United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 002-26821
BROWN-FORMAN CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 61-0143150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Dixie Highway
Louisville, Kentucky 40210
(Address of principal executive offices) (Zip Code)
(502) 585-1100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes | | No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: November 30, 2005
Class A Common Stock ($.15 par value, voting) 56,829,081
Class B Common Stock ($.15 par value, nonvoting) 65,335,661
BROWN-FORMAN CORPORATION
Index to Quarterly Report Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Statement of Operations
Three months ended October 31, 2004 and 2005 3
Six months ended October 31, 2004 and 2005
Condensed Consolidated Balance Sheet
April 30, 2005 and October 31, 2005 4
Condensed Consolidated Statement of Cash Flows
Six months ended October 31, 2004 and 2005 5
Notes to the Condensed Consolidated Financial Statements 6 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20 - 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 6. Exhibits 22
Signatures 23
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended Six Months Ended
October 31, October 31,
2004 2005 2004 2005
------- ------- -------- --------
Net sales $ 627.2 $ 665.8 $1,108.5 $1,213.2
Excise taxes 109.6 115.4 191.6 213.0
Cost of sales 187.1 193.0 333.0 339.8
------- ------- -------- --------
Gross profit 330.5 357.4 583.9 660.4
Advertising expenses 81.5 87.4 143.1 159.7
Selling, general, and
administrative expenses 105.5 110.2 201.8 220.5
Other expense (income), net (0.4) (0.4) (0.8) (14.2)
------- ------- -------- --------
Operating income 143.9 160.2 239.8 294.4
Interest income 0.4 3.2 0.7 5.1
Interest expense 5.1 4.5 10.3 9.1
------- ------- -------- --------
Income from continuing
operations before income taxes 139.2 158.9 230.2 290.4
Income taxes 45.8 46.8 77.0 90.4
------- ------- -------- --------
Income from continuing operations 93.4 112.1 153.2 200.0
Income (loss) from discontinued
operations, net of income taxes 8.0 (3.3) (0.6) (78.4)
------- ------- -------- --------
Net income $ 101.4 $ 108.8 $ 152.6 $ 121.6
======= ======= ======== ========
Basic earnings (loss) per share:
Continuing operations $ 0.76 $ 0.92 $ 1.25 $ 1.64
Discontinued operations 0.07 (0.03) -- (0.64)
------- ------- -------- --------
Total $ 0.83 $ 0.89 $ 1.25 $ 1.00
======= ======= ======== ========
Diluted earnings (loss) per share:
Continuing operations $ 0.76 $ 0.91 $ 1.25 $ 1.62
Discontinued operations 0.07 (0.03) -- (0.63)
------- ------- -------- --------
Total $ 0.83 $ 0.88 $ 1.25 $ 0.99
======= ======= ======== ========
Shares (in thousands) used in
the calculation of earnings (loss)
per share:
Basic 121,737 122,016 121,708 121,978
Diluted 122,417 123,242 122,409 123,199
Cash dividends per common share:
Declared $ 0.000 $ 0.000 $ 0.425 $ 0.490
Paid $ 0.213 $ 0.245 $ 0.425 $ 0.490
See notes to the condensed consolidated financial statements.
3
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions)
April 30, October 31,
2005 2005
-------- ----------
Assets
- ------
Cash and cash equivalents $ 294.9 $ 451.9
Accounts receivable, net 295.9 405.0
Inventories:
Barreled whiskey 248.7 260.4
Finished goods 102.3 114.1
Work in process 80.5 97.0
Raw materials and supplies 38.4 51.0
-------- --------
Total inventories 469.9 522.5
Current portion of deferred income taxes 69.9 69.9
Current assets held for sale 157.6 9.8
Other current assets 27.0 24.6
-------- --------
Total current assets 1,315.2 1,483.7
Property, plant and equipment, net 417.9 417.3
Prepaid pension cost 130.2 126.8
Trademarks and brand names 334.2 331.3
Goodwill 192.7 188.1
Noncurrent assets held for sale 217.9 7.4
Other assets 41.0 37.2
-------- --------
Total assets $2,649.1 $2,591.8
======== ========
Liabilities
- -----------
Accounts payable and accrued expenses $ 264.2 $ 299.7
Accrued income taxes 41.9 37.3
Current portion of long-term debt 279.3 249.7
Current liabilities held for sale 52.7 3.8
-------- --------
Total current liabilities 638.1 590.5
Long-term debt 351.5 351.8
Deferred income taxes 157.8 146.3
Accrued pension and other postretirement benefits 77.6 80.5
Noncurrent liabilities held for sale 82.9 --
Other liabilities 31.2 22.7
-------- --------
Total liabilities 1,339.1 1,191.8
Stockholders' Equity
- --------------------
Common stock:
Class A, voting
(57,000,000 shares authorized;
56,841,000 shares issued) 8.5 8.5
Class B, nonvoting
(100,000,000 shares authorized;
69,188,000 shares issued) 10.4 10.4
Additional paid-in capital 33.9 37.9
Retained earnings 1,415.5 1,478.3
Accumulated other comprehensive income (loss) (11.4) 4.9
Treasury stock
(4,141,000 and 3,904,000 shares
at April 30 and October 31, respectively) (146.9) (140.0)
-------- --------
Total stockholders' equity 1,310.0 1,400.0
-------- --------
Total liabilities and stockholders' equity $2,649.1 $2,591.8
======== ========
See notes to the condensed consolidated financial statements.
