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2018 ANNUAL REPORT
AT BROWN-FORMAN, WE ARE PROUD
TO OWN SOME OF THE MOST
ICONIC WHISKE YS IN THE WORLD.
Led by our foundational brand, Jack Daniel’s Tennessee Whiskey, our whiskeys
embody the authentic craftsmanship and quality that inspire loyalty among
consumers and enable us to lead the American Whiskey category. With thoughtful
innovation and consistent investments, we have built a portfolio of premium
offerings and are grateful to count among them some of the world’s most-beloved
whiskeys, not to mention many newly emerging favorites. We are pleased
to report a year of strong performance for the family of Brown-Forman brands
in fiscal 2018, with underlying net sales growth* of 6% (8% as reported),
and underlying operating income growth of 8% (5% as reported).
01
*Inthisreport,wepresentbothreported(GAAP)andunderlying(non-GAAP)changesinnetsalesandoperatingincome.Weusethesereportedandunderlying
measurestounderstandthegrowthofourbusinesswiththeimpactofacquisitionsanddivestitures,foreignexchange,estimatednetchangesindistributorinventories,
andtheinitial$70Mcontributioninthefourthquarterof2018toestablishtheBrown-FormanFoundationremoved.Pleasereferto“UseofNon-GAAPFinancial
Information”onthelastpageofthisAnnualReportforadditionalinformation.
17M+ CASES
WORLDWIDE
Jack Daniel’s Family of
Brands is making friends the
world over.
#1 SPIRITS
BRAND
In 2017, Jack Daniel’s
Tennessee Whiskey earned
top billing among Interbrand’s
Best Global Brands.
AN ICON IN NEW
PLACES
In emerging markets, Jack
Daniel’s Tennessee Whiskey
is experiencing double-digit
growth in underlying net sales.
02
MUCH TO CELEBRATE WITH
GENTLEMAN JACK
Entering its 30th year, this international
favorite now ranks as the largest super-
premium American Whiskey brand outside
the U.S. We believe this gives us room to
build upon its momentum.
JACK
DANIEL’S,
KNOWN THE
WORLD OVER
SUSTAINED GLOBAL GROWTH
Born in 1866, Jack Daniel’s Tennessee Whiskey shines as the
most iconic American Whiskey in the world. With its unmis-
takable silhouette and distinctive depth of character, it is now
appreciated in over 170 countries. In fiscal 2018, it surpassed
13 million cases* worldwide, with global underlying net sales
growth of 4% (6% as reported) powered by rapid growth outside
the U.S. As the largest single expression among spirits brands
over $25 per bottle, Jack Daniel’s Tennessee Whiskey stands as
the most valuable spirits trademark in the world.†
The global strength of the Jack Daniel’s name has enabled us to
build what is now a family of Jack Daniel’s brands, expanding
consumer reach for premium American Whiskey. Last year,
the family (excluding the original Tennessee Whiskey) grew
underlying net sales by double digits, surpassing four million
cases among brands such as Jack Daniel’s Tennessee Honey,
Jack Daniel’s Tennessee Fire, Gentleman Jack, Jack Daniel’s
03
Ready-to-Drinks (RTDs), and our newly launched Jack Daniel’s
showing solid growth in emerging markets, where demand
Tennessee Rye. The hard work and disciplined innovation from
for super-premium spirits is building. The Jack Daniel’s Single
our teams around the world last year resulted in underlying net
Barrel Collection, including Rye and Barrel Proof, continued
sales growth of 6% (8% as reported) for the Jack Daniel’s family
their strong performance.
of brands.
In select markets, three innovations in our RTD business put
Notably, Jack Daniel’s Tennessee Honey continues to attract new
a new twist on Jack Daniel’s, growing our portfolio of flavors.
loyalists with its unique flavor profile, approaching 1.7 million
In Germany, the launch of Jack Daniel’s Lynchburg Lemonade
cases globally in 2018. It now ranks as the 15th largest spirits
helped propel RTD sales to more than one million cases** in
brand in the world over $25 per bottle† — quite an achieve-
fiscal 2018, and globally, RTD sales surpassed eight million
ment in only its seventh full year. Jack Daniel’s Tennessee Fire
cases**, including strong gains in the United Kingdom, Australia,
continues to build momentum in on- premise sales, posting
and the United States.
underlying net sales growth of 15% (20% as reported). Jack
Daniel’s Tennessee Rye debuted in September 2017 in the U.S.
With worldwide demand for whiskey continuing to trend
and is already the third-most- popular rye whiskey, according to
upward, and a current volume market share of 5%†, we believe
syndicated data, in a rapidly growing category.
there is plenty of room to grow.
Entering its 30th year, Gentleman Jack celebrated by growing
underlying net sales by 7% (9% as reported) and surpass-
ing 600,000 cases globally. This brand is now the largest
*“Cases” or “volumes” refer to depletions on a 9L drinks equivalent basis
unlessotherwisenoted.PleaseseethesectiontitledPresentationBasisunder
Management’sDiscussionandAnalysisintheForm10-K.
†2017IWSRdata
**TheRTDcasesmentionedinthisinstanceare9Lcasesandarenotadjusted
super-premium American Whiskey outside of the U.S. and is
toadrinksequivalentbasis.
AMERICAN
WHISKEYS THAT
STAND APART
LEADING AMERICAN WHISKEY
For nearly 150 years, we’ve been crafting American
Whiskeys the best way we know how. With care. With
patience. And with pride. And as we’ve grown our
family of whiskeys over time, people seem to appreci-
ate what we do.
2018 (26% as reported). And its loyalists around the
world helped the brand surpass 700,000 cases for
the first time. Among its super-premium offerings,
Woodford Reserve Rye continued to gain momen-
tum in the fast-growing rye whiskey category, and
Woodford Reserve Kentucky Straight Malt Whiskey,
launched in June 2018, continued the thoughtful
expansion of the brand into premium expressions that
Premium American Whiskey is one of the fastest-
are enjoying global interest.
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growing spirits categories in the world, growing
volumes 7% in 2017.† Representing nearly two-thirds
of our total company volumes, American Whiskey
will continue to be a focus of our investments and
innovation. Our collection of super-premium American
Whiskeys grew underlying net sales by 15% (20% as
reported) in fiscal 2018.
Woodford Reserve has, in just over two decades,
earned its place as an icon of American Whiskey.
With its elegant profile and sophisticated character,
it posted underlying net sales growth of 22% in fiscal
Old Forester, the world’s first bottled bourbon and our
founding brand, grew underlying net sales even faster
than Woodford Reserve, and surpassed 200,000 cases.
As one of the greatest values in bourbon, the focus is
on premiumizing the brand with new super-premium
expressions. The annual release of Old Forester Birthday
Bourbon is always highly anticipated and sought-after.
Its three Whiskey Row expressions — Prohibition Style,
Bottled in Bond, and Original Batch — each highlight
specific periods in the brand’s history and deepen
its authentic roots. And the June 2018 opening of its
Old Forester, the world’s first bottled
bourbon, returned to historic Whiskey Row
in Louisville, Kentucky, with the opening
of its new distillery in June 2018.
05
EXPANDING OUR WHISKEYS
WITH A NEWCOMER AND
REVIVED CLASSICS
Whiskey Row distillery brings a new chapter to a very
old tradition: Old Forester President’s Choice, a single
barrel expression whose idea dates back 128 years, to
when George Garvin Brown selected his very favorite
barrels for family and friends.
With over 30 unique American Whiskey offerings in
our portfolio, we plan to continue the development that
has earned us a place in the lives of so many people
around the world.
THE KENTUCKY DERBY®
PRESENTED BY
WOODFORD RESERVE®
†2017IWSRdata
There is no greater tradition in Kentucky than
the running of the Derby. After twenty years as
an Official Sponsor, it was our honor to become
the Official Presenting Sponsor. This year’s annual
commemorative bottle was designed by one of
our very own, lifelong artist and Brown-Forman
team member, Keith Anderson.
SPIRITS
THAT STIR
THE SENSES
BROADENING OUR PORTFOLIO
Craft and quality are what draw people to our
spirits and give our broader portfolio its strength.
With a balanced geographic approach, we con-
tinue to invest in premium spirits for the long term.
06
From the heart of Jalisco, Mexico, our tequilas had
a fine year indeed, posting global under lying net
sales growth of 13% (16% as reported). Herradura
surpassed 500,000 cases and grew underlying
net sales by 19% (17% as reported). Herradura
Ultra, launched only three years ago, surpassed
70,000 cases. Over the past few years, el Jimador
was repositioned at a higher price point and sur-
passed 1.2 million cases worldwide. The brands
CASA HERRADURA
For nearly 150 years, 100% agave tequila has been handcrafted at Casa Herradura. Visitors can now enhance their experience by traveling there in classic style, on the Tequila Herradura Express train. are also innovating new methods in the area of
sustainability and have already achieved signifi-
cant reductions in their water usage and energy
consumption. Historically popular in Mexico and
the U.S., tequila is now seeing signs of growth
beyond. In fiscal 2018, 13% of our tequila sales
came from outside of Mexico and the U.S.
Slane Irish Whiskey, which debuted to broad
acclaim in 2017, has a development plan modeled
after that of Woodford Reserve. We’ve rooted it on
the historic grounds of Slane Castle, and in fiscal
2018, the doors opened to its distillery and home-
place. Now whiskey enthusiasts can discover this
super-premium spirit in its unique home.
In Scotland, the historic GlenDronach, BenRiach,
and Glenglassaugh brands, acquired in fiscal
2017, keep us positioned in the super-premium
single malt Scotch Whisky category. Helmed by
Master Blender Rachel Barrie, they’ve earned
numerous accolades. And their historic distilleries
and home places offer people a way to experience
the time-honored craft of these singular spirits.
As we reflect upon the year we’ve had, we are
thankful to our teams around the world, who con-
tinue to build and strengthen our business with
their hard work, dedication to excellence, and
forward thinking.
NEW LOOK, NEW IMPACT
Finlandia Vodka’s newly designed bottle
debuted in 2018, elevating the ice-inspired
story of the brand as well as lessening
its carbon footprint by reducing its glass
usage and final weight.
RECOGNITION OF OUR QUALITY
07
BENRIACH
GLENDRONACH
12YR
SLANE IRISH
WHISKEY
HERRADURA
Double Gold, 2018 World Spirits CompetitionSilver Medal, 2017 IWSC (International Wine & Spirits Competition)Double Gold for packaging, 2018 San Francisco World Spirits CompetitionGold Medal, World Whiskies Awards 2017World’s most gold-medal-awarded tequila DEAR
SHAREHOLDERS
JUNE 26, 2018
Thethemeofthisyear’sannualreport,Icons of American
Whiskey, aims to highlight our leading American Whiskey
brandsandtheleadershiprolesthattheyplayinoneofthe
most attractive categories in the distilled spirits industry
today.BecauseoftrademarkslikeJackDaniel’s,Woodford
Reserve,andOldForester,Brown-Formanisfortunatetobe
thegloballeaderofthePremiumAmericanWhiskeycategory
andweaspiretobuildonthatpositionintheyearsahead.
Since the writing of this letter coincides with the recent
announcement of my retirement from Brown-Forman at
08
calendaryearend,thismarksmyfinalannualreportletter
to you. Instead of recapping the prior twelve months in
somedetailashasbeenmynorm,IthoughtImightshare
afewreflectionsfromthelastfifteenyearsorsoaboutthe
company.Indoingso,Ihopetogiveyouacontinuedsense
ofoptimismaboutBrown-Formangoingforward.
Inoptingtotakealonger-termviewwiththisyear’sletter,it
isnotbecauseIwanttoshiftyourattentionawayfromour
short-termresults. Quitethecontrary.Brown-Formanhad
anexcellentfiscalyear2018andourfiscalyear2019plans
aimtocontinuethemomentum.Forthosewhowouldenjoy
adetailedlookatfiscalyear2018,youshouldfindsufficient
informationprovidedbyacombinationofthisannualreport,
theproxystatementthataccompaniesit,andouryear-end
earningsrelease.
AsI’venotedmanytimes,ithasbeenourambitiontoperform
consistentlywellacrosstheshort,mid,andlongterm.Aided
byastellar53%totalshareholderreturn(TSR)infiscalyear
2018,Brown-Formanrankedattheverytoprelativetoour
competitivebenchmarksona1-,5-,and10-yearbasis.Of
particularnoteistheconsistencyofthecompany’s3-,5-,and
10-yearTSRs,whichwere18%,17%,and17%,respectively.
PaulC.Varga,ChairmanandChiefExecutiveOfficer
Whatingredientsarerequiredtoproduceconsistentresults
suchasthese?Limitingmyselftoamerefiveingredients,
hereisoneman’spointofview...
ACTIVE PORTFOLIO MANAGEMENT
Overtheyears,wehaveconsistentlyattemptedtoimprove
our company’s long-term financial profile by creating,
acquiring, and/or selling brands. When this occurred, the
metricsthatweprioritizedwereOperatingMargin,Return
onInvestedCapital(ROIC),andGrowthinUnderlyingNet
Sales.TheadditionsofJackDaniel’sTennesseeHoney,Jack
Daniel’sTennesseeFire,theCasaHerraduraTequilabrands,
the BenRiach Single Malt Scotch brands, and Slane Irish
Whiskey,pairedwiththedispositionsofLenox,Hartmann,
the popular-priced wine brands, and Southern Comfort,
standasgoodexamplesofourconsistentportfolioreshaping.
Ifeelwe’vemadesmartportfoliojudgmentsovertheyears
andtodayourpremium-skewedportfolioremainspoisedfor
considerablegrowthintheyearsahead.
SUPERB BRAND BUILDING
Havinganicestableoftrademarksdoes
not automatically translate to enduring
value creation. The brands have to be
builteachandeveryday.Thisexercise
requiressteadydosesofinvestmentand
creativity,aswellasadeepunderstand-
ing of a brand’s consumer and trade
dynamics.Toenableourbrandbuilding,
wehavesteadilyinvestedinfurthering
ourcompany’sRoutetoConsumer(RTC)
around the world, which has given us
more direct access to the consumer
and trade. We’ve also long known the
high multiples paid for acquisitions in
our industry, patience and discipline
arealsobeneficialqualities.Welooked
at countless acquisition opportunities
over the last 15 years, but only chose
to act on a few. Looking back now, I
cansaythatsomeofthebestdecisions
wemadeweredecisionsnottoacquire
certainbrandswehadconsidered,opting
insteadtorepurchaseourownstockor
to supplement our consistent dividend
program. I feel we’ve been very good
stewardsofthecompany’scapital,and
our20%ROICtodayisonesuchindi-
importance of product quality and I
catorofthat.
believeourglobalproductioncolleagues
haveconsistently“putitinthebottle.”
Brown-Forman’sbrandbuildingcapabil-
ityisonvividdisplaytodayviaourwork
ontheJackDaniel’s,WoodfordReserve,
Herradura, Sonoma-Cutrer, Slane, and
Old Forester trademarks, to highlight
butafew.
EXCELLENT CAPITAL DEPLOYMENT
This is an area where I feel the com-
pany has particularly excelled over the
years. We have regularly prioritized
reinvestment in the business and this
is most visible today through the cap-
ital programs recently completed or
underway at Jack Daniel’s, Woodford
Reserve, Old Forester, Slane, and
Brown-Forman Cooperage. I believe
that properly balancing risk/reward
and having a long-term view are both
paramount to Brown-Forman’s capital
deploymentsuccess.Giventherelatively
A STRONG GOVERNANCE SYSTEM
IbelievethatthetriadoftheBrownfam-
ily,theBrown-FormanBoardofDirectors,
andthecompany’smanagementcombine
toformarock-solidgovernancesystem.
Thecontrollingownershipandconstruc-
tiveengagementbytheBrownfamilyare
adecidedadvantageforBrown-Forman
asthefamilyenablesourindependence
and encourages our long-term orienta-
tion. The Board regularly encourages
and challenges management on topics
such as strategy, performance, capital
deployment, and corporate responsi-
bility while expertly representing the
company’sshareholders.Inadditionto
stewardingthecompany’sfinancialand
strategicsuccess,theBoardandfamily’s
oversight, as controlling shareholders,
hassetthetoneforthecompany’sexcel-
lent record on financial responsibility,
litigationavoidance,compliance,alcohol
The brands have to
be built each and
every day.
09
ledbyourAmericanWhiskeyportfolio.
WithLawsonandGarvinBrownIVatop
thecompany’sstronggovernancesystem
formanyyearstocome,Brown-Forman’s
stakeholders have good reason to be
optimisticaboutthecompany’sfuture.
So,thereyouhaveit—oneman’ssyn-
opsisofwhyBrown-Formanhasexcelled
over so many years (and why it will
continuetodoso).Andtobeclear,these
advantageous attributes took root long
beforeIhadtheprivilegetobecomethe
company’s CEO. I feel so blessed and
fortunate to have had the opportunity
to leave even a small imprint on this
veryspecialplaceasitpassesthrough
timeenrichingthelivesofsomany.That
opportunity was given to me by two
peoplewhomIconsidertobeIcons of
American Whiskey ofthehighestform,
OwsleyBrownIIandBillStreet.Iwillfor-
everbeindebtedtothemforsettingthe
company(andme)onacoursethathas
been truly remarkable and immensely
rewarding. I am equally indebted to
GarvinandtheBrownfamily,ourBoard
ofDirectors,andtoallofmycolleagues
BROWN-FORMAN EXECUTIVE LEADERSHIP TEAM
Fromleft,toprow:Alejandro A. Alvarez,SeniorVicePresident,ChiefProductionOfficer/ Lawson E.
Whiting,ChiefOperatingOfficer/ Jane C. Morreau,ExecutiveVicePresident,ChiefFinancialOfficer/
Mark I. McCallum,ExecutiveVicePresidentandPresident,JackDaniel’sBrands/ Michael J. Keyes,
SeniorVicePresidentandPresident,NorthAmericaRegion/ Paul C. Varga,ChairmanandChief
ExecutiveOfficer/ John V. Hayes,SeniorVicePresident,ChiefMarketingOfficer,Brown-Forman
Brands/ Ralph E. de Chabert,SeniorVicePresident,ChiefDiversityOfficer/ Lisa P. Steiner,Senior
VicePresident,ChiefofStaff
Fromleft,bottomrow:Thomas Hinrichs,SeniorVicePresidentandPresident,Europe,NorthAsia,
and ANZSEA / Michael A. Masick, Vice President, Director Corporate Strategy and Business
Development/ Jill A. Jones,FormerExecutiveVicePresidentandPresident,NorthAmerica,CCSA,
IMEA,andGlobalTravelRetail/ Kirsten M. Hawley,SeniorVicePresident,ChiefHumanResources
Officer/ Matthew E. Hamel,ExecutiveVicePresident,GeneralCounselandSecretary
10
responsibility,environmentalsustainabil-
twenty-three I found Brown-Forman, a
across our Brown-Forman community.
ity,corporatephilanthropy,anddiversity
placewherepoliteness,civility,respect
Thankyouformakingthecompanythe
andinclusion.Asthecompanynearsits
andcompassionareonregulardisplay.
successthatitistoday,andthanksas
150th anniversary in the year 2020,
I’vecometobelievethatthesurestpath
well to you, our valued shareholders,
shareholders can rest assured that a
togreatnessisthroughcountlessactsof
foryoursteadysupportovertheselast
highlyprofessionalsystemofgovernance
goodness.ToexperienceBrown-Forman
fifteenyears.
isinplaceatBrown-Forman.
istoexperiencedailygoodness,andthe
GREAT PEOPLE WORKING IN A
GREAT CULTURE
Thisisperhapsthemostimportantingre-
repetitionofthisiswhatmakesBrown-
Withsincereappreciation,
Formanagreatcompanyinmyview.
Speaking of great people working in a
dient of all. The other four ingredients
greatculture,Brown-Formanwillbeled
I’vecitedsimplydonotexistunlessthere
by Lawson Whiting starting in 2019,
PaulC.Varga
arehighlycapablepeopleworkinginan
and I can attest to you that he is an
ChairmanandChiefExecutiveOfficer
environmentthatallowsthemtothrive.
exemplarychoicetobeCEO.Hehasthe
June26,2018
AndBrown-Formanissuchaplace.My
experience,smarts,andvaluestolead
parents (and my upbringing generally)
thecompanytoevengreaterheights.He
taught me to be good to other people
sharesmyandtheboard’sbeliefthatan
byshowingthemrespectandkindness.
enormous growth opportunity remains
Howfortunateformethatattheageof
for Brown-Forman around the world,
11
DEAR
SHAREHOLDERS
JUNE 26, 2018
The focus of our investments might change year to
year, but their consistency does not. 2018 was yet
anotheryearwhereBrown-Formancontinueditssteady
streamofthoughtful,balanced,long-termthinking,as
evidencedinsomanyevents.
Inside the company, the business continued to per-
formattheuppertiersoftheindustry.Anumberof
brandshitnewmilestones,suchasWoodfordReserve
andGentlemanJack,whosecombineddepletionsin
theUnitedStatesclosedinononemillion9Lcases.
