well as weaker consumer demand following the excise tax hike.
•
In Germany, underlying net sales were down due to decreased volumes related to reduced trade promotional activity.
Australia accounted for 11% of our net sales in fiscal 2015, down from 12% in fiscal 2014. For fiscal 2015, reported net
sales were down 8%, but underlying net sales were down only 1% after adjusting for the negative effect of a weaker Australian
dollar. This modest decline in underlying net sales was driven by lower volumes for Jack Daniel’s RTDs as a result of weak
consumer demand for spirits and spirit-based RTDs and increasing competition. JD & Cola, an RTD and our largest brand in
Australia, declined, reflecting changing consumer preferences, but was partially offset by gains in a recent RTD line extension,
JD Double Jack.
Net sales for our other markets constituted 15% of our total net sales in both fiscal 2015 and fiscal 2014. Reported net sales
grew 4% in fiscal 2015 and 10% on an underlying basis after adjusting reported results for the negative effect of a stronger U.S.
dollar. The increase in underlying net sales was driven by broad growth across most of our other markets, led by Brazil, Mexico,
markets in Africa, markets in Southeast Asia, and Canada, offset slightly by net sales declines in Korea and China. In Mexico,
underlying net sales growth of 3% was driven by increases in the Jack Daniel’s family of brands and Herradura, partially offset
by volume declines on el Jimador associated with our decision to increase pricing to reposition the brand, as well as our decision
to discontinue selling a lower-margin third-party brand.
31
RESULTS OF OPERATIONS – FISCAL 2015 BRAND HIGHLIGHTS
The following table highlights the worldwide results of our largest brands for the fiscal year ended April 30, 2015, compared
to the results for the same period last year. We discuss results of the brands most affecting our performance below the table.
Major Brands Worldwide Results for Fiscal 20151
Depletion Volume
Net Sales % Change vs. 2014
Nine-Liter
Cases
(Millions)
% Change
vs. 2014
Drinks
Equivalent
(Millions)
% Change
vs. 2014
Reported
Foreign
Exchange
Net Chg in
Est.
Distributor
Inventories Underlying
21.3
12.0
1.4
0.9
7.0
5.1
3.4
2.2
1.5
1.2
0.4
0.4
7%
4%
29%
38%
3%
4%
(5%)
(4%)
(5%)
(1%)
30%
18%
15.0
12.0
1.4
0.9
0.7
0.5
3.2
1.9
1.5
1.2
0.4
0.4
8%
4%
29%
38%
3%
4%
5%
3%
27%
35%
(4%)
(3%)
(5%)
(11%)
(4%)
(7%)
4%
3%
3%
(1%)
—%
(2%)
3%
(10%)
—%
—%
6%
7%
6%
2%
8%
6%
28%
27%
2%
4%
(1%)
(5%)
(1%)
(5%)
(5%)
(6%)
—%
1%
(6%)
(1%)
30%
18%
6%
33%
24%
4%
1%
4%
(3%)
(2%)
(3%)
6%
32%
25%
Brand family / brand
Jack Daniel’s Family
Jack Daniel’s Tennessee
Whiskey
Jack Daniel’s Tennessee
Honey
Other Jack Daniel’s whiskey
brands2
Jack Daniel’s RTDs/RTP3
New Mix RTDs
Finlandia
Southern Comfort Family
Canadian Mist
El Jimador Family
Woodford Reserve Family
Herradura
* Totals may differ due to rounding
1See “Non-GAAP Financial Measures” above for details on our use of “underlying change” in net sales, including how this measure is
calculated and the reasons why we think this information is useful to readers; see “Volume and Depletions” above for definitions of
volume measures presented here.
2In addition to the brands separately listed here, the Jack Daniel’s family of brands includes Gentleman Jack, Jack Daniel’s Single Barrel,
Jack Daniel’s Sinatra™ Select, Jack Daniel’s No. 27 Gold Tennessee Whiskey, Jack Daniel’s 1907 Tennessee Whiskey, Jack Daniel’s
Tennessee Rye Whiskeys, and Jack Daniel’s Tennessee Fire.
3Jack 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.
In fiscal 2015, the Jack Daniel’s family of brands grew volumes 7% globally to nearly 15 million drinks-equivalent nine-
liter cases across all expressions of the brand. Reported net sales grew 5% while underlying net sales increased 8%, after adjusting
for the negative effects of foreign exchange and for the estimated net increase in distributor inventories, driven primarily by filling
the distributor pipeline in the United States for the nationwide rollout of Jack Daniel’s Tennessee Fire and the year-over-year effect
of our January 2014 route-to-consumer change in France. In fiscal 2015, JDTW sustained its global growth rate while innovations
boosted the overall growth rate of the family of brands. Growth due to innovation was led by two products: (a) JDTH, which was
introduced in several new international markets while continuing to grow in the United States and the United Kingdom, among
others; and (b) Jack Daniel’s Tennessee Fire, which we introduced in the United States nationwide in the fourth quarter.
32
Jack Daniel’s Tennessee Whiskey generates a significant percentage of our total net sales, and it is our top priority. As the
world’s fourth-largest premium spirits brand measured by both volume and retail value,1 JDTW is one of the most valuable spirits
brands in the world. JDTW grew volume for the 23rd consecutive year and outpaced the average volume growth rate of the top
25 premium spirits brands2 during calendar 2014. That achievement reinforces our belief in the brand’s long-term appeal and
sustainable growth potential. JDTW grew volumes 4% globally in fiscal 2015, consistent with its fiscal 2014 growth rate. Based
primarily on these volume gains, JDTW grew reported net sales 3% and underlying net sales 6%. The brand grew in emerging
markets, including in three of our four largest: volume in Turkey increased 11%; Russia, 9%; and Poland, 5%. The brand also
grew in developed markets, including 7% volume growth in France and 6% volume growth in the United Kingdom. In the United
States, volume increased 4%.
Since its introduction in late fiscal 2011, Jack Daniel’s Tennessee Honey has become a significant contributor to our net
sales growth. After surpassing the one-million-case milestone in fiscal 2014, JDTH grew volumes by 29% in fiscal 2015, and was
named to Impact’s “Hot Brands” list3 for a fourth consecutive year. We estimate that Jack Daniel’s Tennessee Honey is now the
16th largest brand in the world priced over $25 per 750ml bottle.4 In the United Kingdom, JDTH’s second largest market, the
brand grew volumes 36% compared to fiscal 2014, its third year in that market. We essentially completed the global rollout of
JDTH in fiscal 2015 with launches in our remaining important international markets, including Brazil and other Latin American
countries and Southeast Asia. JDTH has contributed significantly to our growth since its introduction, having become our 5th
largest brand as measured by drinks-equivalent volume. Looking ahead, we expect JDTH to continue to be a meaningful contributor
to our net sales growth, although we expect it to grow at a slower rate than it did in fiscal 2015.
JDTH Depletion Volume by Year and Introduction History by Major Market
Year Ended April 30,
Nine-Liter Cases (Thousands)
2012
450
2013
770
Major launch markets:
United States*
United Kingdom
Canada
Travel Retail
Australia
Poland
South Africa
2014
1,050
Mexico
France
Germany
Russia
Japan
Czech Republic
2015
1,355
Brazil and other
Latin America
China
Southeast Asia
Italy
*Introduced at the end of fiscal year 2011
We began testing Jack Daniel’s Tennessee Fire (JDTF) in three states in the United States in April 2014, expanded to five
additional test markets during the second quarter of fiscal 2015, and launched the line extension nationwide in the fourth quarter.
We believe JDTF represents a good opportunity for us to participate further in the flavored whiskey category, particularly cinnamon,
which has become the category’s largest flavor. Despite having only a partial year of sales, JDTF was a significant contributor to
net sales growth in fiscal 2015. We expect JDTF will be an important contributor of growth for the Jack Daniel’s family of brands
in fiscal 2016.
The Jack Daniel’s RTDs/RTPs brands (JD RTDs) grew volume 3% in fiscal 2015, while reported sales decreased 4% due
to the negative effect of foreign exchange. Adjusted for foreign exchange, JD RTDs grew underlying net sales 2% during fiscal
2015. Among top markets for JD RTDs, underlying net sales grew in the United Kingdom and Germany; however, in Australia,
the brand’s largest market, volumes were down 4% and underlying net sales down 2% in the face of a challenging economic and
industry environment. The United Kingdom grew underlying net sales by double digits driven by JD & Cola and our seasonal
Jack Daniel’s Winter Jack.
In fiscal 2015, Finlandia reported an 11% decline in reported net sales, while underlying net sales were down 5%. Finlandia’s
underlying net sales decline was led by volume losses in the brand’s largest market, Poland, where much of the year was spent
working through trade re-balancing after last year’s excise tax driven buy-ins.
The Southern Comfort family of brands’ volume declined 4% in fiscal 2015, and underlying net sales declined 5%.
Underlying net sales declined in Southern Comfort’s top three markets, the United States, the United Kingdom, and Australia.
1Based on industry statistics published by Impact Databank, a well-known U.S. trade publication, in February and March 2015.
2Based on industry statistics published by Impact Databank, a well-known U.S. trade publication, in February 2015.
3Impact Databank published the Impact’s “Hot Brands - Spirits” list in March 2015.
4The IWSR, 2014 data.
33
Our Southern Comfort business in the United States faces persistent consumer challenges affecting the liqueurs category
generally and increased competition from flavored whiskeys. We recently launched new packaging for Southern Comfort designed
to drive visibility at the point of purchase in the off-premise channel and aimed at recruiting millennials. We also recently introduced
Southern Comfort Caramel, a flavored line extension in the United States.
In fiscal 2015, the underlying net sales growth rate of our two most important tequila brands, el Jimador and Herradura,
accelerated compared with fiscal 2014. For both brands, the United States and Mexico are the most important markets. In Mexico,
we launched Herradura Ultra, an ultra-premium line extension, which drove net sales growth and, we believe, created a halo effect
for the Herradura brand more broadly in Mexico. With el Jimador in Mexico, we made a strategic decision to raise prices with the
expectation that we would lose volume in the near term. Volumes for el Jimador in Mexico were down 13% and underlying net
sales declined 5%. In the United States, super-premium Herradura grew volumes and underlying net sales in the high single-digits
to outpace its competitive set and gain market share, while el Jimador grew volumes and underlying net sales in the low double
digits. 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 continuing to build our presence in higher-value tequila markets throughout the world.
In fiscal 2015, New Mix, our market-leading RTD brand in Mexico, increased both volumes and underlying net sales 4%.
We also increased our advertising and promotional support for the brand to maintain its visibility in the trade and awareness among
consumers in an increasingly competitive RTD market.
