mySAP ERP FINANCIALS AT BROWN-FORMANStandardizing Treasury Processes to SupportCompliance and Global Growth

CONTENTS

Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Origins

Industry Consolidation

Global Growth

Challenges and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Cash Management Inefficiencies

Nonintegrated Foreign Exchange Processes

High Costs for Funds Transfers

Month-End Closing and Account Reconciliation Inefficiencies

Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Phase 1 Cash, Debt, and Investment Management

Phase 2 Global Cash Visibility

Phase 3 Straight-Through Processing

Phase 4 Hedging of Foreign Exchange and Commodities

Auditing Review and Sarbanes-Oxley Compliance

Change Management

Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Measurable Results and Related Benefits

Confidence in Sarbanes-Oxley Compliance

Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Brown-Forman enhanced its

treasury, risk, and cash manage-

ment processes, enabling it to

better fund growth, be positioned

to participate in new marketing

and distribution arrangements,

and comply with Sarbanes-Oxley

regulations. The company

streamlined processes including

vendor payment, general ledger

reconciliation, foreign exchange

derivative contract management,

and many others. Brown-Forman

is using the mySAP ERP

Financials solution to enable

these processes and is realizing

goals for productivity improve-

ments, lower costs, and regulatory

compliance.

SAP Case Study

2Brown-Forman Corporation, headquartered in Louisville, Ky.,

is one of the largest American-based companies in the wine and

spirits business, and the company has succeeded by focusing on

building its brands. To help improve the worldwide presence

and growth of its brands, the company has established business

processes that are highly efficient and can be replicated across

its subsidiaries. In particular, Brown-Forman is focusing on

enhancing its treasury, risk, and cash management processes,

since efficient management of working capital is essential to

fund growth and investment behind the brands. Moreover, the

Sarbanes-Oxley Act of 2002 strongly encourages standardized

cash management as a means to strengthen internal controls.

Brown-Forman deployed the treasury, risk, and cash manage-

ment capabilities of the mySAP ERP Financials solution to

enable new processes and achieve productivity improvements,

lower costs, and greater confidence in its compliance with

Sarbanes-Oxley.

ABSTRACT

AT A GLANCE

Strategic Goals

Build brands in global markets Comply with the Sarbanes-Oxley Act Reduce cash management costs, including transaction expenses

and workforce, and implement cash management best practices

Manage debt capacity to maximize financing available for newinvestments

Approach

Brown-Forman proceeded with a phased approach to develop

best-in-class treasury processes, provide global visibility into cash

positions, and improve the efficiency of cash management. The

company established a single system through which all vendor pay-

ment, cash receipt, debt repayment, foreign exchange derivative

contracts, and other entries flow; reduced the number of bank

accounts; and reconciled general ledger and bank accounts every

day. Brown-Forman instated straight-through processing, in which

payments are transmitted directly to a bank from its electronic files.

The company established segregation of duties through workflow-

enabled processes and removed stale data from its vendor files.

This approach was enabled by the treasury, risk, and cash manage-

ment capabilities of the mySAP ERP Financials solution.

Results

Results achieved over the period from the fourth quarter of 2002

to the third quarter of 2004:

Improved productivity Reduced total workforce associated with cash management

processes by 60%

Lowered resources required to manage daily cash application

and payments by 81%

Reduced average subsidiary cash balances by 50% Lowered transaction costs by 10% Came into compliance with Sarbanes-Oxley

Ensured compliance through better controls

Reduced the workforce required for annual compliance verifica-

tion, documentation of IT integration and system configuration,

and regular financial audits

As we grow our global operations,

efficient working capital management

based on the best industry practices

is recognized as key to execution of

our business strategy.

Robert Waddell, Global Treasury Manager, Brown-Forman

3The company he started trundled along until 1920, when the

U.S. Congress outlawed the leisure consumption of beer, wine,

and spirits. Prohibition could have dealt a deadly blow to

Brown-Forman, which by this time had expanded beyond the

medical market. But the company was saved when Owsley

Brown, son of the founder, secured 1 of only 10 government

licenses to make medicinal whiskey.

In 1933 Brown-Forman toasted the end of the teetotaler era.

In the years that followed, the companys growing sales gave it

the heft to pursue acquisitions. The deal that shaped the firm

more than any other came in 1956 when Brown-Forman

bought the Jack Daniel Distillery

in Lynchburg, Tenn., from the

Motlow family.

Brown-Forman continued to

broaden its beverage portfolio

over time. The distribution

rights to Korbel California

Champagnes and Brandies were

acquired in 1965, and in 1967

the company made its first foray

abroad, adding Pepe Lopez

Tequila to the Brown-Forman product line. The following year,

Brown-Forman scooped up Bolla Italian wines and in 1971

acquired Canadian Mist. The company purchased Southern

Comfort in 1979, Fetzer Vineyards in the early 1990s, and Sonoma

Cutrer Vineyards in 1999. In 1996 it entered into an agreement

to be the exclusive U.S. marketer of Finlandia vodkas. Brown-

Forman gradually increased its ownership position in Finlandia

and now controls 100% of the Finlandia brand and is the global

distributor of the brand. Since 2000, Brown-Forman has rounded

out its portfolio by purchasing Tuaca Liqueur and acquiring the

U.S. distribution rights to Appleton Estate Jamaican Rums and

Amarula Cream Liqueur.

Brown-Formans intention is to be the best brand builder in

the industry, period. If the strength of Jack Daniels the

worlds best-selling American whiskey is any indication, the

company is moving solidly toward that goal. The whiskey is

regarded by marketing consultants as one of the most valuable

brands in the world, which is rare for a distilled spirit. The Jack

Daniels brand is in the company of household names identify-

ing leading soft drinks, credit cards, and restaurants.

Brown-Forman is working to grow its other beverage brands,

including Southern Comfort, Finlandia vodkas, and Fetzer and

Bolla wines. Brand development also extends to the companys

consumer durables business, which

includes the Lenox family of china,

crystal and giftware, and Hart-

mann luggage.

Brown-Formans brands have trans-

lated into the sort of financial per-

formance that could intoxicate an

investor. In fiscal 2004, the compa-

ny had a profit of US$258 million

on sales of US$2.6 billion, and

reached record levels of sales, gross

profit, and operating income. Its earnings per share also at

record levels increased by 16% from the previous year, to

US$2.11. Based in Louisville, Ky., Brown-Forman has sales in

more than 130 countries.

