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OUR STORY
2017 ANNUAL REPORT
THE BROWN-FORMAN STORY
FOCUS ING ON
TODAY. BUILDING
FOR TOMORROW.
Few companies have a story as compelling as Brown‑Forman’s.
Our rich history is vital to the spirit of our organization and gives us a
foundation upon which to grow into the future.
During a year of challenging market conditions, we are pleased to report
solid results in fiscal 2017, with underlying operating income* growth of
7% (‑35% reported). We have been refining our portfolio and making
investments in our business that have allowed us to deliver results in the
short term, and better position us for growth in the long term. In a world
of corporate short‑termism, we are grateful to be the family company
we are, with the shareholder support to evolve in a thoughtful manner.
* Changes in net sales growth and operating income are presented in the Annual Report on an underlying basis, with
as‑reported changes noted where there is a difference. We use these measures to understand the growth of our business
with the cost or benefit of foreign currency movements, changes in distributor inventories, and the impact of acquisition
and divestiture activities removed. Please refer to “Use of Non‑GAAP Financial Information” on the last page of this
Annual Report for additional information.
1
This year, we celebrated several special anniversaries. It
has been 60 years since Brown‑Forman was entrusted
inspired loyalty across generations. We look forward to nurtur‑
ing this beloved brand for future generations.
to carry forward the Jack Daniel legacy, and it’s also the 150th
Woodford Reserve celebrated its 20th anniversary with
anniversary of the Jack Daniel Distillery. This iconic brand has
underlying net sales growth of 19% (14% reported). There
become the backbone of our company. With its distinct flavor,
is clearly widespread consumer demand for high‑quality,
global recognition, and unique brand voice, Jack Daniel’s has
super‑premium bourbons with authenticity and heritage.
2
A FAMILY OF FRIENDS OLD AND NEWCHAPTER 1 Launched in fiscal 1997, Woodford Reserve is a great story of
ever‑growing audience in Mexico, the United States, as well
vision, dedication, and patience.
as in select markets around the world.
Casa Herradura celebrated 10 years in the Brown‑Forman
When we look at the stories of the Jack Daniel’s, Woodford
family with its best year ever. In fact, aggregate underly‑
Reserve, and Casa Herradura brand families, we appreciate
ing net sales for Herradura, el Jimador, and New Mix grew
the value of their unique homeplaces, which serve to further
an impressive 12% (3% reported). Our team in Amatitán
deepen people’s connection with the brands.
continues a tradition of artisanal quality that is finding an
3
Elegant enhancements to the packaging of Woodford Reserve Double Oaked help distinguish the brand’s leadership in high-end bourbons.The horseshoe on the Herradura bottle points downward, which, according to traditional Mexican beliefs, allows good fortune to flow.CHAPTER 1 CHAPTER 2
STRENGTH OF
CHAR ACTER
“Every day we make it,
we’ll make it the best we can.”
– Jack Daniel
*2016 IWSR Data
4
Jack Daniel’s is a brand that transcends borders, ethnicities, and gender, with Old No. 7 delivering balanced growth around the world while continuing to gain share in many markets.At 1.6 million 9L cases, Jack Daniel’s Tennessee Honey has become the 12th-largest brand in the world priced over $25 per 750ml bottle*.Jack Daniel’s Tennessee Fire has invigorated Brown-Forman’s on- premise business, as consumers search for premium beverages in new drinking occasions. CHAPTER 2
A cross multiple generations spanning 147 years, we have
enriched life’s moments with a spirit whose depth contin‑
ues to fascinate: whiskey. It lives at the heart of Brown‑Forman.
Last year, in the 150th year of the Jack Daniel Distillery,
Old No. 7 grew underlying net sales 3% (‑1% reported). We
couldn’t be prouder of our stewardship of this brand and more
excited about its future.
Tennessee Honey, in its sixth year, continued to perform
well, with global underlying net sales up 4% (3% reported).
Along with Old No. 7, it leads our new partnership with the
National Basketball Association (NBA), and we look forward
to introducing new fans to its naturally sweet appeal.
Tennessee Fire, with its bold bite, came onto the scene in
2015 and has proven itself by growing underlying net sales by
14% (18% reported) in its second year. In fiscal 2018, we’ll let
this character shine on a bigger stage, with plans to continue
expanding its distribution around the world, as we seek to
emulate the success of Tennessee Honey.
Old Forester, the world’s first bottled bourbon, continued
its rapid growth in the United States. Redesigned packaging
celebrates the rich history that is part of its allure with a new
generation of loyalists. In the spring of 2018, we will open the
Old Forester Distillery on Whiskey Row in Louisville, offering
consumers a deeper experience of this brand.
RENDERING OF OLD FORESTER’S NEW
DISTILLERY IN BROWN-FORMAN’S
HOMETOWN, LOUISVILLE, KENTUCKY.
5
CHAPTER 3
BUILDING THE
NE X T CHAP TE R
“In building our brands and creating new opportunities,
we are writing the next chapter in our story of innovation,
perseverance, and success.” – Paul Varga, 2017
Fiscal 2017 was a year of portfolio refinements and
investment initiatives that we expect to begin bearing fruit
in fiscal 2018. Some of them had been maturing for years,
while others were fresh opportunities.
In April 2017, we launched our new Slane Irish Whiskey,
introduced first in Ireland, to be followed by the U.K., Australia,
and the U.S. The Slane Distillery and Homeplace, located at
the historic Slane Castle, is expected to be complete by the
summer of 2017 and will allow people to discover this more
robust and complex Irish whiskey in a memorable setting. The
brand represents the joint efforts and deep whiskey knowledge
of Brown‑Forman teams from both sides of the Atlantic.
In the fall of 2017, we’ll debut Jack Daniel’s Tennessee Rye
in the United States. Consumers and bartenders will now
have a high‑quality rye whiskey with the distinctive, charcoal‑
mellowed smoothness that makes Jack Daniel’s known as a
sipping whiskey. It was more than five years ago that we crafted
the beginning of this new story. Now it’s ready to unfold, further
broadening the strength of the Jack Daniel’s trademark and
allowing the brand to participate in new drinking occasions.
In the single malt scotch category, GlenDronach, BenRiach,
and Glenglassaugh are among the finest single malts in the
world. We have assembled a team with deep expertise in
whisky making to help us move these brands to the next level.
This portfolio rounds out our position in ultra‑premium whiskey
(and whisky) with global reach.
6
In the heart of the Boyne Valley in Ireland, production will soon begin on our blended, pot-still, and single-grain expressions of Slane Irish Whiskey.In 2017, the Chairman’s Trophy of the Ultimate Spirits Competition was awarded to our BenRiach 20-Year- Old Scotch. At the 2017 San Francisco World Spirits Competition, GlenDronach 18- and 21-Year-Old Scotches took home Double Gold medals.
CHAPTER 3
How fortunate we are to have such passion and dedica‑
ment at an all‑time high. Their energy and innovative spirit
tion from our teams in all parts of our business. The people
are what gives us confidence as we continue to write the story
who shape Brown‑Forman every day tell us they feel valued
of Brown‑Forman.
and motivated: our 2016 employee survey showed engage‑
7
Letter to the Shareholders
DE A R
S H A RE HOLDE R S
JUNE 27, 2017
W ith this year’s annual report theme revolving around
storytelling, it’s again my pleasure to update you
by sharing another chapter on Brown‑Forman and our long‑
running success.
Our last 12 months might best be characterized as a trilogy.
During the year, we simultaneously positioned the company
for continued growth in the years ahead, grew the business
nicely on an organic basis, and completed a 10‑year per‑
formance period that we will remember for its impressive
consistency. Each of these three is a deserving part of the
Brown‑Forman narrative.
POSITIONING THE COMPANY FOR CONTINUED
LONG-TERM SUCCESS
We knew that this past year would be a challenging one to
communicate. Beyond the annual impact we report from for‑
eign exchange and inventory fluctuations, reported results for
fiscal 2017 were noticeably affected by our portfolio manage‑
ment activities over the last couple of years.
Specifically, the disposition of Southern Comfort and Tuaca
in late fiscal 2016 (and the resulting large gain on that sale), the
acquisition and integration costs of GlenDronach, BenRiach,
and Glenglassaugh single malts in early fiscal 2017, and our
cycling against fiscal 2016’s successful U.S. launch of Jack
Daniel’s Tennessee Fire equated to challenging comparisons
8
Paul C. Varga, Chairman and Chief Executive Officer
We have built a business that can
successfully thrive for generations.
Letter to the Shareholders
BROWN-FORMAN
EXECUTIVE LEADERSHIP
At the Woodford Reserve Distillery
on its 20th anniversary, the Executive
Leadership Team set the vision for
the next decade of Brown‑Forman.
From left: Kirsten M. Hawley, Senior Vice President, Chief
Human Resources Officer / Paul C. Varga, Chairman and
Chief Executive Officer / Jill A. Jones, Executive Vice
President and President, North America, Latin America,
India, Middle East, Africa, and Global Travel Retail / John V.
Hayes, Senior Vice President, Chief Marketing Officer,
Brown-Forman Brands / Michael J. Keyes, Senior Vice
President and President, North America Region / Thomas
Hinrichs, Senior Vice President and President, Europe,
North Asia, Australia, New Zealand, and South East Asia /
Jane C. Morreau, Executive Vice President, Chief Financial
Officer / Ralph E. de Chabert, Senior Vice President, Chief
Diversity Officer / Michael A. Masick, Vice President,
Director Corporate Strategy and Business Development /
Lawson E. Whiting, Executive Vice President, Chief Brands
and Strategy Officer, Brown-Forman Brands / Matthew E.
Hamel, Executive Vice President, General Counsel and
Secretary / Mark I. McCallum, Executive Vice President and
President, Jack Daniel’s Brands / Lisa P. Steiner, Senior
Vice President, Chief of Staff / Alejandro A. Alvarez, Senior
Vice President, Chief Production Officer
for our reported results throughout the last fiscal year. This
required extra attention on our (and your) part to digest the
results, but I felt this was an acceptable short‑term trade‑off
to improve the company’s long‑term prospects.
Historically, we have been very well rewarded for disposing
of brands and businesses whose attractiveness had waned,
while simultaneously creating or acquiring brands with the
potential to produce high margins, excellent returns on invested
capital (ROIC), and strong, sustainable growth. The disposition
of our consumer durables and popular‑priced wine businesses,
alongside the creation of Woodford Reserve and Jack Daniel’s
Tennessee Honey, and the acquisitions of Sonoma‑Cutrer and
Herradura, stand as stellar historical examples of portfolio
reshaping that improved the company’s overall attractiveness.
And I believe the changes in fiscal 2016 and fiscal 2017, as
well as the introductions of Coopers’ Craft Bourbon, Slane Irish
Whiskey, and Jack Daniel’s Tennessee Rye Whiskey, can yield
similar rewards in the years ahead.
In addition to portfolio management, we positioned Brown‑
Forman for success beyond today through the investments
we made in our production operations, our brands, our
route‑to‑consumers, our people, and our demonstration of
corporate responsibility.
On the capital investment front, noteworthy examples
are the expansion of production and hospitality capacity at
9
Letter to the Shareholders
84%
In 2016, Brown‑Forman’s overall engagement
score among our global salaried workforce was
84%. This exceeds benchmarks for General
Industry (68%), Consumer Goods Companies
(70%) and High Performing Companies (73%).
SOURCE: 2016 Engagement & Enablement
Survey administered by Korn Ferry Hay.
High employee engagement means
we have committed and loyal employees
who are willing to go the extra mile.
FISCAL 2017
15.3
MILLION
CASES
Jack Daniel’s Family
of Whiskey Brands
8.0
MILLION
CASES
Jack Daniel’s RTD’s*
10-YEAR AVERAGE
Operating margin of
32%
Return on Invested
Capital (ROIC) of
21%
*Refers to Ready to Drink and Ready to Pour line extensions of Jack Daniel’s.
10
$ 844
MILLION
in capital investment
$ 6.3
BILLION
of capital returned
to shareholders
OVER THE LAST 10 YEARS
10-YEAR
SHAREHOLDER RETURN*
–
based on compound annual growth rate
BFB
Campari
Diageo
Consumer Staples
Comp Set
Remy
S&P 500
Pernod
0%
5%
10%
15%
*Source: FactSet, as of April 30, 2017,
in local currency, assuming dividends reinvested.
Note – the Competitive set is a weighted average
based upon each competitor’s LTM sales.
Letter to the Shareholders
Jack Daniel’s, Woodford Reserve, Slane Irish Whiskey, and
net sales at 4%. A recovering Global Travel Retail grew at
Old Forester. Primary packaging enhancements were imple‑
a high‑single‑digit rate, while our used barrel sales declined
mented on Woodford Reserve and Old Forester. In terms of
at a double‑digit rate due to an unfavorable supply/demand
brand advertising and promotion, Jack Daniel’s new part‑
dynamic for that business.
nership with the National Basketball Association (NBA) and
In terms of balance across the brand portfolio in fiscal 2017,
increased media investment in new creative for Jack Daniel’s,
nine of the company’s top 10 brands grew underlying net sales.
Jack Daniel’s Tennessee Honey, and Gentleman Jack are con‑
We were again led by the Jack Daniel’s trademark and our
temporary examples. And similar to prior route‑to‑consumer
premium bourbon portfolio (Woodford Reserve, Old Forester),
investments in countries such as Germany, France, and Brazil,
while our tequila portfolio had its finest year since we pur‑
we are about to launch our own distribution company in Spain
chased Casa Herradura 10 years ago.
with the aim of capitalizing further on that country’s large pre‑
While we are still in the very early days of our commer‑
mium whiskey opportunity.
cialization efforts for our new super‑premium malt whisky
A YEAR OF STRONG UNDERLYING PROFIT GROWTH
In addition to our portfolio reshaping actions to better position
the company for success in 2025 and beyond, we delivered
brands from Scotland and Ireland, we are gratified by the
recent third‑party critical acclaim they are receiving. It helps
immensely when a brand starts with superb liquid in the bottle,
and that appears to be the case for GlenDronach, BenRiach,
strong growth in underlying operating income, up 7% (‑35%
Glenglassaugh, and Slane.
as reported) in fiscal 2017. That growth rate approximated our
long‑term average (8%)* and remained above our estimate of
2007–2017: CONSISTENCY AS A HALLMARK
the industry’s mid‑single‑digit growth rate on the same met‑
Our business model strives for superior long‑term value cre‑
ric. Our underlying operating income growth was fueled by a
ation associated with building premium brands, and the key
combination of solid underlying net sales growth of 3% (‑3%
financial metrics on which we focus in assessing our progress
as reported) and tight management of selling, general, and
are the triad of operating margin, ROIC, and profitable sales
administrative expenses (SG&A), down 2% on an underlying
growth. We view operating margin as the reward for building
basis (‑3% as reported).
premium brands to meaningful scale, with Jack Daniel’s as
In addition to this underlying growth, the company continued
the most obvious example of that rare combination of high
to enjoy an excellent gross margin (68%), operating margin
volume and premium price. We believe ROIC pairs our com‑
(33%), and return on invested capital (ROIC, 19%), with each
pany’s operating profit with our thoughtful capital deployment,
of these metrics at or near the top of our industry, according
and the resulting metric being symbolic of our capital efficiency
to our estimates.
and the organic nature of our company’s development. Lastly,
As we reported our results at fiscal year end, I was struck
we understand the importance of sustainable growth derived
by the excellent balance of both brand and geographic con‑
from building ever stronger and larger consumer franchises
tribution. For example, each of our top 10 markets grew
across the globe.
underlying net sales last year and using a geographic clustering
Recently, when I was reviewing our 10‑year track record on
including the United States, developed markets outside of the
these three important metrics, two descriptors that emerged
United States, and emerging markets, each grew underlying
were quality and consistency. Our operating margin, which
* The long‑term underlying net sales and underlying operating income growth rates
for Brown‑Forman represent a 10‑year average. On an equivalent as‑reported
basis, net sales and operating income growth were 4% and 7%, respectively.
last 10 fiscal years with steadily improving margins noted
across the decade of performance. Again, this was the reward
was 33% in fiscal 2017, averaged an excellent 32% over the
11
Letter to the Shareholders
for building an ever more premium portfolio to meaningful
must be validated by distilling the product and beginning its
size, with the Jack Daniel’s, Woodford Reserve, Old Forester,
aging process years in advance of its sale and consumption.
Herradura, and Sonoma‑Cutrer trademarks were the most
So, as whiskey distillers, we need to be quite committed to the
noteworthy contributors.
growth we foresee for our brands. And we are.
Our ROIC, which ended fiscal 2017 above 19%, has aver‑
aged 21% over the last 10 years. When you consider that this
metric incorporates the cost of acquisitions and our recent
capital investments in production capacity and brand building,
that 21% ROIC average is even more impressive. It’s illustra‑
tive of something we consistently strive to do — perform in the
near term while making those investments that will ensure
Brown‑Forman’s success story continues many, many years
into the future.
It’s also worth noting that Brown-Forman
grew underlying net sales and
operating income in each and every one
of the last 10 years.
Our underlying net sales growth of 3% (‑3% as reported) and
underlying operating income growth of 7% (‑35% as reported)
enjoyed similar quality and consistency over this extended
period. Underlying net sales growth averaged 5%* and under‑
lying operating income growth averaged 8%*. It’s also worth
noting that Brown‑Forman grew underlying net sales and oper‑
ating income in each and every one of the last 10 years, and
our lowest underlying operating income growth rate in a single
year of 4%, being very acceptable, against the backdrop of
fiscal 2009’s global economic crisis.
Why do I call out these particular metrics? Because it’s my
view that a business that consistently produces 30% plus
operating margins, 20% plus ROIC, and 8% underlying profit
growth will create excellent risk‑adjusted shareholder value
BUILDING FOREVER: A NEVER-ENDING STORY
We express our enduring ambition at Brown‑Forman by utiliz‑
ing our company’s initials in the phrase Building Forever. The
phrase is intended to signify both the journey for the company
and the means for ensuring that destiny. We are committed to
making Brown‑Forman thrive and endure for many generations
into the future. We believe the best way to accomplish this is
by continuously growing our brands and our people, and as a
result, our company.
Words such as Building Forever are enormously important as
they remind us to take nothing for granted. Despite the consis‑
tent metrics and success I’ve cited, we are keenly aware of the
dynamic nature of the world and the intense level of competition
that exists in our industry. Accordingly, we seek to continuously
improve virtually everything at Brown‑Forman — our results,
our strategies, our brands, our production operations, our
distribution platforms, the impact of our investments, our com‑
pany’s culture, and our impact on the world, to list but a few.
For this process of striving for ever higher levels of excellence,
in my view, is paramount to ensuring that the Brown‑Forman
story remains a Never‑Ending story.
In closing, let me again thank our employees and partners
for their superb efforts in making Brown‑Forman such a suc‑
cess story. And I thank you, our valued shareholders, for your
continued support of the company and its efforts.
Sincerely,
over time. This has been our experience over the last 10 years,
as evidenced by our 10‑year total shareholder return, and it is
Paul C. Varga
our aim to sustain this excellent business model going forward.
I remain very optimistic about the growth prospects for our
brands and our company. In our business, this kind of statement
Chairman and Chief Executive Officer
June 27, 2017
12
Letter to the Shareholders
BROWN-FORMAN BOARD OF DIRECTORS
From left: Geo. Garvin Brown IV (1,5,*,#) Chairman of the Board, Brown‑Forman Corporation / Kathleen M. Gutmann, Chief Sales and Solutions Officer, United Parcel Service, Inc. and Senior
Vice President, The UPS Store and UPS Capital / Michael J. Roney (4) Retired Chief Executive Officer, Bunzl plc / Patrick Bousquet‑Chavanne (4,5) Executive Director of Customer, Marketing
and M&S.com, Marks and Spencer Group PLC / Bruce L. Byrnes (3,5) Retired Vice Chairman of the Board, The Procter & Gamble Company / Laura L. Frazier (#) Owner and Chairman,
Bittners LLC / Campbell P. Brown (*,#) President and Managing Director of Old Forester, Brown‑Forman Corporation / Michael A. Todman (3) Retired Vice Chairman, Whirlpool Corporation /
Paul C. Varga (1,*) Chairman and Chief Executive Officer, Brown‑Forman Corporation / Marshall B. Farrer (*,#) Vice President and Managing Director of Global Travel Retail, Brown‑Forman
Corporation / John D. Cook (1,2,3,4,5) Director Emeritus, McKinsey & Company / Augusta Brown Holland (#) Founding Partner, Haystack Partners LLC / Stuart R. Brown (*,#) Managing
Partner, Typha Partners, LLC, and President, DendriFund, Inc.
(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, (*) Member of Brown‑Forman/Brown Family Shareholders Committee, (#) Member of Brown Family
BROWN-FORMAN/BROWN FAMILY SHAREHOLDERS COMMITTEE
Family Shareholders Committee members hold their May 2017 meeting at our company’s Louisville, Kentucky, headquarters.
From left: Ernest S. Patterson, Sandra A. Frazier, Campbell P. Brown, Geo. Garvin Brown IV (Co‑Chair), Stuart R. Brown, Paul C. Varga (Co‑Chair), Martin S. Brown, Jr., Owsley Brown III, Marshall B.
Farrer, Tammy B. Godwin (Recording Secretary), Barbara A. Hurt, William A. Musselman, Jr., and Christopher L. Brown (Other members not pictured: James S. Joy and Laura Lee Gastis)
13
Chairman’s Letter
OUR S TOR Y
IN DECA DE S
JUNE 27, 2017
late Chairman and CEO, Owsley Brown II, in fiscal 1997. After
20 years of double‑digit growth, we can agree that Owsley’s
vision was spot on. In fact, in fiscal 2017, the Woodford
Reserve Family of Brands surged past the half‑million‑case
mark, reaching nearly 590 thousand depleted cases*. The
distillery itself anchors Kentucky’s Bourbon Trail, a beacon for
the Commonwealth of Kentucky that brought more than one
million tourists to distilleries in our home state in 2016.
Brown‑Forman also celebrated a little farther south, mark‑
ing the 10th anniversary of our acquisition of Casa Herradura,
including the distillery founded in 1870 in Amatitán, Mexico. In
those 10 years, we’ve seen the award winning super‑ premium
Herradura family of brands almost double in volume to
440 thousand cases globally. El Jimador, the premium entrant,
meanwhile, has successfully repositioned itself upward as a
100% agave brand in Mexico, and has surpassed 500 thou‑
sand cases in the United States. Less well‑known, but almost
more remarkable, is the success of the ready‑to‑drink (RTD)
business that we purchased along with Casa Herradura. New
Mix has grown to nearly 6.3 million cases, capturing a 50%
share of the entire pre‑mixed drinks category in Mexico. Thanks
“Civilization begins with distillation,” once said the south‑
ern gentleman and Pulitzer Prize‑winning Nobel laureate
William Faulkner. Judging from the anniversaries that we have
just celebrated, I think that Mr. Faulkner would have been
pleased this year with Brown‑Forman’s contributions to the
fabric of life, to “civilization.”