Woodford Reserve, our super-premium bourbon brand, grew volumes 30% (after growing 24% in fiscal 2014 and 26% in
fiscal 2013) and was named to Impact’s “Hot Brands” list1. The United States is by far the brand’s most important market and was
responsible for most of its growth during fiscal 2015. Woodford Reserve continued its momentum outside the United States,
growing volumes 32%, driven by our travel retail business and some markets in Europe where American whiskey trends are
favorable, such as France and the United Kingdom. During fiscal 2015, we increased our advertising investment in Woodford
Reserve and invested in television advertising for only the second year since the brand’s introduction in the United States. With
its 30% volume growth rate in fiscal 2015, we believe that Woodford Reserve led a fast-growing competitive set of super-premium
American whiskeys and is poised for continued growth as interest in bourbon increases around the world. We plan to devote
substantial resources to Woodford Reserve to support its future growth potential, including in capital spending to expand capacity
and in consumer communications.
1Impact Databank published the Impact’s “Hot Brands - Spirits” list in March 2015.
34
RESULTS OF OPERATIONS – YEAR-OVER-YEAR COMPARISONS
NET SALES
Percentage change versus the prior fiscal year ended April 30
Change in reported net sales
Foreign exchange
Estimated net change in distributor inventories
Change in underlying net sales
2015
2014
4 %
3 %
(1)%
6 %
4%
1%
1%
6%
Change in underlying net sales attributed to:*
Volume
Net price/mix
* Totals may differ due to rounding
Fiscal 2015 compared to Fiscal 2014
4%
3%
3%
3%
Net sales of $4,096 million increased 4% or $150 million, compared to fiscal 2014. Underlying net sales growth was 6%,
after adjusting reported results for the negative effect of foreign exchange and the estimated net increase in distributor inventories.
The negative effect of foreign exchange, after taking into consideration our hedging activities, was driven primarily by weaker
European currencies. The estimated net increase in distributor inventories resulted from distributor buy-ins related to the nationwide
rollout of Jack Daniel’s Tennessee Fire in the United States and the year-over-year effect of our January 2014 route-to-consumer
change in France. Last fiscal year, our former distributor in France fully depleted inventories of our brands during November and
December – during which time there were essentially no shipments – before we began selling directly to customers in France in
January 2014. Going forward, we will not adjust France’s underlying results for changes in distributor inventories because fiscal
2015 fully reflected owned distribution.
The primary factors contributing to growth in underlying net sales were:
• Net price/mix driven by:
the Jack Daniel’s family of brands, particularly JDTW and JDTH, led by the United States and improved net
sales price due to owned distribution in France;
better mix in our tequila portfolio with the launch of Herradura Ultra and price increases for el Jimador in Mexico;
favorable whiskey portfolio mix driven by the growth of higher priced brands such as Woodford Reserve; and
higher prices for our used barrel sales driven by higher demand from makers of Scotch whisky and other aged
spirits. In recent years, we have benefited from strong demand for used barrels, growing units sold at higher
prices, and we expect our used barrel sales to remain healthy in fiscal 2016.
• Volume driven by:
JDTW, which grew broadly driven by strong consumer-oriented growth, led by (1) the United States; (2) several
large European markets, including France, Turkey, the United Kingdom, and Ukraine; and (3) Brazil, despite
worsening economic trends;
JDTH, led by increases in existing markets, including the United States, the United Kingdom, and the Czech
Republic, and also by volumes in recent launch markets, including France (launched at the end of fiscal 2014),
and Brazil; and
the nationwide launch of Jack Daniel’s Tennessee Fire in the United States in the fourth quarter of fiscal 2015.
The primary factors partially offsetting underlying net sales growth were lower volumes for:
•
•
•
Finlandia Vodka, driven predominantly by Poland, where volumes were lower compared with the prior year, due to a
buy-in in advance of a significant excise tax increase not repeated in fiscal 2015, as well as weaker consumer demand
during fiscal 2015;
Southern Comfort family of brands, primarily in the United States, driven by weaker demand in the on-premise channel;
and
Jack Daniel’s RTDs in Australia, driven by weaker consumer demand for spirits and spirit-based RTDs and increased
competition.
35
Fiscal 2014 compared to Fiscal 2013
Net sales of $3,946 million increased 4%, or $162 million, compared to fiscal 2013. Underlying net sales growth was 6%,
after adjusting reported results for the negative effect of foreign exchange and the estimated net reduction in distributor inventories.
The primary factor driving the estimated net reduction in distributor inventories was decreased shipments corresponding to our
former distributor’s inventory reduction ahead of our route-to-consumer change in France.
The primary factors contributing to growth in underlying net sales were:
• Net price/mix driven by:
The United States, which accounted for half of the increase from pricing, primarily related to price increases
for JDTW, JDTH, and Korbel; and
Better price/mix in Germany, Poland, Brazil, Turkey, China, and France (which increased as a result of our route-
to-consumer change in January 2014).
• Volume driven by:
JDTW, which accounted for about half of the net sales growth from volume, led by Germany, France, Russia,
Turkey, the United Kingdom, Brazil, Mexico, and Japan;
JDTH, led by increases in the United States and the United Kingdom, and also by volumes from fiscal 2014
launch markets, including Mexico, Germany, the Czech Republic, and France;
Our super-premium American whiskey brands, including Woodford Reserve in the United States and Gentleman
Jack in the United States and in several international markets; and
Other recent innovations from Jack Daniel’s, most importantly Jack Daniel’s Winter Jack and Jack Daniel’s
Sinatra™ Select.
The primary factors partially offsetting underlying net sales growth were lower volumes for:
• Our tequila brands and New Mix RTDs in Mexico, driven by (1) excess trade inventory of New Mix and Herradura at
the beginning of fiscal 2014, and (2) lower consumer demand for our tequila brands in Mexico;
•
JDTH in Australia, driven by weak consumer acceptance of the brand and a difficult comparison to our launch in fiscal
2013; and
• The Southern Comfort family of brands, primarily in the United States, driven by weaker demand in the on-premise
channel.
COST OF SALES
Percentage change versus the prior fiscal year ended April 30
Change in reported cost of sales
Foreign exchange
Estimated net change in distributor inventories
Change in underlying cost of sales
2015
2014
4 %
3 %
— %
7 %
2 %
— %
1 %
3 %
Change in underlying cost of sales attributed to:
Volume
Cost/mix
Fiscal 2015 compared to Fiscal 2014
4%
3%
2%
1%
Cost of sales of $951 million increased $38 million, or 4%, during fiscal 2015. Underlying cost of sales grew 7% after
adjusting reported costs for the positive effect of foreign exchange. About half of the underlying increase in costs of sales was
driven by growth in sales volumes, while the other half related to higher input costs, including additional value-added packaging
expenses, and to a lesser extent, a shift in product mix to higher cost brands, compared to the prior year.
36
Fiscal 2014 compared to Fiscal 2013
Cost of sales of $913 million increased $19 million, or 2%, during fiscal 2014. Underlying cost of sales grew 3% after
adjusting reported results for the positive effect of the estimated reduction in net distributor inventories. About two-thirds of the
underlying increase in costs of sales was driven by growth in sales volumes, while the balance of the increase related to higher
input costs and additional value-added packaging compared to the prior fiscal year.
GROSS PROFIT
Percentage change versus the prior fiscal year ended April 30
Change in reported gross profit
Foreign exchange
Estimated net change in distributor inventories
Change in underlying gross profit
2015
2014
5 %
3 %
(1)%
7 %
6%
1%
1%
8%
Fiscal 2015 compared to Fiscal 2014
Gross profit of $2,183 million increased $105 million, or 5%, during fiscal 2015. Gross profit on an underlying basis
improved 7% after adjusting reported gross profit for the negative effects of foreign exchange and the estimated net increase in
distributor inventories. The increase resulted from the same factors that contributed to the increase in underlying net sales for the
year and was enhanced by the smaller combined increase in underlying excise taxes and cost of sales for the year.
Gross margin improved to 53.3% in fiscal 2015, up 60 basis points from 52.7% in fiscal 2014. The increase in gross margin
was primarily due to higher pricing and a favorable mix shift.
Fiscal 2014 compared to Fiscal 2013
Gross profit of $2,078 million increased $123 million, or 6%, during fiscal 2014. Underlying change in gross profit was
higher at 8% after excluding the negative effects of both foreign exchange and the estimated net change in distributor inventories.
The increase resulted from the same factors that contributed to the increase in underlying net sales for the year and was enhanced
by the smaller combined increase in underlying excise taxes and cost of sales for the year.
Gross margin improved to 52.7% in fiscal 2014, up 1.0% from 51.7% in fiscal 2013. The increase in gross margin was
primarily due to higher pricing and a favorable mix shift.
ADVERTISING EXPENSES
Percentage change versus the prior fiscal year ended April 30
Change in reported advertising
Foreign exchange
Change in underlying advertising
2015
2014
—%
4%
4%
7%
1%
8%
Fiscal 2015 compared to Fiscal 2014
Advertising expenses of $437 million increased $1 million, essentially unchanged on a reported basis. Underlying advertising
expenses increased 4% after adjusting reported results for the benefit of foreign exchange. The increase in underlying advertising
expenses was driven primarily by (a) investments in United States related to the nationwide launch of JDTF, (b) higher spending
on JDTW in the United States, and (c) higher spending outside the United States on the Jack Daniel’s family of brands. These
increases were partially offset by lower spending for Southern Comfort and Finlandia Vodka in many markets.
37
Fiscal 2014 compared to Fiscal 2013
Advertising expenses of $436 million increased $28 million, or 7% on a reported basis. Underlying advertising expenses
increased 8% after adjusting reported results for the benefit of foreign exchange. The increase in underlying advertising expenses
was driven by advertising investments in (a) Woodford Reserve in the United States, (b) Gentleman Jack globally, (c) JDTH in
fiscal 2014 launch markets, and (d) JDTW broadly but especially in emerging markets. These increases were partially offset by
lower advertising expenses in Australia, where we reduced spending for JDTH compared to fiscal 2013, its launch year there.
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) EXPENSES
Percentage change versus the prior fiscal year ended April 30
Change in reported SG&A
Foreign exchange
Change in underlying SG&A
Fiscal 2015 compared to Fiscal 2014
2015
2014
2%
2%
4%
5%
1%
6%
SG&A expenses of $697 million increased $11 million, or 2% on a reported basis in fiscal 2015, while underlying SG&A
grew 4% after adjusting reported results for the favorable effect of foreign exchange. The most significant contributors to the year-
over-year increase in underlying SG&A were higher compensation and related expenses due to higher salaries, additional employees
in various markets, and a full year of costs related to employees added during fiscal 2014 for our new distribution company in
France.
Fiscal 2014 compared to Fiscal 2013
SG&A expenses of $686 increased $36 million, or 5% on a reported basis in fiscal 2014, while underlying SG&A growth
was 6% after adjusting reported results for the positive effect of foreign exchange. The most significant contributors to the year-
over-year increase in underlying SG&A were inflation on salary and related expenses, and costs related to setting up our distribution
company in France and our new employees there.
