DEF 14A 1 d475429ddef14a.htm FORM DEF 14A Form DEF 14a
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant þ

Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

¨

¨

þ

¨

¨

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

Brown-Forman Corporation

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)   Title of each class of securities to which transaction applies:
   

 

  (2)   Aggregate number of securities to which transaction applies:
   

 

  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
   

 

  (4)   Proposed maximum aggregate value of transaction:
   

 

  (5)   Total fee paid:
   

 

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)   Amount Previously Paid:
   

 

  (2)   Form, Schedule or Registration Statement No.:
   

 

  (3)   Filing Party:
   

 

  (4)   Date Filed:
   

 


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LOGO

June 27, 2013

Dear Brown-Forman Stockholder:

It is our pleasure to invite you to attend Brown-Forman Corporation’s 2013 Annual Meeting of Stockholders, which will be held:

Thursday, July 25, 2013

9:30 A.M. (Eastern Daylight Time)

Brown-Forman Conference Center

850 Dixie Highway

Louisville, Kentucky 40210

We enclose herewith our Notice of Annual Meeting, Proxy Statement, and Annual Report to Stockholders.

Your vote is very important to us. Class A stockholders are urged to complete and return your proxy card as soon as possible, whether or not you plan to attend the Annual Meeting.

We hope to see you on July 25. On behalf of the Board of Directors, thank you for your continued support.

Very truly yours,

 

LOGO

Paul C. Varga,

Chairman and

Chief Executive Officer

  

LOGO

Geo. Garvin Brown IV,

Chairman of the

Board of Directors

 

LOGO


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LOGO

NOTICE OF ANNUAL MEETING OF

STOCKHOLDERS

Brown-Forman Corporation will hold its 2013 Annual Meeting of Stockholders in the Conference Center at our corporate offices, 850 Dixie Highway, Louisville, Kentucky 40210, at 9:30 A.M. (Eastern Daylight Time), on Thursday, July 25, 2013.

We are holding this meeting for the following purposes, which are described more fully in the accompanying Proxy Statement:

 

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To elect a board of ten directors;

 

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To approve the Brown-Forman 2013 Omnibus Compensation Plan; and

 

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To transact such other corporate business as may properly come before the meeting.

Class A stockholders of record at the close of business on June 17, 2013, are entitled to vote at the meeting, either in person or by proxy. Class B stockholders are welcome to attend the meeting but may not vote. We will not close the stock transfer books in advance of the meeting.

PLEASE complete, sign, and date the enclosed proxy card and return it promptly in the enclosed envelope, whether or not you plan to attend the meeting. Submitting a proxy will not affect your right to vote your shares differently if you attend the meeting in person.

Louisville, Kentucky

June 27, 2013

By Order of the Board of Directors

Matthew E. Hamel, Secretary

 

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 25, 2013:

The Notice of Annual Meeting, Proxy Statement, and Annual Report to Stockholders,

including Form 10-K, are available at www.brown-forman.com/proxy


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NEW PROCEDURES FOR ADMISSION TO 2013 BROWN-FORMAN ANNUAL MEETING OF STOCKHOLDERS

We are committed to providing a safe, secure environment for our employees and guests. We kindly ask that you observe the following procedures if you plan to attend the Annual Meeting:

 

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If you are a Class A or Class B stockholder and plan to attend the Annual Meeting, please contact Linda Gering, our Stockholder Services Manager, by telephone at (502) 774-7690, or by e-mail at Linda_Gering@b-f.com, on or before July 23, 2013, to register.

 

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When you arrive at the Annual Meeting on July 25, 2013, please check in at the registration table, which will be open beginning at 8:30 A.M. The registration table will be located in the Forester Center garden area, or, in case of inclement weather, the Forester Center Annex. Brown-Forman representatives will be available to direct you to the Forester Center upon your arrival.

 

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If your shares are registered in the name of a bank, broker, or other holder of record, you should obtain documentation of your stock ownership in advance, as you may be asked to present it upon registration.

 

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If your shares are registered in your name, either solely or jointly with one or more co-owners, please bring a form of photo identification, as you may be asked to present it upon registration.

 

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If you arrive at the Annual Meeting without having registered in advance, you may still be admitted by verifying your stock ownership at the registration table. You can verify your stock ownership by presenting your proxy card, brokerage statement, or other proof of ownership.


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PROXY STATEMENT

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GENERAL INFORMATION

    1   

INTRODUCTION

    5   

CORPORATE GOVERNANCE

    7   

Brown-Forman is a “Controlled Company”

    7   

Our Board of Directors

    7   

Company Management

    12   

Our Controlling Family Stockholders

    13   

ELECTION OF DIRECTORS

    14   

Proposal 1: Election of Directors

    14   

STOCK OWNERSHIP

    18   

Beneficial Owners of more than 5% of the Company’s Voting Stock

    18   

Stock Owned by Directors and Executive Officers

    20   

Section 16(a) Beneficial Ownership Reporting Compliance

    22   

AUDIT COMMITTEE

    23   

Audit Committee Report

    23   

Fees Paid to Independent Registered Public Accounting Firm

    24   

Audit Committee Pre-Approval Policies and Procedures

    24   

Appointment of Independent Registered Public Accounting Firm

    25   

EXECUTIVE COMPENSATION

    26   

Overview of Compensation Discussion and Analysis

    26   

Compensation Discussion and Analysis

    28   

Compensation Committee Report

    42   

Compensation Risk Assessment

    43   

Summary Compensation Table for Fiscal 2013

    44   

Grants of Plan-Based Awards for Fiscal 2013

    47   

Outstanding Equity Awards as of April 30, 2013

    48   

Option Exercises and Stock Vested for Fiscal 2013

    50   

Pension Benefits

    51   

Non-qualified Deferred Compensation for Fiscal 2013

    53   

Potential Payments Upon Termination or Change-in-Control

    54   

DIRECTOR COMPENSATION

    59   

Elements of Compensation

    59   

Fiscal 2013 Director Compensation

    61   

APPROVAL OF BROWN-FORMAN 2013 OMNIBUS COMPENSATION PLAN

    62   

Proposal 2: Approval of Brown-Forman 2013 Omnibus Compensation Plan

    62   

OTHER INFORMATION

    70   

Certain Relationships and Related Transactions

    70   

Other Proposed Action

    71   

Stockholder Proposals for the 2014 Annual Meeting

    71   

APPENDIX A

 


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GENERAL INFORMATION

 

 

This section sets forth certain frequently asked questions and answers about the Proxy Statement and the Annual Meeting.

 

 

Q: Why did I receive these proxy materials?

 

A: The Board of Directors (the “Board”) of Brown-Forman Corporation (“Brown-Forman” or the “Company”) is soliciting proxies for the 2013 Annual Meeting of Stockholders (the “Annual Meeting”). You are invited to attend the Annual Meeting, which will take place on Thursday, July 25, 2013, at 9:30 A.M. (Eastern Daylight Time) in the Conference Center at our corporate offices, 850 Dixie Highway, Louisville, Kentucky 40210. We are providing you with these proxy materials so that you may cast your vote knowledgeably on the matters to be considered at the Annual Meeting. We will begin mailing this Proxy Statement and accompanying materials on or about June 27, 2013, to holders of record of our Class A common stock at the close of business on June 17, 2013, the record date for the Annual Meeting.

 

Q: When is the record date and what does it mean?

 

A: The Board has set June 17, 2013, as the record date for the Annual Meeting. Holders of our Class A common stock at the close of business on the record date, or their legal proxies, are entitled to receive notice of the Annual Meeting and to vote at the Annual Meeting. If you purchased Class A common stock after the record date, you may vote those shares only if you receive a proxy to do so from the person who held the shares on the record date.

 

Q: Who may attend the Annual Meeting?

 

A: All Class A and Class B stockholders as of the record date, or their duly appointed proxies, may attend the Annual Meeting.

 

Q: Do I need to register in order to attend the Annual Meeting?

 

A: We kindly ask that you contact Linda Gering, our Stockholder Services Manager, by telephone at (502) 774-7690, or by e-mail at Linda_Gering@b-f.com, to register your attendance in advance of the meeting. When you arrive at the Annual Meeting, please check in at the registration table located at the Forester Center. Brown-Forman representatives will be available to direct you to the Forester Center. If you do not register in advance, you may be asked to verify your stock ownership upon arrival by presenting your proxy card, a brokerage statement, or other proof of ownership.

 

Q: Who is entitled to vote?

 

A: Holders of shares of Class A common stock are entitled to vote at the Annual Meeting. At the close of business on the record date, there were 84,487,042 shares of Class A common stock outstanding and entitled to vote at the Annual Meeting. Each share of Class A common stock outstanding at the close of business on the record date is entitled to one vote. While holders of shares of Class B common stock are welcome to attend the Annual Meeting, their shares do not entitle them to vote on any of the matters to be considered at the Annual Meeting.

 

Q: What am I voting on?

 

A: You are being asked to elect a board of ten directors, to approve the Brown-Forman 2013 Omnibus Compensation Plan, and to transact such other corporate business as may properly come before the Annual Meeting.

 

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Q: How do I vote?

 

A: Holders of shares of Class A common stock may vote by completing and properly signing the enclosed proxy card and returning it to the Company in the envelope provided. If you are a registered stockholder (whose shares are owned in your name and not in “street name”) and attend the Annual Meeting, you may deliver your completed proxy card in person.

 

Q: May I vote confidentially?

 

A: Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within the Company or to third parties, except as necessary to meet applicable legal requirements, to allow for the tabulation and certification of votes, and to facilitate proxy solicitation. Occasionally, stockholders provide written comments on their proxy cards, which may be forwarded to the Company’s management and the Board.

 

Q: How does the Board recommend that I vote?

 

A: The Board unanimously recommends that you vote your shares “FOR” the election of each of the nominees to the Board and “FOR” the approval of the Brown-Forman 2013 Omnibus Compensation Plan.

 

Q: What is the purpose of the proxy card?

 

A: By completing and signing the proxy card, you authorize the individuals named on the card to vote your shares for you, in accordance with your instructions. If you grant a proxy, the persons named as proxy holders will also have the obligation and authority to vote your shares as they see fit on any other matter properly presented for a vote at the Annual Meeting. If for any unforeseen reason a director nominee is not available to serve, the persons named as proxy holders may vote your shares at the Annual Meeting for another nominee. The proxy holders for this year’s Annual Meeting are Geo. Garvin Brown IV, Paul C. Varga, and Matthew E. Hamel.

 

Q: What happens if I sign and return my proxy card without specifying how I want my shares to be voted?

 

A: If you sign and return your proxy card without specifying how you want your shares to be voted, our proxy holders will vote your shares “FOR” the election of each of the nominees to the Board and “FOR” the approval of the Brown-Forman 2013 Omnibus Compensation Plan. With respect to any other matter that properly comes before the Annual Meeting, your signed proxy card authorizes the proxy holders to vote as recommended by the Board or, if no recommendation is given, to use their own discretion.

 

Q: What should I do if I receive more than one proxy card?

 

A: It is important that you complete, sign, and date each proxy card and each voting instruction card that you receive, because they represent different shares.

 

Q: How will my dividend reinvestment and employee stock purchase plan shares be voted?

 

A: Shares of Class A common stock held by participants in Brown-Forman’s dividend reinvestment and employee stock purchase plans are included in your holdings and reflected on your proxy card. These shares will be voted as you direct.

 

Q: What happens if additional matters are presented at the Annual Meeting?

 

A: As of the date of this Proxy Statement, we are not aware of any business to be acted upon at the Annual Meeting other than those matters described in the Notice of Annual Meeting (election of directors and approval of the Brown-Forman 2013 Omnibus Compensation Plan). If you grant a proxy, the persons named as proxy holders will have the authority to vote your shares as they see fit on any additional matters properly presented and brought to a vote at the Annual Meeting.

 

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Q: What is the difference between a “stockholder of record” and a “street name” holder?

 

A: If your shares are registered in your name with our stock transfer agent, Computershare, you are considered to be the “stockholder of record” of those shares. The proxy materials have been sent to stockholders of record directly by Brown-Forman Corporation. As a stockholder of record, you have the right to grant your voting proxy to the proxy holders named above or to vote in person at the Annual Meeting. Only stockholders of record may vote in person at the Annual Meeting. If your shares are held in a stock brokerage account or by a bank, your shares are held in “street name.” The proxy materials have been forwarded to you in a mailing from your broker or bank, which is, for those shares, the “stockholder of record.” You have the right to direct your broker or bank how to vote your street name shares by using the voting instruction card included in the mailing. If your shares are held in “street name” and you plan to attend the Annual Meeting, please bring documentation of your stock ownership with you (such as your proxy card, a brokerage statement, or other proof of ownership), as you may be asked to present it upon registration.

 

Q: What is a “broker non-vote” and why is it important that I instruct my broker how to vote my shares held in street name?

 

A: If your Class A shares are held in street name (which means they are held “of record” by a broker), you must instruct your broker how to vote the shares or your shares will not be voted on any proposal for which the broker does not have discretionary authority to vote. A broker non-vote occurs when a broker does not vote on a matter on the proxy card because the broker does not have discretionary voting power for the particular item and has not received instructions from the beneficial owner. Brokers do not have discretionary authority to vote for the election of directors at the Annual Meeting or the approval of the Brown-Forman 2013 Omnibus Compensation Plan. Accordingly, if your Class A shares are held in street name, it is particularly important that you instruct your broker how you wish to vote your shares if you want your shares to be voted at the Annual Meeting.

 

Q: How many shares must be present or represented to conduct business at the Annual Meeting?

 

A: A majority of the outstanding shares of Class A common stock must be present in person or represented by proxy to constitute a quorum to conduct business at the Annual Meeting. Abstentions will be counted as present for purposes of establishing a quorum; broker non-votes will be counted as not present for purposes of establishing a quorum, because the proposals on the agenda for this year’s Annual Meeting are matters on which brokers do not have discretionary authority to vote.

 

Q: What is “householding” and how does it affect me?

 

A: “Householding” is a procedure approved by the Securities and Exchange Commission (“SEC”) that permits the delivery of a single Proxy Statement and Annual Report to multiple stockholders who share the same address and last name, unless the Company has received contrary instructions from one or more of the stockholders. Each stockholder in that household receives his or her own proxy card. We participate in householding to reduce our printing costs and postage fees and to facilitate voting in households where shares may be held in multiple names and accounts. If you share an address with another stockholder and receive multiple copies of the proxy materials, you may request householding by writing our Secretary, Matthew E. Hamel, at 850 Dixie Highway, Louisville, Kentucky 40210, or e-mailing him at Secretary@b-f.com. The proxy materials are available at www.brown-forman.com/proxy. You also may request additional copies at any time by writing or e-mailing our Secretary. If you wish to opt out of householding and receive multiple copies of the proxy materials at the same address next year, you may do so at any time prior to thirty days before the mailing of proxy materials (proxy materials are typically mailed in late June) by writing or e-mailing our Secretary.

 

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Q: What if I submit a proxy card and then change my mind as to how I want to vote?

 

A: If you are a stockholder of record, you may change your vote by granting a new proxy bearing a later date, by providing our Secretary with written notice of revocation of your proxy, or by attending the Annual Meeting and casting your vote in person. To change your vote for shares you hold in street name, you will need to follow the instructions in the materials your broker or bank provides you.

 

Q: Where can I find the voting results of the Annual Meeting?

 

A: We intend to announce the voting results at the Annual Meeting and to issue a press release on the day of the Annual Meeting. In addition, we will report the results by filing a Form 8-K with the SEC within four business days following the Annual Meeting.

 

Q: Whom may I call with questions about the Annual Meeting?

 

A: For information about your stock ownership, or for other stockholder services, please contact Linda Gering, our Stockholder Services Manager, by telephone at (502) 774-7690 or by e-mail at Linda_Gering@b-f.com. For information about the Annual Meeting, please contact Matthew E. Hamel, our Secretary, by telephone at (502) 774-7631, or by e-mail at Secretary@b-f.com.

 

Q: Who pays for the expenses of this proxy solicitation?

 

A: Brown-Forman bears the cost of soliciting proxies. We will begin mailing this Proxy Statement and accompanying materials on or about June 27, 2013. Also beginning on June 27, 2013, our directors, officers, and other employees may solicit proxies by regular or electronic mail, phone, fax or the Internet or in person. Directors, officers, and employees of the Company will receive no additional compensation for soliciting proxies. We will reimburse banks, brokers, nominees, and other fiduciaries for their reasonable charges and expenses incurred in forwarding our proxy materials to the beneficial owners of our stock held in street name. In addition, we have retained Proxy Express, Inc. to assist with the distribution of proxy materials for a fee of approximately $22,000, plus associated expenses.

 

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INTRODUCTION

 

 

This section describes the purpose of this Proxy Statement, who may vote, how to vote, the proposals to be voted upon, and the votes required for approval.

 

 

PURPOSE. The Board of Directors of Brown-Forman Corporation is sending you this Proxy Statement to solicit proxies for use at the 2013 Annual Meeting of Stockholders, which will be held Thursday, July 25, 2013, at 9:30 A.M. (Eastern Daylight Time) in the Conference Center at Brown-Forman Corporation, 850 Dixie Highway, Louisville, Kentucky 40210. We will begin mailing this Proxy Statement and accompanying materials on or about June 27, 2013, to holders of record of our Class A common stock at the close of business on June 17, 2013, the record date for the Annual Meeting.

Also beginning on June 27, 2013, our directors, officers, and other employees may solicit proxies by regular or electronic mail, phone, fax, the Internet or in person. Brown-Forman will pay all solicitation costs. Directors, officers, and employees of the Company will receive no additional compensation for soliciting proxies. We will reimburse banks, brokers, nominees, and other fiduciaries for their reasonable charges and expenses incurred in forwarding our proxy materials to the beneficial owners of our stock held in street name. In addition, we have retained Proxy Express, Inc. to assist with the distribution of proxy materials for a fee of approximately $22,000, plus associated expenses.

We are providing access to our proxy materials both by sending you this full set of proxy materials and by notifying you of the availability of our proxy materials on the Internet. This Proxy Statement and our Annual Report to Stockholders, which includes our Form 10-K for fiscal 2013, are available at www.brown-forman.com/proxy. Please complete, sign, date, and return the enclosed proxy card at your earliest convenience.

CLASSES OF STOCK. We have two classes of common stock, Class A and Class B. Only holders of Class A common stock may vote at the Annual Meeting. As of the close of business on the record date, June 17, 2013, we had outstanding 84,487,042 shares of Class A common stock.

VOTING RIGHTS. If you were a Class A common stockholder on June 17, 2013, you may cast one vote for each share registered in your name. You may vote your shares either in person at the Annual Meeting or by proxy. To vote by proxy, please complete, sign, date, and return the enclosed proxy card. The proxy holders identified below will vote your shares in accordance with your instructions. Granting a proxy will not affect your right to vote shares registered in your name if you attend the meeting and want to vote in person. You may revoke a proxy at any time before it is voted by sending our Secretary written notice of your revocation at the following mailing address: Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210; by issuing a new proxy bearing a later date; or by attending the meeting in person and casting your vote there. For any shares you hold in street name, you must submit voting instructions to the stockholder of record (typically your broker or bank) in accordance with the instructions they provide. To revoke your proxy, you must comply with the directions they provide. The proxy holders will vote all shares represented by effective proxies in accordance with the terms stated in the proxy. The proxy holders for this year’s Annual Meeting are Geo. Garvin Brown IV, Paul C. Varga, and Matthew E. Hamel.

PROPOSALS.

Proposal 1: Election of Directors. There are ten nominees for election to our Board at the upcoming Annual Meeting. Each of the nominees currently serves as a director. The name, age, years of Board service, biographical information, and specific skills and qualifications of each of the nominees are provided beginning on page 14 of this Proxy Statement.

 

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The Board of Directors unanimously recommends a vote “FOR” the election of each of the director nominees.

Proposal 2: Approval of the Brown-Forman 2013 Omnibus Compensation Plan. At the Annual Meeting, Class A common stock holders will have the opportunity to cast a vote on the approval of the Brown-Forman 2013 Omnibus Compensation Plan. For detailed information on the Brown-Forman 2013 Omnibus Compensation Plan, please see page 62 of this Proxy Statement.