It was 20 years ago that Brown‑Forman brought distilla‑
tion back to the rolling thoroughbred farms of the bluegrass
region, with the restoration of the Woodford Reserve Distillery
in Versailles, Kentucky. “By honoring the ingenuity and skills
of our predecessors we will again make the world’s finest bour‑
bon whiskies right here in Woodford County,” announced our
* “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.
14
Chairman’s Letter
to its success in this category, the Jack Daniel’s RTD business
No matter how much planning we put into committees and
in Mexico has grown to more than 1.1 million cases since its
boards, and no matter how shiny the copper is on a new still
introduction in 2010, alongside the Jack Daniel’s Tennessee
at a distillery, ultimately it’s the people in those governance
Whiskey business that has a 10‑year compound annual growth
bodies and at those distilleries who make it Brown‑Forman.
rate (CAGR) of approaching 20%, surpassing 170 thousand
On that note, 2017 marks an anniversary for someone who
shoulders more than most, Paul Varga. Paul celebrates his
30th anniversary with the company this year, and has been
our corporate Chairman and CEO for 10 years now, making all
the enviable 10‑year financial CAGRs in this report truly his.
On behalf of the board, please join me in thanking Paul and
his entire team around the globe, and on behalf of Brown‑
Forman, please accept my thanks for your informed and
thoughtful commitment to our 147‑year‑old growing and inde‑
pendent company.
With best regards,
Geo. Garvin Brown IV
Chairman of the Board
June 27, 2017
cases in 2017.
No matter how much planning we put into
committees and boards, and no matter
how shiny the copper is on a new still at a
distillery, ultimately it’s the people in those
governance bodies and at those distilleries
who make it Brown-Forman.
As much as I agree with Faulkner on the positive contribu‑
tions of distillation, I also know that organizations benefit from
a dram, or two, of good governance. When a multi‑generational
family group is at the heart of a public company’s shareholder
base, getting this measure right can be even more critical. And
so, we were very pleased to see fiscal 2017 mark the 10th
anniversary of the Brown‑Forman/Brown Family Shareholders
Committee (FSC). In that time, the FSC has developed a
number of protocols that have strengthened Brown‑Forman’s
commitment to excellent management and its bias toward a
long‑term strategic focus. Along the way, the FSC has enjoyed
the involvement of 16 Brown family members, including new
members James Joy (the first family spouse to join the FSC)
and Owsley Brown III (the son of our late Chairman), each
stepping into seats that opened with the retirement of Laura L.
Frazier and Augusta Brown Holland, founding members of the
FSC. Kate Gutmann, chief sales and solutions officer of UPS,
has become an integral part of Brown‑Forman’s governance
system this year by joining our Board of Directors. Kate not
only brings impressive management expertise and leadership
to our Board, but also brings the cultural strengths of one of
our country’s great, independent, global businesses.
15
SELECTED FINANCIAL DATA
Dollars in millions,
except per share amounts
For Year Ended April 30:
2008
2009
2010 2011
2012 2013
2014 2015
2016 2017
Sales
Excise taxes
Net sales
Gross profit
$3,282 3,192 3,226 3,404 3,614 3,784 3,946 4,096 4,011 3,857
$ 700
711
757
818
891
935
955
962
922
863
$2,582 2,481 2,469 2,586 2,723 2,849 2,991 3,134 3,089 2,994
$1,695 1,577 1,611 1,724 1,795 1,955 2,078 2,183 2,144 2,021
Operating income
Net income
$ 685
$ 440
661
435
710
449
855
572
788
513
898
591
971 1,027 1,533
659
684 1,067
989
669
Weighted average shares used
to calculate earnings per share
– Basic
– Diluted
Earnings per share from
continuing operations
459.2 451.4 443.5 436.8 429.1 426.7 426.9 423.2 406.0 387.7
463.2 454.1 445.7 439.5 432.2 430.0 430.2 426.2 408.6 390.5
– Basic
– Diluted
Gross margin
Operating margin
Effective tax rate
$ 0.96
0.96
1.01
1.31
1.20
1.38
1.54
1.62
2.63
$ 0.95
0.96
1.01
1.30
1.19
1.37
1.53
1.60
2.61
1.72
1.71
65.6% 63.5% 65.3% 66.7% 65.9% 68.6% 69.5% 69.7% 69.4% 67.5%
26.5% 26.6% 28.8% 33.1% 29.0% 31.5% 32.5% 32.8% 49.6% 33.0%
31.7% 31.1% 34.1% 31.0% 32.5% 31.7% 30.5% 31.7% 28.3% 28.3%
Average invested capital
$2,747 2,893 2,825 2,711 2,803 2,834 3,131 3,196 3,221 3,680
Return on average
invested capital
17.2% 15.9% 16.6% 21.8% 19.1% 21.7% 21.6% 22.0% 34.1% 19.3%
Cash flow from operations
$ 534
491
545
527
516
537
649
608
524
639
Cash dividends declared
per common share
$0.343 0.373 0.392 0.747 0.447 2.488 0.545 0.605 0.655 0.705
Dividend payout ratio
35.8% 38.9% 38.7% 57.0% 37.4% 179.8% 35.3% 37.5% 25.0% 40.9%
As of April 30:
Total assets
Long‑term debt
Total debt
$3,405 3,475 3,383 3,712 3,477 3,626 4,103 4,188 4,183 4,625
$ 417
$1,006
509
999
508
699
504
759
503
997
997
743 1,230 1,689
510 1,002 1,005 1,183 1,501 2,149
NOTES: 1. 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. Includes the results of
Southern Comfort and Tuaca, both of which were sold in March 2016. Includes the results of BenRiach since its acquisition in June 2016. 2. Weighted average shares, earnings per share, and
cash dividends declared per common share have been adjusted for a 5‑for‑4 stock split in October 2008, a 3‑for‑2 stock split in August 2012, and a 2‑for‑1 stock split in August 2016. 3. See
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation — Non‑GAAP Financial Measures” for details on our use of “return on average invested capital,”
including how we calculate this measure and why we think this information is useful to readers. 4. Cash dividends declared per common share include special cash dividends of $0.333 per
share in fiscal 2011 and $2.00 per share in fiscal 2013. 5. We define dividend payout ratio as cash dividends divided by net income. 6. Results for fiscal 2016 include a gain of $485 million
on the sale of Southern Comfort and Tuaca. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about the impact
of that sale on our operating results for fiscal 2016.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2017
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 001-00123
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, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 $12,600,000,000.
The number of shares outstanding for each of the registrant’s classes of Common Stock on May 31, 2017, was:
Class A Common Stock (voting)
Class B Common Stock (nonvoting)
169,027,456
215,178,607
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 27, 2017, are incorporated by reference
into Part III of this report.
1
Table of Contents
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
Item 16.
Form 10-K Summary
SIGNATURES
SCHEDULE II – Valuation and Qualifying Accounts
Page
4
12
19
20
21
21
22
24
25
45
47
78
78
78
78
78
78
79
79
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82
85
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, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words
such as “aim,” “anticipate,” “aspire,” “believe,” “can,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,”
“intend,” “may,” “might,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” “would,” and similar words
indicate 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, but are not limited to, 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
small 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; or 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 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,
termination difficulties or costs, or impairment in recorded value
Inadequate protection of our intellectual property rights
Product recalls or other product liability claims, or product counterfeiting, tampering, contamination, or quality issues
Significant legal disputes and proceedings, or government investigations
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
that are not measures of financial performance under U.S. generally accepted accounting principles (GAAP). These non-GAAP
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 similarly titled measures presented by other companies. In Part II under “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” we present the reasons we use these measures under the heading,
“Non-GAAP Financial Measures,” and we reconcile these measures to the most closely comparable GAAP measures 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 4,700 people on six continents, including approximately 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 as the Brown family owns
more than 50% of our voting stock. Additionally, taking into account ownership of shares of our non-voting stock, the Brown
family controls more than 50% of the economic ownership in Brown-Forman.
For a discussion of recent developments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Executive Summary.”
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 40 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 American whiskey brand in the world, according to Impact Databank’s
“Top 100 Premium Spirits Brands Worldwide” list. Among the top five premium spirits brands on the list, Jack Daniel’s Tennessee
Whiskey was the only one to grow by volume in 2016. In its fourth year on the Worldwide Impact list, Jack Daniel’s Tennessee
Honey remains the second-largest-selling flavored whiskey. Our other leading global brands on the Worldwide Impact list are
Finlandia, the tenth-largest-selling vodka; Canadian Mist, the fourth-largest-selling Canadian whisky; and el Jimador, which is
the fourth-largest-selling tequila and designated as an Impact “Hot Brand.” Additionally, Woodford Reserve was once again selected
as an Impact “Hot Brand.”1
Principal Brands
Jack Daniel’s Tennessee Whiskey
Jack Daniel’s Tennessee Honey
Jack Daniel’s RTDs
Gentleman Jack Rare Tennessee Whiskey
Jack Daniel’s Tennessee Fire
Jack Daniel’s Single Barrel Collection2
Jack Daniel’s Winter Jack
Jack Daniel’s Sinatra Select
Jack Daniel’s No. 27 Gold Tennessee Whiskey
Jack Daniel’s Tennessee Rye3
Korbel California Champagnes4
Korbel California Brandy4
Woodford Reserve Kentucky Bourbon
Woodford Reserve Double Oaked
Woodford Reserve Kentucky Rye Whiskey
Finlandia Vodkas
el Jimador Tequilas
el Jimador New Mix RTDs
Herradura Tequilas
Sonoma-Cutrer California Wines
Canadian Mist Canadian Whisky
GlenDronach Single Malt Scotch Whisky5
BenRiach Single Malt Scotch Whisky5
Glenglassaugh Single Malt Scotch Whisky5
Chambord Liqueur
Early Times Kentucky Whisky and Bourbon
Old Forester Kentucky Bourbon
Pepe Lopez Tequila
Antiguo Tequila
Coopers’ Craft Kentucky Bourbon6
Collingwood Canadian Whisky
Slane Irish Whiskey6
1All references in this paragraph are derived from Impact Databank, a well-known U.S. trade publication, who published these industry
statistics in March 2017.
2The Jack Daniel’s Single Barrel Collection includes Jack Daniel’s Single Barrel Select, Jack Daniel’s Single Barrel Barrel Proof, Jack
Daniel’s Single Barrel Rye, and Jack Daniel’s Single Barrel 100 Proof.
3New brand to be launched in fiscal year 2018.
4While Korbel is not an owned brand, we sell Korbel products under contract in the United States and other select markets.
5Single Malt Scotch whisky brands acquired in June 2016.
6New brands launched in limited markets during fiscal year 2017.
4
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of
Operations – Fiscal 2017 Brand Highlights” for brand performance details.
Our vision in marketing is to “be the best brand builders in the industry.” 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 delivering creative,
responsible marketing programs that drive brand recognition, brand trial, brand loyalty, and, ultimately, consumer demand around
the world.
Markets
We sell our products in more than 165 countries around the world. The United States, our largest, most important market,
accounted for 48% of our net sales in fiscal 2017. Our largest international markets include the United Kingdom, Australia, Mexico,
Germany, France, Poland, Japan, Canada, and Russia. Over the last decade, we have continued to expand our international footprint.
In fiscal 2017, we generated 52% of our net sales outside the United States compared to 51% ten years ago. The U.S. proportion
of net sales grew from fiscal 2015 to fiscal 2016 then stayed constant in fiscal 2017, mainly due to the negative effect of foreign
exchange on our international business. We present the percentage of total net sales by geographic area for our most recent three
fiscal years and, to provide historical context, fiscal 2008, below:
Percentage of Total Net Sales by Geographic Area
United States
International:
Europe
Australia
Other
Total International
TOTAL
Note: Totals may differ due to rounding
2008
...
49% ...
...
...
...
...
51% ...
100%
Year ended April 30
2015
2016
2017
46%
48%
48%
27 %
6 %
21 %
54%
100%
27 %
5 %
20 %
52%
100%
26 %
5 %
21 %
52%
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 2017 Market Highlights.” For details about our reportable segment and for additional
geographic information about net sales and long-lived assets, refer to Note 15 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” (RTC), 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 a market, and (e) our portfolio’s development stage in a market. As these factors change, we
evaluate our RTC strategy and, from time to time, adapt our 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.
Outside the United States, we use a variety of RTC models, which can be grouped into three categories: owned distribution,
partner, and government controlled markets. We own and operate distribution companies in 13 markets: Australia, Brazil, Canada,
China, the Czech Republic, France, Germany, Hong Kong, South Korea, Mexico, Poland, Thailand, and Turkey. In these markets,
and in a large portion of the travel retail channel, we sell our products directly to retailers, to wholesalers, or, in Canada, to provincial
governments. Over the past decade, we began distribution operations in multiple markets outside the United States, as shown in
the table below.
5
Recent Route-to-Consumer Changes
Fiscal year
Market
2011
2012
2014
2018 (planned)
Germany
Brazil
Turkey
France
Spain
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, and South Africa, 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 (generally our third fiscal quarter) the peak season for our business.
Approximately 32%, 31%, and 30% of our net sales for fiscal 2015, fiscal 2016, and fiscal 2017, respectively, were in the fourth
calendar quarter.
Competition
Trade information indicates that we are one of the largest global suppliers of premium spirits and wine. According to
International Wine & Spirit Research (IWSR), for calendar year 2016, 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 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 SE, Pernod Ricard SA,
and Rémy Cointreau. In addition, particularly in the United States, we increasingly compete with national companies and craft
spirit brands, many of which are recent entrants to the industry.
Brand recognition, brand provenance, quality of product and packaging, availability, flavor profile, and price 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 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, liqueurs, RTD products, and wines
are shown in the table below.
Distilled Spirits
Liqueurs
RTD Products
Wines
Principal Raw Materials
Agave
Barley
Corn
Malted barley
Rye
Sugar
Water
Wood
Flavorings
Neutral spirits
Sugar
Water
Whiskey
Wine
Flavorings
Malt
Neutral spirits
Sugar
Tequila
Water
Whiskey
Grapes
Wood
1Polyethylene terephthalate (PET) is a polymer used in non-glass containers.
6
Packaging
Aluminum cans
Cartons
Closures
Glass bottles
PET1 bottles
Labels
Our grape supply comes from a combination of our California vineyards and contracts with independent growers. We believe
that our relationships with our growers are good. Currently, none of these raw materials are in short supply, but shortages 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.
Whiskeys, certain tequilas, and other distilled spirits must be aged. Because we must schedule production years in advance
to meet future demand for these products, our inventories of them may be larger in relation to sales and total assets than in many
other businesses.
For details on risks related to the availability of raw materials and the uncertainty inherent in forecasting supply and demand,
refer to “Item 1A. Risk Factors.”
Intellectual Property
Our intellectual property rights include trademarks, copyrights, proprietary packaging and trade dress, proprietary
manufacturing technologies, know-how, and patents. Our intellectual property, especially our trademarks, is essential to our
business. We register our trademarks 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 with services or on products 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, refer to “Item 1A. Risk Factors.” For details on our
most important brands, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Results of Operations – Fiscal 2017 Brand Highlights.”
Regulatory Environment
Federal, state, local, and foreign authorities regulate the production, storage, transportation, distribution, and sale of our
products. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part.
In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the
Treasury regulates the wine and spirits industry with respect to the production, blending, bottling, labeling, sales, advertising, and
transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in most non-U.S. jurisdictions where we
sell our products. In addition, beverage alcohol products are subject to customs duties or excise taxation in many countries, including
taxation at the federal, state, and local level in the United States.
Laws of each nation define distilling and maturation requirements; for example, under U.S. federal regulations, bourbon and
Tennessee whiskeys must be aged in new charred oak barrels; we typically age our whiskeys three to six years. Canadian whisky
is required to be manufactured in Canada in compliance with Canadian laws. Mexican authorities regulate the production and
bottling of tequilas; they mandate minimum aging periods for extra anejo (three years), anejo (one year), and reposado (two
months) tequilas. Irish whiskey must be matured at least three years in a wood cask, such as oak, on the island of Ireland. Scotch
whisky must be matured in oak casks for at least three years in Scotland. We comply with all of the above laws and regulations.
Our operations are subject to various environmental protection statutes and regulations, and our policy is to comply with
them.
Strategy
Seven 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 articulates our core principles: our purpose as well as the vision,
values, and behaviors that we expect our employees to embrace and exhibit.
7
These core principles are a constant and powerful means of connecting our stakeholders to a shared vision of “Building
Forever,” and 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 and acknowledge today’s emerging opportunities.
We seek to build brands and businesses that can create shareholder value – ones that deliver strong and sustainable growth,
solid margins, and high returns on investment. In addition, given our growing size and scale, we focus on building brands that
can be meaningful for our company over time. Our first priority is to innovate and grow our premium spirits portfolio organically.
But as opportunities arise, we will consider acquisitions and partnerships that meet our rigorous quantitative and qualitative
criteria.
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 to grow the Jack Daniel’s family of brands across markets, price points, channels, and consumer
groups. Product innovation has become a meaningful contributor to our company’s performance in recent years. We will continue
to evaluate opportunities to grow the Jack Daniel’s family of brands through thoughtful new product introductions, including the
recently announced U.S. launch of Jack Daniel’s Tennessee Rye in the fall of 2017, and the continued expansion of Jack Daniel’s
Tennessee Fire in markets outside of the United States.
We are the global leader in American whiskey1, and we will continue to pursue growth in the broader global, premium
whiskey category. We believe that we can leverage our whiskey-making knowledge, production assets, trademarks, and brand-
building skills to accomplish this objective. We will focus first on the global growth of our most important whiskey, Jack Daniel’s.
In addition, we expect to generate excellent growth with our other whiskey brands around the world, particularly Woodford
Reserve and Old Forester, which have both experienced rapid growth in recent years.
In 2016, we launched Coopers’ Craft, our first new bourbon trademark in more than 20 years, in select markets in the United
States. We unveiled our first expression of our Slane Irish Whiskey brand in April 2017 in Travel Retail in Ireland, and we expect
to introduce the brand in the United States, the United Kingdom, and Australia during the summer of 2017. We added three single
malt Scotch whisky brands, GlenDronach, BenRiach, and Glenglassaugh, to our world-class whiskey portfolio in June 2016 with
the acquisition of The BenRiach Distillery Company Limited. We believe that super- and ultra-premium whiskeys are attractive
long-term businesses for us, and we will continue to pursue global growth in these categories.
Fiscal 2017 marks the ten year anniversary of our acquisition of Casa Herradura, and we are pleased with the development
of both our business in Mexico and our portfolio of world-class tequila brands globally. Looking ahead, we plan to expand
Herradura tequila in order to realize its full potential, reaching new consumers in Mexico, the United States, and other high-
potential markets. After repositioning el Jimador tequila as a more premium brand at home in Mexico, we are encouraged by our
prospects for long-term, profitable growth there. Outside Mexico, we have nearly quadrupled el Jimador’s volumes since fiscal
2008, and we remain confident in el Jimador’s potential to improve its position among the world’s leading tequila brands.
Finlandia is the tenth-largest-selling vodka in the world,2 and it is additionally prominent in several of the world’s largest
vodka markets, such as Poland, Russia, Ukraine, and Czechia. We plan to grow Finlandia where its position is strong, including
in its largest market, Poland, where Finlandia accounts for five out every ten bottles of imported vodka sold.1
1 IWSR, 2016 data.
2Impact Databank, March 2017.
8
In fiscal 2016, as part of our evolving portfolio strategy and our efforts to focus resources on our highest strategic priorities,
we sold our Southern Comfort and Tuaca brands. This decision reflects our continuing efforts to reshape our portfolio by
developing, divesting, and acquiring brands to create value and improve growth.
The United States remains our largest market, and continuing to grow in this market is important to our long-term success.
We expect to foster this growth by emphasizing fast-growing spirits categories such as super-premium whiskeys 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 the past three years have been an exception to this trend, 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 continue to grow our business in developed markets such as France, Germany, Australia, and the United Kingdom.
We will continue to pursue RTC strategies that will expand our access to and understanding of consumers in these diverse markets,
such as the establishment of our own distribution organization in Spain this summer, which is the world’s ninth largest whiskey
market. In addition, we expect increasingly significant contributions to our growth from emerging markets including Mexico,
Poland, Turkey, Brazil, China, Russia, Southeast Asia, Africa, and Eastern Europe.
We believe that having a long-term-focused, committed, engaged shareholder base, anchored by the Brown family, gives
us an important strategic advantage, particularly in a business with aged products and multi-generational brands. For nearly 150
years, the Company and the Brown family have been committed to preserving Brown-Forman as a thriving, family controlled,
independent company.
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 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 whiskey in glass bottles to ensure quality and safety
– an innovative idea back when whiskey was usually sold by the barrel. Today, achieving our stated business purpose, to “enrich
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 communities where we operate around the globe.
Alcohol Responsibility. Our business is based on the belief that beverage alcohol, consumed in moderation, can enrich the
experience of life. However, we are well aware that when consumed irresponsibly, alcohol can have harmful effects on people
and society. We appreciate the need for governments to regulate our industry appropriately and effectively, taking into account
national circumstances and local cultures. We also appreciate that some people should not drink or choose not to drink, and we
respect this choice. Acting in partnership with others, we want to be part of the solution to real, complex problems such as underage
drinking, drunk driving, overconsumption, and alcoholism.
As a significant player in the global beverage alcohol industry, we foster collective action with our peers. Working with other
producers, we are able to leverage our views on a scale that can create change. For example, we continue to work with 11 other
industry leaders that signed the Beer, Wine and Spirits Producers’ Commitments to Reduce Harmful Drinking. In the fourth year
of our five year plan, we tailored our work to address key concerns in individual markets with programs that leveraged the strengths
of local- and country-level partnerships. We also innovated strategies to promote responsible drinking and develop approaches
that can help build programs and interventions to reduce harmful drinking. Our collective progress on these commitments will be
reported annually through 2018 and can be seen at www.producerscommitments.org.