Combined with Herradura and Old Forester, these
Geo.GarvinBrownIV,ChairmanoftheBoard
12
fourpremiumandsuper-premiumbrandssurpassed
twomillion9Lcasesofglobaldepletions.Notonlyare
that partof ourvertically integrated supply chain for
thesebrandsbecomingmoreimportantdriversofour
enhancedproductivityandefficiency,nottomention
growth,butwithaggregategrowthinthemid-teens,
safetyandsustainability,overthelongterm.Closerto
they are driving favorable product mix in a difficult
theconsumer,Brown-Formanannouncedamultiyear
pricingenvironment.Fromthegeographicview,our
partnership for the Woodford Reserve brand with
emergingmarketsbusinessalsohitnewmilestones,
ChurchillDownstobetheofficialpresentingsponsor
withcountriesasdiverseasParaguay,Uruguay,Brazil
fortheKentuckyDerby.
andtheUkraineenjoyingsuccess,depleting500,000
9Lcasescombined.IndevelopedEurope,Francesur-
For the shareholders, Brown-Forman increased its
passedonemillion9Lcasesforthefirsttime.
ordinarycashdividend8.2%,declaredaspecialcash
Everlookingtoimprovebarrelqualityandoperational
andClassBcommonstock,andcompleteda5-for-4
efficiency,thecompanyalsoannounceda$45million
stock split, payable with Class B Common Stock.
capital investment to modernize the Brown-Forman
Thecompanyfundeda$70millioncharitablefoun-
Cooperage, which we believe will better position
dationforthebenefitofthecommunitieswhereour
dividend of $1.00 per share to holders of Class A
TIMELINE OF LEADERSHIP SINCE PROHIBITION
employees work, and funded the pension plan with
Paul was put in charge of our beverage business in
$150millionforthebenefitofitsemployees,inperpe-
2003,takingoverfromBillStreet,aforty-yearveteranof
tuity.Coupledwiththeoperationalcapitalinvestments,
Brown-Formanandlong-servingDirectoroftheBoard.
these actions demonstrate the balanced approach
Inthesubsequentfouryears,hegainedmoreresponsi-
that the company has consistently taken on capital
bility,ultimatelybecomingourcorporateChairmanand
allocation:investinbrands,facilities,andregionsfor
CEOin2007,withtheretirementofOwsleyBrownII.
thelongterm,whilelookingforopportunitiestoprovide
He’sbeenleadingourbeveragebusiness,inoneway
rewards to shareholders for their patient, long-term
oranother,for15years.Heistheninthpersontohave
investmentposture.
hadfullCEOresponsibilitiesatBrown-Forman,andthe
thirdpersontodososince1976.
AswillbeobvioustoeveryoneintheBrown-Forman
community, 2018 was also a year when other long-
Forthoseofyouwhohavebeenaroundtheindustrya
terminvestmentscamedue,namely,ourinvestments
while,you’llknowthatwhenPaulenteredtheleader-
inpeople.OntheBoard,wewerepleasedtowelcome
ship ranks of Brown-Forman, the future of American
Tracy Skeans, the Chief Transformation and People
Whiskeywasindoubt,evenintheUnitedStates.As
OfficerofYum!Brands,Inc.,asaDirector.Tracybringsa
he retires, Jack Daniel’s is the most valuable spirits
wealthofmultifunctionalbusinessknowledge,including
brandintheworld,asdefinedbyInterbrand.Thebrand
significantbrand,finance,andhumanresourcesexpe-
isbuoyedbygrowthoneverycontinent,includingits
rience,inmanyofourkeyglobalmarkets,aswellas
homemarket,andbolsteredbyitsabilitytocompete
marketswhereweseegreatlong-termpotential,such
across different consumer needs’ states, with its
asChina.ThankstoTracy’sadditiontotheBoard,we
familyofbrandofferings:super-premiumbrands,the
believethatwehavetherightcombinationofDirectors,
new Rye grain offering, the ongoing success of the
withadepthandbreadthofexperience,toaddressthe
Tennessee Honey and Tennessee Fire, and an RTD
broadarrayofBoardandCommitteetopicsthatcome
businessthatisapproachingninemillion9Lcasesdue
beforeuseachyear.
toongoinggrowthinAustralia,Mexico,Germany,and
theUnitedKingdom.
And most significantly, 2018 was the year in which
PaulVargadecidedtoretireaftera31-yearcareerat
Thanks in no small part to this, the company’s total
thecompany,andtheBoardofDirectorsunanimously
shareholderreturnhasgrownatanannualrateof17%
approvedLawsonWhitingasthecompany’snextCEO,
since2003,andthemarketcapitalizationhasgrown
effectiveJanuary1,2019.
roughly six-fold. Through a balanced combination of
13
2018 was also a year
when other long-term
investments came due.
BoardofDirectorsandExecutiveLeadershipTeamwithSlaneIrishWhiskeyco-founder,AlexConyngham,inIreland,2017
share buybacks, regular dividends, and special divi-
Andso,theBoard,Paul,andIwereverypleasedtobe
dends, the company has also returned $8 billion to
abletoannounceLawsonWhitingasthenextCEOof
shareholders during Paul’s tenure, an amount that is
Brown-FormanCorporation.Lawsonhasspentovertwo
almosttwicethesizeofthecompany’smarketcapital-
decadesatthecompany,withleadershipexperience
izationin2003.
inthefinance,marketing,andcommercialfunctions,in
theUnitedStatesandoverseas.Hehasbeentakingon
Whileyouwouldn’thearthisfromPaul,Ibelievethat
increasinglygreaterresponsibilitiessincehereturned
hisabilitytogalvanizeourcompanybehindtheJack
totheUnitedStatesfromLondonfiveyearsagoafter
Daniel’sbrand,andthevaluesrepresentedbyitshome-
successfullyleadingtheWesternEuroperegion.This
14
placeofLynchburg,Tennessee,aredirectlyresponsible
included serving as our Chief Brands Officer (which
fortherenaissanceoftheAmericanWhiskeycategory
eventuallyincludedtheroleofChiefStrategyOfficer),
inthiscountryandaroundtheworld.Hiseffortshave
andsincelastfall,LawsonhasbeenourChiefOperating
thushelpedbringeconomicprosperitytocountlessnew
Officer.Hehasbeenintegraltoourabilitytodeliver
American Whiskey brands, distilleries, shareholders,
resultstodate,andhashelpedpositionthiscompany
andemployees,andthecountiesinwhichtheyliveand
welltoseizetheglobalopportunitiesthatlieahead.In
work,mostcertainlyinourhomestatesofKentucky
Lawson,weareconfidentthatwehaveanotherleader
and Tennessee, but also across the country. It is for
withthestrengthofcharacterandintellectualrigorto
this reason, among others, that I believe Paul Varga
enableBrown-Formantocontinuetothriveandendure
has been the most successful CEO in our industry’s
forgenerations.
modernera,period.
SincehisearliestdaysasCEO,Paulhasworkedclosely
for helping us celebrate Paul’s leadership and wide-
with the Board of Directors, in particular with the
reaching impact on our company, community, and
Corporate Governance & Nominating Committee, led
industry,andforhelpinguswelcomeLawsonintohis
byourLeadIndependentDirector,JohnCook,whohas
newroleastheleaderofthisgreatcompany.
On behalf of your Board of Directors, I thank you
beenattheheartofthissuccessionworkwithPaul,
me, and the other Directors. The Board agreed that
Withbestregards,
a versatile, values-driven executive, who consistently
demonstrates balanced long-term thinking, inspires
high performance, and understands our independent
culture,isthetypeofindividualwhowillcontinuethe
Geo.GarvinBrownIV
growthofourbusiness,ourbrands,andourpeoplefor
ChairmanoftheBoard
thenextgeneration.
June26,2018
BROWN-FORMAN BOARD OF DIRECTORS
Fromleft:Stuart R. Brown(*,#)ManagingPartner,TyphaPartners,LLC,andFoundingDirectorandPresident,DendriFund,Inc./ Geo. Garvin
Brown IV(1,5,*,#)ChairmanoftheBoard,Brown-FormanCorporation/ Kathleen M. Gutmann(3)ChiefSalesandSolutionsOfficer,UnitedParcel
Service,Inc.andSeniorVicePresident,TheUPSStoreandUPSCapital/ Marshall B. Farrer(*,#)SeniorVicePresidentandManagingDirector
ofGlobalTravelRetail,Brown-FormanCorporation/ Laura L. Frazier(#)OwnerandChairman,BittnersLLC/ Michael J. Roney(4)RetiredChief
ExecutiveOfficer,Bunzlplc/ John D. Cook(1,2,4,5)DirectorEmeritus,McKinsey&Company/ Augusta Brown Holland(#)FoundingPartner,
HaystackPartnersLLC/ Campbell P. Brown(*,#)PresidentandManagingDirectorofOldForester,Brown-FormanCorporation/ Paul C. Varga(1,*)
ChairmanandChiefExecutiveOfficer,Brown-FormanCorporation/ Michael A. Todman (3)RetiredViceChairman,WhirlpoolCorporation / Tracy L.
Skeans(3)ChiefTransformationandPeopleOfficer,Yum!Brands,Inc./ Bruce L. Byrnes (3,5)RetiredViceChairmanoftheBoard,TheProcter&
GambleCompany/ Patrick Bousquet-Chavanne(4,5)FormerExecutiveDirectorofCustomer,MarketingandM&S.com,MarksandSpencerGroupPLC
(1)MemberofExecutiveCommitteeoftheBoardofDirectors,(2)LeadIndependentDirector,(3)MemberofAuditCommittee,(4)MemberofCompensationCommittee,
(5)MemberofCorporateGovernanceandNominatingCommittee,(*)MemberofBrown-Forman/BrownFamilyShareholdersCommittee,(#)MemberofBrownFamily
15
BROWN-FORMAN/BROWN FAMILY SHAREHOLDERS COMMITTEE
FamilyShareholdersCommitteemembersholdtheirMay2018meetingatourcompany’sLouisville,Kentucky,headquarters.
Fromleft:MarshallB.Farrer,TammyB.Godwin(RecordingSecretary),BarbaraA.Hurt,StuartR.Brown,MartinS.Brown,Jr.,PaulC.Varga
(Co-Chair),JamesS.Joy,GarvinB.Deters,OwsleyBrownIII,W.AustinMusselman,SandraA.Frazier,Geo.GarvinBrownIV(Co-Chair),ErnestS.
Patterson,CampbellP.Brown.(Othermembernotpictured:ChristopherL.Brown)
SELECTED FINANCIAL DATA
Dollars in millions, except per share amounts
For Year Ended April 30:
Netsales
Grossprofit
Operatingincome
Netincome
Weightedaveragesharesused
tocalculateearningspershare
–Basic
–Diluted
Earningspersharefrom
continuingoperations
–Basic
–Diluted
Grossmargin
Operatingmargin
Effectivetaxrate
2014
$2,991
$2,078
$ 971
$ 659
2015
3,134
2,183
1,027
684
2016
3,089
2,144
1,533
1,067
2017
2,994
2,021
989
669
2018
3,248
2,202
1,039
717
533.6
537.7
529.0
532.7
507.4
510.7
484.6
488.1
480.3
484.2
$ 1.23
$ 1.22
69.5%
32.5%
30.5%
1.29
1.28
69.7%
32.8%
31.7%
2.10
2.09
69.4%
49.6%
28.3%
1.38
1.37
67.5%
33.0%
28.3%
1.49
1.48
67.8%
32.0%
26.6%
Averageinvestedcapital
$3,131
3,196
3,221
3,591
3,832
16
Returnonaverage
investedcapital
Cashflowfromoperations
Cashdividendsdeclared
percommonshare
Dividendpayoutratio
As of April 30:
Totalassets
Long-termdebt
Totaldebt
21.6%
22.0%
34.1%
19.8%
$ 649
608
524
639
20.0%
632
$0.436
0.484
0.524
0.564
1.608
35.3%
37.5%
25.0%
40.9%
107.8%
$4,103
$ 997
$1,005
4,188
743
1,183
4,183
1,230
1,501
4,625
1,689
2,149
4,976
2,341
2,556
NOTES: 1.IncludestheresultsofSouthernComfortandTuaca,bothofwhichweresoldinMarch2016atagainof$485million(pre-tax).IncludestheresultsofBenRiachsinceitsacquisition
inJune2016. 2.Weightedaverageshares,earningspershare,andcashdividendsdeclaredpercommonsharehavebeenadjustedfora2-for-1stocksplitinAugust2016anda5-for-4stock
splitinFebruary2018. 3.See“Item7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperation—Non-GAAPFinancialMeasures”fordetailsonouruseof
“returnonaverageinvestedcapital,”includinghowwecalculatethismeasureandwhywethinkthisinformationisusefultoreaders. 4.Cashdividendsdeclaredpercommonshareincludea
specialcashdividendof$1.00infiscal2018. 5.Wedefinedividendpayoutratioascashdividendsdividedbynetincome.
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, 2018
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)
61-0143150
(IRS Employer Identification No.)
850 Dixie Highway
Louisville, Kentucky
(Address of principal executive offices)
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
1.200% Notes due 2026
2.600% Notes due 2028
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
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 $14,900,000,000.
The number of shares outstanding for each of the registrant’s classes of Common Stock on May 31, 2018, was:
Class A Common Stock (voting)
Class B Common Stock (nonvoting)
169,048,402
312,063,220
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 26, 2018, are incorporated by reference
into Part III of this report.
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
13
21
22
23
23
24
26
27
49
51
86
86
86
86
86
86
86
87
87
90
90
93
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, including potential
retaliatory tariffs on American spirits; 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, or capital gains) or
changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which
they can occur
• The impact of the recently enacted U.S. tax reform legislation, including as a result of future regulations and guidance
interpreting the statute
• 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; legalization of marijuana use on a more widespread basis; shifts in consumer purchase practices
from traditional to e-commerce retailers; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health
and wellness 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 fixed costs
Inventory fluctuations in our products by distributors, wholesalers, or retailers
•
• Competitors’ and retailers’ 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, and our dual class share structure
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
3
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.”
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 4,800 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 because 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 Kentucky Straight Bourbon Whisky – our founding brand – and spanning the generations
since, we have built a portfolio of more than 40 spirit, ready-to-drink (RTD) cocktail, and wine 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 volume in each of the past five years. In its fifth year on the Worldwide
Impact list, Jack Daniel’s Tennessee Honey was recognized as a top 15 growth brand and remains the second-largest-selling
flavored whiskey. Our other leading global brands on the Worldwide Impact list are Finlandia, which is the tenth-largest-selling
vodka; Canadian Mist, which is the fourth-largest-selling Canadian whisky; and el Jimador, which is the fifth-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 Tennessee Rye3
Jack Daniel’s Sinatra Select
Jack Daniel’s Winter Jack
Jack Daniel’s No. 27 Gold Tennessee Whiskey
Woodford Reserve Kentucky Bourbon
Woodford Reserve Double Oaked
Woodford Reserve Kentucky Rye Whiskey
Finlandia Vodkas
Korbel California Champagnes4
Korbel California Brandy4
el Jimador Tequilas
el Jimador New Mix RTDs
Herradura Tequilas
Sonoma-Cutrer California Wines
Canadian Mist Canadian Whisky
GlenDronach Single Malt Scotch Whisky
BenRiach Single Malt Scotch Whisky
Glenglassaugh Single Malt Scotch Whisky
Chambord Liqueur
Old Forester Kentucky Straight Bourbon Whisky
Old Forester Whiskey Row Series
Early Times Kentucky Whisky and Bourbon
Pepe Lopez Tequila
Antiguo Tequila
Slane Irish Whiskey
Coopers’ Craft Kentucky Bourbon
1Impact Databank, March 2018.
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 launched in September 2017.
4While Korbel is not an owned brand, we sell Korbel products under contract in the United States and other select markets.
4
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations
– Fiscal 2018 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), consumer and trade promotions, sponsorships, and homeplace
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 over 170 countries around the world. The United States, our most important market, accounted for
47% of our net sales in fiscal 2018. Our largest international markets include the United Kingdom, Australia, Mexico, Germany,
France, Poland, Russia, Brazil, and Canada. In fiscal 2018, we generated 53% of our net sales outside the United States compared
to 56% in fiscal 2014. The United States proportion of net sales grew from fiscal 2014 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 five fiscal years 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
2014
2015
Year ended April 30
2016
2017
2018
44%
46%
48%
48%
47%
28 %
6 %
22 %
56%
100%
27 %
6 %
21 %
54%
100%
27 %
5 %
20 %
52%
100%
26 %
5 %
21 %
52%
100%
27 %
5 %
21 %
53%
100%
For details about net sales in our largest markets, see “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Fiscal 2018 Market Highlights.” For details about our reportable segment and for additional geographic
information about net sales and long-lived assets, see Note 14 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 spirits and wine 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 14 markets: Australia, Brazil, Canada,
China, Czechia, France, Germany, Hong Kong, Korea, Mexico, Poland, Spain, 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
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 Russia, Japan, Italy, 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 31%, 30%, and 31% of our net sales for fiscal 2016, fiscal 2017, and fiscal 2018, respectively, were in the fourth
calendar quarter.
Competition
Trade information indicates that we are one of the largest global suppliers of premium spirits. According to International
Wine & Spirit Research (IWSR), for calendar year 2017, 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 spirits and wine companies, such as Bacardi Limited, Becle S.A.B. de C.V.,
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
Grapes
Wood
Flavorings
Neutral spirits
Sugar
Water
Whiskey
Wine
Flavorings
Malt
Neutral spirits
Sugar
Tequila
Water
Whiskey
1Polyethylene terephthalate (PET) is a polymer used in non-glass containers.
6
Packaging
Aluminum cans
Cartons
Closures
Glass bottles
Labels
PET1 bottles
Currently, none of these raw materials are in short supply, but shortages could occur. From time to time, our agricultural
ingredients (agave, barley, corn, grapes, malted barley, and rye) could be adversely affected by weather and other forces out of
our control 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 unavailability of raw materials and the inherent uncertainty in forecasting supply and
demand, see “Item 1A. Risk Factors.”
Intellectual Property
Our intellectual property rights include trademarks, copyrights, proprietary packaging and trade dress, proprietary
manufacturing technologies, know-how, and 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, see “Item 1A. Risk Factors.” For details on our most
important brands, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results
of Operations – Fiscal 2018 Brand Highlights.”
Regulatory Environment
Federal, state, local, and foreign authorities regulate how we produce, store, transport, distribute, and sell 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 spirits and wine 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 and state regulations,
bourbon and Tennessee whiskeys must be aged in new charred oak barrels; we typically age our whiskeys three to six years.
Canadian whisky must 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.
7
Strategy
Eight 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.
These core principles are a constant, powerful means of connecting our stakeholders to our shared vision of “Building
Forever,” and we continue to refresh our strategies to reflect current realities and look beyond 2020. 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 create shareholder value – ones that deliver strong and long-term sustainable
growth, solid margins, and high returns on invested capital. 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, led by Jack Daniel’s Tennessee Whiskey (JDTW), remains our most valuable asset and
the engine that drives our global leadership of the American whiskey category1 and our overall financial performance. We will
always work to keep JDTW 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, premium price points, channels, and consumer groups.
Product innovation has become a meaningful contributor to our performance in recent years. New Jack Daniel’s expressions –
Honey (2011), Fire (2015), and Rye (2017) – have led innovation in the American whiskey category.
We are the global leader in American whiskey, and see significant opportunities to continue promoting the mixability,
versatility, accessibility, and premiumization of our American whiskey brands around the world. 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 expression, JDTW, though with a heightened focus on the super-premium
expressions within the trademark – namely, Gentleman Jack, Jack Daniel’s Single Barrel Collection, and Jack Daniel’s Tennessee
Rye. In addition, we expect to continue generating excellent growth with our other whiskey brands around the world, particularly
Woodford Reserve and Old Forester. We believe Woodford Reserve is the leading super-premium American whiskey globally.
Old Forester is regaining its prominence in the United States and in select international markets through its unparalleled taste,
quality, and the success of its high-end expressions, such as the Old Forester Whiskey Row Series and Old Forester Statesman.
In 2017, we unveiled our Slane Irish Whiskey brand in Ireland, select Travel Retail locations, and in select markets across
the United States, the United Kingdom, and Australia. The distillery and homeplace were completed this past year, and we are
very encouraged by the brand’s early performance and the accolades the brand, whiskey, and package have received.
1IWSR, 2017 data.
8
Through our acquisition of The BenRiach Distillery Company Limited in June 2016, we added three world-class single
malt Scotch whisky brands in The GlenDronach, BenRiach, and Glenglassaugh. Following the integration of the acquired business,
we have continued to evolve the portfolio and geographic strategy to ensure our single malt portfolio is positioned to become a
meaningful contributor and a significant competitor in the fast growing single malt category over the longer term. Here again,
we are very encouraged by the trade and consumer reception to the brands and the whisky.
Fiscal 2017 marked the ten-year anniversary of our acquisition of Casa Herradura, a portfolio led by two brands steeped
in Mexican heritage – Herradura and el Jimador. We remain pleased with the development of our tequila business in both Mexico
and the United States, the brands’ two primary markets. We plan to continue expanding Herradura tequila to reach new consumers
in Mexico, the United States, and other high-potential markets. In addition to the success of the brand’s core expressions, Herradura
Ultra – an ultra-premium cristalino – continues to accelerate and surpassed 70,000 nine-liter cases in fiscal 2018. After
repositioning el Jimador tequila as a more premium brand in Mexico, we remain encouraged by our prospects for long-term,
profitable growth there. Outside Mexico, we have nearly quadrupled el Jimador’s volumes since fiscal 2008. We remain confident
in el Jimador’s potential to improve its position among the world’s leading tequila brands as the category continues to develop
rapidly in the United States and to expand (though more gradually) internationally.