The Board of Directors unanimously recommends a vote “FOR” the approval of the Brown-Forman 2013 Omnibus Compensation Plan.

QUORUM; VOTES REQUIRED FOR APPROVAL. A majority of the outstanding shares of Class A common stock must be present in person or represented by proxy to constitute a quorum to conduct business at the Annual Meeting. Abstentions will be counted as present for purposes of determining whether a quorum exists; broker non-votes will be counted as not present for purposes of determining whether a quorum exists. In the election of directors (Proposal 1), a nominee will be elected if he or she receives a majority of the votes cast. A “majority of the votes cast” means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director (with abstentions and broker non-votes not counted as votes cast). For the proposal to approve the Brown-Forman 2013 Omnibus Compensation Plan (Proposal 2), approval requires an affirmative vote of the majority of the votes cast, provided that the total number of votes cast is a majority of the shares entitled to vote on the proposal (with abstentions counted as “present” for quorum purposes and treated as a vote against the proposal). For any other matter properly presented and brought to a vote at the meeting, approval requires the affirmative vote of a majority of the votes cast (with abstentions and broker non-votes not counted as votes cast).

If you sign and return your proxy card without specifying how you want your shares to be voted, our proxy holders will vote your shares:

 

   

“FOR” the election of each of the nominees to the Board; and

 

   

“FOR” the approval of the Brown-Forman 2013 Omnibus Compensation Plan.

 

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CORPORATE GOVERNANCE

 

 

This section describes our corporate governance practices in light of the corporate governance rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange.

 

 

As a publicly traded, family-controlled company, Brown-Forman enjoys a rare governance opportunity, whereby members of our controlling stockholder family participate directly on our Board of Directors. We believe this governance structure confers a distinct competitive advantage upon the Company, due largely to the long-term ownership perspective of the Brown family. This advantage is sustained by a careful balancing of the roles of our three primary stakeholders: our Board of Directors, Company management, and our stockholders – including, in particular, the Brown family.

BROWN-FORMAN IS A “CONTROLLED COMPANY.”

Our Board has determined that Brown-Forman is a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules. A controlled company is one in which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. The Brown family owns substantially more than 50% of our Class A voting stock, the overwhelming majority of which historically has voted in favor of the directors proposed by the Board.

Controlled companies are exempt from NYSE listing standards that require a board composed of a majority of independent directors, a fully independent nominating/corporate governance committee, and a fully independent compensation committee. We avail ourselves of the exemptions from having a board composed of a majority of independent directors and a fully independent nominating/corporate governance committee. Notwithstanding the available exemption, our Compensation Committee is composed exclusively of independent directors.

OUR BOARD OF DIRECTORS.

To Brown-Forman, one of the primary benefits of being a controlled company is the exemption from the requirement of having a Board composed of a majority of independent directors. This enables greater participation on our Board of Directors by members of the Brown family.

Our Board of Directors is the policy-making body that is ultimately responsible for the business success and ethical climate of the Company. The Board oversees the performance of our senior management team, which is responsible for leading and operating the Company’s business. The Board’s primary responsibilities include retention, evaluation, and succession planning for the Company’s Chief Executive Officer and its Chairman of the Board, as well as oversight of the Company’s corporate strategy, financial condition, executive compensation policies and practices, and enterprise risk management. The Board of Directors may retain such independent advisors as it deems necessary or appropriate in the performance of its duties. The Board conducts an annual self-assessment to determine whether it and its committees are functioning effectively.

Corporate Governance Guidelines.  The Board has adopted Corporate Governance Guidelines that provide a framework for the conduct of the Board in the exercise of its duties. These guidelines set forth director qualification standards and responsibilities, meeting and attendance requirements, committee composition requirements and responsibilities, policies related to director compensation, director access to management and independent advisors, and an annual self-evaluation requirement for the Board, among other things. The Corporate Governance Guidelines are published on our website at www.brown-forman.com/company/governance.

Director Service.  The Board of Directors is authorized to fix the number of directors to serve on the Board from time to time, within a range of three to seventeen members. Directors are elected each year at the Annual Meeting by a majority of the votes cast by our Class A stockholders. Once elected, a

 

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director holds office until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified, unless he or she first resigns, retires, or is removed. Directors are not subject to term limits.

A director may not stand for re-election to the Board after he or she has reached the age of 71. In exceptional circumstances, and upon recommendation of the Corporate Governance and Nominating Committee, the Board may request a director to remain on the Board until a given date, if it finds that such service would be of significant benefit to the Company. Board member service beyond the age of 71 must be approved by the affirmative vote of two-thirds of the directors, excluding the participation and vote of the director concerned.

Independent Directors.  Under NYSE rules, a director qualifies as “independent” if the board of directors affirmatively determines that the director has no material relationship with the listed company. While the focus of the inquiry is independence from management, the board is encouraged to consider broadly all relevant facts and circumstances in making an independence determination. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. Our Board recognizes the value of having independent directors on the Board and has determined that five of our eleven directors have no material relationship with the Company and are therefore independent under NYSE standards. These are Directors Joan C. Lordi Amble, Patrick Bousquet-Chavanne, Bruce L. Byrnes, John D. Cook, and William E. Mitchell.

The Board determined that Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr. are not independent because they are members of Company management. The Board determined that Dace Brown Stubbs is not independent due to her son’s employment with the Company. The Board elected not to make a determination with respect to the independence of Martin S. Brown, Jr., and Sandra A. Frazier.

Lead Independent Director.  If the office of Chairman of the Board is held by a non-independent director, the Board of Directors, after considering the recommendation of the Corporate Governance and Nominating Committee, may select one independent director to serve as Lead Independent Director. In September 2012, the Board selected John D. Cook to serve as Lead Independent Director. The Lead Independent Director’s responsibilities are to: chair executive sessions of the independent directors and provide feedback to the Chairman of the Board and Chief Executive Officer; communicate and consult with long-term shareholders; play a leadership role in contingency and succession planning, if and as needed; and perform such other duties as the Board may delegate from time to time.

Brown Family Directors.  The Company believes that it is strategically important for Brown family members to be actively engaged in the oversight of the Company, including by serving on the Board of Directors. Through participation on the Board, the Brown family’s long-term perspective is brought to bear, in some measure, upon each and every Board consideration. Brown family directors serve as an effective link between the Board and the controlling family stockholders. Board service also provides the Brown family with an active means by which to oversee their collective investment. Current Brown family member directors are: Geo. Garvin Brown IV, Martin S. Brown, Jr., Sandra A. Frazier, and Dace Brown Stubbs.

Management Directors.  The Company also believes it is essential, from a corporate governance standpoint, that Company management be represented on the Board of Directors. Current Board members who are also members of Company management are: Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr.

Board Meetings.  The Board of Directors held six regular meetings and one special meeting during fiscal 2013. Absent an appropriate reason, attendance is expected for the full meeting by all directors at the Company’s Annual Meeting of Stockholders, at all Board meetings, and at all meetings of each committee of which a director is a member. Each director attended more than 75% of the aggregate meetings of the Board and committees on which he or she served during fiscal 2013. All directors then serving were present at the 2012 Annual Meeting of Stockholders.

 

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Executive Sessions.  NYSE rules require non-management directors to meet at regularly scheduled executive sessions without management present. Our non-management directors held five executive sessions in fiscal 2013. John D. Cook, our Lead Independent Director, served as presiding director for these sessions. NYSE rules additionally require companies whose group of non-management directors includes directors who are not “independent” under NYSE listing standards to hold an executive session of just the independent directors at least once per year. Our independent directors held one such meeting in fiscal 2013, and Mr. Cook served as presiding director for this meeting as well.

Board Committees.  Our Board has the following four standing committees: Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Executive Committee. Each Board committee operates pursuant to a written charter. Copies of the charters are posted on our corporate website at www.brown-forman.com/company/governance. Each Board committee conducts an annual self-evaluation (except the Executive Committee, which is evaluated by the full Board periodically) and may hire independent advisors as it deems necessary or appropriate. The Board believes that transparency is a hallmark of good corporate governance. All directors are invited to attend meetings of committees on which they do not sit, which ensures the transparency of committee decision-making.

The following chart sets forth our current Board committee membership.

Board Committee Membership

 

      Audit    Compensation   

Corporate
Governance &

Nominating

   Executive

Joan C. Lordi Amble

   X*         

Bruce L. Byrnes

   X         X   

Patrick Bousquet-Chavanne

      Chair    X   

Geo. Garvin Brown IV

         X    X

John D. Cook

    X      X    Chair   

William E. Mitchell

   Chair*    X      

Paul C. Varga

            X

James S. Welch, Jr.

            X

 

 

* Audit Committee Financial Expert

Audit Committee.  The Board has delegated to the Audit Committee responsibility for the integrity of the Company’s financial statements; audit process; system of internal controls; oversight of enterprise risk assessment and risk management policies and processes; the Company’s compliance with legal and regulatory requirements; the independent auditor’s qualifications, independence and performance; and the performance of the Company’s internal audit function. The committee’s responsibilities include, among other things, the preparation of the Audit Committee Report that appears in this Proxy Statement on page 23.

Joan C. Lordi Amble, Bruce L. Byrnes, John D. Cook, and William E. Mitchell (Chair) currently serve on the Audit Committee of our Board of Directors. The Audit Committee held eleven meetings during fiscal 2013. In addition to the NYSE requirement that each audit committee member satisfy the NYSE director independence standards, audit committee members must comply with the independence standards mandated by Section 301 of the Sarbanes-Oxley Act and set forth in Rule 10A-3 of the Securities Exchange Act of 1934, as amended. Each member of our Audit Committee satisfies these standards. The Board has determined that each member of our Audit Committee is “financially

 

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literate” within the meaning of the NYSE rules, and has designated Ms. Amble and Mr. Mitchell as “audit committee financial experts” under SEC regulations.

Compensation Committee.  The Compensation Committee assists the Board in fulfilling the Board’s duties relating to the compensation of our directors, executive officers, and employees. The committee’s responsibilities include, among other things, determining the compensation of the Chief Executive Officer; reviewing and approving the compensation of the Chairman of the Board; approving incentive compensation plan design and changes thereto for the Chief Executive Officer and other senior executive officers; assisting the Board in its oversight of risk related to the Company’s compensation policies and practices applicable to all employees; overseeing the preparation of the Compensation Discussion and Analysis section of this Proxy Statement beginning on page 28; preparing the Compensation Committee Report that appears in this Proxy Statement on page 42; and leading the evaluations of the performance of the Chief Executive Officer and the Chairman of the Board.

The committee has retained Frederic W. Cook & Co. to provide independent advice on executive and director compensation matters. For additional information on the services provided by and the fees paid to the Cook firm, as well as the Committee’s processes and procedures for the consideration and determination of executive and director compensation, please see the Compensation Discussion and Analysis section of this Proxy Statement, which begins on page 28. As further explained on page 28, the committee affirmatively determined during fiscal 2013 that no conflict of interest exists between the Company and Frederic W. Cook & Co.

Patrick Bousquet-Chavanne (Chair), John D. Cook, and William E. Mitchell currently serve on the Compensation Committee. Each of the committee members qualifies as an independent director under NYSE listing standards, a “non-employee director” under SEC rules, and an “outside director” under regulations adopted pursuant to Section 162 of the Internal Revenue Code. In making its independence determination, the Board specifically considered factors relevant to these directors’ ability to be independent from management in connection with compensation committee service. The committee held seven meetings during fiscal 2013.

Corporate Governance and Nominating Committee.  The Corporate Governance and Nominating Committee’s primary responsibilities are: to assist the Board in identifying, recruiting, and recommending to stockholders appropriate candidates to serve as directors; to review periodically the Company’s corporate governance principles in light of developments in corporate governance law and best practices, taking into account the Company’s controlled-company status under the NYSE rules; to coordinate and oversee Chief Executive Officer succession planning on behalf of the Board; and to assist the Board with its annual self-evaluation. The Corporate Governance and Nominating Committee held six meetings during fiscal 2013. John D. Cook (Chair), Patrick Bousquet-Chavanne, Geo. Garvin Brown IV, and Bruce L. Byrnes currently serve on the Corporate Governance and Nominating Committee. All of the Corporate Governance and Nominating Committee members are independent under NYSE listing standards, except Geo. Garvin Brown IV.

In evaluating candidates for Board membership, the Corporate Governance and Nominating Committee seeks directors who will represent the best long-term interests of all stockholders. As articulated in our Corporate Governance Guidelines, the Board’s view is that all Brown-Forman directors should possess the highest personal and professional ethics, integrity, and values. The Board also believes that it is highly desirable for the directors to possess the following qualities: good judgment, candor, independence, civility, business courage, experience with businesses and other organizations of comparable character and of comparable or larger size, and a lack of possible conflicts of interest.

The Corporate Governance and Nominating Committee and the Board consider diversity in evaluating candidates for Board membership, though neither has adopted a formal policy to that effect. The Board’s goal is to maintain a well-balanced membership that combines a variety of experience, backgrounds, skills, and perspectives to enable the Board, as a whole, to effectively guide the Company in the pursuit of its strategic objectives. In evaluating potential Board candidates, the committee considers an individual’s independence; business, professional or public service experience;

 

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relevant industry knowledge, experience and relationships; business judgment; financial expertise; international experience; leadership skills; age, gender, race and other personal characteristics; time availability; and familial relation to our controlling family stockholders.

The Corporate Governance and Nominating Committee has engaged independent search firms to assist in identifying potential Board candidates from time to time. The Board has not adopted a formal policy regarding stockholder-nominated director candidates because the committee believes that the processes used to date have been appropriate and effective for identifying and selecting Board members.

Executive Committee.  Pursuant to the by-laws of the Company, the Board by resolution designates the members of the Board Executive Committee, which consists of the Chief Executive Officer, the Chairman of the Board (if separate from the Chief Executive Officer), and one or more other directors as determined by the Board from time to time. The Board can change the committee’s membership, fill vacancies in it, and dissolve the committee at any time. The Executive Committee may exercise all of the powers of the Board of Directors on such matters as are delegated to it by the Board, as well as during intervals between meetings of the Board of Directors. Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr. currently serve as members of the Executive Committee. The Executive Committee did not meet during fiscal 2013.

Board Leadership Structure.  Our Board does not have a policy regarding the separation of the roles of Chairman of the Board and Chief Executive Officer, as the Board believes that the determination of whether to separate or combine the roles depends largely upon the identity of the Chief Executive Officer and the membership of the Board, from time to time. Currently, these roles are separate, although in years past, they have been combined. Our Board is led by Geo. Garvin Brown IV, who serves as Chairman of the Board. In his role as Chairman of the Board, Mr. Brown is responsible for chairing Board meetings, chairing our Annual Meeting of Stockholders, serving on the Executive Committee of the Board, and, importantly, serving as the primary liaison between the Board and our controlling family stockholders. Mr. Brown also serves as a member of the Corporate Governance and Nominating Committee. In addition to his role as Chairman of the Board, Mr. Brown is a member of the Company’s senior management (Executive Vice President), providing executive leadership and planning on strategic and operational matters related to the Board and the Brown family. Paul C. Varga serves as Chairman and Chief Executive Officer of the Company. As Chairman and Chief Executive Officer, Mr. Varga is the Company’s highest ranking executive officer, and has ultimate responsibility for the Company’s operations and performance. Mr. Varga serves as a member of our Board of Directors and is a member of the Executive Committee of the Board. If the office of Chairman of the Board is held by a non-independent director, the Board of Directors, after considering the recommendation of the Corporate Governance and Nominating Committee, may select one independent director to serve as Lead Independent Director. In September 2012, the Board selected John D. Cook to serve as Lead Independent Director.

Our Board has determined that this leadership structure – having a Brown family member serve as Chairman of the Board, having our Chief Executive Officer serve as a member of the Board, and having a Lead Independent Director – is appropriate, given our status as a family controlled company and other relevant circumstances. The Board believes that this structure serves the best interests of the Company and its stockholders because it promotes the Brown family’s active oversight, engagement, and participation in the Company and its business, and it confirms publicly the fact that Brown-Forman is controlled by the Brown family. In addition, this structure ensures the Board’s access to our Chief Executive Officer’s comprehensive knowledge of the Company’s business and industry, yet relieves our Chief Executive Officer of the responsibilities attendant to the position of Chairman of the Board, allowing him to focus more on the Company’s business strategy and day-to-day operations than on Board governance matters. Further, the Lead Independent Director position provides leadership and coordination for the independent directors. Each of our Chairman of the Board, Chief Executive Officer, and Lead Independent Director acts as a liaison amongst the management, family stockholder, and independent members of our Board.

 

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Board’s Role in Risk Oversight.  Our Corporate Governance Guidelines require that the Board ensure that appropriate processes are in place for the management of enterprise risk, and our Board considers risk oversight to be an integral part of its role in the Company’s strategic planning process. At its meetings, the Board regularly and actively considers how strategic decisions affect the Company’s risk profile. While the Board has the ultimate oversight responsibility for the risk management process, the Audit, Compensation, and Corporate Governance and Nominating Committees of the Board play an important role in assisting the Board with its oversight responsibilities.

For fiscal 2013, the Board assigned to the Audit Committee the responsibility to assist it in overseeing the Company’s most significant risks – financial and otherwise – and in periodically reviewing whether management is appropriately monitoring and managing those risks. The Audit Committee held regular discussions with the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, General Counsel, and Director of Internal Audit on the Company’s enterprise risk management program (“ERMP”). The Board assigned to the Compensation Committee the responsibility to assist it in overseeing risk related to the Company’s compensation policies and practices, and the Board assigned to the Corporate Governance and Nominating Committee the responsibility to assist it in overseeing risk related to corporate governance, board composition, and succession planning for the Chief Executive Officer and the Chairman of the Board. These committees met regularly with members of management and outside advisors, as necessary, and provided to the Board regular reports on their risk oversight and mitigation activities. In addition, certain management committees – the Disclosure Controls Committee and the Risk Committee – play an integral role in making sure that risk-related information surfaces to the Board as directly and quickly as possible. The Board believes that its leadership structure is conducive to its risk oversight function.

Communication with our Board.  Stockholders and other interested parties may communicate with our directors, including the non-management directors or the independent directors as a group, by sending written communications to our Secretary, Matthew E. Hamel, at 850 Dixie Highway, Louisville, Kentucky 40210, or by e-mail at Secretary@b-f.com. Written communications will be provided to the individual director or group of directors to whom they are addressed, and copies of such communications will be provided to all other directors.

COMPANY MANAGEMENT.

Brown-Forman has long believed that good corporate governance is essential to the Company’s long-term success. We continually evaluate our corporate governance practices in the context of our controlled company status to address the changing regulatory environment and adopt those “best practices” that we believe are best for Brown-Forman.

Code of Conduct.  The Company has adopted the Brown-Forman Code of Conduct (the “Code of Conduct”), which sets forth standards of ethical behavior applicable to all Company employees and directors. The Code of Conduct refers to our Code of Ethics for Senior Financial Officers, which reflects the Company’s expectation that all financial, accounting, reporting, and auditing activities of the Company be conducted in strict compliance with all applicable rules and regulations, and in accordance with the highest ethical standards. The Code of Conduct and the Code of Ethics for Senior Financial Officers can be found on our website at www.brown-forman.com/company/governance.

Disclosure Controls Committee.  The Company has a Disclosure Controls Committee, which is composed of members of management. The committee has established controls and procedures designed to ensure that information that may be required to be disclosed publicly is gathered and communicated to the committee and, if required, reported in a timely and accurate manner. The committee has implemented a financial review process that enables our Chief Executive Officer and Chief Financial Officer to certify our quarterly and annual financial reports with confidence. The Disclosure Controls Committee is also responsible for developing and implementing procedures to ensure the Company’s compliance with SEC Regulation FD (Fair Disclosure).