4
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In millions; amounts in parentheses are reductions of cash)
Six Months Ended
October 31,
2004 2005
------- -------
Cash flows from operating activities:
Net income $ 152.6 $ 121.6
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Impairment charge -- 59.5
Depreciation 28.9 26.0
Stock-based compensation expense 3.3 4.4
Deferred income taxes (22.3) (10.8)
Changes in assets and liabilities:
Accounts receivable (140.1) (107.3)
Inventories (44.5) (77.1)
Other current assets 10.2 7.4
Accounts payable and accrued expenses 73.4 51.6
Accrued income taxes 34.7 (8.5)
Noncurrent assets and liabilities 15.2 (0.9)
------- -------
Cash provided by operating activities 111.4 65.9
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- 196.5
Additions to property, plant, and equipment (21.5) (22.4)
Computer software expenditures (1.4) (0.7)
Trademark and patent expenditures (0.3) --
------- -------
Cash (used for) provided by
investing activities (23.2) 173.4
Cash flows from financing activities:
Net change in commercial paper (22.7) --
Proceeds from long-term debt 0.5 --
Reduction of long-term debt -- (30.0)
Proceeds from exercise of stock options 5.7 8.4
Excess tax benefits from stock options 1.0 2.3
Acquisition of treasury stock (2.9) (3.2)
Dividends paid (51.7) (59.8)
------- -------
Cash used for financing activities (70.1) (82.3)
------- -------
Net increase in cash and cash equivalents 18.1 157.0
Cash and cash equivalents, beginning of period 67.7 294.9
------- -------
Cash and cash equivalents, end of period $ 85.8 $ 451.9
======= =======
See notes to the condensed consolidated financial statements.
5
BROWN-FORMAN CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In these notes, "we," "us," and "our" refer to Brown-Forman Corporation.
1. Condensed Consolidated Financial Statements
We prepared these unaudited condensed consolidated statements using our
customary accounting practices as set out in our 2005 annual report on Form 10-K
(the "2005 Annual Report"). We made all of the adjustments (which include only
normal, recurring adjustments) needed for a fair statement of this data.
We condensed or omitted some of the information found in financial statements
prepared according to generally accepted accounting principles ("GAAP"). You
should read these financial statements together with the 2005 Annual Report,
which does conform to GAAP.
2. Inventories
We use the last-in, first-out ("LIFO") method to determine the cost of most of
our inventories. If the LIFO method had not been used, inventories at current
cost would have been $144.8 million higher than reported as of April 30, 2005,
and $138.6 million higher than reported as of October 31, 2005. Changes in the
LIFO valuation reserve for interim periods are based on a proportionate
allocation of the estimated change for the entire fiscal year.
3. Income Taxes
Our consolidated effective tax rate may differ from current statutory rates due
to the recognition of amounts for events or transactions that do not have tax
consequences. We use the estimated annual effective tax rate in determining our
interim results. The effective tax rate of 31.1% for the six months ended
October 31, 2005, is based on an expected effective tax rate of 32.5% on
ordinary income for the full fiscal year, less the tax benefit achieved by
offsetting the capital gain associated with the early termination of
Glenmorangie marketing and distribution rights against the capital loss
resulting from the sale of Lenox.
4. Discontinued Operations
During July 2005, we entered into a definitive agreement to sell our
wholly-owned subsidiary Lenox, Incorporated ("Lenox") for $190 million in cash
(subject to a post-closing working capital adjustment). The agreement followed
the February 2005 announcement that we were exploring strategic alternatives for
Lenox, including a possible sale. On September 1, 2005, we consummated the sale
of substantially all of Lenox to Department 56, Inc. ("Department 56") for $196
million. This total was $6 million higher than previously announced due to a
working capital adjustment provision included in the sale agreement.
After consummation of the sale to Department 56, we retained ownership of the
Lenox headquarters building and property in Lawrenceville, New Jersey and
Lenox's Brooks & Bentley, a former subsidiary of Lenox, located in the United
Kingdom. We intend to sell these assets, which are classified as held for sale
in the accompanying consolidated balance sheet.
6
In connection with the agreement, we recognized a non-cash impairment charge
during July 2005 of $59.5 million, representing the excess of the carrying value
of the net assets being sold over the expected sales proceeds. We have also
recorded transaction costs of $9.6 million, including investment banking fees,
transaction success payments, and legal, tax and actuarial expenses.
Due to the sale of Lenox, its results of operations through August 2005, the
impairment charge, and other transaction costs have been classified as
discontinued operations, net of income taxes, in the accompanying consolidated
statement of operations, and its assets and liabilities have been classified as
held for sale in the accompanying consolidated balance sheet. In reports issued
prior to July 2005, Lenox's operating results and assets were presented in the
Consumer Durables segment, of which it comprised the major part. The Consumer
Durables segment no longer constitutes a separate reportable segment.