Origins

Chances are George Garvin Brown wouldnt recognize the

international company that his creation has become. Back in

1870 when he started Brown-Forman, he aimed to sell bourbon

to physicians who prescribed it as a tonic. To guarantee quality,

he bottled the bourbon instead of selling it in the then-

ubiquitous barrels.

BUSINESS

The people we talked to described the

value of integration within the SAP

solution. The benefits they described

were what we were seeking time

savings, productivity, accuracy, and

control.

Bob Walker, Senior Financial Analyst and Project Team Lead,

Brown-Forman

Industry Consolidation

The trend toward consolidation exists throughout the wine and

spirits industry and has accelerated in recent years as companies

seek to achieve economies of scale and establish global positions

in premium brands. In the late 1990s and early 2000s, there were

several multibillion dollar deals involving acquisitions, distribu-

tion ventures, and divestitures, which substantially improved

the strategic focus of key players.

Brown-Forman remains in a strong position to make acqui-

sitions and to enter into agency and distribution agreements.

The company handles its finances conservatively, keeping debt

levels low. At the end of fiscal 2004 it had about US$630 million

in long-term borrowings. Its long-term debt-to-equity ratio

was 0.58, far lower than the industry average. Its cash flow from

operations is strong and growing a result of earnings growth

and superb resource allocation (see Figure 1).

Global Growth

A challenge ahead for Brown-Forman is to continue growing its

brands in the United States and international markets. Although

consumption of premium distilled spirits is increasing in the

United States and Jack Daniels is growing strongly in both the

domestic market and established international markets, global

emerging markets hold significant potential. Likewise, Brown-

Forman is working to build its other premium brands both at

home and overseas.

To strengthen its brands, Brown-Forman is working to ensure

that its marketing efforts are grounded in a deep understanding

of consumers in various countries and that consumers are

able to find the companys brands where they shop, drink, eat,

and entertain. Whats more, the company has a stated objective

to allocate resources efficiently across brands and geographies,

and develop efficient and effective business processes that can

support its worldwide expansion. The company can then move

as nimbly in its emerging markets as it does in the United States

and established international markets.

To this end, Brown-Forman strives to manage every part of the

business, including treasury functions, as deftly as it handles

branding. Brand-building and acquisition strategies will require

that the company operate consistently and cost-efficiently.

To achieve its goals, Brown-Forman must strategically manage

brand building and distribution in markets around the world,

says Robert Waddell, global treasury manager. That means

that we have to develop business processes that are efficient and

replicable globally, so that we can be positioned to quickly estab-

lish the brands where new opportunities emerge.

4

450

400

350

300

250

200

150

100

50

0

($ millions)

2002 2003 2004

Cash from Operating Activities Operating Income

Figure 1: Operating Income and Cash Flow Increase During 2002 to 2004

To support its brand building and growth, Brown-Forman

established best-practice processes covering material procure-

ment, manufacturing, distribution, customer service, and

others. Many of these processes are enabled by Brown-Formans

implementation of SAP solutions, which began in 1999, and

includes supply chain management, customer relationship

management, and basic accounting capabilities.

Treasury, risk, and cash management processes were not

enabled by the initial implementation. But management of its

working capital which includes receiving revenue and paying

for goods and services is integral to operations. As we grow

our global operations, efficient working capital management

based on the best industry practices is recognized as key to

execution of our business strategy, says Waddell.

The company faced the following specific challenges in 2001:

Cash management inefficiencies Nonintegrated foreign exchange processes High costs for funds transfers Month-end closing and account reconciliation inefficiencies

Each is discussed below.

Cash Management Inefficiencies

Cash management includes daily management of working

capital, investments, and transactions with domestic and foreign

subsidiaries. Specific issues are as follows.

Managing daily cash position: Brown-Forman had inefficient

processes for establishing its cash position each day. The com-

pany does business with four primary banks and several other

regional banks, holding multiple accounts in each. Every day,

each bank would be polled to obtain cash balances, and the

balances would be keyed into spreadsheets. Target balances

were then determined based on polling information, and funds

transferred among accounts and from commercial paper

markets to meet targets.

The manual process took much of the day and was susceptible

to keying errors. We would start each morning by polling the

banks and getting previous day balances, current day balances,

incoming wires, outgoing wires, and related information. We

would determine our cash position at about 11 a.m. and then

borrow or pay down commercial paper, depending on our cash

position. The rest of the day was spent following up on open

items, sending wire transfers, and so forth, says Jana Ladd,

global cash manager.

Missed opportunities in the commercial paper market:

Commercial paper consists of short-term unsecured promis-

sory notes. Companies often find that commercial paper

borrowing is less expensive than bank loans for raising cash

for current transactions. Brown-Forman has a commercial

paper program authorized for US$500 million, though the

amount outstanding is normally much smaller than that.

Since Brown-Forman couldnt finalize its daily cash position

until late morning, precise needs could not be determined until

then, resulting in missed chances to borrow in the commercial

paper market earlier in the morning when the market is most

liquid. By 11 a.m., commercial paper rates may have risen due

to less liquidity, and Brown-Forman could lose the opportunity

to save significant interest expense on balances that might reach

several million dollars.

Handling cash transactions: Electronic payments to fund a

bank account, pay a supplier, trade foreign exchange, fund an

intercompany loan, and so forth, were manually entered into

banking systems in the companys treasury department for

review and release. This information was also captured in spread-

sheets in summary form in the treasury and accounts payable

departments. Likewise, the treasury department recorded

incoming cash in spreadsheets. Treasury personnel then would

e-mail relevant bank statements to the accounts receivable

department, where data was also entered into spreadsheets.

Additionally, the treasury department manually managed

foreign exchange payments and receivables using a PC database.

CHALLENGES AND OBJECTIVES

5

These cash transactions werent directly integrated with the

accounts payable or accounts receivable capabilities in the existing

SAP system. The spreadsheet entries were input into the SAP

system only as summarized batch journal entries at month-

end, which made bank account reconciliation more difficult.

Managing investments and loans: Brown-Forman also used

spreadsheets to manage the cost basis, accrued interest, and

other items associated with investments and to monitor prin-

cipal, interest, and payment due dates for loans. Managing this

information and the interface to daily cash requirements were

manual processes thus very time-consuming and subject to

keying errors.