 

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Risk Committee. The Risk Committee, which is composed of members of management, leads the ERMP. The objective of the program is to protect the long-term viability of the Company’s business through the identification and management of both the upside and downside potential of risk. Core attributes of the program include the development and implementation of risk management policies and specific corporate governance structures, and the oversight of ongoing processes for identifying, assessing, and prioritizing risk. In support of the program’s objectives, the committee is responsible for identifying critical risks the Company faces and for assessing the adequacy of measures in place to manage those risks; for communicating the role of all employees in the ERMP; and for integrating the discussion of risk into decision making processes.

OUR CONTROLLING FAMILY STOCKHOLDERS.

Brown-Forman has an engaged family stockholder base with a long-term ownership perspective. We view our status as a publicly traded, family-controlled company as a distinct source of competitive advantage, and we believe that a strong relationship with the Brown family is essential to our growth, independence, and long-term value creation for all stockholders. We therefore actively cultivate our relationship with the Brown family.

Brown-Forman/Brown Family Shareholders Committee.  In 2007, Geo. Garvin Brown IV and Paul C. Varga organized the formation of the Brown-Forman/Brown Family Shareholders Committee (“Family Committee”), which they continue to co-chair. The Family Committee encourages and provides a forum for open, constructive, and frequent dialogue between the Company and its controlling family stockholders. Designed for broad family participation, and including several non-family Company executives, the committee has formed subcommittees to engage certain Brown family members in topics such as family governance, philanthropy, and shareholder education and employment at the Company.

Director of Family Shareholder Relations.  The Director of Family Shareholder Relations works with Company employees and certain Brown family members to develop and implement policies and practices designed to further strengthen the relationship between the Company and the Brown family.

Brown Family Member Employees.  The Company employs ten Brown family members at various levels. Some Brown family employees participate on Company management committees that oversee various strategic and operational matters. Participation on these committees enables our Brown family employees to contribute their perspectives to important issues facing the Company, as well as provides valuable professional development opportunities.

Compliance with Securities Laws.  The Company conducts its interactions with Brown family members in a manner consistent with all applicable securities and disclosure rules and regulations.

 

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ELECTION OF DIRECTORS

 

 

This section provides biographical information about our director nominees.

 

 

PROPOSAL 1: ELECTION OF DIRECTORS

Election of Directors at the Annual Meeting.  There are ten director nominees on this year’s slate. The proxy holders will vote all Class A shares for which they receive a proxy “FOR” the election of all director nominees below, except in respect of proxy cards directing them to vote against, or to abstain from voting for, certain or all of the nominees. If any nominee becomes unable to serve before the meeting, the persons named as proxy holders may vote the shares for which they hold proxies for a substitute nominee, as may be designated by the Board of Directors. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unwilling or unable to serve as director.

Nominees.  Set forth below is certain biographical information about our director nominees, including a description of the specific experience, qualifications, attributes and skills that led to the conclusion that the person should serve as a member of our Board, in light of our business and status as a family controlled company. Each of our director nominees currently serves as a director of Brown-Forman.

The Board of Directors unanimously recommends a vote “FOR” the election of each of the director nominees.

 

     

Name, Age as of the July 25, 2013 Annual Meeting, Term as Director,

Current Position, Business Experience, Other Directorships, and Board Qualifications

LOGO   

JOAN C. LORDI AMBLE, 60, director since 2011. Retired in 2011 from American Express as Executive Vice President, Finance; Executive Vice President and Comptroller of American Express Company from 2004 to 2011; Chief Financial Officer and Chief Operating Officer, GE Capital Markets from 2003 to 2004; Vice President and Controller of GE Capital Services from 1994 to 2003. Other Directorships: Booz Allen Hamilton Holding Corporation since 2012; Sirius XM Radio (previously XM Satellite Radio Holdings, Inc.) since 2006. From 2009 to 2011, Ms. Amble served as a director of Broadcom.

 

Ms. Amble’s individual qualifications and skills include extensive experience in finance, accounting, operations, financial controls, Sarbanes-Oxley compliance, and risk management. In addition, Ms. Amble brings to the Board international and strategic planning expertise.

 

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Name, Age as of the July 25, 2013 Annual Meeting, Term as Director,

Current Position, Business Experience, Other Directorships, and Board Qualifications

LOGO   

PATRICK BOUSQUET-CHAVANNE, 55, director since 2005. Corporate Director of Strategy Implementation and Business Development, Marks and Spencer Group, PLC since September 2012; Co-Chairman of Yoostar Entertainment Group, the developer of the Yoostar social video gaming website and interactive entertainment system, from 2010 to 2012; President and Chief Executive Officer of Yoostar from 2009 to 2012; President and Chief Executive Officer from 2008 to 2009 of T-Ink Technologies, Inc., a company specializing in advanced conductive technology applied to ready-to-wear; Group President of The Estée Lauder Companies Inc. from 2001 through 2008; President of Estée Lauder International, Inc. from 1998 to 2001. Prior to joining The Estée Lauder Companies in 1998, Mr. Bousquet-Chavanne served as Executive Vice-President International Operations for Parfums Christian Dior S.A., a division of LVMH. Other directorships: HSNi Corporation from 2008 to 2013.

 

Mr. Bousquet-Chavanne’s individual qualifications and skills include senior management experience at one of the world’s leading manufacturers and marketers of branded consumer goods, including experience with branding, licensing, distribution and international expansion. In addition, Mr. Bousquet-Chavanne has experience from Estée Lauder dealing with governance issues relevant to family controlled public companies.

LOGO   

GEO. GARVIN BROWN IV, 44, director since 2006. Joined Brown-Forman as an employee in 1996. Chairman of the Board since 2011; Presiding Chairman of the Board from 2007 to 2011; Executive Vice President of Brown-Forman Corporation since 2011; Senior Vice President and Managing Director of Western Europe and Africa from 2009 to 2011; Vice President and Jack Daniel’s Brand Director in Europe and Africa from 2004 to 2008; Director of the Office of the Chairman and Chief Executive Officer from 2002 to 2004.

 

Mr. Brown’s individual qualifications and skills include the business and industry experience he has gained by serving in operational, management and executive positions within the Company, his deep knowledge of corporate governance, and the special perspectives he brings to the Board as a fifth generation Brown family stockholder and as a member of Company senior management.

LOGO   

MARTIN S. BROWN, JR., 49, director since 2006. Partner, Adams and Reese LLP, a law firm, since 2005; Partner, Stokes & Bartholomew, P.A. (a predecessor firm to Adams and Reese LLP) from 1999 to 2005.

 

Mr. Brown’s individual qualifications and skills include twenty years of experience as a lawyer advising clients on mergers and acquisitions, equity securities offerings, and general business matters. In addition, Mr. Brown has commercial lending and general financial services experience, and brings to the Board his perspective as a fifth generation Brown family stockholder.

 

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Name, Age as of the July 25, 2013 Annual Meeting, Term as Director,

Current Position, Business Experience, Other Directorships, and Board Qualifications

LOGO   

BRUCE L. BYRNES, 65, director since 2010. Vice Chairman of the Board for The Procter and Gamble Company (P&G) from 2002 to 2008. Mr. Byrnes retired in 2008 following a 38-year career at P&G, during which he held the following positions: Vice Chairman, Global Brand Building Training from 2007 to 2008; Vice Chairman, Global Household Care Division from 2004 to 2007. Other directorships: Boston Scientific Corporation since 2009, Cincinnati Bell, Inc. from 2003 to 2013, and Diebold, Incorporated since 2010.

 

Mr. Byrnes’s individual qualifications and skills include his executive leadership of a global consumer goods company; his expertise in brand building and brand management; financial expertise; international marketing and operational experience and corporate strategy.

LOGO   

JOHN D. COOK, 60, director since 2008. Director Emeritus of McKinsey & Company; Director, McKinsey & Company from 2003 to 2008. Earlier in his career, Mr. Cook worked in brand management at The Procter & Gamble Company, and more recently, held the number two management position at The Kellogg Company.

 

Mr. Cook’s individual qualifications and skills include those gained during his thirty-two-year career advising and managing consumer products companies. He brings to the Board leadership, senior management experience, financial expertise, marketing skills, international expertise, experience with strategic acquisitions and integrations, and a history of shareholder value creation.

LOGO   

SANDRA A. FRAZIER, 41, director since 2006. Founder and Partner, Tandem Public Relations, LLC, since 2005; Public Relations Account Manager at Doe Anderson, Inc., from 2002 to 2005; Project Assistant at Schneider Associates Public Relations from 2000 to 2001. Other directorships: Commonwealth Bank and Trust Company from 2006 to 2010; The Glenview Trust Company since 2011.

 

Ms. Frazier’s individual qualifications and skills include leadership and management skills gained through founding and managing a public relations firm, communication skills, strategic thinking, and community relations experience. In addition, Ms. Frazier brings to the Board her perspective as a fifth generation Brown family stockholder.

LOGO   

DACE BROWN STUBBS, 66, director since 1999. Private investor. Ms. Stubbs’s individual qualifications and skills include extensive service on numerous non-profit and civic boards, investment experience, and her unique perspective as a fourth generation Brown family stockholder.

 

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Name, Age as of the July 25, 2013 Annual Meeting, Term as Director,

Current Position, Business Experience, Other Directorships, and Board Qualifications

LOGO   

PAUL C. VARGA, 49, director since 2003, a twenty-six-year employee of Brown-Forman. Company Chairman since August 2007; Chief Executive Officer since 2005; President and Chief Executive Officer of Brown-Forman Beverages (a division of Brown-Forman) from 2003 to 2005; Global Chief Marketing Officer for Brown-Forman Spirits from 2000 to 2003. Other Directorships: Macy’s, Inc. since 2012.

 

Mr. Varga’s individual qualifications and skills include his in-depth knowledge of the Company’s business, operations and strategy, extensive knowledge of the beverage alcohol industry, sales and marketing expertise, financial expertise, strategic thinking, leadership, management, consensus-building and communication skills.

LOGO   

JAMES S. WELCH, JR., 54, director since 2007, a twenty-four-year employee of Brown-Forman. Vice Chairman, Executive Director of Corporate Affairs, Strategy and Diversity since 2012. Vice Chairman, Executive Director of Corporate Affairs, Strategy, Diversity, and Human Resources from 2007 to 2012; Vice Chairman, Executive Director of Corporate Strategy and Human Resources from 2003 to 2007; Senior Vice President and Executive Director of Human Resources from 1999 to 2003.

 

Mr. Welch’s individual qualifications and skills include the extensive leadership, management and operational experience gained during his tenure as a Company employee, as well as experience with corporate strategy, organizational effectiveness, and public affairs. In addition, Mr. Welch is actively involved in leadership roles on local civic boards.

Family Relationships.  No family relationship – first cousin or closer – exists between any two directors, executive officers, or persons nominated or chosen by the Company to become a director or executive officer, except Director Geo. Garvin Brown IV is the nephew of Director Dace Brown Stubbs.

 

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STOCK OWNERSHIP

 

 

This section identifies the beneficial owners of more than 5% of our voting stock, as well as the stock ownership of our directors and executive officers.

 

 

BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMPANYS VOTING STOCK.

The table below identifies each beneficial owner of more than 5% of our Class A common stock, our only class of voting stock, as of April 30, 2013. The SEC defines “beneficial ownership” to include shares over which a person has sole or shared voting or investment power. Each of the beneficial owners listed in the table below is either a Brown family member, an entity or trust controlled by Brown family members, or an individual serving as an advisor to a Brown family trust at the request of Brown family members.

The Brown family holds Class A shares in a variety of family trusts and entities, with multiple family members often sharing voting control and investment power as members of advisory committees to the trusts or as owners or officers of the entities. As a result, many of the shares shown in the table below are counted more than once, as they are deemed to be beneficially owned by more than one of the persons identified in the table. Counting each share only once, the aggregate number of shares of Class A common stock beneficially owned by the persons in this table is 56,020,894 shares, or 66.3% of the 84,445,591 Class A shares outstanding as of the close of business on April 30, 2013.

The table below confirms that the Brown family continues its long-standing voting control of Brown-Forman Corporation.

Beneficial Ownership of Class A Common Stock as of April 30, 2013

 

Name and Address    Amount and Nature of Beneficial Ownership (1)
Voting and Investment Power
   

Percent of

    Class    

 
           Sole                     Shared                     Total            
        

J. McCauley Brown

     3,120,828  (2)      8,480,881  (2)      11,601,709  (2)      13.7

850 Dixie Highway

Louisville, Kentucky 40210

        

Owsley Brown Frazier Family Group (3)

     1,095,364        8,611,992        9,707,356        11.5

829 West Main Street

Louisville, Kentucky 40202

 

        

Owsley Brown II Family Group (4)

     3,714,800        5,645,072        9,359,872        11.1

Preston Pointe Building

333 East Main Street, Suite 400

Louisville, Kentucky 40210

        

Avish Agincourt, LLC

     0        8,480,881        8,480,881        10.0

829 West Main Street

Louisville, Kentucky 40202

 

        

Ina Brown Bond

     36,990        7,233,411        7,270,401        8.6

622 North Ocean Boulevard

Delray Beach, Florida 33483

        

G. Garvin Brown III Family Group (5)

     2,845,909        3,985,831        6,831,740        8.1

850 Dixie Highway

Louisville, Kentucky 40210

 

        

 

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Name and Address    Amount and Nature of Beneficial Ownership (1)
Voting and Investment Power
    

Percent of

    Class    

 
           Sole                      Shared                      Total             
           

Laura Lee Brown

     3,810,298         1,930,711         5,741,009         6.8

710 West Main Street, Suite 201

Louisville, Kentucky 40202

           

A. Cary Brown

     761,182         4,218,411         4,979,593         5.9

320 Whittington Parkway, Suite 206

Louisville, Kentucky 40222

 

           

Stuart R. Brown

     310,650         4,359,869         4,670,519         5.5

320 Whittington Parkway, Suite 206

Louisville, Kentucky 40222

           

Sandra A. Frazier

     1,406,519         3,174,471         4,580,990         5.4

304 West Liberty Street, Suite 200

Louisville, Kentucky 40202

 

           

Martin S. Brown, Sr.

     7,591         4,363,975         4,371,566         5.2

5214 Maryland Way, Suite 404

Brentwood, Tennessee 37027

           

W.L. Lyons Brown III

     696         4,304,327         4,305,023         5.1

320 Whittington Parkway, Suite 206

Louisville, Kentucky 40222

 

           

Dace Brown Stubbs

     3,983,677         251,756         4,235,433         5.0

135 Sago Palm Road

Vero Beach, Florida 32963

           

 

 

  (1) Based upon information furnished to the Company by the named persons and information contained in filings with the SEC. Under SEC rules, a person is deemed to beneficially own shares over which the person has or shares voting or investment power or of which the person has the right to acquire beneficial ownership within 60 days (including shares underlying options or stock appreciation rights that are exercisable within 60 days).

 

  (2) For J. McCauley Brown, amounts set forth above reflect voting power only. Mr. Brown holds sole investment power over 164,716 shares of Class A common stock and shared investment power over 9,750,219 shares of Class A common stock.

 

  (3) The Owsley Brown Frazier Family Group has agreed in principle to act together for the purpose of holding and voting certain shares of Class A common stock reflected in the table. The individual group members have sole or shared voting and investment power over the following shares: Laura Frazier, 848,704 sole, 8,480,881 shared, 9,329,385 total (11.1% of class); Catherine Frazier Joy, 246,660 sole, 8,611,992 shared, 8,858,652 total (10.5% of class); ABF Trust f/b/o Owsley Brown Frazier, 0 sole, 8,480,881 shared, 8,480,881 total (10.0% of class).

 

  (4) The Owsley Brown II Family Group has agreed in principle to act together for the purpose of holding and voting certain shares of Class A common stock reflected in the table. The aggregate holdings of the Owsley Brown II Family Group listed in the table refer to shares over which the group members have sole or shared investment power. The individual group members have sole or shared investment power over the following shares: Christina Lee Brown – 2,189,521 sole, 4,147,026 shared, 6,336,547 total (7.5% of class); Owsley Brown III – 96,625 sole, 3,554,145 shared, 3,650,770 total (4.3% of class); Brooke Brown Barzun – 559,347 sole, 4,113,425 shared, 4,672,772 total (5.5% of class); Augusta Brown Holland – 869,307 sole, 3,004,137 shared, 3,873,444 total (4.6% of class). The group has shared voting power over an aggregate of 9,359,872 Class A shares (11.1% of class). Individually, Christina Lee Brown and Owsley Brown III each have shared voting power over 9,334,230 Class A shares (11.1% of class), Brooke Brown Barzun has shared voting power over 9,336,730 Class A shares (11.1% of class), and Augusta Brown Holland has shared voting power over 9,357,372 Class A shares (11.1% of class).

 

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  (5) The G. Garvin Brown III Family Group has agreed in principle to act together for the purpose of holding and voting certain shares of Class A common stock reflected in the table. The individual group members have sole or shared voting and investment power over the following shares: Campbell P. Brown, 1,478,085 sole, 3,981,685 shared, 5,459,770 total (6.5% of class); Geo. Garvin Brown IV, 1,367,824 sole, 3,967,702 shared, 5,335,526 total (6.3% of class).

STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS.

The following table sets forth as of April 30, 2013, the beneficial ownership of our Class A and Class B common stock of each current director, each director nominee, each executive officer named in the Summary Compensation Table for Fiscal 2013 found on page 44, and of all directors and executive officers as a group. Some shares shown below are beneficially owned by more than one person. As of the close of business on April 30, 2013, there were 84,445,591 shares of Class A common stock and 129,261,286 shares of Class B common stock outstanding. In calculating the aggregate number of shares and percentages owned by all directors and executive officers as a group, which includes shares owned by persons not named in this table, we counted each share only once.

Stock Beneficially Owned by Directors and Executive Officers as of April 30, 2013

 

Name (1)  

Class A Common Stock (2)

Voting or Investment Power

    % of     Class B Common Stock (2)
Investment Power
   

% of

Class

 
  Sole     Shared     Total     Class     Sole     Shared     Total    
               

Joan C. Lordi Amble

    3,000        0        3,000        *        2,233  (3)      0        2,233        *   

Donald C. Berg

    20,722  (3)      0        20,722        *        177,088  (3)(6)      0        177,088        *   

Patrick Bousquet-Chavanne

    0        0        0        *        63,439  (3)      0        63,439        *   

Geo. Garvin Brown IV

    1,367,824  (4)      3,967,702        5,335,526        6.3     374,845  (3)(5)(6)      543,629        918,474        *   

Martin S. Brown, Jr.

    259,473        45        259,518        *        93,178  (3)      10        93,188        *   

Bruce L. Byrnes

    0        0        0        *        3,230  (3)      0        3,230        *   

John D. Cook

    0        0        0        *        26,728  (3)      0        26,728        *   

Sandra A. Frazier

    1,406,519        3,174,471        4,580,990        5.4     377,107  (3)      793,617        1,170,724        *   

Mark I. McCallum

    16,926  (3)      0        16,926        *        107,100  (3)      27        107,127        *   

William E. Mitchell

    1,500        0        1,500        *        31,643  (3)      0        31,643        *   

Jane C. Morreau

    2,886  (3)      0        2,886        *        61,297  (3)      0        61,297        *   

Kris Sirchio

    1,695        0        1,695        *        16,617  (3)      0        16,617        *   

Dace Brown Stubbs

    3,983,677  (7)      251,756        4,235,433        5.0     916,493  (3)(8)      176,378        1,092,871        *   

Paul C. Varga

    125,341  (3)      0        125,341        *        197,306  (3)      0        197,306        *   

James S. Welch, Jr.

    27,406  (3)      0        27,406        *        162,031  (3)      0        162,031        *   

All Directors and Executive Officers as a Group (19 persons, including those named above) (9)

    7,231,360        7,393,974        14,625,334        17.3     2,801,688  (10)(11)      1,513,751        4,315,439        3.3

 

 

 * Represents less than 1% of the class.

 

(1) The address for each of the persons named in the table is 850 Dixie Highway, Louisville, Kentucky 40210.

