UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of
earliest event reported): February 24, 2003
Brown-Forman Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-123 61-0243150
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
850 Dixie Highway, Louisville, Kentucky 40210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 585-1100
Item 9. Regulation FD Disclosure
Brown-Forman Corporation issued the press release today reporting third quarter
earnings. A copy of Brown-Forman Corporation's press release is attached hereto
as Exhibit 99.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Brown-Forman Corporation
(Registrant)
Date: February 24, 2003 By: /s/ Nelea A. Absher
Nelea A. Absher
Vice President, Senior Counsel
and Assistant Secretary
Exhibit Index
(99) Press Release, dated February 24, 2003, issued by Brown-Forman Corporation
Exhibit 99
FOR IMMEDIATE RELEASE
BROWN-FORMAN REPORTS THIRD QUARTER EARNINGS
Louisville, KY, February 24, 2003 - Brown-Forman Corporation reported earnings
per share for its third quarter ended January 31, 2003 of $1.02, up 22% or $0.18
per share compared to the same period last year. Adjusted for business
improvement costs, earnings for the quarter improved $0.14 per share, or 16%.
Higher underlying profits reflected solid growth for Jack Daniel's and Southern
Comfort, increased profitability in the United Kingdom from a new distribution
arrangement, and benefits from a weaker U.S. dollar. Tempering growth was a
substantial drop in earnings for Brown-Forman's wine business, which continues
to suffer from higher costs and a very competitive pricing environment in the
United States. Overall results in the quarter were consistent with the company's
previously stated outlook for full year earnings growth of 6% to 10%, excluding
any potential impact from a recently announced share repurchase.
Earnings per share for the first nine months of fiscal 2003 were $2.73, up 6%
from the $2.58 earned in the same period last year. Adjusted for business
improvement costs, year-to-date earnings improved 4%. Consistent with third
quarter trends, year-to-date growth was driven by Jack Daniel's and Southern
Comfort, while profits from Brown-Forman's wine brands declined substantially.
Year-to-date results were not significantly affected by a weaker U.S. dollar due
to prior purchases of hedging contracts; a continuation of current exchange
rates would benefit future earnings, however.
Beverages
For the first nine months of the fiscal year, beverage revenues and gross profit
were up 11% and 6%, respectively. Importantly, the company now records excise
taxes for its U.K. spirits sales in both revenues and cost of sales. This change
had the effect of boosting year-to-date revenues for Brown-Forman's beverage
segment by 4%, while lowering segment gross margins by 1.7 percentage points.
Beverage advertising expenses were up 11%, as the company continues to invest in
core brand building activities.
Depletion and profit trends for Jack Daniel's Tennessee Whiskey remained solid
for the first nine months of the fiscal year, with broad-based growth around the
world. Volumes for Southern Comfort were essentially flat, as growth in both the
United States and United Kingdom was offset by weakness in Continental Europe.
However, higher margins for the brand resulted in record gross profit and
operating income.
Profits from Fetzer and Bolla wines declined sharply for the nine months ended
January 31, due to lower margins in the U.S. While Fetzer reported low
single-digit depletion growth during this period, achieving that volume level
required a reduction in net prices from the previous fiscal year. Bolla
depletions were down slightly, although the combination of a weaker U.S. dollar
and significant cost increases for most Italian grape varietals have reduced
profit margins dramatically. Korbel reported gross profit and depletion growth,
as the brand continues to increase its market share in the U.S.
Consumer Durables
Year-to-date sales and gross profit for the Consumer Durables segment were down
5% and 2%, respectively. Adjusted for business improvement costs, segment
operating income was $2 million lower than last year. The retail environment for
both department stores and outlet centers did not improve over the holiday
season and remains very difficult across the U.S. As the level of consumer
confidence has declined to a nine-year low, the direct-to-consumer channel also
experienced lower response rates. Current expectations are for the segment's
operating income to be in a range of $30 to $35 million for fiscal 2003.
Business Improvement Program
The company recognized approximately $0.02 per share in Business Improvement
costs during the third quarter, primarily related to improvements at the
company's beverage production facilities, and anticipates an additional $0.01
per share during the fourth quarter to complete the series of Business
Improvement Program initiatives that the company announced in July 2001.
The following chart summarizes the effect on earnings per share of costs related
to the company's Business Improvement Program.
% %
Third Quarter change Year To Date change
FY2002 EPS, as reported $0.84 $2.58
Business Improvement costs $0.06 $0.10
FY2002 EPS, adjusted $0.90 $2.68
FY2003 EPS, as reported $1.02 22% $2.73 6%
Business Improvement costs $0.02 $0.06
FY2003 EPS, adjusted $1.04 16% $2.79 4%
Finlandia and Tuaca Acquisitions
The company acquired an additional 35% interest in Finlandia Vodka Worldwide for
70.2 million euros on December 31, 2002, increasing its interest to 80%.