Finlandia, the tenth-largest-selling vodka in the world,1 is also 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 one out of every two bottles of imported vodka sold.2
The United States remains our largest market, and continuing to grow there 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 tequilas, continued
product and packaging innovation, 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 generally grown faster than our business within it.
Fiscal 2018 saw a return to this trend after a few years of suppressed international growth driven by the negative effect of foreign
exchange. 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,
with the most recent example being the establishment of our owned distribution organization in Spain, the world’s tenth largest
whiskey market,2 during the summer of 2017. In addition, we expect increasingly significant contributions to our growth from
emerging markets including Mexico, Poland, Turkey, Brazil, China, Russia, Southeast Asia, Africa, Latin America, 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 whiskey in glass bottles to ensure quality and safety – an
innovation some might consider the first act of corporate responsibility in the industry. Today, achieving our stated business
purpose, to “enrich the experience of life,” is possible only within a context of corporate responsibility. This means putting our
values in action by promoting responsible consumption of alcohol; providing a healthy, safe, inclusive, and engaging workplace;
protecting the environment; and making a positive contribution to our communities.
Values-Driven Organization. The foundation of our culture is our core values: Integrity, Trust, Respect, Teamwork, and
Excellence. Our employee engagement survey responses demonstrate that we not only state these words as our values, but we live
them, too. Our values are reflected in our Code of Business Conduct that employees acknowledge and pledge to comply with.
Additionally, in the spirit of teamwork, we use our values as one set of criteria when evaluating business partners.
1Impact Databank, March 2018.
2IWSR, 2017 data.
9
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 individuals
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. In 2017, we concluded our five-year program with
10 other industry leaders that signed the Beer, Wine, and Spirits Producers’ Commitments to Reduce Harmful Drinking. Our
collective progress on these commitments will be reported later in 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 past year, we have added information from contributors
on a variety of alcohol-related subjects, including addiction and pregnancy, moderate consumption, and alcohol and aggression.
In 2017, Korbel partnered with the Dryver designated driver service to provide more than 2,000 free designated drivers in
77 cities nationwide. In Poland we partnered with Carrefour, a large retailer chain, to deliver key responsibility messages to
consumers across 90 of their stores. For the fourth consecutive year, the New Hampshire (NH) Liquor Commission and Jack
Daniel’s teamed up for the award-winning Live Free & Host Responsibly campaign. Since its launch in 2015, the campaign has
reached thousands of NH Liquor & Wine Outlet customers, promoting responsible service and consumption of alcohol. This first-
of-its-kind collaboration between a control state and a beverage alcohol company has become a model for the industry, gaining
widespread attention and industry praise. 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 with our customers through our trade associations.
For example, we worked with Avec Modération in France to engage convenience stores on underage drinking prevention.
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. Since then, we have
added three additional markets and languages to the site, with plans to add four more in the coming year.
We 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 and to 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. 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). In addition, through our corporate charitable contributions, we support
organizations that offer treatment and recovery for those struggling with alcoholism and addiction. Our three anchor partners in
Louisville, Kentucky, are The Healing Place, The Morton Center, and Volunteers of America Mid-States. In addition to our financial
contributions, we support these organizations by having Brown-Forman employees serve on their boards of directors.
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 the resources 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. In 2018, we executed a 15-year power purchase agreement for environmental attributes associated with the energy
output from a wind farm facility located in Kansas. The wind farm is expected to generate the equivalent of more than 90% of
Brown-Forman’s annual electricity use in the United States.
Mindful of our overall impact, in fiscal 2014, we set ambitious environmental sustainability goals for fiscal 2023: reducing
our absolute greenhouse gas emissions by 15% and reducing our water use and wastewater discharges per unit of product by 30%
(compared to metrics in 2012). In addition, we set a goal of sending zero waste to landfills by 2020. These goals support our
ambition to grow our brands and our company responsibly while protecting and enriching the natural environment. We have
refreshed our strategy to 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.
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. Four
10
women and one African American serve on our Board of Directors. Three members of our 13-member Executive Leadership Team
are women and two are minorities. In 2018, we once again earned a perfect score of 100% in the Corporate Equality Index, a
national benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality administered
by the Human Rights Campaign. This makes us one of the “Best Places to Work for LGBTQ equality”1 in the United States for
the eighth 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, 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, LGBTQ 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, 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 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. Brown-Forman believes,
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 by thoughtfully deploying our time, talent, and resources. We collaborate with a variety of mission-driven organizations
focused on enhancing intellectual and cultural living, ensuring essential living standards, and empowering responsible and
sustainable living. While we focus on our hometown of Louisville, Kentucky, our civic engagement activities extend to the
communities around the globe where our employees work, live, and raise their families.
In fiscal 2018, we donated approximately $11 million, logged approximately 17,000 volunteer hours, and had 123 employees
serve on boards of directors of 196 non-profit organizations. In addition, with the goal of helping fund our ongoing philanthropic
endeavors in the communities where our employees live and work, we created the Brown-Forman Foundation with a contribution
of $70 million in fiscal 2018. We anticipate that the Brown-Forman Foundation’s proceeds will provide a consistent amount of
revenue per year for its charitable giving program independent of our yearly earnings.
United Nations Sustainable Development Goals. We reviewed our corporate responsibility strategy against the United Nations
Sustainable Development Goals, a set of 17 global goals designed to address a broad range of sustainable development issues
from climate change to poverty and gender equality. Our review on where our work aligns with these goals is available in our
2017-2018 Corporate Responsibility Report (www.brown-forman.com/responsibility).
1Human Rights Campaign 2018 Corporate Equity Index at www.hrc.org/cei
11
Employees and Executive Officers
As of April 30, 2018, we employed approximately 4,800 people worldwide (2,700 in the United States), including about
230 employed on a part-time or temporary basis. Approximately 14% 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 13, 2018:
Name
Paul C. Varga
Jane C. Morreau
Matthew E. Hamel
Mark I. McCallum
Age
54
59
58
63
Lawson E. Whiting
49
Alejandro “Alex”
Alvarez
Ralph De Chabert
Brian P. Fitzgerald
Kirsten M. Hawley
John Hayes
50
71
45
48
58
Thomas Hinrichs
56
Mike Keyes
Lisa P. Steiner
57
58
Available Information
Principal Occupation and Business Experience
Company Chairman and Chief Executive Officer since 2007. Chief Executive Officer since 2005.
On May 29, 2018, we announced Paul C. Varga’s decision to retire, effective December 31, 2018.
The Board of Directors unanimously approved Lawson E. Whiting to succeed Mr. Varga as Chief
Executive Officer, effective January 1, 2019. Mr. Varga will remain on the Board of Directors of
the Company and is expected to stand for re-election at the upcoming Annual Meeting of
Stockholders to be held on July 26, 2018.
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 Chief Brands Officer since June 2018. Executive Vice President
and President of Jack Daniel’s Brands from February 2015 to June 2018. 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 Operating Officer since October 2017. Executive Vice
President and Chief Brands and Strategy Officer from February 2015 to September 2017. 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. On May 29, 2018, we announced that the Board of Directors unanimously approved Lawson
E. Whiting to succeed Paul C. Varga as Chief Executive Officer, effective January 1, 2019.
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, President U.S.A. and Canada since June 2018. Senior Vice President, Chief
Marketing Officer of B-F Brands from February 2015 to June 2018. Senior Vice President,
Managing Director Jack Daniel’s from 2011 to 2015. Senior Vice President, Managing Director
Herradura from 2007 to 2011.
Senior Vice President, International Division since June 2018. Senior Vice President and President
for Europe, North Asia, and ANZSEA from February 2015 to June 2018. 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 Corporate Affairs Officer since June 2018. Senior Vice President,
North America Region from May 2009 to June 2018.
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.
12
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
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, reducing 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, disruption in raw material supply, 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 8 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 170 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 emerging markets,
such as eastern Europe, Latin America, Asia, and Africa, to surpass our growth rates in the United States and more developed
markets, such as the United Kingdom, France, Germany, and Australia. However, we still expect our international developed
markets to 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. For example, Russia has enacted legislation that empowers its president to implement a partial or
total ban on the importation of goods and products from and produced by companies under the jurisdiction of the United States
and other “unfriendly” foreign countries. If such legislation were to be implemented, the sale of our products in Russia, especially
Jack Daniel’s Tennessee Whiskey, could be significantly and adversely affected.
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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, the United States recently imposed tariffs on steel and aluminum. In response, Mexico
has imposed retaliatory tariffs on U.S. imports, including our American whiskey products. The European Union and several other
countries have threatened to follow suit. If implemented, these tariffs could increase the price of our products in these countries
and could prompt consumers to seek alternative products. 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, tariffs, or any retaliatory measures in response to the foregoing could materially and adversely affect our
operations. Our success will depend, in part, on our ability to overcome the challenges we encounter with respect to these risks
and other factors affecting U.S. companies with global operations.
The more we expand our business globally, the more exchange rate fluctuations relative to the U.S. dollar influence our
financial results. In many markets outside the United States, we sell our products and pay for some goods, services, and labor
primarily in local 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. 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 succeed 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. 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. 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 our other 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.
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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.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (Tax Act). The Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering U.S.
corporate income tax rates and implementing a territorial tax system. Shortly after the Tax Act was enacted, the U.S. Securities
and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and
Jobs Act (SAB 118) to address the application of GAAP. SAB 118 directs taxpayers to consider the impact of the Tax Act as
provisional when a company does not have the necessary information available, prepared, or analyzed (including computations)
in reasonable detail to complete the accounting for the change in tax law. In accordance with SAB 118, we have recognized the
provisional tax impacts related to the repatriation tax and the re-measurement of deferred tax assets and liabilities. However, many
aspects of the Tax Act are still unclear and may not be clarified for some time. Ultimately, the actual impact of the Tax Act may
differ from our provisional estimates, possibly materially, due to, among other things, the significant complexity of the Tax Act,
anticipated additional regulatory guidance, or related interpretations that may be issued by the Internal Revenue Service, changes
in accounting standards, legislative actions, future actions by states within the U.S. and changes in estimates, analyses,
interpretations, and assumptions we have made.
New tax rules, accounting standards, or pronouncements, and changes in interpretation of existing rules, standards, or
pronouncements 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 operations are also subject to numerous duties or taxes that are not based on income, sometimes referred to as
“indirect taxes.” These indirect taxes include excise taxes, sales or value-added taxes, property taxes, payroll taxes, import and
export duties, and tariffs. Increases in or the imposition of new indirect taxes on our operations or products would increase the
cost of our products or, to the extent levied directly on consumers, make our products less affordable, which could negatively
affect our financial results by reducing purchases of our products and encouraging consumers to switch to lower-priced or lower-
taxed product categories. As governmental entities look for increased sources of revenue, they may increase taxes on beverage
alcohol products. For example, in 2017, the United Kingdom increased its tax on beer, cider, wine, and spirits by 3.9%, providing
a potential source of revenue to fund its post-Brexit obligations. In 2018, we have observed excise tax increases in Australia,
France, and Turkey.
In addition to indirect taxes, our global business can also be negatively affected by trade barriers and other governmental
protectionist measures, any of which can be imposed suddenly and unpredictably. Recently, retaliatory tariffs have been imposed
by Mexico and threatened by the European Union, Canada, Russia, China, and several other countries following the imposition
of tariffs on steel and aluminum by the United States. Mexico’s new tariffs on bourbon, and tariffs typically, take the form of value-
added levies on U.S.-sourced products. As an example, a tariff on American whiskey would result in either reduced margins or
increased consumer prices, either of which could adversely impact our financial results and demand for our products.
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 2018 Brand Highlights.”
15
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 substantially on our
continued ability to offer consumers appealing, high-quality products. Consumer preferences and purchases may shift, often in
unpredictable ways, due to a host of factors, including changes in economic conditions, demographic, and social trends; public
health policies and initiatives; changes in government regulation of beverage alcohol products; concerns or regulations related to
product safety; legalization of marijuana use on a more widespread basis within the United States, Canada, 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 or away from alcoholic beverages entirely. 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, as well as shifts to purchases of our products to e-commerce retailers. Shifts in consumption and purchasing
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 the next couple of years after 2018
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 on 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 Rye in additional international
markets such as the United Kingdom, France, Germany, and Canada in fiscal 2019. If these plans do not succeed, or if we otherwise
fail to develop or implement effective business, portfolio, and brand strategies, our growth, stock price, or financial results could
suffer. More broadly, if consumers shift away from spirits (particularly brown spirits such as American whiskey and bourbon), our
premium-priced brands, or our RTD products, our financial results could be adversely affected.
We believe that new products, line extensions, label and bottle changes, product reformulations, and similar product
innovations by both our competitors and us will compete increasingly for consumer drinking occasions. Product innovation, such
as our 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 any one of our major distillation or bottling facilities, including
facilities that support the production of our premium brands such as Woodford Reserve and Old Forester, 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 prevent us from meeting
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 American, Canadian,
and Irish whiskeys and some tequilas, which are aged for various periods, our acquisition of The GlenDronach, BenRiach, and
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Glenglassaugh Scotch whisky brands and distilleries introduce a new category of inventory, which require long-term maturation
of 30 years or more, making forecasts of demand for such products in future periods subject to significant uncertainty. Factors that
affect our ability to forecast accurately include changes in business strategy, market demand, consumer 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, failure to meet 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 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
expenses, also may increase. Our freight cost and the timely delivery of our products could be adversely impacted by a number
of factors which could reduce the profitability of our operations, including driver shortages, higher fuel costs, weather conditions,
traffic congestion, increased government regulation, and other matters. Our financial results may be adversely affected if we are
not able to pass along energy and freight cost increases through higher prices to our customers without reducing demand or sales.
International or domestic geopolitical or other events, including the imposition of any tariffs or quotas by governmental
authorities on any raw materials that we use in the production of our products, could adversely impact the supply and cost of these
raw materials to us. If we cannot offset higher raw material costs with higher selling prices, increased sales volume, or reductions
in other costs, our profitability could be adversely affected.
Weather, the effects of climate change, fires, 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 difficult to sell our used barrels
at sustainable prices and quantities 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
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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. Furthermore, health and wellness trends over the past several years may
result in a shift in consumer preferences away from alcoholic beverages. If future 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 are imposed on 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.
Further, we cannot predict whether our products will become subject to increased rules and regulations which, if enacted, could
increase our costs or adversely impact sales. For example, studies have been conducted in Australia and the United Kingdom to
consider the impact of requiring the sale of alcohol in plain packaging with more comprehensive health warnings in an effort to
change drinking habits in those countries. These studies could result in additional governmental regulations concerning the
production, marketing, labeling, or availability of our products, any of which could damage our reputation, making our premium
brands unrecognizable, or reduce demand of our products, which could adversely affect our profitability.
We face substantial competition in our industry, including many new entrants into spirits; and consolidation among
beverage alcohol producers, wholesalers, and retailers, or changes to our route-to-consumer model, could hinder the marketing,
sale, or distribution of our products.
We use different business models to market and distribute our products in different countries around the world. In the United
States, we sell our products either to distributors for resale to retail outlets or e-commerce retailers, 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 and the increased growth and popularity of the e-commerce
retail environment across the consumer product goods market 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. Furthermore, consolidation of distributors may lead to the erosion of margins as newly consolidated
distributors take down prices. Changes in distributors’ strategies, including a reduction in the number of brands they carry, the
allocation of shelf space for our competitors’ brands, or private label products, may adversely affect our sales, margin, outlook,
and market share. 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
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. For example, we
are facing an increasingly competitive pricing environment, and our competitors may have more flexibility to adjust to such
challenges. 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 traditional and e-commerce 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.
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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 online and in the countries where we do business. We may not succeed 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 where 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, even though satisfactory legal options may exist,
it may be difficult to obtain and enforce sanctions against counterfeiters. 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 companies in the spirits industry through our
membership in the International Federation of Spirits Producers (IFSP) and with brand owners in other industries via our membership
in React, an anti-counterfeiting network organization. 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
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 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
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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 cyber breach or 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
corporate strategic plans and employee data; 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 and cyber attacks 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 and the data of our customers, consumers, employees, and
others. If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure
of our business strategy or other sensitive information, due to any number of causes, ranging from catastrophic events to power
outages to security breaches to usage errors by employees and other security issues, 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
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.
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 our 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 resulting in the depletion of our institutional knowledge
base, could have an adverse impact on our business performance, reputation, financial condition, or results of operations. Given
the changing demographics and increased demand for talent globally, we, as an American multinational company, may not be able
to find the right people, at the right time, and in the right location, to achieve our business objectives. Additionally, companies like
ours face increased labor costs as a result of aggressive hiring and/or inflated levels of compensation offered by other employers,
especially in emerging markets – notably, India and Asia.
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The Brown family has the ability to control the outcome of matters submitted for stockholder approval.
We are 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.
We have two classes of common stock. Our Class A common stock is entitled to full voting powers, including in the elections
of directors, while our Class B common stock may not vote except as provided by the laws of Delaware. We have had two classes
of common stock since 1959, when our stockholders approved the issuance of two shares of Class B non-voting common stock
to every holder of our voting common stock. Such dual class share structures have increasingly come under the scrutiny of major
indices, institutional investors, and proxy advisory firms, with some calling for the reclassification of non-voting common stock.
A 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 believe that it is in the interests of all shareholders that we remain independent and
family-controlled, and we believe the Brown family stockholders share these interests. Thus, our common stock dual class share
structure, as it has existed since 1959, is perpetual, and we do not have a sunset provision in our Restated Certificate of Incorporation
or By-laws that provides for the eventual reclassification of the non-voting common stock to voting common stock. 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 or interests of institutional, short-term,
non-voting, or other non-controlling investors, or that have a negative effect on our stock price. Further, because the Brown family
controls the majority of our voting stock, Brown-Forman might be a less attractive takeover target, which could adversely affect
the market price of both our voting and our non-voting common stock. And the difference in voting rights for our common stock
could also adversely and disproportionately affect the value of our Class B non-voting common stock to the extent that investors
view, or any potential future purchaser of our Company views, the superior voting rights and control represented by the Class A
common stock to have value.
Item 1B. Unresolved Staff Comments
None.
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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 production locations and our 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 leased office locations outside
Louisville are:
• United States: Irving, Texas; Irvine, California; Baltimore, Maryland; Atlanta, Georgia; San Rafael, California; and
Washington, D.C.
•
International: Guadalajara, Mexico; Hamburg, Germany; Moscow, Russia; Warsaw, Poland; Sydney, Australia; São
Paulo, Brazil; Paris, France; Prague, Czechia; Amsterdam, Netherlands; London, United Kingdom; Barcelona, Spain;
Mexico City, Mexico; Seoul, South Korea; Gurgaon, India; Istanbul, Turkey; Shanghai, China; Hong Kong; Cape Town,
South Africa; Dubai, United Arab Emirates; Kiev, Ukraine; and Tokyo, Japan.
Location
Principal Activities
Notes
Significant Properties
United States:
Louisville, Kentucky
Lynchburg, Tennessee
Corporate offices
Distilling, bottling, warehousing
Visitors’ center
Cooperage
Distilling, bottling, warehousing
Visitors’ center
Includes several renovated historic structures
Home of Old Forester
Brown-Forman Cooperage
Home of Jack Daniel’s
Woodford County, Kentucky Distilling, bottling, warehousing
Home of Woodford Reserve
Windsor, California
Decatur, Alabama
Clifton, Tennessee
Stevenson, Alabama
Spencer, Indiana
Jackson, Ohio
International:
Collingwood, Canada
Cour-Cheverny, France
Amatitán, Mexico
Slane, Ireland
Aberdeenshire, Scotland
Morayshire, Scotland
Newbridge, Scotland
Portsoy, Scotland
Visitors’ center
Vineyards, winery, bottling, warehousing Home of Sonoma-Cutrer
Visitors’ center
Cooperage
Stave and heading mill
Stave and heading mill
Stave and heading mill
Stave and heading mill
Jack Daniel Cooperage
Land is leased from a third party
Distilling, warehousing
Distilling, bottling, warehousing
Distilling, bottling, warehousing
Visitors’ center
Distilling
Visitors’ center
Distilling, warehousing
Visitors’ center
Distilling, warehousing
Visitors’ center
Bottling
Distilling, warehousing
Visitors’ center
Home of Canadian Mist
Home of Chambord
Home of our tequilas and New Mix RTDs
Home of Slane Irish Whiskey
Home of Glendronach
Home of BenRiach
Home of Glenglassaugh
We believe that our facilities are in good condition and are adequate for our business.
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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 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.