 

(2) Based upon Company information, information furnished to the Company by the named persons, and information contained in filings with the SEC. Under SEC rules, a person is deemed to beneficially own shares over which the person has or shares voting or investment power or of which the person has the right to acquire beneficial ownership within 60 days (including shares underlying options or stock appreciation rights that are exercisable within 60 days).

 

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(3) Includes the following shares subject to Class B common stock options or stock-settled stock appreciation rights (SSARs) that are currently exercisable or that will become exercisable on or before June 29, 2013 (60 days after April 30, 2013), and Class B deferred stock units that vest over the course of the board year. Performance-based Class A common stock reflected below, over which the named persons have sole voting power, was issued on June 1, 2013, and is not included in the main table:

 

     Class A     

Class B

 

 
Name    Restricted
Stock
     Stock
Options
     SSARs      Deferred
Stock Units
 
           

Joan C. Lordi Amble

     0         0         0         2,233   

Donald C. Berg

     7,269         0         126,682         0   

Patrick Bousquet-Chavanne

     0         912         57,551         4,976   

Geo. Garvin Brown IV

     0         3,089         10,470         0   

Martin S. Brown, Jr. 

     0         0         23,814         1,662   

Bruce L. Byrnes

     0         0         0         3,230   

John D. Cook

     0         0         21,752         4,976   

Sandra A. Frazier

     0         0         23,814         1,662   

Mark I. McCallum

     4,725         11,144         95,956         0   

William E. Mitchell

     0         0         27,751         3,517   

Jane C. Morreau

     3,489         5,275         53,434         0   

Kris Sirchio

     0         0         16,617         0   

Dace Brown Stubbs

     0         4,867         28,711         3,319   

Paul C. Varga

     23,550         0         135,946         0   

James S. Welch, Jr. 

     5,452         0         145,884         0   

 

(4) Includes 376,953 shares of Class A common stock pledged as security.

 

(5) Includes 249,897 shares of Class B common stock pledged as security.

 

(6) Includes Class B common stock held in the Company’s 401(k) plan as of the close of business April 30, 2013, as follows: Geo. Garvin Brown IV, 11,523 shares; Donald C. Berg, 2,247 shares.

 

(7) Includes 101,410 shares of Class A common stock pledged as security.

 

(8) Includes 302,030 shares of Class B common stock pledged as security.

 

(9) “All directors and executive officers as a group” includes 19 persons, including those directors and officers named in the table. In calculating the aggregate number of shares and percentages owned by all directors and executive officers as a group, each share is counted only once.

 

(10) Includes 25,574 Class B deferred stock units held by all directors and executive officers as a group.

 

(11) Includes 25,287 Class B common stock options and 930,653 Class B common stock SSARs held by all directors and executive officers as a group that are exercisable on or before June 29, 2013 (60 days after April 30, 2013).

 

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and “beneficial owners” of more than 10% of our Class A common stock to file stock ownership reports and reports of changes in ownership with the SEC. Based on a review of those reports and written representations from the reporting persons, we believe that during fiscal 2013, these persons reported all transactions on a timely basis, except for the following late filings, nearly all of which related to family gifts and estate planning transactions: Form 4 by Ina Brown Bond reporting a series of related estate planning transactions; Form 4 by J. McCauley Brown reporting a series of option exercises and related tax withholding transactions and the subsequent sale of 3,247 Class B shares; Form 4 by J. McCauley Brown reporting a swap of 81,327 Class B shares for 84,274 Class A shares; Form 4 by J. McCauley Brown reporting the purchase by his children of 1,280 Class A shares; Form 3 amendment by Augusta Brown Holland reporting the omission of a holding via GRAT of 1,177 Class B shares; Form 4 by Augusta Brown Holland reporting the transfer of 43,929 Class A shares to a GRAT in exchange for cash for estate planning purposes; Form 4 by Paul C. Varga reporting the transfer of 148 Class A shares and 2,072 Class B shares to a family limited liability company; Form 4 by Dace Brown Stubbs reporting the purchase of 4,414 Class A and 2,757 Class B shares by her spouse.

 

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AUDIT COMMITTEE

 

 

This section is a report of the Audit Committee of the Board of Directors. It explains the role of the Audit Committee and sets forth the fees paid to our independent registered public accounting firm.

 

 

AUDIT COMMITTEE REPORT.

The Board has delegated to the Audit Committee (the “Committee”) responsibility to assist it in overseeing the Company’s most significant risks – financial and otherwise – and in periodically reviewing how management monitors and manages those risks. During fiscal 2013, the Committee met with management, including the CEO, CFO, Principal Accounting Officer, the Director of Internal Audit and members of the management Risk Committee, to review management’s risk register and confirm that key risks to the Company have been identified and that appropriate mitigation activities are taking place. In addition, during fiscal 2013, risk management was an agenda item for all Committee meetings held in connection with regularly scheduled Board meetings. The Committee reported to the Board the results and findings of all of its enterprise risk oversight activities this past fiscal year.

The Committee is responsible for overseeing the integrity of the Company’s financial statements on behalf of the Board. Management is responsible for establishing and maintaining the Company’s internal controls, for preparing the financial statements, and for the public reporting process. The Company’s internal audit function is responsible for preparing and executing an annual internal audit plan under the supervision of the Director of Internal Audit, who is accountable to the Audit Committee. The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements in accordance with the standards of the Public Company Accounting Oversight Board and for issuing a report on its audit. The independent registered public accounting firm also reports on the effectiveness of the Company’s internal control over financial reporting. The Committee reviews the work of management in respect of these matters and has direct responsibility for retention of the independent registered public accounting firm on behalf of the Board of Directors.

On behalf of the Board, the Committee retained PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm to audit the Company’s consolidated financial statements and the Company’s internal control over financial reporting for fiscal 2013. The Committee reviewed and discussed with management and the independent registered public accounting firm the audited financial statements as of and for the fiscal year ended April 30, 2013. In addition, the Committee reviewed and discussed with management management’s assessment of the effectiveness of the Company’s internal control over financial reporting and, with PwC, PwC’s evaluation of the Company’s system of internal controls. These discussions included meetings with PwC without representatives of management present, and executive sessions with the Director of Internal Audit.

The Committee discussed with PwC matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. PwC provided the Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with audit committees concerning independence, and the committee discussed with PwC the firm’s independence and ability to conduct the audit. The Committee has determined that PwC’s provision of audit and non-audit services to the Company is compatible with maintaining auditor independence.

Based on the foregoing, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2013.

AUDIT COMMITTEE

William E. Mitchell, Chair

Joan C. Lordi Amble

Bruce L. Byrnes

John D. Cook

 

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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

The following table presents the fees the Company incurred for the professional services provided by PwC for fiscal years 2012 and 2013.

 

     Fiscal Years  
     2012        2013  
       

Audit Fees

   $ 1,356,078         $ 1,530,575   

Audit-Related Fees

     138,700           143,600   

Tax Fees

     199,985           140,667   

All Other Fees

     0           0   
  

 

 

      

 

 

 
                 

Total

   $ 1,694,763         $ 1,814,842   

Audit Fees.  This category consists of the audit of the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K, attestation services relating to the report on internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, review of interim financial statements included in the Company’s Form 10-Q quarterly reports, services normally provided in connection with statutory and regulatory filings or engagements, and statutory audits required by foreign jurisdictions. For fiscal 2013, this category also included fees related to services performed in connection with the Company’s December 2012 Notes Offering, XBRL (eXtensible Business Reporting Language) reporting, and deferred tax reconciliation procedures. All such fees were pre-approved by the Audit Committee in accordance with the policy described below.

Audit-Related Fees.  This category consists principally of fees related to the audits of employee benefit plans. All such fees were pre-approved by the Audit Committee in accordance with the policy described below.

Tax Fees.  This category consists principally of fees related to international tax planning services. All such fees were pre-approved by the Audit Committee in accordance with the policy described below.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES.

It is the policy of the Audit Committee to pre-approve all audit services and permitted non-audit services (including an estimate of the fees or a range of fees) to be performed for the Company by its registered public accounting firm, subject to the de minimis exception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act. The Audit Committee pre-approved the fiscal 2013 audit and non-audit services provided by PwC. The non-audit services (tax fees) approved by the Audit Committee were also reviewed to ensure compatibility with maintaining the registered public accounting firm’s independence. The Audit Committee has delegated to its Chair the authority to pre-approve proposed audit and non-audit services that arise between meetings, with the understanding that the decision will be reviewed at the next scheduled Audit Committee meeting. During the approval process, the Audit Committee considers the potential impact of the type of service on the independence of the registered public accounting firm. Services and fees must be deemed compatible with the maintenance of the registered public accounting firm’s independence, including compliance with SEC rules and regulations. The Audit Committee is prohibited from delegating to management the Audit Committee’s responsibility to pre-approve permitted services of our independent registered public accounting firm. Throughout the year, the Audit Committee reviews any revisions to the estimates of fees initially approved.

The Audit Committee has adopted other policies in an effort to ensure the independence of our independent registered public accounting firm. The Audit Committee must pre-approve PwC’s rendering of personal financial and tax advice to any of the Company’s designated executive officers. In addition, the Audit Committee has a policy that limits the Company’s ability to hire certain current and former employees of our independent registered public accounting firm.

 

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APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

The Audit Committee has appointed PwC to serve as the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2014. Through its predecessor Coopers & Lybrand L.L.P., PwC has served as the Company’s auditor continuously since 1933. A PwC representative will attend the Annual Meeting, will be given the opportunity to make a statement should he or she so desire, and will be available to respond to appropriate questions. We know of no direct or material indirect financial interest that PwC has in the Company or any of our subsidiaries, or of any connection with the Company or any of our subsidiaries by PwC in the capacity of promoter, underwriter, voting trustee, director, officer, or employee.

 

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EXECUTIVE COMPENSATION

 

 

This section explains our compensation philosophy and how we compensate our Named Executive Officers.

 

 

 

OVERVIEW OF COMPENSATION DISCUSSION AND ANALYSIS.

The Compensation Discussion and Analysis describes our executive compensation philosophy, objectives and programs, the compensation decisions the Compensation Committee made under those programs, and the factors considered in making those decisions. The Compensation Discussion and Analysis focuses on the compensation of our Named Executive Officers, or “NEOs”, for fiscal 2013, who were as follows:

 

Name    Title

Paul C. Varga

   Company Chairman and Chief Executive Officer

Donald C. Berg

   Executive Vice President and Chief Financial Officer

James S. Welch, Jr.

   Company Vice Chairman, Executive Director of Corporate Affairs, Strategy, and Diversity

Mark I. McCallum

   Executive Vice President, President for Europe, Africa, Middle East, Asia Pacific and Travel Retail

Jane C. Morreau

   Senior Vice President, Chief Production Officer and Head of Information Technology

Kris Sirchio

   Former Executive Vice President and Chief Marketing Officer

Objective of the Company’s Executive Compensation Program.  The objective of our executive compensation program is to attract, motivate, reward, and retain a diverse team of talented executives who will lead the Company to produce sustainable and superior, long-term value for our stockholders.

Governance.  The Compensation Committee of our Board of Directors (the “Committee”) is composed of three independent directors, Messrs. Bousquet-Chavanne, Cook, and Mitchell. The Committee, with the assistance of its independent compensation consultant, Frederic W. Cook & Co., establishes compensation for our NEOs. During fiscal 2013, the Committee affirmatively determined that no conflict of interest exists between Frederic W. Cook & Co. and the Company.

Competitive Compensation.  To ensure our ability to attract and retain executive talent, the Committee reviews and compares our compensation practices to those of a group of high-performing brand-building consumer products companies with financial characteristics similar to Brown-Forman’s. The group of comparator companies the Committee used for fiscal 2013 compensation comparisons is set forth on page 32, and remains largely unchanged from the comparator group used for fiscal 2012.

Compensation Offered.  Principal elements of compensation for our NEOs include: base salary, short-term (one-year) and long-term (three-year) cash incentive compensation, long-term equity incentive compensation (including stock-settled stock appreciation rights and performance-based restricted stock), benefits and limited perquisites that are generally available to all senior executives, and retirement and limited other post-employment compensation and benefits.

Pay for Performance.  We believe in “pay for performance” and link both short-term and long-term incentive compensation to the achievement of key performance objectives that are aligned with our strategy. The Committee believes that the most relevant measures of our performance are:

 

   

strong and sustained growth in underlying depletion-based operating income (“DBOI”), both on an absolute basis and relative to our industry peers (DBOI is explained on page 30);

 

   

total stockholder return, relative to the S&P Consumer Staples Index, over a three-year period; and

 

   

the achievement of specific performance targets related to our strategic goals.

 

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Performance-based compensation paid to our NEOs during fiscal 2013 and the performance measures on which that compensation was based are set forth in the chart below.

 

Performance-Based

Compensation Component

  

Performance Measures

for Awards Paid in Fiscal 2013

Short-Term Cash Incentive

  

Underlying DBOI Growth

Relative to Prior Year and Industry Peers

Long-Term Cash Incentive

  

Total Shareholder Return

Relative to the S&P Consumer Staples Index

Stock-Settled Stock Appreciation Rights

   Stock Price Growth

Performance-Based Restricted Stock

   Adjusted DBOI Growth – Absolute and Relative to 3-year GDP Growth in our Most Significant Markets

Fiscal 2013 Company Performance and Payouts for Performance-Based Compensation.  Brown-Forman delivered strong performance for fiscal 2013. The Company reported growth in underlying DBOI of 13% for fiscal 2013, compared to the expected average of the industry competitive set of 8%. Short-term cash incentives were paid out at 164% (expressed as a percentage of target). Total shareholder return for the Company for the three-year period ending in fiscal 2013 was 106.9% as measured for purposes of this incentive plan, which placed the Company at the 87th percentile compared to the companies comprising the S&P Consumer Staples Index. This high relative performance compared to the Index resulted in a payout of 200% of target. Performance-based restricted stock awards that were converted into restricted shares at the conclusion of fiscal 2013 were based on a comparison of the Company’s DBOI growth (on an adjusted basis) over a three-year period to that of the gross domestic product of an index of countries aligned with our current and anticipated business markets. Brown-Forman’s growth rate of 9.7% for this particular metric exceeded that of the index by 4.3 percentage points, resulting in a payout of 111% of target.

Equity Compensation.  We use equity-based incentive compensation as a means of aligning the long-term economic interests of our executives with those of our stockholders. We offer our NEOs performance-based restricted Class A common stock and Class B common stock-settled stock appreciation rights (SSARs). The market prices of our Class A and Class B common stock increased during fiscal 2013, which positively affected the value of our executives’ accumulated equity-based incentives. Our Class A common stock closing price increased from $55.53 on April 30, 2012, to $70.61 on April 30, 2013, and our Class B common stock closing price increased from $56.70 on April 30, 2012, to $70.50 on April 30, 2013. All share numbers and per share prices presented in this Proxy Statement are adjusted to account for the three-for-two stock split, which was effected as a stock dividend and paid on August 10, 2012, and the special $4.00 per share cash dividend effected December 27, 2012.

Changes to Performance Measures Made During Fiscal 2013.  In an effort to increase our executives’ accountability for the achievement of the Company’s specific strategic goals, the Committee modified the performance measures for long-term cash incentives and performance-based restricted stock awards granted in fiscal 2013 for the 2013-2015 performance period as follows:

 

Performance-Based

Compensation Component

  

Performance Measures

for Awards Granted in Fiscal 2013

Long-Term Cash Incentive

  

Ÿ      DBOI growth compared to sustained goal of 8% (40%)

Ÿ      DBOI growth compared to industry peers (40%)

Ÿ      Progress against strategic goals (20%)

Performance-Based Restricted Stock

  

Total Shareholder Return Relative to

S&P Consumer Staples Index

 

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The Committee made no changes to the performance measures for short-term cash and stock-settled stock appreciation rights.

Incentive Compensation Recoupment Policy.  During fiscal 2013, the Board adopted an Incentive Compensation Recoupment Policy, which permits the Committee to seek recovery of incentive compensation paid or awarded in the event of a financial restatement due to material noncompliance with financial reporting requirements or the discovery of an error in the calculation of the incentive compensation that was awarded or paid.

Compensation-Related Risk.  During fiscal 2013, we conducted a comprehensive assessment and evaluation of potential compensation-related risk. Based upon the results, the Company and the Committee concluded that our compensation policies and practices are unlikely to present material risk to the Company.

Advisory Votes on Executive Compensation.  In 2011, our shareholders voiced overwhelming support for the compensation of our NEOs, with more than 93% of the votes cast approving the “say-on-pay” advisory vote on executive compensation. The Committee considered the results of this vote as one factor in its compensation decisions during fiscal 2013. Shareholders also recommended that future advisory votes on executive compensation be conducted every three years. The Committee determined to conduct future advisory votes on executive compensation every three years, but reserves the right to conduct votes more frequently in order to seek additional feedback from shareholders. We are not asking shareholders to vote on executive compensation this year. Our next “say-on-pay” advisory vote will occur in connection with our 2014 Annual Meeting of Stockholders.

We believe our executive compensation programs effectively support the Company’s operational goals, strategic priorities and objective to deliver superior and sustainable, long-term value to our stockholders.

COMPENSATION DISCUSSION AND ANALYSIS.

Compensation Committee.  The Compensation Committee of our Board of Directors assists the Board in fulfilling the Board’s duties relating to the compensation of our directors, officers, and employees. The Committee is composed of three directors, each of whom qualifies as an independent director under NYSE listing standards (including the recently-adopted “enhanced independence standards” applicable to compensation committee members), a “non-employee director” under SEC rules, and an “outside director” under regulations adopted pursuant to Section 162 of the Internal Revenue Code. The Committee has the sole authority, on behalf of the Board, to determine the compensation of our CEO. The Committee, with input from the CEO, determines the compensation of our other NEOs. The Employee Benefits Committee and our Human Resources Department support the Committee in the performance of its responsibilities.

Independent Compensation Consultant.  The Committee has engaged Frederic W. Cook & Co. (“FWC”) as its independent compensation consultant. FWC reports directly to the Committee and attends Committee meetings as requested. Under the terms of its engagement, FWC is responsible for providing to the Committee market data on pay practices and trends, advising the Committee regarding the compensation of the CEO and other NEOs, and reviewing this Compensation Discussion and Analysis. FWC also provides independent advice to the Board on director remuneration and is responsible for compiling, on a confidential basis, the responses from directors to its annual questionnaire on Board effectiveness, as well as working with Company management as the Committee’s agent on all matters that fall within the Committee’s purview. Other than in connection with the engagement, FWC provides no services to the Company or its management. The Company paid FWC $170,852 for services rendered during fiscal 2013.

During fiscal 2013, the Committee evaluated whether any conflict of interest might exist between the Company and FWC. In making its determination that no conflict of interest exists, the Committee

 

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considered the following factors in conjunction with a letter of affirmation provided by FWC, with respect to FWC and the FWC engagement team that provides services to the Committee:

 

   

FWC provides no services to the Company or its management other than in connection with its engagement by the Committee;

 

   

The amount of fees paid to FWC in respect of the services provided to the Committee during the calendar year ended 2012 represented less than 1% of FWC's total revenue for that same period;

 

   

FWC maintains policies and procedures designed to prevent conflicts of interest, and FWC and the FWC engagement team complied with those policies in all material respects during the engagement;

 

   

No business or personal relationships exist between FWC and any member of the Committee other than in connection with FWC’s engagement, or in connection with FWC’s provision of services to other companies, boards of directors or compensation committees for whom a Committee member also serves as a director;

 

   

No member of the FWC engagement team owns Company securities; and

 

   

No business or personal relationships exist between the FWC engagement team and any Company executive officer other than in connection with the engagement.

Compensation Philosophy.  The overarching objective of our compensation program is to enable Brown-Forman to attract, motivate, reward, and retain a diverse team of talented executives who will lead the Company to produce sustainable and superior, long-term value for our stockholders. In support of this objective, our compensation program has the following primary goals:

 

   

To reward employees for their efforts in support of the Company’s business by offering competitive salaries;

 

   

To align pay with performance by offering annual and long-term incentive compensation that is earned upon the achievement of key performance objectives aligned with our strategy; and

 

   

To align the long-term interests of our executives with those of our stockholders through the use of equity-based incentive compensation.