Brown-Forman is now charged with full marketing responsibility for the Finlandia
brand and expects to significantly increase brand spending in the U.S. and other
important markets. As previously disclosed, the acquisition of Finlandia is
expected to reduce Brown-Forman's earnings by $0.03 per share in fiscal 2003 and
$0.08 to $0.10 per share in fiscal 2004, showing annual improvement thereafter.
Subsequent to the closing of the third quarter, Brown-Forman acquired an
additional 55% interest in Tuaca liqueur on February 11, 2003, increasing the
company's ownership to 100%. This transaction is not expected to have a material
impact on earnings per share in fiscal 2003 or fiscal 2004.
Share Repurchase
As announced on February 3, 2003, the company is offering to repurchase up to
1.5 million shares of its Class A common stock and 6.8 million shares of its
Class B common stock under a "Dutch Auction" tender offer. The price being
offered for both classes of stock is within a range of $63 to $73 per share and
the tender offer will expire at 12:00 midnight New York City time on March 4,
2003, unless extended. The company has received preliminary financing
commitments from a syndicate of banks to provide initial funding for this
transaction. The company intends to replace this funding with longer term debt
from public bond markets shortly thereafter.
All inquiries regarding the procedures should be directed to the information
agent, Georgeson Shareholder Communications, Inc. Banks and brokers should
contact the information agent at 212-440-9800 and all others should call toll
free at 866-203-2582. Goldman Sachs is serving as dealer manager for the tender
offer and National City Investment Management Company is acting as the
depositary agent.
Outlook
Brown-Forman reaffirms its previously stated outlook for full year earnings per
share growth of 6% to 10%, excluding any potential impact from the recently
announced share repurchase. Looking beyond fiscal 2003, the company anticipates
that the environment for wine and consumer durables will remain challenging.
Brown-Forman expects that earnings will benefit, however, from cost savings
resulting from business improvement investments made in 2002 and 2003, a full
year of higher profits from our new U.K. distribution arrangement, and increased
profits from stronger European currencies if exchange rates remain at current
levels.
Conference Call
Brown-Forman will host a conference call to discuss its second quarter results
today at 10:00 a.m. EST. All interested parties in the U.S. are invited to join
the conference by dialing 888-624-9285 and asking for the Brown-Forman call.
International callers should dial 706-679-3410. No password is required. The
company suggests that participants dial in approximately ten minutes in advance
of the 10:00 a.m. start of the conference call. A live audio broadcast of the
conference call will also be available by accessing Brown-Forman's Internet Web
site, www.brown-forman.com, and then clicking on the "Investor Information"
icon.
For those unable to participate in the live call, a replay will be available two
hours after completion of the conference by calling 800-642-1687 (U.S.) or
706-645-9291 (international). The identification code is 8563272. A digital
audio recording of the conference call will also be available on the Web site
approximately two hours after the conclusion of the conference call. The replays
will be available through March 4.
Brown-Forman Corporation is a diversified producer and marketer of fine quality
consumer products, including Jack Daniel's, Southern Comfort, Finlandia Vodka,
Canadian Mist, Fetzer and Bolla Wines, Korbel California Champagnes, Lenox,
Dansk, and Gorham tableware and giftware and Hartmann Luggage.
IMPORTANT NOTE ON FORWARD-LOOKING STATEMENTS:
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to a number of important risks and uncertainties, which could cause actual
results to differ materially from those discussed in these statements. They
include but are not limited to further deterioration of the U.S. economy,
significant strengthening of the U.S. dollar against other currencies,
deterioration in economic conditions in principal countries to which we export
beverage products, and a decline in discretionary consumer spending. Further
weakening of the pricing environment in the U.S. wine business could also
adversely affect earnings. The company's beverage alcohol business is sensitive
to higher tax rates, especially federal excise taxes; an increase in those
taxes, or other measures adopted to restrict beverage sales (whether in the U.S.
or abroad,) can hurt our business. Consumer Durables sales could also be hurt by
a decline in sales of products to department stores, a reduction in retail space
in department stores devoted to tableware, giftware and/or luggage products, or
lower demand for consumer durable products sold through the direct-mail channel.
Other factors, unrelated to our specific business, could affect earnings. These
include the unknown impact of a war in the Middle East, or other outbreak of
hostilities, adverse effects of additional terrorist attacks and related events,
or an ongoing lack of investor confidence relating to perceived inadequacies in
the financial reporting systems of U.S. companies. The statements in this report
are also subject to the factors mentioned in the section entitled "Important
Information Regarding Forward-Looking Statements" on page 38 of the Company's
Annual Report to Stockholders and referred to in Part I, Item 7 of the Company's
Form 10-K for 2002, which Brown-Forman incorporates by reference. Brown-Forman
has no current intention of updating or revising any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
otherwise required by law.