A summary of discontinued operations follows:
(Dollars in millions) Three Months Ended Six Months Ended
October 31, October 31,
2004 2005 2004 2005
------- ------- ------- -------
Net sales $ 152.5 $ 39.6 $ 249.2 $ 119.0
Operating expenses (139.3) (41.5) (250.2) (134.2)
Impairment charge -- -- -- (59.5)
Transaction costs -- (2.1) -- (9.6)
------- ------- ------- -------
Income (loss) before income taxes 13.2 (4.0) (1.0) (84.3)
Income tax (expense) benefit (5.2) 0.7 0.4 5.9
------- ------- ------- -------
Net income (loss) from
discontinued operations $ 8.0 $ (3.3) $ (0.6) $ (78.4)
======= ======= ======= =======
The net assets held for sale consist of the following:
(Dollars in millions) April 30, October 31,
2005 2005
------ ------
Current assets:
Accounts receivable, net $ 48.4 $ 5.7
Inventories 103.6 3.1
Other 5.6 1.0
------ ------
157.6 9.8
------ ------
Noncurrent assets:
Property, plant and equipment, net 82.8 6.6
Goodwill 89.7 --
Other 45.4 0.8
------ ------
217.9 7.4
------ ------
Current liabilities:
Accounts payable and accrued expenses 47.2 3.8
Accrued income taxes 5.5 --
------ ------
52.7 3.8
------ ------
Noncurrent liabilities:
Accrued postretirement benefits 78.3 --
Other 4.6 --
------ ------
82.9 --
------ ------
Net assets held for sale $239.9 $ 13.4
====== ======
7
5. Earnings Per Share
Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share includes the
dilutive effect of stock-based compensation awards, including stock options,
stock-settled stock appreciation rights ("SSARs"), and non-vested restricted
stock. Stock-based awards for approximately 1.7 million common shares were
excluded from the calculation of diluted earnings per share for the periods
ended October 31, 2004, because the exercise price of the options was greater
than the average market price of the shares. No stock-based awards were excluded
from the calculation of diluted earnings per share for the periods ended October
31, 2005.
Three Months Ended Six Months Ended
October 31, October 31,
(Dollars in millions, except per share amounts) 2004 2005 2004 2005
------- ------- ------- -------
Basic and diluted net income (loss):
Continuing operations $ 93.4 $112.1 $153.2 $200.0
Discontinued operations 8.0 (3.3) (0.6) (78.4)
------- ------- ------- -------
Total $101.4 $108.8 $152.6 $121.6
======= ======= ======= =======
Share data (in thousands):
Basic average common shares outstanding 121,737 122,016 121,708 121,978
Dilutive effect of non-vested restricted stock 10 28 8 25
Dilutive effect of stock options and SSARs 670 1,198 693 1,196
------- ------- ------- -------
Diluted average common shares outstanding 122,417 123,242 122,409 123,199
======= ======= ======= =======
Basic earnings (loss) per share:
Continuing operations $0.76 $0.92 $1.25 $1.64
Discontinued operations 0.07 (0.03) -- (0.64)
------- ------- ------- -------
Total $0.83 $0.89 $1.25 $1.00
======= ======= ======= =======
Diluted earnings (loss) per share:
Continuing operations $0.76 $0.91 $1.25 $1.62
Discontinued operations 0.07 (0.03) -- (0.63)
------- ------- ------- -------
Total $0.83 $0.88 $1.25 $0.99
======= ======= ======= =======
8
6. Goodwill and Other Intangible Assets
The following table shows the changes in the amounts recorded as goodwill during
the six months ended October 31, 2005:
(Dollars in millions)
Balance as of April 30, 2005 $192.7
Foreign currency translation adjustment (4.6)
------
Balance as of October 31, 2005 $188.1
======
Our other intangible assets consist of trademarks and brand names. As of October
31, 2005, we consider all of our trademarks and brand names to have indefinite
useful lives.
7. Environmental Matters
We face environmental claims resulting from the cleanup of several manufacturing
or waste disposal sites in the United States. We accrue for losses associated
with environmental cleanup obligations when such losses are probable and
reasonably estimable. At some sites, there are other potentially responsible
parties who are expected to bear part of the costs, in which cases our accrual
is based on our estimate of our share of the total costs. A portion of the
cleanup costs with respect to certain sites is expected to be paid by insurance.
The estimated recovery of cleanup costs from insurers is recorded as an asset
when receipt is deemed probable.
We do not believe that any additional environmental cleanup costs we incur will
have a material adverse effect on our consolidated financial position, results
of operations, or cash flows.
8. Contingencies
We operate in a litigious environment, and we get 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 a reasonable estimate of the loss can be made, and
adjust the accrual as appropriate to reflect changes in facts and circumstances.
A law firm has sued Brown-Forman and many other manufacturers and marketers of
spirits, wines, and beer in a series of nine very similar class action lawsuits
seeking damages and injunctive relief from alleged marketing of beverage alcohol
to underage consumers. The suits allege that the defendants engage in deceptive
and negligent marketing practices targeting underage consumers. They seek to
recover on behalf of parents those funds that their children spent on the
illegal purchase of alcohol as well as disgorgement of all profits from the
alleged illegal sales. Brown-Forman is vigorously defending these cases. One
suit has been dismissed by a trial court, from which the plaintiff has appealed,
and another voluntarily dismissed by the plaintiff. Four others are pending on
motions to dismiss. It is not possible at this time to predict the outcome of
these claims but an unfavorable result in these or similar class action lawsuits
could have a material adverse impact on our business.