Compensation Offered.  We offer the following compensation and benefits to our NEOs:

 

   

Salary (including a holiday bonus, which we consider part of salary);

 

   

Short-term cash incentive compensation;

 

   

Long-term cash incentive compensation;

 

   

Long-term equity incentive compensation (including stock-settled stock appreciation rights and performance-based restricted stock);

 

   

Other benefits that are generally available to our U.S. salaried employees;

 

   

Limited additional benefits and perquisites; and

 

   

Retirement and limited other post-employment compensation and benefits.

Compensation Not Offered.  We purposefully avoid certain pay practices that we believe do not support the objectives of our executive compensation program. As a result, we do not offer our NEOs employment agreements, cash payments that are not linked to performance, tax gross-ups, or excessive perquisites, or severance and/or change in control agreements.

 

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Alignment with Corporate Vision.  Brown-Forman’s corporate vision is “Building Forever”, which reflects our long-term perspective and desire to remain a strong, independent company indefinitely. We aim to “enrich the experience of life by responsibly building beverage alcohol brands that thrive and endure for generations.”

 

LOGO

We have identified specific strategic priorities, which from time to time we refer to as our “BF 150 goals”. At the beginning of fiscal 2013, when compensation decisions were made, these priorities were to: (1) continue to expand the Jack Daniel’s family, and make Jack Daniel’s the fastest-growing brand in retail sales among the world’s largest premium spirits brands; (2) grow the rest of our portfolio faster than Jack Daniel’s; (3) grow our market value in the U.S. spirits industry as a whole; (4) grow our business outside the United States faster than our business in the United States; and (5) be responsible in everything we do.

“Pay for Performance”.  We believe in “pay for performance” and link both short-term and long-term incentive compensation to the achievement of performance objectives that are aligned with our BF 150 goals. The Committee uses absolute and relative operational performance and total stockholder return over a three-year period as its primary measures for Company success. With regard to operational performance, we measure depletion-based operating income (“DBOI”), which is the amount of operating profit the Company earns on the number of nine-liter equivalent cases depleted during a fiscal year. “Depletions” are shipments from the Company direct to retail, or from distributors to wholesale or retail customers, and are commonly regarded in our industry as the best measure of consumer demand. Performance-based compensation paid to our NEOs during fiscal 2013 and the performance measures on which that compensation was based are set forth in the chart below.

 

Performance-Based

Compensation Component

  

Performance Measures

for Awards Paid in Fiscal 2013

Short-Term Cash Incentive

  

Underlying DBOI Growth

Relative to Prior Year and Industry Peers

Long-Term Cash Incentive

  

Total Shareholder Return

Relative to the S&P Consumer Staples Index

Stock-Settled Stock Appreciation Rights

   Stock Price Growth

Performance-Based Restricted Stock

  

Adjusted DBOI Growth – Absolute and

Relative to GDP Growth

in our Most Significant Markets

Changes to Executive Compensation in Fiscal 2013.  As mentioned in last year’s proxy statement, during the fourth quarter of fiscal 2012 and the first quarter of fiscal 2013, the Committee undertook a review of the Company’s incentive compensation performance measures in light of the Company’s BF 150 goals. The Committee determined that a stronger linkage between the Company’s BF 150 goals and executive compensation was needed, so the Committee revised the performance measures for prospective long-term cash incentives and performance-based restricted stock awards. The Committee

 

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made no change to the performance measures for short-term cash incentives and stock-settled stock appreciation rights. The chart below highlights the revised performance measures.

 

Performance-Based

Compensation

 

Performance Measures for

Awards Paid in Fiscal 2013

 

Performance Measures for

Awards Granted in Fiscal 2013

Long-Term Cash Incentive

 

Total Shareholder Return

Relative to

the S&P Consumer Staples Index

 

•    DBOI growth compared to sustained goal of 8% (40%)

•    DBOI growth compared to industry peers (40%)

•    Progress against BF 150 goals (20%)

Performance-Based Restricted Stock

 

Adjusted DBOI Growth

Absolute and Relative to 3-year GDP Growth

in our Most Significant Markets

  Total Shareholder Return Relative to S&P Consumer Staples Index

For long-term cash incentives, the Committee developed a weighted measure that incorporates the Company’s objectives for sustained growth, relative financial performance versus industry peers, and performance against specific BF 150 goals as follows:

 

LOGO

For additional information on this new measure, please see page 37.

For performance-based restricted stock, the Committee chose to use the metric that applied previously to long-term cash – total shareholder return compared to the S&P Consumer Staples Index. For additional information on the performance measure applicable to performance-based restricted stock granted in fiscal 2013, please see page 39.

Use of Market Data to Evaluate Competitiveness of Compensation.  We believe that to recruit and retain high-performing executives, our compensation program must be competitive with the compensation opportunities provided by companies with which we compete for executive talent. Therefore, it is the Committee’s practice to compare annually the value of our NEO compensation to compensation data for executives in similar positions within a comparator group of companies. This analysis is intended to provide a range of market-competitive levels of target compensation as one factor for the Committee to consider in determining the base salaries and target incentive compensation opportunity for the NEOs. The Committee’s independent advisor prepares the market analysis by comparing the target value of each element of compensation for Brown-Forman’s NEOs to those of a comparator group of high-performing brand-building consumer products companies with financial characteristics similar to Brown-Forman’s. While the Committee does not set target compensation to meet specific benchmarks, such as salaries “above the median” or equity compensation “at the 75th percentile”, the Committee reviews several market data points, with a focus on the median of the comparator group and on a preferred mix of pay suggested by the Committee’s independent advisor.

 

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The Committee used the following group of comparator companies for market compensation comparisons during fiscal 2013. The comparator group remains largely unchanged from that used in fiscal 2012 – the only change for fiscal 2013 was the removal of Revlon, Inc. (Hansen’s Natural Corporation changed its name to Monster Beverage Corporation.)

 

Beam Inc.

Campbell Soup Co.

Church & Dwight Co., Inc.

Clorox Co.

Coach Inc.

 

Constellation Brands, Inc.

Diageo Plc.

Dr. Pepper Snapple Group, Inc.

Energizer Holdings Inc.

Green Mountain Coffee Roasters, Inc.

 

Harley Davidson Inc.

Hershey Co.

Lorillard, Inc.

McCormick & Co., Inc.

Mead Johnson & Co., LLC

 

Molson Coors Brewing Co.

Monster Beverage Corp.

J.M. Smucker Co.

     
     
     
     

Fiscal 2013 Target Total Direct Compensation for Our NEOs.

After reviewing external market compensation data, as well as internal considerations such as the Company’s merit increase budget and internal equity among executives, and conducting an assessment of the performance and expected future contributions of each NEO, the Committee increased the total direct compensation at target for our NEOs for fiscal 2013. The chart below shows the annualized target total direct compensation (“TTDC”) for each of our NEOs in fiscal 2013 versus fiscal 2012, and the percentage increase of each component.

Fiscal 2013 versus Fiscal 2012 NEO Target Total Direct Compensation

 

     Year     Salary and
Holiday Bonus (1)
    %
Increase
    Short-Term
Incentive
Target
    %
Increase
    Long-Term
Incentive
Target
    %
Increase
    Target Total
Direct Comp
    %
Increase
 
                 

Paul C. Varga

    2013      $ 1,112,500        3     1,300,000        4     3,300,000        10     5,712,500        7
    2012        1,080,000          1,250,000          3,000,000          5,330,000     

Donald C. Berg

    2013        588,542        3     415,000        4     735,000        5     1,738,542        4
    2012        572,917          400,000          700,000          1,672,917     

James S. Welch, Jr.

    2013        588,542        3     305,000        2     720,000        3     1,613,542        3
    2012        572,917          300,000          700,000          1,572,917     

Mark I. McCallum

    2013        587,813        3     415,000        4     760,000        5     1,762,813        4
    2012        572,344          400,000          725,000          1,697,344     

Jane C. Morreau (2)

    2013        401,042        4     210,000        5     475,000        6     1,086,042        5
    2012        385,417          200,000          450,000          1,035,417     

Kris Sirchio (3)

    2013        572,639        1     275,000        2     410,000        3     1,257,639        2
    2012        566,458          270,000          400,000          1,236,458     

 

(1) Salary and holiday bonus are based on the one-year period beginning on August 1. Other compensation elements are based on our fiscal year beginning May 1.
(2) Ms. Morreau was promoted to the position of Senior Vice President, Chief Production Officer and Head of Information Technology on January 1, 2013. At that time, her annualized short-term incentive target was increased to $250,000 and her annualized long-term incentive target was increased to $500,000. Final short-term and long-term incentive awards will be prorated based on the portion of fiscal 2013 during which these targets were applicable.
(3) Mr. Sirchio’s employment terminated on December 31, 2012. Target amounts reflected in the table represent full-year awards. Please see the All Other Compensation Table for a description of the compensation Mr. Sirchio received upon termination.

In establishing TTDC for fiscal 2013, the Committee considered the individual performance of each NEO as well as the current TTDC of each NEO relative to that NEO’s range of competitive market value derived from the market comparison process described above. The Committee noted that the 2012 TTDC of Messrs. Varga, Berg, and McCallum was at the low end of the range of external market values for their roles, with the majority of this deficit concentrated in the long-term incentive portion of compensation. This was one factor that influenced the Committee’s decision to increase their TTDC for 2013 at a slightly higher rate than for other NEOs and their long-term incentive targets at a higher rate than other elements of compensation.

 

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Principal Elements of Compensation.

Base Salary.  Each year the Committee determines the salary for the CEO, and reviews and approves the salaries of the other NEOs and executive officers as recommended by the CEO. We pay our NEOs a salary as a means of recognizing their significant responsibilities and compensating them for their daily efforts. It has been our practice to offer our NEOs an attractive salary that is within a competitive range informed by the market data using the methodology described above. Annually, the Committee determines any change in the NEOs’ salaries based on a review of competitive salaries externally and the results of individual performance assessments. Salary changes generally take effect on August 1 of each fiscal year.

We offer a holiday bonus, which we consider part of salary. It is paid in cash near the end of each calendar year and is calculated as follows:

 

Length of Continuous Service

  

Amount of Holiday Bonus

3 months but less than 6 months

   1/8 of monthly salary

6 months but less than 5 years

   1/4 of monthly salary

5 years but less than 10 years

   3/8 of monthly salary

10 years or more

   1/2 of monthly salary

The salaries, including holiday bonus, earned by our NEOs during fiscal 2013 are set forth under the heading “Salary” in the Summary Compensation Table found on page 44.

Incentive Compensation.  We provide our executives with both short-term (annual) and long-term performance-based incentive compensation opportunities.

2004 Omnibus Compensation Plan.    Our stockholders have approved the Brown-Forman 2004 Omnibus Compensation Plan (the “Plan”), an incentive compensation plan designed to allow the Committee to reward participants for individual and Company performance results. Officers, employees, and non-employee directors of the Company, its subsidiaries and affiliates are eligible to receive awards under the Plan. The Plan permits awards in the form of cash, stock options, stock appreciation rights, stock, restricted stock, market value units, and performance units. All incentive compensation paid by the Company is administered pursuant to the terms and conditions of the Plan.

Short-Term Incentive Compensation.  We provide our NEOs with a short-term (annual) cash incentive compensation opportunity. Short-term incentive compensation is performance-based, and payout is dependent on the achievement of certain goals related to Company and individual performance during the fiscal year. Within 90 days following the start of each fiscal year, the Committee determines the short-term incentive performance goals and target incentive opportunity for each NEO. These target amounts are listed in the Grants of Plan-Based Awards Table as “STC” on page 47.

To ensure deductibility of short-term incentives for our top executives as performance-based compensation under Internal Revenue Code Section 162(m), the Committee established an annual incentive bonus pool, which for fiscal 2013, was equal to 2% of operating income if the Company achieved operating income of at least $600 million during the fiscal year, adjusted for extraordinary items. The Committee allocated the annual incentive bonus pool 40% to the CEO, and a maximum of 10% to each of the remaining NEOs, and reserved the right to adjust downward (but not upward) any award produced by this formula. For fiscal 2013, the Committee exercised downward discretion in determining the short-term incentive compensation payable to each NEO, and in all cases, amounts paid were less than the maximum amounts deemed earned under the bonus pool approach.

Upon achievement of our operating income goal and funding of our bonus pool for fiscal 2013, the Committee used the following method to determine the final short-term cash incentives awarded to the NEOs. For short-term incentive awards granted to NEOs in fiscal 2013, 80% of the target award was subject to adjustment based on corporate performance, while the remaining 20% was subject to adjustment based on individual performance. Each component is subject to a performance adjustment

 

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factor of 0% to 200%. Once performance adjustment factors are applied to each component (corporate performance and individual performance), the two components are added together to determine the total short-term incentive payment. Therefore, the total value of short-term incentives may vary between 0% and 200% of target.

We believe that the practice of basing the majority of short-term incentive awards for NEOs on the performance of the Company as a whole is appropriate and reflects the collective accountability of our senior-most executives for the performance of the enterprise. We also believe that basing a lesser but meaningful portion of the short-term incentive on individual performance allows the Committee to retain flexibility to differentiate awards among NEOs based on their individual achievements during the year. We believe that this level of available differential pay aligns with our pay-for-performance strategy while preventing our NEOs from being encouraged to take unnecessary risks.

A NEO forfeits his or her short-term incentive compensation if he or she voluntarily terminates employment or is discharged for cause during the fiscal year. For executives who leave the Company voluntarily at or after age 55 with at least five years of service (considered to be retirees), short-term incentive compensation is pro-rated based on length of service during the performance period, and is paid at the same time and in the same manner as to active employee participants.

Company Performance (80% of Award).  For fiscal 2013, the corporate performance goal for the NEOs and other Plan participants was based on the Company’s underlying DBOI growth. The Committee’s primary consideration when establishing the target is the Company’s expectations of the performance of its industry competitors on this metric, as it is the Company’s intent to consistently and sustainably outperform its industry peers. The Committee also considered the Company’s historical DBOI growth trends and the Company’s outlook for fiscal 2013 performance. The fiscal 2013 short-term performance goals were determined by the Committee, with input from the Employee Benefits Committee, and were as follows:

Fiscal 2013 Short-Term Incentive Compensation Performance Goals

 

Attainment Point    Underlying
Depletion-Based
Operating Income (1)
   Depletion-Based
Operating Income Growth
Over Prior Year
   Payout (2)

Maximum

   $925    16%    200%

Target

   $861    8%    100%

Threshold

   $798    0%    0%

 

 

(1) Dollars in millions.

 

(2) Payout represents a percentage of target. Payout between two points is interpolated using a straight line method.

To determine underlying DBOI achieved for purposes of the Plan, the Committee reviewed reported operating income and made adjustments to eliminate the impact of: foreign exchange, estimated net change in distributor inventory levels, and the sale of our Hopland-based wines. Based on this review process, the Committee determined that, for purposes of the Plan, the Company achieved underlying depletion-based operating income of $902 million for fiscal 2013. (As-reported fiscal 2013 operating income was $898 million.) This resulted in a Company performance multiplier of 164% of target.

 

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Individual Performance (20% of Award).  For the 2013 fiscal year, individual performance objectives for the NEOs consisted of qualitative and quantitative goals established to support the achievement of the Company’s strategic priorities. Final individual scores were adjusted to ensure a weighted average reflecting overall company performance. Payout levels for the individual portion of the short-term incentive are based on the following guidelines for aligning performance and compensation. Payout levels for individual performance for NEOs other than the CEO, are based on a recommendation from the CEO to the Committee.

 

Performance

  

Payout as a

Percentage of Target

Superior

   176% – 200%

Above Target

   126% – 175%

On Target

   76% – 125%

Below Target

   Up to 75%

Immediate Improvement Required

   No incentive paid

Chief Executive Officer.  Individual performance objectives for our Chief Executive Officer were established by the Compensation Committee and included goals pertaining to the performance of the Company in relation to our annual plan, the strategic positioning of the Company, the ongoing development of our leadership team, and effective communication with our Board of Directors.

Other NEOs. Individual performance objectives for the remaining NEOs were based on recommendations from the CEO and were approved by the Committee.

 

   

Donald C. Berg (EVP, Chief Financial Officer).  Mr. Berg’s individual performance objectives related to Brown-Forman’s financial performance, with an emphasis on tax planning, implementation and compliance; leadership of our Acquisition and Disposition Committee and process; maintaining excellent financial controls; superb capital structure planning; and the continued development of our talent within the functions under his leadership.

 

   

James S. Welch, Jr. (Vice Chairman, Executive Director of Corporate Affairs, Strategy, and Diversity).  Mr. Welch’s individual performance objectives included the leadership of Brown-Forman’s ongoing BF 150 strategy development, with an emphasis on portfolio strategy initiatives; continued oversight of diversity and inclusion work and process; leadership of corporate affairs; and the development of human resources strategies that support BF 150.

 

   

Mark I. McCallum (EVP, President Europe, Africa, Middle East, Asia Pacific and Travel Retail).  Mr. McCallum’s individual performance objectives included financial and operational performance goals in geographic markets reporting to him, with an emphasis on margin management, pricing strategy implementation and compliance training; regional development of BF 150 plans, with added focus on “rest of portfolio”; and route to consumer progression with emphasis on France, China, and Japan.

 

   

Jane C. Morreau (SVP, Chief Production Officer and Head of Information Technology).   Ms. Morreau’s performance objectives as they related to her role as Chief Production Officer and Head of Information Technology included leadership of supply and demand planning, production cost savings, support for innovation, including research and development activities, organizational development for the Global Production and Information Technology organizations, and focusing on a successful transition into her new role.

 

   

Kris Sirchio (Former EVP, Chief Marketing Officer).  Prior to the termination of Mr. Sirchio’s employment with the Company as of December 31, 2012, his individual performance objectives included the development and communication of global brand plans, continuation of our innovation activities, enhancements in our marketing communications, and the continued development of talent within the functions under his leadership.

 

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Please see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal 2013 found on page 44 for the amounts paid to NEOs in short-term incentive compensation for fiscal 2013.

Long-Term Incentive Compensation.  We provide our NEOs with a long-term incentive compensation opportunity as part of their total compensation package. Long-term incentives are intended to focus our executives on the Company’s long-range strategic goals, including sustainable growth and performance of our brands and superior returns to our stockholders. Long-term incentives also serve as a retention mechanism and equity-building opportunity for our executives.

To ensure deductibility of long-term incentives for our top executives as performance-based compensation under Internal Revenue Code Section 162(m), the Committee established a long-term incentive bonus pool, which for the three-year performance period fiscal 2013 through fiscal 2015 was equal to 2% of operating income if the Company achieved $900 million of cumulative operating income, adjusted for extraordinary items. The Committee allocated the bonus pool 40% to the CEO, and a maximum of 10% to each of the remaining NEOs, and reserved the right to adjust downward (but not upward) any long-term incentive award produced by this formula.

The long-term incentive compensation opportunity for the NEOs is generally determined in accordance with the following process: The total long-term incentive for each NEO is initially determined as a dollar value (target). Twenty-five percent (25%) of this target value is allocated to each of: long-term cash, stock-settled stock appreciation rights (“SSARs”), and performance-based restricted stock. These three long-term incentive elements were chosen to provide our NEOs with a balanced incentive to grow the business (as measured by depletion-based operating income) and increase value to shareholders (as measured by the prices of our Class A and Class B common stock). The Committee has discretion with regard to the allocation of the remaining 25% of the award, which it exercises by considering each NEO’s preference, total equity holdings, strategic priorities for the Company, and career stage. To provide flexibility in retirement planning, executives who are over 62 or who will attain age 62 during the fiscal year, are not required to have an equity component to their long-term incentive compensation award and instead may receive 100% of their award in the form of performance-based cash. None of our NEOs attained age 62 during our 2013 fiscal year.