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
THREE MONTHS ENDED
JANUARY 31,
2002 2003 CHANGE
Net Sales $ 575.1 $ 635.6 11%
Wine & Spirits 400.2 472.8 18%
Consumer Durables 174.9 162.8 (7%)
Gross Profit $ 282.1 $ 308.5 9%
Wine & Spirits 200.1 230.0 15%
Consumer Durables 82.0 78.5 (4%)
Advertising Expenses $ 76.6 $ 88.1 15%
Wine & Spirits 54.0 63.2 17%
Consumer Durables 22.6 24.9 10%
Selling, General, and
Administrative Expenses $ 118.9 $ 119.8 1%
Wine & Spirits 73.4 80.8 10%
Consumer Durables 45.5 39.0 (14%)
Other Expense (Income), net $ (1.7) $ (6.2)
Wine & Spirits (6.7) (7.2)
Consumer Durables 5.0 1.0
Operating Income $ 88.3 $ 106.8 21%
Wine & Spirits 79.4 93.2 17%
Consumer Durables 8.9 13.6 53%
Interest Expense, net 0.8 0.8
Income Before Income Taxes $ 87.5 $ 106.0 21%
Taxes on Income 30.2 36.0
Net Income $ 57.3 $ 70.0 22%
Earnings Per Share
- Basic and Diluted $ 0.84 $ 1.02 22%
Note: Other Expense (Income), net, includes results for joint ventures and
unconsolidated affiliates, bad debt expense, and miscellaneous income and
expense items not included in other captions.
BROWN-FORMAN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
NINE MONTHS ENDED
JANUARY 31,
2002 2003 CHANGE
Net Sales $1,696.5 $1,806.7 6%
Wine & Spirits 1,217.4 1,350.8 11%
Consumer Durables 479.1 455.9 (5%)
Gross Profit $ 859.4 $ 894.7 4%
Wine & Spirits 635.2 675.2 6%
Consumer Durables 224.2 219.5 (2%)
Advertising Expenses $ 231.4 $ 252.8 9%
Wine & Spirits 165.4 183.1 11%
Consumer Durables 66.0 69.7 6%
Selling, General, and
Administrative Expenses $ 351.3 $ 357.4 2%
Wine & Spirits 224.3 238.3 6%
Consumer Durables 127.0 119.1 (6%)
Other Expense (Income), net $ 3.1 $ (2.9)
Wine & Spirits (5.3) (6.6)
Consumer Durables 8.4 3.7
Operating Income $ 273.6 $ 287.4 5%
Wine & Spirits 250.8 260.4 4%
Consumer Durables 22.8 27.0 18%
Interest Expense, net 4.0 2.6
Income Before Income Taxes $ 269.6 $ 284.8 6%
Taxes on Income 93.0 97.7
Net Income $ 176.6 $ 187.1 6%
Earnings Per Share
- Basic and Diluted $ 2.58 $ 2.73 6%
Note: Other Expense (Income), net, includes results for joint ventures and
unconsolidated affiliates, bad debt expense, and miscellaneous income and
expense items not included in other captions.
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
APRIL 30, JANUARY 31,
2002 2003
Assets:
Cash and cash equivalents $ 115.6 $ 79.6
Accounts receivable, net 280.4 308.1
Inventories 577.8 594.6
Other current assets 55.0 57.9
Total current assets 1,028.8 1,040.2
Property, plant and equipment, net 437.4 454.0
Investment in affiliates 127.4 51.3
Trademarks and brandnames 7.7 64.3
Goodwill 246.5 358.5
Other assets 167.9 172.9
Total assets $2,015.7 $2,141.2
Liabilities:
Commercial paper $ 167.4 $ 155.6
Accounts payable and
accrued expenses 295.9 291.8
Dividends payable -- 25.7
Accrued taxes on income 31.5 60.8
Total current liabilities 494.8 533.9
Long-term debt 40.2 40.2
Deferred income taxes 57.8 38.1
Accrued postretirement benefits 82.1 86.4
Other liabilities 29.9 33.8
Total liabilities 704.8 732.4
Stockholders' Equity 1,310.9 1,408.8
Total liabilities and
stockholders' equity $2,015.7 $2,141.2
BROWN-FORMAN CORPORATION
SUPPLEMENTAL INFORMATION
(Dollars in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
2002 2003 2002 2003
EBITDA $102.1 $120.6 $314.0 $328.9
Depreciation and
amortization $ 13.8 $ 13.8 $ 40.4 $ 41.5
Excise taxes $ 66.6 $ 86.1 $186.6 $226.0
Additions to property,
plant and equipment $ 12.4 $ 18.5 $ 50.7 $ 54.7
Effective tax rate 34.5% 34.0% 34.5% 34.3%
Shares (in thousands)
used in the calculation
of earnings per share
- Basic 68,293 68,420 68,341 68,400
- Diluted 68,403 68,568 68,469 68,584
These figures have been prepared in accordance with the company's customary
accounting practices.