Market Overview

Brown-Forman Reports Strong Start to Fiscal 2019


Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) reported financial
results for its first quarter of fiscal 2019, ended July 31, 2018. For
the first quarter, the company's reported net sales1
increased 6% to $766 million (+9% on an underlying2 basis)
compared to the same prior-year period. In the quarter, reported
operating income increased 7% to $264 million (+10% on an underlying
basis) and diluted earnings per share grew 12% to $0.41.

Paul Varga, the company's Chief Executive Officer, said, "Brown-Forman's
business momentum continued during the first quarter of fiscal 2019,
with strong net sales growth as consumer demand for our premium American
whiskey brands remained robust. After considering the estimated impact
of order phasing related to tariffs, our first quarter growth was
in-line with last year's underlying net sales growth and keeps us on
track to deliver another strong year of top-line growth in the 6-7%

Lawson Whiting, the company's Chief Operating Officer and incoming CEO,
added, "There remains significant uncertainty around the duration of
recently enacted tariffs, but we have been encouraged by the resilience
of our business model as we are working to minimize short-term
disruption and maintain our top-line momentum. We believe that our
consistent reinvestment back into our brands and people positions us
well over the long term to continue generating leading returns for our

First Quarter Fiscal 2019 Highlights

  • Underlying net sales grew 9% (+6% reported), with broad-based
    geographic3 and balanced portfolio contribution:
    • Developed international markets grew underlying net sales by 16%
      (+12% reported), emerging markets grew underlying net sales by 11%
      (+7% reported), and the United States grew underlying net sales by
      2% (0% reported)
    • The Jack Daniel's family of brands grew underlying net sales 10%
      (+7% reported), including 8% underlying net sales growth (+5%
      reported) for Jack Daniel's Tennessee Whiskey
    • The company's super-premium American whiskey brands grew
      underlying net sales +25% (+24% reported), including 29%
      underlying net sales growth from Woodford Reserve (+30% reported)
    • Herradura and el Jimador grew underlying net sales 10% and 11%,
      respectively (+11% and +10%, reported)
  • Underlying operating income grew 10% (+7% reported)

First Quarter of Fiscal 2019 Results By Market
- Broad-Based Growth

The company delivered solid, broad-based growth around the world, with
the strongest results coming from markets outside of the United States.
The company estimates that an increase in retail and wholesale inventory
levels, largely related to tariffs, contributed approximately two to
three points of underlying net sales growth to company-wide top-line

The United States grew underlying net sales +2% (0% reported), against
last year's 5% comparison. According to syndicated data, Brown-Forman's
value based takeaway trends remain consistently in the mid-single digits
rate of growth. The Jack Daniel's family of brands excluding Tennessee
Whiskey grew underlying net sales high-single digits, with gains from
Tennessee Honey, Tennessee Fire, and RTDs/RTP (RTDs3), as
well as the continued launch of Jack Daniel's Tennessee Rye. The
company's premium bourbons continued to grow rapidly in the United
States, including strong double-digit underlying net sales gains from
Woodford Reserve and Old Forester. Herradura and el Jimador tequila grew
aggregate underlying net sales in the mid-teens.

Underlying net sales in the company's developed markets outside of the
United States were very strong, up 16% (+12% reported). Results in the
European Union benefited from easy comparisons versus the same year ago
period and the timing of orders as our trade partners worked to navigate
an uncertain period given recently enacted tariffs. Germany and the
United Kingdom grew underlying net sales by 38% (+28% reported) and 33%
(+19% reported), respectively, while France's underlying net sales
increased 3% (-1% reported). Spain continued to grow well into the
double-digits on the heels of last year's transition to owned
distribution in that market. Australia's underlying net sales increased
6% (+2% reported) and Canada's underlying net sales were flat (-2%