Long-Term Performance-Based Cash.  Long-term cash incentives are granted during the first 90 days of each fiscal year and provide the NEOs with an opportunity to earn a cash-based incentive award for achievement of long-term performance results. Long-term cash incentives granted in fiscal 2013 have a three-year performance period and will be paid shortly following the completion of fiscal 2015. The target amounts of these awards are set forth in the Grants of Plan-Based Awards Table labeled as “LTC” on page 47.

Long-Term Cash Incentives for Performance Periods Fiscal 2011 – 2013 and Fiscal 2012 – 2014.  For long-term cash awards for the three-year performance periods beginning in fiscal 2011 and fiscal 2012, payout will be based on a comparison of the three-year cumulative total shareholder return of Brown-Forman’s Class B common stock with that of the consumer products and retail companies that constitute the S&P Consumer Staples Index at the end of the three-year performance period. The Committee established a payout scale that correlates Brown-Forman’s percentile rank against the comparator group on three-year cumulative total shareholder return to a specific payout level ranging from 0% to 200% of the participant’s target cash award, with target performance and payout set at the 55th percentile rank versus the group. The threshold level of performance (the point at which no incentive is paid) is set at the 30th percentile rank versus the group. The maximum performance level (the point at which 200% of the target award is paid) is set at the 80th percentile rank versus the group. This payout scale was designed so that payouts at the target and maximum amounts would be earned only when Company performance exceeds that of the comparator group, in alignment with our pay-for-performance strategy. Stock prices used for comparison are the average closing stock prices over the sixty trading days immediately preceding the start of the performance period and the final sixty trading days of the performance period, in order to mitigate the impact of unusual stock price volatility on incentive payouts.

 

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The following companies comprised the S&P Consumer Staples Index as of April 30, 2013:

 

Altria Group Inc.

  Constellation Brands Inc. (Cl A)   J.M. Smucker Co.   PepsiCo Inc.

Archer Daniels Midland Co.

  Costco Wholesale Corp.   Kellogg Co.   Philip Morris International

Avon Products Inc.

  CVS Caremark Corp.   Kimberly-Clark Corp.   Reynolds American Inc.

Beam, Inc.

  Dean Foods Co.   Kroger Co.   Safeway Inc.

Brown-Forman Corp. (Cl B)

  Dr Pepper Snapple Group Inc.   Lorillard Inc.   Sysco Corp.

Campbell Soup Co.

  Estée Lauder Cos. (Cl A)   McCormick & Co. Inc.   Tyson Foods Inc. (Cl A)

Clorox Co.

  General Mills Inc.   Mead Johnson Nutrition Company   Wal-Mart Stores Inc.

Coca-Cola Co.

  H.J. Heinz Co.   Molson Coors Brewing Co. (Cl B)   Walgreen Co.

Colgate-Palmolive Co.

  Hershey Co.   Mondelez International Inc.   Whole Foods Market Inc.

ConAgra Foods Inc.

  Hormel Foods Corp.   Monster Beverage Corp.    

For long-term cash incentives paid in fiscal 2013 (for the three-year performance period 2011 – 2013), Brown-Forman’s cumulative total shareholder return over the performance period placed it at the 87th percentile when compared to the S&P Consumer Staples Index. This high relative performance when compared to the Index resulted in a payout of 200% of target. Please see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal 2013 on page 44 and the Grants of Plan-Based Awards Table for Fiscal 2013 on page 47 for more information on the cash portion of the long-term incentive compensation we pay to our NEOs.

Fiscal 2013 Change to Long-Term Cash Performance Measure.  As mentioned above, the Committee changed the performance metric applicable to long-term cash incentives in fiscal 2013. In an effort to form a stronger link between incentive compensation paid and the achievement of the Company’s BF 150 strategic priorities, the Committee developed a new performance metric applicable to long-term cash that incorporates the Company’s objectives for sustained growth, outperformance versus industry peers, and performance against specific BF 150 goals. For long-term cash awards granted in fiscal 2013, Company performance will be measured as follows:

 

   

Sustained Financial Performance:  This component represents of 40% of the target value, and for purposes of this component, Company performance is measured based on underlying DBOI growth. The threshold level of performance (equating to a 0% payout) is equal to 3% growth over the prior fiscal year; the target level of performance (equating to a 100% payout) is equal to 8% growth over the prior fiscal year; and the maximum level of performance (equating to a 200% payout) is equal to 13% growth over the prior fiscal year.

 

   

Relative Financial Performance:  This component represents 40% of the target value, and for purposes of this component, Company performance is measured based on underlying DBOI growth relative to that of a weighted average set of industry peers as defined by the Committee. The threshold level of performance (equating to a 0% payout) is equal to 0% growth over the prior fiscal year; the target level of performance (equating to a 100% payout) is equal to the weighted average growth observed among the industry peers; and the maximum level of performance (equating to a 200% payout) is equal to twice the weighted average growth observed among the industry peers. In situations where the weighted average growth for the industry is negative, the Committee will exercise judgment in determining the payout level.

 

   

BF150 Scorecard:  This component represents 20% of the target value, and consists of five equally-weighted performance categories (each 4%). For purposes of this component, Company performance is measured based on: 1) market share growth within the United States, 2) financial growth outside of the United States with a focus on emerging markets, 3) financial growth of the Jack Daniel’s family of brands, 4) financial and volumetric growth of brands other than the Jack Daniel’s family of brands, and 5) other strategic initiatives as determined by the Committee. The Committee evaluates each performance category and delivers a score for each ranging from 0% to 200% of Target.

 

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The aggregate performance multiplier for long term cash incentives is calculated using the three-year average for each of the above components as follows: 40% of the three-year average performance multiplier for Sustained Financial Performance, plus 40% of the three-year average performance multiplier for Relative Financial Performance, plus 4% of the three-year cumulative performance multiplier for each of the five components of the BF150 Scorecard. The performance multiplier for performance between threshold and target or target and maximum for any component in any year is determined using linear interpolation.

An executive typically forfeits long-term cash incentives if he or she voluntarily terminates employment prior to retirement eligibility or is discharged for cause. Long-term cash incentive compensation is pro-rated and paid to NEOs who voluntarily leave the Company at or after age 55 with at least five years of service (considered to be retirees) at the same time and in the same manner as to active employee participants.

Performance-Based Restricted Stock.  We award our NEOs and certain other executives with shares of Class A common stock through our performance-based restricted stock plan. Unless otherwise determined by the Committee, performance-based restricted stock awards are granted on the date of the Company’s Annual Meeting of Stockholders, which is typically held in late July.

Performance-Based Restricted Stock for Performance Periods Fiscal 2011 – 2013 and Fiscal 2012 – 2014.  Performance-based restricted stock awards granted for performance periods fiscal 20112013 and fiscal 2012 – 2014 are subject to a three-year performance period followed by a one-year restriction period. The performance metric applied to the awards is a comparison of the compound annual growth rate in the Company’s DBOI (on a reported basis) over a three-year period, to the gross domestic product reported by the International Monetary Fund (“IMF”) of a set of countries identified by the Committee (and which are aligned with our current and anticipated business markets). For performance-based restricted stock awards granted for performance periods fiscal 2011 – 2013 and fiscal 2012 – 2014, the set of countries against which performance is measured is a custom-weighted comparator group (“the index”) consisting of the IMF Advanced Economies Index (weighted at 85%) and the IMF Emerging and Developing Economies Index (weighted at 15%). The measurement of growth in reported DBOI relative to economic growth in certain national economies is intended to isolate the aspect of Brown-Forman’s performance that is attributable to our efforts and not a result of economic changes in the countries where we do business. If the Committee determines that Company performance exceeds the index by 3.5% on a compound annual basis over the three-year performance period, a payout of 100% of target will be earned. A payout of 50% of target will be earned when our performance is less than or equal to that of the index. The maximum level of performance (150% of target payout) will be earned when our performance exceeds the index by 7% on a compound annual basis over the three-year performance period. The following chart illustrates the range of payouts available for performance-based restricted stock and the level of performance required to achieve each payout level. This range of payouts (50% to 150% of target) was chosen to support our goals of pay for performance and increased NEO equity ownership on the one hand, while discouraging unnecessary risk-taking behavior on the other.

 

Attainment Point   

Brown-Forman

DBOI Growth

above GDP Index

  Payout as a
Percentage
of Target

Maximum

   7%   150%

Target

   3.5%   100%

Threshold

   0%   50%

Payout between two points is interpolated using a straight line method.

At the end of each three-year performance period, the Committee determines the level of performance achieved and the resulting payout factor, which is applied to each NEO’s target award value. The resulting value is adjusted upward to account for dividends paid during the second and third years of

 

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the performance period. The number of restricted shares issued is calculated using the closing price of Class A common shares on the date of grant (at the beginning of the three year performance period). The Committee chose this calculation method to ensure that our NEOs remain exposed to changes in stock price and dividends issued during the performance period, consistent with the goals of our long-term incentive plan.

At the conclusion of the three-year performance period ending in fiscal 2013, the Committee observed that the compound annual growth rate for the IMF Advanced Economies Index was 3.8%, while the IMF Emerging and Developing Economies Index experienced compound annual growth of 14.6%. Applying a weighting of 85% to the IMF Advanced Economies Index and a 15% weighting to the IMF Emerging and Developing Economies Index resulted in a 5.4% compound annual growth rate for the combined indices. During this same period, the Company’s adjusted DBOI grew at a compounded annual growth rate of 9.7%, exceeding the combined indices by 4.3 percentage points and resulting in a payout of 111% of target. This payout level was used to adjust the number of restricted shares issuable to our NEOs. These restricted shares were issued on June 1, 2013 and are subject to a restriction period that ends on April 30, 2014. The restricted shares issued under this plan can be found in the Outstanding Equity Awards at 2013 Fiscal Year End Table on page 48.

Fiscal 2013 Change to Performance-Based Restricted Stock Performance Measure.  As mentioned above, during fiscal 2013, the Committee decided to change the performance measure applicable to the Company’s performance-based restricted stock. For performance-based restricted stock awards granted on or after May 1, 2012 (the first day of fiscal 2013), Company performance will be measured based on the relative ranking of the total shareholder return of Brown-Forman’s Class B common stock during the three-year performance period compared to that of the companies within the Standard & Poor’s Consumer Staples Index at the end of the performance period. The Committee established a payout scale that correlates Brown-Forman’s percentile rank against the comparator group on three-year cumulative total shareholder return to a specific payout level ranging from 50% to 150%, with Target performance and payout set at the 55th percentile rank versus the group. The threshold level of performance (the point at which the performance multiplier is 50% of target) is set at the 30th percentile rank versus the group; the maximum performance level (the point at which the performance multiplier is 150% of target) is set at the 80th percentile rank versus the group. Payouts for performance between threshold and target and between target and maximum are interpolated using a straight line method. Stock prices used for comparison are the average closing stock prices over the sixty trading days immediately preceding the start of the performance period and the final sixty trading days of the performance period. At the end of each three-year performance period, the Committee determines the level of performance achieved and the resulting payout factor, which is applied to each NEO’s target award value. The resulting value is adjusted upward to account for dividends paid during the second and third years of the performance period. The number of restricted shares issued is calculated using the closing price of Class A common shares on the date of grant (at the beginning of the three year performance period). The Committee chose this calculation method to ensure that our NEOs remain exposed to changes in stock price and dividends issued during the performance period, consistent with the goals of our long-term incentive plan. For more information on the performance-based restricted stock awards granted during fiscal 2013, please see the Grants of Plan-Based Awards Table and Outstanding Equity Awards at 2013 Fiscal Year End Table, set forth on pages 47 and 48, respectively.

Stock-Settled Stock Appreciation Rights.  Stock-settled stock appreciation rights (“SSARs”) allow our NEOs to receive the value of the appreciation of our Class B common stock experienced between the grant date and the exercise date. SSARs are granted annually on the date of the Company’s Annual Meeting of Stockholders, which is typically held in late July. The number of Class B common SSARs awarded to our NEOs for fiscal 2013 was determined by dividing the dollar value of the long-term incentive compensation opportunity designated for SSARs by the Black-Scholes value of a SSAR as of the close of trading on the date of grant, July 26, 2012, or $10.70. SSARs become exercisable on the first day of the third fiscal year following the grant date, and are exercisable for seven fiscal years

 

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thereafter (i.e., SSARs granted July 26, 2012, are exercisable May 1, 2015, and expire on April 30, 2022). For more information on the SSARs awarded for fiscal 2013, please see the Grants of Plan-Based Awards Table and Outstanding Equity Awards at 2013 Fiscal Year End Table, set forth on pages 47 and 48, respectively.

Employee Benefits and Perquisites.  We provide our NEOs with certain employee benefits that are available to nearly all salaried employees, including Company-paid group term life insurance equal to two times target cash compensation, travel accident insurance, Company matching contributions to a 401(k) savings plan, medical and dental plans, and a pension that grows with each added year’s service and pay. In addition, we provide our NEOs and certain other executives with additional benefits, including a leased automobile, automobile insurance, and limited reimbursement of financial planning expenses. We purchase tickets to sporting and entertainment events for business outings with customers and suppliers. If the tickets are not used for business purposes, employees (including the NEOs) may use the tickets at no incremental cost to the Company. We believe these benefits further our goal of attracting and retaining a diverse team of talented executives. We occasionally invite the NEOs and their spouses to certain events, including retirement celebrations, award dinners, and the like. We believe these events provide valuable opportunities for our senior executives to establish and develop relationships with our directors, long-term stockholders, employees, and each other, furthering our objective of having a strong and cohesive management team. For more detail on these employee benefits, please see the “All Other Compensation” column of the Summary Compensation Table for Fiscal 2013 found on page 44.

Brown-Forman Corporation Non-qualified Savings Plan.  The Brown-Forman Corporation Non-qualified Savings Plan (“Savings Plan”) allows our NEOs to make pre-tax deferrals of up to 50% of base salary (including holiday bonus) and up to 75% of short and long-term cash incentives. Participants in the Savings Plan may notionally invest their plan balances in mutual funds within generally the same asset classes available to participants in our qualified 401(k) savings plan. In the event a participant’s deferrals into the Savings Plan reduce the participant’s taxable compensation that would otherwise be considered 401(k)-eligible pay upon which Company matching in the 401(k) is calculated, the Company will contribute to the Savings Plan to make up for any lost match under the Company’s 401(k) plan. Although the Savings Plan allows for discretionary contributions by the Company, the Company currently does not intend to make discretionary contributions to the Savings Plan and made none during fiscal 2013. All deferrals to the Savings Plan, and the Company’s contributions to it, are 100% vested when made, as are any deemed earnings related to those contributions. The benefits owed under the Savings Plan will be general unsecured obligations of the Company, though the Company has chosen to set aside assets in a trust for the purpose of paying plan benefits. The Company will not be entitled to an income tax deduction on the benefits owed under the Savings Plan until the benefits become taxable to the participants, which generally will be when the benefits are actually paid. Benefits accumulated under the Savings Plan will be payable at either a participant-selected date at least two years after a contribution is made, or after a participant’s termination of employment. Amounts payable after termination are payable in a lump sum six months after termination, except in the case of retirement, where the form of payment (lump sum or installments of up to 10 years) and the time of payment (up to 10 years after retirement) will be elected by the participant. The Non-qualified Deferred Compensation Table for Fiscal 2013 on page 53 contains information on NEO activity in the Savings Plan during fiscal 2013, including employee contributions, gains and losses attributable to the change in market value of the notional investments, and any payments to our NEOs.

Post-Termination Compensation and Benefits.  We maintain both tax-qualified retirement plans and non-qualified supplemental restoration retirement plans. Most salaried employees, including all of our NEOs, participate in the Salaried Employees Retirement Plan. This plan provides retirement benefits based on age at retirement, years of service, and the average of the five highest consecutive calendar years’ compensation during the final ten years of employment. These retirement benefits are not offset by Social Security benefits and are assumed for actuarial purposes to be payable at age 65. A

 

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participant’s interest vests after five years of service. Please see the Pension Benefits Table on page 51 for additional information.

Employees hired on or after July 1, 2012 participate in the Cash Balance formula of the Plan. With this formula, a percentage of annual compensation in the form of a contribution credit is credited annually to participant accounts based on age plus years of service with the Company. Participant accounts receive an annual interest credit for the calendar year based on published U. S. Treasury rates. Participants under the Cash Balance formula are fully vested in their benefit after three years of service with the company. None of our NEOs participate under the Cash Balance formula.

Federal tax law limits the benefits we might otherwise pay to key employees under “qualified” plans such as the Salaried Employees Retirement Plan. Therefore, for certain employees, including our NEOs, we maintain a non-qualified Supplemental Executive Retirement Plan, which provides retirement benefits to make up the difference between a participant’s accrued benefit calculated under the Salaried Employees Retirement Plan and the ceiling imposed by federal tax law. The plan also provides accelerated vesting of a portion of retirement benefits for certain key employees who join us mid-career.

We maintain a qualified 401(k) savings plan for most salaried employees, including our NEOs. Subject to a maximum the IRS sets annually, most participants in our 401(k) savings plan may contribute between 0% and 50% of their compensation (defined as salary and annual incentives) to their savings plan accounts, although highly compensated employees, including our NEOs, are limited to contributions of between 0% and 16% of their compensation. The Company’s match of a participant’s contribution is currently 100% of the first 5%, up to the maximum level of income recognized under Internal Revenue Code section 401(a)(17), and vests fully after four years of service.

We do not have employment agreements with any of our NEOs, nor do we maintain a formal severance plan that provides for post-termination compensation or benefits. We did enter into a Letter Agreement with Mr. Sirchio in connection with his termination of employment, the material terms of which are described in the notes to the compensation tables beginning on page 44.

Compensation Policies and Practices.

Incentive Compensation Recoupment Policy.  In fiscal 2013, the Board adopted an Incentive Compensation Recoupment Policy. In the event the Company determines to restate its reported financial results due to material noncompliance with any financial reporting requirement under the U.S. federal securities laws within three years after the date of the first public issuance or filing of such financial results, or discovers an error in the calculation of any incentive compensation that was awarded or paid within the three years prior to the date of the discovery, then the Company will, at the direction of the Committee, seek to recover all or part of the incentive compensation awarded or paid to executive officers that would not have been awarded or paid based upon the restated financial results or correct incentive calculation. If the Committee determines that any executive officer engaged in fraud or intentional misconduct in connection with a restatement or error in incentive calculation, the Committee will be entitled to direct the Company to seek to recover incentive compensation awarded or paid to an executive officer that would not have been awarded or paid to such an executive officer based upon the restated financial results or correct calculation for a period of six years after the date of the first public issuance or filing of such financial results or six years prior to the date of discovery of fraud or misconduct.

Deductibility of Compensation.  Section 162(m) of the Internal Revenue Code limits to $1 million the amount of annual compensation expense the Company may deduct when paid to a NEO (other than the Chief Financial Officer) unless the compensation is “performance-based” and paid under a formal compensation plan that meets the Internal Revenue Code’s requirements. We took appropriate steps in defining performance measures under our 2004 Omnibus Compensation Plan to assure the deductibility of compensation paid to our NEOs under the Plan. To maintain flexibility, we have no policy requiring that all NEO compensation be fully deductible. However, the Committee expects the

 

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Company to be able to deduct all fiscal 2013 compensation paid to our NEOs, with the exception of $104,700 of salary paid to our CEO.

Equity Award Grants.  We have an equity award grant policy that requires the grant date of any award to be the date of the applicable Committee or Board meeting at which such award was approved, and the grant price to be the closing price of the relevant class of our common stock on the grant date. We do not have a program, plan or practice of timing equity award grants in conjunction with the release of material non-public information (or vice-versa). We have never re-priced or back-dated options or SSARs granted under any of our equity compensation plans, and our 2004 Omnibus Compensation Plan specifically prohibits these practices.

Source of Plan Shares.  Under the terms of the Plan, we try to limit the source of shares delivered to participants under the Plan to those purchased by the Company from time to time on the open market (at times in connection with a publicly announced Share Repurchase Program), in private transactions, or otherwise. If we determine that the timing of such purchases may unduly affect the market price of the shares, the purchases may be spread over a period of time sufficient to minimize such effect. We may use newly-issued shares to cover exercises or redemptions of awards under the Plan, and then purchase an equal number of shares on the open market or otherwise as quickly as is reasonably practicable thereafter. This practice minimizes long-term dilution to our stockholders.