Since 2009, we have hosted an open forum to share our points of view, post the research of outside experts, and encourage
the opinions of others at www.OurThinkingAboutDrinking.com. In the United States, we support The Ad Council’s “Buzzed
Driving is Drunk Driving” campaigns and safe ride services. In 2016, Gentleman Jack partnered with the largest U.S. designated
driver service to provide free designated drivers in 24 cities nationwide. We also continued to collaborate with the Responsible
Retailing Forum, which brings together diverse stakeholders seeking to reduce underage sales, among other initiatives. In 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 engage consumers
where they are through innovative programs such as the Cascadia Challenge, a partnership with U.S. Major League Soccer to get
fans to pledge to be designated drivers at games in the Pacific Northwest.
9
As part of our commitment to responsible marketing, and to enable consumers to make more informed decisions, in February
2017 we launched a website, nutrition.brown-forman.com, providing nutritional information on our brands. Our individual brand
websites will be linked to this content later this year. We also are founding members of, and contribute significant resources to,
the Foundation for Advancing Alcohol Responsibility (responsibility.org), an organization created by spirits producers to prevent
drunk driving and underage drinking as well as promote responsible decision-making. While this is a U.S. organization, we
participate actively 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. Our team in Finland and the Association of Finnish Alcoholic Beverage Suppliers
created a website in 2016 to help parents educate their teens on how to say no to alcohol. We also provide long-running support
for alcohol education programs at the University of Louisville and the University of Kentucky (two major universities in the state
of our corporate headquarters).
Environmental Sustainability. We view environmental sustainability as integral to our strategy to perpetuate Brown-Forman
and Build Forever. Our environmental sustainability strategy aims to protect and conserve resources that we depend on. It also
reinforces our business strategy through programs that reduce costs through efficiency, lessen risks to our operations, and improve
effectiveness through innovation. We invest in renewable energy, energy efficiency, and efficient transportation to reduce our
carbon footprint. Mindful of our overall impact, in fiscal 2014, we set ambitious environmental sustainability goals for fiscal 2023:
(a) reducing our absolute greenhouse gas emissions by 15%, (b) sending zero waste to landfill, and (c) reducing our water use and
wastewater discharges per unit of product by 30% (versus 2012 baseline year). These goals support our ambition to responsibly
grow our brands and our company while protecting and enriching the natural environment. We have refreshed our strategy to now
include a greater focus beyond our operational borders into our supply chain. We report on our progress toward these goals in our
biennial Corporate Responsibility Reports, available on our corporate website. In 2016, Newsweek magazine named Brown-
Forman the third “greenest” U.S. beverage company, and number 52 among the 500 largest publicly traded companies in the
United States. Rankings were based on eight measures of corporate sustainability and environmental performance.
Diversity, Inclusion, and Human Rights. We believe that having a diverse and inclusive workforce is central to our success.
As we work to increase our brands’ relevance and appeal 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 their work. Over the past few years, we have made progress with diverse representation at the senior level. Three
women and one African American serve on our Board of Directors. Four members of our 14-member Executive Leadership Team
are women and two are minorities. In 2017, we once again earned 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 (LGBT)
Americans. This makes us one of the “Best Places to Work for LGBT equality”1 in the United States for the seventh consecutive
year. Our Employee Resource Groups (ERGs) have been the core of our diversity culture by supporting employees’ growth while
enhancing their contributions. Our eight ERGs foster a diverse and inclusive environment that drives our high-commitment, high-
performance organization and encourages our employees to bring their individuality to work. Our commitment to diversity extends
to our partnerships with small and diverse suppliers. By 2020, our goal is to source at least 16% of our procurement from businesses
owned by ethnic minorities, women, LGBT persons, people with disabilities, and veterans. To date, we have procured approximately
11% of our supplies from such businesses.
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 of all human beings.
Our work in this area helped inform our response to the U.K.’s recent passage of the Modern Slavery Act in 2015, which is available
on our corporate website.
Community Involvement. Our approach to philanthropy reflects our values as a corporate citizen. Our civic engagement
supports non-profit organizations that improve the lives of individuals and the vitality of our communities. We believe, as a
responsible and caring corporate citizen, it is vital that we give back to the communities that support both our employees and our
business. Through our contributions, we work to create communities that ensure basic living standards, support healthy and
sustainable living, and enhance intellectual and cultural living. While we focus on 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 fiscal 2017, we donated approximately $11 million, logged approximately 15,000 volunteer hours, and had 128 employees
serve on boards of directors of 211 non-profit organizations.
Our Corporate Responsibility reports are available at www.brown-forman.com/responsibility.
1Human Rights Campaign 2016 Corporate Equity Index at www.hrc.org/resources/best-places-to-work-2016.
10
Employees and Executive Officers
As of April 30, 2017, we employed approximately 4,700 people worldwide (2,700 in the United States), including about
260 employed on a part-time or temporary basis. Approximately 15% of our employees are represented by a union. We believe
our employee relations are good.
The following persons serve as executive officers as of June 15, 2017:
Name
Paul C. Varga
Jane C. Morreau
Matthew E. Hamel
Jill Ackerman Jones
Age
53
58
57
51
Mark I. McCallum
62
Lawson E. Whiting
48
Alejandro “Alex”
Alvarez
Ralph De Chabert
Brian P. Fitzgerald
Kirsten M. Hawley
Thomas Hinrichs
Lisa P. Steiner
49
70
44
47
55
57
Available Information
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
and Director of Financial Management, Accounting, and Technology from 2008 to 2013.
Executive Vice President, General Counsel, and Secretary since 2007.
Executive Vice President and President for North America, CCSA, IMEA, and Global Travel
Retail since February 2015. Executive Vice President and President for North America and Latin
America Regions from 2013 to 2015. Executive Vice President and Chief Production Officer from
2007 to 2012.
Executive Vice President and President of Jack Daniel’s Brands since February 2015. Executive
Vice President and President for Europe, Africa, Middle East, Asia Pacific, and Travel Retail from
2013 to 2015. Executive Vice President and Chief Operating Officer from 2009 to 2013. Executive
Vice President and Chief Brands Officer from 2006 to 2009.
Executive Vice President and Chief Brands and Strategy Officer since February 2015. Senior Vice
President and Chief Brands Officer from 2013 to 2015. Senior Vice President and Managing
Director for Western Europe from 2011 to 2013. Vice President and Finance Director for Western
Europe from 2010 to 2011. Vice President and Finance Director for North America from 2009 to
2010.
Senior Vice President and Chief Production Officer since 2014. Vice President and General
Manager for Brown-Forman Tequila Mexico Operations from 2008 to 2014.
Senior Vice President and Chief Diversity Officer since 2007.
Senior Vice President and Chief Accounting Officer since 2013. Vice President and Finance
Director for Greater Europe and Africa from 2009 to 2013.
Senior Vice President and Chief Human Resources Officer since February 2015. Senior Vice
President and Director of HR Business Partnerships from 2013 to 2015. Vice President and
Director of Organization and Leader Development 2011 to 2013. Assistant Vice President and
Director of Employee Engagement from 2009 to 2011.
Senior Vice President and President for Europe, North Asia, and ANZSEA since February 2015.
Senior Vice President and Managing Director for Europe from 2013 to 2015. Senior Vice President
and Managing Director for 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 and Chief Human Resources Officer from
2009 to 2015. Senior Vice President and 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 Code of Conduct that applies to all our 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, or principal accounting officer 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
11
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, 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, could adversely affect our business and financial results. While the major economic disruptions of the
most recent 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, 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 (possibly 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 165 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, Europe is a key commercial and production region for some of our products, and further
outbreaks of violence there could disrupt our operations. Furthermore, uncertainty related to the future of the European Union
may affect our business and financial performance in Europe. For instance, in June 2016, the United Kingdom voted by referendum
to leave the European Union (Brexit), and, until the United Kingdom’s exit from the European Union is finalized, there may be a
period of economic and political uncertainty related to the negotiation of any successor trading arrangement with other countries
as well as volatility in exchange rates, risk to supply chains across the European Union, restrictions on the mobility of employees
and consumers, or changes to customs duties, tariffs or industry specific requirements and regulations. In addition, any new trade
barriers, sanctions, or tariffs could materially adversely affect our operations abroad, such as those proposed during the course of
the 2016 U.S. presidential campaign by the current U.S. President regarding Mexico. 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.
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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 currencies. Because our foreign currency revenues exceed our foreign currency expense, 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 fiscal 2017
were adversely affected by the recent strengthening of the U.S. dollar against currencies in our major markets, including the euro,
British pound, and Mexican peso. We do not attempt to hedge all of our foreign currency exposure. We may, from time to time,
attempt to hedge a portion of our foreign currency exposure through the use of foreign currency derivatives or other means;
however, even in those cases, we may not be successful in fully eliminating our foreign currency exposure. 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 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. For instance, in fiscal 2017, Australia announced the launch of
container deposit/recycling schemes, which, when implemented, may impair affordability and convenience at retail. Specifically,
governments may prohibit, 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, legislation is pending in a number of countries that would result in significant limitations
on the marketing and sale of beverage alcohol. Certain countries historically have banned all television, newspaper, magazine,
and internet advertising for beverage alcohol products. Increases in regulation of this nature could substantially reduce consumer
awareness of our products in the affected markets and make the introduction of new products more challenging.
Some countries where 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, Code of Ethics for Senior Financial Officers,
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, Code of Ethics for Senior Financial Officers, and our other policies could result
in higher operating costs.
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 production,
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 some of our major competitors, especially those that affect the effective
corporate income tax rate. Comments made during the course of the 2016 U.S. presidential campaign and since the election indicate
that the U.S. federal government may propose changes to international trade agreements, tariffs, taxes, and other government rules
and regulations. The current U.S. administration has indicated that tax reform is among its top priorities, and the U.S. Congress
is reviewing and may, in the future, propose new tax legislation. Certain tax changes that have been or are currently proposed by
the U.S. Congress or the President exemplify this risk, including a repatriation or “transition” tax on foreign earnings; decreasing
or eliminating the U.S. manufacturing deduction; changing the rules related to interest deductibility; changing the rules relating
to the depreciation of capital expenditures; the imposition of a “border adjustment” tax; or repealing LIFO (last-in, first-out
accounting treatment of inventory) for tax purposes. While we cannot predict what changes will actually occur, such changes could
affect our business and results of operations.
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
13
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. For example, certain
countries 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 countries. 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. For example, the United Kingdom recently increased its tax on beer, cider,
wine, and spirits by 3.9% with additional increases to come. The United Kingdom’s need to find additional sources of revenue to
fund its post-Brexit obligations and, the European Union’s complementary need to find additional sources of revenue to make up
for the loss of the United Kingdom’s expected contributions to the European Union’s budget and excise taxes may result in future
increased taxes on beverage alcohol products and continued uncertainty as to the impact on taxes and tariffs arising from the
decision by the United Kingdom to leave the European Union. 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. This
includes potential changes in tax rules or the interpretation of tax rules arising out of the Base Erosion & Profit Shifting project
initiated by the Organization for Economic Co-operation and Development, as well as changes in the interpretation of tax rules
arising out of the European Union State Aid investigations.
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
quality, craftsmanship, and authenticity. 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 2017 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 may begin to shift their consumption and purchases of our premium and super-
premium products, more commonly found in on-premise establishments, in favor of off-premise purchases. This includes
consumption at home as a result of various factors, including shifts in social trends, proliferation of smoking bans, and stricter
laws relating to driving while under the influence of alcohol. Shifts in consumption channels such as these could adversely impact
our profitability. Consumers also may begin to prefer the products of competitors or may generally reduce their demand for brands
produced by larger companies. Over the past several years, the number of small, local distilleries in the United States has grown
significantly. This is being driven by a trend of consumers showing increasing interest in locally produced, regionally sourced
products. As many more competitive brands enter the market, it could have a negative impact on the demand for our premium and
super-premium American whiskey brands, including Jack Daniel’s. 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 non-U.S. markets.
Demographic forecasts in the United States for several years after 2017 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 further expand our launch of Jack Daniel’s Tennessee Fire in additional international
markets in fiscal 2018. 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
14
(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, such
as our recently announced U.S. launch of Jack Daniel’s Tennessee Rye, 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 Jack Daniel’s, Finlandia Vodka, and our tequilas, are distilled at single locations. 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 number 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 result in 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
in consumer demand may not be effective for particular years or products. For example, in addition to our whiskeys and some
tequilas, which are aged for various periods, our recent acquisitions of The GlenDronach, BenRiach, and Glenglassaugh Scotch
whisky brands and distilleries introduce a new category of inventory, which require long term maturation of up to 30 years or
more, making forecasts of demand for such products in future periods subject to significant uncertainty. There is an inherent risk
of forecasting error in determining the quantity of maturing stock to lay down in a given year for future consumption as a result
of changes in business strategy, market demand and preferences, macroeconomic conditions, introductions of competing products,
and other changes in market conditions. Any forecasting error could lead to our inability to meet the objectives of our business
strategy, future demand, or lead to a future surplus of inventory and consequent write down in value of maturing stocks. If we are
unable to accurately forecast demand for our products or efficiently manage its inventory, this may have a material adverse effect
on our business and financial results. Further, we cannot be certain that we will be successful in using various levers, such as
pricing changes, 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 or to sell used materials.
Our products use 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 and PET 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. In addition, if we were to experience 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
15
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, and the timely delivery of our products.
Water is an essential component 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, Mexico, Scotland, and Ireland.
Our ability to sell used materials for reuse may be affected by fluctuations in the market. For example, weaker demand from
blended Scotch industry buyers, lower prices, and increased supply of used barrels may make it increasingly difficult to sell our
used barrels at sustainable prices which could negatively affect our financial results.
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, public health officials, and critics of the alcohol industry in the United
States, Europe, and other parts of the world continue to seek governmental measures to make beverage alcohol more expensive,
less available, or more difficult to advertise and promote. If future high-quality scientific 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.
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
associated with 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, including many new entrants into spirits and consolidation among
beverage alcohol producers, wholesalers, and retailers, and 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 believe we have sufficient scale to succeed relative to our
16
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 business and financial results. While we seek to take advantage of the
efficiencies and opportunities that large retail customers can offer, they 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, become exposed to
contingent liabilities, and 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 results.
Counterfeiting or inadequate protection of our intellectual property rights 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 on-line and in the countries where we do business. We may be unsuccessful in protecting our intellectual property
rights in a given market or in challenging those who infringe our rights or imitate or counterfeit 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. In some countries, for example, it may be more difficult to successfully
stop counterfeiting or look-alike products, either because the law is inadequate or because of judicial or administrative decisions
that are arbitrary or unjust. We may not be able to register our trademarks in every country where we want to sell a particular
product, and we may not obtain favorable decisions by courts or trademark offices.
Many global spirits brands, including some of our brands, experience problems with product counterfeiting and other forms
of trademark infringement. We combat counterfeiting by working with other spirits industry companies through our membership
in the International Federation of Spirits Producers (IFSP) and with brand owners in other industries via our membership in an
organization called React. While we believe IFSP and React are effective organizations, they are not active in every market, and
their efforts are subject to obtaining the cooperation of local authorities and courts in the markets where they are active. Despite
the efforts of IFSP, React and our own teams, lower-quality and counterfeit products that could be harmful to consumers could
reach the market and adversely affect our intellectual property rights, brand equity, corporate reputation, and 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
17
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 business and financial results 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 our 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, and 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 covered by insurance.
Governmental actions around the world to enforce trade practice, anti-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 result in management
distraction and 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 products to customers; hosting
our branded websites and marketing products to consumers; collecting and storing customer, consumer, employee, investor, and
other data; processing transactions; summarizing and reporting results of operations; hosting, processing, and sharing confidential
and proprietary research, business plans, and financial information; complying with regulatory, legal, or tax requirements; providing
data security; and handling other processes necessary to manage our business.
Increased IT security threats and more sophisticated cyber crimes pose a potential risk to the security and availability 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 results. 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, which, in any case, could require a significant amount of
time.
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
that go “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.
18
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 transactions. 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.
19
Item 2. Properties
Our company-owned production facilities include distilleries, a winery, a concentrate plant, bottling plants, warehousing
operations, sawmills, and cooperages. We also have agreements with other parties for contract production in Australia, Belgium,
Brazil, China, Estonia, Finland, Ireland, Mexico, the Netherlands, South Africa, and the United States.
In addition to our 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; Baltimore, Maryland; and Washington, D.C.
•
International: Guadalajara, Mexico; Hamburg, Germany; Sydney, Australia; London, United Kingdom; Warsaw, Poland;
Paris, France; Prague, Czech Republic; São Paulo, Brazil; Mexico City, Mexico; Barcelona, Spain; Moscow, Russia;
Istanbul, Turkey; Tokyo, Japan; Amsterdam, Netherlands; Seoul, South Korea; Shanghai, China; Hong Kong; Gurgaon,
India; Cape Town, South Africa; and Dubai, United Arab Emirates.
Location
United States:
Significant Properties
Principal Activities
Notes
Louisville, Kentucky
Corporate offices
Includes several renovated historic structures
Distilling, bottling, warehousing
Cooperage
Visitors’ center
Brown-Forman Cooperage
Future home of Old Forester
Lynchburg, Tennessee
Distilling, bottling, warehousing Home of Jack Daniel’s
Visitors’ center
Woodford County, Kentucky Distilling, bottling, warehousing Home of Woodford Reserve
Windsor, California
Decatur, Alabama
Clifton, Tennessee
Visitors’ center
Vineyards, winery, bottling,
warehousing
Visitors’ center
Cooperage
Stave and heading mill
Stevenson, Alabama
Stave and heading mill
Home of Sonoma-Cutrer
Jack Daniel Cooperage
Spencer, Indiana
Jackson, Ohio
International:
Stave and heading mill
Stave and heading mill
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
Slane, Ireland
Visitors’ center
Distilling
Visitors’ center
Future home of Slane Irish Whiskey
Aberdeenshire, Scotland
Distilling, warehousing
Home of Glendronach
Visitors’ center
Morayshire, Scotland
Distilling, warehousing
Home of BenRiach
Newbridge, Scotland
Bottling
Portsoy, Scotland
Distilling, warehousing
Home of Glenglassaugh
Visitors’ center
We believe that our facilities are in good condition and are adequate for our business.
20
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.
21
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, 2017, there were 2,673 holders of record of Class A common stock and 4,880 holders of record of
Class B common stock. Because of overlapping ownership between classes, as of May 31, 2017, we had only 5,529 distinct
common stockholders of record.
The following table presents, for the 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 index, and dividend per share information:
Fiscal 2016
Fiscal 2017
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
$ 59.75
46.55
54.21
45.33
$ 61.15
52.94
55.41
47.61
$ 58.77
49.75
53.44
45.30
$ 56.12
50.20
51.70
46.63
$ 61.15
46.55
55.41
45.30
$ 54.28
50.78
50.40
46.95
$ 54.45
47.00
51.06
44.66
$ 49.32
45.62
47.04
43.96
$ 50.05
46.36
48.95
45.01
$ 54.45
45.62
51.06
43.96
Cash dividends per share:
Declared
Paid
0.3150
0.1575
— 0.3400
0.1700
0.1575
— 0.6550
0.6550
0.1700
0.3400
0.1700
— 0.3650
0.1825
0.1700
— 0.7050
0.7050
0.1825
Note: Amounts have been adjusted for a 2-for-1 stock split that occurred in August 2016.
Equity Compensation Plan Information
The following table summarizes information as of April 30, 2017, about our equity compensation plans under which we
have made grants of stock options, stock appreciation rights, restricted stock, market value units, performance units, or other
equity awards.
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
2,393,482
$32.17
12,710,672
1Includes 2,186,226 Class B common shares to be issued upon exercise of stock-settled stock appreciation rights (SSARs); 79,080 Class B
common restricted stock units (RSUs); 86,549 Class A common deferred stock units (DSUs); and 41,627 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 6,615,257 SSARs outstanding at fiscal year-end.
2RSUs and DSUs have no 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.
22
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, 2012, and that all dividends were reinvested.
The cumulative returns shown represent the value that these investments would have had on April 30 in the years since 2012.
23
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.”
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(Dollars in millions, except per share amounts)
$3,282
3,192
3,226
3,404
3,614
3,784
3,946
4,096
4,011
3,857
$ 700
$2,582
$1,695
$ 685
$ 440
711
2,481
1,577
661
435
757
2,469
1,611
710
449
818
2,586
1,724
855
572
891
2,723
1,795
788
513
935
2,849
1,955
898
591
955
2,991
2,078
971
659
962
3,134
2,183
1,027
684
922
3,089
2,144
1,533
1,067
863
2,994
2,021
989
669
459.2
463.2
451.4
454.1
443.5
445.7
436.8
439.5
429.1
432.2
426.7
430.0
426.9
430.2
423.2
426.2
406.0
408.6
387.7
390.5
$ 0.96
$ 0.95
0.96
0.96
1.01
1.01
1.31
1.30
1.20
1.19
1.38
1.37
1.54
1.53
1.62
1.60
2.63
2.61
1.72
1.71
65.6% 63.5% 65.3% 66.7% 65.9% 68.6% 69.5% 69.7% 69.4% 67.5%
26.5% 26.6% 28.8% 33.1% 29.0% 31.5% 32.5% 32.8% 49.6% 33.0%
31.7% 31.1% 34.1% 31.0% 32.5% 31.7% 30.5% 31.7% 28.3% 28.3%
$2,747
2,893
2,825
2,711
2,803
2,834
3,131
3,196
3,221
3,680
17.2% 15.9% 16.6% 21.8% 19.1% 21.7% 21.6% 22.0% 34.1% 19.3%
$ 534
491
545
527
516
537
649
608
524
639
$0.343
0.373
0.392
0.747
0.447
2.488
0.545
0.605
0.655
0.705
35.8% 38.9% 38.7% 57.0% 37.4% 179.8% 35.3% 37.5% 25.0% 40.9%
$3,405
3,475
3,383
3,712
3,477
3,626
4,103
4,188
$ 417
$1,006
509
999
508
699
504
759
503
510
997
997
743
1,002
1,005
1,183
4,183
1,230
1,501
4,625
1,689
2,149
For Year Ended April 30:
Sales
Excise taxes
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
Cash flow from operations
Cash dividends declared per common
share
Dividend payout ratio
As of April 30:
Total assets
Long-term debt
Total debt
Notes:
1.
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. Includes the results of Southern Comfort and Tuaca, both of which were sold in March 2016. Includes the results of BenRiach since its acquisition
in June 2016.
2. Weighted average shares, earnings per share, and cash dividends declared per common share have been adjusted for a 5-for-4 stock split in October 2008,
a 3-for-2 stock split in August 2012, and a 2-for-1 stock split that occurred in August 2016.
3.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Non-GAAP Financial Measures” for details on our
use of “return on average invested capital,” including how we calculate this measure and why we think this information is useful to readers.