Emerging markets continued to strengthen on a two-year basis despite
increasingly difficult comparisons, with underlying net sales growth of
11% (+7% reported). Mexico grew underlying net sales by 5% (-6%
reported), fueled by strong growth across the portfolio of RTDs as well
as American whiskey. Poland delivered underlying net sales growth of 4%
(+8% reported) as strength in whiskey was offset somewhat by soft
results for Finlandia as the company begins to transition to new
packaging for the brand. Brazil grew underlying net sales 30% (+20%
reported) due to strong demand for Jack Daniel's Tennessee Whiskey.
Russia experienced a 12% decline (+57% reported) due to challenging
comparisons related to the changes in distributor and related buying
patterns. Most other emerging markets, such as Turkey, China, Romania,
India, and Ukraine delivered underlying net sales well into the
double-digits in the quarter.

Travel Retail delivered solid growth in the quarter, with underlying net
sales up 22% (+24% reported). The company's premium American whiskey
brands, including the Jack Daniel's family of brands and Woodford
Reserve, enjoyed strong consumer demand, and Travel Retail benefited
from new product launches, higher passenger volumes, and timing related
to trade buying.

First Quarter of Fiscal 2019 Results By Brand -
Strong Growth in American Whiskey and Tequila

The company's underlying net sales growth was led by the Jack Daniel's
family of brands, up 10% (+7% reported). Jack Daniel's Tennessee Whiskey
experienced 8% underlying net sales growth globally (+5% reported), with
strong volume gains in markets outside of the United States. Jack
Daniel's Tennessee Honey's underlying net sales grew 12% (+21% reported)
as the brand continued its global growth trajectory. Jack Daniel's RTD
business maintained its strong momentum from fiscal 2018, delivering
underlying net sales growth of 10% (+6% reported). Gentleman Jack grew
underlying net sales 7% (+4% reported). Jack Daniel's Tennessee Fire
increased underlying net sales 13% (+10% reported), led by continued
global growth for the brand.

Brown-Forman's portfolio of super-premium American whiskey brands,
including Woodford Reserve, Jack Daniel's Single Barrel and Gentleman
Jack, delivered 25% underlying net sales growth (+24% reported).
Woodford Reserve grew underlying net sales 29% (+30% reported). Old
Forester grew at an even faster rate, powered by the combination of
volumetric gains and favorable mix.

Finlandia vodka's underlying net sales declined 10% (-18% reported). The
decrease in underlying net sales was primarily driven by some disruption
related to packaging changes for the brand in Poland, as well as a
competitive environment for premium vodka.

el Jimador grew underlying net sales by 11% (+10% reported), fueled by
strong takeaway trends in the United States as the company continued to
invest in building brand awareness. Herradura grew underlying net sales
by 10% (+11% reported). The brand registered double-digit gains in the
United States and the continued growth of Herradura Ultra benefited
Mexico's results. New Mix's underlying net sales grew mid-single digits
despite the competitive environment for RTDs.

Other P&L Items

Company-wide price/mix contributed four percentage points to the 9%
underlying net sales growth (+6% reported). Underlying gross profit also
grew 9% in the quarter (+6% reported).

Underlying advertising spend increased 17% (+14% reported) during the
first quarter, as the company continued to invest across the portfolio
of brands, including the new Woodford Reserve Kentucky Derby
sponsorship. Underlying SG&A grew 5% for the quarter (+4% reported),
driven primarily by higher personnel costs. The company delivered
underlying operating income growth of 10% (+7% reported).

Financial Stewardship

On July 13, the board approved a share repurchase authorization of $200
million, effective through July 12, 2019, subject to market and other
conditions. On July 26, 2018, Brown-Forman declared a regular quarterly
cash dividend of $0.158 per share on the split-adjusted Class A and
Class B common stock, equating to an annualized cash dividend of $0.632
per share. The quarterly cash dividend is payable on October 1, 2018 to
stockholders of record on September 6, 2018. Brown-Forman has paid
regular quarterly cash dividends for 73 consecutive years and has
increased the dividend for 34 consecutive years.