Margin Sales, Derivative Transactions Prohibited.  The Company’s Code of Conduct prohibits employees and directors from selling Brown-Forman securities that they do not own (a “short sale”), purchasing shares on margin, and holding shares in a margin account. Employees and directors are also prohibited from engaging in transactions involving exchange-traded options (puts, calls, or other derivative securities based on Brown-Forman securities).

Conclusion.  We believe that our executive compensation program continues to successfully attract, motivate, reward, and retain a team of talented and diverse executives and key employees, both in the United States and around the world, who will lead us to achieve our goal of being the best brand builder in the spirits industry and enable us to deliver sustainable and superior value to our stockholders over time.

COMPENSATION COMMITTEE REPORT.

We, the Compensation Committee of the Board of Directors of Brown-Forman Corporation, have reviewed and discussed with Company management the Compensation Discussion and Analysis set forth above, and based on such review and discussion, have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE

Patrick Bousquet-Chavanne, Chairman

John D. Cook

William E. Mitchell

 

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COMPENSATION RISK ASSESSMENT.

To determine the level of risk arising from our compensation policies and practices, we conducted a thorough risk assessment during fiscal 2013, with oversight by Frederic W. Cook & Co., the independent advisor to the Committee, the Committee, and the Company’s internal auditors. The assessment was based on a framework provided by FWC and examined the risk associated with the compensation programs applicable to all of our employees. The assessment also considered the features of our compensation programs that are designed to mitigate risk. We believe our compensation programs encourage and reward an appropriate level of risk taking. We and the Committee concluded, based upon the results of the assessment and the affirmative responses to the questions set forth below, that our compensation policies and practices are not reasonably likely to provide an incentive for behavior that could have a material adverse effect on the Company.

 

Risk Category   Evaluation Criteria

Strategic Risk

    Are performance metrics and measurement periods well-aligned with the Company’s business strategy and objective for long-term value creation for stockholders?
    Is the Committee aware of the Company’s risk tolerance profile, and does it have the ability to identify behaviors or performance outcomes that are excessive or contrary to the Company’s long-term strategy?

Cultural Risk

    Does the Company have a strong set of corporate values that emphasize ethical behavior, actions that contribute to building long-term value (rather than short-term performance), teamwork and individual sacrifice for common good, the importance of non-financial and strategic performance, and investment in people and infrastructure?

Governance Risk

    Is the Compensation Committee independent? Do members have an appropriate level of expertise?
    Does the Committee have access to and receive input from an independent and proactive compensation consultant?

Pay-Mix Risk

    Does the Company have reasonable, market-competitive salaries?
    Does the Company have a balanced mix of annual and longer-term incentive opportunities?
    Does equity compensation make up an appropriate portion of total pay, sufficient to align the executive’s economic interest with those of long-term stockholders?
Performance Measurement Risk     Do incentive opportunities relate primarily to the performance of the Company as a whole for senior-level executives?
    Do incentive programs reward a mix of different performance measures that consider all aspects of the Company’s financial health?
    Does the Compensation Committee have a rigorous process for establishing goals and evaluating CEO performance?

Risk Management

    Do executives in charge of risk management have direct access to the Compensation Committee for pay-risk assessments?
Other Compensation Risk     Do executives have reasonable severance arrangements, rather than severance packages that would offset or mitigate the consequences of poor performance or risky behavior?
    Do the Company’s compensation programs hold management accountable for results after retirement through continued rather than accelerated vesting of unvested awards upon retirement?

 

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SUMMARY COMPENSATION TABLE FOR FISCAL 2013.

The following table sets forth the compensation paid or accrued by the Company for the fiscal years reflected below, as required to be calculated under SEC rules, for services rendered in all capacities by our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers as of the end of the fiscal year, and an additional individual for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of our last completed fiscal year (the “Named Executive Officers” or “NEOs”).

Fiscal 2013 Summary Compensation Table

 

Name and

Principal Position

  Year    

Salary (5)

($)

    Bonus (6)
($)
 

Stock
Awards (7)

($)

   

SSAR/
Option
Awards (8)

($)

   

Non-

Equity
Incentive

Plan
Compensation  (9)
($)

   

Change

in

Pension

Value

and

Non-qualified
Deferred
Compensation
Earnings  (10)

($)

   

All

Other
Compensation (11)
($)

   

Total

($)

 
                 

Paul C. Varga

    2013        1,104,700          1,316,573        989,900        3,793,600        2,082,200        34,163        9,321,136   
Chairman and Chief
Executive Officer
    2012        1,072,800          1,200,000        900,153        3,214,340        1,729,505        33,605        8,150,403   
    2011        1,039,250          810,000        1,079,411        2,918,750        1,199,323        33,259        7,079,993   

Donald C. Berg

    2013        584,792          251,346        293,993        1,098,180        864,638        31,005        3,132,954   
Executive Vice President and Chief Financial Officer     2012        569,167          280,000        196,037        881,200        681,036        30,974        2,638,414   
    2011        553,542          250,000        156,172        843,000        390,827        30,731        2,224,272   

James S. Welch, Jr.

    2013        584,792          328,288        215,990        872,760        696,137        28,405        2,726,372   
Vice Chairman (1)     2012        569,167          280,000        210,043        646,800        541,999        29,161        2,277,170   
    2011        554,792          187,500        249,872        735,000        330,209        28,979        2,086,352   

Mark I. McCallum

    2013        584,063          346,527        265,991        1,331,430        460,703        31,388        3,020,102   
Executive Vice President (2)     2012        568,594          253,750        217,554        780,150        361,466        29,961        2,211,475   
    2011        554,375          162,500        162,413        859,000        222,447        29,674        1,990,409   

Jane C. Morreau (3)

    2013        403,959          162,434        118,749        733,107        474,369        29,731        1,922,349   
Senior Vice President                  

Kris Sirchio (4)

    2013        383,472          154,227        135,302        574,726        148,581        691,001        2,087,309   
Former Executive Vice President and Chief Marketing Officer     2012        557,708          132,000        132,042        675,866        93,500        30,352        1,621,468   

 

 

  (1) Mr. Welch is Company Vice Chairman, Executive Director of Corporate Affairs, Strategy, and Diversity.

 

  (2) Mr. McCallum is Executive Vice President, President for Europe, Africa, Middle East, Asia Pacific and Travel Retail.

 

  (3) Ms. Morreau is Senior Vice President, Chief Production Officer and Head of Information Technology. She was not a Named Executive Officer for fiscal 2011 or 2012; therefore, information for those years is not provided.

 

  (4) Mr. Sirchio was not a Named Executive Officer for fiscal 2011; therefore, information for 2011 is not provided. Mr. Sirchio’s employment with the Company terminated as of December 31, 2012. For Mr. Sirchio, fiscal 2013 grants of performance-based restricted stock and SSARs represent full-year awards. For the treatment of these awards upon his termination, please see footnote 7 to the Outstanding Equity Awards at 2013 Fiscal Year End Table.

 

  (5) Salary includes holiday bonus. Salary increases typically take effect August 1 of each year (even though the Company’s fiscal year runs May 1 to April 30).

 

  (6) NEOs do not receive non-performance-based compensation that would be considered a “Bonus” under SEC regulations.

 

  (7) In accordance with SEC rules, included in the “Stock Awards” column is the aggregate grant date fair value of performance-based restricted stock granted during the respective fiscal years, calculated in accordance with FASB ASC Topic 718. The grant date fair value of awards subject to performance conditions is calculated based on the probable outcome of the performance condition as of the grant date for the award. We changed the performance metric underlying these awards for fiscal 2013 grants. For additional information on this matter, please see “Fiscal 2013 Change to Performance-Based Restricted Stock Performance Measure” on page 39.

 

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  (8) In accordance with SEC rules, included in the “SSAR/Option Awards” column are the aggregate grant date fair values of SSARs granted during the respective fiscal years, calculated in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 12 to the Company’s audited financial statements for the fiscal year ended April 30, 2013, which are included in the Company’s fiscal 2013 Annual Report on Form 10-K as filed with the SEC.

 

  (9) Amounts listed for the year 2013 include short-term cash incentive compensation paid for the one-year performance period ended April 30, 2013, and long-term cash incentive compensation paid for the three-year performance period ended April 30, 2013, as determined by the Compensation Committee at its May 22, 2013, meeting and paid to the NEOs on or about June 15, 2013. Specific amounts are reflected below.

 

      Short-Term Cash        Long-Term Cash  
       

Paul C. Varga

     2,173,600           1,620,000   

Donald C. Berg

     660,680           437,500   

James S. Welch, Jr.

     497,760           375,000   

Mark I. McCallum

     681,430           650,000   

Jane C. Morreau

     373,107           360,000   

Kris Sirchio

     302,726           272,000   

 

(10) The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column for the respective fiscal years represent changes between the fiscal years in the actuarial present value of the accumulated pension benefits of each of the NEOs under the applicable pension or savings plan. Pension values may fluctuate significantly from year to year depending on a number of factors, including age, years of service, average annual earnings and the assumptions used to determine the present value, such as the discount rate. Please see the Pension Benefits Table on page 51 for the assumptions used in calculating the change in pension value. None of the NEOs received above-market or preferential earnings (as these terms are defined by the SEC) on their nonqualified deferred compensation accounts.

 

      Qualified        Non-Qualified  
       

Paul C. Varga

     178,908           1,903,292   

Donald C. Berg

     191,102           673,536   

James S. Welch, Jr.

     179,273           516,864   

Mark I. McCallum

     97,184           363,519   

Jane C. Morreau

     166,393           307,976   

Kris Sirchio

     38,101           110,480   

 

(11) The following table sets forth each component of the “All Other Compensation” column of the Summary Compensation Table.

 

Name    401(k)
Matching
Contribution (1)
     Cost of
Company-
Provided
Life
Insurance
     Cost of
Company-
Leased
Car (2)
     Termination
Benefits (3)
     Other (4)      Total  

Paul C. Varga

     12,812         3,120         14,231         0         4,000         34,163   

Donald C. Berg

     12,688         3,064         11,253         0         4,000         31,005   

James S. Welch, Jr.

     11,600         2,746         10,059         0         4,000         28,405   

Mark I. McCallum

     12,688         3,063         11,637         0         4,000         31,388   

Jane C. Morreau

     12,869         1,875         11,232         0         3,755         29,731   

Kris Sirchio(4)

     5,625         1,730         7,979         671,667         4,000         691,001   

 

 

 

  (1) Amounts in this column represent 401(k) matching contributions for the period May 1, 2012, through April 30, 2013; 401(k) matching contributions for the calendar year do not exceed the calendar year annual compensation limit.

 

  (2) Values based on incremental cost to the Company during the fiscal year, including lease payments, maintenance, registration, and insurance premiums.

 

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  (3) The Company paid or accrued this amount during fiscal 2013 in accordance with the terms of a Letter Agreement between Mr. Sirchio and the Company dated December 20, 2012. Under the terms of the Letter Agreement, the Company agreed to pay Mr. Sirchio one year’s salary for calendar 2013 – a total amount of $571,667 – in the same manner it pays its active employees. The Company made two lump sum payments to Mr. Sirchio of $50,000 each for outplacement assistance and to cover transition expenses incident to his departure. Mr. Sirchio’s short-term cash incentive compensation for fiscal 2013 was prorated based on his length of employment during the fiscal year; Company performance was used as a proxy for his individual performance score. Long-term cash incentive compensation for the three-year performance periods beginning May 1, 2010 and May 1, 2011, was and will be, as applicable, adjusted for actual Company performance and paid at the same time and in the same manner as to active participants. Long-term cash incentive compensation for the three-year performance period beginning May 1, 2012 will be prorated through December 31, 2012, adjusted for actual company performance, and paid at the same time and in the same manner as to active participants. Please see footnote 7 of the Outstanding Equity Awards at 2013 Fiscal Year End Table for the treatment of Mr. Sirchio’s outstanding equity upon termination.

 

  (4) Amounts include reimbursement of legal and financial planning expenses up to a limit of $4,000 for the fiscal year.

 

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GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2013.

The following table sets forth information regarding the equity and non-equity awards granted to our NEOs during fiscal 2013 under our 2004 Omnibus Compensation Plan. For additional information on the Plan and the fiscal 2013 awards made thereunder, please see the “Incentive Compensation” section of our Compensation Discussion and Analysis, which begins on page 28.

Fiscal 2013 Grants of Plan-Based Awards Table

 

               

 

Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards (2)

    Estimated Possible Payouts
Under Equity Incentive
Plan
Awards (3)
   

All
Other
Option
Awards:
Number
of
Securities
Underlying
Options (4)
(#)

   

Exercise
or Base
Price of

Option
Awards (5)

($/Sh)

   

Grant Date
Fair Value
of Stock
and Option
Awards (6)
($)

 
Name   Grant
Date
    Descrip-
tion  (1)
   

Thres-
hold

($)

 

Target

($)

    Maximum
($)
   

Thres-

hold

(#)

   

Target

(#)

   

Maximum

(#)

       

Paul C. Varga

            STC      0     1,300,000        2,600,000                                                   
              LTC      0     1,155,000        2,310,000                                                   
      7/26/2012        PBRS                            9,884        19,768        29,652                        1,316,573   
      7/26/2012        SSAR                                                    92,514      $ 58.70        989,900   

Donald C. Berg

            STC      0     415,000        830,000                                                   
              LTC      0     220,500        441,000                                                   
      7/26/2012        PBRS                            1,887        3,774        5,661                        251,346   
      7/26/2012        SSAR                                                    27,476      $ 58.70        293,993   

James S. Welch, Jr.

            STC      0     305,000        610,000                                                   
              LTC      0     216,000        432,000                                                   
      7/26/2012        PBRS                            2,465        4,930        7,394                        328,288   
      7/26/2012        SSAR                                                    20,186      $ 58.70        215,990   

Mark I. McCallum

            STC      0     415,000        830,000                                                   
              LTC      0     190,000        380,000                                                   
      7/26/2012        PBRS                            2,602        5,203        7,805                        346,527   
      7/26/2012        SSAR                                                    24,859      $ 58.70        265,991   

Jane C. Morreau

            STC      0     223,150        446,300                                                   
              LTC      0     221,969        443,938                                                   
      7/26/2012        PBRS                            1,220        2,439        3,659                        162,434   
      7/26/2012        SSAR                                                    11,098      $ 58.70        118,749   

Kris Sirchio (7)

            STC      0     275,000        550,000                                                   
              LTC      0     139,400        278,800                                                   
      7/26/2012        PBRS                            1,158        2,316        3,474                        154,227   
      7/26/2012        SSAR                                                    12,645      $ 58.70        135,302   

 

 

  (1) STC is short-term (or annual) incentive compensation payable in cash; LTC is long-term incentive compensation payable in cash; PBRS is Class A common performance-based restricted stock; SSAR is Class B common stock-settled stock appreciation rights.

 

  (2) Amounts represent the potential value of the short-term incentive compensation opportunity for the fiscal 2013 performance period and the cash component of the long-term incentive compensation opportunity for the three-year performance period fiscal 2013 through fiscal 2015, inclusive. No amounts are payable if threshold performance levels are not achieved. STC and LTC are capped at 200% of target. Please see the “Non-Equity Incentive Plan Compensation” column of the Fiscal 2013 Summary Compensation Table on page 44 for amounts actually paid out in respect of fiscal 2013 performance.

 

  (3) Amounts represent the estimated possible payout of the long-term incentive compensation opportunity designated for PBRS stock for fiscal 2013. PBRS awards are initially determined as a cash value, then subject to a three-year performance period, followed by a one-year restriction period. The number of shares of PBRS to be awarded for fiscal 2013 is determined by multiplying the cash value at target by a three-year performance adjustment factor, adjusting upwards to account for dividends paid during the second and third years of the performance period, and then dividing that amount by $60.67, which was the closing price of our Class A common stock on the date of grant, July 26, 2012. PBRS awards granted in fiscal 2013 vest on April 30, 2016.

 

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Table of Contents
  (4) The number of SSARs awarded for fiscal 2013 was determined by dividing the cash value of the opportunity designated for SSARs by the Black-Scholes value of our Class B common stock as of the close of trading on the date of grant, July 26, 2012 ($10.70). SSARs become exercisable on the first day of the third fiscal year following the fiscal year of grant, and are exercisable for seven fiscal years thereafter. SSARs granted July 26, 2012 become exercisable May 1, 2015, and expire April 30, 2022.

 

  (5) The exercise price for the SSARs represents the closing price of our Class B common stock on the grant date.

 

  (6) Amounts represent the grant date fair value as calculated in accordance with FASB ASC Topic 718. Awards subject to performance conditions are calculated based on the probable outcome of the performance condition as of the grant date for the award. Assumption used in the calculation of these amounts are included in Note 12 to the Company’s audited financial statements for the fiscal year ended April 30, 2013, which are included in the Company’s fiscal 2013 Annual Report on Form 10-K as filed with the SEC.

 

  (7) For Mr. Sirchio, amounts represent full-year awards. Mr. Sirchio’s STC for fiscal 2013 was prorated through December 31, 2012; Company performance was used as a proxy for his individual performance score. Long-term cash incentive compensation for the three-year performance period beginning May 1, 2012 will be prorated through December 31, 2012, adjusted for actual company performance, and paid at the same time and in the same manner as to active participants. PBRS for the three-year performance period beginning May 1, 2012 will be prorated through December 31, 2012, adjusted for actual company performance, and paid at the same time and in the same manner as to active participants. SSARs granted for fiscal 2013 were prorated through December 31, 2012.

OUTSTANDING EQUITY AWARDS AS OF APRIL 30, 2013.

The following table sets forth the outstanding equity awards held by our NEOs as of April 30, 2013. The year-end values set forth in the table are based on the $70.61 closing price for our Class A common stock and $70.50 closing price for our Class B common stock, respectively, on April 30, 2013.

Outstanding Equity Awards at 2013 Fiscal Year End Table

 

    SSAR Awards (1)     Stock Awards (2)  
Name   Grant Date    

Number

of
Securities
Underlying
Unexercised
SSARs
(#)
Exercisable

    Number of
Securities
Underlying
Unexercised
SSARs
(#)
Unexercisable
    SSAR
Exercise
Price
($)
    SSAR
Expiration
Date
    Grant Date     Number of
Shares or
Units of
Stock That
Have Not
Vested  (3)
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested (3)(4)
($) 
    Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights
That Have
Not Vested (5)
(#)
   

Equity
Incentive Plan
Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (6)

($)

 
                   

Paul C. Varga

    7/22/2010                135,946        38.43        4/30/2020                                           
      7/28/2011                95,761        46.40        4/30/2021                                           
      7/26/2012                92,514        58.70        4/30/2022                                           
                                              7/22/2010        23,550        1,662,866                   
                                              7/28/2011                        39,308        2,775,538   
                                              7/26/2012                        29,652        2,093,728   

Donald C. Berg

    7/28/2005        14,000                28.58        4/30/2015                                           
      7/27/2006        16,339                34.95        4/30/2016                                           
      7/26/2007        18,704                33.76        4/30/2017                                           
      7/24/2008        21,971                35.51        4/30/2018                                           
      7/23/2009        35,999                27.05        4/30/2019                                           
      7/22/2010                19,669        38.43        4/30/2020                                           
      7/28/2011                20,855        46.40        4/30/2021                                           
      7/26/2012                27,476        58.70        4/30/2022                                           
                                              7/22/2010        7,269        513,264                   
                                              7/28/2011                        9,172        647,635   
                                              7/26/2012                        5,661        399,723   

 

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Table of Contents
    SSAR Awards (1)     Stock Awards (2)  
Name   Grant Date    

Number

of
Securities
Underlying
Unexercised
SSARs
(#)
Exercisable

    Number of
Securities
Underlying
Unexercised
SSARs
(#)
Unexercisable
    SSAR
Exercise
Price
($)
    SSAR
Expiration
Date
    Grant Date     Number of
Shares or
Units of
Stock That
Have Not
Vested (3)
(#) 
   

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested (3)(4)

($) 

    Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights
That Have
Not Vested (5)
(#)
   

Equity
Incentive Plan
Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (6)

($)

 

James S. Welch, Jr.