4. Cash dividends declared per common share include special cash dividends of $0.333 per share in fiscal 2011 and $2.00 per share in fiscal 2013.
5. We define dividend payout ratio as cash dividends divided by net income.
6. Results for fiscal 2016 include a gain of $485 million on the sale of Southern Comfort and Tuaca. See “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for additional information about the impact of that sale on our operating results for fiscal 2016.
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to
help the reader better understand Brown-Forman, our operations, our financial results, and our current business environment.
Please read the MD&A in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in
“Item 8. Financial Statements and Supplementary Data.” All per share amounts have been adjusted for the 2-for-1 stock split
that occurred in August 2016. See Note 11 to the accompanying financial statements for details. Our MD&A is organized as
follows:
Table of Contents
Presentation basis. This MD&A reflects the basis of presentation described in Note 1 “Accounting
Policies”. In addition, we define statistical and non-GAAP financial measures that we believe help readers
understand our results of operations and the trends affecting our business.
Significant developments. We discuss developments during the most recent three fiscal years. Please read
this section in conjunction with “Item 1. Business”, which provides a general description of our business
and strategy.
Executive summary. We discuss (a) fiscal 2017 highlights and (b) our outlook for fiscal 2018, including
the trends, developments, and uncertainties that we expect to affect our business.
Results of operations. We discuss (a) fiscal 2017 results for our largest markets, (b) fiscal 2017 results for
our largest brands, and (c) the causes of year-over-year changes in our income statement line items,
including transactions and other items that affect the comparability of our results, for fiscal years 2016 and
2017.
Liquidity and Capital Resources. We discuss (a) the causes of year-over-year changes in cash flows from
operating activities, investing activities, and financing activities; (b) recent and expected future capital
expenditures; (c) dividends and share repurchases; and (d) our liquidity position, including capital
resources available to us.
Off-Balance Sheet Arrangements and Long-term Obligations.
Critical accounting policies and estimates. We discuss the critical accounting policies and estimates that
require significant management judgment.
Page
25
26
28
31
41
43
44
Presentation Basis
Volume and Depletions
When discussing volume, unless otherwise specified, we refer to “depletions,” a term commonly used in the beverage alcohol
industry. Depending on the context, “depletions” means either (a) our shipments directly to retailers or wholesalers, or (b) shipments
from our distributor customers to retailers and wholesalers. We generally record revenues when we ship our products to our
customers, so 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, 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.
“Underlying change” in income statement measures. We present changes in certain income statement measures, or line items, that
are adjusted to an “underlying” basis. We use “underlying change” for the following income statement measures: (a) underlying
net sales, (b) underlying cost of sales, (c) underlying gross profit, (d) underlying advertising expenses, (e) underlying selling,
general, and administrative (SG&A) expenses, and (f) underlying operating income. To calculate these measures, we adjust, as
25
applicable, for (a) acquisition and divestiture activity, (b) foreign exchange, and (c) estimated net changes in distributor inventories.
We explain these adjustments below.
•
•
•
“Acquisitions and divestitures.” In fiscal 2016, we sold our Southern Comfort and Tuaca brands and related assets to
Sazerac Company, Inc. In fiscal 2017, we acquired The BenRiach Distillery Company Limited (BenRiach). See discussion
below and Notes 16 and 17 in the accompanying financial statements for details. This adjustment removes (a) transaction-
related costs for the acquisition and divestiture, (b) the gain on the sale of Southern Comfort and Tuaca, and (c) operating
activity for the acquisition and divestiture for the non-comparable periods. With respect to comparisons of fiscal 2016
to fiscal 2015, the non-comparable period comprised March and April; with respect to comparisons of fiscal 2017 to
fiscal 2016, the non-comparable period comprised all months. We believe that these adjustments allow us to understand
better our underlying results on a comparable basis.
“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 adjustment refers to the estimated net effect of changes in
distributor inventories on changes in our income statement line items. For each period compared, we use depletion
information provided by our distributors to estimate the effect of distributor inventory changes on our income statement
line items. We believe that adjusting for the effect of varying levels of distributor inventories on changes in our income
statement line items allows us to understand better underlying results and trends.
We use the non-GAAP measures “underlying change” for the following reasons: (a) to understand our performance from period
to period on a consistent basis and to compare our performance to that of our competitors; (b) in connection with management
incentive compensation calculations; (c) in our planning and forecasting processes; and (d) in communications concerning our
financial performance with the board of directors, stockholders, and investment analysts. We provide reconciliations of the
“underlying changes in income statement measures” to their nearest GAAP measures in the tables below under “Results of
Operations - Year-Over-Year Comparisons.” We have consistently applied the adjustments within our reconciliations in arriving
at each non-GAAP measure.
“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
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 use this non-GAAP measure because we consider return on average invested capital to be a
meaningful indicator of how effectively and efficiently we use capital invested in our business.
“Adjusted” measures for (a) operating income, (b) operating margin, (c) effective tax rate, (d) diluted earnings per share, and
(e) return on average invested capital. These measures remove the effects of (a) the gain on the sale of Southern Comfort and
Tuaca, (b) those transaction-related costs not included in the gain on sale of Southern Comfort and Tuaca, (c) financing-related
costs for the acquisition of BenRiach, and (d) operating activity for the acquired and divested businesses in the non-comparable
periods. With respect to the comparison of fiscal 2017 to fiscal 2016, the non-comparable period comprised all months of both
years. Tax effects on relevant adjustments are calculated consistent with the nature of the underlying transaction. We provide these
adjusted measures to identify the effect of the sale of Southern Comfort and Tuaca and the acquisition of BenRiach on reported
income from operations and other key measures derived therefrom; adjusting for these effects allows us to analyze results and
trends on a comparable basis.
We reconcile each of these measures to their nearest GAAP measures in the table below under “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Executive Summary.” We have consistently applied the adjustments
within our reconciliations in arriving at each non-GAAP measure.
Significant Developments
Below we discuss the significant developments in our business during fiscal 2015, fiscal 2016, and fiscal 2017. These
developments relate to (a) innovation, (b) acquisitions and divestitures, and (c) capital deployment.
Innovation
•
Jack Daniel’s family of brands. Following the successful launch and subsequent global rollout of Jack Daniel’s Tennessee
Honey (JDTH) starting in fiscal 2011, we introduced a second flavored whiskey product, Jack Daniel’s Tennessee Fire (JDTF),
26
starting with the United States in late fiscal 2015. In fiscal 2016, we completed the U.S. launch and continued the global
rollout of JDTF. In fiscal 2017, we expanded JDTF to markets including France, Germany, and Travel Retail. The chart below
shows the volume development of JDTF from fiscal 2015 through fiscal 2017.
• Other American whiskeys. We continue to capitalize on consumers’interest in high-quality, super- and ultra-premium whiskey
with our range of brands including Woodford Reserve and Old Forester.
In fiscal 2015, we launched Woodford Reserve Rye Whiskey. In fiscal 2017, we unveiled new packaging for Woodford
Reserve Double Oaked, the most successful line extension from Woodford Reserve to date (first introduced in 2012).
The Rye and Double Oaked variants of Woodford Reserve continued to contribute meaningfully to the brand’s growth
and collectively surpassed 50 thousand nine-liter cases in fiscal 2017.
In February 2017, we launched new packaging for our oldest brand, Old Forester. We continued to invest in the
renaissance of our founding brand, which grew net sales by more than 39% on a compound annual growth rate from
fiscal 2014 through fiscal 2017.
Also in fiscal 2017, we introduced our first entirely new bourbon in 20 years, Coopers’ Craft, a super-premium brand
now in limited distribution in the United States.
• Tequila brands. We experienced another record year for our tequila brands in fiscal 2017, as Herradura, el Jimador, and New
Mix contributed significantly to our overall net sales growth. In fiscal 2015, we released Herradura Ultra to participate in the
fast-growing market for ultra-premium “cristalino” tequilas in Mexico. Herradura Ultra reached nearly 50 thousand nine-liter
cases in fiscal 2017 and has been a driver of our tequila growth during the last three fiscal years.
Acquisitions and Divestitures
•
•
In June 2015, we purchased all of the shares of Slane Castle Irish Whiskey Limited and announced plans to introduce new
Irish whiskeys using high-quality whiskey purchased from other Irish distillers and triple-cask finished to Slane’s specifications
while the whiskey made at the new Slane Distillery matures. In April 2017, we unveiled the first product from our Slane Irish
Whiskey brand in Travel Retail in Ireland, and we expect to introduce the brand in the United States, the United Kingdom,
and Australia during the summer of 2017.
In March 2016, we sold our Southern Comfort and Tuaca brands and related assets to Sazerac Company, Inc. for $543 million
in cash, which resulted in a gain of $485 million in the fourth quarter of fiscal 2016. We substantially completed all activities
related to this transition of ownership in fiscal 2017. See ‘‘Executive Summary’’ below and Note 16 to the accompanying
financial statements for details about the financial impact of the sale of Southern Comfort and Tuaca.
• On June 1, 2016, we acquired The BenRiach Distillery Company Limited (BenRiach) for aggregate consideration of $407
million, consisting of a purchase price of $341 million and $66 million in assumed debt and transaction-related obligations
that we have since paid. The acquisition, which brought three single malt Scotch whisky brands into our portfolio, included
brand trademarks, inventories, three malt distilleries, a bottling plant, and BenRiach’s headquarters in Edinburgh, Scotland.
We believe that these super-premium brands will provide us an opportunity to participate in the growing single malt Scotch
category and strengthen our portfolio’s long-term growth prospects in the United States, the United Kingdom, Taiwan,
Germany, and Travel Retail. See Note 17 to the accompanying financial statements for details.
27
Capital Deployment
Beyond the acquisition and divestiture activities described above, our capital deployment initiatives have been focused on
(1) enabling the expected future growth of our existing businesses through investments in our production capacity, barrel
whiskey inventory, and brand-building efforts for our existing portfolio; and (2) returning cash to our shareholders.
Investments. From fiscal 2015 through fiscal 2017, our capital expenditures totaled $340 million and were focused on enabling
the growth of our premium whiskey brands as further detailed below.
Jack Daniel’s. We expanded our distilling capacity and constructed three new warehouses, and we continued work
on the expansion of our shipping warehouse facility.
Woodford Reserve. We expanded our bottling facility and constructed five new warehouses. We also continued
construction of an additional warehouse.
Old Forester. We continued construction of the Old Forester Distillery and visitors’center on Main Street in Louisville,
Kentucky, which is expected to open in the spring of 2018.
Slane Irish Whiskey. We continued building a new distillery and consumer experience on the historic Slane Castle
Estate, which is expected to open in the summer of 2017.
• Debt and equity transactions. From fiscal 2015 through fiscal 2017, we returned $2.9 billion to our shareholders through $0.8
billion in regular quarterly dividends and $2.1 billion in share repurchases. We issued long-term debt totaling $1.2 billion
(net), including (a) the $500 million 4.5% 30-year notes in June 2015 and (b) two foreign currency denominated bonds, the
€300 million 1.2% 10-year notes and the £300 million 2.6% 12-year notes, in June 2016.
Executive Summary
Fiscal 2017 Highlights
Key highlights of our operating results in fiscal 2017 include:
• We delivered net sales of $3.0 billion, a decrease of 3% compared to fiscal 2016. Excluding the impact of acquisitions and
divestitures, net sales were flat. After additionally adjusting for the negative effect of foreign exchange and the estimated net
decrease in distributor inventories, we grew underlying net sales 3%.
• We delivered operating income of $1.0 billion, a decrease of 35% compared to fiscal 2016. Excluding the impact of acquisitions
and divestitures, operating income was flat. After additionally adjusting for the negative effect of foreign exchange and the
estimated net decrease in distributor inventories, we grew underlying operating income 7%.
• We delivered diluted earnings per share of $1.71, a decrease of 34% compared to fiscal 2016. Excluding the impact of
acquisitions and divestitures, we delivered adjusted diluted earnings per share growth of 5%.
• Our return on average invested capital declined to 19.3% in fiscal 2017, compared to 34.1% in fiscal 2016. Excluding the
impact of acquisitions and divestitures, adjusted average return on invested capital declined to 21.3% in fiscal 2017 from
22.1% in fiscal 2016.
Our underlying operating results were primarily driven by the performance of the Jack Daniel's family of brands, our tequila
brands, and Woodford Reserve, partially offset by declines in used barrel sales. From a geographic perspective, the United States
and our developed international markets led the growth; emerging markets growth accelerated compared to fiscal 2016; and our
business in Travel Retail returned to growth in fiscal 2017 following declines in fiscal 2016. In addition, our underlying operating
results benefited from the reduction of underlying SG&A expenses.
Foreign exchange negatively affected our reported operating results, driven by the dollar’s strengthening against a number
of currencies, including, the Mexican peso, euro, and British pound. An estimated net reduction in distributor inventories due
primarily to the United States and Russia also negatively affected our reported results.
28
Summary of Operating Performance Fiscal 2015 - 2017
Fiscal year ended April 30
2015
2016
2017
2016 vs.
2015
2017 vs.
2016
2016 vs.
2015
2017 vs.
2016
Reported Change
Underlying Change1
Net sales
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
$ 3,134
$ 3,089
$ 2,994
951
2,183
437
697
945
2,144
417
688
$ 1,027
$ 1,533
$
973
2,021
383
667
989
69.7%
32.8%
25
31.7%
1.60
22.0%
$
$
69.4%
49.6%
44
28.3%
2.61
34.1%
$
$
67.5%
33.0%
56
28.3%
1.71
19.3%
$
$
(1%)
(1%)
(2%)
(4%)
(1%)
49%
(0.3pp)
16.8pp
70%
(3.4pp)
63%
12.1pp
(3%)
3%
(6%)
(8%)
(3%)
(35%)
(1.9pp)
(16.6pp)
29%
—pp
(34%)
(14.8pp)
5%
3%
5%
2%
2%
8%
3%
4%
3%
2%
(2%)
7%
1See “Non-GAAP Financial Measures” above for details on our use of “underlying changes,” including how we calculate these measures
and 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 we calculate
this measure and why we think this information is useful to readers.
Adjusted Measures for Acquired and Divested Brands1
Operating
income
Operating
margin
Effective tax
rate
Diluted
earnings per
share
Return on
average
invested
capital2
Fiscal year ended April 30, 2016
Reported
Sale of Southern Comfort and
Tuaca
Effect of acquired and divested
brands
Adjusted
Fiscal year ended April 30, 2017
Reported
Effect of acquired and divested
brands
Adjusted
Adjusted percentage change
$
$
$
$
$
$
$
1,533
(486)
(57)
990
989
(1)
988
—%
49.6%
(15.7%)
(0.4%)
33.5%
33.0%
0.5%
33.5%
28.3% $
2.61
1.1% $
(0.88)
—% $
29.4% $
28.3% $
—% $
28.3% $
(0.10)
1.63
1.71
0.01
1.72
5%
34.1%
(11.1%)
(0.9%)
22.1%
19.3%
2.0%
21.3%
1See “Non-GAAP Financial Measures” above for details on our use of “adjusted measures,” including how we calculate these measures
and 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 we calculate
this measure and why we think this information is useful to readers.
29
Fiscal 2018 Outlook
We are optimistic about our prospects for growth of net sales, operating income, and diluted earnings per share in fiscal
2018. Below we discuss our current expectations for fiscal 2018, including trends, developments, and uncertainties that we
expect to affect our business.
Outlook for key measures:
• Net sales. We expect the Jack Daniel’s family of brands, our portfolio of premium bourbons, and our tequila brands to
drive our net sales growth. We expect that volume will be the most significant driver of net sales growth in fiscal 2018.
Additionally, we expect that recent and new additions to our portfolio will contribute to our net sales growth; these
include: (a) the fall 2017 introduction of Jack Daniel’s Tennessee Rye in the United States, (b) the expansion of our
Scotch whiskey brands following their successful integration in fiscal 2017, and (c) the rollout of Slane Irish Whiskey.
• Operating expenses. We expect total operating expenses to grow at a slower rate than net sales. In addition, we expect:
(a) for cost of sales, input costs should increase in the low single digits, (b) advertising expenses to grow at a rate
similar to our net sales growth rate, and (c) SG&A expenses to be approximately unchanged compared to fiscal 2017.
Additional considerations related to our fiscal 2018 outlook:
•
•
•
Sale of Southern Comfort and Tuaca. In fiscal 2016, we sold our Southern Comfort and Tuaca brands and related
assets. Our fiscal 2017 results compared to fiscal 2016 were negatively affected by this sale. Looking ahead to fiscal
2018, we do not expect our growth rates compared to the prior fiscal year period to be affected by the divestiture. See
discussion above and Note 16 to the accompanying financial statements for details about the financial impact of the
sale of Southern Comfort and Tuaca.
Productivity and efficiency initiative. In June 2017, we announced a multiyear cost saving and productivity initiative
designed to (a) deliver sustainable cost savings, and (b) accelerate our net sales growth rate, as a portion of the cost
savings generated by the initiative are expected to be invested in incremental advertising and promotional activities.
Our fiscal 2018 outlook reflects the currently expected effects of this initiative.
Foreign exchange. In fiscal 2017, our reported results were significantly affected by negative foreign exchange due to
the strength of the U.S. dollar; however, we anticipate our fiscal 2018 results will not be as negatively affected. See
“Item 7A. Quantitative and Qualitative Disclosures about Market Risk” for more information about foreign exchange
and our business.
• Global whiskey trends and competition. We expect that the continued success of our existing premium-plus whiskeys,
as well as the introduction and expansion of our new whiskeys, will drive our net sales growth in fiscal 2018. The
American, Irish, and single malt Scotch whiskey categories are growing faster than total distilled spirits globally,1 but
competition has intensified as industry participants seek to capitalize on consumers’ interest in these categories. While
we believe that we are well-positioned to benefit from these trends, we may also be negatively affected by the
increased competition.
1 IWSR, 2016 data.
30
Results of Operations
Fiscal 2017 Market Highlights
The following table shows net sales results for our ten largest markets, summarized by geographic area, for fiscal 2017,
compared to fiscal 2016. We discuss the most significant changes in net sales for each market.
Top 10 Markets - Percentage of Fiscal 2017 Total Net Sales and Fiscal 2017 Net Sales Growth by Geographic Area
Net Sales1 % Change vs. 2016
Markets
United States
Europe
United Kingdom
Germany
France
Poland
Russia
Rest of Europe
Australia
Other geographies
Mexico
Japan
Canada
Remaining geographies2
Travel Retail3
Other non-branded4
Total
Note: Totals may differ due to rounding
% of Fiscal
2017 Net
Sales
Reported
48%
26%
7%
4%
4%
2%
1%
7%
5%
14%
5%
1%
1%
7%
4%
3%
100%
(3%)
(8%)
(12%)
(1%)
5%
5%
(43%)
(10%)
(2%)
1%
—%
30%
(8%)
—%
3%
11%
(3%)
Acquisitions
and
Divestitures
5%
3%
10%
1%
(1%)
(1%)
—%
—%
5%
—%
—%
—%
4%
—%
3%
(30%)
3%
Foreign
Exchange
—%
6%
6%
6%
5%
4%
4%
5%
(2%)
5%
15%
(4%)
3%
—%
2%
—%
2%
Net Chg in
Est.
Distributor
Inventories
2%
Underlying
4%
3%
—%
—%
—%
—%
46%
2%
—%
(3%)
(1%)
(9%)
3%
(5%)
—%
—%
1%
4%
5%
6%
10%
9%
7%
(3%)
2%
4%
15%
18%
1%
(5%)
7%
(18%)
3%
1See “Non-GAAP Financial Measures” above for details on our use of “underlying change” in net sales, including how we calculate this
measure and why we think this information is useful to readers.
2“Remaining geographies” represents over 110 countries, with the largest being Brazil, South Africa, and Chile.
3“Travel Retail” represents our sales to global duty free customers, travel retail customers, and the U.S. military.
4“Other non-branded” includes used barrel, bulk whiskey and wine, and contract bottling sales.
The United States, our largest and most important market, accounted for 48% of our reported net sales in both fiscal 2017
and fiscal 2016. In fiscal 2017, reported net sales in the United States fell 3%, while underlying net sales increased 4%, after
adjusting for the absence of revenues associated with Southern Comfort and Tuaca (which were sold last March) and an estimated
net decrease in distributor inventories. Underlying net sales gains were driven primarily by (a) our American whiskey portfolio,
led by JDTW, Woodford Reserve, Old Forester, and Gentleman Jack; (b) our tequila brands, led by el Jimador and Herradura;
(c) Sonoma-Cutrer; and (d) Korbel Champagne. This growth was partially offset by declines of Canadian Mist.
Europe accounted for 26% of our reported net sales in fiscal 2017, down from 27% in fiscal 2016. For fiscal 2017, reported
net sales in Europe were down 8%, while underlying net sales grew 4%, after adjusting for (a) the net effect of acquired and
divested brands, (b) the negative effect of foreign exchange driven by the strengthening of the dollar against the euro, British
pound, and Turkish lira, and (c) an estimated net decrease in distributor inventories primarily in Russia. The growth in underlying
net sales was driven by gains in France, the United Kingdom, Germany, Poland, Ukraine, and Russia, partially offset by declines
in Belgium and Turkey.
•
In the United Kingdom, underlying net sales growth was driven by higher volumes of JDTW, Jack Daniel’s ready-to-
drinks (JD RTDs), and Chambord as well as higher prices and favorable customer mix of JDTW.
31
•
•
•
•
In Germany, underlying net sales growth was driven by higher volumes of JD RTDs and JDTH, and the introduction
of JDTF. JDTW volumes declined driven by customer buying patterns, although consumer takeaway trends remained
solid.
In France, underlying net sales growth was primarily driven by higher volumes for JDTW and the introduction of JDTF,
as the Jack Daniel’s family of brands continued to gain market share in the world’s fourth largest whiskey market.
In Poland, higher volumes of JDTW led underlying net sales growth, partially offset by a decline in volume of Finlandia.
In Russia, underlying net sales growth was driven by price increases on Finlandia and JDTW intended to mitigate the
effect of the devaluation of the ruble, partially offset by volume declines of both brands. After a period of declines
driven by the challenging economic environment, Russia returned to growth in the second half of fiscal 2017, driven
by JDTW and Finlandia, as the market began to stabilize.
Australia accounted for 5% of our reported net sales in fiscal 2017 and fiscal 2016. In fiscal 2017, reported net sales were
down 2%, but underlying net sales were up 2% after adjusting for the negative effect of the absence of revenues resulting from
the sale of Southern Comfort and Tuaca and the positive effect of foreign exchange. Underlying net sales growth was driven by
the Jack Daniel’s family of brands, led by recently launched JD RTD products, which were partially offset by declines of Jack
Daniel’s & Cola.