Fiscal Year 2019 Outlook

The global economy has continued to improve over the last year. However,
the competitive landscape in the developed world remains intense, and
recently enacted retaliatory tariffs on American whiskey have created
additional uncertainty around the company's near-term outlook, making it
difficult to accurately predict future results. The company currently

  1. Underlying net sales growth of 6% to 7%.
  2. A slight increase in underlying SG&A, and underlying A&P up in-line
    with underlying net sales growth.
  3. Underlying operating income growth of 4% to 6%.
  4. Diluted earnings per share of $1.65 to $1.75. This range includes the
    net estimated change to operating income growth due primarily to
    tariffs, which we assume remain in place for the full fiscal year, as
    well as expectations for additional foreign exchange headwinds at
    current spot rates.
Prior FY19 EPS Outlook $1.75 - $1.85
Net Change to OI Growth (0.06 )

Additional FX Headwinds and Other

        (0.04 )
FY19 Reported EPS Outlook         $1.65 - $1.75  
YOY Reported EPS Growth         11% - 18%  

Conference Call Details

Brown-Forman will host a conference call to discuss the results at 10:00
a.m. (EDT) today. All interested parties in the United States are
invited to join the conference call by dialing 888-624-9285 and asking
for the Brown-Forman call. International callers should dial
+1-706-679-3410. The company suggests that participants dial in ten
minutes in advance of the 10:00 a.m. (EDT) start of the conference call.
A live audio broadcast of the conference call, and the accompanying
presentation slides, will also be available via Brown-Forman's Internet
through a link to "Investors/Events & Presentations." For those unable
to participate in the live call, information regarding the digital audio
recording of the conference call and the presentation slides will also
be on the website. The replay will be available for at least 30 days
following the conference call.

For nearly 150 years, Brown-Forman Corporation has enriched the
experience of life by responsibly building fine quality beverage alcohol
brands, including Jack Daniel's Tennessee Whiskey, Jack Daniel's & Cola,
Jack Daniel's Tennessee Honey, Jack Daniel's Tennessee Fire, Gentleman
Jack, Jack Daniel's Single Barrel, Finlandia, Korbel, el Jimador,
Woodford Reserve, Old Forester, Canadian Mist, Herradura, New Mix,
Sonoma-Cutrer, Early Times, Chambord, BenRiach, GlenDronach and Slane.
Brown-Forman's brands are supported by over 4,800 employees and sold in
more than 170 countries worldwide. For more information about the
company, please visit

Important Information on Forward-Looking Statements:

This press release contains 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:

  • 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 and the effectiveness of our actions to mitigate
    the potential negative impact on our sales and distributors;
    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
  • 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
  • Decline in the social acceptability of beverage alcohol in significant
  • Production facility, aging warehouse, or supply chain disruption
  • Imprecision in supply/demand forecasting
  • 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
  • Failure or breach of key information technology systems
  • Negative publicity related to our company, brands, marketing,
    personnel, operations, business performance, or prospects
  • Failure to attract or retain key executive or employee talent
  • Our status as a family "controlled company" under New York Stock
    Exchange rules, and our dual class share structure

For further information on these and other risks, please refer to the
"Risk Factors" section of our annual report on Form 10-K and quarterly
reports on Form 10-Q filed with the Securities and Exchange Commission.


Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Three Months Ended July 31, 2017 and 2018

(Dollars in millions, except per share amounts)

2017 2018 Change
Net sales $ 723 $ 766 6 %
Cost of sales 230   243   6 %
Gross profit 493 523 6 %
Advertising expenses 87 98 14 %
Selling, general, and administrative expenses 161 168 4 %
Other expense (income), net (1 ) (7 )
Operating income 246 264 7 %
Non-operating postretirement expense 2 2
Interest expense, net 15   20  
Income before income taxes 229 242 6 %
Income taxes 51   42  
Net income $ 178   $ 200   12 %
Earnings per share:
Basic $ 0.37 $ 0.42 12 %
Diluted $ 0.37 $ 0.41 12 %
Gross margin 68.1 % 68.2 %
Operating margin 34.0 % 34.5 %
Effective tax rate 22.1 % 17.4 %
Cash dividends per common share:
Declared $ 0.292 $ 0.316
Paid $ 0.146 $ 0.158

