Accounting Policies (Policies) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Apr. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Principles of consolidation | Principles of consolidation. Our consolidated financial statements include the accounts of all subsidiaries in which we have a controlling financial interest. We eliminate all intercompany transactions. |
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Estimates | Estimates. To prepare financial statements that conform with GAAP, our management must make informed estimates that affect how we report revenues, expenses, assets, and liabilities, including contingent assets and liabilities. Actual results could differ from these estimates. |
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Cash equivalents | Cash equivalents. Cash equivalents include bank demand deposits and all highly liquid investments with original maturities of three months or less. |
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Allowance for doubtful accounts | Allowance for doubtful accounts. We evaluate the collectability of accounts receivable based on a combination of factors. When we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific allowance to reduce the net recognized receivable to the amount we believe will be collected. We write off the uncollectable amount against the allowance when we have exhausted our collection efforts. The allowance for doubtful accounts was $7 as of both April 30, 2017 and 2018. |
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Inventories | Inventories. Inventories are valued at the lower of cost or net realizable value. Approximately 52% of our consolidated inventories are valued using the last-in, first-out (LIFO) cost method, which we use for the majority of our U.S. inventories. We value the remainder of our inventories primarily using the first-in, first-out (FIFO) cost method. FIFO cost approximates current replacement cost. If we had used the FIFO method for all inventories, they would have been $272 and $290 higher than reported at April 30, 2017 and 2018, respectively. Because we age most of our whiskeys in barrels for three to six years, we bottle and sell only a portion of our whiskey inventory each year. Following industry practice, we classify all barreled whiskey as a current asset. We include warehousing, insurance, ad valorem taxes, and other carrying charges applicable to barreled whiskey in inventory costs. We classify bulk wine, agave inventories, tequila, and liquid in bottling tanks as work in process. |
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Property, plant, and equipment | Property, plant, and equipment. We state property, plant, and equipment at cost less accumulated depreciation. We calculate depreciation on a straight-line basis using our estimates of useful life, which are 20–40 years for buildings and improvements; 3–10 years for machinery, equipment, vehicles, furniture, and fixtures; and 3–7 years for capitalized software. We assess our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. When we do not expect to recover the carrying value of an asset (or asset group) through undiscounted future cash flows, we write it down to its estimated fair value. We determine fair value using discounted estimated future cash flows, considering market values for similar assets when available. When we retire or dispose of property, plant, and equipment, we remove its cost and accumulated depreciation from our balance sheet and reflect any gain or loss in operating income. We expense the costs of repairing and maintaining our property, plant, and equipment as we incur them. |
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Goodwill and other intangible assets | Goodwill and other intangible assets. We have obtained most of our brands by acquiring other companies. When we acquire another company, we first allocate the purchase price to identifiable assets and liabilities, including intangible brand names and trademarks (“brand names”), based on estimated fair value. We then record any remaining purchase price as goodwill. We do not amortize goodwill or other intangible assets with indefinite lives. We consider all of our brand names to have indefinite lives. We assess our goodwill and other indefinite-lived intangible assets for impairment at least annually. If an asset’s fair value is less than its book value, we write it down to its estimated fair value. For goodwill, if the book value of the reporting unit exceeds its estimated fair value, we measure for potential impairment by comparing the implied fair value of the reporting unit’s goodwill, determined in the same manner as in a business combination, to the goodwill’s book value. We estimate the reporting unit’s fair value using discounted estimated future cash flows or market information. We typically estimate the fair value of a brand name using either the “relief from royalty” or “excess earnings” method. We also consider market values for similar assets when available. Considerable management judgment is necessary to estimate fair value, including the selection of assumptions about future cash flows, discount rates, and royalty rates. We have the option, before quantifying the fair value of a reporting unit or brand name, to evaluate qualitative factors to assess whether it is more likely than not that our goodwill or brand names are impaired. If we determine that is not the case, then we are not required to quantify the fair value. That assessment also takes considerable management judgment. |