Net sales for our other geographies constituted 14% of our reported net sales in fiscal 2017, up from 13% in fiscal 2016.
Reported net sales increased 1% in fiscal 2017 and underlying net sales were up 4% after adjusting reported results for the negative
effect of foreign exchange driven by the strengthening of the dollar against the Mexican peso and the estimated net increase in
distributor inventories in Japan. Underlying net sales growth was led by Mexico and Japan, the latter of which benefited from
price increases in fiscal 2017. These gains were partially offset by declines in Southeast Asia, China, and sub-Saharan Africa.
Travel Retail accounted for 4% of our reported net sales in fiscal 2017 and fiscal 2016. Reported net sales increased 3%
and underlying net sales increased 7% after adjusting reported results for the absence of revenues resulting from the sale of Southern
Comfort and Tuaca and the negative effect of foreign exchange. Following declines in fiscal 2016, underlying net sales growth
was led by higher volumes of JDTW and JDTH, distribution gains on Woodford Reserve, and the expansion of JDTF into Europe.
Other non-branded. Reported net sales increased 11%, while underlying net sales declined 18% after removing the net
effect of acquired and divested businesses (primarily bulk whiskey and contract bottling sales). The reduction in underlying net
sales was due primarily to declines in used barrel sales largely reflecting lower prices due to increased supply of used barrels and
somewhat weaker demand from blended Scotch industry buyers.
32
Fiscal 2017 Brand Highlights
The following table highlights the worldwide results of our largest brands for fiscal 2017, compared to the results for fiscal
2016. We discuss results of the brands most affecting our performance below the table.
Major Brands Worldwide Results for Fiscal 20171
Depletion Volume
Net Sales % Change vs. 2016
Nine-Liter
Cases
(Millions)
% Change
vs. 2016
Drinks
Equivalent
(Millions)
% Change
vs. 2016
Reported
Foreign
Exchange
Net Chg in
Est.
Distributor
Inventories Underlying
23.3
12.5
1.6
1.3
8.0
6.3
3.0
1.2
1.2
0.6
0.4
4%
1%
6%
9%
8%
7%
—%
(7%)
4%
18%
12%
16.1
12.5
1.6
1.3
0.8
0.6
3.0
1.2
1.2
0.6
0.4
3%
1%
6%
9%
8%
7%
—%
(1%)
3%
3%
3%
2%
2%
2%
2%
1%
3%
1%
1%
(2%)
1%
—%
3%
3%
4%
5%
6%
15%
—%
17%
—%
(10%)
3%
(7%)
(13%)
—%
4%
18%
12%
—%
14%
9%
4%
1%
7%
6%
1%
4%
4%
(1%)
(12%)
8%
19%
(2%)
14%
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
Canadian Mist
el Jimador
Woodford Reserve
Herradura
Note: 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 we calculate this
measure and 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
Collection, Jack Daniel’s Sinatra Select, Jack Daniel’s No. 27 Gold Tennessee Whiskey, Jack Daniel’s 1907 Tennessee Whiskey, Jack
Daniel’s Single Barrel Rye Whiskey, 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, Jack Daniel’s Double Jack, Jack Daniel’s American
Serve, Jack Daniel’s Tennessee Honey RTD, and the seasonal Jack Daniel’s Winter Jack RTP.
In fiscal 2017, the Jack Daniel’s family of brands grew volumes 3% globally to 16.1 million drinks-equivalent nine-liter
cases across all expressions of the brand. Reported net sales for the family were flat, while underlying net sales increased 3% after
adjusting for the negative effect of foreign exchange primarily due to the strengthening of the dollar against the British pound,
euro, Mexican peso, and Turkish lira. Jack Daniel’s family of brands was the most significant contributor to our total underlying
net sales growth in fiscal 2017. The following are details about the underlying performance of the Jack Daniel’s family of brands:
33
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. During calendar 2016, JDTW grew volume for the 25th consecutive year and, among the top five premium
spirits brands on the list, Jack Daniel’s Tennessee Whiskey was the only one to grow by volume in 20161 – an achievement that
underscores our belief in the brand’s sustainable appeal and long-term growth potential. JDTW grew volumes 1% globally in fiscal
2017, down from its 3% growth rate in fiscal 2016. JDTW reported net sales declined 1%, while underlying net sales grew 3%
led by the United States, Poland, France, the United Kingdom, Japan, Mexico, and Travel Retail. These increases were partially
offset by declines in Belgium, Southeast Asia, sub-Saharan Africa, China, and Turkey.
Since its introduction in late fiscal 2011, Jack Daniel’s Tennessee Honey has contributed significantly to our net sales
growth. JDTH is now the 12th largest brand in the world priced over $25 per 750ml bottle.2 In fiscal 2017, JDTH grew volumes
by 6%, on top of the 8% growth rate last fiscal year. JDTH grew reported net sales 3% and underlying net sales 4% driven by
higher volumes in the United States, Travel Retail, and Germany. These gains were partially offset by declines in Brazil.
Our Other Jack Daniel’s whiskey brands reported net sales grew 3% and underlying net sales increased 5%. The most
significant contributor to underlying net sales growth was JDTF, which was led by the expansion in France, Germany, and Travel
Retail. In the United States, JDTF full-year results declined as volumes in the first half of last year were high due to the national
introduction in late fiscal 2015, but the brand returned to growth in the second half of fiscal 2017. Gentleman Jack also contributed
to underlying net sales growth, while Jack Daniel’s Sinatra declined.
The Jack Daniel’s RTDs/RTPs brands grew volume 8%, reported net sales 3%, and underlying net sales 6% in fiscal 2017.
JD RTDs’underlying net sales growth was driven by consumer-led volumetric gains, distribution expansion, and product innovation
in Mexico, Germany, the United Kingdom, and Australia.
In fiscal 2017, New Mix volumes increased 7%. Reported net sales increased 2%, while underlying net sales grew 17% after
adjusting for the negative effect of foreign exchange due to the strengthening of the dollar against the Mexican peso. The growth
in underlying net sales was driven by higher prices and volume gains.
Finlandia volumes were flat in fiscal 2017, while reported net sales were down 10% and underlying net sales declined 1%
after adjusting for the negative effect of foreign exchange and an estimated net decrease in distributor inventories. The decline in
underlying net sales was driven predominantly by lower volumes in Poland, the brand’s largest market, and in the United States.
These declines were partially offset by volume gains in Travel Retail.
Canadian Mist volumes declined 7%, while reported net sales decreased 13% and underlying net sales declined 12% in
fiscal 2017. The net sales declines were driven by volume declines and lower prices in the United States, which is the brand’s
largest market.
el Jimador volumes grew 4% in fiscal 2017. Reported net sales were flat, while underlying net sales were up 8% after
adjusting for the negative effect of foreign exchange due to the strengthening of the dollar against the Mexican peso. Underlying
net sales growth was driven by higher volumes in the United States, where el Jimador remained on the Impact’s “Hot Brands”
list3 in calendar 2016.
Woodford Reserve grew volumes 18% in fiscal 2017 (after growing 26% in fiscal 2016 and 30% in fiscal 2015) and was
once again selected as an Impact’s “Hot Brand.”3 In addition, reported net sales increased 14% and underlying net sales grew 19%
in fiscal 2017. The United States is by far the brand’s most important market and was responsible for most of its growth during
fiscal 2017. Woodford Reserve continued its momentum outside the United States as well, growing volumes 23%, driven by
distribution expansion in Travel Retail. During fiscal 2017, we increased our advertising investment behind Woodford Reserve
both in the United States and internationally. Woodford Reserve led a fast-growing competitive set of super-premium American
whiskeys, and we believe it 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 growth potential, including sustained advertising investment focused on
consumer communications and capital spending.
1Based on industry statistics published by Impact Databank, a well-known U.S. trade publication, in March 2017.
2IWSR, 2016 data.
3Impact Databank published the Impact’s “Hot Brands - Spirits” list in March 2017.
34
In fiscal 2017, Herradura volumes grew 12%. Reported net sales increased 9% and underlying net sales were up 14% after
adjusting for the negative effect of foreign exchange due to the strengthening of the dollar against the Mexican peso. This growth
was driven primarily by increased volumes in the brand’s largest markets, Mexico and the United States, as well as higher prices
in Mexico. Both of these markets benefited from consumer-led volumetric growth of Herradura Ultra, our “cristalino” tequila
expression released in fiscal 2015. We remain focused on developing Herradura in the United States (where we continue to see
considerable potential for growth), strengthening our position in Mexico, and continuing to build our presence in higher-value
tequila markets throughout the world.
35
Year-Over-Year Comparisons
Net Sales
Percentage change versus the prior fiscal year ended April 30
Change in reported net sales
Acquisitions and divestitures
Foreign exchange
Estimated net change in distributor inventories
Change in underlying net sales
2017
2016
(3%)
3%
2%
1%
3%
(1%)
1%
5%
—%
5%
Change in underlying net sales attributed to:
Volume
Net price/mix
Note: Totals may differ due to rounding
Fiscal 2017 compared to Fiscal 2016
2%
2%
1%
4%
Net sales of $2,994 million decreased 3%, or $95 million, in fiscal 2017 compared to fiscal 2016. After adjusting reported
results for (a) the net effect of acquisitions and divestitures, (b) the negative effect of foreign exchange, and (c) the estimated net
decrease in distributor inventories, underlying net sales grew 3%. The negative effect of foreign exchange was driven primarily
by the dollar’s strengthening against the Mexican peso, euro, and British pound. The change in underlying net sales was driven
almost equally by the positive impact of price/mix and volume growth. Volume growth was led by the Jack Daniel's family and
the tequilas, partially offset by declines in Canadian Mist. Improved price/mix was driven by (a) higher average pricing on JDTW
and the tequilas, and (b) a shift in sales out of lower-priced brands (most notably, Canadian Mist) to higher priced brands (most
notably, Jack Daniel's family and Woodford Reserve; the gains were partially offset by declines in used barrel sales.
The primary factors contributing to underlying net sales growth were:
•
•
•
•
•
•
our American whiskey portfolio in the United States, led by JDTW, Woodford Reserve, Old Forester, and Gentleman
Jack;
JDTW in several international markets, most notably, Poland, France, the United Kingdom, Japan, Mexico, and Travel
Retail;
our tequila brands, led by (1) higher prices and volume gains of New Mix in Mexico, (2) higher volumes of Herradura
and el Jimador in the United States, and (3) higher volumes and price increases of Herradura in Mexico;
JD RTDs, partially due to new product introductions, led by Mexico, Germany, the United Kingdom, and Australia;
Sonoma-Cutrer and Korbel Champagne in the United States;
JDTF driven by launches in Germany, France, and Travel Retail; and
• Woodford Reserve outside of the United States, driven by distribution expansion in Travel Retail.
The primary factors partially offsetting growth in underlying net sales were declines of:
•
•
used barrel sales, reflecting lower prices due to increased supply of used barrels and somewhat weaker demand from
blended Scotch industry buyers;
JDTW in Belgium, Southeast Asia, sub-Saharan Africa, China, and Turkey;
• Canadian Mist volumes in the United States; and
•
lower-margin agency brands that we no longer distribute.
Fiscal 2016 compared to Fiscal 2015
Net sales of $3,089 million decreased 1%, or $45 million, in fiscal 2016 compared to fiscal 2015. Underlying net sales growth
was 5%, after adjusting reported results for the negative effects of foreign exchange and the sale of Southern Comfort and Tuaca.
The negative effect of foreign exchange was driven primarily by the dollar’s broad strengthening against most currencies. The
change in underlying net sales was driven by the 4% positive impact of price/mix and 1% volume growth. Improved price/mix
was driven by a shift in sales out of lower-priced brands, most notably Finlandia and Canadian Mist, to higher-priced brands, led
by the Jack Daniel’s family and Woodford Reserve.
36
The primary factors contributing to underlying net sales growth were:
•
•
•
•
our American whiskey portfolio in the United States, led by JDTW, Woodford Reserve, Gentleman Jack, and Old Forester;
JDTW volumes in several international markets, led by the United Kingdom, France, Germany, and Mexico; and beneficial
channel mix in Turkey;
JDTF, due to its launch in the United States and the United Kingdom;
our tequila brands, led by (1) higher volumes of New Mix in Mexico, (2) higher prices and volumes of Herradura in the
United States and Mexico, and (3) higher volumes of el Jimador in the United States;
• Korbel Champagne and Sonoma-Cutrer in the United States;
•
•
JDTH outside the United States, led by Brazil and France; and
used barrel sales driven by higher prices.
The primary factors partially offsetting growth in underlying net sales were declines of:
•
•
•
JDTW volumes in Travel Retail and Russia;
lower-margin brands that we discontinued in fiscal 2016 and lower-margin agency brands that we no longer distribute;
Southern Comfort in the United States before the sale;
• Canadian Mist in the United States;
•
•
Finlandia in Europe, most notably in Russia; and
volume of el Jimador in Mexico.
Cost of Sales
Percentage change versus the prior fiscal year ended April 30
Change in reported cost of sales
Acquisitions and divestitures
Foreign exchange
Estimated net change in distributor inventories
Change in underlying cost of sales
2017
2016
3%
—%
—%
1%
4%
(1%)
—%
4%
—%
3%
Change in underlying cost of sales attributed to:
Volume
Cost/mix
Note: Totals may differ due to rounding
Fiscal 2017 compared to Fiscal 2016
2%
3%
1%
2%
Cost of sales of $973 million increased $28 million, or 3%, in fiscal 2017 compared to fiscal 2016. Underlying cost of sales
grew 4% after adjusting reported costs for the estimated net change in distributor inventories. The increase in underlying costs of
sales was driven by growth in sales volumes and higher input costs, including wood and grain. Looking ahead to fiscal 2018, we
currently expect that input costs will increase in the low single digits.
Fiscal 2016 compared to Fiscal 2015
Cost of sales of $945 million decreased $6 million, or 1%, in fiscal 2016 compared to fiscal 2015. Underlying cost of sales
grew 3% after adjusting reported costs for the positive effect of foreign exchange. About one-third of the underlying increase in
costs of sales was driven by growth in sales volumes, while the other two-thirds related to higher input costs, including wood and
grain, and a shift in product mix to higher-cost brands.
37
Gross Profit
Percentage change versus the prior fiscal year ended April 30
Change in reported gross profit
Acquisitions and divestitures
Foreign exchange
Estimated net change in distributor inventories
Change in underlying gross profit
Note: Totals may differ due to rounding
Gross Margin
Fiscal year ended April 30
Prior year gross margin
Price/mix
Cost
Acquisitions and divestitures
Foreign exchange
Change in gross margin
Current year gross margin
Note: Totals may differ due to rounding
Fiscal 2017 compared to Fiscal 2016
2017
2016
(6%)
4%
3%
1%
3%
2017
69.4%
0.1%
(0.4%)
(0.9%)
(0.7%)
(1.9%)
67.5%
(2%)
1%
6%
—%
5%
2016
69.7%
0.3%
(0.2%)
(0.1%)
(0.3%)
(0.3%)
69.4%
Gross profit of $2,021 million decreased $123 million, or 6%, in fiscal 2017 compared to fiscal 2016. Gross profit on an
underlying basis improved 3% after adjusting reported gross profit for (a) the net effect of acquisitions and divestitures, (b) the
negative effect of foreign exchange, and (c) the estimated net change in distributor inventories. The increase in underlying gross
profit resulted from the same factors that contributed to the increase in underlying net sales partially offset by the same factors
that drove higher underlying cost of sales.
Gross margin decreased to 67.5% in fiscal 2017, down 190 basis points from 69.4% in fiscal 2016. The decrease in gross
margin was primarily due to (a) the net effect of acquisitions and divestitures, (b) the negative effect of foreign exchange, and
(c) an increase in underlying cost of sales.
Fiscal 2016 compared to Fiscal 2015
Gross profit of $2,144 million decreased $39 million, or 2%, in fiscal 2016 compared to fiscal 2015. Gross profit on an
underlying basis improved 5% after adjusting reported gross profit for the negative effects of foreign exchange and the sale of
Southern Comfort and Tuaca. The increase resulted from the same factors that contributed to the increase in underlying net sales
for the year partially offset by the same factors that drove higher underlying cost of sales.
Gross margin decreased to 69.4% in fiscal 2016, down 30 basis points from 69.7% in fiscal 2015. The decrease in gross
margin was primarily due to the negative effect of foreign exchange, partially offset by higher pricing and favorable mix shift.
Advertising Expenses
Percentage change versus the prior fiscal year ended April 30
Change in reported advertising
Acquisitions and divestitures
Foreign exchange
Change in underlying advertising
Note: Totals may differ due to rounding
2017
2016
(8%)
8%
2%
2%
(4%)
2%
5%
2%
38
Fiscal 2017 compared to Fiscal 2016
Advertising expenses of $383 million decreased $34 million, or 8%, in fiscal 2017 compared to fiscal 2016. Underlying
advertising expenses increased 2% after adjusting reported results for the net effect of acquisitions and divestitures and the benefit
of foreign exchange. The increase in underlying advertising expense was driven by higher spending on (a) JDTW, due in part to
the 150th anniversary of Jack Daniel’s Distillery, (b) JD RTDs, partially due to new innovations, and (c) the launch of JDTF outside
the United States. These increases were partially offset by lower spending for JDTF in the United States following the national
introduction in late fiscal 2015 and for Finlandia Vodka.
Fiscal 2016 compared to Fiscal 2015
Advertising expenses of $417 million decreased $20 million, or 4%, in fiscal 2016 compared to fiscal 2015. Underlying
advertising expenses increased 2% after adjusting reported results for the positive effects of foreign exchange and the sale of
Southern Comfort and Tuaca. The increase in underlying advertising expenses was driven primarily by investments in the United
States for Woodford Reserve, JDTW, and JDTF, as well as higher spending outside the United States on the Jack Daniel’s family.
These increases were partially offset by lower spending for Southern Comfort globally and Finlandia Vodka in many markets.
Selling, General, and Administrative (SG&A) Expenses
Percentage change versus the prior fiscal year ended April 30
Change in reported SG&A
Acquisitions and divestitures
Foreign exchange
Change in underlying SG&A
Note: Totals may differ due to rounding
Fiscal 2017 compared to Fiscal 2016
2017
2016
(3%)
—%
1%
(2%)
(1%)
—%
4%
2%
SG&A expenses of $667 million decreased $21 million, or 3%, in fiscal 2017 compared to fiscal 2016, while underlying
SG&A dropped 2% after adjusting reported results for the benefit of foreign exchange. The most significant contributors to the
year-over-year decrease in underlying SG&A were lower compensation-related expenses and tight management of discretionary
spending.
Fiscal 2016 compared to Fiscal 2015
SG&A expenses of $688 million decreased $9 million, or 1%, in fiscal 2016 compared to fiscal 2015, while underlying
SG&A grew 2% 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 higher compensation and related expenses.
Operating Income
Percentage change versus the prior fiscal year ended April 30
Change in reported operating income
Acquisitions and divestitures
Foreign exchange
Estimated net change in distributor inventories
Change in underlying operating income
Note: Totals may differ due to rounding
Fiscal 2017 compared to Fiscal 2016
2017
(35%)
35%
4%
3%
7%
2016
49%
(46%)
4%
1%
8%
Operating income was $989 million in fiscal 2017, a decrease of $544 million, or 35%, compared to fiscal 2016. Underlying
operating income growth was 7% after adjusting for (a) the net effect of acquisitions and divestitures, (b) the negative effect of
foreign exchange, and (c) the estimated net change in distributor inventories, driven primarily by the United States and Russia.
The same factors that contributed to the growth in underlying gross profit also contributed to the growth in underlying operating
income, enhanced by meaningful operating expense leverage as SG&A spend declined and underlying advertising expenses grew
2% compared to underlying net sales growth of 3%.
39
Operating margin declined 16.6 percentage points to 33.0% in fiscal 2017 from 49.6% in fiscal 2016. The decrease in our
operating margin was primarily due to the net 16.6 percentage point effect of acquisitions and divestitures and the negative effect
of foreign exchange, partially offset by a reduction in SG&A spend.
Fiscal 2016 compared to Fiscal 2015
Operating income was $1,533 million in fiscal 2016, an increase of $506 million, or 49%, compared to fiscal 2015.
Underlying operating income growth was 8% after adjusting for (a) the positive effect of the sale of Southern Comfort and Tuaca;
(b) the negative effect of foreign exchange related to the broad strengthening of the dollar; and (c) the estimated net decrease in
distributor inventories, driven primarily by the absence of the distributor inventory increase in the United States associated with
the nationwide rollout of JDTF in the fourth quarter of fiscal 2015. 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 16.8 percentage points to 49.6% in fiscal 2016 from 32.8% in fiscal 2015. The increase in our
operating margin was primarily due to the sale of Southern Comfort and Tuaca, which increased our operating margin 15.7
percentage points. In addition, the slower rate of growth in operating expenses compared to the gross profit growth rate also
contributed to the operating margin expansion.
Fiscal 2017 compared to Fiscal 2016
Interest expense (net) increased $12 million, or 29%, in fiscal 2017 compared to fiscal 2016, primarily due to our July 2016
issuance of €300 million 1.20% and £300 million 2.60% senior unsecured notes due on July 7, 2026 and July 7, 2028, respectively.
Our effective tax rates for fiscal 2017 and fiscal 2016 were 28.3%. A decrease in the beneficial impact of foreign earnings
at lower rates and an increase in foreign exchange gains in non-U.S. entities that are currently subject to U.S. tax were offset by
an increase in the tax benefit related to discrete items. Additionally, the absence of the beneficial impact of the sale of the Southern
Comfort and Tuaca business was primarily offset by the beneficial impact of the excess tax benefits from stock-based awards.
Diluted earnings per share were $1.71 in fiscal 2017, down 34% from $2.61 in fiscal 2016. This decrease resulted from
the same factors that contributed to the decrease in reported operating income, including (a) the absence of the $0.88 gain from
the sale of Southern Comfort and Tuaca in fiscal 2016, (b) the absence of net income contribution from those brands, and (c) higher
interest expense in fiscal 2017, partially offset by (d) a reduction in shares outstanding due to share repurchases.
Fiscal 2016 compared to Fiscal 2015
Interest expense (net) increased $19 million, or 70%, in fiscal 2016 compared to fiscal 2015, primarily due to our June 2015
issuance of $500 million 4.50% senior unsecured notes due on July 15, 2045 and the increase in our commercial paper borrowing.