OPERATING INCOME
Percentage change versus the prior fiscal year ended April 30
Change in reported operating income
Foreign exchange
Estimated net change in distributor inventories
Change in underlying operating income
2015
2014
6 %
6 %
(3)%
9 %
8%
—%
3%
11%
Fiscal 2015 compared to Fiscal 2014
Operating income was $1,027 million in fiscal 2015, an increase of $56 million, or 6% compared to fiscal 2014. Underlying
operating income growth was 9% after adjusting for the estimated net increase in distributor inventories, driven primarily from
filling the distributor pipeline in the United States for the nationwide rollout of Jack Daniel’s Tennessee Fire and the year-over-
year effect of our January 2014 route-to-consumer change in France, as well as the negative effect of foreign exchange, mostly
related to weaker European currencies. Included in the negative effect of foreign exchange was $30 million in Other expense
(income), net, in fiscal 2015 related to the revaluation of foreign-currency denominated net assets. The same factors that contributed
to the growth in underlying gross profit also contributed to the growth in underlying operating income, enhanced by a slower rate
of growth in operating expenses.
Operating margin grew 50 basis points to 25.1% in fiscal 2015 from 24.6% in fiscal 2014. The same factors that drove the
increase in our gross margin benefited our operating margin, additionally enhanced by operating expenses which grew at a slower
rate than gross profit growth. These factors were partially offset by the negative effect of the revaluation of certain largely euro-
denominated net assets.
Fiscal 2014 compared to Fiscal 2013
Operating income was $971 million in fiscal 2014, an increase of $73 million, or 8% compared to fiscal 2013. Underlying
operating income growth was 11% after adjusting reported results for the negative effect of the estimated net change in distributor
38
inventories. The same factors that contributed to the growth in underlying gross profit also contributed to the growth in underlying
operating income, enhanced by a slower rate of growth in operating expenses.
Operating margin grew to 24.6% in fiscal 2014 from 23.7% in fiscal 2013. The same factors that drove the increase in our
gross margin benefited our operating margin. In addition, our operating margin was helped by lower operating expense growth
compared to gross profit growth.
Fiscal 2015 compared to Fiscal 2014
Interest expense (net) increased by $1 million compared to fiscal 2014, reflecting no meaningful underlying changes.
Our effective tax rate for fiscal 2015 was 31.7% compared to 30.5% in fiscal 2014. The effective tax rates include the
amortization ($15 million in fiscal 2015; $5 million in fiscal 2014) of a deferred tax benefit that resulted from the release of certain
deferred tax liabilities in connection with an intercompany transfer of assets on January 31, 2014. The increase in our effective
tax rate was driven primarily by the reduction in the beneficial impact of foreign earnings, partially offset by the increase in the
amortization of this deferred tax benefit.
Diluted earnings per share were $3.21 in fiscal 2015, up 5% from $3.06 reported for fiscal 2014. This increase resulted
from the same factors that contributed to the increase in operating income as well as the reduction in the shares outstanding resulting
from share repurchases, partially offset by the increase in the effective tax rate.
Fiscal 2014 compared to Fiscal 2013
Interest expense (net) decreased by $9 million in fiscal 2014 compared to fiscal 2013, primarily due to the $9 million charge
we recognized in fiscal 2013 for the early redemption of our $250 million 5% notes due February 1, 2014.
Our effective tax rate for fiscal 2014 was 30.5%, 1.2 percentage points lower than the 31.7% rate in fiscal 2013. The decrease
in our effective tax rate was driven primarily by an increase in the beneficial impact of foreign earnings at lower tax rates and by
the favorable effect of higher U.S. tax benefits related to domestic manufacturing activities, partially offset by a reduction in
benefits from discrete items.
Diluted earnings per share were $3.06 in fiscal 2014, up 11% from $2.75 reported for fiscal 2013. This increase resulted
from the same factors that contributed to the increase in operating income, as well as the lower net interest expense and a reduction
in the effective tax rate.
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 invest in our people, our brands, and our assets, pay dividends, make strategic acquisitions that we believe will
enhance shareholder value, repurchase shares of common stock, and, from time to time, pay special dividends. Investment-grade
credit 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.
39
CASH FLOW SUMMARY
(Dollars in millions)
Operating activities
Investing activities:
Additions to 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
2013
2014
2015
$
537
$
649
$
608
(95)
(2)
(97)
493
—
(1,063)
(6)
(576)
2
(134) $
$
(126)
(1)
(127)
3
(49)
(233)
(9)
(288)
(1)
233
$
(120)
(5)
(125)
183
(462)
(256)
4
(531)
(19)
(67)
Cash and cash equivalents declined $67 million in fiscal 2015, compared to an increase of $233 million in fiscal 2014. Cash
provided by operations during fiscal 2015 was $608 million, compared to $649 million for fiscal 2014. The $41 million decline
primarily reflects a $94 million increase in income tax payments, partially offset by higher earnings. The increase in income tax
payments was largely timing-related, and reflects the effect of an intercompany transfer of assets that occurred during fiscal 2014.
The intercompany transaction resulted in the payment of $64 million in taxes during fiscal 2015. However, the transaction reduced
taxes paid in fiscal 2014 by $38 million and is expected to result in a tax refund of $13 million in fiscal 2016.
Cash used for investing activities was $125 million in fiscal 2015, down slightly from $127 million in fiscal 2014. Cash used
for financing activities was $531 million during fiscal 2015, compared to $288 million for the same period last year. The $243
million increase largely reflects a $413 million increase in share repurchases and a $23 million increase in dividends, partially
offset by a $180 million net increase in borrowings. The impact on cash and cash equivalents as a result of exchange rate changes
was a decline of $19 million in fiscal 2015, compared to a decline of $1 million in fiscal 2014.
In comparing fiscal 2014 to fiscal 2013, cash provided by operating activities increased $112 million, reflecting higher
earnings and a smaller increase in working capital. Cash used for investing activities increased $30 million during fiscal 2014,
largely reflecting a higher level of capital spending, primarily related to the construction of the Jack Daniel Cooperage in Decatur,
Alabama, that began operations in April 2014. Cash used for financing activities was $288 million during fiscal 2014 compared
to $576 million for the prior year. The fiscal 2014 amount consisted largely of regular dividends of $233 million and share
repurchases of $49 million. The fiscal 2013 amount of $576 million consisted 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 included the early redemption in
February 2013 of $250 million of 5% notes.
Capital expenditures. Investments in property, plant, and equipment were $95 million in fiscal 2013, $126 million in fiscal
2014, and $120 million in fiscal 2015. Expenditures over the three-year period primarily included investments to maintain and
expand capacity as well as improve production efficiency, reduce costs, and build our brands. Capital investments remained high
in fiscal 2015, with continued spending on production operations to support the growing demand for the Jack Daniel’s family of
brands and the expected startup of the new distillery in Lynchburg, Tennessee, scheduled for the first quarter of fiscal 2016.
For fiscal 2016, we expect capital expenditures to be in a range of $190 million to $220 million, and that these investments
will be funded by cash provided by operations. Our capital spending plans for fiscal 2016 include continued investment in our
whiskey strategy, led by Jack Daniel’s, as we expect to complete its new distillery and begin a major expansion of its bottling
facilities. Additionally, our plans include the first phases of building the Old Forester Distillery and the Slane Castle Irish Whiskey
Distillery. We expect to reduce capital spending after 2017, to be more in line with historical spending rates in relation to net sales.
40
Share repurchases. We have repurchased approximately 7.7 million shares of our common stock since the beginning of fiscal
2014. The following table summarizes information about those share repurchases by period.
Period
May 1, 2013 – April 30, 2014
May 1, 2014 – April 30, 2015
May 1, 2015 – June 12, 2015
Shares Purchased
Class A
24,800
65,105
21,041
110,946
Class B
661,472
5,034,330
1,939,259
7,635,061
Average Price Per Share, Including
Brokerage Commissions
Class A
Class B
$
$
$
68.03
90.21
95.43
$
$
$
69.04
90.36
94.13
Total Cost of Shares
(Millions)
47
461
185
693
$
$
$
$
We repurchased these shares under two separate repurchase programs. One of the programs began in October 2013 and was
completed in September 2014. The other one, which began in October 2014, remains in progress. Under it, we may repurchase
up to $1.25 billion of our Class A and Class B common shares through March 24, 2016, subject to market and other conditions.
We may repurchase those shares in open market purchases, block transactions, and privately negotiated transactions in accordance
with applicable federal securities laws. We can modify, suspend, or terminate this repurchase program at any time without prior
notice. As of June 12, 2015, we have repurchased a total of 4,836,918 shares under this program for approximately $443 million,
leaving $807 million available for additional repurchases through March 24, 2016.
The results of these two share repurchase programs are summarized in the following table.
Dates (1)
Shares Purchased
Average Price Per
Share, Including
Brokerage Commissions
Total Spent on
Stock Repurchase
Program
Starting
October 2013
October 2014
Ending
September 2014
March 2016
Class A
47,463
63,483
110,946
Class B
2,861,626
4,773,435
7,635,061
Class A
Class B
$
$
78.81
91.80
$
$
86.08
91.51
(Millions)
250
443
693
$
$
$
(1) For the stock repurchase program begun in October 2014, data is through June 12, 2015.
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 addition to our cash and cash equivalent balances, we have access to several liquidity sources to supplement our cash flow
from operations. One of those sources is our $1 billion commercial paper program that we regularly use to fund our short-term
credit needs and to maintain our access to the capital markets. During fiscal 2015, our commercial paper borrowings averaged
$191 million, with an average maturity of 14 days and an average interest rate of 0.17%. During fiscal 2014, our commercial paper
borrowings averaged $467 million, with an average maturity of 36 days and an average interest rate of 0.22%. Commercial paper
outstanding was $0 at April 30, 2014, and $183 million at April 30, 2015.
Our commercial paper program is supported by cash and cash equivalent balances and available commitments under our
currently undrawn $800 million bank credit facility that matures on November 20, 2018, which also serves as a source of liquidity.
Further, we believe that the markets for investment-grade bonds and private placements are very accessible sources of long-term
financing that could provide for any additional liquidity needs. Although unlikely, under extreme market conditions, one or more
participating banks may not be able to fully fund our credit facility.
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 expect either to liquidate exposures or require the counterparty to post appropriate collateral.
As of April 30, 2015, we had total cash and cash equivalents of $370 million. Of this amount, $256 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. But in the unforeseen event that we were to repatriate
cash from those foreign subsidiaries, we would be required to provide for and pay U.S. taxes on permanently repatriated funds.
See Note 11 to our Consolidated Financial Statements for further information about the taxes that would have been provided on
the undistributed earnings of these foreign subsidiaries if not considered indefinitely reinvested.
As announced on May 21, 2015, our Board of Directors declared a regular quarterly cash dividend of $0.315 per share on
our Class A and Class B common stock. Stockholders of record on June 3, 2015, will receive the dividend on July 1, 2015.
41
We believe our current liquidity position is strong and sufficient to meet all of our future financial commitments. A quantitative
covenant of our $800 million bank credit facility requires the ratio of consolidated EBITDA (as defined in the agreement) to
consolidated interest expense to be at least 3 to 1. At April 30, 2015, with a ratio of 38 to 1, we were well within the covenant’s
parameters.