Cash forecasting: Brown-Forman has a relatively predictable,

cyclical cash flow. The company receives a significant amount

of cash during August and September, as distributors and retail-

ers prepare for the end-of-year seasons and then sees a larger

cash flow from November through the end of January because of

purchases during the holidays. Debt service is limited, and the

company knows of specific incoming cash flows about two weeks

in advance because customer bank accounts are directly debited.

The company used historical information as a basis for fore-

casting and spreadsheets to manage forecast data. An estimated

forecast of cash was established with a time horizon of about

two weeks, and the treasury department monitored this cash

flow forecast using accounting capabilities in the existing SAP

software. This method met the companys basic needs; but a

large transaction, which increases debt or changes incoming

cash flow predictability, could motivate the company to pursue

a more robust cash forecasting solution.

Unproductive cash in foreign countries: Brown-Forman

had pockets of cash in countries around the world that were not

as productive as possible. These funds, for example, could not

be withdrawn easily to reduce debt in the United States. At the

same time, tax laws sometimes made it undesirable to transfer

funds out of some countries.

These global pockets of cash had to be managed manually until

the company found a suitable investment or decided to bring

the cash to the United States in the form of a dividend or other

cash repatriation mechanism. We did a good job of managing

cash in the United States and safeguarding the cash globally,

says Waddell. But efficient international cash management was

virtually impossible with our existing processes.

Credit rating and debt capacity: Brown-Forman has a solid

balance sheet and strong margins, resulting in strong cash

flow and relatively low debt levels. Nonetheless, management

believed that it could better understand the companys cash

position, manage cash flow, sustain a high credit rating, and

have working capital to use for brand building, debt service, and

other purposes. Moreover, in the future, the company would

likely increase the number of foreign subsidiaries with which it

would work directly, thereby increasing operational complexity

as well as the importance of good cash management processes.

What we do in treasury is not so much manage a lot of debt but

rather manage debt capacity, says Roger Shannon, assistant trea-

surer. We need to be prepared on a moments notice to secure

financing and possibly a material amount of financing to

undertake an acquisition. So its in our best interest to minimize

one-off local borrowings, have faster access to our cash flow, and

be able to deploy our cash for value enhancers such as investments,

advertising, and promotion or for debt service. We dont want to

spend money on interest charges or unproductive processes.

Nonintegrated Foreign Exchange Processes

Since many of Brown-Formans payables and receivables are

denominated in foreign currencies, its profitability is influenced

by foreign exchange rates. Thus management of exchange rates

is important, and many stakeholders closely watch these rates.

The treasury department centrally manages global foreign

exchange exposures and is the source and distributor of exchange

6

rates for Brown-Formans general ledger and information data-

bases. The treasury department developed a process to ensure

that the foreign exchange rates that were imported into the

SAP financial software were the same as the ones being used in

management reporting and analysis.

To reduce the risk to profitability of exchange rate fluctuations,

Brown-Forman hedges significant portions of its foreign exchange

exposures using financial derivative instruments, principally

foreign exchange options1 and forward2 contracts. The company

managed its foreign exchange contracts about 100 at any time

using a third-party software solution, which collected statistics,

performed trade analyses, determined valuations, and provided

other functions. Brown-Forman spent around US$50,000 per

year on license fees for this software. More significantly, since the

third-party solution for managing derivative contracts was not

integrated with the SAP solution, the accounting and cash move-

ment for these derivative contracts had to be entered manually.

High Costs for Funds Transfers

Brown-Forman moved funds domestically and internationally

primarily via wire transfer. International transfers about 30

per week were initiated through proprietary banking systems

and ranged in cost from US$12 to US$18 per transfer. The com-

pany also used desktop banking systems to initiate Automated

Clearing House (ACH)3 transfers for many domestic payments

as well as low-value clearing systems for some international

payments. These systems didnt have the controls of proprietary

banking systems supporting wire transfers. Brown-Forman also

issued some wire transfers domestically in addition to ACH;

these transfers cost about US$7 each.

Month-End Closing and Account Reconciliation

Inefficiencies

To close the books each month, Brown-Forman manually

reconciled month-end general ledger batch entries for all cash

movements that did not initiate through the accounts payable

system against daily transactions in the bank statements. This

process, which involved treasury payments, controlled disburse-

ment funding, and cash concentration, was difficult and very

labor-intensive. Month-end summary general ledger entries

lacked detail, and the companys numerous bank accounts made

month-end bank reconciliations very time-consuming. Often,

a large number of items required reconciliation occasionally

consuming as much as two months to research and clear. Two

full-time employees managed this process, and month-end clos-

ing for cash transactions took about 2.5 person-days each month.

At the end of the month, the accounting group would come

up with a large spreadsheet of reconciling items, says Ladd.

The issues were spread among different people to reconcile

one person for U.S. dollar accounts, one for a specific set of

international currencies, and so forth. Then all of these spread-

sheets would come to treasury, which would assist with recon-

ciliation. Treasury would contact the bank for required details,

and the bank would have to provide details for transactions that

had taken place weeks before.

Brown-Forman had inefficient cash concentration processes,

which consumed excessive workforce hours and cash. Therefore,

the companys primary objectives were to streamline and standard-

ize cash management processes, addressing the lack of efficiency.

Moreover, by establishing standard processes that could support

global operations, the company would be better positioned to

pursue growth opportunities.

7

1) Options contract: An options contract provides the right, but not the

obligation, to buy or sell a commodity, currency, or other item at a

predetermined price for a specific date or time period. An options contract

allows Brown-Forman to take advantage of favorable market conditions,

while protecting itself against unfavorable price movements. A premium is

payable on the trade date, and if the option is not exercised, the premium

is forfeited.

2) Forward contract: A forward contract is a privately negotiated market

transaction in which a seller agrees to deliver a specific commodity,

currency, or other item to a buyer at some time in the future. There is

typically no secondary market for forward contracts.

3) ACH is based on a private electronic payment transfer system.

Brown-Forman considered several possible software solutions in

late 2001 to enable its working capital management processes

and found that the treasury, risk, and cash management appli-

cation of the mySAP ERP Financials solution (SAP Treasury and

Risk Management) would best meet its needs. During its inves-

tigation, people at Brown-Forman spoke with other companies

that had implemented these SAP solutions. Early adopters

explained the benefits to us, says Bob Walker, senior financial

analyst in the treasury department and project team lead for

the implementation. The people we talked to described the

value of integration within the SAP solution of cash manage-

ment, automated bank statements, accounts receivable, and

accounts payable capabilities. The benefits they described were

what we were seeking time savings, productivity, accuracy,

and control.