23
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, 2018, there were 2,639 holders of record of Class A common stock and 5,486 holders of record of
Class B common stock. Because of overlapping ownership between classes, as of May 31, 2018, we had only 5,431 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 2017
Fiscal 2018
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
$ 43.42
40.62
40.32
37.56
$ 43.56
37.60
40.85
35.73
$ 39.46
36.50
37.63
35.17
$ 40.04
37.09
39.16
36.01
$ 43.56
36.50
40.85
35.17
$ 42.75
35.50
45.54
37.82
$ 42.62
37.79
45.62
38.43
$ 51.30
41.14
55.66
44.08
$ 55.67
46.61
56.52
50.66
$ 55.67
35.50
56.52
37.82
Cash dividends per share:
Declared
Paid
0.272
0.136
—
0.136
0.292
0.146
—
0.146
0.564
0.564
0.292
0.146
—
0.146
1.316
0.158
—
1.158
1.608
1.608
Notes:
1. Amounts have been adjusted for a 5-for-4 stock split that occurred in February 2018.
2. Cash dividends for fiscal 2018 include a special dividend of $1.00 per share.
Equity Compensation Plan Information
The following table summarizes information as of April 30, 2018, 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
3,365,537
$29.67
14,790,843
1Includes 2,971,180 Class B common shares to be issued upon exercise of stock-settled stock appreciation rights (SSARs); 199,973 Class B
common restricted stock units (RSUs); 114,703 Class A common deferred stock units (DSUs); and 79,681 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 7,215,010 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.
24
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 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, 2013, and that all dividends were reinvested. The
cumulative returns shown represent the value that each of these investments would have had on April 30 in the years since 2013.
25
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.”
(Dollars in millions, except per share amounts)
2016
2015
2017
2014
2018
For Year Ended April 30:
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:
$
$
$
$
$
$
$
$
$
$
$
$
2,991
2,078
971
659
533.6
537.7
1.23
1.22
69.5%
32.5%
30.5%
3,131
21.6%
649
0.436
35.3%
4,103
997
1,005
$
$
$
$
$
$
$
$
$
$
$
$
3,134
2,183
1,027
684
529.0
532.7
1.29
1.28
69.7%
32.8%
31.7%
3,196
22.0%
608
0.484
37.5%
4,188
743
1,183
$
$
$
$
$
$
$
$
$
$
$
$
3,089
2,144
1,533
1,067
507.4
510.7
2.10
2.09
69.4%
49.6%
28.3%
3,221
34.1%
524
0.524
25.0%
4,183
1,230
1,501
$
$
$
$
$
$
$
$
$
$
$
$
2,994
2,021
989
669
484.6
488.1
1.38
1.37
67.5%
33.0%
28.3%
3,591
19.8%
639
0.564
40.9%
4,625
1,689
2,149
$
$
$
$
$
$
$
$
$
$
$
$
3,248
2,202
1,039
717
480.3
484.2
1.49
1.48
67.8%
32.0%
26.6%
3,832
20.0%
632
1.608
107.8%
4,976
2,341
2,556
1.
Includes the results of Southern Comfort and Tuaca, both of which were sold in March 2016 at a gain of $485 million (pre-tax). 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 2-for-1 stock split in August 2016
and a 5-for-4 stock split in February 2018.
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 a special cash dividend of $1.00 in fiscal 2018.
5. We define dividend payout ratio as cash dividends divided by net income.
26
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 this MD&A in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in “Item 8.
Financial Statements and Supplementary Data” (the Consolidated Financial Statements). All share and per share amounts have
been adjusted for a 5-for-4 stock split in February 2018 (see Note 10 to the Consolidated Financial Statements for additional
information).
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”
to the Consolidated Financial Statements. 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 2018 highlights and (b) our outlook for fiscal 2019, including the
trends, developments, and uncertainties that we expect to affect our business.
Results of operations. We discuss (a) fiscal 2018 results for our largest markets, (b) fiscal 2018 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 2017 and 2018.
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
27
30
31
34
44
46
47
Presentation Basis
Non-GAAP Financial Measures
We use some financial measures in this report that are not measures of financial performance under U.S. generally accepted
accounting principles (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. Other companies may not define or calculate these non-
GAAP measures in the same way.
“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; (f) underlying other expense (income); (g) underlying operating expenses;1 and
(h) underlying operating income. To calculate these measures, we adjust, as applicable, for (a) acquisitions and divestitures, (b)
foreign exchange, (c) estimated net changes in distributor inventories, and (d) the establishment of our charitable foundation. We
explain these adjustments below.
•
“Acquisitions and divestitures.” This adjustment removes (a) any non-recurring effects related to our acquisitions and
divestitures (e.g., transaction gains or losses, transaction costs, and integration costs), and (b) the effects of operating
activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). By
excluding non-comparable periods, we therefore include the effects of acquired and divested brands only to the extent
that results are comparable year over year.
1Operating expenses include advertising expense, SG&A expense, and other expense (income), net.
27
In fiscal 2016, we sold our Southern Comfort and Tuaca brands and related assets to Sazerac Company, Inc. and entered
into a related transition services agreement (TSA). During fiscal 2017, we completed our obligations under the TSA.
This adjustment removes the net sales, cost of sales, and operating expenses recognized in fiscal 2017 pursuant to the
TSA related to contract bottling services and distribution services in certain markets.
On June 1, 2016, we acquired The BenRiach Distillery Company Limited (BenRiach). This adjustment removes (a)
transaction and integration costs related to the acquisition and (b) operating activity for the acquired business for the non-
comparable period. With respect to comparisons of fiscal 2017 to fiscal 2016, the non-comparable period comprised all
months; with respect to comparisons of fiscal 2018 to fiscal 2017, the non-comparable period is the month of May.
•
•
•
“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 and
remove foreign exchange gains and losses from current- and prior-year periods.
“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 volume
information from our distributors to estimate the effect of distributor inventory changes on our income statement line
items.
“Foundation.” In the fourth quarter of fiscal 2018, we established the Brown-Forman Foundation (the Foundation) with
an initial $70 million contribution to support the company’s charitable giving program in the communities where our
employees live and work. This adjustment removes the initial $70 million contribution to the Foundation from our
underlying SG&A expenses and underlying operating income to present our underlying results on a comparable basis.
We use the non-GAAP measures “underlying change”: (a) to understand our performance from period to period on a consistent
basis; (b) to compare our performance to that of our competitors; (c) in connection with management incentive compensation
calculations; (d) in our planning and forecasting processes; and (e) in communications concerning our financial performance with
the board of directors, stockholders, and investment analysts. We reconcile 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.
Definitions
Aggregations.
From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate
markets according to stage of economic development as defined by the International Monetary Fund (IMF) and we aggregate
brands by spirits category. Below, we define the aggregations used in this report.
Geographic Aggregations.
•
•
“Developed” markets are “advanced economies” as defined by the IMF. Our largest developed markets are the United
States, the United Kingdom, and Australia. Developed international markets are developed markets excluding the United
States.
“Emerging” markets are “emerging and developing economies” as defined by the IMF. Our largest emerging markets
are Mexico and Poland.
In “Results of Operations - Fiscal 2018 Market Highlights,” we provide supplemental information for our largest markets ranked
by percentage of total fiscal 2018 net sales. In addition to markets listed by country name, we include the following aggregations:
•
•
•
•
“Rest of Europe” includes all markets in Europe and the Commonwealth of Independent States other than those specifically
listed.
“Remaining geographies” represents all markets (approximately 110) other than those specifically listed or included in
“Rest of Europe,” with the largest being Brazil, South Africa, and China.
“Travel Retail” represents our sales to global duty-free customers, travel retail customers, and the U.S. military.
“Other non-branded” includes used barrel, bulk whiskey and wine, and contract bottling sales.
28
Brand Aggregations.
•
•
•
“Premium bourbon” products include Woodford Reserve, Old Forester, and Coopers’ Craft.
“American whiskey” products include the Jack Daniel’s family of brands, premium bourbons, and Early Times.
“Tequila” products include el Jimador, Herradura, New Mix, Pepe Lopez, and Antiguo.
In “Results of Operations - Fiscal 2018 Brand Highlights,” we provide supplemental information for our largest brands ranked by
percentage of total fiscal 2018 net sales. In addition to brands listed by name, we include the following aggregations:
•
•
“Jack Daniel’s family of brands” includes Jack Daniel’s Tennessee Whiskey (JDTW), Jack Daniel’s RTD and RTP
products (JD RTDs/RTP), Jack Daniel’s Tennessee Honey (JDTH), Gentleman Jack, Jack Daniel’s Tennessee Fire (JDTF),
Jack Daniel’s Single Barrel Collection, Jack Daniel’s Tennessee Rye Whiskey (JDTR), Jack Daniel’s Sinatra Select, and
Jack Daniel’s No. 27 Gold Tennessee Whiskey.
“Jack Daniel’s RTDs/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, Jack Daniel’s Cider (JD Cider), Jack
Daniel’s Lynchburg Lemonade (JD Lynchburg Lemonade), and the seasonal Jack Daniel’s Winter Jack RTP.
Other Metrics.
•
•
•
“Depletions.” We generally record revenues when we ship our products to our customers. Depending on our route-to-
consumer (RTC), we ship products to either (a) retail or wholesale customers in owned distribution markets or (b) our
distributor customers in other markets. “Depletions” is a term commonly used in the beverage alcohol industry to describe
volume. Depending on the context, “depletions” means either (a) our shipments directly to retail or wholesale customers
for owned distribution markets or (b) shipments from our distributor customers to retailers and wholesalers in other
markets. We believe that depletions measure volume in a way that more closely reflects consumer demand than our
shipments to distributor customers do. In this document, unless otherwise specified, we refer to “depletions” when
discussing volume.
“Drinks-equivalent.” 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.
“Consumer takeaway.” When discussing trends in the market, we refer to “consumer takeaway,” a term commonly used
in the beverage alcohol industry. “Consumer takeaway” refers to the purchase of product by the consumer from a retail
outlet as measured by volume or retail sales value. This information is provided by third parties, such as Nielsen and the
National Alcohol Beverage Control Association (NABCA). Our estimates of market share or changes in market share
are derived from consumer takeaway data using the retail sales value metric.
“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.
We reconcile each of these measures to their nearest GAAP measures in the tables 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.
29
Significant Developments
Below we discuss the significant developments in our business during fiscal 2016, fiscal 2017, and fiscal 2018. These
developments relate to (a) innovation, (b) acquisitions and divestitures, and (c) capital deployment.
Innovation
•
Jack Daniel’s family of brands. Innovation within the Jack Daniel’s family of brands has driven growth over the last three
years:
We introduced our second Jack Daniel’s flavored whiskey product, JDTF, 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. In fiscal 2018, we expanded JDTF to Brazil and Chile.
In fiscal 2018, we introduced several new Jack Daniel’s RTD products, including Jack Daniel’s Southern Peach Country
Cocktails in the United States, Jack Daniel’s Cider in the United Kingdom, and Jack Daniel’s Lynchburg Lemonade in
Germany. These introductions all contributed to our Jack Daniel’s RTD growth in those markets.
In fiscal 2018, we introduced JDTR, the first full-strength whiskey from the Jack Daniel’s family of brands in over two
decades, in the United States and certain international markets. With this successful launch, our total Rye whiskey portfolio,
including Woodford Reserve Rye Whiskey and Jack Daniel’s Single Barrel Rye, surpassed 100,000 nine-liter cases in
fiscal 2018.
• Other American whiskeys. We continue to capitalize on consumers’ interest in super- and ultra-premium whiskey with our
range of brands, including Woodford Reserve and Old Forester.
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 Double Oaked variant of Woodford Reserve continued to
contribute meaningfully to the brand’s growth and reached nearly 50,000 nine-liter cases in fiscal 2018.
From fiscal 2015 to fiscal 2017, we introduced three Old Forester craft expressions in our Old Forester Whiskey Row
Series. In fiscal 2018, we added Old Forester Statesman, which won a double gold medal at the 2018 San Francisco World
Spirits Competition. In addition, we launched new packaging for our core Old Forester bourbons in February 2017. Our
founding brand grew net sales by more than 35% per year from fiscal 2015 through fiscal 2018.
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 2018, 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, and it has been a significant driver of our tequila
growth during the last four fiscal years, surpassing 70,000 nine-liter cases in fiscal 2018.
Acquisitions and Divestitures
•
•
In June 2015, we purchased all of the shares of Slane Castle Irish Whiskey Limited. In April 2017, we unveiled the first
product from our Slane Irish Whiskey brand in Travel Retail in Ireland, and we introduced the brand selectively in the United
States, the United Kingdom, and Australia in the summer of 2017. In fiscal 2019, we plan to expand Slane nationally in the
United States.
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 15 to the Consolidated
Financial Statements for additional information 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 homeplaces, 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
30
Kingdom, Taiwan, Germany, and Travel Retail. See Note 16 to the Consolidated Financial Statements for additional
information.
Capital Deployment
• Beyond the acquisition and divestiture activities described above, we have focused our capital deployment initiatives on (a)
enabling the expected future growth of our existing businesses through investments in our production capacity, barrel whiskey
inventory, and brand-building efforts; and (b) returning cash to our shareholders.
•
Investments. From fiscal 2016 through fiscal 2018, our capital expenditures totaled approximately $350 million and focused
on enabling the growth of our premium whiskey brands:
Jack Daniel’s. We continued to expand our shipping warehouse facility and built an additional warehouse.
Woodford Reserve. We expanded our bottling facility and built four new warehouses.
Old Forester. We continued construction of the Old Forester Distillery and visitors’ center on Main Street in Louisville,
Kentucky, which we expect to open in June 2018.
Slane Irish Whiskey. We opened a consumer experience on the historic Slane Castle Estate in the fall of 2017. We also
continued building a new distillery, which we expect to open in the summer of 2018.
• Debt and equity transactions. From fiscal 2016 through fiscal 2018, we returned $3.0 billion to our shareholders through $0.8
billion in regular quarterly dividends, $0.5 billion in special dividends, and $1.7 billion in share repurchases. We financed
our dividends and repurchases with cash on hand and proceeds from the issuance of long-term debt totaling $1.8 billion (net).
Executive Summary
Fiscal 2018 Highlights
• We delivered net sales of $3.2 billion, an increase of 8% compared to fiscal 2017. Excluding (a) the positive effect of foreign
exchange driven by the strengthening of the euro, Polish zloty, and Mexican peso and (b) an estimated net increase in distributor
inventories in the United States, we grew underlying net sales 6%.
From a brand perspective, our underlying net sales growth was driven by the Jack Daniel’s family of brands, our premium
bourbon brands, and our tequila brands.
From a geographic perspective, the United States and emerging markets led the growth in underlying net sales, while
developed international markets also accelerated underlying net sales growth compared to fiscal 2017.
• We delivered operating income of $1.0 billion, an increase of 5% compared to fiscal 2017. Excluding the impact of (a) the
$70 million contribution to establish the Foundation, (b) the positive effect of foreign exchange, and (c) an estimated net
increase in distributor inventories, underlying operating income grew 8%.
• We delivered diluted earnings per share of $1.48, an increase of 8% compared to fiscal 2017 due to an increase in reported
operating income and a reduction in our effective tax rate.
• Our return on average invested capital increased to 20.0% in fiscal 2018, compared to 19.8% in fiscal 2017.
31
Summary of Operating Performance Fiscal 2016 - 2018
Fiscal year ended April 30
2016
2017
2018
2016 vs.
2017
2017 vs.
2018
2016 vs.
2017
2017 vs.
2018
Reported Change
Underlying Change1
Net sales
Cost of sales
Gross profit
Advertising
SG&A
Operating income
$3,089
945
2,144
417
688
$1,533
$ 2,994
973
2,021
383
667
$ 989
$3,248
1,046
2,202
414
765
$1,039
Total operating expenses2
$1,096
$ 1,032
$1,163
(3%)
3%
(6%)
(8%)
(3%)
(35%)
(6%)
As a percentage of net sales3
Gross profit
Operating expenses2
Operating income
69.4%
35.5%
49.6%
67.5%
34.5%
33.0%
67.8% (1.9pp)
35.8% (1.0pp)
32.0% (16.6pp)
Interest expense, net
Effective tax rate
$
44
28.3%
$
56
28.3%
$
Diluted earnings per share
Return on average invested capital4
$ 2.09
$ 1.37
34.1%
19.8%
62
26.6%
29%
—pp
(34%)
20.0% (14.3pp)
$ 1.48
3%
4%
3%
2%
(2%)
7%
(1%)
6%
8%
6%
6%
3%
8%
4%
8%
7%
9%
8%
15%
5%
13%
0.3pp
1.3pp
(1.0pp)
9%
(1.7pp)
8%
0.2pp
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.
2Operating expenses include advertising expense, SG&A expense, and other expense (income), net.
3Year-over-year changes in percentages are reported in percentage points (pp).
4See “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.
Fiscal 2019 Outlook
We are optimistic about our prospects for growth of net sales, operating income, and diluted earnings per share in fiscal
2019. Below we discuss our current expectations for fiscal 2019, including trends, developments, and uncertainties that we expect
may affect our business. When we provide guidance for underlying change for the following income statement measures we do
not provide guidance for the corresponding GAAP change because the GAAP measure will include items that are difficult to
quantify or predict with reasonable certainty, including the estimated net change in distributor inventories and foreign exchange,
each of which could have a significant impact to our GAAP income statement measures.
Outlook for key measures:
• Underlying net sales. We expect the underlying net sales growth rate trend from fiscal 2018 to continue. We anticipate the
Jack Daniel’s family of brands, our portfolio of premium bourbons, and our tequila brands to again drive our growth. We
expect that volume will be the most significant driver of underlying net sales growth in fiscal 2019.
• Underlying expenses. We expect total underlying expenses to grow more slowly than net sales. In addition, we expect: (a)
for underlying cost of sales, input costs should increase in the mid-single digits, (b) underlying advertising expenses should
grow at a rate similar to our net sales growth rate, and (c) underlying SG&A expenses to be approximately unchanged compared
to fiscal 2018.
Additional considerations related to our fiscal 2019 outlook:
• Revenue from Contracts with Customers. In fiscal 2019, we will implement ASU 2014-09, which replaces existing revenue
recognition guidance. We have concluded that adoption will not have a material impact on our financial statements. However,
32
under the new standard, we will estimate and recognize the cost of certain customer incentives earlier than we have historically.
Although we expect this change in timing to shift the recognition of these costs among fiscal quarters, we do not expect the
full-year impact to be significant. Additionally, some payments to customers previously classified as advertising or SG&A
expenses will be classified as reductions of net sales under the new standard. We anticipate the impact of this change in
classification to be insignificant. See Note 1 to the Consolidated Financial Statements for additional information.
Productivity and efficiency initiative. In June 2017, we announced a three-year (fiscal 2018 – fiscal 2020) cost-saving and
productivity initiative to deliver sustainable cost savings and accelerate our net sales growth rate. We expect to invest a portion
of the cost savings generated by the initiative in incremental advertising and promotional activities. Our fiscal 2019 outlook
reflects this initiative’s expected effects.
Foreign exchange. In fiscal 2018, our reported results were helped by foreign exchange due to the weakening of the U.S.
dollar. We cannot predict the movement of foreign exchange rates with reasonable certainty; however, considering spot rates
as of April 30, 2018, we expect a modest negative effect to our fiscal 2019 results. See “Item 7A. Quantitative and Qualitative
Disclosures about Market Risk” for details about foreign exchange and our business.
•
•
• Tax Act. In December 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act), which significantly revises
the U.S. corporate income tax by lowering the U.S. corporate income tax rate. During fiscal 2018, we recorded a provisional
net charge of $43 million related to the transitional impacts of the Tax Act. Our fiscal 2019 effective tax rate will not include
these transitional impacts of the Tax Act and will include a full year of the lower U.S. corporate income tax rate. See Note 12
to the Consolidated Financial Statements for additional information.
•
Foundation. In fiscal 2018, we established the Brown-Forman Foundation with an initial contribution of $70 million, which
we do not expect to repeat in fiscal 2019. The expense recorded to establish the Foundation was removed from our underlying
change in fiscal 2018 SG&A and operating income measures. See “Non-GAAP Financial Measures” above for details.
• Tariffs. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries including
Canada, China, Russia, and Turkey have threatened retaliatory tariffs. In addition, Mexico has imposed retaliatory tariffs on
U.S. goods, including American whiskey. We have a significant U.S. manufacturing base and export our American whiskeys
around the world. As the extent of any potential tariffs from key U.S. trading partners is uncertain, their potential impact on
our business is unknown. We continue to monitor this situation and consider measures to mitigate risk.
33
Results of Operations
Fiscal 2018 Market Highlights
The following table shows net sales results for our ten largest markets, summarized by geographic area, for fiscal 2018
compared to fiscal 2017. We discuss the most significant changes in net sales for each market.
Top 10 Markets - Percentage of Fiscal 2018 Total Net Sales and Fiscal 2018 Net Sales Growth by Geographic Area
Markets1
United States
Europe
United Kingdom
Germany
France
Poland
Russia
Rest of Europe
Australia
Other geographies
Mexico
Brazil
Canada
Remaining geographies
Travel Retail
Other non-branded
Total
Note: Totals may differ due to rounding
Net Sales % Change vs. 2017
% of Fiscal
2018 Net
Sales
Acquisitions
and
Divestitures
Foreign
Exchange
Reported
Estimated
Net Chg in
Distributor
Inventories
Underlying2
47%
27%
6%
5%
4%
3%
1%
8%
5%
14%
5%
1%
1%
7%
4%
3%
100%
7%
12%
4%
14%
11%
15%
52%
12%
8%
10%
15%
34%
2%
3%
13%
(2%)
8%
—%
—%
—%
—%
—%
—%
—%
—%
1%
—%
—%
—%
—%
—%
—%
11%
—%
—%
(4%)
(1%)
(4%)
(5%)
(7%)
(3%)
(5%)
(1%)
(2%)
(3%)
3%
(1%)
(1%)
—%
(1%)
(1%)
(2%)
—%
—%
—%
—%
—%
(30%)
2%
—%
1%
—%
(8%)
2%
3%
(5%)
—%
(1%)
5%
8%
3%
10%
6%
7%
19%
9%
8%
9%
12%
28%
3%
5%
8%
9%
6%
1See “Definitions” above for definitions of market aggregations presented here.