9
9. Pension and Other Postretirement Benefits
The following table shows the components of the pension and other postretirement
benefit expense recognized during the periods covered by this report:
(Dollars in millions) Three Months Ended Six Months Ended
October 31, October 31,
2004 2005 2004 2005
------ ------ ------ ------
Pension Benefits:
Continuing operations:
Service cost $2.8 $3.2 $5.6 $6.3
Interest cost 5.1 5.5 10.2 11.0
Expected return on plan assets (8.0) (7.8) (16.0) (15.7)
Amortization of:
Unrecognized prior service cost 0.2 0.1 0.3 0.3
Unrecognized net loss 0.7 2.1 1.5 4.3
------ ------ ------ ------
Net expense 0.8 3.1 1.6 6.2
------ ------ ------ ------
Discontinued operations:
Service cost 1.4 0.5 2.8 1.8
Interest cost 2.4 0.8 4.8 3.3
Expected return on plan assets (2.8) (0.9) (5.6) (3.5)
Amortization of:
Unrecognized prior service cost 0.1 -- 0.2 0.1
Unrecognized net loss 0.3 0.2 0.6 0.9
------ ------ ------ ------
Net expense 1.4 0.6 2.8 2.6
------ ------ ------ ------
Total net benefit expense $2.2 $3.7 $4.4 $8.8
====== ====== ====== ======
Other Postretirement Benefits:
Continuing operations:
Service cost $0.3 $0.3 $0.5 $0.6
Interest cost 0.6 0.6 1.2 1.3
Amortization of unrecognized net loss -- 0.1 -- 0.1
------ ------ ------ ------
Net expense 0.9 1.0 1.7 2.0
------ ------ ------ ------
Discontinued operations:
Service cost 0.2 0.1 0.4 0.4
Interest cost 0.4 0.2 0.8 0.6
------ ------ ------ ------
Net expense 0.6 0.3 1.2 1.0
------ ------ ------ ------
Total net benefit expense $1.5 $1.3 $2.9 $3.0
====== ====== ====== ======
The sale of Lenox, which included its pension and other postretirement benefit
plans, has reduced the amount that we expect to be required to contribute for
pension and other postretirement benefits during fiscal 2006 to approximately
$5.0 million. However, we may decide to contribute more than that amount.
10
10. Comprehensive Income
Comprehensive income is a broad measure of the effects of all transactions and
events (other than investments by or distributions to shareholders) that are
recognized in stockholders' equity, regardless of whether those transactions and
events are included in net income. The following table adjusts the Company's net
income for the other items included in comprehensive income:
(Dollars in millions) Three Months Ended Six Months Ended
October 31, October 31,
2004 2005 2004 2005
------ ------ ------ ------
Continuing operations:
Net income $ 93.4 $112.1 $153.2 $200.0
Other comprehensive income (loss):
Net gain (loss) on cash flow hedges (1.9) (1.3) (3.0) 2.3
Net gain (loss) on securities (0.3) -- (0.2) 0.1
Foreign currency translation adjustment 9.8 (0.8) 12.5 (12.8)
------ ------ ------ ------
7.6 (2.1) 9.3 (10.4)
------ ------ ------ ------
Comprehensive income 101.0 110.0 162.5 189.6
====== ====== ====== ======
Discontinued operations:
Net income (loss) 8.0 (3.3) (0.6) (78.4)
Other comprehensive income (loss):
Pension liability adjustment -- 27.6 -- 27.6
Foreign currency translation adjustment 0.1 0.1 0.3 (0.9)
------ ------ ------ ------
0.1 27.7 0.3 26.7
------ ------ ------ ------
Comprehensive income (loss) 8.1 24.4 (0.3) (51.7)
------ ------ ------ ------
Total comprehensive income $109.1 $134.4 $162.2 $137.9
====== ====== ====== ======
Accumulated other comprehensive income (loss) consisted of the following:
(Dollars in millions) April 30, October 31,
2005 2005
------ ------
Pension liability adjustment $(38.1) $(10.5)
Cumulative translation adjustment 27.2 13.5
Unrealized gain (loss) on cash flow hedge contracts (0.7) 1.6
Unrealized gain on securities 0.2 0.3
------ ------
$(11.4) $ 4.9
====== ======
11
11. Termination of Glenmorangie Distribution Agreement
During July 2005, we entered into an agreement with LVMH Moet Hennessey Louis
Vuitton for the early termination of our long-term importing and marketing
agreements for Glenmorangie products in the United States, Canada, and certain
countries in Europe and Asia, effective July 29, 2005. We received approximately
$13.5 million for the early termination, which is included in "other income" for
the six months ended October 31, 2005, in the accompanying consolidated
statement of operations.
12. Stock Options
Prior year amounts have been restated to reflect the retroactive adoption of
FASB Statement No. 123(R), "Share-Based Payment," during the fourth quarter of
fiscal 2005.
12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following discussion and analysis along with our 2005 Annual
Report. Note that the results of operations for the six months ended October 31,
2005, do not necessarily indicate what our operating results for the full fiscal
year will be. In this Item, "we," "us," and "our" refer to Brown-Forman
Corporation.
Important Note on Forward-Looking Statements:
This report contains statements, estimates, or projections that constitute
"forward-looking statements" as defined under U.S. federal securities laws.