OFF-BALANCE SHEET ARRANGEMENTS
As of April 30, 2015, we were not involved in any off-balance sheet arrangements that have or are reasonably likely to
have a material effect on our financial condition, results of operations, or liquidity.
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, 5, and 9 to our Consolidated Financial Statements). The following table
summarizes the amounts of those obligations as of April 30, 2015, and the years when they 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
2016
2017-2018
2019-2020
After 2020
$
$
1,000
314
18
40
27
3
1,402
$
$
250
22
7
17
27
n/a
323
$
$
250
34
7
19
n/a
n/a
310
$
$
— $
30
3
4
n/a
n/a
37
$
500
228
1
—
n/a
n/a
729
1 Excludes liabilities for tax uncertainties, as we cannot reasonably predict the ultimate amount or timing of settlement.
2 As of April 30, 2015, we have unfunded pension and other postretirement benefit obligations of $318 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 $27 million of expected contributions (including $20 million of expected discretionary contributions) in fiscal 2016.
3 As discussed in Note 4 to our Consolidated Financial Statements, we have obligations to purchase agave, a plant whose sap forms the raw
material for tequila. As of April 30, 2015, based on current market prices, obligations under these contracts totaled $3 million. Because we
cannot determine the specific periods in which those obligations will be paid, the above table reflects only the total related to those obligations.
We expect to meet these obligations with internally generated funds or refinancing debt in the short term.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements reflect some estimates involved in applying the following critical accounting policies that entail
uncertainties and subjectivity. Using different estimates or policies 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. When we acquire
another company, we first allocate the purchase price to identifiable assets and liabilities, including intangible brand names and
trademarks (“brand names”), based on estimated fair value. We then record any remaining purchase price as goodwill. We do not
amortize goodwill or other 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. For goodwill, if the book value of its reporting unit
exceeds its estimated fair value, we measure for potential impairment by comparing the implied fair value of the reporting unit’s
goodwill, determined in the same manner as in a business combination, to the book value of the goodwill. 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.
We have the option, before quantifying the fair value of a reporting unit or brand name, to evaluate qualitative factors to
assess whether it is more likely than not that our goodwill or brand names are impaired. If we determine that is not the case, then
we are not required to quantify the fair value. That assessment also takes considerable management judgment.
42
Based on our assumptions, we believe none of our goodwill or other intangibles are impaired. Further, we estimate the fair
values to substantially exceed the carrying values of all of our goodwill and other intangible assets.
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, 2015, we have decreased the weighted-average
discount rate for pension obligations from 4.46% to 4.09%, and for other postretirement benefit obligations from 4.67% to 4.09%.
We have also decreased the expected return on plan assets from 7.5% to 7.0% as a result of lower capital market return expectations
for our current asset allocation. Using these assumptions, we estimate our pension and postretirement benefit expense for fiscal
2016 will be approximately $50 million, compared to $41 million for fiscal 2015. A decrease/increase of 25 basis points in the
assumed discount rate would increase/decrease the fiscal 2016 expense by approximately $3 million. A decrease/increase of 25
basis points in the assumed return on plan assets would increase/decrease the fiscal 2016 expense by approximately $2 million.
Income taxes. 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Risk Management Framework
Success in business requires risk taking. Only by taking risks are we able to seize opportunities that will enhance brand
performance and improve earnings, but we must balance risk and reward appropriately. Our enterprise risk management process
is intended to ensure that we take risks knowingly and thoughtfully, and that we balance risks and potential rewards appropriately.
Our integrated enterprise risk management framework is designed to identify, evaluate, communicate, and appropriately mitigate
risks across our operations. Within this framework:
• Our Board of Directors is responsible for overseeing our enterprise risk assessment and mitigation processes and
procedures. The Board has reserved to itself the oversight of certain strategic enterprise risks, delegating responsibility
for other risks to committees that report to the Board regularly on risks within their purview, and to management.
The Audit Committee oversees policies and processes related to enterprise risk management, compliance with legal
and regulatory requirements, and financial reporting and accounting control risks.
The Compensation Committee periodically reviews our compensation policies and practices to assess whether they
could lead to unnecessary risk taking.
• Our Risk Committee is composed of members within various levels of management from an array of functional and
geographical regions around the world. The Risk Committee leads the Company’s enterprise risk management program,
which systematically identifies and evaluates the major risks we face, identifies “owners” for each risk, and ensures that
risk mitigation plans are in place. The Risk Committee reports to the Board at least annually.
• Our Risk Management function identifies and assesses potential operational hazards and safety and security risks, and
facilitates ongoing communication about those risks with the Risk Committee and our executive leaders.
43
• Our Internal Audit Department evaluates the ongoing effectiveness of our key internal controls through periodic audit
and review procedures, in coordination with our external auditors.
• The Chief Compliance Officer in our legal department helps ensure that all of our employees’ actions globally comply
with all internal policies and applicable laws.
Market Risks
We are exposed to market risks arising from adverse changes in foreign exchange rates, commodity prices affecting the cost
of our raw materials and energy, and 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. See Notes 6 and 8 to our Consolidated Financial Statements for details.
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 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 products 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 negatively affected by a
stronger dollar and positively affected by a weaker dollar.
We estimate that our foreign currency revenue for our largest exposures will exceed our foreign currency expenses by
approximately $677 million in fiscal 2016. Foreign exchange rates also affect the carrying value of our foreign-currency-
denominated assets and liabilities.
We routinely use foreign currency forward and option contracts to hedge a portion of 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, 2015, our total foreign currency hedges had a notional value of $1,212 million, with a maximum term
outstanding of 36 months, and were recorded as a net asset at their fair value of of $41 million.
As of April 30, 2015, we hedged approximately 70% of our total transactional exposure to foreign exchange fluctuations in
fiscal 2016 for our major currencies by entering into foreign currency forward contracts. Considering these hedges, we estimate
that a 10% increase/decrease in the average value of the dollar in fiscal 2016 relative to fiscal 2015’s effective exchange rates for
our significant currency exposures would decrease/increase our fiscal 2016 operating income by approximately $21 million.
Commodity Prices. Commodity prices are affected by weather, supply and demand, as well as 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 or options. We expect to mitigate the effect of some of the increases in our raw material
costs through ongoing production and cost saving initiatives and targeted price increases.
Interest Rates. Our cash and cash equivalents ($370 million as of April 30, 2015) and variable-rate debt ($190 million as of
April 30, 2015) are exposed to the risk of changes in interest rates. Based on the net balance of these items as of April 30, 2015,
a 1% increase in interest rates would result in higher interest expense and higher interest income, leading to about $2 million less
interest expense on a net basis.
44
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
Other expense (income), net
Operating income
Interest income
Interest expense
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
2013
2014
2015
$
$
$
$
3,784
935
894
1,955
408
650
(1)
898
3
36
865
274
591
2.77
2.75
$
$
$
$
3,946
955
913
2,078
436
686
(15)
971
2
26
947
288
659
3.08
3.06
$
$
$
$
4,096
962
951
2,183
437
697
22
1,027
2
27
1,002
318
684
3.23
3.21
The accompanying notes are an integral part of the consolidated financial statements.
45
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
Year Ended April 30,
Net income
Other comprehensive income (loss), net of tax:
Currency translation adjustments
Cash flow hedge adjustments
Postretirement benefits adjustments
Net other comprehensive income (loss)
Comprehensive income
2013
2014
2015
591
$
659
$
684
17
3
(1)
19
610
$
(4)
(4)
31
23
682
$
(114)
32
(30)
(112)
572
$
$
The accompanying notes are an integral part of the consolidated financial statements.
46
BROWN-FORMAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
April 30,
2014
2015
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $9 in 2014 and $10 in 2015
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 $3 in 2014 and $2 in 2015
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 (85,000,000 shares authorized; 85,000,000 shares issued)
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 142,313,000 shares issued)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Treasury stock, at cost (13,858,000 and 18,613,000 shares in 2014 and 2015, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
437
569
504
187
144
47
882
33
256
370
583
571
200
121
61
953
16
332
2,177
2,254
$
$
526
620
677
18
85
4,103
474
71
8
8
—
561
997
102
244
167
586
607
611
18
117
4,193
497
12
9
190
250
958
748
107
311
164
2,071
2,288
13
21
81
2,894
(188)
(789)
2,032
$
4,103
$
13
21
99
3,300
(300)
(1,228)
1,905
4,193
The accompanying notes are an integral part of the consolidated financial statements.
47
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Year Ended April 30,
Cash flows from operating activities:
2013
2014
2015
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
591
$
659
$
684
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
Other, net
Changes in assets and liabilities:
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:
Additions to property, plant, and equipment
Proceeds from sale of property, plant, and equipment
Acquisition of brand names and trademarks
Computer software expenditures
Cash 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 increase (decrease) 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
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
$
$
$
$
$
$
50
13
(5)
1
(34)
(67)
(43)
31
60
(16)
649
(126)
2
(1)
(2)
(127)
5
(2)
—
—
(19)
10
(49)
(233)
(288)
(1)
233
204
437
28
281
$
$
$
51
15
6
9
(50)
(102)
(30)
64
(58)
19
608
(120)
—
(4)
(1)
(125)
183
—
—
—
(14)
18
(462)
(256)
(531)
(19)
(67)
437
370
27
375
The accompanying notes are an integral part of the consolidated financial statements.
48
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share amounts)
2013
2014
2015
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 ($4.98, $1.09, and $1.21 per share in 2013, 2014, and
2015, respectively)
Loss on issuance of treasury stock issued under compensation plans
Balance at end of year
Accumulated other comprehensive income (loss), net of tax:
Balance at beginning of year
Net other comprehensive income (loss)
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
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
$
$
13
—
13
21
—
21
71
13
(13)
10
81
2,500
—
659
(233)
(32)
2,894
(211)
23
(188)
(766)
—
(49)
26
(789)
2,032
$
13
—
13
21
—
21
81
15
(15)
18
99
2,894
—
684
(256)
(22)
3,300
(188)
(112)
(300)
(789)
—
(462)
23
(1,228)
1,905
56,251
28,149
—
46
84,446
84,462
—
(46)
62
—
(85)
86
84,446
84,462
84,463
85,823
42,951
—
487
129,261
213,707
129,261
—
(661)
393
128,993
213,455
128,993
—
(5,034)
278
124,237
208,700
The accompanying notes are an integral part of the consolidated financial statements.
49
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 eliminate all intercompany transactions.
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.
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 57% 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 $216
and $234 higher than reported at April 30, 2014 and 2015, 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, agave inventories, tequila, and liquid in bottling tanks 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. When we acquire
another company, we first allocate the purchase price to identifiable assets and liabilities, including intangible brand names and
trademarks (“brand names”), based on estimated fair value. We then record any remaining purchase price as goodwill. We do not
amortize goodwill or other 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. For goodwill, if the book value of its reporting unit
exceeds its estimated fair value, we measure for potential impairment by comparing the implied fair value of the reporting unit’s
goodwill, determined in the same manner as in a business combination, to the book value of the goodwill. 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.