2See “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 believe this information is useful to readers.
The United States, our most important market, accounted for 47% of our reported net sales in fiscal 2018, down from 48%
in fiscal 2017. In fiscal 2018, reported net sales in the United States grew 7%, while underlying net sales increased 5%, after
adjusting for an estimated net increase in distributor inventories. Underlying net sales gains were fueled by (a) the Jack Daniel’s
family of brands, led by JDTW, JDTH, and the launch of JDTR; (b) our premium bourbon brands, led by Woodford Reserve and
Old Forester; and (c) the growth of our tequila brands. This growth was partially offset by declines of Korbel Champagne and
Canadian Mist.
Europe accounted for 27% of our reported net sales in fiscal 2018, up from 26% in fiscal 2017. For fiscal 2018, reported
net sales in Europe increased 12%, while underlying net sales grew 8%, after adjusting for the positive effect of foreign exchange
driven by the weakening of the dollar against the euro, Polish zloty, British pound, and Turkish lira. Underlying net sales growth
was driven by gains in Germany, Russia, France, Poland, Turkey, the United Kingdom, and Spain.
•
•
In the United Kingdom, underlying net sales growth was driven by the launch of JD Cider and higher volumes of JDTW.
In Germany, underlying net sales growth was driven by higher volumes, higher prices, and favorable mix of JD RTDs
and JDTW. JD RTDs benefited from the launch of JD Lynchburg Lemonade RTD in fiscal 2018.
34
•
•
•
In France, underlying net sales growth was primarily driven by higher volumes of JDTW and JDTH, as the Jack Daniel’s
family of brands continued to gain market share in the world’s fourth largest whiskey market.1
In Poland, higher volumes of JDTW fueled underlying net sales growth driven by strong consumer takeaway trends.
In Russia, underlying net sales growth was driven by higher pricing on Finlandia, partially offset by declines of JDTW.
The higher price of Finlandia is partly attributed to import duties resulting from a change in our RTC in fiscal 2017.
• Underlying net sales growth in the rest of Europe was led by increases in Turkey, Spain, and Ukraine. Growth in Spain
has accelerated in fiscal 2018 following our strategic investment in a new distribution operation.
Australia accounted for 5% of our reported net sales in both fiscal 2018 and fiscal 2017. In fiscal 2018, reported net sales
grew 8%, while underlying net sales also increased 8% after adjusting for the positive effect of foreign exchange and the offsetting
loss of net sales related to our TSA for Southern Comfort and Tuaca. Underlying net sales growth was led by higher prices of our
core JD RTD brands, Jack Daniel’s & Cola and Jack Daniel’s Double Jack, along with volumetric growth of JDTW.
Net sales for our other geographies constituted 14% of our reported net sales in both fiscal 2018 and fiscal 2017. Reported
net sales increased 10% in fiscal 2018 and underlying net sales were up 9% after adjusting reported results for the positive effect
of foreign exchange driven by the weakening of the dollar against the Mexican peso and an estimated net decrease in distributor
inventories. Underlying net sales growth was led by Mexico, Brazil, and China, partially offset by declines in Japan.
Travel Retail accounted for 4% of our reported net sales in fiscal 2018 and fiscal 2017. Reported net sales increased 13%
in fiscal 2018 and underlying net sales increased 8% after adjusting for an estimated net increase in distributor inventories.
Underlying net sales growth in fiscal 2018 was driven by increased travel, stabilization of foreign exchange, and increased
promotional activity resulting in higher volumes of JDTW, Woodford Reserve, and Gentleman Jack.
Other non-branded accounted for 3% of our reported net sales in both fiscal 2018 and fiscal 2017. Reported net sales
decreased 2%, while underlying net sales grew 9% after removing the net effect of acquired and divested businesses (primarily
contract bottling sales related to our TSA agreement) and the positive effect of foreign exchange. The increase in underlying net
sales was driven by higher volumes of used barrel sales and an increase in bulk whiskey sales, partially offset by declines in
contract bottling sales.
1IWSR, 2017 data.
35
Fiscal 2018 Brand Highlights
The following table highlights the worldwide results of our largest brands for fiscal 2018 compared to fiscal 2017. We discuss
results of the brands most affecting our performance below the table.
Major Brands Worldwide Results for Fiscal 2018
Depletions
Net Sales % Change vs. 2017
Nine-Liter
Cases
(Millions)
% Change
vs. 2017
Drinks-
Equivalent
(Millions)1
% Change
vs. 2017
Reported
Foreign
Exchange
Estimated
Net Chg in
Distributor
Inventories Underlying2
24.9
13.0
1.7
8.7
0.6
0.6
0.3
0.7
3.0
1.3
0.5
7%
5%
8%
9%
7%
14%
27%
23%
2%
8%
15%
17.1
13.0
1.7
0.9
0.6
0.6
0.3
0.7
3.0
1.3
0.5
6%
5%
8%
9%
7%
14%
27%
23%
2%
8%
15%
8%
(1%)
(1%)
6%
10%
15%
9%
20%
26%
26%
10%
14%
17%
(1%)
(2%)
(1%)
—%
(1%)
(2%)
—%
(2%)
(1%)
(1%)
—%
1%
—%
(1%)
(4%)
(12%)
(4%)
(3%)
(4%)
3%
6%
4%
9%
14%
7%
15%
13%
22%
5%
9%
19%
Brand family / brand1
Jack Daniel’s Family
Jack Daniel’s Tennessee
Whiskey
Jack Daniel’s Tennessee Honey
Jack Daniel’s RTDs/RTP
Gentleman Jack
Jack Daniel’s Tennessee Fire
Other Jack Daniel’s whiskey
brands
Woodford Reserve
Finlandia
el Jimador
Herradura
Note: Totals may differ due to rounding
1See “Definitions” above for definitions of brand aggregations and volume measures presented here.
2See “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 believe this information is useful to readers.
In fiscal 2018, the Jack Daniel’s family of brands grew volumes 6% globally to 17.1 million drinks-equivalent nine-liter
cases. Reported net sales for the family grew 8%, while underlying net sales increased 6% after adjusting for the positive effect
of foreign exchange primarily due to the weakening of the dollar against the euro, Polish zloty, Turkish lira, British pound, and
Mexican peso and an estimated net increase in distributor inventories in the United States. Jack Daniel’s family of brands was the
most significant contributor to our total underlying net sales growth in fiscal 2018. Here are details about the underlying performance
of the Jack Daniel’s family of brands:
•
•
Jack Daniel’s Tennessee Whiskey generates a significant percentage of our total net sales, and is our top priority. JDTW
is the largest brand in the world priced over $25 per 750 ml per bottle1 and the world’s fourth-largest premium spirits
brand measured by both volume and retail value.2 During calendar 2017, JDTW grew volume for the 26th consecutive
year2 and, among the top five premium spirits brands on the list, Jack Daniel’s Tennessee Whiskey was the only one to
grow volume in each of the past five years1 – an achievement that underscores our belief in the brand’s sustainable appeal
and long-term growth potential. JDTW grew volumes 5% globally in fiscal 2018, a significant increase from its 1%
growth rate in fiscal 2017. JDTW reported net sales grew 6%, while underlying net sales increased 4% led by the United
States, Brazil, Poland, Turkey, France, Travel Retail, Germany, and Australia.
Since its introduction in late fiscal 2011, Jack Daniel’s Tennessee Honey has contributed significantly to our net sales
growth. JDTH is now the 15th largest brand in the world priced over $25 per 750ml bottle.1 In fiscal 2018, JDTH grew
volumes by 8%, on top of the 6% growth rate last fiscal year. The brand grew reported net sales 10% and underlying net
sales 9%, driven by higher volumes in the United States and France.
1IWSR, 2017 data.
2Based on industry statistics published by Impact Databank, a well-known U.S. trade publication, in March 2018.
36
• The Jack Daniel’s RTDs/RTP brands grew volume 9%, reported net sales 15%, and underlying net sales 14% in fiscal
2018. JD RTDs’ underlying net sales growth was driven by higher prices in Australia and consumer-led volumetric gains
and product innovation in Germany, the United States, and the United Kingdom.
• Gentleman Jack grew volumes 7% in fiscal 2018 and surpassed 600 thousand nine-liter cases entering its 30th year of
production. The brand grew reported net sales 9% and underlying net sales 7%, driven by volumetric growth in the United
States and Travel Retail, as increased media propelled stronger sales in fiscal 2018 compared to fiscal 2017.
•
Jack Daniel’s Tennessee Fire grew volumes 14%, reported net sales 20%, and underlying net sales 15% in fiscal 2018.
Underlying net sales growth was led by the United States, along with expansion into Brazil and Chile. JDTF has grown
volumes each year since its introduction in late fiscal 2015.
• Our Other Jack Daniel’s whiskey brands reported net sales grew 26% and underlying net sales increased 13%, fueled
by the launch of JDTR in the fall of 2017.
Woodford Reserve grew volumes 23% in fiscal 2018 (after growing 18% in fiscal 2017 and 26% in fiscal 2016) and was
once again selected as an Impact’s “Hot Brand.”1 In addition, reported net sales increased 26% and underlying net sales grew 22%
in fiscal 2018. The United States is by far the brand’s most important market and was responsible for most of its growth during
fiscal 2018. However, the brand continued its momentum outside the United States, growing volumes 21%, driven by Travel
Retail. We believe Woodford Reserve is the leading super-premium American whiskey globally, and is poised for continued growth
as interest in bourbon continues to increase around the world. During fiscal 2018, Woodford Reserve became the official sponsor
of the Kentucky Derby. We plan to continue devoting substantial resources to Woodford Reserve to support its growth potential,
including sustained advertising and capital investments.
Finlandia grew volumes 2% in fiscal 2018, while reported net sales increased 10%, and underlying net sales grew 5% after
adjusting for the positive effect of foreign exchange and an estimated net increase in distributor inventories in Russia. The increase
in underlying net sales was driven predominantly by higher prices in Russia, which was partly attributed to import duties resulting
from a change in our route-to-consumer.
el Jimador grew volumes 8% in fiscal 2018, while reported net sales increased 14%, and underlying net sales were up 9%
after adjusting for the positive effect of foreign exchange due to the weakening of the dollar against the Mexican peso and an
estimated net increase in distributor inventories in the United States. Underlying net sales growth was driven by higher volumes
in the United States, where el Jimador remained on the Impact’s “Hot Brands” list1 in calendar 2017.
Herradura grew volumes 15% in fiscal 2018, while reported net sales increased 17%, and underlying net sales were up
19% after adjusting for the positive effect of foreign exchange due to the weakening of the dollar against the Mexican peso and
an estimated net decrease in distributor inventories in the United States. This growth was driven primarily by increased volumes
and higher prices in the brand’s largest markets, the United States and Mexico. Mexico also 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.
1Impact Databank published the Impact’s “Hot Brands - Spirits” list in March 2018.
37
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
2018
2017
8%
—%
(1%)
(1%)
6%
(3%)
3%
2%
1%
3%
Change in underlying net sales attributed to:
Volume
Net price/mix
Note: Totals may differ due to rounding
Fiscal 2018 compared to Fiscal 2017
5%
2%
2%
2%
Net sales of $3,248 million increased 8%, or $254 million, in fiscal 2018 compared to fiscal 2017. After adjusting reported
results for the positive effect of foreign exchange and an estimated net increase in distributor inventories, underlying net sales
grew 6%. The positive effect of foreign exchange was driven primarily by the dollar’s weakening against the euro, Polish zloty,
and Mexican peso. Of the 6% change in underlying net sales, 5% was attributable to volume growth and nearly 2% was attributable
to the positive impact of price/mix. Volume growth was led by the Jack Daniel's family of brands, tequilas, and premium bourbons.
Improved price/mix was driven by (a) an increase in the share of sales of higher margin brands, most notably the Jack Daniel’s
family of brands and Woodford Reserve, and (b) higher average pricing on JD RTDs and tequilas.
The primary factors contributing to underlying net sales growth were:
•
•
•
•
our American whiskey portfolio in the United States, led by Woodford Reserve, JDTW, JDTH, JDTF, Old Forester,
Gentleman Jack, and the launch of JDTR;
JDTW in the majority of international markets, most notably Brazil, Poland, Turkey, France, Travel Retail, Germany,
and Australia;
JD RTDs, led by volumetric gains and product innovation in Australia, Germany, the United States, and the United
Kingdom;
our tequila brands, led by (1) volume gains and higher prices of New Mix in Mexico, (2) higher volumes of Herradura
and el Jimador in the United States, and (3) higher volumes of Herradura, notably Herradura Ultra, in Mexico;
Finlandia in Russia;
used barrel volume growth; and
•
•
• Woodford Reserve outside of the United States, driven by Travel Retail.
The primary factors partially offsetting underlying net sales growth were declines of:
• Korbel Champagne volumes in the United States;
•
contract bottling sales; and
• Canadian Mist volumes in the United States.
Fiscal 2017 compared to Fiscal 2016
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 of
brands 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 of brands and Woodford Reserve); these gains were partially offset by declines in used barrel
sales.
38
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 underlying net sales growth 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.
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
2018
2017
7%
1%
—%
(1%)
8%
3%
—%
—%
1%
4%
Change in underlying cost of sales attributed to:
Volume
Cost/mix
Note: Totals may differ due to rounding
Fiscal 2018 compared to Fiscal 2017
5%
3%
2%
3%
Cost of sales of $1,046 million increased $73 million, or 7%, in fiscal 2018 compared to fiscal 2017. Underlying cost of
sales grew 8% after adjusting reported costs for (a) the net effect of our Scotch acquisition and the absence of sales related to our
TSA for Southern Comfort and Tuaca and (b) an estimated net increase in distributor inventories. The increase in underlying costs
of sales was driven by higher volumes and an increase in input costs, including wood and agave. Looking ahead to fiscal 2019,
we currently expect that input costs will increase in the mid-single digits.
Fiscal 2017 compared to Fiscal 2016
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 higher volumes and an increase in input costs, including wood and grain.
39
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 2018 compared to Fiscal 2017
2018
2017
9%
—%
(2%)
(1%)
6%
2018
67.5%
0.3%
(0.7%)
0.3%
0.4%
0.3%
67.8%
(6%)
4%
3%
1%
3%
2017
69.4%
0.1%
(0.4%)
(0.9%)
(0.7%)
(1.9%)
67.5%
Gross profit of $2,202 million increased $181 million, or 9%, in fiscal 2018 compared to fiscal 2017. Gross profit on an
underlying basis improved 6% after adjusting reported gross profit for the positive effect of foreign exchange and an estimated
net increase 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 increased to 67.8% in fiscal 2018, up 0.3 percentage points from 67.5% in fiscal 2017. The increase in gross
margin was primarily due to (a) favorable price/mix, (b) the positive effect of foreign exchange, and (c) the net effect of acquisitions
and divestitures, partially offset by an increase in underlying cost of sales.
Fiscal 2017 compared to Fiscal 2016
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 1.9 percentage 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.
40
Operating Expenses
Percentage change versus the prior year period ended April 30
2018
Advertising
SG&A
Total operating expenses1
2017
Advertising
SG&A
Total operating expenses1
Reported
Acquisitions &
Divestitures
Foundation
Foreign
Exchange
Underlying
8%
15%
13%
(8%)
(3%)
(6%)
—%
—%
—%
8%
—%
3%
—%
(11%)
(7%)
—%
—%
—%
(3%)
(2%)
(2%)
2%
1%
2%
6%
3%
4%
2%
(2%)
(1%)
Note: Totals may differ due to rounding
1Operating expenses include advertising expense, SG&A expense, and other expense (income), net.
Fiscal 2018 compared to Fiscal 2017
Operating expenses totaled $1,163 million and increased $131 million, or 13%, in fiscal 2018 compared to fiscal 2017.
Underlying operating expenses grew 4% after adjusting for the establishment of the Foundation and the negative effect of foreign
exchange.
• Advertising expenses of $414 million increased $31 million, or 8%, in fiscal 2018 compared to fiscal 2017. Underlying
advertising expenses increased 6% after adjusting reported results for the negative effect of foreign exchange. The increase
in underlying advertising expense was driven by higher spending on (a) our American whiskey portfolio in the United
States, including JDTW, Woodford Reserve, Gentleman Jack, and the launch of JDTR; (b) the continued rollout of Slane
Irish Whiskey in the United States; and (c) the expansion of our single-malt Scotch brands.
•
SG&A expenses of $765 million increased $98 million, or 15%, in fiscal 2018 compared to fiscal 2017, while underlying
SG&A increased 3% after adjusting reported results for the effect of our $70 million contribution to establish the
Foundation and the negative effect of foreign exchange. The increase in underlying SG&A was driven by higher incentive
compensation expenses and strategic investments, including our new Spain distribution operation, partially offset by
lower pension expense and continued tight management of discretionary spending.
Operating expenses as a percentage of net sales increased 1.3 percentage points to 35.8% in fiscal 2018, from 34.5% in fiscal
2017. Our operating expenses as a percentage of net sales increased driven by our $70 million contribution to establish the
Foundation.
Fiscal 2017 compared to Fiscal 2016
Operating expenses totaled $1,032 million and decreased $64 million, or 6%, in fiscal 2017 compared to fiscal 2016.
Underlying operating expenses declined 1% after adjusting for the net effect of acquisitions and divestitures and the positive effect
of foreign exchange.
• 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 positive effect 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.
•
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 positive effect 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.
Operating expenses as a percentage of net sales decreased 1.0 percentage point to 34.5% in fiscal 2017, from 35.5% in fiscal
2016. Our operating expenses as a percentage of net sales decreased driven by lower SG&A spend.
41
Operating Income
Percentage change versus the prior fiscal year ended April 30
Change in reported operating income
Acquisitions and divestitures
Foundation
Foreign exchange
Estimated net change in distributor inventories
Change in underlying operating income
Note: Totals may differ due to rounding
Fiscal 2018 compared to Fiscal 2017
2018
5%
—%
7%
(2%)
(2%)
8%
2017
(35%)
35%
—%
4%
3%
7%
Operating income was $1,039 million in fiscal 2018, an increase of $50 million, or 5%, compared to fiscal 2017. Underlying
operating income growth was 8% after adjusting for (a) the establishment of the Foundation, (b) the positive effect of foreign
exchange, and (c) an estimated net increase in distributor inventories, driven primarily by the United States. 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 underlying SG&A spend grew 3% compared to underlying net sales growth of 6%.
Operating margin declined 1.0 percentage point to 32.0% in fiscal 2018 from 33.0% in fiscal 2017. The decrease in our
operating margin was primarily due to the 2.2 percentage point effect of the establishment of the Foundation, partially offset by
operating expense leverage.
Fiscal 2017 compared to Fiscal 2016
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 decrease 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%.
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 2018 compared to Fiscal 2017
Interest expense (net) increased $6 million, or 9%, in fiscal 2018 compared to fiscal 2017, due to a higher average long-
term debt balance and a higher interest rate on our short-term borrowings.
Our effective tax rate for fiscal 2018 was 26.6% compared to 28.3% in fiscal 2017. The decrease in our effective tax rate
was driven by an increase in the beneficial impact of foreign earnings at lower rates and an increase in excess tax benefits related
to stock-based compensation, partially offset by the net impact of the Tax Act. See Note 12 to the Consolidated Financial Statements
for additional information.
Diluted earnings per share were $1.48 in fiscal 2018, up 8% from $1.37 in fiscal 2017. This increase resulted from (a) an
increase in reported operating income (net of a $0.10 decrease from the establishment of the Foundation) and (b) the benefit of a
lower effective tax rate.
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%. An increase in the tax benefit related to discrete items
and the beneficial impact of the excess tax benefits from stock-based awards decreased our effective tax rate. These were offset
by (a) the absence of the beneficial impact of the sale of the Southern Comfort and Tuaca business, (b) a decrease in the beneficial
impact of foreign earnings at lower tax rates, and (c) an increase in foreign exchange gains in non-U.S. entities that were currently
subject to U.S. tax.
42
Diluted earnings per share were $1.37 in fiscal 2017, down 34% from $2.09 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 $0.70 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 a reduction in shares outstanding due to share repurchases.
43
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 for the foreseeable future.
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 proceeds from long-term debt
Acquisition of treasury stock
Dividends paid
Other
2016
2017
2018
$
524
$
639
$
632
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) $
—
—
(127)
(1)
(128)
(3)
345
(1)
(773)
(34)
(466)
19
57
Foreign exchange effect on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
$
Fiscal 2018 compared to Fiscal 2017
Cash and cash equivalents increased $57 million in fiscal 2018, compared to a decrease of $81 million in fiscal 2017. Cash
provided by operations was down $7 million from fiscal 2017, as a $124 million increase in discretionary contributions to our
pension plans was largely offset by higher earnings (net of a $70 million contribution to establish the Foundation) and a $66 million
decline in income tax payments. The decline in income tax payments reflects the impact of the contributions to the pension plans
and charitable foundation and the lower federal tax rates resulting from the enactment of the Tax Act.