Generally, the words "expect," "believe," "intend," "estimate," "will,"
"anticipate," and "project," and similar expressions identify a forward-looking
statement, which speaks only as of the date the statement is made. 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.
We believe that the expectations and assumptions with respect to our
forward-looking statements are reasonable. But by their nature, forward-looking
statements involve known and unknown risks, uncertainties and other factors that
in some cases are out of our control. These factors could cause our actual
results to differ materially from Brown-Forman's historical experience or our
present expectations or projections. Here is a non-exclusive list of such risks
and uncertainties:
- changes in general economic conditions, particularly in the United States
where we earn the majority of our profits;
- lower consumer confidence or purchasing in the United States associated with
the aftermath of hurricanes Katrina, Rita and Wilma, all of which occurred
this year;
- tax increases, whether at the federal or state level or in major
international markets and/or tariff barriers or other restrictions affecting
beverage alcohol;
- restrictions on alcohol marketing, including advertising and promotion, as a
result of stricter governmental policies adopted either in the United States
or globally;
- adverse developments in the class action lawsuits filed against Brown-Forman
and other spirits, beer and wine manufacturers alleging that our advertising
causes illegal consumption of alcohol by those under the legal drinking age;
- a strengthening U.S. dollar against foreign currencies, especially the
British Pound;
- reduced bar, restaurant, hotel and travel business in wake of terrorist
attacks or threats, such as occurred in September, 2001 in the U.S. and in
July, 2005 in London;
- lower consumer confidence or purchasing associated with rising energy prices;
- a decline in U.S. spirits consumption as might be indicated by recent
published trends suggesting a slight reduction in the growth rate of
distilled spirits consumption;
- longer-term, a change in consumer preferences, social trends or cultural
trends that results in the reduced consumption of our premium spirits brands;
- changes in distribution arrangements in major markets that limit our ability
to market our products;
- increases in the price of energy or raw materials, including grapes, grain,
wood, glass, and plastic;
- excess wine inventories or a further world-wide oversupply of grapes;
- adverse developments as a result of state investigations of beverage alcohol
industry trade practices of suppliers, distributors and retailers.
13
Results of Operations:
Second Quarter Fiscal 2006 Compared to Second Quarter Fiscal 2005
A summary of our operating performance (expressed in millions, except percentage
and per share amounts) is presented below. Continuing Operations consist of our
beverage business and Hartmann luggage business. Discontinued Operations consist
of Lenox and Brooks & Bentley.
Three Months Ended
October 31,
CONTINUING OPERATIONS 2004 2005 Change
------ ------ ------
Net sales $627.2 $665.8 6%
Gross profit 330.5 357.4 8%
Advertising expenses 81.5 87.4 7%
Selling, general, and
administrative expenses 105.5 110.2 4%
Other expense (income), net (0.4) (0.4)
Operating income 143.9 160.2 11%
Interest expense, net 4.7 1.3
Income before income taxes 139.2 158.9 14%
Income taxes 45.8 46.8
Net income 93.4 112.1 20%
Gross margin 52.7% 53.7%
Effective tax rate 32.9% 29.5%
Earnings per share:
Basic $0.76 $0.92 20%
Diluted 0.76 0.91 19%
Revenues and gross profit for the quarter increased 6% and 8%, respectively,
driven by volume growth and margin improvement for Jack Daniel's, higher profits
for several of our super-premium developing brands, and continued growth for
Finlandia and Southern Comfort. The impact of lower global trade inventories
reduced revenue growth by about $19 million. Adjusting for this, and for
approximately $6 million of revenue associated with the Glenmorangie family of
brands that we no longer represent, underlying revenues grew 10%.
Reported revenue growth 6%
Net reduction in global trade inventories 3%
Glenmorangie family of brands 1%
-----
Adjusted revenue growth 10%
=====
14
Leading our premium global brand portfolio, Jack Daniel's worldwide depletion
growth rate was in the high-single digits for the quarter, with mid-single digit
growth in the U.S. and the United Kingdom, and double-digit gains in Germany,
Spain, France, South Africa, China, and Japan. (Depletions are shipments from
wholesale distributors to retailers, and are commonly regarded in the wine and
spirits industry as an approximate measure of consumer demand.) Shipment growth
for the brand was several percentage points below the quarter's depletion growth
rate as a result of distributors and importers reducing their inventory
positions following relatively high levels of trade inventory at the end of the
first quarter of fiscal 2006.
Depletions for Southern Comfort grew in the mid-single digits globally for the
quarter, driven by the brand's continued gains in the U.S. Finlandia experienced
double-digit depletion growth for the quarter, with particular strength in
Poland and Russia.
Improving trends were registered in the second quarter for several of our
mid-priced regional brands. Fetzer recorded mid-single digit depletion growth in
the quarter, and consumer measures for the brand continue to strengthen heading
into the important holiday season. Korbel depletion growth improved to the
mid-single digits, while depletions for Canadian Mist, Early Times and Bolla
declined over the prior year period. Super-premium developing brands
Sonoma-Cutrer, Appleton, Tuaca, and Woodford Reserve each posted double-digit
depletion growth for the quarter.
Advertising expenses were up 7% in the quarter. This increase in spending
represents significant incremental investments behind our premium global brand
portfolio, partially offset by the absence of expenses associated with the
introduction of low-carbohydrate wines, and the expenses associated with the
Glenmorangie family of brands, which we no longer represent.