Shares (in thousands) used in the calculation of earnings per share

Basic 480,048 480,964
Diluted 482,984 484,441
Brown-Forman Corporation

Unaudited Condensed Consolidated Balance Sheets

(Dollars in millions)

April 30, July 31,
2018 2018
Cash and cash equivalents $ 239 $ 211
Accounts receivable, net 639 658
Inventories 1,379 1,449
Other current assets 298   305
Total current assets 2,555 2,623
Property, plant, and equipment, net 780 778
Goodwill 763 755
Other intangible assets 670 658
Other assets 208   211
Total assets $ 4,976   $ 5,025
Accounts payable and accrued expenses $ 581 $ 564
Dividends payable 76
Accrued income taxes 25 52
Short-term borrowings 215   176
Total current liabilities 821 868
Long-term debt 2,341 2,310
Deferred income taxes 85 119
Accrued postretirement benefits 191 192
Other liabilities 222   168
Total liabilities 3,660 3,657
Stockholders' equity 1,316   1,368
Total liabilities and stockholders' equity $ 4,976   $ 5,025
Brown-Forman Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

For the Three Months Ended July 31, 2017 and 2018

(Dollars in millions)

2017 2018
Cash provided by operating activities $ 105 $ 126
Cash flows from investing activities:
Additions to property, plant, and equipment (28 ) (23 )
Other (3 ) (2 )
Cash used for investing activities (31 ) (25 )
Cash flows from financing activities:
Net change in short-term borrowings 45 (41 )
Acquisition of treasury stock (1 ) (1 )
Dividends paid (70 ) (76 )
Other (5 ) (4 )
Cash used for financing activities (31 ) (122 )
Effect of exchange rate changes on cash and cash equivalents 13   (7 )
Net increase (decrease) in cash and cash equivalents 56 (28 )
Cash and cash equivalents, beginning of period 182   239  
Cash and cash equivalents, end of period $ 238   $ 211  

Schedule A

Brown-Forman Corporation
Supplemental Information (Unaudited)
Three Months Ended Fiscal Year Ended
July 31, 2018 April 30, 2018
Reported change in net sales 6% 8%
New accounting standard 1% —%
Foreign exchange 2% (1)%
Estimated net change in distributor inventories (1)% (1)%
Underlying change in net sales 9% 6%
Reported change in gross profit 6% 9%
New accounting standard 2% —%
Foreign exchange 2% (2)%
Estimated net change in distributor inventories (1)% (1)%
Underlying change in gross profit 9% 6%
Reported change in advertising expenses 14% 8%
New accounting standard 4% —%
Foreign exchange —% (3)%
Underlying change in advertising expenses 17% 6%
Reported change in SG&A 4% 15%
Foundation —% (11)%
Foreign exchange —% (2)%
Underlying change in SG&A 5% 3%
Reported change in operating income 7% 5%
New accounting standard 2% —%
Foundation —% 7%
Foreign exchange 2% (2)%
Estimated net change in distributor inventories (2)% (2)%
Underlying change in operating income 10% 8%

Note: Totals may differ due to rounding


See "Note 2 - Non-GAAP Financial Measures" for details on our use
of Non-GAAP financial measures, how these measures are calculated
and the reasons why we believe this information is useful to

Schedule B
Brown-Forman Corporation
Supplemental Brand Information (Unaudited)
Three Months Ended July 31, 2018
% Change vs. Prior Year Period