Our effective tax rate for fiscal 2016 was 28.3% compared to 31.7% in fiscal 2015. The decrease in our effective tax rate
was driven primarily by an increase in the beneficial impact of foreign earnings and the impact of the sale of the Southern Comfort
and Tuaca business.
Diluted earnings per share were $2.61 in fiscal 2016, up 63% from $1.60 in fiscal 2015. This increase resulted from (a) the
same factors that contributed to the increase in operating income, including $0.88 from the sale of Southern Comfort and Tuaca,
(b) the reduction in the shares outstanding resulting from share repurchases, and (c) the decrease in the effective tax rate.
40
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, invest in our brands, invest in 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 sufficient to meet our expected operating and
capital requirements.
Cash Flow Summary
(Dollars in millions)
Operating activities
Investing activities:
Proceeds from sale of business
Acquisition of business
Additions to property, plant, and equipment
Other
Financing activities:
Net change in short-term borrowings
Net issuance (repayment) of long-term debt
Acquisition of treasury stock
Dividends paid
Other
Foreign exchange effect
Change in cash and cash equivalents
Fiscal 2017 compared to Fiscal 2016
2015
2016
2017
$
608
$
524
$
639
—
—
(120)
(5)
(125)
183
—
(462)
(256)
4
(531)
(19)
(67) $
543
—
(108)
(2)
433
80
240
(1,107)
(266)
(7)
(1,060)
(4)
(107) $
—
(307)
(112)
(3)
(422)
(122)
717
(561)
(274)
(45)
(285)
(13)
(81)
$
Cash and cash equivalents declined $81 million in fiscal 2017, compared to a decline of $107 million in fiscal 2016. Cash
provided by operations of $639 million was up $115 million from last year, largely reflecting the absence of a $125 million payment
made during fiscal 2016 for estimated income taxes incurred on the sale of the Southern Comfort and Tuaca business. Cash used
for investing activities was $422 million during fiscal 2017, an increase of $855 million over the $433 million in cash provided
by investing activities during fiscal 2016. The increase of $855 million largely reflects the impact of the sale of the Southern
Comfort and Tuaca business (for which we received cash of $543 million) in fiscal 2016 and the acquisition of BenRiach (for
which we paid cash of $307 million) in fiscal 2017.
Cash used for financing activities was $285 million during fiscal 2017, compared to $1,060 million during fiscal 2016. The
$775 million decrease in cash used for financing activities largely reflects a $546 million decrease in share repurchases and a $477
million increase in proceeds from long-term debt net of repayments, partially offset by a $202 million decline in net proceeds
from short-term borrowings and the payment of $30 million in November 2016 to settle an obligation related to our acquisition
of BenRiach. The impact on cash and cash equivalents as a result of exchange rate changes was a decline of $13 million for fiscal
2017, compared to a decline of $4 million in the prior fiscal year.
Fiscal 2016 compared to Fiscal 2015
Cash and cash equivalents decreased $107 million during fiscal 2016, compared to a decrease of $67 million during fiscal
2015. Cash provided by operations during fiscal 2016 was $524 million, compared to $608 million in fiscal 2015. The $84 million
decline was primarily due to a $55 million increase in income tax payments, largely reflecting a $125 million payment made during
the fourth quarter of fiscal 2016 for the estimated taxes incurred on the sale of the Southern Comfort and Tuaca business, partially
offset by the absence of $64 million paid during fiscal 2015 in connection with an intercompany transfer of assets. The decline in
cash provided by operations also reflected a $14 million increase in interest payments, due to higher debt balances and interest
rates.
41
Cash provided by investing activities was $433 million in fiscal 2016. The increase of $558 million over fiscal 2015 primarily
reflected the proceeds of $543 million from the sale of the Southern Comfort and Tuaca business in fiscal 2016. Cash used for
financing activities was $1,060 million during fiscal 2016, compared to $531 million for fiscal 2015. The $529 million increase
largely reflected a $645 million increase in share repurchases and the repayment of $250 million in aggregate principal amount
of 2.5% notes that matured in January 2016, partially offset by proceeds of $490 million from the issuance of 4.50% senior notes
due 2045 issued in June 2015, and an $80 million increase in short-term borrowings. The impact on cash and cash equivalents as
a result of exchange rate changes was a decline of $4 million in fiscal 2016, compared to a decline of $19 million in fiscal 2015.
Capital Expenditures
Investments in property, plant, and equipment were $120 million in fiscal 2015, $108 million in fiscal 2016, and $112 million
in fiscal 2017. Average expenditures over those three fiscal years were 61% higher than our average expenditures in the previous
five fiscal years. Approximately 80% of total spend in fiscal 2017 related to production operations that continued to expand
capacity, reduce costs, and build our brands. Our focus has been building our American whiskey brands, with an emphasis on
JDTW, Woodford Reserve, and Old Forester.
For fiscal 2018, we expect to spend up to $140 million in capital expenditures. Our capital spending plans for fiscal 2018
include continued investment in our American whiskey brands, led by spending on our shipping warehouse facility at Jack Daniel’s
and the Old Forester Distillery and homeplace. In addition, we will continue building a new distillery and consumer experience
on the historic Slane Castle Estate in Ireland. We expect capital expenditures in fiscal 2019 and fiscal 2020 to remain elevated as
we complete several key, multiyear projects.
Share Repurchases
We have repurchased approximately 46.2 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 – April 30, 2016
May 1, 2016 – April 30, 2017
Shares Purchased
Class A
49,600
130,210
42,082
30,312
252,204
Class B
1,322,944
10,068,660
22,714,698
11,799,240
45,905,542
Average Price Per Share, Including
Brokerage Commissions
Class A
Class B
$
$
$
$
34.02
45.11
47.72
48.46
$
$
$
$
34.52
45.18
48.49
47.19
Total Cost of Shares
(Millions)
47
461
1,104
558
2,170
$
$
$
$
$
We repurchased these shares under three separate repurchase programs, including the most recent $1 billion program that
began on April 1, 2016, and concluded on March 31, 2017. Under the most recent program, we have repurchased a total of
14,159,578 shares for approximately $670 million.
The results of the three share repurchase programs are summarized in the following table.
Dates
Shares Purchased
Starting
October 2013
October 2014
April 2016
Ending
September 2014
March 2016
March 2017
Class A
94,926
126,966
30,312
252,204
Class B
5,723,252
26,053,024
14,129,266
45,905,542
Average Price Per
Share, Including
Brokerage Commissions
Class A
Class B
$
$
$
39.41
45.90
48.46
$
$
$
43.04
47.76
47.30
Total Spent on
Stock Repurchase
Program
(Millions)
250
1,250
670
2,170
$
$
$
$
Liquidity
We continue to manage liquidity conservatively to meet current obligations, fund capital expenditures, maintain dividends,
and repurchase shares from time to time 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 $800 million 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 2016, our commercial paper borrowings averaged
42
$331 million, with an average maturity of 29 days and an average interest rate of 0.42%. During fiscal 2017, our commercial paper
borrowings averaged $576 million, with an average maturity of 31 days and an average interest rate of 0.69%. Commercial paper
outstanding was $269 million at April 30, 2016, and $208 million at April 30, 2017.
Our commercial paper program is supported with available commitments under our currently undrawn $800 million bank
credit facility that matures on November 20, 2018. Further, we believe that the markets for investment-grade bonds and private
placements are accessible sources of long-term financing that could meet any additional liquidity needs. Although unlikely, under
extreme market conditions, one or more participating banks may not be able to fully fund its commitments under our credit facility.
We have high credit standards when initiating transactions with counterparties, and we 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, 2017, we had total cash and cash equivalents of $182 million. Of this amount, $153 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. 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 earnings.
See Note 13 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 24, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.1825 per share on
our Class A and Class B common stock. Stockholders of record on June 5, 2017, will receive the dividend on July 3, 2017.
We believe our current liquidity position is strong and sufficient to meet all of our future financial commitments. Aquantitative
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, 2017, with a ratio of 18 to 1, we were well within the covenant’s
parameters.
Off-Balance Sheet Arrangements
As of April 30, 2017, 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, 2017, 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
2018
2019-2020
2021-2022
After 2022
$
$
1,965
1,058
35
48
38
4
3,148
$
$
250
53
12
17
38
n/a
370
$
$
— $
103
15
22
n/a
n/a
140
$
— $
103
7
8
n/a
n/a
118
$
1,715
799
1
1
n/a
n/a
2,516
1 Excludes liabilities for tax uncertainties, as we cannot reasonably predict the ultimate amount or timing of settlement.
2 As of April 30, 2017, we have unfunded pension and other postretirement benefit obligations of $322 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 $38 million of expected contributions (including $30 million of expected discretionary contributions) in fiscal 2018.
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, 2017, based on current market prices, obligations under these contracts totaled $4 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.
43
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 an asset’s fair value
is less than its book value, we write it down to its estimated fair value. For goodwill, if the book value of the 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 goodwill’s book value. We estimate the reporting unit’s fair
value using discounted estimated future cash flows or market information. We typically estimate the fair value of a brand name
using either the “relief from royalty” or “excess earnings” 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.
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 that 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.
Beginning in fiscal 2018, we plan to change the method used to estimate the service cost and interest cost components of
net periodic benefit cost for our U.S. pension and other postretirement benefit plans. The new estimation approach will discount
the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates derived from the
yield curve used to discount the cash flows used to measure the benefit obligation at the beginning of the period. Previously, we
estimated these service and interest cost components using a single weighted-average discount rate derived from the yield curve
used to measure the benefit obligation at the beginning of the period. We believe the new approach will provide a more precise
measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding
spot yield curve rates. We will account for this change in estimate prospectively, beginning May 1, 2017. The new approach will
not affect the measurement of our plan obligations, but will generally result in lower service cost and interest cost in periods when
the yield curve is upward-sloping. For fiscal 2018, we estimate that using the new estimation approach will reduce total service
and interest cost by approximately $7 million when compared to the cost computed using the prior approach.
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.
44
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 reduced cash tax payments, the reversal of previously established liabilities, or some combination
of these results, which could reduce our effective tax rate.
New Accounting Pronouncements
As discussed in Note 1 to the accompanying financial statements, we are currently evaluating the potential impact of several
new accounting pronouncements to be adopted in the next few years.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Risk Management Framework
Success in business requires risk-taking, 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 potential risks and 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 itself oversees some strategic enterprise risks and delegates responsibility for other risks to
committees that report to the Board regularly on matters 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 Enterprise Risk Management Committee, composed of managers from an array of levels, functions, and geographies,
reports to the Board at least annually. It leads our risk management program globally, which systematically identifies and
evaluates the major risks we face, identifies people responsible for managing each risk, ensures that risk mitigation plans
are in place and, together with internal audit, verifies that mitigation plans are being followed.
• Our management Ethics, Compliance and Risk Team, comprising a number of senior executives and subject matter
experts, meets throughout the year to address issues related to risk, ethics, and compliance; to coordinate the work of
those areas; and to oversee the formulation and promulgation of company policies and the training of employees in
compliance with them.
• Our Risk Management function identifies and assesses potential operational hazards and safety and security risks, and
facilitates ongoing communication about those risks with the Enterprise Risk Management Committee and our executive
leaders.
• Our Internal Audit Department evaluates the ongoing effectiveness of our key internal controls through periodic audit
and review procedures.
• The Chief Ethics and 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. Our foreign currency hedging contracts are subject to exchange rate changes, our commodity
forward purchase contracts are subject to commodity price changes, and some of our debt obligations are subject to interest rate
changes. Below, we discuss these exposures and provide a sensitivity analysis as to how these changes could affect 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
45
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 exchange rate fluctuations.
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 $655 million in fiscal 2018. 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, 2017, our total foreign currency hedges had a notional value of $1,188 million, with a maximum term
outstanding of 36 months, and were recorded as a net asset at their fair value of $15 million.
As of April 30, 2017, we hedged approximately 77% of our total transactional exposure to foreign exchange fluctuations in
fiscal 2018 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 2018 relative to fiscal 2017’s effective exchange rates for
our significant currency exposures would decrease/increase our fiscal 2018 operating income by approximately $18 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.
Interest Rates. Our cash and cash equivalents ($182 million as of April 30, 2017) and variable-rate debt ($211 million as of
April 30, 2017) are exposed to the risk of interest rate changes. Based on the net balance of these items as of April 30, 2017, a 1%
increase in interest rates would result in a negligible increase in net interest expense.
46
Item 8. Financial Statements and Supplementary Data
Table of Contents
Reports of Management
Report of Independent Registered Public Accounting Firm
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
Quarterly Financial Information (Unaudited)
Page
48
49
50
51
52
53
54
55
77
47
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), with our internal auditors, and
with 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 behavior 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, 2017. PwC has audited the effectiveness of our internal control over
financial reporting as of April 30, 2017, as stated in their report.
The Company acquired The BenRiach Distillery Company Limited (BenRiach) in a purchase business combination during
fiscal 2017. Based on SEC staff interpretive guidance for newly-acquired businesses, management excluded BenRiach from its
assessment of our internal control over financial reporting as of April 30, 2017. BenRiach is a wholly-owned subsidiary whose
total assets and total net sales represented approximately 4% and 1% respectively, of the related consolidated financial statement
amounts as of and for the year ended April 30, 2017.
Dated:
June 14, 2017
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
48
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Brown-Forman Corporation:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all
material respects, the financial position of Brown- Forman Corporation and its subsidiaries at April 30, 2017 and 2016, and the
results of their operations and their cash flows for each of the three years in the period ended April 30, 2017 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under 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, 2017, 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 the 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.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it presents excise
taxes in fiscal year 2017.
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.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded The BenRiach
Distillery Company Limited (“BenRiach”) from its assessment of internal control over financial reporting as of April 30, 2017
because BenRiach was acquired by the Company in a purchase business combination during fiscal year 2017. We have also
excluded BenRiach from our audit of internal control over financial reporting. BenRiach is a wholly-owned subsidiary whose
total assets and total net sales represent 4% and 1%, respectively, of the related consolidated financial statement amounts as of
and for the year ended April 30, 2017.
/s/ PricewaterhouseCoopers LLP
Louisville, KY
June 14, 2017
49
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
Year Ended April 30,
Sales
Excise taxes
Net sales
Cost of sales
Gross profit
Advertising expenses
Selling, general, and administrative expenses
Gain on sale of business
Other expense (income), net
Operating income
Interest income
Interest expense
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
2015
2016
2017
$
$
$
$
4,096
962
3,134
951
2,183
437
697
—
22
1,027
2
27
1,002
318
684
1.62
1.60
$
$
$
$
4,011
922
3,089
945
2,144
417
688
(485)
(9)
1,533
2
46
1,489
422
1,067
2.63
2.61
$
$
$
$
3,857
863
2,994
973
2,021
383
667
—
(18)
989
3
59
933
264
669
1.72
1.71
The accompanying notes are an integral part of the consolidated financial statements.
50
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
2015
2016
2017
684
$
1,067
$
(114)
32
(30)
(112)
572
$
(23)
(17)
(10)
(50)
1,017
$
669
(73)
—
33
(40)
629
$
$
The accompanying notes are an integral part of the consolidated financial statements.
51
BROWN-FORMAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
April 30,
2016
2017
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $9 in 2016 and $7 in 2017
Inventories:
ASSETS
Barreled whiskey
Finished goods
Work in process
Raw materials and supplies
Total inventories
Other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Other intangible assets
Deferred tax assets
Other assets
Total assets
LIABILITIES
Accounts payable and accrued expenses
Accrued income taxes
Short-term borrowings
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred tax liabilities
Accrued pension and other postretirement benefits
Other liabilities
Total liabilities
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock:
Class A, voting, $0.15 par value
Class B, nonvoting, $0.15 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Treasury stock, at cost (59,143,000 and 70,540,000 shares in 2016 and 2017, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
$
$
263
559
666
187
116
85
1,054
357
2,233
629
590
595
17
119
4,183
501
19
271
—
791
1,230
101
353
146
2,621
13
21
114
4,065
(350)
(2,301)
1,562
$
4,183
$
182
557
873
186
119
92
1,270
342
2,351
713
753
641
16
151
4,625
501
9
211
249
970
1,689
152
314
130
3,255
25
43
65
4,470
(390)
(2,843)
1,370
4,625
The accompanying notes are an integral part of the consolidated financial statements.
52
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Year Ended April 30,
Cash flows from operating activities:
2015
2016
2017
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
684
$
1,067
$
669
Gain on sale of business
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
Other, net
Changes in assets and liabilities, excluding the effects of sale and
acquisition of businesses:
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued expenses
Accrued income taxes
Noncurrent assets and liabilities
Cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of business
Acquisition of business, net of cash acquired
Additions to property, plant, and equipment
Acquisition of brand names and trademarks
Computer software expenditures
Cash provided by (used for) investing activities
Cash flows from financing activities:
Net change in short-term borrowings
Repayment of long-term debt
Proceeds from long-term debt
Debt issuance costs
Net payments related to exercise of stock-based awards
Excess tax benefits from stock-based awards
Acquisition of treasury stock
Dividends paid
Repayment of short-term obligation associated with acquisition of
business
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
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
$
$
$
(485)
56
15
10
2
8
(127)
(57)
29
7
(1)
524
543
—
(108)
—
(2)
433
80
(250)
490
(5)
(17)
15
(1,107)
(266)
—
(1,060)
(4)
(107)
370
263
41
430
$
$
$
—
58
14
(10)
2
6
(86)
12
(17)
(11)
2
639
—
(307)
(112)
—
(3)
(422)
(122)
—
717
(5)
(10)
—
(561)
(274)
(30)
(285)
(13)
(81)
263
182
48
266
The accompanying notes are an integral part of the consolidated financial statements.
53
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share amounts)
Balance at April 30, 2014
$
13
$
21
$
81
$
2,894
$
(188) $
(789) $
2,032
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
AOCI
Treasury
Stock
Total
Net income
Net other comprehensive income (loss)
Cash dividends ($0.605 per share)
Acquisition of treasury stock
Stock-based compensation expense
Stock issued under compensation plans
Loss on issuance of treasury stock issued
under compensation plans
Excess tax benefits from stock-based
awards
Balance at April 30, 2015
13
21
684
(256)
(112)
15
(15)
(22)
(462)
23
18
99
15
3,300
1,067
(266)
(300)
(1,228)
(50)
(1,107)
(1,107)
Net income
Net other comprehensive income (loss)
Cash dividends ($0.655 per share)
Acquisition of treasury stock
Stock-based compensation expense
Stock issued under compensation plans
Loss on issuance of treasury stock issued
under compensation plans
Excess tax benefits from stock-based
awards
Balance at April 30, 2016
Cumulative effect of change in accounting
principle (Note 1)
Stock split (Note 11)
Net income
Net other comprehensive income (loss)
Cash dividends ($0.705 per share)
Acquisition of treasury stock
Stock-based compensation expense
Stock issued under compensation plans
Loss on issuance of treasury stock issued
under compensation plans
13
12
21
22
(15)
(36)
34
15
114
(34)
14
(29)
4,065
(350)
(2,301)
10
669
(274)
(40)
(561)
19
684
(112)
(256)
(462)
15
23
(37)
18
1,905
1,067
(50)
(266)
15
34
(51)
15
1,562
10
—
669
(40)
(274)
(561)
14
19
(29)
Balance at April 30, 2017
$
25
$
43
$
65
$
4,470
$
(390) $
(2,843) $
1,370
The accompanying notes are an integral part of the consolidated financial statements.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and other currency amounts 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
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. Inventories are valued at the lower of cost or market value. Approximately 54% of our consolidated inventories
are valued using the last-in, first-out (LIFO) cost method, which we use for the majority of our U.S. inventories. We value the
remainder of our inventories primarily using the first-in, first-out (FIFO) cost method. FIFO cost approximates current replacement
cost. If we had used the FIFO method for all inventories, they would have been $248 and $272 higher than reported at April 30,
2016 and 2017, 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 an asset’s fair value
is less than its book value, we write it down to its estimated fair value. For goodwill, if the book value of the 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 goodwill’s book value. We estimate the reporting unit’s fair
value using discounted estimated future cash flows or market information. We typically estimate the fair value of a brand name
using the either the “relief from royalty” or “excess earnings” 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.
55
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 transactions and translation. We report all gains and losses from foreign currency transactions (those
denominated in a currency other than the entity’s functional currency) in current income. The U.S. dollar is the functional currency
for most of our consolidated entities. The local currency is the functional currency for some of our consolidated foreign entities.
We translate the financial statements of those foreign entities into U.S. dollars, using the exchange rate in effect at the balance
sheet date to translate assets and liabilities, and using the average exchange rate for the reporting period to translate income and
expenses. We record the resulting translation adjustments in other comprehensive income (loss).
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. Effective beginning May 1, 2016, we changed our presentation of excise taxes from the gross method (included in
sales and costs) to the net method (excluded from sales). As a result, the amounts presented as “net sales” in our financial statements
now exclude excise taxes. We believe the change in presentation to the net method is preferable because it is more representative
of the internal financial information reviewed by management in assessing our performance and more consistent with the
presentation used by our major competitors in their external financial statements. Prior period financial statements have been
recast to conform to the new presentation.
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 asset 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.
Recently-adopted accounting pronouncements. During fiscal 2017, we adopted new guidance related to certain aspects of
the accounting for stock-based compensation, including the income tax consequences. Under the new guidance, we recognize all
tax benefits related to stock-based compensation as an income tax benefit in our statement of operations, and include all income
tax cash flows within operating activities in our statement of cash flows. Under the previous accounting guidance, we recognized
some of those tax benefits (excess tax benefits) as additional paid-in capital and classified that amount as a financing activity in
our statement of cash flows. We adopted these provisions of the new guidance on a prospective basis as of May 1, 2016. As a
result, our net income and operating cash flows for fiscal 2017 include excess tax benefits of $9. Prior period financial statements
have not been adjusted.
56
Also, under the new guidance, we recognize the excess tax benefits during the period in which the related awards vest or
are exercised. Under the previous accounting guidance, we recognized those benefits during the period in which they reduced
taxes payable. We adopted this provision of the new guidance on a modified retrospective basis with a cumulative-effect adjustment
of $10 to retained earnings as of May 1, 2016.
During fiscal 2017, we also adopted revised disclosure guidance related to investments measured at net asset value. Under
the revised guidance, investments measured at net asset value as a practical expedient are no longer categorized in the fair value
hierarchy.
New accounting pronouncements to be adopted. In May 2014, the Financial Accounting Standards Board (FASB) issued a
new revenue recognition standard that, along with various amendments issued in 2015 and 2016, will replace substantially all
existing revenue recognition guidance in U.S. GAAP. The core principle of the standard requires an entity to recognize revenue
to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to
in exchange for those goods or services. The new standard also requires significantly more financial statement disclosures than
existing revenue standards do.