Brown-Forman also considered many consulting organizations

to assist with decision making and implementation. In early

2002, after a thorough analysis, the company selected e5 Solu-

tions Group as its partner (see insert). We discussed the issues

with our existing cash management processes with e5, says

Ladd. e5 told us everything SAP could do to address our require-

ments this was all brand new to us and helped us decide

to proceed with the SAP solution for these capabilities. The

information provided helped us promote this solution to others

in the organization.

Brown-Forman was an excellent candidate for an SAP Treasury

and Risk Management implementation, says Jaime Ryan, prin-

cipal consultant with e5 Solutions. The company had already

implemented the core components of mySAP ERP, they had an

experienced IT organization, and most important, they had full

buy-in from the treasury department. Moreover, treasury man-

agement looked beyond the benefits to their own organization

and was able to see the enterprise-wide benefits of an integrated

solution.

Brown-Forman management decided that the implementation

would best be conducted in phases learning at each step and

avoiding exposure to the risks of a big bang approach (an all-

at-once implementation). We proceeded with a rolling phase-

in to develop the cornerstone of our cash management strategy

throughout the company, says Shannon. This is a centralized,

highly efficient cash management process that we refer to as the

cash value chain.

The four phases of the implementation, which adhered

substantially to the ASAP methodology, were strongly support-

ed by e5 Solutions.4 These phases proceeded as follows:

Phase 1 Cash, Debt, and Investment Management

In this phase, implemented from February to June 2002, Brown-

Forman established new processes to manage working capital.

The goals of this phase were to reconcile bank accounts daily,

concentrate cash, determine a final number to borrow or invest

each day, improve control, enhance accuracy, and reduce

the workforce.

In phase 1 every cash entry vendor payment, cash receipt,

borrowing, repayment of debt, or currency trade would flow

through a single system that automatically created journal

entries in the general ledger. This approach allowed single entry

IMPLEMENTATION

8

4) Though ASAP doesnt have provision for development of a proof of

concept, e5 Solutions supported development of two proofs of concept.

First was the design, which users and other stakeholders could review and

respond to. The second was a prototype providing specific screens and

workflows again allowing feedback and laying the foundation for the

actual implementation. This iterative approach allowed for deeper under-

standing of requirements and ultimately a better design and implementation.

e5 told us everything SAP could do

to address our requirements . . . and

helped us decide to proceed with the

SAP solution for these capabilities.

Jana Ladd, Global Cash Manager, Brown-Forman

Contributions of e5 Solutions Group

e5 Solutions Group is the leading provider of SAP

treasury solutions and consulting implementation ser-

vices in North America. The firm was founded by former

SAP America platinum-level consultants who specialize

in the treasury modules. Offering business and configu-

ration consulting as well as custom development, e5 is

recognized as the leader in implementing SAP treasury

solutions. Brown-Forman employed the services of e5

for phases 1, 3, and 4.

A tenet underlying e5s approach is that it is important to

focus up front on designing a good solution and properly

transferring knowledge. By doing this, the customer

doesnt need to rely on full-time external consultants to

continue the rollout. For example, Implementing foreign

exchange, hedge management, and market risk manage-

ment at Brown-Forman was straightforward, says Jaime

Ryan, principal consultant, e5 Solutions. After working

with the system for a couple of years, Brown-Forman

really understood the principles of SAP treasury capabili-

ties. Extending the solution only required part-time con-

sulting over the course of a few months. Also, after e5s

assignment was completed, Brown-Forman was able to

continue the rollout of the SAP solution independently.

Brown-Forman management recognized the essential

value that e5 provided. The treasury, risk, and cash

management implementation was a highly visible and

strategic project, says Roger Shannon, assistant trea-

surer at Brown-Forman. Selecting e5 was one of the

best moves we made their contributions were critical

to smooth execution and success.

of financial values into the system and eliminated or substan-

tially reduced rekeying of data into spreadsheets. There would

be a one-to-one match between the bank statement and the

general ledger entries, and reconciliation would be performed

daily. Cash account closing could take place on virtually any

day, because the bank and ledger balances would be reconciled.

All stakeholders could view the same bank statement informa-

tion in mySAP ERP Financials, and e-mailing this information

internally was no longer necessary.

The first phase was the largest, says Shannon. It took signifi-

cant resources to implement the system, switch over things like

cash concentration and bank account reconciliation and

complete the link in the cash cycle between accounts payable

and accounts receivable that didnt exist before.

The company implemented the following integrated treasury,

risk, and cash management capabilities within mySAP ERP

Financials.

Vendor payments: Global vendor payment details were

uploaded directly into bank payment systems, eliminating the

rekeying of wire transfers and related data, automatically

updating the general ledger, and eliminating manual accounts

payable postings in mySAP ERP. The payment file, which is an

SAP data interchange file, informally known as an iDoc file,

was translated using an electronic data interchange (EDI)

translator so that it could be read by banking systems, and the

banks could in turn release payments.

Customer receipts: Customer payments were directly uploaded

into the SAP solution from bank systems. Postings of customer

receipts to customer records in the accounts receivable module,

and to the general ledger in mySAP ERP Financials, were auto-

mated. The system has logic built in to know which customer

the payment is from and what invoice it pertains to, says

Shannon. It applies cash to the receivables account in the

general ledger so we dont have to do that manually anymore.

9

Global bank account information management: Brown-

Forman automated the collection and processing of global bank

account information and reconciled bank account information

for U.S. and most international accounts every day. The com-

pany also enhanced cash concentration, centralizing domestic

cash balances into a single account to ensure that the highest

overnight rate of interest was received (or lowest paid, if there

was a negative balance). Brown-Forman receives reports cover-

ing current and prior-day detailed balances, which populate

the cash position work sheet and

facilitate decisions regarding fund-

ing disbursement accounts. Bank

accounts were reconciled daily

using the detail file from the prior

day.