50
We have the option, before quantifying the fair value of a reporting unit or brand name, to evaluate qualitative factors to
assess whether it is more likely than not that our goodwill or brand names are impaired. If we determine that is not the case, then
we are not required to quantify the fair value. That assessment also takes considerable management judgment.
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.
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 often subject to excise taxes that 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 GAAP and tax reporting bases and
later 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 record a deferred tax charge in prepaid taxes for the difference between GAAP and tax reporting bases with respect to the
elimination of intercompany profit in ending inventory.
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. We record interest and penalties on uncertain tax positions as income tax
expense.
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).
The following table presents information concerning basic and diluted earnings per share:
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
2013
2014
2015
591
$
659
$
684
213,369
1,617
214,986
213,454
1,628
215,082
2.77
2.75
$
$
3.08
3.06
$
$
211,593
1,490
213,083
3.23
3.21
$
$
$
51
We excluded common stock-based awards for approximately 398,000 shares, 309,000 shares, and 361,000 shares from the
calculation of diluted earnings per share for 2013, 2014, and 2015, respectively, because they were not dilutive for those periods
under the treasury stock method.
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. 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. This practice minimizes long-term dilution to our
stockholders.
Recent accounting pronouncements. In May 2014, the Financial Accounting Standards Board (FASB) issued new guidance
on the recognition of revenue from contracts with customers. As issued, the new guidance would become effective for us beginning
fiscal 2018. However, in April 2015, the FASB proposed an amendment to the new guidance that would defer the effective date
by one year, though permit voluntary adoption as of the original effective date. In May 2015, the FASB proposed additional
amendments to the new guidance. We are currently evaluating the potential impact of the new guidance and the proposed
amendments 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
Other liabilities:
Deferred benefit – tax (Note 11)
Other
2014
2015
$
$
$
$
$
$
$
$
172
84
256
72
381
534
67
1,054
528
526
134
107
111
57
10
7
7
41
340
474
90
77
167
$
$
$
$
$
$
$
$
181
151
332
72
419
561
88
1,140
554
586
123
128
110
59
10
7
7
53
374
497
75
89
164
52
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, 2013
Foreign currency translation adjustment
Balance as of April 30, 2014
Foreign currency translation adjustment
Balance as of April 30, 2015
$
$
617
3
620
(13)
607
As of April 30, 2014 and 2015, our other intangible assets consisted of trademarks and brand names, all with indefinite
useful lives.
4. COMMITMENTS AND CONTINGENCIES
Commitments. We made rental payments for real estate, vehicles, and office, computer, and manufacturing equipment under
operating leases of $22, $24, and $23 during 2013, 2014, and 2015, respectively. We have commitments related to minimum lease
payments of $17 in 2016, $13 in 2017, $6 in 2018, $3 in 2019, $1 in 2020, and $0 after 2020.
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 prices. We have total purchase obligations related to
both types of contracts of $7 in 2016, $5 in 2017, $2 in 2018, $2 in 2019, $1 in 2020, and $1 after 2020.
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, 2015, based on current market prices, obligations under these contracts total $3.
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 it is reasonably possible that 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, 2015.
Guaranty. We have guaranteed the repayment by a third-party importer of its obligation under a bank credit facility that it
uses in connection with its importation of our products in Russia. If the importer were to default on that obligation, which we
believe is unlikely, our maximum possible exposure under the existing terms of the guaranty would be approximately $20 (subject
to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant.
As of April 30, 2015, our actual exposure under the guaranty of the importer’s obligation is approximately $8. We also have
accounts receivable from that importer of approximately $17 at that date, which we expect to collect in full.
Based on the financial support we provide to the importer, we believe it meets the definition of a variable interest entity.
However, because we do not control this entity, it is not included in our consolidated financial statements.
53
5. DEBT AND CREDIT FACILITIES
Our long-term debt (net of unamortized discount) consisted of:
April 30,
2.50% senior notes, due in fiscal 2016
1.00% senior notes, due in fiscal 2018
2.25% senior notes, due in fiscal 2023
3.75% senior notes, due in fiscal 2043
Less current portion
2014
2015
$
$
249
249
249
250
997
—
997
$
$
250
249
249
250
998
250
748
Debt payments required over the next five fiscal years consist of $250 in 2016, $0 in 2017, $250 in 2018, $0 in 2019, $0 in
2020, and $500 after 2020.
The senior notes contain terms and covenants customary of these types of unsecured securities, including limitations on the
amount of secured debt we can issue.
As of April 30, 2015, our short-term borrowings of $190 included $183 of commercial paper, with an average interest rate
of 0.17%, and an average remaining maturity of 13 days.
We have a committed revolving credit agreement with various U.S. and international banks for $800 that expires in November
2018. Its most restrictive quantitative covenant requires that the ratio of our consolidated EBITDA (as defined in the agreement)
to consolidated interest expense not be less than 3 to 1. At April 30, 2015, with a ratio of 38 to 1, we were well within this covenant’s
parameters and had no borrowing outstanding under this facility.
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 for fiscal 2013.
6. 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 inactive markets, or other inputs that
are observable or can be derived from or corroborated by observable market data.
• Level 3 – Unobservable inputs supported by little or no market activity.
54
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, 2014:
Assets:
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Long-term debt
April 30, 2015:
Assets:
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
$
— $
7
$
— $
—
—
—
—
—
—
—
—
7
8
963
59
18
190
253
735
—
—
—
—
—
—
—
—
7
7
8
963
59
18
190
253
735
We determine the fair values of our currency derivatives (forwards and options) 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. The standard
valuation model for foreign currency options also uses implied volatility as an additional input. The discount rates are based on
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 their 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). No material nonrecurring fair value measurements were required during the periods presented in these financial
statements.
7. 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 currency derivatives and long-term debt as discussed in Note 6.
Below is a comparison of the fair values and carrying amounts of these instruments:
April 30,
Assets:
Cash and cash equivalents
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
2014
2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
437
7
7
8
—
997
$
437
7
7
8
—
963
$
370
59
18
190
250
748
370
59
18
190
253
735
55
8. 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 or speculative 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 $1,152 and $1,212 at April 30, 2014 and 2015, respectively.
We 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. However, no such swaps were outstanding at
April 30, 2014 or 2015.
The following table presents the pre-tax impact that changes in the fair value of our derivative instruments had on AOCI and
earnings in 2014 and 2015:
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI
Net gain (loss) reclassified from AOCI into earnings
Derivatives not designated as hedging instruments:
Classification in
Statement of
Operations
n/a
Net sales
$
Currency derivatives – net gain (loss) recognized in earnings
Currency derivatives – net gain (loss) recognized in earnings
Net sales
Other income
2014
2015
(7) $
—
1
10
96
41
26
4
We expect to reclassify $39 of deferred net gains recorded in AOCI as of April 30, 2015, to earnings during fiscal 2016.
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 27 months and 36 months at April 30, 2014 and 2015, respectively.
56
The following table presents the fair values of our derivative instruments as of April 30, 2014 and 2015.
Balance Sheet
Classification
Fair Value of
Derivatives in a
Gain Position
Fair Value of
Derivatives in a
Loss Position
April 30, 2014:
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
Currency derivatives
April 30, 2015:
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
Currency derivatives
$
Other current assets
Other assets
Accrued expenses
Other liabilities
Other current assets
Accrued expenses
Other current assets
Other assets
Accrued expenses
Other liabilities
Other current assets
Accrued expenses
$
6
2
2
—
5
1
42
20
—
—
3
1
(6)
—
(6)
(4)
—
—
(2)
(3)
(6)
(6)
(1)
(7)
The fair values reflected in the above table are presented on a gross basis. However, as discussed further below, the fair
values of those instruments that are subject to net settlement agreements are presented on a net basis in the accompanying
consolidated balance sheets.
Credit risk. We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk
is limited to the fair value of the contracts. To manage this risk, we contract only with major financial institutions that have earned
investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association (ISDA)
agreements that allow for net settlement of the derivative contracts. Also, 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 $6 and $18 at April 30, 2014 and 2015, respectively.
Offsetting. As noted above, our derivative contracts are governed by ISDA agreements that allow for net settlement of
derivative contracts with the same counterparty. It is our policy to present the fair values of current derivatives (that is, those with
a remaining term of 12 months or less) with the same counterparty on a net basis in the balance sheet. Similarly, we present the
fair values of noncurrent derivatives with the same counterparty on a net basis. Current derivatives are not netted with noncurrent
derivatives in the balance sheet. The following table summarizes the gross and net amounts of our derivative contracts.
57
April 30, 2014:
Derivative assets
Derivative liabilities
April 30, 2015:
Derivative assets
Derivative liabilities
Gross Amounts
of Recognized
Assets
(Liabilities)
Gross Amounts
Offset in
Balance Sheet
Net Amounts
Presented in
Balance Sheet
Gross Amounts
Not Offset in
Balance Sheet
Net Amounts
$
17
(17)
65
(24)
$
$
(10)
10
$
7
(7)
(6)
6
59
(18)
$
(2)
2
—
—
5
(5)
59
(18)
No cash collateral was received or pledged related to our derivative contracts as of April 30, 2014 or 2015.
9. 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
2014
2015
2014
2015
$
$
783
21
31
4
—
—
(54)
785
$
$
785
22
34
91
—
—
(45)
887
$
$
74
2
3
3
(10)
1
(4)
69
$
$
69
1
3
3
(16)
1
(4)
57
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:
2016
2017
2018
2019
2020
2021 – 2025
Pension Benefits
Medical and Life
Insurance Benefits
$
$
51
52
53
54
56
303
3
3
3
3
3
18
Assets. We invest in specific 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 managed
58
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, 2014 and
2015. (Fair value levels are defined in Note 6.)
Level 1
Level 2
Level 3
Total
Actual
Target
Allocation by Asset Class
April 30, 2014:
Commingled trust funds1:
Equity funds
Fixed income funds
Real estate funds
Short-term investments
Total commingled trust funds
Hedge funds2
Private equity3
Equity securities
Total
April 30, 2015:
Commingled trust funds1:
Equity funds
Fixed income funds
Real estate funds
Short-term investments
Total commingled trust funds
Hedge funds2
Private equity3
Equity securities
Total
$
$
$
$
— $
—
—
—
—
—
—
63
63
$
— $
—
—
—
—
—
—
76
76
$
235
196
21
3
455
—
—
—
455
248
185
20
4
457
—
—
—
457
$
$
$
$
— $
—
32
—
32
30
25
—
87
$
— $
—
36
—
36
31
26
—
93
$
235
196
53
3
487
30
25
63
605
248
185
56
4
493
31
26
76
626
38%
32%
9%
1%
80%
5%
4%
11%
100%
39%
30%
9%
1%
79%
5%
4%
12%
100%
38%
35%
8%
—%
81%
5%
5%
9%
100%
38%
35%
8%
—%
81%
5%
5%
9%
100%
1Commingled 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.
2Hedge 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.
3As of April 30, 2014 and 2015, 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.