    7/28/2005        23,515                28.58        4/30/2015                                           
      7/27/2006        13,492                34.95        4/30/2016                                           
      7/26/2007        23,938                33.76        4/30/2017                                           
      7/24/2008        21,971                35.51        4/30/2018                                           
      7/23/2009        31,498                27.05        4/30/2019                                           
      7/22/2010                31,470        38.43        4/30/2020                                           
      7/28/2011                22,345        46.40        4/30/2021                                           
      7/26/2012                20,186        58.70        4/30/2022                                           
                                              7/22/2010        5,452        384,966                   
                                              7/28/2011                        9,172        647,635   
                                              7/26/2012                        7,394        522,090   

Mark I. McCallum

    7/22/2004        11,144                22.49        4/30/2014                                           
      7/28/2005        16,845                28.58        4/30/2015                                           
      7/27/2006        4,615                34.95        4/30/2016                                           
      7/26/2007        15,957                33.76        4/30/2017                                           
      7/24/2008        14,647                35.51        4/30/2018                                           
      7/23/2009        23,437                27.05        4/30/2019                                           
      7/22/2010                20,455        38.43        4/30/2020                                           
      7/28/2011                23,144        46.40        4/30/2021                                           
      7/26/2012                24,859        58.70        4/30/2022                                           
                                              7/22/2010        4,725        333,632                   
                                              7/28/2011                        8,312        586,910   
                                              7/26/2012                        7,805        551,111   

Jane C. Morreau

    7/22/2004        5,275                22.49        4/30/2014                                           
      7/28/2005        4,558                28.58        4/30/2015                                           
      7/27/2006        8,400                34.95        4/30/2016                                           
      7/26/2007        9,292                33.76        4/30/2017                                           
      7/24/2008        7,131                35.51        4/30/2018                                           
      7/23/2009        11,463                27.05        4/30/2019                                           
      7/22/2010                12,590        38.43        4/30/2020                                           
      7/28/2011                14,365        46.40        4/30/2021                                           
      7/26/2012                11,098        58.70        4/30/2022                                           
                                              7/22/2010        3,489        246,358                   
                                              7/28/2011                        3,686        260,268   
                                              7/26/2012                        3,659        258,362   

Kris Sirchio(7)

    7/22/2010                16,617        38.43        4/30/2014                                           
      7/28/2011                14,047        46.40        4/30/2015                                           
      7/26/2012                8,430        58.70        4/30/2016                                           
                                              7/22/2010        3,838        271,001                   
                                              7/28/2011                        4,324        305,318   
                                              7/26/2012                        2,316        163,533   

 

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  (1) SSAR awards are in the form of Class B common stock. All SSARs vest and become fully exercisable on the first day of the third fiscal year following the fiscal year of grant.

 

  (2) Represents Class A common performance-based restricted stock awards. After a three-year performance period, followed by a one-year restriction period, the performance-based restricted stock awards granted on July 22, 2010, July 28, 2011, and July 26, 2012, will vest on April 30, 2014, April 30, 2015, and April 30, 2016, respectively.

 

  (3) Reflects the number of shares of restricted Class A common stock that were issued on June 1, 2013, upon satisfaction of the performance measures in connection with the performance-based restricted stock awards granted on July 22, 2010. The number of shares issued was determined by multiplying the cash value of the award at target by a three-year performance adjustment factor (111%), adjusting upwards to account for dividends paid during the second and third years of the performance period, and then dividing that amount by $41.96, which was the closing price of our Class A common stock on the date of the grant. The restrictions on these restricted shares will lapse on April 30, 2014.

 

  (4) The market value for the shares of restricted Class A common stock was determined by multiplying the number of shares of restricted Class A common stock, as applicable, by $70.61, the closing price of our Class A common stock on April 30, 2013.

 

  (5) Amounts represent the estimated maximum possible payout of performance-based restricted stock awards (“PBRS”) based on a performance multiplier of 150% of target for fiscal years 2012 and 2013, respectively. PBRS awards are initially determined as a cash value, then subject to a three-year performance period, followed by a one-year restriction period. The number of shares of PBRS to be awarded is determined by multiplying the cash value at target by a three-year performance adjustment factor, adjusting upwards to account for dividends paid during the second and third years of the performance period, and then dividing that amount by the closing price of our Class A common stock on the date of grant.

 

  (6) The market value for the PBRS awards was determined by multiplying the number of shares by $70.61, the closing price of our Class A common stock on April 30, 2013.

 

  (7) Mr. Sirchio has until December 31, 2013 to exercise outstanding SSARs that were vested and exercisable as of December 31, 2012. SSARs that were unvested as of December 31, 2012 will vest according to the vesting schedule described in the applicable award agreements, and Mr. Sirchio will have 12 months following vesting to exercise these SSARs. SSARs granted for fiscal 2013 were prorated through December 31, 2012. Performance-based restricted stock for the three-year performance periods beginning May 1, 2010 and May 1, 2011, were, and will be, as applicable, adjusted for actual Company performance and be paid at the same time and in the same manner as to active participants. PBRS for the three-year performance period beginning May 1, 2012 will be prorated through December 31, 2012, adjusted for actual company performance, and paid at the same time and in the same manner as to active participants.

OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2013.

The following table shows all stock options exercised and the value realized upon exercise, and all stock awards vested and the value realized upon vesting, by the NEOs during fiscal 2013.

Fiscal 2013 Option Exercises and Stock Vested Table

 

     Option/SSAR Awards (1)      Stock Awards  
Name    Number of
Shares
Acquired
on Exercise
(#)
     Value Realized
on Exercise (2)
($)
     Class of
Common Stock
     Number of
Shares
Acquired
on Vesting (3)
(#)
     Value Realized
on Vesting (4)
($)
 
              

Paul C. Varga (5)

     91,899         3,472,863         A         23,681         1,672,115   

Donald C. Berg (6)

     28,157         1,270,966         A         5,457         385,319   

James S. Welch, Jr. (7)

     15,958         915,032         A         8,730         616,425   

Mark I. McCallum (8)

     15,844         784,912         A         11,369         802,765   

Jane C. Morreau (9)

     5,963         264,221         A         2,781         196,366   

Kris Sirchio (10)

     5,839         184,337         A         1,695         119,684   

 

 

 

  (1) All option and SSAR awards are in the form of Class B common stock.

 

  (2) Value realized on exercise equals the difference between the option/SSAR exercise price and the market price of the underlying shares at exercise, multiplied by the number of shares for which the option/SSAR was exercised.

 

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  (3) The grant date for all awards of Class A common performance-based restricted stock shown in the table was July 23, 2009; the vesting date was April 30, 2013.

 

  (4) Value realized on vesting equals the closing market price of the underlying securities on the vesting date, multiplied by the number of shares that vested. The closing price of our Class A common stock on the vesting date, April 30, 2013, was $70.61.

 

  (5) Mr. Varga exercised SSARs for 91,899 shares of Class B common stock on October 5, 2012.

 

  (6) Mr. Berg exercised options for shares of Class B common stock as follows: 4,000 shares on June 20, 2012; 10,000 shares on October 3, 2012; 7,037 shares on December 6, 2012. He exercised SSARs for 7,120 shares on April 1, 2013.

 

  (7) Mr. Welch exercised options for 15,958 shares of Class B common stock on June 20, 2012.

 

  (8) Mr. McCallum exercised options for 15,844 shares of Class B common stock on March 14, 2013.

 

  (9) Ms. Morreau exercised options for 5,963 shares of Class B common stock on January 2, 2013.

 

  (10) Mr. Sirchio exercised SSARs for 5,839 shares of Class B common stock on December 24, 2012.

PENSION BENEFITS.

We maintain both tax-qualified and non-qualified supplemental excess retirement plans. The following table sets forth the present value of accumulated pension benefits payable to each of our NEOs under our tax-qualified base plan, the Salaried Employees Retirement Plan, and under our non-qualified excess plan, the Supplemental Executive Retirement Plan, based on the pension earned as of our most recent FASB ASC Topic 715 measurement date, April 30, 2013.

Fiscal 2013 Pension Benefits Table

 

                  Name    Plan Name   

Number of
Years
Credited
Service

(#)

    

Present
Value of
Accumulated
Benefit (1)

($)

     Payments
During Last
Fiscal Year
($)
 
           

Paul C. Varga

   Qualified
Non-Qualified
    
 
26.00
26.00
  
  
    
 
675,937
7,690,151
  
  
    
 
0
0
  
  

Donald C. Berg

   Qualified
Non-Qualified
    
 
23.83
23.83
  
  
    
 
884,504
2,826,541
  
  
    
 
0
0
  
  

James S. Welch, Jr.

   Qualified
Non-Qualified
    
 
23.75
23.75
  
  
    
 
744,677
2,312,280
  
  
    
 
0
0
  
  

Mark I. McCallum

   Qualified
Non-Qualified
    
 
9.75
9.75
  
  
    
 
368,428
1,186,980
  
  
    
 
0
0
  
  

Jane C. Morreau

   Qualified
Non-Qualified
    
 
21.58
21.58
  
  
    
 
687,215
974,820
  
  
    
 
0
0
  
  

Kris Sirchio

   Qualified
Non-Qualified
    
 
3.42
3.42
  
  
    
 
83,227
228,023
  
  
    
 
0
0
  
  

 

 

  (1) The amount in this column represents the actuarial present value of each NEO’s accumulated pension benefit as of our FASB ASC Topic 715 measurement date, April 30, 2013, using a 4.08% discount rate, age 65 expected retirement age, 2012 Static Mortality Table for Annuitants and Non-Annuitants, and life annuity form of payment.

Brown-Forman Corporation Salaried Employees Retirement Plan.  Most U.S. salaried employees, and all of our NEOs, participate in the tax-qualified Salaried Employees Retirement Plan. This plan is a funded, non-contributory, defined-benefit pension plan that provides monthly retirement benefits based on age at retirement, years of service, and the average of the five highest consecutive calendar years’ compensation during the final ten years of employment. Retirement benefits are not offset by Social

 

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Security benefits and are assumed for actuarial purposes to be payable at age 65. A participant’s interest vests after five years of service.

Brown-Forman Corporation Supplemental Executive Retirement Plan.  U.S. Federal tax law limits the amount of compensation that may be used annually to accrue benefits under our tax-qualified Salaried Employees Retirement Plan. Therefore, for employees whose compensation exceeds these limits, including our NEOs, we maintain a non-qualified Supplemental Executive Retirement Plan (“SERP”). The SERP provides retirement benefits to make up the difference between a participant’s accrued benefit calculated under the tax-qualified Salaried Employees Retirement Plan and the ceiling imposed by federal tax law. The SERP also provides faster vesting for certain key employees who join us mid-career.

The formula to calculate the combined total pension benefit under both plans includes the following factors:

 

   

Final Average Compensation (“FAC”) is the average compensation of the highest consecutive five calendar years in the last ten calendar years employed. For this purpose, compensation is considered to be salary, holiday bonus and short-term incentive compensation (not long-term cash or equity compensation).

 

   

Social Security Covered Compensation (“CC”) is the average of the Social Security Taxable Wage Base in effect for each calendar year during the 35 years ending with the calendar year in which a participant attains his or her Social Security Retirement age.

 

   

Credited Service (“Service”) is the number of years and whole months of service the participant is employed by the Company at a location or division that participates in the pension plan, up to a maximum of 30 years.

The formula to determine the monthly pension for a participant retiring at the regular retirement age of 65 is:

 

   

1.3% multiplied by FAC up to CC;

 

   

1.75% multiplied by FAC above CC;

 

   

The sum of the above multiplied by Service; and

 

   

Divide by 12 to get the monthly pension (before reduction for early retirement or optional forms of payment).

For example, for someone with FAC of $400,000, CC of $80,000, and Service of 30 years:

 

 

•      0.013 X $80,000 =

   $ 1,040   
 

•      0.0175 X $320,000 =

   $ 5,600   
    

 

 

 
 

•      Sum

   $ 6,640   
 

•      Times Service

     30   
    

 

 

 
 

•      Annual age 65 Pension

   $ 199,200   
 

•      Divide by

     12   
    

 

 

 
 

•      Monthly Pension

   $ 16,600   

Early retirement is available at age 55 under both plans. However, those who retire before age 65 under the final average pay formula have their pension payments reduced by 3% for each year (1/4 of 1% for each month) that payments start prior to age 65. Donald C. Berg and Mark I. McCallum are our NEOs who are currently eligible for early retirement. Retirees can also reduce their pension payment to purchase optional forms of payment that protect their spouse or ensure a minimum payment period.

Once the final pension is determined, the federal rules that govern the maximum pension that can be paid under the qualified plan are applied to determine the portion to be paid under the qualified plan, and the remainder becomes payable under the non-qualified pension plan.

 

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NON-QUALIFIED DEFERRED COMPENSATION FOR FISCAL 2013.

Effective January 1, 2011, we adopted the Brown-Forman Corporation Non-qualified Savings Plan. The following table provides information on plan contributions and earnings for our NEOs for fiscal 2013.

Fiscal 2013 Non-qualified Deferred Compensation Table

 

     

Executive

Contributions

in Last FY (1)

($)

    

Registrant

Contributions

in Last FY

($)

  

Aggregate

Earnings in

Last FY (2)

($)

    

Aggregate

Withdrawals/

Distributions

($)

  

Aggregate

Balance at

Last FYE (3)

($)

 

Paul C. Varga

         1,501,742          -          488,479          -      3,130,013   

Donald C. Berg

     -       -      -       -      -   

James S. Welch, Jr.

         467,569          -          111,780          -      967,450   

Mark I. McCallum

     -       -          28,764          -      320,947   

Jane C. Morreau

         17,508           -          1,968           -      39,795   

Kris Sirchio

     -       -      -       -      -   

 

(1) The amount of the contributions made by each NEO, as reported above, is also included in each NEO’s compensation reported under the Summary Compensation Table, either as “Salary,” or “Non-Equity Incentive Plan Compensation”.

 

(2) Aggregate earnings are not reported in the Summary Compensation Table. NEOs participating in the Savings Plan may notionally invest their plan balances in mutual funds within generally the same asset classes available to participants in our qualified 401(k) savings plan. The earnings reflected in the “Aggregate Earnings in Last FY” column represent deemed investment earnings or losses attributable to the change in market value of the notional investments. The Savings Plan does not guarantee a return on deferred amounts. No amounts included in this column are reported in the Summary Compensation Table because the Savings Plan does not provide for above-market or preferential earnings.

 

(3) The following amounts are included in the “Aggregate Balance at Last FYE” column and previously were reported as compensation to the NEOs in the Summary Compensation table for fiscal 2011 through 2012 (except for Ms. Morreau, who was not a NEO until fiscal 2013): Mr. Varga, $1,063,010; Mr. Welch, $382,125; Mr. McCallum, $278,139 and Ms. Morreau, $0.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL.

We do not provide our NEOs with any contract, agreement, plan, or arrangement that allows for payments or benefits upon termination or a change-in-control, and that discriminates in favor of any of the NEOs in scope or terms of operation. It is our practice to offer certain benefits to executives whose employment terminates prior to the payment of incentive awards, depending upon the circumstances surrounding their termination. These benefits are intended to continue to link executive compensation to the performance of the Company after their employment has ended and to prevent them from being penalized in situations where the termination of employment was outside of their control. The chart below describes the treatment of annual and long-term incentive awards upon termination of employment under various termination scenarios.

 

Termination Event    Short-Term
Cash Incentives
   Long-Term Cash Incentives
and Performance-Based
Restricted Stock
   SSARs

Retirement (1)

   Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year and are paid at the same time and in the same manner as to active employees.    Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year and are paid at the same time and in the same manner as to active employees. Unpaid awards granted in prior fiscal years are not reduced, but are paid at the same time and in the same manner as to active employees.    Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year. Unpaid awards granted in prior fiscal years are not reduced. All awards become vested at the same time and in the same manner as to active employees. Once vested, retirees must exercise prior to the sooner of 7 years from the date of retirement or the original expiration date.

Death/Permanent Disability

   Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the fiscal year and are paid at the same time and in the same manner as to active employees.    Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year and are paid upon termination at a target level of performance. Unpaid awards granted in prior fiscal years are not reduced and are paid upon termination at a target level of performance.    Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year. Unpaid awards granted in fiscal years prior to death or permanent disability are not reduced. All awards become vested upon death or permanent disability. Once vested, awards may be exercised for up to 5 years, but in no case may the period to exercise exceed the original expiration date.

Involuntary Not for Cause

   Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the fiscal year and are paid at the same time and in the same manner as to active employees.    Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year and are paid at the same time and in the same manner as to active employees. Unpaid awards granted in prior fiscal years are not reduced, but are paid at the same time and in the same manner as to active employees.    Awards granted in the fiscal year of termination are adjusted pro-rata based on the time worked during the year. Unpaid awards granted in prior fiscal years are not reduced. All awards become vested at the same time as for active employees. Once vested, awards may be exercised for up to 12 months, but in no case may the period to exercise exceed the original expiration date.

 

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Termination Event    Short-Term
Cash Incentives
   Long-Term Cash Incentives
and Performance-Based
Restricted Stock
   SSARs
Voluntary Termination or Involuntary for Poor Performance    Awards granted in the fiscal year of termination are forfeited.    All unearned awards are forfeited.    Awards that are unvested at the time of termination are forfeited. Awards that are vested at the time of termination may be exercised for up to 30 days.

Involuntary for Cause

   Awards granted in the fiscal year of termination are forfeited.    All unearned awards are forfeited.    All outstanding awards are forfeited.

 

 

(1) Retirement applies to those executives who leave the Company at or after age 55 with at least 5 years of service or at or after age 65 with any service.

Change-in-Control and Termination Upon Change-in-Control.  In the event of a change-in-control, as defined in the Plan, short-term and long-term incentive compensation cycles continue unaffected, outstanding options and SSARs become immediately vested (exercisable according to their original vesting schedule), and restrictions on outstanding performance-based restricted stock awards lapse. In the event of an executive’s termination within one year following a change-in-control, all outstanding awards become immediately vested and exercisable, restriction periods lapse, and cash awards are paid out pro rata based on target performance through the effective date of termination. In the event of a change-in-control or a potential change-in-control, as defined in the Plan, the realizable value on exercise of outstanding options and SSARs is subject to adjustment as described in the Plan.

The following table illustrates the value of compensation available to our NEOs had their employment terminated on April 30, 2013, the last day of our 2013 fiscal year, under various scenarios. The compensation included is only that which would have been payable as a direct result of the specified triggering event. This table excludes the value of pension benefits that are disclosed in the Fiscal 2013 Pension Benefits Table on page 51 and the amounts payable under deferred compensation plans that are disclosed in the Fiscal 2013 Non-qualified Deferred Compensation Table on page 53.

 

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Fiscal 2013 Potential Payments upon Termination or Change-in-Control Table

 

                         Name   Voluntary
Termination
    Involuntary
Termination
for Cause
    Involuntary
Termination
Not for Cause
    Retirement     Death     Change-
in-Control
     Termination
Upon Change-
in-Control
 

Paul C. Varga

              

Death Benefit (1)

    0        0        0        0        2,000,000        0         0   

Holiday Bonus (2)

    0        0        18,542        18,542        18,542        0         18,542   

STC (3)

    0        0        2,173,600        2,173,600        1,300,000        0         1,300,000   

LTC (4)

    0        0        3,675,000        3,675,000        2,865,000        0         2,865,000   

SSARs (5)

    0        0        7,759,294        7,759,294        7,759,294        0         7,759,294   

PBRS (4)

    0        0        6,532,132        6,532,132        4,909,019        0         4,909,019   

Total

    0        0        20,158,568        20,158,568        18,851,855        0         16,851,855   

Donald C. Berg (6)

              

Death Benefit (1)

    0        0        0        0        3,000,000        0         0   

Holiday Bonus (2)

    9,809        0        9,809        9,809        9,809        0         9,809   

STC