Cash used for investing activities was $128 million during fiscal 2018, compared to $422 million for the prior year. The
$294 million decrease largely reflects $307 million in cash paid to acquire BenRiach in June 2016, partially offset by a $15 million
increase in capital spending during the current year. The increase in capital spending is largely attributable to the construction of
new distilleries and homeplaces for both Slane Irish Whiskey and Old Forester and to the modernization and automation of our
Brown-Forman Cooperage operation.
Cash used for financing activities was $466 million during fiscal 2018, compared to $285 million for fiscal 2017. The $181
million increase largely reflects a special cash dividend payment of $481 million in April 2018, the repayment of $250 million of
notes that matured in January 2018, and a $122 million decrease in proceeds from long-term debt, partially offset by a $560 million
decline in share repurchases and a $119 million decrease in net repayments of short-term borrowings.
The impact on cash and cash equivalents as a result of exchange rate changes was an increase of $19 million for fiscal 2018,
compared to a decline of $13 million in the prior fiscal year.
Fiscal 2017 compared to Fiscal 2016
Cash and cash equivalents declined $81 million during fiscal 2017, compared to a decline of $107 million during fiscal 2016.
Cash provided by operations during fiscal 2017 was $639 million, compared to $524 million in fiscal 2016. The $115 million
increase in fiscal 2017 largely reflected 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
44
increase of $855 million primarily reflected 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 reflected 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 fiscal 2016.
Capital Expenditures
Over the past several fiscal years, we accelerated our capital spending in order to build the production platform for our current
and future growth. Capital expenditures in three fiscal years from 2016 through 2018 were, on average, 32% higher than the
average of the five fiscal years prior to 2016.
We have invested capital to expand production capacity, to undertake new business initiatives, and to save costs.
•
Significant capacity expansion projects included (a) the expansion of our shipping warehouse facility and an additional
warehouse for Jack Daniel's, (b) an expanded bottling facility and four new warehouses for Woodford Reserve, and (c)
a new wood mill.
• The integrated distillery and homeplaces projects for Old Forester and Slane Irish Whiskey were the major new business
initiatives. The Slane Irish Whiskey consumer experience opened in the fall of 2017, and the distillery is expected to
open in the summer of 2018. The Old Forester distillery is expected to open in June 2018.
• The most significant cost-saving initiative was the ongoing automation project at our Brown-Forman Cooperage facility.
In fiscal 2019, we expect capital expenditures to be approximately $130 million. We expect capital expenditures in fiscal
2020 and fiscal 2021 to remain elevated as we complete several key, multi-year projects.
Share Repurchase Programs
We have repurchased approximately 57.7 million shares of our common stock under three separate repurchase programs
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
1,666,081
12,618,378
28,403,893
14,756,628
57,444,980
Average Price Per Share, Including
Brokerage Commissions
Class A
Class B
$
$
$
$
27.22
36.09
38.17
38.77
$
$
$
$
27.62
36.14
38.79
37.75
The following table summarizes information about those share repurchases by program.
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
7,177,797
32,598,022
17,669,161
57,444,980
Average Price Per
Share, Including
Brokerage Commissions
Class A
Class B
$
$
$
31.53
36.72
38.77
$
$
$
34.43
38.21
37.84
Total Cost of Shares
(Millions)
47
461
1,104
558
2,170
$
$
$
$
$
Total Spent on
Stock Repurchase
Program
(Millions)
250
1,250
670
2,170
$
$
$
$
45
Liquidity
We continue to manage liquidity conservatively to meet current obligations, fund capital expenditures, sustain and grow our
regular dividends, and return cash to our shareholders from time to time through share repurchases and special dividends while
reserving adequate debt capacity for unforeseen events and 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 2017, our commercial paper borrowings averaged
$576 million, with an average maturity of 31 days and an average interest rate of 0.69%. During fiscal 2018, our commercial paper
borrowings averaged $485 million, with an average maturity of 31 days and an average interest rate of 1.39%. Commercial paper
outstanding was $208 million at April 30, 2017, and $215 million at April 30, 2018.
On November 10, 2017, we entered an amended and restated five-year credit agreement with various U.S. and international
banks. The credit agreement provides an $800 million unsecured revolving credit commitment that expires on November 10, 2022.
This agreement amended and restated our previous credit agreement dated November 18, 2011. The new agreement does not
contain any financial covenants.
The $800 million revolving credit facility is currently undrawn and supports our commercial paper program. 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 believe the debt capital markets for bonds and private placements are accessible sources of long-term
financing that could meet any additional liquidity needs. We believe our current liquidity position is sufficient to meet all of our
future financial commitments.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, 2018, approximately 88% of our cash and cash equivalents were held by our foreign subsidiaries whose
earnings we expect to reinvest indefinitely outside of the United States. With the enactment of the Tax Act, we are evaluating our
global working capital requirements and may change our current permanent reinvestment assertion in future periods.
As announced on January 23, 2018, our Board of Directors approved a number of capital deployment actions aimed at
benefiting shareholders, employees, and the community. As further described below, these actions included a stock split and a
special dividend. Additionally, U.S. tax reform afforded us an opportunity to tax-efficiently fund our pension plan and charitable
giving programs that would have otherwise been funded in future years. We funded these actions with incremental debt (see Note 5
to the Consolidated Financial Statements for additional information).
The stock split was effected in the form of a dividend on both Class A and Class B common stock, paid in shares of Class
B common stock. For every four shares of either Class A or Class B common stock held, shareholders of record as of the close of
business on February 7, 2018, received one share of Class B common stock, with any fractional shares paid in cash. The additional
shares and cash for fractional shares were distributed to stockholders on February 28, 2018. See Note 10 to the Consolidated
Financial Statements for additional information.
In addition, the Board declared a special cash dividend of $1.00 per share on our Class A and Class B common stock.
Stockholders of record on April 2, 2018, received the special cash dividend on April 23, 2018. The total amount of this special
dividend was $481 million.
The Board also approved additional funding of $120 million for our U.S. pension plans, further strengthening an important
employee retirement benefit. Further, with the goal of helping to fund our ongoing philanthropic endeavors in the communities
where our employees live and work, we created and funded the Foundation with a contribution of $70 million in April 2018. The
Foundation is expected to reduce ongoing expenses related to our annual giving programs.
As announced on May 24, 2018, our Board of Directors declared a regular quarterly cash dividend of $0.158 per share on
our Class A and Class B common stock. Stockholders of record on June 6, 2018, will receive the dividend on July 3, 2018.
Off-Balance Sheet Arrangements
As of April 30, 2018, 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.
46
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 8 to the Consolidated Financial Statements). The following table
summarizes the amounts of those obligations as of April 30, 2018, and the years when they are expected to be paid.1 We expect
to meet these obligations with internally generated funds.
(Dollars in millions)
Long-term debt
Interest on long-term debt
Tax Act repatriation tax2
Grape purchases
Operating leases
Postretirement benefits3
Agave purchases4
Total
Total
2019
2020-2021
2022-2023
After 2023
$
$
2,377
1,327
91
33
45
8
28
3,909
$
$
— $
75
7
12
18
8
n/a
120
$
— $
150
15
15
21
n/a
n/a
201
$
250
148
15
5
5
n/a
n/a
423
$
$
2,127
954
54
1
1
n/a
n/a
3,137
1 Excludes liabilities for tax uncertainties, as we cannot reasonably predict their ultimate amount or timing of settlement.
2 Reflects our current estimates of amounts and timing of repatriation tax resulting from the Tax Act (discussed in Note 12 to the Consolidated
Financial Statements).
3 As of April 30, 2018, we have unfunded pension and other postretirement benefit obligations of $173 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 $8 million of expected contributions in fiscal 2019.
4 As discussed in Note 4 to the Consolidated Financial Statements, we have obligations to purchase agave, a plant whose sap forms the raw
material for tequila. As of April 30, 2018, based on current market prices, obligations under these contracts totaled $28 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.
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.
During fiscal 2018, we recorded a $2 million impairment charge related to the write-off of the carrying amount of an
immaterial discontinued brand name. Based on our assumptions, we believe neither our goodwill nor other intangibles are impaired.
Further, we estimate the fair values to substantially exceed the carrying values of our goodwill and all other intangible assets.
47
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 costs 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 changed 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 discounts 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 provides 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 accounted for this change in estimate prospectively, beginning May 1, 2017. The new approach does not affect
the measurement of our plan obligations, but generally results in lower service cost and interest cost in periods when the yield
curve is upward-sloping. For fiscal 2018, the new estimation approach reduced total service and interest cost by approximately
$7 million when compared to the cost computed using the prior approach.
The following table compares the assumed discount rates and expected return on assets used in determining net periodic
benefit cost for fiscal 2018 to those to be used in determining that cost for fiscal 2019.
Discount rate for service cost
Discount rate for interest cost
Expected return on plan assets
Pension Benefits
Medical and Life
Insurance Benefits
2018
2019
2018
2019
4.29%
3.40%
6.75%
4.30%
3.93%
6.50%
4.39%
3.35%
n/a
3.90%
4.34%
n/a
The changes in discount rates reflect changes in the yield curve since the prior measurement date. The decrease in expected
return on assets reflects lower capital market return expectations for our current asset allocation.
Using these assumptions, we estimate our pension and other postretirement benefit cost for fiscal 2019 will be approximately
$32 million, compared to $34 million for fiscal 2018. Decreasing/increasing the assumed discount rates by 50 basis points would
increase/decrease the fiscal 2019 cost by approximately $7 million. Decreasing/increasing the assumed return on plan assets by
50 basis points would increase/decrease the fiscal 2019 cost by approximately $4 million.
Income Taxes
Significant judgment is required in evaluating our tax positions. We establish liabilities when some positions are likely to
be challenged and may not succeed, despite our belief that our tax return positions are fully supportable. We adjust these liabilities
in light of changing circumstances, such as the progress of a tax audit. We believe current liabilities are appropriate for all known
contingencies, but this situation could change.
Years can elapse before we can resolve a particular matter for which we may 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.
On December 22, 2017, the U.S. government enacted the Tax Act, which significantly changes U.S. corporate income taxes.
Due to the complexity involved in applying the provisions of the Tax Act, we have made reasonable estimates of the effects and
recorded provisional amounts in our financial statements as of and for the year ended April 30, 2018. As we complete our analysis
48
of the Tax Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS, and other standard-
setting bodies, we may adjust the recorded provisional amounts in subsequent reporting periods. Those adjustments may materially
impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. See Note 12 to the
Consolidated Financial Statements for additional information about the Tax Act.
New Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for information about accounting pronouncements that we have recently
adopted and about new accounting pronouncements that we will adopt in future periods.
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. 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 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. Within Risk Management, our crisis management team facilitates simulations with the appropriate function and
executive leaders to increase awareness and preparedness.
• 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 helps ensure that all of our employees’ actions globally comply with all applicable
laws, our Code of Conduct, and our internal policies. The Chief Ethics and Compliance Officer reports the status of our
compliance efforts four times a year to the Audit Committee.
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 7 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary
Data” (the Consolidated Financial Statements) for additional information.
See Note 4 to the Consolidated Financial Statements for details on our grape and agave purchase obligations, which are
exposed to commodity price risk, and “Critical Accounting Policies and Estimates” in “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for a discussion of our pension and other postretirement plans’ exposure
to interest rate risks. Also see “Item 1A. Risk Factors” for details on how economic conditions affecting market risks also affect
the demand for and pricing of our products and how we are affected by exchange rate fluctuations.
49
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. Foreign exchange rates also affect the carrying value of our foreign-
currency-denominated assets and liabilities. 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 will exceed our foreign currency expenses by $807 million in fiscal 2019.
We hedge those currencies considered to be significant exposures based on value at risk; the estimated transactional exposure for
the hedged currencies is $734 million.
We use foreign currency forward 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, 2018, our total foreign currency hedges had a notional value of $1,098 million, with a maximum term outstanding of 36
months, and were recorded as a net liability at their fair value of $38 million.
As of April 30, 2018, we hedged 64% of the estimated fiscal 2019 transactional exposure for hedged currencies by entering
into foreign currency forward contracts. Considering these hedges and spot rates as of April 30, 2018 compared to fiscal 2018’s
effective exchange rates, we expect a modest negative effect to our fiscal 2019 operating income. We estimate that a 10% increase/
decrease in the average value of the dollar in fiscal 2019 relative to spot rates as of April 30, 2018 would decrease/increase our
fiscal 2019 operating income by approximately $35 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. As of April 30, 2018, our cash and cash equivalents ($239 million) and variable-rate debt ($215 million) are
exposed to the risk of interest rate changes. Based on the net balance of these items, a 1% increase in interest rates would result
in a negligible decrease in net interest expense.
50
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
52
53
55
56
57
58
59
60
85
51
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 Corporate Governance
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, 2018. PwC has audited the effectiveness of our internal control over
financial reporting as of April 30, 2018, as stated in their report.
Dated:
June 13, 2018
/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
By:
By:
52
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Brown-Forman Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Brown-Forman Corporation and its subsidiaries as of
April 30, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and
cash flows for each of the three years in the period ended April 30, 2018, including the related notes and schedule of valuation
and qualifying accounts for each of the three years in the period ended April 30, 2018 appearing under Item 15(a)(2) (collectively
referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting
as of April 30, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of April 30, 2018 and 2017, and the results of their operations and their cash flows for each of the
three years in the period ended April 30, 2018 in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of April 30, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 the Company's consolidated financial statements and on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
53
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
June 13, 2018
We have served as the Company’s auditor since 1933.
54
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
2016
2017
2018
$
$
$
$
4,011
922
3,089
945
2,144
417
688
(485)
(9)
1,533
2
46
1,489
422
1,067
2.10
2.09
$
$
$
$
3,857
863
2,994
973
2,021
383
667
—
(18)
989
3
59
933
264
669
1.38
1.37
$
$
$
$
4,201
953
3,248
1,046
2,202
414
765
—
(16)
1,039
6
68
977
260
717
1.49
1.48
The accompanying notes are an integral part of the consolidated financial statements.
55
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
2016
2017
2018
$
1,067
$
669
$
(23)
(17)
(10)
(50)
1,017
$
$
(73)
—
33
(40)
629
$
717
24
(28)
16
12
729
The accompanying notes are an integral part of the consolidated financial statements.
56
BROWN-FORMAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
ASSETS
2017
2018
April 30,
Cash and cash equivalents
Accounts receivable, net
Inventories:
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
Common stock:
STOCKHOLDERS’ EQUITY
Class A, voting, $0.15 par value (170,000,000 shares authorized)
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Treasury stock, at cost (88,175,000 and 3,531,000 shares in 2017 and 2018, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of the consolidated financial statements.
57
$
$
$
$
$
$
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
$
239
639
947
225
117
90
1,379
298
2,555
780
763
670
16
192
4,976
581
25
215
—
821
2,341
85
191
222
3,660
25
47
4
1,730
(378)
(112)
1,316
4,976
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Year Ended April 30,
Cash flows from operating activities:
2016
2017
2018
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
1,067
$
669
$
717
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
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
$
$
$
(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
$
$
$
—
64
19
(69)
4
(70)
(102)
29
58
16
(34)
632
—
—
(127)
(1)
(128)
(3)
(250)
595
(6)
(28)
—
(1)
(773)
—
(466)
19
57
182
239
65
200
The accompanying notes are an integral part of the consolidated financial statements.
58
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share amounts)
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
AOCI
Treasury
Stock
Total
Balance at April 30, 2015
$
13
$
21
$
99
$
3,300
$
(300) $
(1,228) $
Net income
Net other comprehensive income (loss)
Cash dividends ($0.524 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 10)
Net income
Net other comprehensive income (loss)
Cash dividends ($0.564 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
43
(10)
14
Balance at April 30, 2017
25
Retirement of treasury stock (Note 10)
Stock split (Note 10)
Net income
Net other comprehensive income (loss)
Cash dividends ($1.608 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
1,067
(266)
(50)
1,905
1,067
(50)
(266)
(1,107)
(1,107)
15
(15)
(36)
34
15
114
(34)
14
(29)
65
(8)
(14)
19
(58)
4,065
(350)
(2,301)
10
669
(274)
4,470
(2,684)
717
(773)
(40)
(561)
19
(390)
(2,843)
2,702
12
(1)
30
15
34
(51)
15
1,562
10
—
669
(40)
(274)
(561)
14
19
(29)
1,370
—
—
717
12
(773)
(1)
19
30
(58)
Balance at April 30, 2018
$
25
$
47
$
4
$
1,730
$
(378) $
(112) $
1,316
The accompanying notes are an integral part of the consolidated financial statements.
59
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. The allowance for doubtful accounts was $7 as of
both April 30, 2017 and 2018.
Inventories. Inventories are valued at the lower of cost or net realizable value. Approximately 52% 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 $272 and $290 higher than reported
at April 30, 2017 and 2018, 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 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.
60
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 sales when title and risk of loss pass to the customer, typically when the product is
shipped. We record sales net of estimated sales returns, allowances, and discounts. Net sales are further reduced by excise taxes
that we collect from our customers and remit to governmental authorities.
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 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. We adopted the following Accounting Standards Updates (ASUs) issued by
the Financial Accounting Standards Board (FASB) as of May 1, 2016:
• ASU 2015-07: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share. This new standard
amends the previous disclosure guidance related to investments measured at net asset value. Under the new standard,
investments measured at net asset value as a practical expedient are no longer categorized in the fair value hierarchy.
• ASU 2016-09: Improvements to Employee Share-Based Payment Accounting. This new guidance amends 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 include excess
tax benefits of $9 for fiscal 2017 and $18 for fiscal 2018. Prior period financial statements have not been adjusted.
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.
61
New accounting pronouncements to be adopted. We will adopt the following ASUs as of May 1, 2018:
• ASU 2014-09: Revenue from Contracts with Customers. This new standard, along with various amendments, replaces
existing revenue recognition guidance. 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.
We have substantially completed our comprehensive assessment of the impact of the new guidance, and have concluded
that adoption will not have a material impact on our financial statements. However, under the new standard, we will
estimate and recognize the cost of certain customer incentives earlier than previously recognized. Although we expect
this change in timing to shift the recognition of these costs among fiscal quarters, we do not expect the full-year impact
to be significant. Additionally, some payments to customers that were previously classified as advertising or selling,
general, and administrative expenses will be classified as reductions of sales under the new standard. We anticipate the
impact of this change in classification to be insignificant as well.
We will adopt the new standard using the modified retrospective method by recognizing the cumulative effect of applying
the new standard as an adjustment to retained earnings as of May 1, 2018. We anticipate the adjustment, reflecting the
accelerated recognition of the cost of certain customer incentives, to decrease retained earnings by approximately $30
(net of tax). We are in the process of finalizing the calculation of the adjustment, which will be completed during the first
quarter of fiscal 2019.
• ASU 2016-15: Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific
issues related to the classification of certain cash receipts and cash payments on the statement of cash flows. We expect
the impact of the new guidance to be limited to a change in classification of cash payments for premiums on corporate-
owned life insurance policies, which we currently reflect in operating activities. Under the new guidance, we plan to
reflect those payments as investing activities. Upon adopting this new guidance, we will retrospectively adjust prior year
cash flow statements to conform to the new classification. As a result, we expect to reclassify payments (from operating
activities to investing activities) of approximately $17 and $21 for fiscal 2017 and 2018, respectively.
• ASU 2016-16: Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. This revised guidance 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 is to be applied on
a modified retrospective basis through a cumulative-effect adjustment, which we anticipate will increase retained earnings
and decrease other liabilities by $27 as of May 1, 2018.
• ASU 2017-04: Simplifying the Test for Goodwill Impairment. This updated guidance 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. We do not expect adoption of the new standard, which is to be applied
prospectively, to have an impact on our consolidated financial statements.
• ASU 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
This new guidance addresses 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. 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. We estimate that the retrospective
application will increase previously-reported operating income for fiscal 2017 and fiscal 2018 by approximately $21 and
$9, respectively. As the retrospective application will merely reclassify amounts from operating income to non-operating
expense, there will be no effect on previously-reported net income or earnings per share.
62
In addition, the FASB has issued the ASUs described below that we are not required to adopt until May 1, 2019 (although
early adoption is permitted). We are currently evaluating their potential impact on our financial statements.
• ASU 2016-02: Leases. This new standard replaces existing lease accounting guidance. Under the new standard, a lessee
should recognize on its 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 also requires additional
quantitative and qualitative disclosures about leasing arrangements. 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. We will adopt this standard as of May 1, 2019.
• ASU 2017-12: Targeted Improvements to Accounting for Hedging Activities. This new guidance is intended to better
align hedge accounting with an entity’s risk management activities and improve disclosures about hedges. The guidance
expands hedge accounting for financial and nonfinancial risk components, eliminates the requirement to separately
measure and report hedge ineffectiveness, simplifies the way assessments of hedge effectiveness may be performed, and
amends some presentation and disclosure requirements for hedges. It is to be applied using a modified retrospective
transition approach for cash flow and net investment hedges existing at the date of adoption. The amended presentation
and disclosure guidance is required only prospectively. We have not yet determined our plans for adoption, but are
considering the possibility of adopting this new guidance before the required adoption date.