Depletions3   Net Sales2















Estimated Net

Change in





Whiskey   7%   8%   8%   1%   2%   (1)%   11%
Jack Daniel's Family of Brands   8%   9%   7%   1%   3%   (2)%   10%
Jack Daniel's Tennessee Whiskey   9%   9%   5%   2%   2%   (1)%   8%
Jack Daniel's RTD's/ RTP   5%   5%   6%   —%   5%   —%   10%
Jack Daniel's Tennessee Honey   10%   10%   21%   2%   2%   (12)%   12%
Gentleman Jack   6%   6%   4%   1%   1%   —%   7%
Jack Daniel's Tennessee Fire   11%   11%   10%   1%   1%   1%   13%
Other Jack Daniel's Whiskey Brands   77%   77%   43%   1%   2%   1%   47%
Woodford Reserve   26%   26%   30%   2%   1%   (4)%   29%
Rest of Whiskey   (5)%   (5)%   —%   1%   —%   7%   8%
Tequila   —%   4%   7%   3%   4%   (5)%   9%
el Jimador   4%   4%   10%   5%   3%   (6)%   11%
Herradura   6%   6%   11%   4%   3%   (8)%   10%
Rest of Tequila   (2)%   3%   (1)%   —%   7%   —%   6%
Vodka   (6)%   (6)%   (18)%   1%   6%   —%   (10)%
Wine   (3)%   (3)%   (6)%   1%   —%   2%   (3)%
Rest of Portfolio   (3)%   (3)%   (11)%   —%   5%   1%   (4)%
Subtotal   4%   5%   6%   1%   3%   (1)%   8%
Other Non-Branded and Bulk   NM   NM   19%   0%   (1)%   —%   18%
Total Portfolio   4%   5%   6%   1%   2%   (1)%   9%

Other Brand Aggregations

American whiskey   8%   9%   8%   1%   2%   (1)%   11%
Super-premium American whiskey   24%   24%   24%   1%   1%   (1)%   25%
Old Forester & Woodford Reserve   24%   24%   27%   2%   —%   1%   29%
el Jimador, Herradura, & New Mix   (1)%   3%   6%   3%   4%   (5)%   9%

See "Note 2 - Non-GAAP Financial Measures" for details on our use
of Non-GAAP financial measures, how these measures are calculated
and the reasons why we believe this information is useful to


Note: Totals may differ due to rounding

Schedule C
Brown-Forman Corporation
Supplemental Geographic Information (Unaudited)
Three Months Ended July 31, 2018

Geographic Area3

Net Sales2










Estimated Net

Change in





United States   —%   1%   —%   1%   2%
Developed International   12%   2%   6%   (3)%   16%
United Kingdom   19%   —%   14%   —%   33%
Australia   2%   —%   4%   —%   6%
Germany   28%   —%   10%   —%   38%
France   (1)%   —%   5%   —%   3%
Canada   (2)%   4%   2%   (4)%   —%
Rest of Developed International   13%   7%   1%   (12)%   9%
Emerging   7%   3%   7%   (4)%   11%
Mexico   (6)%   2%   9%   —%   5%
Poland   8%   —%   (4)%   —%   4%
Russia   57%   —%   (14)%   (55)%   (12)%
Brazil   20%   2%   20%   (11)%   30%
Rest of Emerging   7%   4%   9%   1%   20%

Travel Retail

  24%   —%   (2)%   —%   22%
Other non-branded and bulk   19%   —%   (1)%   —%   18%
Total   6%   1%   2%   (1)%   9%

Other Geographic Aggregations

Developed - including United States   4%   1%   2%   —%   7%

See "Note 2 - Non-GAAP Financial Measures" for details on our use
of Non-GAAP financial measures, how these measures are calculated
and the reasons why we believe this information is useful to


Note: Totals may differ due to rounding


Note 1 - Percentage growth rates are compared to prior-year
periods, unless otherwise noted.

Note 2 - Non-GAAP Financial Measures

Use of Non-GAAP Financial Information. We
use certain financial measures in this press release 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.
Reconciliations of these Non-GAAP measures to the most closely
comparable GAAP measures are presented on Schedules A, B, and C of this
press release.

"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, and (h) underlying operating income.
To calculate these measures, we adjust, as applicable, for (a) new
accounting standard, (b) foreign exchange, and (c) estimated net changes
in distributor inventories. We explain these adjustments below.

