Revenue from Contract with Customer [Text Block] | Net Sales Effective May 1, 2018, we updated our policy for recognizing revenue (“net sales”) to reflect the adoption of ASC 606. We describe the updated policy below. Also, we show how the adoption impacted our financial statements and we present disaggregated net sales information in accordance with the new standard. Revenue recognition policy. Our net sales predominantly reflect global sales of beverage alcohol consumer products. We sell these products under contracts with different types of customers, depending on the market. The customer is most often a distributor, wholesaler, or retailer. Each contract typically includes a single performance obligation to transfer control of the products to the customer. Depending on the contract, control is transferred when the products are either shipped or delivered to the customer, at which point we recognize the transaction price for those products as net sales. The transaction price recognized at that point reflects our estimate of the consideration to be received in exchange for the products. The actual amount may ultimately differ due to the effect of various customer incentives and trade promotion activities. In making our estimates, we consider our historical experience and current expectations, as applicable. Adjustments recognized during the three and nine months ended January 31, 2019, for changes in estimated transaction prices of products sold in prior periods were not material. Net sales exclude taxes we collect from customers that are imposed by various governments on our sales, and are reduced by payments to customers unless made in exchange for distinct goods or services with fair values approximating the payments. Net sales include any amounts we bill customers for shipping and handling activities related to the products. We recognize the cost of those activities in cost of sales during the same period in which we recognize the related net sales. Sales returns, which are permitted only in limited situations, are not material. Customer payment terms generally range from 30 to 90 days. There are no significant amounts of contract assets or liabilities. Impact of adoption. We adopted ASC 606 using the modified retrospective method. As a result, we recorded an adjustment that decreased retained earnings as of May 1, 2018, by $25 million (net of tax). The adjustment reflects the cumulative effect on that date of applying our updated revenue recognition policy, under which we recognize the cost of certain customer incentives earlier than we did before adopting ASC 606. Although we do not expect this change in timing to have a significant impact on a full-year basis, there is some change in the timing of recognition across periods. Additionally, some payments to customers that we classified as expenses before adopting the new standard are classified as reductions of net sales under our new policy. The following table shows how the adoption of ASC 606 impacted our consolidated statement of operations for the three months ended January 31, 2019: Three Months Ended January 31, 2019 Under Prior As Reported Under Effect of (Dollars in millions, except per share amounts) Guidance ASC 606 Adoption Sales $ 1,178 $ 1,181 $ 3 Excise taxes 277 277 — Net sales 901 904 3 Cost of sales 333 333 — Gross profit 568 571 3 Advertising expenses 105 103 (2 ) Selling, general, and administrative expenses 149 149 — Other expense (income), net (1 ) (1 ) — Operating income 315 320 5 Non-operating postretirement expense 15 15 — Interest income (2 ) (2 ) — Interest expense 23 23 — Income before income taxes 279 284 5 Income taxes 56 57 1 Net income $ 223 $ 227 $ 4 Earnings per share: Basic $ 0.46 $ 0.47 $ 0.01 Diluted $ 0.46 $ 0.47 $ 0.01 The following table shows how the adoption of ASC 606 impacted our consolidated statement of operations for the nine months ended January 31, 2019: Nine Months Ended January 31, 2019 Under Prior As Reported Under Effect of (Dollars in millions, except per share amounts) Guidance ASC 606 Adoption Sales $ 3,344 $ 3,329 $ (15 ) Excise taxes 749 749 — Net sales 2,595 2,580 (15 ) Cost of sales 896 896 — Gross profit 1,699 1,684 (15 ) Advertising expenses 313 303 (10 ) Selling, general, and administrative expenses 480 478 (2 ) Other expense (income), net (13 ) (13 ) — Operating income 919 916 (3 ) Non-operating postretirement expense 19 19 — Interest income (6 ) (6 ) — Interest expense 67 67 — Income before income taxes 839 836 (3 ) Income taxes 161 160 (1 ) Net income $ 678 $ 676 $ (2 ) Earnings per share: Basic $ 1.41 $ 1.41 $ — Diluted $ 1.40 $ 1.40 $ — The following table shows how the adoption of ASC 606 impacted our consolidated balance sheet as of January 31, 2019: As of January 31, 2019 Under Prior As Reported Under Effect of (Dollars in millions) Guidance ASC 606 Adoption Assets Other current assets $ 288 $ 287 $ (1 ) Deferred tax assets 19 20 1 Total assets 5,163 5,163 — Liabilities Accounts payable and accrued expenses $ 553 $ 587 $ 34 Deferred tax liabilities 126 119 (7 ) Total liabilities 3,643 3,670 27 Stockholders’ Equity Retained earnings $ 2,112 $ 2,085 $ (27 ) Total stockholders’ equity 1,520 1,493 (27 ) Disaggregated revenues. The following table shows our net sales by geography: Three Months Ended Nine Months Ended January 31, January 31, (Dollars in millions) 2018 2019 2018 2019 United States $ 387 $ 413 $ 1,180 $ 1,217 Developed International 1 275 269 716 718 Emerging 2 163 165 445 460 Travel Retail 3 34 33 108 109 Non-branded and bulk 4 19 24 66 76 Total $ 878 $ 904 $ 2,515 $ 2,580 1 Represents net sales of branded products to “advanced economies” as defined by the International Monetary Fund (IMF), excluding the United States. Our largest developed international markets are the United Kingdom, Australia, and Germany. 2 Represents net sales of branded products to “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico and Poland. 3 Represents net sales of branded products to global duty-free customers, travel retail customers, and the U.S. military regardless of customer location. 4 Includes net sales of used barrels, bulk whiskey and wine, and contract bottling regardless of customer location. The following table shows our net sales by product category: Three Months Ended Nine Months Ended January 31, January 31, (Dollars in millions) 2018 2019 2018 2019 Whiskey 1 $ 688 $ 709 $ 1,958 $ 2,017 Tequila 2 63 68 185 200 Vodka 3 39 36 105 96 Wine 4 50 51 155 153 Rest of portfolio 19 16 46 38 Non-branded and bulk 5 19 24 66 76 Total $ 878 $ 904 $ 2,515 $ 2,580 1 Includes all whiskey spirits and whiskey-based flavored liqueurs, ready-to-drink, and ready-to-pour products. The brands included in this category are the Jack Daniel's family of brands, Woodford Reserve, Canadian Mist, GlenDronach, BenRiach, Glenglassaugh, Old Forester, Early Times, Slane Irish Whiskey, and Coopers' Craft. 2 Includes el Jimador, Herradura, New Mix, Pepe Lopez, and Antiguo. 3 Includes Finlandia. 4 Includes Korbel Champagne and Sonoma-Cutrer wines. 5 Includes net sales of used barrels, bulk whiskey and wine, and contract bottling regardless of customer location. |