SG&A spending increased 4% for the quarter, which was less than the growth we
have experienced over the past five quarters. The underlying rate of growth was
actually about 6% after adjusting reported growth for the higher compensation
expense recorded last year that was directly related to better-than-expected
performance from our premium spirits portfolio. This increase represents
inflationary growth and expenses associated with the development and
implementation of our global distribution strategy.
Second quarter operating income grew 11%, driven by the same factors described
above. Adjusting for the impact of lower global trade inventories and expenses
associated with last year's low-carbohydrate wine introduction, underlying
operating income grew 18% for the quarter.
Reported operating income growth 11%
Net reduction in global trade inventories 9%
Absence of low-carbohydrate wines (2%)
-----
Adjusted operating income growth 18%
=====
15
The effective tax rate of 29.5% for the quarter was unusually low due to the tax
benefit achieved by offsetting the capital gain associated with the early
termination of Glenmorangie marketing and distribution rights in the first
quarter against the capital loss resulting from the sale of Lenox during the
second quarter.
Diluted earnings per share for the quarter were $0.91, up 19% from the same
period last year. Strong underlying performance from our premium global brands
portfolio, which includes Jack Daniel's, Southern Comfort and Finlandia, and
improved profits from several of our mid-priced regional wine brands drove
earnings growth in the quarter. Quarterly earnings per share growth also
benefited from a lower effective tax rate, lower net interest expense
(attributable to higher cash balances), and the absence of prior year expenses
associated with the introduction of low-carbohydrate wine brands and advisory
fees associated with the sale of our Glenmorangie shareholding. An anticipated
reduction in global trade inventories tempered earnings growth in the quarter.
Adjusting for these factors, underlying earnings per share growth for the
quarter was 16%, as follows:
Reported diluted EPS growth 19%
Net reduction in global trade inventories 9%
Lower net interest and lower effective tax rate (5%)
Capital gain treatment (termination of Glenmorangie
distribution rights) (5%)
Absence of low-carbohydrate wines / Glenmorangie fees (2%)
-----
Adjusted diluted EPS growth 16%
=====
We believe that disclosing this measure of earnings per share is important
because it more accurately reflects the underlying operations of the Company.
DISCONTINUED OPERATIONS
As discussed earlier, we consummated the sale of substantially all of Lenox on
September 1, 2005, and we intend to sell Brooks & Bentley. As a result, we have
reported the operations of Lenox and Brooks & Bentley as discontinued operations
in the accompanying financial statements. The net loss from discontinued
operations during the three months ended October 31, 2005, consists primarily of
fees and other costs associated with the Lenox transaction, as well as the
results of operations for Brooks & Bentley.
Three Months Ended
October 31,
2004 2005
------ ------
Net income (loss) $ 8.0 $ (3.3)
Earnings (loss) per share:
Basic 0.07 (0.03)
Diluted 0.07 (0.03)
16
Results of Operations:
Six Months Fiscal 2006 Compared to Six Months Fiscal 2005
A summary of our operating performance (expressed in millions, except percentage
and per share amounts) is presented below. Continuing Operations consist of our
beverage business and Hartmann luggage business. Discontinued Operations consist
of Lenox and Brooks & Bentley.
Six Months Ended
October 31,
CONTINUING OPERATIONS 2004 2005 Change
------ ------ ------
Net sales $1,108.5 $1,213.2 9%
Gross profit 583.9 660.4 13%
Advertising expenses 143.1 159.7 12%
Selling, general, and
administrative expenses 201.8 220.5 9%
Other expense (income), net (0.8) (14.2)
Operating income 239.8 294.4 23%
Interest expense, net 9.6 4.0
Income before income taxes 230.2 290.4 26%
Income taxes 77.0 90.4
Net income 153.2 200.0 30%
Gross margin 52.7% 54.4%
Effective tax rate 33.4% 31.1%
Earnings per share:
Basic $1.25 $1.64 30%
Diluted 1.25 1.62 30%
Revenues and gross profit increased 9% and 13%, respectively, reflecting solid
growth for Jack Daniel's, Southern Comfort, and Finlandia, and improved profits
from Fetzer and the Jack Daniel's & Cola ready-to-drink product that is sold
primarily in Australia. Adjusting revenue for the absence of low-carbohydrate
wines and the effect of the termination of the Glenmorangie distribution rights
in the prior year, and the impact of higher net trade inventory levels,
underlying revenues were up 11% in the first half of this fiscal year.
Reported revenue growth 9%
Absence of low-carbohydrate wines/
Glenmorangie family of brands 3%
Net increase in global trade inventories (1%)
-----
Adjusted revenue growth 11%
=====
Advertising expenses were up 12% for the first half of the fiscal year,
reflecting significant incremental investments behind our premium global brands,
partially offset by the absence of expenses associated with the introduction of
low-carbohydrate wines and the termination of the Glenmorangie distribution
arrangement.
17
SG&A expenses were up 9% on a year-to-date basis. This increase represents
inflationary growth as well as expenses associated with the development and
implementation of our global distribution strategy, advisory fees directly
related to our effort to partner with Constellation Brands in the acquisition of
Allied Domecq's spirits and wine business, and incremental pension costs.