  • "New accounting standard." Under ASC 606 (Revenue from
    Contracts with Customers), 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, we do anticipate some change in the pattern of
    recognition among fiscal quarters. 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. This adjustment allows us to look at underlying change on a
    comparable basis.
  • "Foreign exchange." We calculate the percentage change in our
    income statement line items in accordance with GAAP and adjust to
    exclude the cost or benefit of currency fluctuations. Adjusting for
    foreign exchange allows us to understand our business on a
    constant-dollar basis, as fluctuations in exchange rates can distort
    the underlying trend both positively and negatively. (In this press
    release, "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. We believe that this adjustment
    reduces the effect of varying levels of distributor inventories on
    changes in our measures and allows us to understand better our
    underlying results and trends.

We use the non-GAAP measures "underlying change" for the following
reasons: (a) to understand our performance from period to period on a
consistent basis; (b) to compare our performance to that of our
competitors; (c) in connection with management incentive compensation
calculations; (d) in planning and forecasting processes; and (e) in
communications concerning our financial performance with the board of
directors, stockholders, and investment analysts. We have consistently
applied the adjustments within our reconciliations in arriving at each
non-GAAP measure.

Note 3 - Definitions

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 aggregations used in this press release.

Geographic Aggregations.

In Schedule C, we provide supplemental information for our largest
markets ranked by percentage of total fiscal 2018 net sales. In addition
to markets that are listed by country name, we include the following

  • "Developed International" markets are "advanced economies" as
    defined by the IMF excluding the United States. Our largest developed
    international markets are the United Kingdom, Australia, and Germany.
    This aggregation represents our sales of branded products to these
  • "Emerging" markets are "emerging and developing economies" as
    defined by the IMF. Our largest emerging markets are Mexico and
    Poland. This aggregation represents our sales of branded products to
    these markets.
  • "Travel Retail" represents our sales of branded products to
    global duty-free customers, travel retail customers, and the U.S.
    military regardless of customer location.
  • "Non-branded and bulk" includes our sales of used barrels, bulk
    whiskey and wine, and contract bottling regardless of customer

Brand Aggregations.

In Schedule B, we provide supplemental information for our largest
brands ranked by percentage of total fiscal 2018 net sales. In addition
to brands that are listed by name, we include the following aggregations:

  • "Whiskey" products include all whiskey spirits and
    whiskey-based flavored liqueurs, ready-to-drink, and ready-to-serve
    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.
  • "American whiskey" products include the Jack Daniel's family of
    brands, premium bourbons, and Early Times.
    • "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, Jack Daniel's No. 27 Gold Tennessee
      Whiskey, and Jack Daniel's Bottled-in-Bond.
    • "Jack Daniel's RTD and RTP" products include all RTD line
      extensions of Jack Daniel's, such as Jack Daniel's & Cola, Jack
      Daniel's & Diet Cola, Jack & Ginger, Jack Daniel's Country
      Cocktails, Gentleman Jack & Cola, Jack Daniel's Double Jack, Jack
      Daniel's American Serve, Jack Daniel's Tennessee Honey RTD, Jack
      Daniel's Cider (JD Cider), Jack Daniel's Lynchburg Lemonade (JD
      Lynchburg Lemonade), and the seasonal Jack Daniel's Winter Jack
  • "Super-premium American whiskey brands" include Woodford
    Reserve, Jack Daniel's Single Barrel, Gentleman Jack, Sinatra Select,
    and Jack Daniel's No. 27 Gold Tennessee Whiskey.
  • "Premium bourbon" products include Woodford Reserve, Old
    Forester, and Coopers' Craft.
  • "Tequila" products include el Jimador, Herradura, New Mix, Pepe
    Lopez, and Antiguo.
  • "Vodka" products include Finlandia.
  • "Wine" products include the Korbel Champagne and Sonoma-Cutrer
  • "Non-branded and bulk" includes our sales of used barrels, bulk
    whiskey and wine, and contract bottling regardless of customer

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

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