Reduction in the number of

bank accounts: As noted, Brown-

Forman maintained numerous

bank accounts for wire transfers, ACH transfers, settlement

of intercompany accounts, and so forth to ensure efficient

account reconciliation. Following implementation of phase 1,

this requirement was reduced, thanks to a capability allowing

postprocessing of bank statements to resolve discrepancies. This

postprocessing capability allows Brown-Forman to manage the

complexity of multiple types of transactions in a single account,

rather than maintaining separate accounts by transaction type.

Also, consolidation of bank accounts allows Brown-Forman to

negotiate fee reductions with banks.

Treasury management for debt and investments: Traders

of financial instruments within Brown-Forman (in the treasury

departments front office) entered contracts associated with

borrowing and investing activities into the SAP solution. These

contracts were confirmed by the treasury departments back

office, allowing the payments and accounting to be processed

automatically. The primary short-term instruments used by

Brown-Forman were commercial paper, time deposits, and

other money market investments. Longer-term instruments

were medium-term note borrowings, bank credit facilities, and

corporate bonds.

Contracts in mySAP ERP Financials were linked to daily cash

positions, providing performance reporting and investment

tracking. The system automatically calculates debt and invest-

ment interest and/or fees and prepares settlements with the

treasury department's banking and financial institution busi-

ness partners, based on previously

approved agreements and settle-

ment instructions. Brown-

Forman's treasury department

first used SAP workflow capabili-

ties to facilitate the setup, entry

and confirmation of financial

business partner details within

the SAP solution.

Accounting: All details covering wire, check, and ACH cash

movements were entered automatically into the general ledger

within mySAP ERP Financials. With electronic bank statements

imported on a daily basis, all information was reconciled every

day. At month-end the system automatically calculates and

posts accruals and foreign currency revaluations for investments

and debt.

Integration with banking systems was key to completion of

phase 1 and presented a significant challenge. One of the most

time-consuming aspects of any cash management implemen-

tation is the automated integration with the banks, say Ryan

of e5 Solutions. Companies tend to underestimate the time

and dedication required from their banking partners. Brown-

Forman planned properly and was able to get the banks engaged

prior to our project kickoff.

10

. . . treasury management looked

beyond the benefits to their own

organization and was able to see

the enterprise-wide benefits of an

integrated solution.

Jaime Ryan, Principal Consultant, e5 Solutions

Phase 2 Global Cash Visibility

During this phase, from June 2002 to March 2003, Brown-

Forman brought six major foreign subsidiaries into the recon-

ciliation process. The bank information for these subsidiaries is

uploaded to mySAP ERP Financials so that the treasury depart-

ment has visibility into the cash positions around the world

where cash is not concentrated. Account reconciliation is

handled centrally, and investments may be handled from head-

quarters or at the subsidiary. Brown-Forman also closed several

bank accounts and eliminated some lockboxes.5

Phase 3 Straight-Through Processing

This phase, from April to November 2003, established a payment

process called straight-through processing (STP). Payments

were no longer uploaded into and processed through pro-

prietary banking software but instead transmitted directly to

the bank from payment data in mySAP ERP Financials. Once

payables invoices have been approved for payment, and the

vendor and other data are verified, a single payment file is trans-

mitted directly to the bank, regardless of whether it is a wire,

ACH, foreign exchange draft, or low-value clearing payment,

says Shannon. The payment data is encrypted and only needs

to be entered once.

Brown-Forman is moving to a single payment platform using

payment files extracted from the SAP accounts payable and

treasury applications for all electronic payment types. Instead of

having to access one desktop banking system for international

wires, another for domestic federal wires, another for foreign

exchange, and another for ACH payments, the company is using

its banks straight-through processing capabilities. The company

no longer has to translate SAP payment files and send them

through multiple banking systems. In effect, the central trea-

sury department acts as a house bank for domestic and inter-

national subsidiaries.

In the new environment, for subsidiaries that are using SAP

technology, were able to pull their payables files, combine them

with ours, and send them out through the STP process, says

Shannon. So its really an in-house banking pay-on-behalf-of

concept. In the past we would have funded an account and

recorded general ledger activity for cash movement. Today,

well make the payment centrally, and it will be recorded as an

intercompany entry with the subsidiary via a journal entry. So

we found a great deal of netting and offsetting opportunities,

which allow us to hang on to our cash longer and thus lower

costs.

Straight-through processing allows Brown-Forman to reduce

administrative tasks and potential errors associated with the

need to process different payment types. Also, the company has

established better controls because confirmed banking infor-

mation in the mySAP ERP Financials accounts payable vendor

master file is used for payment.

For receivables, Brown-Forman is also using a straight-through

process. About 80% of the domestic collections are done using

ACH debits of customer accounts. The company sends a pay-

ment file directly to the bank (a mirror image of a collection

file), eliminating the internal processing step in the accounts

receivable department. Weve been moving from checks to

ACH for a long time well before our implementation of SAP

treasury, risk, and cash management capabilities, says Ladd.

Customers trust Brown-Forman to accurately initiate an

electronic drawing of funds.

11

5) The need for lockboxes to handle checks was reduced because an

increasing number of payments were being made electronically

Vendor file accuracy: Brown-Forman needed to ascertain that

vendor files were accurate before distributing funds electroni-

cally using straight-through processing. But many vendor

files had not been used for many months and thus may have

contained outdated or incorrect banking information. Also,

approved vendor information had been maintained in third-

party wire transfer systems as well as in the treasury depart-

ments PC database, resulting in redundant confirmations and

risk of errors. Cleansing vendor files became a prerequisite for

moving to straight-through processing.

In February 2003 even before moving forward with straight-

through processing Brown-Forman began to clean up its

vendor master files, deleting banking details that were more

than 18 months old. For remaining bank details that had been

recently used, the company sent letters to other vendors asking

them to confirm banking details, and appropriate action was

taken depending on the response. We effectively relocated the

controls from a back-end process of reviewing wires before they

go out to the front-end of the process, ensuring that we were

wiring funds only to approved vendors, says Shannon.

Segregation of duties: During phase 3, the company estab-

lished segregation of duties, enabled by mySAP ERP workflow,

for vendor master file management. This action eliminated

duplicate activity, including a bank details database previously

maintained by the treasury department, and ensured better

control by limiting access to the vendor master file. The com-

panys strategic sourcing department continues to be respon-

sible for creating the vendor file in mySAP ERP Financials and

entering the associated payment methods, but it no longer is

permitted to enter vendor banking information. If bank details

were required, a workflow message would flow to a specified

individual within the accounts payable department who is

responsible for entering banking details from the original

payment instruction data provided by the vendor. A workflow

message would then flow to the treasury department, indicat-

ing that the vendor is awaiting approval. The treasury depart-

ment would obtain the original confirmation documents from

the vendor and verify that what had been entered in mySAP

ERP Financials matched what the vendor sent (see Figure 2).