Operating income grew 23% on a year-to-date basis. Adjusting operating income
for the absence of profits associated with low-carbohydrate wines last year, the
impact of higher net trade inventory levels, and consideration received for the
termination of Glenmorangie distribution rights, underlying operating income was
up about 17% in the first half of this fiscal year.
Reported operating income growth 23%
Absence of low-carbohydrate wines 2%
Net increase in global trade inventories (2%)
Consideration from termination of
Glenmorangie distribution rights (6%)
-----
Adjusted operating income growth 17%
=====
The effective tax rate of 31.1% for the first half of the fiscal year is based
on an expected effective tax rate of 32.5% on ordinary income for the full
fiscal year, less the tax benefit achieved by offsetting the capital gain
associated with the early termination of Glenmorangie marketing and distribution
rights against the capital loss resulting from the sale of Lenox.
For the first six months of the fiscal year, diluted earnings per share were
$1.62, up 30% from the $1.25 earned in the same period last year. Adjusting
year-to-date results for profits associated with the early termination of
Glenmorangie marketing and distribution rights, the net increase in global trade
inventory levels, the absence of income associated with the introduction of
low-carbohydrate wine brands in the prior year period, advisory fees related to
the prior year sale of our Glenmorangie shareholding, lower net interest, and a
lower effective tax rate, earnings per share for the first half of fiscal 2006
increased approximately 16%, as follows:
Reported diluted EPS growth 30%
Glenmorangie consideration
(includes capital gain treatment) (9%)
Net increase in global trade inventories (3%)
Lower net interest and lower effective tax rate (3%)
Absence of low-carbohydrate wines / Glenmorangie fees 1%
-----
Adjusted diluted EPS growth 16%
=====
We believe that disclosing this measure of earnings per share is important
because it more accurately reflects the underlying operations of the Company.
18
DISCONTINUED OPERATIONS
As discussed earlier, we consummated the sale of substantially all of Lenox on
September 1, 2005, and we are pursuing the sale of Brooks & Bentley. As a
result, we have reported the operations of Lenox and Brooks & Bentley as
discontinued operations in the accompanying financial statements.
Six Months Ended
October 31,
2004 2005
------ ------
Net loss $(0.6) $(78.4)
Loss per share:
Basic -- (0.64)
Diluted -- (0.63)
For the first half of the fiscal year, we reported a net loss from discontinued
operations of $78.4 million, or $0.63 per diluted share, versus a net loss of
$0.6 million for the same prior year period. The loss recorded during fiscal
2006 includes a non-cash impairment charge and fees related to the transaction
of approximately $0.56 per share.
OUTLOOK FOR CONTINUING OPERATIONS
Based on continued strong consumer demand for our premium global brands, we are
increasing our earnings estimate for the fiscal year that ends April 30, 2006.
Our previous estimate for earnings per share from continuing operations was in
the range of $2.70 to $2.80, which included a net $0.05 per share benefit
related to the early termination of distribution rights for the Glenmorangie
family of brands. Excluding this $0.05 benefit, the previously-communicated
range was $2.65 to $2.75 per share. We now expect fiscal 2006 earnings per share
from continuing operations in the range of $2.73 to $2.79, which represents full
year growth of 13% to 15% over comparable prior year earnings. This earnings
estimate excludes both the net benefit of the Glenmorangie termination and an
anticipated net favorable impact from restructuring the Company's Australian
distributor, which is expected to occur in the second half of this fiscal year.
We expect a much more moderate growth rate in earnings per share for the second
half of the fiscal year, reflecting further reductions in global trade inventory
levels, additional transition expenses associated with changes in global
distribution, incremental brand investments designed to sustain long term
business momentum, and the anticipated unfavorable impact of the strengthening
U.S. dollar.
LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents increased by $157.0 million during the six months
ended October 31, 2005, compared to an increase of $18.1 million during the same
period last year. The increase primarily reflects the receipt of $196.5 million
in cash from the sale of Lenox. The amount of cash used for other investing
activities was essentially the same as the amount used during the same period
last year. Cash provided by operations declined by $45.5 million, largely
reflecting a planned increase in inventory to meet expected future consumer
demand. Cash used for financing activities increased by $12.2 million, due
primarily to an increase in dividend payments and debt repayments.
19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We hold debt obligations, foreign currency forward and option contracts, and
commodity futures contracts that are exposed to risk from changes in interest
rates, foreign currency exchange rates, and commodity prices, respectively.
Established procedures and internal processes govern the management of these
market risks. As of October 31, 2005, we do not consider the exposure to these
market risks to be material.
Item 4. Controls and Procedures
The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") of
Brown-Forman (its principal executive and principal financial officers) have
evaluated the effectiveness of the company's "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 the period covered by this report.