The new standard can be adopted using either of two transition options: a full retrospective transition method or a modified
retrospective method. Under the full retrospective method, the guidance would be applied to each prior reporting period presented.
Under the modified retrospective method, the cumulative effect of initially applying the new guidance would be recorded as an
adjustment to the opening balance of retained earnings for the annual reporting period that includes the date of initial application.
We are continuing to assess the potential impact of the new guidance on our financial statements. Based on our assessment
to date, we currently expect our accounting for certain customer incentives to be the area most likely affected by the new recognition
requirements. We also expect to disclose additional information about revenues under the new standard. As we progress in our
assessment, we are also identifying and preparing to make any changes to our accounting policies and practices, systems, processes,
and controls that may be required to implement the new standard. We currently expect to choose the modified retrospective method
in transitioning to the new standard, which we will adopt effective May 1, 2018.
We are also currently evaluating the potential impact on our financial statements of the additional new accounting
pronouncements described below:
•
•
•
•
In February 2016, the FASB issued a new standard on accounting for leases. Under the new standard, a lessee should
recognize on the balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the
underlying asset for the lease term. The standard permits an entity to make an accounting policy election not to recognize
lease assets and liabilities for leases with a term of 12 months or less. The standard, which also requires additional
quantitative and qualitative disclosures about leasing arrangements, will become effective for us beginning fiscal 2020.
It is to be applied using a modified retrospective transition approach for leases existing at the beginning of the earliest
comparative period presented in the adoption-period financial statements.
In August 2016, the FASB issued new guidance on the classification of certain cash receipts and cash payments on the
statement of cash flows. The new guidance, which addresses eight specific cash flow classification issues, is intended to
reduce diversity in practice. It will become effective for us beginning fiscal 2019 and is to be applied retrospectively.
In October 2016, the FASB issued revised guidance that requires the recognition of the income tax consequences (expense
or benefit) of an intercompany transfer of assets other than inventory when the transfer occurs. It maintains the existing
requirement to defer the recognition of the income tax consequences of an intercompany transfer of inventory until the
inventory is sold to an outside party. The guidance will become effective for us beginning fiscal 2019 and is to be applied
on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning
of the period of adoption.
In January 2017, the FASB issued updated guidance that eliminates the second step of the existing two-step quantitative
test of goodwill for impairment. Under the new guidance, the quantitative test will consist of a single step in which the
carrying amount of the reporting unit will be compared to its fair value. An impairment charge would be recognized for
the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the amount of the impairment
would be limited to the total amount of goodwill allocated to the reporting unit. The guidance does not affect the existing
option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test
is necessary. It will become effective for us beginning fiscal 2021 and is to be applied prospectively.
57
•
In March 2017, the FASB issued new guidance for the presentation of the net periodic cost (NPC) associated with pension
and other postretirement benefit plans. The guidance requires the service cost component of the NPC to be reported in
the income statement in the same line item(s) as other compensation costs arising from services rendered by the pertinent
employees during the period. The other components of the NPC are to be presented separately from the service cost and
outside of income from operations. In addition, the guidance allows only the service cost component of NPC to be eligible
for capitalization when applicable. The guidance will become effective for us beginning fiscal 2019. It is to be applied
retrospectively for the presentation in the income statement and prospectively, on and after the effective date, for the
capitalization of service cost.
Early application of any of the new accounting pronouncements described above is permitted. Although we have not yet
determined our plans for adoption, we do not currently expect to apply any of the new guidance before their effective dates.
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
Other
Other liabilities:
Deferred benefit – tax (Note 13)
Other
2016
2017
$
$
$
$
$
$
$
$
208
149
357
76
468
619
54
1,217
588
629
121
133
105
58
84
380
501
59
87
146
$
$
$
$
$
$
$
$
210
132
342
81
497
659
96
1,333
620
713
137
111
97
61
95
364
501
43
87
130
58
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows the changes in goodwill (which include no accumulated impairment losses) and other intangible
assets over the past two years:
Balance as of April 30, 2015
Sale of business (Note 16)
Foreign currency translation adjustment
Balance as of April 30, 2016
Acquisition of business (Note 17)
Foreign currency translation adjustment
Balance as of April 30, 2017
Goodwill
Other
Intangible
Assets
$
$
607
(16)
(1)
590
183
(20)
753
$
$
611
(22)
6
595
65
(19)
641
Our other intangible assets consist 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 $23, $23, and $23 during 2015, 2016, and 2017, respectively. We have commitments related to minimum lease
payments of $17 in 2018, $13 in 2019, $9 in 2020, $5 in 2021, $3 in 2022, and $1 after 2022.
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 $12 in 2018, $9 in 2019, $6 in 2020, $4 in 2021, $3 in 2022, and $1 after 2022.
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, 2017, based on current market prices, obligations under these contracts total $4.
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 existing 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, 2017.
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 $25 (subject
to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant.
As of April 30, 2017, our actual exposure under the guaranty of the importer’s obligation is approximately $6. We also have
accounts receivable from that importer of approximately $7 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.
59
5. DEBT AND CREDIT FACILITIES
Our long-term debt (net of unamortized discounts and issuance costs) consisted of:
April 30,
1.00% senior notes, $250 principal amount, due January 15, 2018
2.25% senior notes, $250 principal amount, due January 15, 2023
1.20% senior notes, €300 principal amount, due July 7, 2026
2.60% senior notes, £300 principal amount, due July 7, 2028
3.75% senior notes, $250 principal amount, due January 15, 2043
4.50% senior notes, $500 principal amount, due July 15, 2045
Less current portion
2016
2017
249
248
—
—
248
485
1,230
—
1,230
$
$
249
248
324
383
248
486
1,938
249
1,689
$
$
Debt payments required over the next five fiscal years consist of $250 in 2018, $0 in 2019, $0 in 2020, $0 in 2021, $0 in
2022, and $1,715 after 2022.
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.
We issued senior, unsecured notes with an aggregate principal amount of €300 in July 2016. Interest on these notes will
accrue at a rate of 1.20% and be paid annually. As of April 30, 2017, the carrying amount of these notes was $324 ($327 principal,
less unamortized discounts and issuance costs). These notes are due on July 7, 2026.
In addition, we issued senior, unsecured notes with an aggregate principal amount of £300 in July 2016. Interest on these
notes will accrue at a rate of 2.60% and be paid annually. As of April 30, 2017, the carrying amount of these notes was $383 ($389
principal, less unamortized discounts and issuance costs). These notes are due on July 7, 2028.
As of April 30, 2016, our short-term borrowings of $271 included $269 of commercial paper, with an average interest rate
of 0.53%, and an average remaining maturity of 26 days. As of April 30, 2017, our short-term borrowings of $211 included $208
of commercial paper, with an average interest rate of 1.04%, and an average remaining maturity of 22 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, 2017, with a ratio of 18 to 1, we were well within this covenant’s
parameters and had no borrowing outstanding under this facility.
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.
60
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, 2016
Assets:
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Long-term debt
April 30, 2017
Assets:
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
$
— $
19
$
— $
19
—
—
—
—
—
—
—
—
10
271
1,293
25
10
211
249
1,752
—
—
—
—
—
—
—
—
10
271
1,293
25
10
211
249
1,752
We determine the fair values of our currency derivatives (forwards contracts) using standard valuation models. The significant
inputs used in these models, which are readily available in public markets or can be derived from observable market transactions,
include the applicable spot rates, forward rates, and discount rates. The discount rates are based on the historical U.S. Treasury
rates.
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
2016
2017
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
263
19
$
263
19
$
182
25
10
271
—
1,230
10
271
—
1,293
10
211
249
1,689
182
25
10
211
249
1,752
8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
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
61
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 had outstanding currency derivatives, related primarily to our euro, British pound, and Australian dollar exposures, with
notional amounts totaling $1,265 and $1,188 at April 30, 2016 and 2017, respectively.
During fiscal 2017, we used some currency derivative forward contracts and foreign currency-denominated long-term debt
as after-tax net investment hedges of our investments in certain foreign subsidiaries. Any change in value of the designated portion
of the hedging instruments is recorded in AOCI, offsetting the foreign currency translation adjustment of the related net investments
that is also recorded in AOCI. As of April 30, 2017, $511 of our foreign currency-denominated debt was designated as a net
investment hedge. Our net investment hedges are intended to mitigate foreign exchange exposure related to non-U.S. dollar net
investments in certain foreign subsidiaries against changes in foreign exchange rates. There was no ineffectiveness related to our
net investment hedges.
We do not designate some of our currency derivatives and foreign currency-denominated debt 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 instruments in earnings.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
as derivative instruments.
During May 2015, we entered into interest rate derivative contracts (U.S. Treasury lock agreements) to manage the interest
rate risk related to the anticipated issuance of fixed-rate senior, unsecured notes. We designated the contracts as cash flow hedges
of the future interest payments associated with the anticipated notes. Upon issuance in June 2015 of an aggregate principal amount
of $500 of the 4.50% notes, due July 15, 2045, we settled the contracts for a gain of $8. The entire gain was recorded to AOCI
and will be amortized as a reduction of interest expense over the life of the notes.
The following table presents the pre-tax impact that changes in the fair value of our derivative instruments and non-derivative
hedging instruments had on AOCI and earnings in 2016 and 2017:
Classification in
Statement of
Operations
2016
2017
Derivative Instruments
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI
Net gain (loss) reclassified from AOCI into earnings
Interest rate derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI
Currency derivatives designated as net investment hedge:
Net gain (loss) recognized in AOCI
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings
Net gain (loss) recognized in earnings
n/a
Net sales
$
n/a
n/a
Net sales
Other income
Non-Derivative Hedging Instruments
Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI
n/a
Foreign currency-denominated debt not designated as hedging instrument:
Net gain (loss) recognized in earnings
Other income
$
22
60
8
—
1
(5)
—
—
41
40
—
8
2
(5)
2
3
62
We expect to reclassify $12 of deferred net gains on cash flow hedges recorded in AOCI as of April 30, 2017, to earnings
during fiscal 2018. 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 36 months at both April 30, 2016 and 2017.
The following table presents the fair values of our derivative instruments as of April 30, 2016 and 2017:
Balance Sheet
Classification
Fair Value of
Derivatives in a
Gain Position
Fair Value of
Derivatives in a
Loss Position
April 30, 2016
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
April 30, 2017
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
Other current assets
Other assets
Accrued expenses
Other liabilities
Other current assets
Accrued expenses
$
23
3
4
3
1
21
9
2
1
2
—
(2)
(2)
(8)
(9)
(4)
(2)
(4)
(8)
(4)
(1)
(1)
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 subject to net settlement agreements are presented on a net basis in the accompanying consolidated
balance sheets.
In our statement of cash flows, we classify cash flows related to cash flow hedges in the same category as the cash flows
from the hedged items.
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 we monetize contracts when we believe it is warranted. Because of these safeguards, we believe we
have no derivative positions that warrant credit valuation adjustments.
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 $8 and $9 at April 30, 2016 and 2017, 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.
63
The following table summarizes the gross and net amounts of our derivative contracts:
April 30, 2016
Derivative assets
Derivative liabilities
April 30, 2017
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
$
$
34
(25)
35
(20)
$
(15)
15
(10)
10
$
19
(10)
25
(10)
$
(6)
6
(1)
1
13
(4)
24
(9)
No cash collateral was received or pledged related to our derivative contracts as of April 30, 2016 or 2017.
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
2016
2017
2016
2017
$
$
887
26
35
8
—
—
(58)
898
$
$
898
26
35
(14)
1
—
(53)
893
$
$
57
1
2
(1)
—
1
(4)
56
$
$
56
1
2
—
(4)
1
(4)
52
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:
2018
2019
2020
2021
2022
2023 – 2027
Pension Benefits
Medical and Life
Insurance Benefits
$
$
52
53
54
55
58
309
3
3
3
3
3
16
64
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
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. As of April 30,
2017, our target asset allocation is a mix of 46% public equity investments, 33% fixed income investments, 20% alternative
investments, and 1% cash equivalents.
The following table shows the fair value of pension plan assets by category as of the end of the last two years. (Fair value
$
$
$
$
levels are defined in Note 6.)
April 30, 2016
Equity securities
Limited partnership interests1
Investments measured at net asset value:
Commingled trust funds2:
Equity funds
Fixed income funds
Real estate funds
Short-term investments
Hedge funds3
Total
April 30, 2017
Equity securities
Limited partnership interests1
Investments measured at net asset value:
Commingled trust funds2:
Equity funds
Fixed income funds
Real estate funds
Short-term investments
Hedge funds3
Total
Level 1
Level 2
Level 3
Total
78
—
78
$
$
— $
—
— $
— $
29
29
78
—
78
$
$
— $
—
— $
$
— $
32
32
$
78
29
107
197
197
59
4
30
594
78
32
110
206
229
63
7
8
623
1Limited partnership interests 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.
2Commingled trust fund valuations are based on the net asset value (NAV) of the funds as determined by the fund administrators 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.
3Hedge 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.
65
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, 2015
Return on assets held at end of year
Purchases and settlements
Sales and settlements
Balance as of April 30, 2016
Return on assets held at end of year
Purchases and settlements
Sales and settlements
Balance as of April 30, 2017
Level 3
26
1
5
(3)
29
1
5
(3)
32
$
$
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
2016
2017
2016
2017
$
$
626
2
—
24
(58)
594
$
$
594
51
—
31
(53)
623
$
$
— $
—
1
3
(4)
— $
—
—
1
3
(4)
—
We currently expect to contribute $35 to our pension plans and $3 to our postretirement medical and life insurance benefit
plans during 2018.
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
2016
2017
2016
2017
$
$
$
594
(898)
(304) $
$
623
(893)
(270) $
— $
(56)
(56) $
—
(52)
(52)
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 $64 and $81 as of April 30, 2016 and 2017, respectively.
66
The funded status is recorded on the accompanying consolidated balance sheets as follows:
April 30,
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
2016
2017
2016
2017
(4)
(300)
(304) $
(372) $
(4)
(376) $
(5)
(265)
(270) $
(322) $
(4)
(326) $
$
$
$
(3)
(53)
(56) $
(13) $
15
2
$
(3)
(49)
(52)
(13)
17
4
The following table compares our pension plans whose assets exceed their accumulated benefit obligations with those whose
obligations exceed their assets. (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
2016
2017
2016
2017
2016
2017
— $
48
$
— $
47
$
— $
594
594
$
575
623
$
776
776
$
729
776
$
898
898
$
48
845
893
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)
Settlement loss
Net expense
Pension Benefits
2015
2016
2017
$
$
$
22
34
(41)
1
22
—
38
$
$
26
35
(40)
1
27
—
49
$
26
35
(41)
1
25
1
47
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 2018
is $1 and $21, respectively.
67
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
2015
2016
2017
$
$
1
3
(2)
1
3
$
$
1
2
(2)
1
2
$
$
1
2
(3)
1
1
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 2018 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
2015
2016
2017
2015
2016
2017
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
$
$
— $
(80)
1
22
(57) $
— $
(46)
1
27
(18) $
(1) $
24
1
26
50
$
$
16
(3)
— $
1
(2)
1
12
(2)
1
$
— $
4
—
(3)
1
2
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
2016
2017
2016
2017
4.02%
4.00%
4.09%
4.00%
3.96%
n/a
4.04%
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
2015
2016
2017
2015
2016
2017
4.46%
4.00%
7.50%
4.09%
4.00%
7.00%
4.02%
4.00%
7.00%
4.67%
n/a
n/a
4.09%
n/a
n/a
3.96%
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.
68
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
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Medical and Life
Insurance Benefits
2016
2017
7.25%
5.00%
2024
7.25%
5.00%
2025
Aone percentage point change in the assumed health care cost trend rate would not have significantly changed the accumulated
postretirement benefit obligation as of April 30, 2017, or the aggregate service and interest costs for 2017.
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 $10, $11, and $11 for
matching contributions during 2015, 2016, and 2017, 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 16,600,000 shares of common stock to eligible participants until July 28,
2023. As of April 30, 2017, awards for approximately 12,710,000 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 (at times in connection with a publicly announced share repurchase program), 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, 2017, and for the year then ended.
Outstanding at April 30, 2016
Granted
Exercised
Forfeited or expired
Outstanding at April 30, 2017
Exercisable at April 30, 2017
Number of
Underlying
Shares
(in thousands)
Weighted
Average
Exercise Price
per Award
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
6,852
779
(1,005)
(11)
6,615
4,390
$
$
$
28.42
49.01
19.49
46.79
32.17
23.75
5.0
3.6
$
$
104
103
The total intrinsic value of options and SSARs exercised during 2015, 2016, and 2017 was $35, $47, and $28, respectively.
69
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 three years from the first day of the fiscal year of grant and expire seven years
after that date. The grant-date fair values of these awards granted during 2015, 2016, and 2017 were $9.84, $9.53, and $7.16 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)
2015
2016
2017
2.2%
22.3%
1.7%
6.75
2.1%
19.1%
1.6%
6.75
1.4%
16.3%
1.6%
7.00
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 492,000 shares underlying these awards, with a weighted-
average remaining vesting period of 1.2 years, were nonvested at April 30, 2017. The following table summarizes the changes in
the number of shares underlying these awards during 2017.
Nonvested at April 30, 2016
Granted
Adjusted for dividends or performance
Vested
Forfeited
Nonvested at April 30, 2017
Number of
Underlying Shares
(in thousands)
Weighted
Average
Fair Value at
Grant Date
547
134
(31)
(153)
(5)
492
$
$
42.61
48.44
47.45
36.71
44.27
45.71
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 2015, 2016, and 2017 was $11, $10, and $8, respectively.
The accompanying consolidated statements of operations reflect compensation expense related to stock-based incentive
awards on a pre-tax basis of $15 in 2015, $15 in 2016, and $14 in 2017, partially offset by deferred income tax benefits of $6 in
2015, $6 in 2016, and $5 in 2017. As of April 30, 2017, there was $10 of total unrecognized compensation cost related to non-
vested stock-based compensation. That cost is expected to be recognized over a weighted-average period of 1.4 years.
11. COMMON STOCK
The following table shows the change in outstanding common shares during each of the last three years:
(Shares in thousands)
Balance at April 30, 2014
Acquisition of treasury stock
Stock issued under compensation plans
Balance at April 30, 2015
Acquisition of treasury stock
Stock issued under compensation plans
Balance at April 30, 2016
Acquisition of treasury stock
Stock issued under compensation plans
Balance at April 30, 2017
Class A
168,924
(171)
173
168,926
(114)
248
169,060
(77)
68
169,051
Class B
257,986
(10,069)
557
248,474
(22,714)
664
226,424
(11,799)
410
215,035
Total
426,910
(10,240)
730
417,400
(22,828)
912
395,484
(11,876)
478
384,086
70
Stock split. On May 26, 2016, our Board of Directors approved a two-for-one stock split for our Class A and Class B common
stock, subject to stockholder approval of an amendment to our Restated Certificate of Incorporation. The amendment, which was
approved by stockholders on July 28, 2016, increased the number of authorized shares of Class A common stock from 85,000,000
to 170,000,000. The amendment did not change the number of authorized Class B common shares, which remains at 400,000,000.
The stock split, which was effected as a stock dividend, resulted in the issuance of one new share of Class A common stock
for each share of Class A common stock outstanding and one new share of Class B common stock for each share of Class B
common stock outstanding. The stock split was also applied to our treasury shares. Thus, the stock split increased the number of
Class A shares issued from 85,000,000 to 170,000,000, and increased the number of Class B shares issued from 142,313,000 to
284,626,000. The new shares were distributed on August 18, 2016, to shareholders of record as of August 8, 2016.
As a result of the stock split, we reclassified approximately $34 from additional paid-in capital to common stock during
fiscal 2017. The $34 represents the $0.15 par value per share of the new shares issued in the stock split.
All share and per share amounts reported in these financial statements and related notes are presented on a split-adjusted
basis.
12. 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. 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
2015
2016
2017
684
$
1,067
$
669
423,185
2,980
426,165
405,953
2,607
408,560
1.62
1.60
$
$
2.63
2.61
$
$
387,708
2,753
390,461
1.72
1.71
$
$
$
We excluded common stock-based awards for approximately 723,000 shares, 905,000 shares, and 1,716,000 shares from
the calculation of diluted earnings per share for 2015, 2016, and 2017, respectively, because they were not dilutive for those periods
under the treasury stock method.
13. 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
2015
2016
2017
$
$
912
90
1,002
$
$
1,184
305
1,489
$
$
806
127
933
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.
71
Deferred tax assets and liabilities as of the end of each of the last two years were as follows:
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
2016
2017
$
$
$
183
10
26
39
(25)
233
(225)
(83)
(9)
(317)
(84) $
173
17
27
44
(30)
231
(262)
(90)
(15)
(367)
(136)
As of April 30, 2017, the gross amounts of loss carryforwards include a $49 net operating loss in Brazil (no expiration); a
U.K. non-trading loss of $27 (no expiration); a $65 net operating loss in Finland (expires in varying amounts between 2024 and
2027); and other foreign and domestic net operating, capital, and non-trading losses of $43 ($14 that do not expire and $29 that
expire in varying amounts between 2018 and 2028).
The $30 valuation allowance at April 30, 2017 ($25 at April 30, 2016), relates primarily to a $17 ($12 at April 30, 2016) net
operating loss in Brazil. Although the losses in Brazil 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, 2016) related
to other foreign net operating and non-trading losses,$2 that do not expire and $6 that expire between 2018 and 2028. The remaining
valuation allowance relates to a $5 ($6 at April 30, 2016) 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 in 2014,
$15 in 2015, $16 in 2016, and $16 in 2017. The remaining balance of the deferred benefit, which is included in “other liabilities”
on the accompanying balance sheet, was $43 as of April 30, 2017. As discussed in Note 1, revised accounting guidance issued in
October 2016 will require the recognition of income tax consequences of intercompany transfers of assets other than inventory
when the transfer occurs. Our adoption of this revised guidance will result in the balance of the deferred tax benefit as of the
beginning of fiscal 2019 ($27) being recognized as an increase in retained earnings rather than as a reduction in income tax expense.
Deferred tax liabilities were not provided on undistributed earnings of foreign subsidiaries ($1,005 and $1,053 at April 30,
2016 and 2017, 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 $222 would have
been provided at both April 30, 2016 and 2017.