• ASU 2018-02: Reclassification of Certain Effects from Accumulated Other Comprehensive Income. This new guidance
would allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act enacted by the U.S. government in December 2017. It is to be applied either in
the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate
income tax rate in the Tax Cuts and Jobs Act is recognized. We have not yet determined our plans for adoption, but are
considering the possibility of adopting this new guidance before the required adoption date.
There are no other new accounting standards to be adopted that we currently believe might have a significant impact on our
consolidated financial statements.
2. BALANCE SHEET INFORMATION
Supplemental information on our year-end balance sheets is as follows:
April 30,
Other current assets:
Prepaid taxes
Other
Property, plant, and equipment:
Land
Buildings
Equipment
Construction in process
Less accumulated depreciation
Accounts payable and accrued expenses:
Accounts payable, trade
Accrued expenses:
Advertising and promotion
Compensation and commissions
Excise and other non-income taxes
Other
2017
2018
$
$
$
$
$
$
210
132
342
81
497
659
96
1,333
620
713
137
111
97
61
95
364
501
$
$
$
$
$
$
196
102
298
82
568
725
61
1,436
656
780
154
136
99
77
115
427
581
63
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, 2016
Acquisition of business (Note 16)
Foreign currency translation adjustment
Balance as of April 30, 2017
Foreign currency translation adjustment
Impairment
Balance as of April 30, 2018
Goodwill
Other
Intangible
Assets
$
$
590
183
(20)
753
10
—
763
$
$
595
65
(19)
641
31
(2)
670
Our other intangible assets consist of trademarks and brand names, all with indefinite useful lives. During fiscal 2018, we
recorded a $2 impairment charge related to the write-off of the carrying amount of an immaterial discontinued brand name.
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 $26 during 2016, 2017, and 2018, respectively. We have commitments related to minimum lease
payments of $18 in 2019, $13 in 2020, $8 in 2021, $4 in 2022, $1 in 2023, and $1 after 2023.
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 2019, $9 in 2020, $6 in 2021, $4 in 2022, $1 in 2023, and $1 after 2023.
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, 2018, based on current market prices, obligations under these contracts total $28.
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, 2018.
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 $9 (subject
to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant.
As of April 30, 2018, our actual exposure under the guaranty of the importer’s obligation is approximately $5. We also have
accounts receivable from that importer of approximately $3 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.
64
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
3.50% senior notes, $300 principal amount, due April 15, 2025
1.20% senior notes, €300 principal amount, due July 7, 2026
2.60% senior notes, £300 principal amount, due July 7, 2028
4.00% senior notes, $300 principal amount, due April 15, 2038
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
2017
2018
249
248
—
324
383
—
248
486
1,938
249
1,689
$
$
—
248
296
361
408
293
248
487
2,341
—
2,341
$
$
Debt payments required over the next five fiscal years consist of $0 in 2019, $0 in 2020, $0 in 2021, $0 in 2022, $250 in
2023, and $2,127 after 2023.
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 March 2018. Interest on these notes will
accrue at a rate of 3.50% and be paid semiannually. As of April 30, 2018, the carrying amount of these notes was $296 ($300
principal, less unamortized discounts and issuance costs). These notes are due on April 15, 2025.
In addition, we issued senior, unsecured notes with an aggregate principal amount of $300 in March 2018. Interest on these
notes will accrue at a rate of 4.00% and be paid semiannually. As of April 30, 2018, the carrying amount of these notes was $293
($300 principal, less unamortized discounts and issuance costs). These notes are due on April 15, 2038.
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. As of April 30, 2018, our short-term borrowings consisted of $215 of
commercial paper, with an average interest rate of 2.04%, and an average remaining maturity of 23 days.
We have a committed revolving credit agreement with various U.S. and international banks for $800 that expires in November
2022. At April 30, 2018, there were no borrowings outstanding under this facility.
6. FAIR VALUE MEASUREMENTS
The following table summarizes the assets and liabilities measured or disclosed at fair value on a recurring basis:
April 30,
Assets:
Cash and cash equivalents
Currency derivatives
Liabilities:
Currency derivatives
Short-term borrowings
Current portion of long-term debt
Long-term debt
2017
2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
$
182
25
$
182
25
$
239
1
10
211
249
1,689
10
211
249
1,752
39
215
—
2,341
239
1
39
215
—
2,386
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
65
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.
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. These fair value measurements are categorized as Level 2 within the valuation hierarchy.
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. These fair value measurements are categorized
as Level 2 within the valuation hierarchy.
The fair values of cash, cash equivalents, and short-term borrowings approximate the carrying amounts due to the short
maturities of these instruments.
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. 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
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 $1,188 and $1,098 at April 30, 2017 and 2018, respectively.
During fiscal 2017, we designated 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. During fiscal 2018, we continued to
designate some foreign currency-denominated debt for that purpose. 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. The amount of foreign currency-denominated debt designated as net investment hedges was $511 and $633 as
of April 30, 2017 and 2018, respectively. 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 in any of the periods presented.
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.
66
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 during each of the last three years:
Classification in
Statement of
Operations
2016
2017
2018
$
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
n/a
Sales
n/a
n/a
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings
Net gain (loss) recognized in earnings
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
(54)
(11)
—
—
(5)
9
(41)
(21)
We expect to reclassify $18 of deferred net losses on cash flow hedges recorded in AOCI as of April 30, 2018, to earnings
during fiscal 2019. 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, 2017 and 2018.
67
The following table presents the fair values of our derivative instruments as of April 30, 2017 and 2018:
Balance Sheet
Classification
Fair Value of
Derivatives in a
Gain Position
Fair Value of
Derivatives in a
Loss Position
April 30, 2017
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
Currency derivatives
April 30, 2018
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
Currency derivatives
$
Other current assets
Other assets
Accrued expenses
Other liabilities
Other current assets
Accrued expenses
Other current assets
Other assets
Accrued expenses
Other liabilities
Other current assets
Accrued expenses
$
21
9
2
1
2
—
2
1
4
2
—
1
(2)
(4)
(8)
(4)
(1)
(1)
(2)
—
(23)
(18)
—
(5)
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 our 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 $9 and $38 at April 30, 2017 and 2018, 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.
68
The following table summarizes the gross and net amounts of our derivative contracts:
April 30, 2017
Derivative assets
Derivative liabilities
April 30, 2018
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
$
35
(20)
10
(48)
$
$
(10)
10
(9)
9
$
25
(10)
1
(39)
$
(1)
1
(1)
1
24
(9)
—
(38)
No cash collateral was received or pledged related to our derivative contracts as of April 30, 2017 or 2018.
8. 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
2017
2018
2017
2018
$
$
898
26
35
(14)
1
—
(53)
893
$
$
893
24
29
2
6
—
(51)
903
$
$
56
1
2
—
(4)
1
(4)
52
$
$
52
1
1
(1)
—
1
(4)
50
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:
2019
2020
2021
2022
2023
2024 – 2028
Pension Benefits
Medical and Life
Insurance Benefits
$
$
57
58
59
61
62
322
3
3
3
3
3
17
69
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,
2018, our target asset allocation is a mix of 40% public equity investments, 47% fixed income investments, and 13% alternative
investments.
70
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, 2017
Equity securities
Limited partnership interest1
Investments measured at net asset value:
Commingled trust funds2:
Equity funds
Fixed income funds
Real estate funds
Short-term investments
Limited partnership interests3
Hedge funds4
Total
April 30, 2018
Equity securities
Limited partnership interest1
Investments measured at net asset value:
Commingled trust funds2:
Equity funds
Fixed income funds
Real estate funds
Short-term investments
Limited partnership interests3
Hedge funds4
Total
Level 1
Level 2
Level 3
Total
78
—
78
$
$
— $
—
— $
— $
4
4
89
—
89
$
$
— $
—
— $
$
— $
4
4
$
78
4
82
206
229
63
7
28
8
623
89
4
93
226
362
66
5
27
1
780
1 This limited partnership interest was initially valued at cost and has been adjusted to fair value as determined in good faith by management of
the partnership using various factors, and does not meet the requirements for reporting at the net asset value (NAV). The valuation requires
significant judgment due to the absence of quoted market prices, the inherent lack of liquidity, and the long-term nature of the investment.
2 Commingled trust fund valuations are based on the 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. For primarily all
commingled trust funds other than real estate, redemptions are permitted daily with no notice period. The real estate fund is redeemable quarterly
with 110 days notice.
3 These limited partnership interests were initially valued at cost and have been adjusted using NAV per audited financial statements. Investments
are generally not eligible for immediate redemption and have original terms averaging 10 to 13 years, although those periods may be subsequently
extended.
4 Hedge fund valuations are based primarily on the NAV of the funds as determined by fund administrators and reviewed by us. During our
review, we determine whether it is necessary to adjust a valuation for inherent liquidity and redemption issues that may exist within a fund’s
underlying assets or fund unit values.
71
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, 2016
Sales and settlements
Balance as of April 30, 2017
Return on assets held at end of year
Sales and settlements
Balance as of April 30, 2018
Level 3
5
(1)
4
1
(1)
4
$
$
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
2017
2018
2017
2018
$
$
594
51
—
31
(53)
623
$
$
623
53
—
155
(51)
780
$
$
— $
—
1
3
(4)
— $
—
—
1
3
(4)
—
We currently expect to contribute $5 to our pension plans and $3 to our postretirement medical and life insurance benefit
plans during 2019.
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
2017
2018
2017
2018
$
$
$
623
(893)
(270) $
$
780
(903)
(123) $
— $
(52)
(52) $
—
(50)
(50)
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 help cover these obligations. The value of those investments, which are included in “other assets” on the
accompanying consolidated balance sheets, is $81 and $98 as of April 30, 2017 and 2018, respectively.
72
The funded status is recorded on the accompanying consolidated balance sheets as follows:
April 30,
Other assets
Accounts payable and accrued expenses
Accrued postretirement benefits
Net liability
Accumulated other comprehensive income (loss),
before tax:
Net actuarial gain (loss)
Prior service credit (cost)
Pension Benefits
Medical and Life
Insurance Benefits
2017
2018
2017
2018
$
$
$
$
— $
(5)
(265)
(270) $
(322) $
(4)
(326) $
$
26
(5)
(144)
(123) $
(291) $
(9)
(300) $
— $
(3)
(49)
(52) $
(13) $
17
4
$
—
(3)
(47)
(50)
(10)
13
3
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
2017
2018
2017
2018
2017
2018
48
$
780
$
47
$
669
$
48
$
575
623
$
—
780
$
729
776
$
123
792
$
845
893
$
754
149
903
Pension cost. The following table shows the components of the pension cost 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 cost
Pension Benefits
2016
2017
2018
$
$
$
26
35
(40)
1
27
—
49
$
$
26
35
(41)
1
25
1
47
$
24
29
(41)
1
21
—
34
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 cost in 2019 is
$1 and $19, respectively.
73
Other postretirement benefit cost. The following table shows the components of the postretirement medical and life insurance
benefit cost 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 cost
Medical and Life Insurance Benefits
2017
2018
2016
$
$
1
2
(2)
1
2
$
$
1
2
(3)
1
1
$
$
1
1
(3)
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 cost in 2019 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 cost 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
2016
2017
2018
2016
2017
2018
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
$
$
— $
(46)
1
27
(18) $
(1) $
24
1
26
50
$
(6) $
10
1
21
26
$
— $
1
(2)
1
— $
4
—
(3)
1
2
$
$
—
1
(3)
1
(1)
Assumptions and sensitivity. We use various assumptions to determine the obligations and cost 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
2017
2018
2017
2018
4.09%
4.00%
4.23%
4.00%
4.04%
n/a
4.20%
n/a
The weighted-average assumptions used in computing benefit plan cost during each of the last three years were as follows:
Discount rate for service cost
Discount rate for interest cost
Rate of salary increase
Expected return on plan assets
Pension Benefits
Medical and Life
Insurance Benefits
2016
2017
2018
2016
2017
2018
4.09%
4.09%
4.00%
7.00%
4.02%
4.02%
4.00%
7.00%
4.29%
3.40%
4.00%
6.75%
4.09%
4.09%
n/a
n/a
3.96%
3.96%
n/a
n/a
4.39%
3.35%
n/a
n/a
The assumed discount rates are determined 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. Beginning in fiscal 2018, we changed the method
used to estimate the service cost and interest cost for these benefit plans. The new estimation approach discounts 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 provides a more precise measurement of service
and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates.
74
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.
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
2017
2018
7.25%
5.00%
2025
7.70%
5.00%
2025
A one 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, 2018, or the aggregate service and interest costs for 2018.
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 $11, $11, and $12 for
matching contributions during 2016, 2017, and 2018, 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.
9. STOCK-BASED COMPENSATION
The Brown-Forman 2013 Omnibus Compensation Plan is our incentive compensation plan, designed to reward participants
(including eligible officers, employees, and non-employee directors) for company performance. Under the Plan, we can grant
stock-based incentive awards for up to 20,750,000 shares of common stock to eligible participants until July 28, 2023. As of
April 30, 2018, awards for approximately 14,791,000 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, 2018, and for the year then ended.
Outstanding at April 30, 2017
Granted
Exercised
Forfeited or expired
Outstanding at April 30, 2018
Exercisable at April 30, 2018
Number of
Underlying
Shares
(in thousands)
Weighted
Average
Exercise Price
per Award
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
8,278
1,059
(2,116)
(6)
7,215
4,335
$
$
$
25.74
39.07
17.11
36.05
29.67
23.17
5.4
3.7
$
$
190
142
The total intrinsic value of options and SSARs exercised during 2016, 2017, and 2018 was $47, $28, and $73, respectively.
75
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 2016, 2017, and 2018 were $7.62, $5.73, and $6.79 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)
2016
2017
2018
2.1%
19.1%
1.6%
6.75
1.4%
16.3%
1.6%
7.00
2.2%
15.6%
1.5%
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 670,000 shares underlying these awards, with a weighted-
average remaining vesting period of 0.8 years, were nonvested at April 30, 2018. The following table summarizes the changes in
the number of shares underlying these awards during 2018.
Nonvested at April 30, 2017
Granted
Adjusted for dividends or performance
Vested
Forfeited
Nonvested at April 30, 2018
Number of
Underlying Shares
(in thousands)
Weighted
Average
Fair Value at
Grant Date
601
165
43
(136)
(3)
670
$
$
36.50
33.68
50.47
34.52
39.40
39.84
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 2016, 2017, and 2018 was $10, $8, and $6, respectively.
The accompanying consolidated statements of operations reflect compensation expense related to stock-based incentive
awards on a pre-tax basis of $15 in 2016, $14 in 2017, and $19 in 2018, partially offset by deferred income tax benefits of $6 in
2016, $5 in 2017, and $6 in 2018. As of April 30, 2018, there was $7 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 1.3 years.
10. COMMON STOCK
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 remained 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 new shares were distributed on August 18, 2016, to shareholders of record as of August 8, 2016.
On May 24, 2017, we retired 67,000,000 shares of Class B common stock previously held as treasury shares. This retirement
reduced the number of issued shares of Class B common stock by that same amount.
On January 23, 2018, our Board of Directors approved a stock split, effected in the form of a stock dividend. For every four
shares of either Class A or Class B common stock held, shareholders of record as of the close of business on February 7, 2018,
received one share of Class B common stock, with any fractional shares payable in cash. The additional shares and cash for
fractional shares were distributed to stockholders on February 28, 2018.
76
The following table shows the effects of the stock splits and treasury stock retirement on the number of issued common
shares:
(Shares in thousands)
Balance at April 30, 2016
Stock split
Balance at April 30, 2017
Retirement of treasury stock
Stock split
Balance at April 30, 2018
Class A
85,000
85,000
170,000
—
—
170,000
Issued
Class B
142,313
142,313
284,626
(67,000)
96,906
314,532
Total
227,313
227,313
454,626
(67,000)
96,906
484,532
Except for the pre-split share balances and activity included in the above table, all share and per share amounts reported in
these financial statements and related notes are presented on a split-adjusted basis.
The following table shows the change in outstanding common shares during each of the last three years:
(Shares in thousands)
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
Acquisition of treasury stock
Stock issued under compensation plans
Balance at April 30, 2018
11. EARNINGS PER SHARE
Outstanding
Class A
Class B
Total
168,926
(114)
248
169,060
(77)
68
169,051
(25)
36
169,062
352,823
(28,422)
892
325,293
(14,768)
530
311,055
(6)
890
311,939
521,749
(28,536)
1,140
494,353
(14,845)
598
480,106
(31)
926
481,001
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
2016
2017
2018
1,067
$
669
$
717
507,441
3,259
510,700
484,635
3,442
488,077
2.10
2.09
$
$
1.38
1.37
$
$
480,319
3,929
484,248
1.49
1.48
$
$
$
We excluded common stock-based awards for approximately 1,131,000 shares, 2,145,000 shares, and 805,000 shares from
the calculation of diluted earnings per share for 2016, 2017, and 2018, respectively, because they were not dilutive for those periods
under the treasury stock method.
77
12. 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
2016
2017
2018
$
$
1,184
305
1,489
$
$
806
127
933
$
$
747
230
977
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.
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
2016
2017
2018
$
$
$
347
47
18
412
24
(17)
3
10
422
$
$
$
$
226
40
8
274
(1) $
(9)
—
(10)
264
$
265
47
17
329
(48)
(13)
(8)
(69)
260
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (Tax Act). The Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering U.S.
corporate income tax rates and implementing a territorial tax system. As we have an April 30 fiscal year-end, the lower corporate
income tax rate was phased in, resulting in a U.S. statutory federal rate of 30.4% for our fiscal year ended April 30, 2018, and
21% for subsequent fiscal years. During fiscal 2018, the impact of the lower tax rate resulted in a tax benefit of approximately
$19. With the enactment of the Tax Act, we are evaluating our global working capital requirements and may change our current
permanent reinvestment assertion in future periods.
There are also certain transitional impacts of the Tax Act. As part of the transition to the new territorial tax system, the Tax
Act imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, the
reduction of the U.S. corporate tax rate required us to adjust our U.S. deferred tax assets and liabilities to the lower federal base
rate of 21%. These transitional impacts resulted in a provisional net charge of $43 for the year ended April 30, 2018, comprised
of a provisional repatriation U.S. tax charge of $91 and a provisional net deferred tax benefit of $48.
The Tax Act also established new tax laws that may impact our financial statements beginning in fiscal 2019. These new
laws include, but are not limited to (a) Global Intangible Low-Tax Income (GILTI), a new provision for tax on low-tax foreign
earnings; (b) Base Erosion Anti-abuse Tax (BEAT), a new minimum tax; (c) repeal of the domestic production activity deduction;
and (d) limitations on certain executive compensation.
As noted, certain income earned by foreign subsidiaries must be included in U.S. taxable income under the GILTI provisions.
The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse
as GILTI in future years or recognizing such taxes as a current period expense when incurred. Due to the complexity of calculating
78
GILTI under the Tax Act, we have not determined which method we will apply. Therefore, we have not recognized any adjustments
for GILTI tax in our fiscal 2018 financial statements. We expect to elect an accounting policy in the first quarter of fiscal 2019.
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the
above estimates, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions
that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to
the Tax Act, or any updates or changes to estimates we have used to calculate the transition impacts, including impacts from
changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries.
Shortly after the Tax Act was enacted, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin
No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). Under SAB 118, companies are provided
a measurement period, not to extend beyond one year since the date of enactment. To the extent a company’s accounting for certain
income tax effects are incomplete, the company may determine a reasonable estimate and record a provisional amount within the
first reporting period in which a reasonable estimate can be determined. We expect to complete our analysis of the amounts recorded
upon enactment of the Tax Act within the measurement period of one year.
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
Provisional impact of Tax Act
Other, net
Effective rate
Percent of Income Before Taxes
2016
2017
2018
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%
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 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
2017
2018
$
$
$
173
17
27
44
(30)
231
(262)
(90)
(15)
(367)
(136) $
30.4%
0.8%
(3.4%)
(2.5%)
—%
(1.6%)
(1.8%)
2.5%
2.2%
26.6%
89
36
48
51
(29)
195
(199)
(64)
(1)
(264)
(69)
79
Details of the loss carryforwards and related valuation allowances as of the end of each of the last two years are as follows:
Finland net operating losses
Brazil net operating losses
United Kingdom non-trading losses
Various state net operating losses
Other
April 30, 2017
April 30, 2018
Gross
Amount
Deferred
Tax Asset
Valuation
Allowance
Gross
Amount
Deferred
Tax Asset
Valuation
Allowance
Expiration (as of
April 30, 2018)
$
$
65
49
27
—
43
184
$
$
13
17
5
—
9
44
$
$
— $
(17)
(5)
—
(8)
(30) $
94
48
29
34
41
246
$
$
19
16
6
2
8
51
$
$
None
None
— 2024-2028
(16)
(6)
— 2033-2038
Various1
(7)
(29)
1As of April 30, 2018, gross amount includes loss carryforwards of $11 that do not expire and $30 that expire in varying amounts over the next 10 years.
Although the losses in Brazil can be carried forward indefinitely, it is uncertain whether we will realize sufficient taxable
income to allow us to use these losses. The non-trading losses in the United Kingdom can also be carried forward indefinitely.