59
The following table shows how the fair value of the Level 3 assets changed during each of the last two years. There were
no transfers of assets between Level 3 and either of the other two levels.
Balance as of April 30, 2013
Return on assets held at end of year
Purchases and settlements
Sales and settlements
Balance as of April 30, 2014
Return on assets held at end of year
Purchases and settlements
Sales and settlements
Balance as of April 30, 2015
Real Estate
Funds
Hedge
Funds
Private
Equity
Total
$
$
28
4
—
—
32
4
—
—
36
$
$
26
2
2
—
30
1
—
—
31
$
$
21
4
3
(3)
25
1
4
(4)
26
$
$
75
10
5
(3)
87
6
4
(4)
93
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.)
Assets at beginning of year
Actual return on assets
Retiree contributions
Company contributions
Benefits paid
Assets at end of year
Pension Benefits
Medical and Life
Insurance Benefits
2014
2015
2014
2015
$
$
573
53
—
33
(54)
605
$
$
605
52
—
14
(45)
626
$
$
— $
—
1
3
(4)
— $
—
—
1
3
(4)
—
We currently expect to contribute $24 to our pension plans and $3 to our postretirement medical and life insurance benefit
plans during 2016.
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.
April 30,
Assets
Obligations
Funded status
Pension Benefits
Medical and Life
Insurance Benefits
2014
2015
2014
2015
$
$
$
605
(785)
(180) $
$
626
(887)
(261) $
— $
(69)
(69) $
—
(57)
(57)
The funded status reflected above includes obligations attributable to our non-qualified Supplemental Executive Retirement
Plan that is not funded with those plan assets presented above. However, we have set aside investments in corporate-owned life
insurance policies to cover these obligations. The value of those investments, which are included in “other assets” on the
accompanying balance sheets, is $31 and $48 as of April 30, 2014 and 2015, respectively.
60
The funded status is recorded on the accompanying consolidated balance sheets as follows:
April 30,
Other assets
Accounts payable and accrued expenses
Accrued postretirement benefits
Net liability
Accumulated other comprehensive income (loss),
before tax:
Net actuarial gain (loss)
Prior service credit (cost)
Pension Benefits
Medical and Life
Insurance Benefits
2014
2015
2014
2015
$
$
$
$
$
2
(4)
(178)
(180) $
(296) $
(5)
(301) $
— $
(4)
(257)
(261) $
(353) $
(4)
(357) $
— $
(3)
(66)
(69) $
(14) $
5
(9) $
—
(3)
(54)
(57)
(16)
18
2
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.)
April 30,
Plans with assets in excess of accumulated
benefit obligation
Plans with accumulated benefit obligation
in excess of assets
Total
$
$
Plan Assets
Accumulated
Benefit Obligation
Projected
Benefit Obligation
2014
2015
2014
2015
2014
2015
52
$
53
$
49
$
50
$
50
$
553
605
$
573
626
$
640
689
$
710
760
$
735
785
$
52
835
887
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/credit and net actuarial loss/gain included in
accumulated other comprehensive loss as of the beginning of the year.
Service cost
Interest cost
Expected return on assets
Amortization of:
Prior service cost (credit)
Net actuarial loss (gain)
Net expense
Pension Benefits
2013
2014
2015
$
$
20
35
(41)
1
28
43
$
$
21
31
(40)
1
31
44
$
$
22
34
(41)
1
22
38
The prior service cost/credit, which represents the effect of plan amendments on benefit obligations, 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/gain 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 2016
is $1 and $27, respectively.
61
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 (credit)
Net actuarial loss (gain)
Net expense
Medical and Life Insurance Benefits
2013
2014
2015
$
$
2
3
1
—
6
$
$
2
3
—
—
5
$
$
1
3
(2)
1
3
The estimated amount of prior service credit and net actuarial loss that will be amortized from accumulated other
comprehensive loss into postretirement medical and life insurance benefit expense in 2016 is $3 and $1, respectively.
Other comprehensive income (loss). Prior service cost/credit and net actuarial loss/gain are recognized in other comprehensive
income or loss (OCI) during the period in which they arise. These amounts are later amortized from accumulated OCI into pension
and other postretirement benefit expense over future periods as described above. The following table shows the pre-tax effect of
these amounts on OCI during each of the last three years:
Pension Benefits
Medical and Life
Insurance Benefits
2013
2014
2015
2013
2014
2015
Prior service credit (cost)
Net actuarial gain (loss)
Amortization reclassified to earnings:
Prior service cost (credit)
Net actuarial loss (gain)
Net amount recognized in OCI
$
$
(4) $
(18)
1
28
7
$
— $
9
1
31
41
$
— $
(80)
1
22
(57) $
— $
(10)
1
—
(9) $
$
10
(3)
—
—
7
$
16
(3)
(2)
1
12
Assumptions and sensitivity. We use various assumptions to determine the obligations and expense related to our pension
and other postretirement benefit plans. The weighted-average 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
2014
2015
2014
2015
4.46%
4.00%
4.09%
4.00%
4.67%
n/a
4.09%
n/a
The weighted-average assumptions used in computing benefit plan expense during each of the last three years were as
follows:
Discount rate
Rate of salary increase
Expected return on plan assets
Pension Benefits
Medical and Life
Insurance Benefits
2013
2014
2015
2013
2014
2015
4.92%
4.00%
7.75%
4.08%
4.00%
7.50%
4.46%
4.00%
7.50%
4.84%
n/a
n/a
4.36%
n/a
n/a
4.67%
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 calculation 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.
62
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
2014
2015
7.75%
6.75%
7.50%
n/a
We project health care cost trend rates to decline gradually to 5.0% by 2023 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, 2015, by $1
and the aggregate service and interest costs for 2015 by $0. A 1% decrease in assumed health care cost trend rates would have
decreased the accumulated postretirement benefit obligation as of April 30, 2015, by $1 and the aggregate service and interest
costs for 2015 by $0.
Savings plans. We also sponsor various defined contribution benefit plans that together 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 plan terms. We expensed $9, $10, and $10 for matching
contributions during 2013, 2014, and 2015, 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.
10. STOCK-BASED COMPENSATION
The Brown-Forman 2013 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 8,300,000 shares of common stock to eligible participants until July 28, 2023.
As of April 30, 2015, awards for approximately 7,253,000 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 (or its predecessor plans) as of April 30, 2015, and for the year then ended:
Outstanding at April 30, 2014
Granted
Exercised
Forfeited or expired
Outstanding at April 30, 2015
Exercisable at April 30, 2015
Number of
Underlying
Shares
(in thousands)
Weighted
Average
Exercise Price
per Award
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
4,063
366
(601)
(11)
3,817
2,528
$
$
$
42.44
91.97
33.50
86.63
48.46
36.33
4.9
3.5
$
$
163
139
The total intrinsic value of options and SSARs exercised during 2013, 2014, and 2015 was $52, $48, and $35, respectively.
63
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 2013, 2014, and 2015 were $10.70, $14.84, and $19.67 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)
2013
2014
2015
0.9%
22.9%
1.9%
6.50
1.9%
22.5%
1.8%
6.75
2.2%
22.3%
1.7%
6.75
We have also granted restricted stock units (RSUs), deferred stock units (DSUs), and shares of performance-based restricted
stock (PBRS) under the Plan (or its predecessor plans). Approximately 319,000 shares underlying these awards, with a weighted-
average remaining vesting period of 1.7 years, were nonvested at April 30, 2015. The following table summarizes the changes in
the number of shares underlying these awards during 2015:
Nonvested at April 30, 2014
Granted
Adjusted for dividends or performance
Vested
Forfeited
Nonvested at April 30, 2015
Number of
Underlying Shares
(in thousands)
Weighted
Average
Fair Value at
Grant Date
365
70
9
(124)
(1)
319
$
$
60.04
92.66
66.93
47.57
81.77
72.25
For PBRS awards, performance is measured based on the relative ranking of the total shareholder return of our Class B
common stock during the three-year performance period compared to that of the companies within the Standard & Poor’s Consumer
Staples Index at the end of the performance period, with specific payout levels ranging from 50% to 150%.
The total fair value of RSUs, PBRS awards, and DSUs vested during 2013, 2014, and 2015 was $5, $11, and $11, respectively.
The accompanying consolidated statements of operations reflect compensation expense related to stock-based incentive
awards on a pre-tax basis of $11 in 2013, $13 in 2014, and $15 in 2015, partially offset by deferred income tax benefits of $4 in
2013, $5 in 2014, and $6 in 2015. As of April 30, 2015, there was $13 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 2.2 years.
11. 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:
United States
Foreign
2013
2014
2015
$
$
751
114
865
$
$
797
150
947
$
$
912
90
1,002
The income shown above was determined according to GAAP. 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.
64
Deferred tax assets and liabilities as of the end of each of the last two years were as follows:
2014
2015
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
$
$
$
139
30
8
52
(34)
195
(184)
(49)
(21)
(254)
(59) $
164
22
12
46
(27)
217
(207)
(61)
(31)
(299)
(82)
As of April 30, 2015, the gross amounts of loss carryforwards include a $34 net operating loss in Brazil (no expiration); a
U.K. non-trading loss of $36 (no expiration); a $28 net operating loss in Finland (expires in varying amounts in 2024 and 2025);
a $26 net operating loss in Mexico (expires in varying amounts between 2016 and 2018); and other foreign net operating losses
of $27 ($8 that do not expire and $19 that expire in varying amounts between 2016 and 2025).
The $27 valuation allowance at April 30, 2015 ($34 at April 30, 2014), relates primarily to a $12 net operating loss in Brazil
which decreased $7 in 2015 due to adjustments to certain prior year net operating losses as a result of filing amended returns,
partially offset by an increase in current year net operating losses. Although the Brazil losses can be carried forward indefinitely,
it is uncertain that we will realize sufficient taxable income to allow us to use these losses. The valuation allowance also includes
$8 ($7 at April 30, 2014) related to other foreign net operating losses that expire between 2016 and 2023. The remaining valuation
allowance relates to a $7 ($8 at April 30, 2014) non-trading loss carryforward in the United Kingdom that was generated during
2009. Although the non-trading losses can be carried forward indefinitely, we know of no significant transactions that will let us
use them.
During 2014, we deferred a tax benefit of $95 that resulted primarily from the release of certain deferred tax liabilities in
connection with an intercompany transfer of assets, composed primarily of an intangible asset. We are amortizing the deferred
benefit to tax expense over approximately six years for financial reporting purposes, in accordance with Accounting Standard
Codification (ASC) 740-10-25-3(e) (Income Taxes) and ASC 810-45-8 (Consolidation), resulting in a tax benefit of $5 and $15
for 2014 and 2015, respectively. The remaining balance of the deferred benefit, which is included in “other liabilities” on the
accompanying balance sheet, was $75 as of April 30, 2015. This intercompany transfer of assets also resulted in a taxable gain
that is primarily responsible for the increase in our accrued taxes balance from April 30, 2013, to April 30, 2014. The tax on this
gain was paid in 2015 and was primarily responsible for the decrease in our accrued taxes balance from April 30, 2014.