72
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
2015
2016
2017
$
$
$
259
42
11
312
15
(11)
2
6
318
$
$
$
347
47
18
412
24
(17)
3
10
422
$
$
$
226
40
8
274
(1)
(9)
—
(10)
264
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
Tax impact of sale of business
Amortization of deferred tax benefit from intercompany
transactions
Excess tax benefits from stock-based awards
Other, net
Effective rate
Percent of Income Before Taxes
2015
2016
2017
35.0%
1.0%
(0.5%)
(2.5%)
—%
(1.6%)
—%
0.3%
31.7%
35.0%
1.0%
(2.5%)
(2.4%)
(1.1%)
(1.6%)
—%
(0.1%)
28.3%
35.0%
0.9%
(1.7%)
(2.4%)
—%
(1.7%)
(1.0%)
(0.8%)
28.3%
At April 30, 2017, we had $9 of gross unrecognized tax benefits, $6 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
Unrecognized tax benefits at end of year
2015
2016
2017
$
$
11
2
1
(1)
—
13
$
$
13
1
—
(4)
(1)
9
$
$
9
2
—
(2)
—
9
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 2011 for one state in the United States; 2015 in the United Kingdom; 2013 in Australia; 2012 in the Netherlands,
Finland, and Mexico; and 2011 in Brazil, Germany, and Poland. The audit of our fiscal 2015 U.S. federal tax return was concluded
in the first quarter of fiscal 2017. In addition, we are participating in the Internal Revenue Service’s Compliance Assurance Program
for our fiscal 2017 tax year.
We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.
73
14. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the change in each component of AOCI, net of tax, during 2017:
Balance at April 30, 2016
Net other comprehensive income (loss)
Balance at April 30, 2017
Currency
Translation
Adjustments
Cash Flow
Hedge
Adjustments
Postretirement
Benefits
Adjustments
Total AOCI
$
$
(131)
(73)
(204)
$
$
11
—
11
$
$
(230)
33
(197)
$
$
(350)
(40)
(390)
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, 2015
Currency translation adjustments:
Net gain (loss) on currency translation
Reclassification to earnings
Other comprehensive income (loss), net
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings1
Other comprehensive income (loss), net
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings2
Other comprehensive income (loss), net
Total other comprehensive income (loss), net
Year Ended April 30, 2016
Currency translation adjustments:
Net gain (loss) on currency translation
Reclassification to earnings
Other comprehensive income (loss), net
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings1
Other comprehensive income (loss), net
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings2
Other comprehensive income (loss), net
(120) $
—
(120)
96
(41)
55
(70)
22
(48)
$
6
—
6
(40)
17
(23)
26
(8)
18
(114)
—
(114)
56
(24)
32
(44)
14
(30)
(113) $
1
$
(112)
(22) $
—
(22)
30
(60)
(30)
(47)
30
(17)
(1) $
—
(1)
(10)
23
13
19
(12)
7
(23)
—
(23)
20
(37)
(17)
(28)
18
(10)
(50)
Total other comprehensive income (loss), net
$
(69) $
19
$
74
Year Ended April 30, 2017
Currency translation adjustments:
Net gain (loss) on currency translation
Reclassification to earnings
Other comprehensive income (loss), net
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings1
Other comprehensive income (loss), net
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings2
Other comprehensive income (loss), net
Pre-Tax
Tax
Net
$
(71) $
3
(68)
41
(40)
1
28
25
53
(4) $
(1)
(5)
(17)
16
(1)
(10)
(10)
(20)
(75)
2
(73)
24
(24)
—
18
15
33
Total other comprehensive income (loss), net
$
(14) $
(26) $
(40)
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, except for amounts related to non-
U.S. benefit plans, about which no information is presented in Note 9 due to immateriality).
15. SUPPLEMENTAL INFORMATION
The following table presents net sales by product category:
Net sales:
Spirits
Wine
The following table presents net sales by geography:
Net sales:
United States
Europe
Australia
Other
2015
2016
2017
$
$
$
$
2015
2,955
179
3,134
1,445
847
175
667
3,134
$
$
$
$
2016
2,901
188
3,089
1,491
834
153
611
3,089
$
$
$
$
2017
2,805
189
2,994
1,444
770
151
629
2,994
Net sales are attributed to countries based on where customers are located.
The net book value of property, plant, and equipment located outside the United States was $59 and $96 as of April 30, 2016
and 2017, respectively. Other long-lived assets located outside the United States are not significant.
We have concluded that our business constitutes a single operating segment.
16. GAIN ON SALE OF BUSINESS
On March 1, 2016, we sold our Southern Comfort and Tuaca brands to Sazerac Company, Inc. for $543 in cash. The total
book value of the related business assets included in the sale was $49, and consisted of $11 in inventories, $16 in goodwill, and
$22 in other intangible assets. As a result of the sale, we recognized a gain of $485 (net of transaction costs of $9) during the fourth
quarter of fiscal 2016.
75
17. ACQUISITION OF BUSINESS
On June 1, 2016, we acquired The BenRiach Distillery Company Limited (BenRiach) for aggregate consideration of $407,
consisting of a purchase price of $341 and $66 in assumed debt and transaction-related obligations that we have since paid. The
acquisition, which brought three single malt Scotch whisky brands into our portfolio, included brand trademarks, inventories,
three malt distilleries, a bottling plant, and BenRiach’s headquarters in Edinburgh, Scotland.
The purchase price of $341 included cash of $307 paid at the acquisition date for 90% of the voting interests in BenRiach
and a liability of $34 related to a put and call option agreement for the remaining 10% equity shares. Under that agreement, we
could choose (or be required) to purchase the remaining 10% for £24 ($34 at the exchange rate on June 1, 2016) during the one-
year period ending November 14, 2017.
The purchase price of $341 was allocated based on management’s estimates and independent appraisals as follows:
Accounts receivable
Inventories
Other current assets
Property, plant, and equipment
Goodwill
Trademarks and brand names
Total assets
Accounts payable and accrued expenses
Short-term borrowings
Deferred tax liabilities
Total liabilities
Net assets acquired
June 1,
2016
$
11
158
1
19
183
65
437
12
59
25
96
$
341
Goodwill is calculated as the excess of the purchase price over the fair value of the net identifiable assets acquired. The
goodwill resulting from this acquisition is primarily attributable to: (a) the value of leveraging our distribution network and brand-
building expertise to grow global sales of the existing single malt Scotch whisky brands acquired, (b) the valuable opportunity to
develop new products and line extensions in the especially attractive premium Scotch whisky category, and (c) the accumulated
knowledge and expertise of the organized workforce employed by the acquired business. None of the goodwill amount of $183
is expected to be deductible for tax purposes.
BenRiach’s results of operations, which have been included in our financial statements since the acquisition date, were not
material for fiscal 2017. Pro forma results are not presented due to immateriality.
On November 17, 2016, we purchased the remaining 10% interest in BenRiach for cash of £24 ($30 at the exchange rate on
that date) by exercising the call option described above. That cash payment is classified as a financing activity in the accompanying
statement of cash flows.
76
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Expressed in millions, except per share amounts)
Second
Quarter
$ 1,096
242
854
586
200
0.49
0.49
Fiscal 2016
Third
Quarter
$ 1,083
274
809
555
190
0.47
0.47
Fourth
Quarter
933
$
204
729
513
522
1.31
1.30
Year
$ 4,011
922
3,089
2,144
1,067
2.63
2.61
First
Quarter
856
$
195
661
453
144
0.37
0.36
Second
Quarter
$ 1,055
225
830
552
197
0.51
0.50
Fiscal 2017
Third
Quarter
$ 1,059
251
808
536
182
0.47
0.47
Fourth
Quarter
887
$
193
694
480
144
0.38
0.37
Year
$ 3,857
863
2,994
2,021
669
1.72
1.71
Sales
First
Quarter
900
$
201
699
491
156
0.38
0.37
Excise taxes
Net sales
Gross profit
Net income
Basic EPS
Diluted EPS
Cash dividends per share:
Declared
Paid
0.3150
0.1575
— 0.3400
0.1700
0.1575
— 0.6550
0.6550
0.1700
0.3400
0.1700
— 0.3650
0.1825
0.1700
— 0.7050
0.7050
0.1825
Market price per share:
Class A high
Class A low
Class B high
Class B low
Notes:
59.75
46.55
54.21
45.33
61.15
52.94
55.41
47.61
58.77
49.75
53.44
45.30
56.12
50.20
51.70
46.63
61.15
46.55
55.41
45.30
54.28
50.78
50.40
46.95
54.45
47.00
51.06
44.66
49.32
45.62
47.04
43.96
50.05
46.36
48.95
45.01
54.45
45.62
51.06
43.96
1. Quarterly amounts may not add to amounts for the year due to rounding. Further, quarterly earnings per share (EPS) amounts may not
add to amounts for the year because quarterly and annual EPS calculations are performed separately.
2. Results for the fourth quarter of fiscal 2016 include a gain of $485 million on the divestiture of our Southern Comfort and Tuaca brands.
3. Per share amounts have been adjusted for a 2-for-1 stock split that occurred in August 2016.
77
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 and principal financial officers), 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 2017. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and
procedures: (a) 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; (b) 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, 2017, 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. Management’s report on our internal control over financial reporting as of April 30, 2017, and our independent registered
public accounting firm’s report on our internal control over financial reporting are set forth in “Item 8. Financial Statements and
Supplementary Data.”
The Company acquired The BenRiach Distillery Company Limited (BenRiach) in a purchase business combination during
fiscal 2017. Based on SEC staff interpretive guidance for newly-acquired businesses, management excluded BenRiach from its
assessment of our internal control over financial reporting as of April 30, 2017. BenRiach is a wholly-owned subsidiary whose
total assets and total net sales represented approximately 4% and 1% respectively, of the related consolidated financial statement
amounts as of and for the year ended April 30, 2017.
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 27, 2017, 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 27, 2017, 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, refer to “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 27, 2017, which
information is incorporated into this report by reference.
78
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 27, 2017, which information is incorporated into this report by reference: (a) “Certain
Relationships and Related Transactions”; and (b) “Our Independent Directors.”
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 27, 2017, 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:
Report of Independent Registered Public Accounting Firm
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
(a)(2)
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts
Page
49
50
51
52
53
54
55
85
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
Statement re Computation of Ratio of Earnings to Fixed Charges.
21
23
31.1
31.2
32
101
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, 2017, 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.
79
The following documents have been previously filed:
Exhibit Index
3.1
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).
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.1
4.11
4.12
10.1
10.2
10.3
10.4
Certificate of Amendment of Restated Certificate of Incorporation of registrant, incorporated into this report by
reference to Exhibit 3.1 of Brown-Forman Corporation’s Form 8-K filed on August 9, 2016 (File No. 001-00123).
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
filed on
Trustee, incorporated into this report by reference to Exhibit 4.1 of Brown-Forman Corporation’s Form
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).
Second Supplemental Indenture dated as of June 24, 2015, between Brown-Forman Corporation and U.S. Bank National
Association, as Trustee, incorporated into this report by reference to Exhibit 4.4 of Brown-Forman Corporation’s Form
8-K filed on June 29, 2015 (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 1.200% Note due 2026, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman Corporation’s
Form 8-K filed on July 8, 2016 (File No. 002-26821).
Form of 2.600% Note due 2028, incorporated into this report by reference to Exhibit 4.6 of Brown-Forman Corporation’s
Form 8-K filed on July 8, 2016 (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).
Form of 4.500% Notes due 2045, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman
Corporation’s Form 8-K filed on June 29, 2015 (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).
Officer’s Certificate dated June 29, 2015, pursuant to Sections 1.02, 2.02, 3.01 and 3.03 of the Indenture dated as of
April 2, 2007, as supplemented by the First Supplemental Indenture dated as of December 13, 2010 and the Second
Supplemental Indenture dated as of June 24, 2015, between Brown-Forman Corporation and U.S. Bank National
Association, as Trustee, setting forth the terms of the 4.500% Notes due 2045, incorporated into this report by reference
to Exhibit 4.3 of Brown-Forman Corporation’s Form S-3ASR Registration Statement filed on June 24, 2015 (File No.
333-205183).
Officer’s Certificate dated July 7, 2016, 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 and the Second Supplemental
Indenture dated as of June 24, 2015, between Brown-Forman Corporation and U.S. Bank National Association, as
Trustee, setting forth the terms of the 1.200% Notes due 2026 and the 2.600% Notes due 2028, incorporated into this
report by reference to Exhibit 4.4 of Brown-Forman Corporation’s Form 8-K filed on July 8, 2016 (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).*
80
Exhibit Index
10.5
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).*
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
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).*
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).
364-Day Credit Agreement, dated as of May 6, 2016, among Brown-Forman Corporation, 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 May 6, 2016 (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).*
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 August 1, 2016 (File No. 001-00123).*
Form of Performance-Based Restricted Stock Unit Award Agreement (Class A), incorporated into this report by
reference to Exhibit 10.2 of Brown-Forman Corporation’s Form 8-K filed on August 1, 2016 (File No. 001-00123).*
Form of Performance-Based Restricted Stock Unit Award Agreement (Class B), incorporated into this report by
reference to Exhibit 10.3 of Brown-Forman Corporation’s Form 8-K filed on August 1, 2016 (File No. 001-00123).*
* Indicates management contract, compensatory plan, or arrangement.
81
Item 16. Form 10-K Summary
None.
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 14, 2017
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 14, 2017, 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/ Patrick Bousquet-Chavanne
By:
Patrick Bousquet-Chavanne
Director
/s/ Campbell P. Brown
By: Campbell P. Brown
Director
82
/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/ Marshall B. Farrer
By: Marshall B. Farrer
Director
/s/ Laura L. Frazier
By: Laura L. Frazier
Director
/s/ Kathleen M. Gutmann
By: Kathleen M. Gutmann
Director
/s/ Augusta Brown Holland
By: Augusta Brown Holland
Director
/s/ Michael J. Roney
By: Michael J. Roney
Director
83
/s/ Michael A. Todman
By: Michael A. Todman
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)
84
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 2015, 2016, and 2017
(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
2015
Allowance for doubtful accounts
Deferred tax valuation allowance
2016
Allowance for doubtful accounts
Deferred tax valuation allowance
2017
Allowance for doubtful accounts
Deferred tax valuation allowance
(1) Doubtful accounts written off, net of recoveries.
$
$
$
$
$
$
9
34
10
27
9
25
$
$
$
$
$
$
2
2
1
3
—
5
$
$
$
$
$
$
—
—
—
—
—
2
$
$
$
$
$
$
1
9
$
$
2 (1) $
$
5
2 (1) $
$
2
10
27
9
25
7
30
85
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,
2013
20.9x
2014
26.9x
2015
28.1x
2016
28.8x
2017
14.8x
SUBSIDIARIES OF THE REGISTRANT
Name
Amercain Investments, C.V.
AMG Trading, L.L.C.
BenRiach Distillery Company Limited
BF FINCO, S. de R.L. de C.V.
B-F Holding Hungary 2 Kft.
B-F Korea, L.L.C.
BFC Tequila Limited
Brown-Forman Arrow Continental Europe, L.L.C.
Brown-Forman Australia Pty. Ltd.
Brown-Forman Beverages Europe, Ltd.
Brown-Forman Beverages Japan, L.L.C.
Brown-Forman Beverages North Asia, L.L.C.
Brown-Forman Beverages (Shanghai) Co., Ltd.
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 Distillery, Inc.
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 Latvia L.L.C.
Brown-Forman Ljubljana Marketing, d.o.o
Brown-Forman Middle East FZ-LLC
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 Scotland Limited
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.
Exhibit 21
Percentage of
State or Jurisdiction
Securities Owned
Of Incorporation
100% (1)
100%
100% (2)
100% (3)
100% (4)
100% (5)
100% (6)
100%
100% (5)
100% (5)
100%
100%
100% (7)
100% (8)
100% (5)
100% (5)
100% (9)
100% (10)
100%
100% (5)
100% (5)
100% (5)
100% (11)
100% (12)
100% (13)
100% (14)
100% (5)
100%
100%
100% (13)
100% (5)
100% (5)
100% (5)
100% (15)
100% (9)
100% (11)
100% (16)
100% (5)
100% (4)
100% (5)
100% (5)
100% (7)
100% (5)
100% (17)
Netherlands
Delaware
Scotland
Mexico
Hungary
Delaware
Ireland
Kentucky
Australia
United Kingdom
Delaware
Delaware
China
Brazil
Bulgaria
Colombia
Czech Republic
Germany
Delaware
Netherlands
Finland
France
Greece
Mexico
Hong Kong
Hungary
Hungary
Delaware
Kentucky
Korea
Latvia
Slovenia
United Arab Emirates
Netherlands
Poland
Romania
Russia
Serbia
Scotland
South Africa
Spain
China
Turkey
Mexico
Name
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.
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
Slane Castle Irish Whiskey Homeplace Limited
Slane Castle Irish Whiskey Limited
Sonoma-Cutrer Vineyards, Inc.
Valle de Amatitan, S.A. de C.V.
Washington Investments, L.L.C.
Percentage of
State or Jurisdiction
Securities Owned
Of Incorporation
100%
100%
100% (18)
100%
100%
100% (6) (19)
100% (20)
100%
100% (21)
100%
100%
100% (15) (19)
100% (22)
100% (23)
100% (24)
100% (5)
100%
100% (17)
100%
Delaware
Delaware
China
Ontario, Canada
France
Ireland
Mexico
Finland
Tennessee
Delaware
Ukraine
Ireland
Delaware
Ireland
Ireland
Ireland
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 Scotland Limited.
Owned 99% by Brown-Forman Dutch Holding B.V. and 1% by Brown-Forman Beverages Europe, Ltd.
Owned by Brown-Forman Hungary 1 Kft.
Owned by Brown-Forman Netherlands, B.V.
Owned by Longnorth Limited.
Owned by Brown-Forman Hong Kong Ltd.
Owned 99% by Brown-Forman Corporation and 1% by Brown-Forman Distillery, Inc.
Owned 81.8% by Brown-Forman Netherlands, B.V. and 18.2% by Brown-Forman Beverages Europe, Ltd.
(10) Owned by Brown-Forman Beverages Europe, Ltd.
(11) Owned 90% by Brown-Forman Netherlands B.V. and 10% Brown-Forman Dutch Holding B.V.
(12) Owned 52.01% by Brown-Forman Netherlands, B.V. and 47.99% by Brown-Forman Corporation.
(13) Owned by B-F Korea, L.L.C.
(14) Owned by AMG Trading, L.L.C.
(15) Owned by Amercain Investments C.V.
(16) Owned 90% by Brown-Forman Netherlands B.V. and 10% Brown-Forman Deutschland GmbH.
(17) Owned 99% by Brown-Forman Holding Mexico S.A. de C.V. and 1% by Brown-Forman Distillery, Inc.
(18) Owned by Brown-Forman Beverages North Asia, L.L.C.
(19)
Includes qualifying shares assigned to Brown-Forman Corporation.
(20) Owned 99.9972% by BF FINCO S. de R.L. de C.V. and 0.00277% by Brown-Forman Beverages Europe, Ltd.
(21) Owned by Jack Daniel's Properties, Inc.
(22) Owned by Jack Daniel Distillery, Lem Motlow, Prop., Inc.
(23) Owned by Clintock Limited.
(24) Owned by Slane Castle Irish Whiskey 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-3 (No. 333-205183) and S-8
(Nos. 333-38649, 333-74567, 333-89294, 333-117630, 333-169564, and 333-190122) of Brown-Forman Corporation of our report
dated June 14, 2017 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 14, 2017
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 14, 2017
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 14, 2017
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, 2017, 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 14, 2017
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.
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CORPORATE INFORMATION
CORPORATE HEADQUARTERS
850 Dixie Highway / Louisville, Kentucky 40210 / (502) 585-1100
www.brown-forman.com / brown-forman@b-f.com
LISTED
New York Stock Exchange — BFA/BFB
STOCKHOLDERS
As of April 30, 2017, there were 2,693 holders of record of Class A Common Stock
and 4,909 holders of record of Class B Common Stock. Stockholders reside in all
50 states and in 21 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)
Correspondence: P.O. Box 505000 / Louisville, KY 40233
Overnight Correspondence: 462 South 4th Street, Suite 1600
Louisville, KY 40202
EMPLOYEES
As of April 30, 2017, Brown-Forman employed approximately 4,700 people,
including about 260 employed on a part-time or temporary basis. Brown-Forman
Corporation is committed to equality of opportunity in all aspects of employment.
It has been and will continue to be the policy of Brown-Forman to provide full
and equal employment opportunities to all employees and potential employees
without regard to race, color, religion, national or ethnic origin, veteran
status, age, gender, gender identity or expression, sexual orientation, genetic
information, physical or mental disability, or any other legally protected status.
It is also the policy of Brown-Forman to take affirmative action to employ and to
advance in employment, all persons regardless of race, color, religion, national
or ethnic origin, veteran status, age, gender, gender identity or expression,
sexual orientation, genetic information, physical or mental disability or any other
legally protected status, and to base all employment decisions only on valid
job requirements. This policy applies to all terms, conditions and privileges of
employment, such as those pertaining to selection, training, transfer, promotion,
compensation, and educational assistance programs.
FORM 10-K
Our 2017 Form 10-K is included with this 2017 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 company’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
other factors (many beyond our control) that could cause our actual results to
differ materially from our historical experience or from our current expectations
or projections. Except as required by law, we do not intend to update or revise
any forward-looking statements, whether as a result of new information, future
events, or otherwise. For a description of these risks and uncertainties, please
see “Forward-Looking Statement Information,” which precedes Part I, Item 1,
Business, as well as Item 1A, Risk Factors, of the Form 10-K included with this
2017 Annual Report.
USE OF NON-GAAP FINANCIAL INFORMATION
Certain matters discussed in this Annual Report include measures not derived
in accordance with generally accepted accounting principles (“GAAP”), including
“return on average invested capital” 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, around “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 2017 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, 2012, 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 2012.
INDEXED
TOTAL
SHAREHOLDER
RETURN
as of April 30,
2017, dividends
reinvested
$200
$175
$150
$125
$100
BF Class B Shares
S&P 500 Index
Dow Jones U.S.
Consumer Goods
Dow Jones U.S.
Food and Beverage
2012
2013
2014
2015
2016
2017
$100
$100
$100
$100
$132
$117
$122
$124
$171
$141
$138
$137
$174
$159
$153
$156
$188
$161
$168
$176
$187
$190
$184
$188
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.
The 2017 Annual Report and the embedded electronic content referenced herein
contain “forward-looking statements” as defined under U.S. federal securities
laws. By their nature, forward-looking statements involve risks, uncertainties and
This Annual Report is printed on FSC®-certified paper.
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OUR STORY:
BUILDING FORE VE R
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850 DIXIE HIGHWAY, LOUISVILLE, KENTUCKY 40210 | BROWN-FORMAN.COM