Based on that evaluation, the CEO and CFO concluded that the company's
disclosure controls and procedures: are effective to ensure that information
required to be disclosed by the company in the reports filed or submitted by it
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the SEC's rules and forms; and include controls
and procedures designed to ensure that information required to be disclosed by
the company in such reports is accumulated and communicated to the company's
management, including the CEO and the CFO, as appropriate, to allow timely
decisions regarding required disclosure. There has been no change in the
company's internal control over financial reporting during the most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Brown-Forman Corporation and many other manufacturers of spirits, wine, and beer
are defendants in a series of essentially similar class action lawsuits seeking
damages and injunctive relief for alleged marketing of beverage alcohol to
underage consumers. Nine lawsuits have been filed to date, the first three
against eight defendants, including Brown-Forman: "Hakki v. Adolph Coors
Company, et.al.," District of Columbia Superior Court No. CD 03-9183 (November
2003); "Kreft v. Zima Beverage Co., et.al.," District Court, Jefferson County,
Colorado, No. 04cv1827 (December 2003); and "Wilson v. Zima Company, et.al.,"
U.S. District Court for the Western District of North Carolina, Charlotte
Division, No. 3:04cv141 ( January 2004). Two virtually identical suits with
allegations similar to those in the first three lawsuits were filed in
Cleveland, Ohio, in April and June, 2004, respectively, against the original
eight defendants as well as an additional nine manufacturers of spirits and
beer, and are now consolidated as "Eisenberg v. Anheuser-Busch," U.S. District
Court for the District of Northern Ohio, No. 1:04cv1081. Five similar suits were
filed in 2005: "Elizabeth H. Sciocchette v. Advanced Brands," Albany County, New
York Supreme Court No. 102205 (February 16, 2005); "Roger and Kathy Bertovich v.
Advanced Brands," Hancock County, West Virginia, Circuit Court No. 05-C-42M
(February 17, 2005); "Jacquelin Tomberlin v. Adolph Coors," Dane County
(Madison, Wisconsin) Circuit Court, (February 23, 2005); "Viola Alston v.
Advanced Brands," Wayne County, Michigan, Circuit Court No. 05-509294, (March,
30, 2005), and "Craig Konhauzer v. Adolph Coors Company," Broward County Florida
Circuit Court, No. 05004875 (March 30, 2005). In addition, Brown-Forman received
in February, 2004, a pre-lawsuit notice under the California Consumer Protection
Act indicating that the same lawyers intend to file a lawsuit there against many
industry defendants, including Brown-Forman, presumably on the same facts and
legal theories.
20
The suits allege that the defendants have engaged in deceptive marketing
practices and schemes targeted at underage consumers, negligently marketed their
products to the underage, and fraudulently concealed their alleged misconduct.
Plaintiffs seek class action certification on behalf of: (a) a guardian class
consisting of all persons who were or are parents of children whose funds were
used to purchase beverage alcohol marketed by the defendants which were consumed
without their prior knowledge by their children under the age of 21 during the
period 1982 to present; and (b) an injunctive class consisting of the parents
and guardians of all children currently under the age of 21.
The lawsuits seek: (1) a finding that defendants engaged in a deceptive scheme
to market alcoholic beverages to underage persons and an injunction against such
alleged practices; (2) disgorgement and refund to the guardian class of all
proceeds resulting from sales to the underage since 1982; and (3) judgment to
each guardian class member for a trebled award of actual damages, punitive
damages, and attorneys fees. The lawsuits, either collectively or individually,
if ultimately successful, represent significant financial exposure.
Brown-Forman, in coordination with other defendants, is vigorously defending
itself in these cases. The Defendants' motion to dismiss the Kreft complaint was
sustained by the trial court on September 16, 2005; Plaintiffs have appealed the
dismissal. The Konhauzer complaint was voluntarily dismissed by the plaintiff on
October 19, 2005. Four of the remaining cases are pending on motions to dismiss.
21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended October 31, 2005, the Company acquired 90,733 shares of
Class B Common Stock for $35.25 per share. These shares had been tendered at
that price (adjusted to reflect the 2-for-1 stock split in January 2004) during
our March 2003 "Dutch Auction" share repurchase, but were not delivered until
August and September 2005. No additional shares will be acquired pursuant to
that March 2003 share repurchase.
Total Number of Maximum Number
Total Shares Purchased of Shares that May
Number of Average as Part of Yet Be Purchased
Shares Price Paid Publicly Announced Under the Plans or
Period Purchased per Share Plans or Programs Programs
August 1, 2005 - August 31, 2005 16,000 $35.25 16,000 --
September 1, 2005 - September 30, 2005 74,733 35.25 74,733 --
October 1, 2005 - October 31, 2005 -- -- -- --
Total 90,733 $35.25 90,733 --
Item 6. Exhibits
31.1 CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act
of 2002.
31.2 CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act
of 2002.
32 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).
22
SIGNATURES
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 thereunto duly authorized.
BROWN-FORMAN CORPORATION
(Registrant)
Date: December 1, 2005 By: /s/ Phoebe A. Wood
Phoebe A. Wood
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)
23
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 Quarterly report on Form 10-Q of Brown-Forman
Corporation;
2. 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;
3. 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;
4. 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 function):
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.
Date: December 1, 2005 By: /s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Phoebe A. Wood, certify that:
1. I have reviewed this Quarterly report on Form 10-Q of Brown-Forman
Corporation;
2. 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;
3. 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;
4. 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 function):
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.
Date: December 1, 2005 By: /s/ Phoebe A. Wood
Phoebe A. Wood
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 Quarterly Report of Brown-Forman Corporation ("the
Company") on Form 10-Q for the period ended October 31, 2005, 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) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: December 1, 2005 By: /s/ Paul C. Varga
Paul C. Varga
Chief Executive Officer
By: /s/ Phoebe A. Wood
Phoebe A. Wood
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 Periodic Report.