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Foreign currency transactions and translation | Foreign currency transactions and translation. We report all gains and losses from foreign currency transactions (those denominated in a currency other than the entity’s functional currency) in current income. The U.S. dollar is the functional currency for most of our consolidated entities. The local currency is the functional currency for some of our consolidated foreign entities. We translate the financial statements of those foreign entities into U.S. dollars, using the exchange rate in effect at the balance sheet date to translate assets and liabilities, and using the average exchange rate for the reporting period to translate income and expenses. We record the resulting translation adjustments in other comprehensive income (loss). |
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Revenue recognition | Revenue recognition. We recognize sales when title and risk of loss pass to the customer, typically when the product is shipped. We record sales net of estimated sales returns, allowances, and discounts. Net sales are further reduced by excise taxes that we collect from our customers and remit to governmental authorities. |
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Cost of sales | Cost of sales. Cost of sales includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods sold during the period. |
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Shipping and handling fees and costs | Shipping and handling fees and costs. We report the amounts we bill to our customers for shipping and handling as sales, and we report the costs we incur for shipping and handling as cost of sales. |
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Advertising costs | Advertising costs. We expense the costs of advertising during the year when the advertisements first take place. |
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Selling, general, and administrative expenses | Selling, general, and administrative expenses. Selling, general, and administrative expenses include the costs associated with our sales force, administrative staff and facilities, and other expenses related to our non-manufacturing functions. |
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Income taxes | Income taxes. We base our annual provision for income taxes on the pre-tax income reflected in our consolidated statement of operations. We establish deferred tax liabilities or assets for temporary differences between GAAP and tax reporting bases and later adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance as necessary to reduce a deferred tax asset to the amount that we believe is more likely than not to be realized. We do not provide deferred income taxes on undistributed earnings of foreign subsidiaries that we expect to permanently reinvest. We record a deferred tax charge in prepaid taxes for the difference between GAAP and tax reporting bases with respect to the elimination of intercompany profit in ending inventory. We assess our uncertain income tax positions using a two-step process. First, we evaluate whether the tax position will more likely than not, based on its technical merits, be sustained upon examination, including resolution of any related appeals or litigation. For a tax position that does not meet this first criterion, we recognize no tax benefit. For a tax position that does meet the first criterion, we recognize a tax benefit in an amount equal to the largest amount of benefit that we believe has more than a 50% likelihood of being realized upon ultimate resolution. We record interest and penalties on uncertain tax positions as income tax expense. |
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Recent accounting pronouncements | Recently adopted accounting pronouncements. We adopted the following Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) as of May 1, 2016:
Also, under the new guidance, we recognize the excess tax benefits during the period in which the related awards vest or are exercised. Under the previous accounting guidance, we recognized those benefits during the period in which they reduced taxes payable. We adopted this provision of the new guidance on a modified retrospective basis with a cumulative-effect adjustment of $10 to retained earnings as of May 1, 2016. New accounting pronouncements to be adopted. We will adopt the following ASUs as of May 1, 2018:
We have substantially completed our comprehensive assessment of the impact of the new guidance, and have concluded that adoption will not have a material impact on our financial statements. However, under the new standard, we will estimate and recognize the cost of certain customer incentives earlier than previously recognized. Although we expect this change in timing to shift the recognition of these costs among fiscal quarters, we do not expect the full-year impact to be significant. Additionally, some payments to customers that were previously classified as advertising or selling, general, and administrative expenses will be classified as reductions of sales under the new standard. We anticipate the impact of this change in classification to be insignificant as well. We will adopt the new standard using the modified retrospective method by recognizing the cumulative effect of applying the new standard as an adjustment to retained earnings as of May 1, 2018. We anticipate the adjustment, reflecting the accelerated recognition of the cost of certain customer incentives, to decrease retained earnings by approximately $30 (net of tax). We are in the process of finalizing the calculation of the adjustment, which will be completed during the first quarter of fiscal 2019.
In addition, the FASB has issued the ASUs described below that we are not required to adopt until May 1, 2019 (although early adoption is permitted). We are currently evaluating their potential impact on our financial statements.
There are no other new accounting standards to be adopted that we currently believe might have a significant impact on our consolidated financial statements. |