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Brown-Forman Reports 15% Growth in Operating Income and Strong Operating Cash Flows for the First Six Months of Fiscal 2010

Louisville, KY, December 8, 2009 – Brown-Forman Corporation reported diluted earnings per share grew 5% to $0.99 and operating income grew 2% to $226 million for its fiscal 2010 second quarter ended October 31, 2009.  For the first six months of the fiscal year, diluted earnings per share increased 18% to $1.79 and operating income increased 15% to $418 million.  Adjusting for the items in Schedule A of this press release, underlying  operating income grew 9% for the second quarter and 15% for the first half of fiscal 2010. 

Paul Varga, the company’s chief executive officer stated, “We are pleased to report such excellent first half results, particularly given the difficult operating environment and the tough comparables in the prior year.  By seeking greater efficiency, improving productivity, and innovating to better meet the needs of today’s trade and consumer, we believe we have weathered the past 12 months very well and have continued to position our company and brands for success in the years ahead.”

Brown-Forman’s reported net sales for the six months ended October 31, 2009 were $1.6 billion, a decrease of 5% compared with the same prior year period.  Underlying net sales were flat for the first six months of fiscal 2010.  The company believes this underlying net sales performance ranks at or near the top of its public spirits company competitive set.  Strong underlying net sales gains for ready-to-drink brands, as well as growth for Gentleman Jack, el Jimador, and Jack Daniel’s, were offset primarily by underlying net sales declines of Finlandia and Southern Comfort.   Geographically, underlying net sales gains in Australia, Germany, and France were offset by declines in Poland, the U.S., and South Africa.  Total depletions  grew in the low single digits for the company’s current brand portfolio.  Underlying net sales growth benefitted from increased pricing but lagged depletion growth due to a shift in sales mix.  Schedule B contains more detailed depletion and net sales information by brand.

Brown-Forman’s fiscal 2010 first half gross profit declined 3% on a reported basis and decreased 1% on an underlying basis.  For the second quarter, reported gross profit dropped 5% and underlying gross profit was down 3%.  A shift in sales mix and increases in value-added packaging contributed to underlying gross profit trends lagging underlying sales trends.  Gross margins remained at nearly 50% for the three and six month periods and relatively stable when compared to the same periods in the prior year.  Underlying operating income outperformed underlying gross profit trends as the company continued to benefit from operating expense leverage.  Brown-Forman’s lower underlying advertising spend was a result of seasonal shifts in advertising and promotional investment, as well as a continued reallocation of brand investment to activities which are accounted for elsewhere on the income statement.  Also contributing to the reduction in advertising outlays were deflation in media and other marketing costs.  Varga commented, “Our people continued to do an excellent job allocating the company’s resources and seeking out marketing efficiencies both in media and through the use of ready-to-drink brands.  We continued to adapt to the consumers’ shift from on-premise to off-premise by making incremental investments in packaging, merchandising, and targeted promotional pricing.”

The company’s underlying selling, general, and administrative expense benefitted from a reduced cost base as a result of the company’s fiscal 2009 early retirement program and reduction in workforce, and from continued tight management of discretionary expenses along with timing-related shifts.

Cash provided by operating activities for the first six months of fiscal 2010 was approximately $206 million, a 77% increase over the same prior year period.  During the quarter the company repurchased a combined total of nearly $88 million Class A and Class B shares as part of its share repurchase program, which expired December 3, 2009.  Total repurchases during the year-long program were $196 million.  Also in November 2009, Brown-Forman increased its regular quarterly dividend 4.3% to $0.30 per share on Class A and Class B common stock.  Stockholders of record on December 7, 2009, will receive the cash dividend on January 4, 2010. With this dividend, Brown-Forman will have paid regular quarterly cash dividends for 64 consecutive years and increased them for the last 26 years.

Full-Year Outlook
The company is increasing and narrowing the range of its fiscal 2010 full-year earnings outlook to $2.95 to $3.15 per share.  Depletion trends for many of the company’s key brands improved slightly in the second quarter when compared to the first quarter and the company expects more favorable comparisons as the year progresses.  However, Brown-Forman remains concerned about the impact on consumption from a soft on-premise channel, consumer trading-down, and heightened competitive activity.  While the company anticipates operating expense leverage for fiscal year 2010, year-to-date trends are expected to moderate and potentially reverse for the next six months as advertising and promotion activities are more heavily weighted to the second half of the year.  Additionally, declines in selling, general, and administrative expenses in the first half of this fiscal year are not expected to recur in the second half of the year due primarily to the timing of cost reductions realized in the prior year.  Brown-Forman intends to remain flexible with operating expense plans and to continue to be in a position to increase investments if conditions warrant.  The outlook also reflects expected costs related to increased investments in brand packaging, other brand innovations, and production enhancements.  Brown-Forman now expects a slight improvement in underlying operating income growth when compared to the company’s original guidance.  The current expectation is for underlying operating income to grow in the low-to-mid-single digits for fiscal 2010.