Brown-Forman management also recognized that segregation

of duties was necessary for payment processes. Sarbanes-Oxley6

required this, and eliminating conflicts of interest inherent in

some payment processes was essential.

For example, although there were controls over wire transfers,

ACH payments had been sent directly to a bank from a file

generated in the accounts payable department. But that depart-

ments access to change vendor information meant that the

process did not satisfy segregation requirements. After the

straight-through processing implementation, the treasury

department initiates all ACH payments, along with other

wires and other electronic payments, via straight-through

processing using mySAP ERP.

12

Figure 2: Segregation of Duties for Vendor File Management

Strategic Sourc-ing Department

Create vendor Enter payment

methods

Accounts PayableDepartment

Enter bankingdetails

TreasuryDepartment

Obtain letterheaddocuments fromvendor

Confirm bankingand other dataentered in SAPsoftware

Approve vendor

6) The Sarbanes-Oxley Act of 2002 is intended to protect investors by

improving the accuracy and reliability of corporate disclosures and internal

controls. The acts requirements, including those governing disclosure

of quarterly financial reports and those requiring annual certification of

internal controls, affect how public companies such as Brown-Forman

deal with corporate governance and financial disclosure.

From a Sarbanes-Oxley perspective, theres been of lot of effort

to identify and close the gaps, says Waddell. And through our

initial efforts, we did close the gaps. We felt comfortable with

the vendor details, and we had established good controls.

Implementation with Bank of America: From April to June

of 2003, Brown-Forman considered options for handling

straight-through processing, and in June the company decided

to initially work with Bank of America. As a first step, Brown-

Forman and Bank of America agreed to use an iDoc. The payment

iDoc contains all information necessary to make various forms

of domestic and international payments. This iDoc contains

about 200 fields, including beneficiary name, address, bank

details, senders addresses, and related information. It took

about six to eight weeks to create and refine the iDoc details,

which we thought was very rapid, says Walker.

Testing was conducted from October to November 2003,

and Brown-Forman went live in November with six foreign

currency accounts and some domestic accounts at its bank (see

Figure 3). The straight-through process established in Finland

(the first non-U.S. location) enabled a treasury, risk, and cash

management solution for the companys Finlandia Vodka

Worldwide subsidiary. Thanks to integration with mySAP ERP

Financials, all bank transactions were automatically reconciled

with the general ledger. This process is being rolled out to other

international subsidiaries.

Phase 4 Hedging of Foreign Exchange

and Commodities

This phase was implemented from July to October 2004. As

noted, Brown-Forman faces risk with its exposure to foreign

exchange fluctuations. Today all foreign exchange derivative

contracts are recorded in mySAP ERP Financials. Each foreign

exchange trade generates a trade ticket, and confirmations

of trades flow back to the system and are accounted for

automatically.

In phase 4, Brown-Forman entered details covering all foreign

exchange and commodities hedging contracts, fully integrating

their accounting with mySAP ERP Financials. The company

thus eliminated the use of its third-party foreign exchange

management system.

Brown-Forman is a U.S. dollar entity, and most subsidiaries

are as well, so the headquarters may hedge foreign exchange

on behalf of foreign subsidiaries at the parent-company level

(according to FAS 1337 regulations). Some subsidiaries, such as

those in Korea and Italy, have local functional currencies and

must record foreign exchange hedge contracts at the subsidiary.

13

Figure 3: Straight-Through Processing

Brown-Forman

mySAP ERP Financials(General Ledger entry ceated when iDoc generated)

Payee 1 Payee 2 Payee 3

iDoc file with payment information

DomesticWire

ACH InternationalWire

Bank of America

mySAP ERP Financials(General ledger entry created when iDoc generated)

7) In 2001 the Financial Accounting Standards Board (FASB) put into effect a

new regulation known as FAS 133, Accounting for Derivative Instruments

and Hedging Activities, affecting most U.S. companies. FAS 133 was

adopted to resolve reporting inconsistencies and lack of accounting for

large liabilities and assets. The regulation requires companies to record

derivative contracts on the balance sheet and base valuations on a standard

analysis derived from current market conditions. FAS 133 also requires that

gains or losses be realized in the current periods income.

But mySAP ERP Financials enables the use of intercompany

contracts, so the hedging accounts are still integrated with the

companys core SAP data.

We really proved ourselves with phases 1, 2, and 3, says Waddell,

so there was confidence that we could execute when it came

to hedging foreign exchange and commodities in phase 4. We

eliminated the manual interface between the third-party system

and the SAP solution in accounting for derivative contracts

under FAS 133, greatly improved visibility for operational staff

and auditors, reduced costs, and established an audit trail within

the system.

Auditing Review and Sarbanes-Oxley Compliance

Brown-Forman audited this implementation carefully because

it addresses processes for handling liquid assets which have

more risk exposure than other asset classes. The companys

internal auditing group played two roles. The first was to work

with the treasury department to review established processes

and to make recommendations for improvements for example,

those relating to the SAP software configuration, segregation

of duties, and operational efficiency. The second was to ensure

that the processes met the requirements of Sarbanes-Oxley; the

auditors determined high-level objectives for compliance and

established and documented necessary controls. The auditors

reviewed every process that had a material impact on financial

statements, including those relating to foreign exchange, bank

accounts, debt, investments, and derivatives.

As an implementation of SAP software, auditing tasks were

simplified and Brown-Forman management could be confident

that the right controls were in place. With mySAP ERP, we

were able to establish controls that are put in place up front, so

we didnt need a gatekeeper at the back end, says Todd Werner,

IT audit manager. For example, workflow processes were estab-

lished so that the vendors need to be approved before a payment

is made. Its always better to have this type of preventative con-

trol in a process, and thats what SAP solutions enable.

In addition to auditing processes, Brown-Forman also audited

systems. From the IT side, we had to complete only basic com-

pliance tests of integrated applications, interfaces, the operating

system, and the database, because these were certified to work

properly with the SAP solution, says Werner. Once we com-

pleted our basic review of controls, we could rely on independent

opinions confirming that new third-party systems are com-

pliant with our requirements.

