XML 18 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
Net Sales
 3 Months Ended
Jul. 31, 2018
Net Sales [Abstract]  
Revenue from Contract with Customer [Text Block]
Net Sales 
Effective May 1, 2018, we updated our policy for recognizing revenue (“net sales”) to reflect the adoption of ASC 606. We describe the updated policy below. Also, we show how the adoption impacted our financial statements and we present disaggregated net sales information in accordance with the new standard.

Revenue recognition policy. Our net sales predominantly reflect global sales of beverage alcohol consumer products. We sell these products under contracts with different types of customers, depending on the market. The customer is most often a distributor, wholesaler, or retailer.
Each contract typically includes a single performance obligation to transfer control of the products to the customer. Depending on the contract, control is transferred when the products are either shipped or delivered to the customer, at which point we recognize the transaction price for those products as net sales. The transaction price recognized at that point reflects our estimate of the consideration to be received in exchange for the products. The actual amount may ultimately differ due to the effect of various customer incentives and trade promotion activities. In making our estimates, we consider our historical experience and current expectations, as applicable. Adjustments recognized during the three months ended July 31, 2018, for changes in estimated transaction prices of products sold in prior periods were not material.
Net sales exclude taxes we collect from customers that are imposed by the government on our sales, and are reduced by payments to customers unless made in exchange for distinct goods or services with fair values approximating the payments.
Net sales include any amounts we bill customers for shipping and handling activities related to the products. We recognize the cost of those activities in cost of sales during the same period in which we recognize the related net sales.
Sales returns, which are permitted only in limited situations, are not material.
Customer payment terms generally range from 30 to 90 days. There are no significant amounts of contract assets or liabilities.

Impact of adoption. We adopted ASC 606 using the modified retrospective method. As a result, we recorded an adjustment that decreased retained earnings as of May 1, 2018, by $25 million (net of tax). The adjustment reflects the cumulative effect on that date of applying our updated revenue recognition policy, under which we recognize the cost of certain customer incentives earlier than we did before adopting ASC 606. Although we do not expect this change in timing to have a significant impact on a full-year basis, 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.
The following table shows how the adoption of ASC 606 impacted our consolidated statement of operations for the three months ended July 31, 2018:
 
Three Months Ended July 31, 2018
 
Under Prior
 
As Reported Under
 
Effect of
(Dollars in millions, except per share amounts)
Guidance
 
ASC 606
 
Adoption
Sales
$
997

 
$
987

 
$
(10
)
Excise taxes
221

 
221

 
—

Net sales
776

 
766

 
(10
)
Cost of sales
243

 
243

 
—

Gross profit
533

 
523

 
(10
)
Advertising expenses
101

 
98

 
(3
)
Selling, general, and administrative expenses
169

 
168

 
(1
)
Other expense (income), net
(7
)
 
(7
)
 
—

Operating income
270

 
264

 
(6
)
Non-operating postretirement expense
2

 
2

 
—

Interest income
(2
)
 
(2
)
 
—

Interest expense
22

 
22

 
—

Income before income taxes
248

 
242

 
(6
)
Income taxes
44

 
42

 
(2
)
Net income
$
204

 
$
200

 
$
(4
)
Earnings per share:
 
 
 
 
 
Basic
$
0.43

 
$
0.42

 
$
(0.01
)
Diluted
$
0.42

 
$
0.41

 
$
(0.01
)

Disaggregated revenues.
The following table shows our net sales by geography:
 
Three Months Ended
 
July 31,
(Dollars in millions, except per share amounts)
2017
 
2018
United States
$
355

 
$
357

Developed International1
193

 
215

Emerging2
123

 
131

Travel Retail3
30

 
38

Non-branded and bulk4
22

 
25

Total
$
723

 
$
766


 
 
1Represents sales of branded products to “advanced economies” as defined by the International Monetary Fund (IMF), excluding the United States. Our largest developed international markets are the United Kingdom, Australia, and Germany.
2Represents sales of branded products to “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico and Poland.
3Represents sales of branded products to global duty-free customers, travel retail customers, and the U.S. military regardless of customer location.
4Includes sales of used barrels, bulk whiskey and wine, and contract bottling regardless of customer location.








The following table shows our net sales by product category:
 
Three Months Ended
 
July 31,
(Dollars in millions, except per share amounts)
2017
 
2018
Whiskey1
$
557

 
$
602

Tequila2
58

 
62

Vodka3
31

 
26

Wine4
42

 
40

Rest of portfolio
13

 
11

Non-branded and bulk5
22

 
25

Total
$
723

 
$
766


 
 
1Includes all whiskey spirits and whiskey-based flavored liqueurs, ready-to-drink, and ready-to-pour products. The brands included in this category are the Jack Daniel's family of brands, Woodford Reserve, Canadian Mist, GlenDronach, BenRiach, Glenglassaugh, Old Forester, Early Times, Slane Irish Whiskey, and Coopers' Craft.
2Includes el Jimador, Herradura, New Mix, Pepe Lopez, and Antiguo.
3Includes Finlandia.
4Includes Korbel Champagne and Sonoma-Cutrer wines.
5Includes sales of used barrels, bulk whiskey and wine, and contract bottling regardless of customer location.