Brown-Forman will host a conference call to discuss the results at 10:00 a.m. (EST) this morning.  All interested parties in the U.S. are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call.  International callers should dial 706-679-3410 and ask for the Brown-Forman call.  No password is required.  The company suggests that participants dial in approximately ten minutes in advance of the 10:00 a.m. start of the conference call.

A live audio broadcast of the conference call will also be available via Brown-Forman’s Internet Web site,, through a link to “Investor Relations.”   For those unable to participate in the live call, a replay will be available by calling 800-642-1687 (U.S.) or 706-645-9291 (international).  The identification code is 39694199.  A digital audio recording of the conference call will also be available on the Web site approximately one hour after the conclusion of the conference call.  The replay will be available for at least 30 days following the conference call.

Brown-Forman Corporation is a producer and marketer of fine quality beverage alcohol brands, including Jack Daniel’s, Southern Comfort, Finlandia, Canadian Mist, Fetzer, Korbel, Gentleman Jack, el Jimador, Tequila Herradura, Sonoma-Cutrer, Chambord, Tuaca, Woodford Reserve, and Bonterra.

Important Information on Forward-Looking Statements:

This report contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “expect,” “believe,” “intend,” “estimate,” “will,” “may,” “anticipate,” “project,” and similar words identify 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 other factors include, but are not limited to:

• Prolonged or deepening global economic downturn or renewed turmoil in financial and equity markets (and related credit and capital market instability and  illiquidity; decreased consumer and trade spending; higher unemployment; supplier, customer or consumer credit or other financial problems; inventory fluctuations at distributors, wholesalers, or retailers; bank failures or governmental nationalizations; etc.)
• competitors’ pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, product introductions, or other competitive activities aimed at our brands
• trade or consumer reaction to our product line extensions or new marketing initiatives
• prolonged or deeper declines in consumer confidence or spending, whether related to global economic conditions, wars, natural disasters, pandemics (such as swine flu), terrorist attacks or other factors
• changes in tax rates (including excise, sales, corporate, individual income, dividends, capital gains) or in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing deduction) or accounting standards, tariffs,  or other restrictions affecting beverage alcohol, and the unpredictability and suddenness with which they can occur
• trade or consumer resistance to price increases in our products
• tighter governmental restrictions on our ability to produce, sell, or market our products, including advertising and promotion
• business disruption, decline or costs related to reductions in workforce or other cost-cutting measures
• lower returns on pension assets, higher interest rates on debt, or significant changes in recent inflation rates (whether up or down)
• fluctuations in the U.S. dollar against foreign currencies, especially the euro, British pound, Australian dollar, or Polish zloty
• changes in consumer behavior including further reduction of bar, restaurant, hotel and other on-premise business; shifts to discount store purchases or shifts away from premium-priced products; other price-sensitive consumer behavior; or further reductions in travel
• changes in consumer preferences, societal attitudes or cultural trends that result in reduced consumption of our products
• distribution arrangement decisions that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or that result in implementation-related costs
• adverse impacts resulting from our acquisitions, dispositions, joint ventures, business partnerships, or portfolio strategies
• lower profits, due to factors such as fewer used barrel sales, lower production volumes (either for our own brands or those of third parties), sales mix shift toward lower priced or lower margin skus, or cost increases in energy or raw materials, such as grapes, grain, agave, wood, glass, plastic, or closures
• climatic changes, agricultural uncertainties, our suppliers’ financial hardships or other factors that affect the  availability or quality of grapes, agave, grain, glass, closures, plastic, or wood
• negative publicity related to our company, brands, personnel, operations, business performance or prospects
• product counterfeiting, tampering, or contamination and resulting negative effects on our sales, brand equity, or corporate reputation
• adverse developments stemming from state, federal or other governmental investigations of beverage alcohol industry business, trade, or marketing practices by us, our distributors, or retailers
• impairment in the recorded value of any assets, including receivables, inventory, fixed assets, goodwill or other intangibles

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