SAP solutions are widely implemented in many industries,

says Kevin Zoeller, audit consultant with Brown-Formans

internal audit services. The processes and systems have been

thoroughly reviewed and tested. We thus had high confidence

that the processes were well controlled and compliant with

Sarbanes-Oxley.

14

With mySAP ERP, we were able to

establish controls that are put in place

up front, so we didnt need a gate-

keeper at the back end.

Todd Werner, IT Audit Manager, Brown-Forman

Change Management

As a result of this implementation, many cash management

processes changed at Brown-Forman. The company shifted

from handling data in many large spreadsheets to handling

single data entry in mySAP ERP, from monthly to daily recon-

ciliation, and from individuals handling end-to-end cash

processes to methods of operation involving segregation of

duties. The accounts receivable, accounts payable, general

ledger, and treasury departments substantially changed long-

established ways of working. We had to substantially change

the companys approach regarding how best to manage cash

and the payments process in the new environment, says

Shannon. We were shifting to a daily, real-time approach.

In particular, the role of the treasury department changed.

Before the implementation of mySAP ERP, cash management

was manual and wire transfers were being reviewed by treasury.

We were getting copies of all documents, including the invoic-

es, says Ladd. When we went to straight-through processing,

we realized that we had to let go of the second review we had in

treasury or actually, the control we just seemed to have. We

had to trust the controls in the SAP software and gain comfort

that the straight-through process would work properly.

Although there had been some resistance and doubts about

whether the new processes would work, the implementation

had senior-level support. The project management team

reported to a steering committee, which included business

owners responsible for making key decisions and communi-

cating project status to executive management. The treasury

department project sponsor and IT project manager ensured

that there was clear communication to the stakeholders about

project objectives and progress.

The plan now as we roll out the SAP solution around the

world is to look carefully at how these treasury, risk, and cash

management processes can support the business, says Waddell.

It took a bit of persuading over the last year, but we were able

to prove it with straight-through processing initially in Finland.

Now, the people who are in charge of rolling out the SAP

solution to global subsidiaries have embraced it. They see the

benefits of the SAP cash management capabilities and how they

tie together accounts payable, accounts receivable, and overall

cash management processes. We can execute the same straight-

through payment and bank reconciliation processes almost

anywhere in the world, and this lowers our cost of operations,

says Shannon.

15

Brown-Forman streamlined its cash management processes,

reducing workforce and transaction costs, improving visibility

into its working capital position, and freeing staff for activities

that add more value. The company is better positioned to

replicate these processes to support global operations and has

reduced risk by ensuring compliance with Sarbanes-Oxley regu-

lations. And Brown-Forman has earmarked its improving cash

flow (see Figure 1) for debt repayment, global brand building,

and capital expenditures to support production requirements.

Measurable Results and Related Benefits

Brown-Forman achieved the following measurable results

over the period from the fourth quarter of 2002 to the second

quarter of 2004:

Improved productivity: Reduced total workforce associated with cash manage-

ment processes by 60% and positioned the company to save

0.25 to 0.50 person-year per location as new international

subsidiaries are added

Reduced resources required to manage daily cash

application and payments by 81%, including the

following:

Reductions in the time necessary to track debt,

investments, and interest accruals

Automation of the concentration of cash and initiation

of wire transfers to move money, eliminating processes

that had taken five to eight hours per day

Reduction of person-hours required in other departments

involved in the cash cycle, including accounts receivable

and accounts payable

Lowered person-hours required for month-end closing

from 48 hours to 1 hour:

Reduced elapsed time from three days to one day

Improved confidence in and accuracy of financial data;

the data is no longer keyed multiple times into different

systems

Enhanced ability to make timely cash investment

decisions based on concentrated cash value

Centralized bank account reconciliation and lowered

number of average outstanding items requiring recon-

ciliation during a month from 200 to less than 10:

At the end of the month, the number of unreconciled

items were effectively reduced to zero so the balance

sheet is clean

Bank accounts are reconciled daily by a single person

versus multiple people at the end of each month

Lowered total workforce and substantially reduced the

need for research to reconcile items; all of the informa-

tion is available immediately in mySAP ERP, and there is

no waiting for month-end reports

Lowered person-hours required in other departments

Reduced average subsidiary cash balances by an average of 50% due to straight-through processing and more efficient

cash management:

Held onto funds for longer periods as a result of pay on

behalf of subsidiary payments using straight-through

processing versus prefunding subsidiary bank accounts

Reduced need to fund subsidiaries (with euros, pounds,

and so forth) and stage cash in local entities, based on local

cash flow projections

More efficiently concentrated funds for investment and

debt reduction

Reduced interest expense and increased investment income

OUTCOME

16

We were shifting to a daily, real-time

approach.

Roger Shannon, Assistant Treasurer, Brown-Forman

Lowered transaction costs by 10%: Used methods ofpayment that are less expensive than wire fund transfers,

including increased use of ACH. The reduction for specific

transactions was on the order of US$12 to US$18 for wire

transfers, versus US$0.40 for payments managed through

straight-through processing (using the European Low-Value

Clearing System). Also:

Reduced the cost and complexity of intercompany

payments between Brown-Forman entities; previously, cash

flowed through three banks, and now cash payments take

place within a single bank

Reduced the number of payment processing banks

Negotiated volume discounts with primary banks

Ensured compliance with Sarbanes-Oxley and related regulations:

Reduced workforce requirements because the implemen-

tation is based on the SAP solution:

Reduced the workforce required for annual compliance

verification, documentation of IT integration and system

configuration, and regular financial audits

Lowered the time required for remediation and reduced

the need for annually recurring audits

Enhanced vendor payment process:

Reviewed and cleaned up 5,000 vendor files; removed

inactive vendors

Confirmed payment instructions and proper payment

authorization per vendor

Established segregation of duties

Reduced the risk of borrowing or investing inappropriately

based on inaccurate data

Lowered possibility of noncompliance with FAS 133:

Ensured that derivative contracts are presented in the

daily cash position in the SAP solution (this previously

had not been the case, since the contracts were available

in the nonintegrated third-party system)

Eliminated manual journal entries and rekeying of

month-end accounting for derivative contracts

Eliminated maintenance of third-party system forhandling foreign exchange contracts saving approximately

US$50,000 per year

If this system hadnt been eliminated, foreign subsidiaries

would have had to acquire payment systems for local use,

thus increasing software expenditures and annual mainte-

nance fees

Confidence in Sarbanes-Oxley Compliance

As a result of the implementation, the Brown-Forman internal

auditing group has more confidence that Sarbanes-Oxley com-

pliance will be sustainable following an audit. The company has

reduced the need for control and review of manual procedures

by shifting to working with processes enabled by systems over

which there is change control. We have gained significant

efficiencies covering compliance through the mySAP ERP

implementation, says Werner. But beyond the efficiency

gains, an even more important benefit is our confidence that

compliance is sustainable.