However, 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 have been 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, $16 in 2017, and $16 in 2018. The remaining balance of the deferred benefit, which is included
in “other liabilities” on the accompanying consolidated balance sheet, was $27 as of April 30, 2018. As discussed in Note 1, revised
accounting guidance (ASU 2016-16) 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 this balance being recognized
as an increase in retained earnings rather than as a reduction in income tax expense.
As of April 30, 2018, we had approximately $1,270 of undistributed earnings from our foreign subsidiaries ($1,053 at April
30, 2017). Historically, deferred tax liabilities have not been recognized on these earnings. However, upon enactment of the Tax
Act, the undistributed earnings of our foreign subsidiaries are subject to U.S. tax due to the Tax Act’s provision imposing a
mandatory deemed repatriation tax on accumulated foreign earnings provision. As a result, we have provisionally recognized a
one-time income tax expense of $91. Deferred tax liabilities were not provided for any additional outside basis differences inherent
in our foreign subsidiaries (i.e. basis differences in excess of those subject to the mandatory deemed repatriation tax) as these
amounts continue to be provisionally reinvested indefinitely outside the United States. If these amounts were not considered
permanently reinvested, deferred tax liabilities would have been provided for additional income taxes (if any) and withholding
taxes payable in various countries. A determination of the unrecognized deferred tax liabilities on the earnings reinvested indefinitely
at April 30, 2018 is not practicable.
At April 30, 2018, we had $11 of gross unrecognized tax benefits, $9 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
2016
2017
2018
$
$
13
1
—
(4)
(1)
9
$
$
9
2
—
(2)
—
9
$
$
9
5
1
(4)
—
11
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; 2016 in the United Kingdom; 2014 in Australia and Finland; 2013 in
Brazil, Germany, Mexico and the Netherlands; and 2012 in Poland. The audit of our fiscal 2016 U.S. federal tax return was
concluded in the second quarter of fiscal 2018; we expect the audit of the fiscal 2017 U.S. federal tax return to be concluded in
the first half of fiscal 2019. In addition, we are participating in the Internal Revenue Service’s Compliance Assurance Program
for our fiscal 2018 tax year.
We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.
80
13. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the change in each component of AOCI, net of tax, during 2018:
Balance at April 30, 2017
Net other comprehensive income (loss)
Balance at April 30, 2018
Currency
Translation
Adjustments
Cash Flow
Hedge
Adjustments
Postretirement
Benefits
Adjustments
Total AOCI
$
$
(204)
24
(180)
$
$
11
(28)
(17)
$
$
(197)
16
(181)
$
$
(390)
12
(378)
81
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, 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
Total other comprehensive income (loss), net
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
Total other comprehensive income (loss), net
Year Ended April 30, 2018
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
(22) $
—
(22)
30
(60)
(30)
(47)
30
(17)
(1) $
—
(1)
(10)
23
13
19
(12)
7
(69) $
19
$
(71) $
3
(68)
41
(40)
1
28
25
53
(4) $
(1)
(5)
(17)
16
(1)
(10)
(10)
(20)
(23)
—
(23)
20
(37)
(17)
(28)
18
(10)
(50)
(75)
2
(73)
24
(24)
—
18
15
33
(14) $
(26) $
(40)
$
12
—
12
(54)
11
(43)
5
20
25
$
12
—
12
18
(3)
15
(2)
(7)
(9)
24
—
24
(36)
8
(28)
3
13
16
12
Total other comprehensive income (loss), net
$
(6) $
18
$
1Pre-tax amount is classified as 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 8, except for amounts related to non-
U.S. benefit plans, about which no information is presented in Note 8 due to immateriality).
82
14. 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
2016
2017
2018
$
$
$
$
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
$
$
$
$
2018
3,060
188
3,248
1,539
864
163
682
3,248
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 $96 and $111 as of April 30,
2017 and 2018, respectively. Other long-lived assets located outside the United States are not significant.
We have concluded that our business constitutes a single operating segment.
15. 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.
83
16. 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
June 1,
2016
$
11
158
1
19
183
65
437
12
59
25
96
Net assets acquired
$
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.
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
consolidated statement of cash flows.
BenRiach’s results of operations have been included in our financial statements since the acquisition date. Actual and pro
forma results are not presented due to immateriality.
84
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Expressed in millions, except per share amounts)
Second
Quarter
830
$
552
197
0.41
0.40
Fiscal 2017
Third
Quarter
808
$
536
182
0.38
0.38
Fourth
Quarter
694
$
480
144
0.30
0.30
Year
$ 2,994
2,021
669
1.38
1.37
First
Quarter
723
$
493
178
0.37
0.37
Second
Quarter
914
$
610
239
0.50
0.49
Fiscal 2018
Third
Quarter
878
$
587
190
0.39
0.39
Fourth
Quarter
733
$
512
110
0.23
0.23
—
0.136
43.56
37.60
40.85
35.73
0.292
0.146
39.46
36.50
37.63
35.17
—
0.146
40.04
37.09
39.16
36.01
0.564
0.564
43.56
36.50
40.85
35.17
0.292
0.146
42.75
35.50
45.54
37.82
—
0.146
42.62
37.79
45.62
38.43
1.316
0.158
51.30
41.14
55.66
44.08
—
1.158
55.67
46.61
56.52
50.66
Year
$ 3,248
2,202
717
1.49
1.48
1.608
1.608
55.67
35.50
56.52
37.82
First
Quarter
661
$
453
144
0.29
0.29
Net sales
Gross profit
Net income
Basic EPS
Diluted EPS
Cash dividends per share:
Declared
Paid
0.272
0.136
Market price per share:
Class A high
Class A low
Class B high
Class B low
Notes:
43.42
40.62
40.32
37.56
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. Per share amounts have been adjusted for a 5-for-4 stock split that occurred in February 2018.
3. Cash dividends for fiscal 2018 include a special dividend of $1.00 per share.
85
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 2018. 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; and (b) 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, 2018, 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, 2018, 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.”
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 26, 2018, 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) “Selection of Directors” (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 26, 2018, which information is incorporated into this report by reference:
(a) “Compensation Discussion and Analysis”; (b) “Compensation Tables”; (c) “Director Compensation”; (d) “Compensation
Committee Interlocks and Insider Participation”; (e) “Compensation Committee Report”; and (f) “Pay Ratio Disclosure.”
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 26, 2018, which
information is incorporated into this report by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual
Meeting of Stockholders to be held July 26, 2018, which information is incorporated into this report by reference: (a) “Certain
Relationships and Related Transactions”; and (b) “Our Independent Directors.”
86
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 26, 2018, 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)
(a)(2)
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
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts
Page
53
55
56
57
58
59
60
93
We have omitted all other schedules for which provision is made in the applicable accounting regulations of the Securities
and Exchange Commission either because they are not required under the related instructions, because the information required
is included in the consolidated financial statements and notes thereto, or because they do not apply.
(a)(3) Exhibits:
The following documents are filed with this report:
Exhibit Index
12
21
23
31.1
31.2
32
101
Statement re Computation of Ratio of Earnings to Fixed Charges.
Subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (not considered to be filed).
The following materials from Brown-Forman Corporation’s Annual Report on Form 10-K for the fiscal year ended
April 30, 2018, 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.
87
The following documents have been previously filed:
Exhibit Index
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2
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).
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
Trustee, incorporated into this report by reference to Exhibit 4.1 of Brown-Forman Corporation’s Form 8-K filed on
April 3, 2007 (File No. 002-26821).
First Supplemental Indenture dated as of December 13, 2010, between Brown-Forman Corporation and U.S. Bank
National Association, as Trustee, 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 3.500% Note due 2025, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman Corporation’s
Form 8-K filed on March 26, 2018 (File No. 001-00123).
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 4.000% Note due 2038, incorporated into this report by reference to Exhibit 4.6 of Brown-Forman Corporation’s
Form 8-K filed on March 26, 2018 (File No. 001-00123).
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).
Officers’ 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).
Officers’ Certificate dated March 26, 2018, pursuant to the indenture dated 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 3.500% Note due 2025 and the 4.000% Note due 2038, incorporated into this report by reference to Exhibit 4.4 of
Brown-Forman Corporation’s Form 8-K filed on March 26, 2018 (File No. 001-00123).
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).*
88
Exhibit Index
10.3
Brown-Forman Corporation 2004 Omnibus Compensation Plan, as amended, incorporated into this report by reference
to Exhibit A of Brown-Forman Corporation’s proxy statement filed on June 26, 2009, in connection with its 2009
Annual Meeting of Stockholders (File No. 002-26821).*
Form of Employee Stock Appreciation Right Award Agreement, incorporated into this report by reference to Exhibit
10(g) of Brown-Forman Corporation’s Form 8-K filed on August 2, 2006 (File No. 002-26821).*
Form of Non-Employee Director Stock Appreciation Right Award Agreement, incorporated into this report by reference
to Exhibit 10(i) of Brown-Forman Corporation’s Form 8-K filed on August 2, 2006 (File No. 002-26821).*
2010 Form of Employee Stock-Settled Stock Appreciation Right Award Agreement, incorporated into this report by
reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File No. 002-26821).*
2010 Form of Non-Employee Director Stock-Settled Stock Appreciation Right Award Agreement, incorporated into
this report by reference to Exhibit 10.2 of Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File No.
002-26821).*
2010 Form of Restricted Stock Award Agreement, incorporated into this report by reference to Exhibit 10.3 of Brown-
Forman Corporation’s Form 8-K filed on July 23, 2010 (File No. 002-26821).*
2010 Form of Restricted Stock Unit Award Agreement, incorporated into this report by reference to Exhibit 10.4 of
Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File No. 002-26821).*
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, 2013 (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).*
10.4
10.5
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
89
Exhibit Index
10.24
Five-Year Credit Agreement, dated as of November 10, 2017, among Brown-Forman Corporation, certain borrowing
subsidiaries and certain lenders party thereto, JPMorgan Chase Bank, N.A., PNC Bank, National Association and Wells
Fargo Bank, National Association, as Co-Documentation Agents, U.S. Bank National Association, as Administrative
Agent, and U.S. Bank National Association, Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Citigroup Global Markets Inc., as Co-Syndication Agents, 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
13, 2017 (File No. 001-00123).
Letter Agreement between Brown-Forman Corporation and Jill A. Jones dated May 14, 2018, incorporated into this
report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on May 16, 2018 (File No.
001-00123).
10.25
* Indicates management contract, compensatory plan, or arrangement.
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 13, 2018
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 13, 2018, 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
90
/s/ Patrick Bousquet-Chavanne
By:
Patrick Bousquet-Chavanne
Director
/s/ Campbell P. Brown
By: Campbell P. Brown
Director
/s/ Stuart R. Brown
By: Stuart R. Brown
Director
/s/ Bruce L. Byrnes
By: Bruce L. Byrnes
Director
/s/ John D. Cook
By:
John D. Cook
Director
/s/ 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
91
/s/ Augusta Brown Holland
By: Augusta Brown Holland
Director
/s/ Michael J. Roney
By: Michael J. Roney
Director
/s/ Tracy L. Skeans
By: Tracy L. Skeans
Director
/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)
92
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 2016, 2017, and 2018
(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
2016
Allowance for doubtful accounts
Deferred tax valuation allowance
2017
Allowance for doubtful accounts
Deferred tax valuation allowance
2018
Allowance for doubtful accounts
Deferred tax valuation allowance
(1) Doubtful accounts written off, net of recoveries.
$
$
$
$
$
$
10
27
9
25
7
30
$
$
$
$
$
$
1
3
—
5
—
3
$
$
$
$
$
$
—
—
—
2
—
1
$
$
$
$
$
$
2 (1) $
$
5
2 (1) $
$
2
9
25
7
30
—
5
$
$
7
29
93
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
2014
26.9x
For the Years Ended April 30,
2017
2016
2015
28.1x
28.8x
14.8x
2018
13.5x
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 India Private Limited
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% (15)
100%
100%
100% (13)
100% (5)
100% (5)
100% (5)
100% (16)
100% (9)
100% (11)
100% (17)
100% (5)
100% (4)
100% (5)
100% (5)
100% (7)
100% (5)
100% (18)
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
India
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.
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.
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% (19)
100%
100%
100% (6) (20)
100% (21)
100% (22)
100%
100%
100% (16) (20)
100% (23)
100% (24)
100% (5)
100%
100% (18)
100%
Delaware
Delaware
China
Ontario, Canada
France
Ireland
Mexico
Tennessee
Delaware
Ukraine
Ireland
Delaware
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 99.991% by Brown-Forman Hungary 1 Kft. and 0.009% 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 99.98% by Brown-Forman Netherlands B.V. and 0.02% Brown-Forman Dutch Holding B.V.
(16) Owned by Amercain Investments C.V.
(17) Owned 90% by Brown-Forman Netherlands B.V. and 10% Brown-Forman Deutschland GmbH.
(18) Owned 99% by Brown-Forman Holding Mexico S.A. de C.V. and 1% by Brown-Forman Distillery, Inc.
(19) Owned by Brown-Forman Beverages North Asia, L.L.C.
(20)
Includes qualifying shares assigned to Brown-Forman Corporation.
(21) Owned 99.9972% by BF FINCO S. de R.L. de C.V. and 0.00277% by Brown-Forman Beverages Europe, Ltd.
(22) Owned by Jack Daniel's Properties, Inc.
(23) Owned by Jack Daniel Distillery, Lem Motlow, Prop., Inc.
(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 13, 2018 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 13, 2018
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 13, 2018
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 13, 2018
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, 2018, 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 13, 2018
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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Brown-Forman 2018 Annual Report
022282
823858corp
06/15/18
page 01
CORPORATE INFORMATION
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
CORPORATE HEADQUARTERS
850 Dixie Highway / Louisville, Kentucky 40210 / (502) 585-1100
850 Dixie Highway / Louisville, Kentucky 40210 / (502) 585-1100
www.brown-forman.com / brown-forman@b-f.com
www.brown-forman.com / brown-forman@b-f.com
LISTED
LISTED
New York Stock Exchange — BFA/BFB
New York Stock Exchange — BFA/BFB
STOCKHOLDERS
STOCKHOLDERS
As of April 30, 2017, there were 2,693 holders of record of Class A Common Stock
As of April 30, 2018, there were 2,663 holders of record of Class A Common Stock
and 4,909 holders of record of Class B Common Stock. Stockholders reside in all
and 5,525 holders of record of Class B Common Stock. Stockholders reside in all
50 states and in 21 foreign countries.
50 states and in 21 foreign countries.
REGISTRAR, TRANSFER AGENT,
REGISTRAR, TRANSFER AGENT,
AND DIVIDEND DISBURSING AGENT
AND DIVIDEND DISBURSING AGENT
Computershare
Computershare
web.queries@computershare.com
web.queries@computershare.com
(866) 622-1917 (U.S., Canada, Puerto Rico)
(866) 622-1917 (U.S., Canada, Puerto Rico)
(781) 575-4735 (International)
(781) 575-4735 (International)
Correspondence: P.O. Box 505000 / Louisville, KY 40233
Correspondence: P.O. Box 505000 / Louisville, KY 40233
Overnight Correspondence: 462 South 4th Street, Suite 1600
Overnight Correspondence: 462 South 4th Street, Suite 1600
Louisville, KY 40202
Louisville, KY 40202
EMPLOYEES
EMPLOYEES
As of April 30, 2017, Brown-Forman employed approximately 4,700 people,
As of April 30, 2018, Brown-Forman employed approximately 4,800 people,
including about 260 employed on a part-time or temporary basis. Brown-Forman
including about 230 employed on a part-time or temporary basis. Brown-Forman
Corporation is committed to equality of opportunity in all aspects of employment.
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
It has been and will continue to be the policy of Brown-Forman to provide full and
and equal employment opportunities to all employees and potential employees
equal employment opportunities to all employees and potential employees without
without regard to race, color, religion, national or ethnic origin, veteran
regard to race, color, religion, national or ethnic origin, veteran status, age,
status, age, gender, gender identity or expression, sexual orientation, genetic
gender, gender identity or expression, sexual orientation, genetic information,
information, physical or mental disability, or any other legally protected status.
physical or mental disability, or any other legally protected status. It is also the
It is also the policy of Brown-Forman to take affirmative action to employ and to
policy of Brown-Forman to take affirmative action to employ and to advance in
advance in employment, all persons regardless of race, color, religion, national
employment all persons regardless of race, color, religion, national or ethnic origin,
or ethnic origin, veteran status, age, gender, gender identity or expression,
veteran status, age, gender, gender identity or expression, sexual orientation,
sexual orientation, genetic information, physical or mental disability or any other
genetic information, physical or mental disability, or any other legally protected
legally protected status, and to base all employment decisions only on valid
status, and to base all employment decisions only on valid job requirements.
job requirements. This policy applies to all terms, conditions and privileges of
This policy applies to all terms, conditions, and privileges of employment, such
employment, such as those pertaining to selection, training, transfer, promotion,
as those pertaining to selection, training, transfer, promotion, compensation, and
compensation, and educational assistance programs.
educational assistance programs.
FORM 10-K
FORM 10-K
Our 2017 Form 10-K is included with this 2017 Annual Report in its entirety
Our 2018 Form 10-K is included with this 2018 Annual Report in its entirety
except for exhibits. Interested stockholders may obtain without charge a copy
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
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
Services, Brown-Forman Corporation, 850 Dixie Highway, Louisville, Kentucky
40210. The Form 10-K can also be downloaded from the company’s website
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
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
then on Financial Reports & Filings to view the Form 10-K and other important
documents.
documents.
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
other factors (many beyond our control) that could cause our actual results to
other factors (many beyond our control) that could cause our actual results to
differ materially from our historical experience or from our current expectations
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
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
any forward-looking statements, whether as a result of new information, future
events, or otherwise. For a description of these risks and uncertainties, please
events, or otherwise. For a description of these risks and uncertainties, please
see “Forward-Looking Statement Information,” which precedes Part I, Item 1,
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
Business, as well as Item 1A, Risk Factors, of the Form 10-K included with this
2017 Annual Report.
2018 Annual Report.
USE OF NON-GAAP FINANCIAL INFORMATION
USE OF NON-GAAP FINANCIAL INFORMATION
Certain matters discussed in this Annual Report include measures not derived
Certain matters discussed in this Annual Report include measures not derived
in accordance with generally accepted accounting principles (“GAAP”), including
in accordance with generally accepted accounting principles (“GAAP”), including
“return on average invested capital” and “underlying” changes in income statement
“return on average invested capital” and “underlying” changes in income statement
line items. Reconciliations of these measures to the most closely comparable
line items. Reconciliations of these measures to the most closely comparable
GAAP measures, and reasons for the company’s use of these measures, are
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
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 Condition and Results of Operations,” under the heading “Non-GAAP
Financial Measures” of the Form 10-K incorporated into this 2017 Annual Report.
Financial Measures” of the Form 10-K incorporated into this 2018 Annual Report.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
STOCK PERFORMANCE GRAPH
STOCK PERFORMANCE GRAPH
This graph compares the cumulative total shareholder return of our Class B
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
Common Stock against the Standard & Poor’s 500 Index, the Dow Jones U.S.
U.S. Consumer Goods Index, and the Dow Jones U.S. Food & Beverage Index. The
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
graph assumes $100 was invested on April 30, 2013, and that all dividends were
reinvested. The cumulative returns shown on the graph represent the value that
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.
these investments would have had on April 30 in the years since 2013.
INDEXED
INDEXED
TOTAL
TOTAL
SHAREHOLDER
SHAREHOLDER
RETURN
RETURN
as of April 30,
as of April 30,
2017, dividends
2018, dividends
reinvested
reinvested
$200
$220
$175
$190
$150
$160
$125
$130
$100
$100
BF Class B Shares
BF Class B Shares
S&P 500 Index
S&P 500 Index
Dow Jones U.S.
Dow Jones U.S.
Consumer Goods
Consumer Goods
Dow Jones U.S.
Dow Jones U.S.
Food and Beverage
Food and Beverage
2012
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
2018
$100
$100
$100
$100
$100
$100
$100
$100
$132
$129
$117
$120
$122
$113
$124
$111
$171
$132
$141
$136
$138
$126
$137
$126
$174
$143
$159
$138
$153
$138
$156
$142
$188
$142
$161
$162
$168
$151
$176
$152
$187
$217
$190
$184
$184
$148
$188
$148
ENVIRONMENTAL STEWARDSHIP
ENVIRONMENTAL STEWARDSHIP
As a responsible corporate citizen, Brown-Forman is committed to environmental
As a responsible corporate citizen, Brown-Forman is committed to environmental
stewardship and sustainability. Our environmental efforts focus primarily
stewardship and sustainability. Our environmental efforts focus primarily
on the efficient use of natural resources, conserving energy and water, and
on the efficient use of natural resources, conserving energy and water, and
minimizing waste.
minimizing waste.
The 2017 Annual Report and the embedded electronic content referenced herein
The 2018 Annual Report and the embedded electronic content referenced herein
contain “forward-looking statements” as defined under U.S. federal securities
contain “forward-looking statements” as defined under U.S. federal securities
laws. By their nature, forward-looking statements involve risks, uncertainties and
laws. By their nature, forward-looking statements involve risks, uncertainties and
This Annual Report is printed on FSC®-certified paper.
This Annual Report is printed on FSC®-certified paper.
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