Deferred tax liabilities were not provided on undistributed earnings of foreign subsidiaries ($797 and $803 at April 30, 2014
and 2015, respectively) because we expect these undistributed earnings to be reinvested indefinitely outside the United States. If
these amounts were not considered permanently reinvested, additional deferred tax liabilities of approximately $175 and $163
would have been provided as of April 30, 2014 and 2015, respectively.
65
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:
Current:
U.S. federal
Foreign
State and local
Deferred:
U.S. federal
Foreign
State and local
2013
2014
2015
$
$
$
197
41
10
248
23
1
2
26
274
$
$
$
243
49
1
293
3
(6)
(2)
(5)
288
$
$
$
259
42
11
312
15
(11)
2
6
318
Our consolidated effective tax rate usually differs from current statutory rates due to the recognition of amounts for events
or transactions with 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
Amortization of deferred tax benefit from intercompany
transactions
Other, net
Effective rate
Percent of Income Before Taxes
2013
2014
2015
35.0 %
1.0 %
(1.4)%
(2.1)%
— %
(0.8)%
31.7 %
35.0 %
0.7 %
(2.2)%
(2.8)%
(0.4)%
0.2 %
30.5 %
35.0 %
1.0 %
(0.5)%
(2.5)%
(1.6)%
0.3 %
31.7 %
At April 30, 2015, we had $13 of gross unrecognized tax benefits, $8 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
2013
2014
2015
$
$
13
2
1
(1)
(3)
(1)
11
$
$
11
1
1
(1)
(1)
—
11
$
$
11
2
1
(1)
—
—
13
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 for one state in the United States; 2013 in the United Kingdom; 2011 in Australia and Ireland; 2010 in
Brazil and the Netherlands; 2009 in Poland and Finland; and 2004 in Mexico. The audits of our fiscal 2013 and 2014 U.S. federal
tax returns were concluded in the first quarters of fiscal 2015 and 2016, respectively. In addition, we are participating in the Internal
Revenue Service’s Compliance Assurance Program for our fiscal 2015 tax year.
We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.
66
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the change in each component of AOCI, net of tax, during 2015:
Balance at April 30, 2014
Net other comprehensive income (loss)
Balance at April 30, 2015
Currency
Translation
Adjustments
Cash Flow
Hedge
Adjustments
Postretirement
Benefits
Adjustments
Total AOCI
$
$
6
(114)
(108)
$
$
(4)
32
28
$
$
(190)
(30)
(220)
$
$
(188)
(112)
(300)
The following table presents the components of net other comprehensive income (loss) during each of the last three years:
Pre-Tax
Tax
Net
Year Ended April 30, 2013
Currency translation adjustments
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings1
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings2
Net other comprehensive income (loss)
Year Ended April 30, 2014
Currency translation adjustments
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings1
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings2
Net other comprehensive income (loss)
Year Ended April 30, 2015
Currency translation adjustments
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings1
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings2
Net other comprehensive income (loss)
$
$
$
$
$
$
16
$
1
$
7
(1)
(32)
30
20
$
(4)
1
16
(15)
(1) $
(2) $
(2) $
(7)
—
18
32
41
$
3
—
(7)
(12)
(18) $
17
3
—
(16)
15
19
(4)
(4)
—
11
20
23
(120) $
6
$
(114)
96
(41)
(70)
22
(113) $
(40)
17
26
(8)
1
$
56
(24)
(44)
14
(112)
1Pre-tax amount is classified as net sales in the accompanying consolidated statements of operations.
2Pre-tax amount is a component of pension and other postretirement benefit expense (as shown in Note 9).
67
13. 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
2013
2014
2015
$
$
$
$
2013
3,613
171
3,784
1,562
1,147
510
565
3,784
$
$
$
$
2014
3,765
181
3,946
1,624
1,264
469
589
3,946
$
$
$
$
2015
3,903
193
4,096
1,780
1,270
431
615
4,096
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 $50 and $40 as of April 30, 2014 and 2015,
respectively. Other long-lived assets located outside the United States are not significant.
We have concluded that our business constitutes a single operating segment.
14. CASH DIVIDENDS
We paid total cash dividends per share of $4.98 (including a special dividend per share of $4.00) in 2013, $1.09 in 2014,
and $1.21 in 2015.
15. 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 our 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. We
did not apply the stock split to our treasury shares.
As a result of the stock split, we reclassified approximately $10 from our retained earnings account to our 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.
We have restated previously reported share and per share amounts in the accompanying financial statements and related
notes to reflect the stock split.
68
Part II
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Expressed in millions, except per share amounts)
First
Quarter
896
$
477
143
0.67
0.66
Net sales
Gross profit
Net income
Basic EPS
Diluted EPS
Cash dividends per share:
Declared
Paid
0.51
0.26
Market price per share:
Class A high
Class A low
Class B high
Class B low
75.47
67.00
74.29
66.44
Second
Quarter
$ 1,079
576
206
0.97
0.96
Fiscal 2014
Third
Quarter
$ 1,078
532
177
0.83
0.82
Fourth
Quarter
893
$
493
132
0.62
0.62
Year
$ 3,946
2,078
659
3.08
3.06
First
Quarter
921
$
495
150
0.70
0.70
Second
Quarter
$ 1,135
609
208
0.98
0.97
Fiscal 2015
Third
Quarter
$ 1,093
553
186
0.88
0.87
Fourth
Quarter
947
$
527
140
0.67
0.66
—
0.26
74.65
65.46
74.96
66.41
0.58
0.29
79.83
71.00
80.76
72.11
—
0.29
91.00
74.67
91.15
75.54
1.09
1.09
91.00
65.46
91.15
66.41
0.58
0.29
95.29
85.98
97.15
86.48
—
0.29
93.09
81.38
93.62
81.89
0.63
0.32
98.00
85.33
97.97
85.43
—
0.32
95.23
86.85
93.99
86.71
Year
$ 4,096
2,183
684
3.23
3.21
1.21
1.21
98.00
81.38
97.97
81.89
Note: Quarterly amounts may not add to amounts for the year due to rounding
69
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
report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the
United States, 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, comprising only independent directors, meets regularly with our external
auditors, the independent registered public accounting firm PricewaterhouseCoopers LLP (PwC), our internal auditors, and
representatives of management to review accounting, internal control structure, and financial reporting matters. Our 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 effective 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 United States. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements.
As of the end of our fiscal year, management conducted an assessment of the effectiveness of our internal control over
financial reporting based on the framework and criteria in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal
control over financial reporting was effective as of April 30, 2015. PwC has audited the effectiveness of our internal control over
financial reporting as of April 30, 2015, as stated in their report.
Dated:
June 17, 2015
By:
/s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer and Chairman of the Company
By:
/s/ Jane C. Morreau
Jane C. Morreau
Executive Vice President and Chief Financial Officer
70
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,
comprehensive income, cash flows, and stockholders’ equity present fairly, in all material respects, the financial position of Brown-
Forman Corporation and its subsidiaries (the “Company”) at April 30, 2015, and April 30, 2014, and the results of their operations
and their cash flows for each of the three years in the period ended April 30, 2015, 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, 2015, based on criteria established in Internal Control – Integrated Framework (2013)
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 the accompanying
“Management’s Report on Internal Control over Financial Reporting.” 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 17, 2015
71
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. Our management, with the participation of our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO) (our principal executive officer and principal financial officer), has evaluated the
effectiveness of our 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 fiscal 2015. Based on that evaluation, our CEO and CFO concluded that our disclosure
controls and procedures: are effective to ensure that information required to be disclosed by the company in our reports filed or
submitted 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 our internal control over financial
reporting during the quarter ended April 30, 2015, that has materially affected, or is reasonably likely to materially affect, our
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, 2015, and the report of our
independent registered public accounting firm on our internal control over financial reporting are set forth in “Item 8. Financial
Statements and Supplementary Data.”
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
Information on our Executive Officers is included under the caption “Employees and Executive Officers” in Part I of this
report. For the other information required by this item, see the following sections of our definitive proxy statement for the Annual
Meeting of Stockholders to be held July 23, 2015, 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, refer to the following sections of our definitive proxy statement for the Annual
Meeting of Stockholders to be held July 23, 2015, which information is incorporated into this report by reference:
(a) “Compensation Discussion and Analysis”; (b) “Compensation Tables”; (c) “Director Compensation”; and (d) “Compensation
Committee Interlocks and Insider Participation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For Equity Compensation Plan information, please see “Item 5. Market for the Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.” For the other information required by this item, refer to the section
entitled “Stock Ownership” of our definitive proxy statement for the Annual Meeting of Stockholders to be held July 23, 2015,
which information is incorporated into this report by reference.
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 23, 2015, which information is incorporated into this report by reference: (a) “Certain
Relationships and Related Transactions”; and (b) “Our Independent Directors.”
72
Item 14. Principal Accounting Fees and Services
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 23, 2015, which information is incorporated into this report by reference: (a) “Fees Paid
to Independent Registered Public Accounting Firm”; and (b) “Audit Committee Pre-Approval Policies and Procedures.”
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 Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(a)(2)
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts
Page
45
46
47
48
49
50
71
79
We have omitted all other schedules for which provision is made in the applicable accounting regulations of the Securities
and Exchange Commission 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 do not apply.
(a)(3) Exhibits:
The following documents are filed with this report:
Exhibit Index
12
21
23
31.1
31.2
32
101
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).
The following materials from Brown-Forman Corporation’s Annual Report on Form 10-K for the fiscal year
ended April 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (a) Consolidated
Statements of Operations, (b) Consolidated Statements of Comprehensive Income, (c) Consolidated Balance
Sheets, (d) Consolidated Statements of Cash Flows, (e) Consolidated Statements of Stockholders’ Equity, and
(f) Notes to Consolidated Financial Statements.
73
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
Restated Certificate of Incorporation of registrant, 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 and restated on May 21, 2014, incorporated into this report by reference to
Exhibit 3.2 of Brown-Forman Corporation’s Form 8-K filed on May 22, 2014 (File No. 002-26821).
Indenture dated as of April 2, 2007, between Brown-Forman Corporation and U.S. Bank National Association,
as Trustee, incorporated into this report by reference to Exhibit 4.1 of Brown-Forman Corporation’s Form
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, 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, 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, as supplemented by the First 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 2.5% Notes due 2016, 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 1.00% Note due 2018, 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 2.25% Note due 2023, 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 3.75% Note due 2043, 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 First 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 1.00% Notes due 2018, the 2.25% Notes due 2023, and the 3.75% Notes due 2043, 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, 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, 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 2004 Omnibus Compensation Plan, as amended, 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 Agreement, 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 Agreement, 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, 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, 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, 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, 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).*
74
Exhibit Index
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
14
Brown-Forman Corporation Amended and Restated Supplemental Executive Retirement Plan and First
Amendment thereto, 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, 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,
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).