17

18

In the future, Brown-Forman plans to further streamline

procedures and extend its processes around the globe. Specific

improvements include the following.

Cash management: Brown-Forman is planning to continue

rolling out the standard cash management processes enabled

by mySAP ERP to subsidiaries around the world. This rollout

will improve the efficiency of existing subsidiaries, facilitate

market entry and establishment of

new subsidiaries, enable greatly

improved financial controls for

liquid assets, and provide flexibili-

ty. We can view and manage inter-

national account balances, and we

can make decisions in Louisville

or we can support decisions made

at the subsidiary, says Waddell.

Straight-through processing: Brown-Forman plans to extend

straight-through processing to other banks and other countries.

Going forward, our strategy is to roll out that process to every

location thats using SAP software, says Shannon. Were now

looking at opportunities in China, Korea, the Czech Republic,

Poland, and Taiwan. In any particular country, the first question

is whether pay on behalf of through in-house banking is even

permitted. In countries where its more problematic, we may

still pull the SAP payment file in, but the payment will come

out of that subsidiarys account. Then, through the daily cash

concentration process, well fund that account if necessary,

or they can use locally generated cash.

Shared financial services centers: Establishing shared finan-

cial services centers allows a company to more efficiently

handle financial transactions. Although the treasury depart-

ment is now akin to a shared services center for some payments

and other cash-related transactions, Brown-Forman has not yet

established a shared services center for a broad range of financial

and accounting services, including general ledger, payroll, fixed

assets, and so forth. These activities are typically handled in

satellite locations around the

world, sometimes without the

benefit of an implementation of

SAP software. Brown-Forman

intends to investigate the feasibil-

ity and benefit of shared financial

services centers on a regional

basis, particularly in Europe and

Asia, and this will require that

SAP solutions be implemented at

a critical mass of new locations. Any new processes established

will interface as appropriate with Brown-Formans evolving

cash management processes.

Cash flow forecasting: Brown-Forman is now able to precisely

forecast cash positions for a two-week horizon. The company is

investigating using SAP solutions to extend this horizon, which

would better position the company to manage cash in the event

of future changes in financial position or cash flow stability.

NEXT STEPS

We can execute the same straight-

through payment and bank recon-

ciliation processes almost anywhere

in the world, and this lowers our cost

of operations.

Roger Shannon, Assistant Treasurer, Brown-Forman

19

LESSONS LEARNED

As the implementation progressed, the company found the

following to be key to success.

Take Control of the Vendor Master File

Brown-Forman ensured that its vendor files were accurate and up to date before

distributing funds electronically using straight-through processing. The company

also established workflow processes to ensure segregation of duties when

establishing new vendors. These actions were essential for controlling pay-

ments. One of the best decisions we made was taking control of the vendor

master file, says Shannon. We spoke to people at many companies that

didnt do this up front, and they wished that they had. Because we did clean

up our vendor files first, wed greatly strengthened our controls and facilitated

compliance with Sarbanes-Oxley.

Implement in Phases

Brown-Forman chose to implement the treasury, risk, and cash management

processes in phases. This approach is not appropriate for every type of

implementation in fact in many cases, a big bang works better. But in this

case, the company used a phased approach to get buy-in from stakeholders

and then moved forward with the next phase encompassing broader and

deeper capabilities and more locations.

The company also learned about capabilities in earlier phases that were

essential to supporting later phases. For example, We definitely wouldnt

have wanted to implement straight-through processing without having

solid experience with the postprocessing of bank statements to resolve

discrepancies, says Ladd. Otherwise, we would have had to deal with

numerous returned wires and other payment problems as we implemented

straight-through processing.

Manage Scope

As with most implementations of SAP solutions, Brown-Forman had to decide

where to draw the line. We wanted to have better cash forecasts, handle inter-

company loans, issue better reports covering investments and debt, and so

forth, says Walker. But we really had to focus at first on what was important

to get done. We did manage scope correctly, and we even got a bit more than

just the basics and can now focus on the enhancements.

Invest in the Design Phase Up Front

The treasury department worked with several other departments to make sure

that processes were properly designed and that the proper controls were in

place. Brown-Forman management believed that investing in up-front process

design would save time and reduce the cost of audits.

Build on Experience of Other Companies

Brown-Forman management recognized that SAP has a large number of users

and that there are many companies experienced with the treasury, risk, and cash

management capabilities of mySAP ERP whose insights could be very useful.

Participation in user groups enabled the company to contribute to common

knowledge and benefit from the experiences of others. Brown-Forman found

that this was particularly beneficial in new areas such as straight-through pro-

cessing; there was no point in reinventing processes that others had already

established.

If Brown-Forman is little known outside the investor commu-

nity, its main product is an icon. Jack Daniels is the worlds

best-selling American whiskey by far, and its one of the largest

premium spirits brands in the world. Musicians have written

songs about it. Historians have written books about it. In bars

and restaurants, customers order it by saying simply, Ill have

a Jack.

Brown-Forman will continue to invest globally in Jack Daniels

and its other brands through advertising, promotions, sponsor-

ships, innovative packaging, and new marketing and distribu-

tion arrangements. Success is not assured industry consolida-

tion can hinder brand growth, consumer tastes can change, and

exchange rate fluctuations can eliminate profits.

And brand development is never done. It depends on a com-

panys creativity, patience, and focused investment and

increasingly on establishing sound processes to manage vital

resources such as cash.

CONCLUSION

21

. . . beyond the efficiency gains, an

even more important benefit is our con-

fidence that compliance is sustainable.

Todd Werner, IT Audit Manager, Brown-Forman

22

23

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