Amendment No. 1 to Five-Year Credit Agreement, dated as of September 27, 2013, among Brown-Forman
Corporation, the Lenders party to the Credit Agreement, and U.S. Bank National Association, as Administrative
Agent, incorporated into this report by reference to Exhibit 10 of Brown-Forman Corporation’s Quarterly Report
on Form 10-Q for the quarter ended October 31, 2013, filed on December 4, 2013 (File No. 002-26821).
Brown-Forman Corporation Amended and Restated Non-Employee Director Deferred Stock Unit Program,
incorporated into this report by reference to Exhibit 10.2 of Brown-Forman Corporation’s Form 8-K filed on
July 26, 2013 (File No. 002-26821).*
Brown-Forman Corporation 2013 Omnibus Compensation Plan, incorporated into this report by reference to
Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on July 26, 2013 (File No. 002-26821).*
Form of Employee Stock-Settled Stock Appreciation Right Award Agreement, incorporated into this report by
reference to Exhibit 10.3 of Brown-Forman Corporation’s Form 8-K filed on July 26, 2013 (File No.
002-26821).*
Form of Restricted Stock Unit Award Agreement, incorporated into this report by reference to Exhibit 10.4 of
Brown-Forman Corporation’s Form 8-K filed on July 26, 2013 (File No. 002-26821).*
Form of Restricted Stock Award Agreement, incorporated into this report by reference to Exhibit 10.5 of Brown-
Forman Corporation’s Form 8-K filed on July 26, 2013 (File No. 002-26821).*
Paul C. Varga July 25, 2013 Special Restricted Stock Award Agreement, incorporated into this report by
reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on July 30, 2014 (File No.
002-26821).*
Letter Agreement between Brown-Forman Corporation and Donald C. Berg dated May 14, 2014, incorporated
into this report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on May 14, 2014
(File No. 002-26821).*
Code of Ethics for Senior Financial Officers, 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).
* Indicates management contract, compensatory plan, or arrangement.
75
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 17, 2015
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 17, 2015, 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
76
/s/ Martin S. Brown, Jr.
By: Martin S. Brown, Jr.
Director
/s/ Stuart R. Brown
By: Stuart R. Brown
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/ Augusta Brown Holland
By: Augusta Brown Holland
Director
/s/ Michael J. Roney
By: Michael J. Roney
Director
77
/s/ Dace Brown Stubbs
By: Dace Brown Stubbs
Director
/s/ Michael A. Todman
By: Michael A. Todman
Director
/s/ James S. Welch, Jr.
By:
James S. Welch, Jr.
Director
/s/ Jane C. Morreau
By:
Jane C. Morreau
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)
78
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 2013, 2014, and 2015
(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
2013
Allowance for Doubtful Accounts
2014
Allowance for Doubtful Accounts
2015
Allowance for Doubtful Accounts
(1) Doubtful accounts written off, net of recoveries.
$
$
$
$
$
9
9
9
2
$
—
2
—
—
—
2 (1) $
— (1) $
9
9
$
1 (1) $
10
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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,
2011
22.3x
2012
22.1x
2013
20.9x
2014
26.9x
2015
28.1x
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Percentage of
State or Jurisdiction
Securities Owned
Of Incorporation
Name
Amercain Investments, C.V.
AMG Trading, L.L.C.
B-F Holding Hungary 2 Kft.
B-F Korea, L.L.C.
BF FINCO, S. de R.L. de C.V.
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 Bulgaria, e.o.o.d.
Brown-Forman Colombia S.A.S
Brown-Forman Czechia, s.r.o.
Brown-Forman Deutschland GmbH
Brown-Forman Dutch Holding, B.V.
Brown-Forman Finland Oy
Brown-Forman France
Brown-Forman Greece E.P.E.
Brown-Forman Holding Mexico S.A. de C.V.
Brown-Forman Hong Kong Ltd.
Brown-Forman Hungary 1 Kft.
Brown-Forman Hungary 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 Ro S.R.L.
Brown-Forman Rus L.L.C.
Brown-Forman S1, d.o.o.
Brown-Forman S2, d.o.o.
Brown-Forman South Africa Pty Ltd.
Brown-Forman Spain, S.L.
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.
100% (1)
100%
100% (2)
100% (3)
100% (4)
100% (5)
100%
100% (3)
100% (3)
100%
100%
100% (6)
100% (3)
100% (3)
100% (7)
100% (8)
100% (3)
100% (3)
100% (3)
100% (9)
100% (10)
100% (11)
100% (12)
100% (3)
100%
100%
100% (11)
100% (13)
100% (7)
100% (9)
100% (14)
100% (3)
100% (3)
100% (3)
100% (3)
100% (15)
100% (3)
100% (16)
100%
100%
100% (17)
100%
100%
100% (5) (18)
100% (19)
Netherlands
Delaware
Hungary
Delaware
Mexico
Ireland
Kentucky
Australia
United Kingdom
Delaware
Delaware
Brazil
Bulgaria
Colombia
Czech Republic
Germany
Netherlands
Finland
France
Greece
Mexico
Hong Kong
Hungary
Hungary
Delaware
Kentucky
Korea
Netherlands
Poland
Romania
Russia
Serbia
Slovenia
South Africa
Spain
China
Turkey
Mexico
Delaware
Delaware
China
Ontario, Canada
France
Ireland
Mexico
Name
Distillerie Tuoni e Canepa S.R.L.
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 of Alabama, L.L.C.
SCHE Properties Limited
Sonoma-Cutrer Vineyards, Inc.
Southern Comfort Properties, Inc.
Valle de Amatitan, S.A. de C.V.
Washington Investments, L.L.C.
Percentage of
State or Jurisdiction
Securities Owned
Of Incorporation
100% (20)
100%
100%
100% (21)
100%
100%
100% (13) (18)
100% (22)
100% (23)
100%
100%
100% (16)
100%
Italy
Delaware
Finland
Tennessee
Delaware
Ukraine
Ireland
Delaware
Ireland
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)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Owned 99% by Brown-Forman Hungary 1 Kft. and 1% by B-F Holding Hungary 2 Kft.
Owned by Brown-Forman Hungary 1 Kft.
Owned by Brown-Forman Netherlands, B.V.
Owned 99% by Brown-Forman Dutch Holding B.V. and 1% by Brown-Forman Beverages Europe, Ltd.
Owned by Longnorth Limited.
Owned 99% by Brown-Forman Corporation and 1% by Early Times Distillers Company.
Owned 81.8% by Brown-Forman Netherlands, B.V. and 18.2% by Brown-Forman Beverages Europe, Ltd.
Owned by Brown-Forman Beverages Europe, Ltd.
Owned 90% by Brown-Forman Netherlands B.V. and 10% Brown-Forman Dutch Holding B.V.
(10) Owned 52.01% by Brown-Forman Netherlands, B.V. and 47.99% by Brown-Forman Corporation.
(11) Owned by B-F Korea, L.L.C.
(12) Owned by AMG Trading, L.L.C.
(13) Owned by Amercain Investments C.V.
(14) Owned 90% by Brown-Forman Netherlands B.V. and 10% Brown-Forman Deutschland GmbH.
(15) Owned by Brown-Forman Hong Kong Ltd.
(16) Owned 99% by Brown-Forman Holding Mexico S.A. de C.V. and 1% by Early Times Distillers Company.
(17) Owned by Brown-Forman Beverages North Asia, L.L.C.
(18)
Includes qualifying shares assigned to Brown-Forman Corporation.
(19)
Owned 99.9972% by BF FINCO S. de R.L. de C.V. and 0.00277% by Brown-Forman Beverages Europe, Ltd.
(20) Owned 63% by Brown-Forman Italy, Inc. and 37% by Brown-Forman Netherlands, B.V.
(21) Owned by Jack Daniel's Properties, Inc.
(22) Owned by Jack Daniel Distillery, Lem Motlow, Prop., Inc.
(23) Owned by Clintock Limited.
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-38649, 333-74567,
333-89294, 333-126988, 333-117630, 333-169564, and 333-190122) of Brown-Forman Corporation of our report dated June 17,
2015 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 17, 2015
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 17, 2015
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, Jane C. Morreau, 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 17, 2015
By:
/s/ Jane C. Morreau
Jane C. Morreau
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, 2015, 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 17, 2015
By:
By:
/s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer and
Chairman of the Company
/s/ Jane C. Morreau
Jane C. Morreau
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.
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
USE OF NON-GAAP FINANCIAL INFORMATION
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, 2015, there were 2,718 holders of record of Class A Common Stock and
5,271 holders of record of Class B Common Stock. Stockholders reside in all 50 states and in
23 foreign countries.
REGISTRAR, TRANSFER AGENT,
AND DIVIDEND DISBURSING AGENT
Computershare
web.queries@computershare.com
(866) 622-1917 (U.S., Canada, Puerto Rico)
(781) 575-4735 (International)
P.O. Box 30170 / College Station, Texas 77842-3170
EMPLOYEES
As of April 30, 2015, Brown-Forman employed about 4,400 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 expres-
sion, 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 2015 Form 10-K is included with this 2015 Annual Report in its entirety except for 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 com-
pany’s website at www.brown-forman.com. Click on the Investors section of the website and then
on Financial Reports & Filings to view the Form 10-K and other important documents.
FORWARD-LOOKING STATEMENTS
This 2015 Annual Report, the embedded electronic content, and the Fiscal 2015 Videos referred
to in this report 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 his-
torical 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”, which precedes Part I, Item 1, Business, as well as
Item 1A, Risk Factors in the Form 10-K included with this 2015 Annual Report.
Certain matters discussed in this Annual Report include measures not derived in accordance with
generally accepted accounting principles (“GAAP”), including “return on average invested capital,”
“net debt,” 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, “Non-GAAP Financial Measures”
of the Form 10-K incorporated into this 2015 Annual Report.
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, 2010, 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 2010.
INDEXED
TOTAL
SHAREHOLDER
RETURN
as of April 30,
2015, dividends
reinvested
$300
$250
$200
$150
$100
BF Class B Shares
S&P 500 Index
Dow Jones U.S.
Consumer Goods
Dow Jones U.S.
Food and Beverage
2010
2011
2012
2013
2014
2015
$100
$100
$100
$100
$128
$117
$121
$121
$156
$123
$132
$132
$206
$144
$161
$164
$266
$173
$183
$181
$271
$195
$203
$206
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.
FISCAL 2015 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 2015 performance, please go to
www.brown-forman.com and look for the link to the video clips.
THE VALUE OF
TOTAL RETURN ON $100 INVESTMENT
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
BF-B
Consumer Staples
S&P 500
Source: FactSet, from April 30, 1995 to April 30, 2015
in local currency, assuming dividends reinvested.
LONG-TERM PERSPECTIVE
$2,000
$1,500
$1,000
$500
$0
i
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b
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e
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i
EVERY DAY
WE MAKE IT
–
WE’LL MAKE IT
THE BEST WE CAN
850 DIXIE HIGHWAY LOUISVILLE, KENTUCKY 40210 | BROWN-FORMAN.COM