United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
Commission File No. 1-123
_________
BROWN-FORMAN CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 61-0143150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
850 Dixie Highway 40210
Louisville, Kentucky (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (502) 585-1100
________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: November 27, 1996
Class A Common Stock (voting) 28,988,091
Class B Common Stock (nonvoting) 40,008,147
<PAGE>
BROWN-FORMAN CORPORATION
Index to Quarterly Report Form 10-Q
Part I. Financial Information
Item 1. Financial Statements Page Number
Condensed Consolidated Statement of Income
Three months ended October 31, 1996 and 1995 3
Six months ended October 31, 1996 and 1995 3
Condensed Consolidated Balance Sheet
October 31, 1996 and April 30, 1996 4
Condensed Consolidated Statement of Cash Flows
Six months ended October 31, 1996 and 1995 5
Notes to the Condensed Consolidated Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Expressed in millions except per share amounts)
Three Months Ended Six Months Ended
October 31, October 31,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $525.6 $518.2 $950.0 $928.7
Excise taxes 69.3 76.3 128.5 134.7
Cost of sales 200.9 193.3 353.9 342.0
------ ------ ------ ------
Gross profit 255.4 248.6 467.6 452.0
Selling, general, and
administrative 96.9 99.3 190.0 187.7
expenses
Advertising expenses 65.1 59.3 128.5 117.2
------ ------ ------ ------
Operating income 93.4 90.0 149.1 147.1
Interest income .6 .6 1.2 1.3
Interest expense 4.7 5.2 8.8 10.7
------ ------ ------ ------
Income before income 89.3 85.4 141.5 137.7
taxes
Taxes on income 33.9 32.2 53.8 52.4
------ ------ ------ ------
Net income 55.4 53.2 87.7 85.3
Less preferred stock
dividend requirements .1 .1 .2 .2
------ ------ ------ ------
Net income applicable
to common stock $ 55.3 $ 53.1 $ 87.5 $ 85.1
====== ====== ====== ======
Weighted average number
of common shares
outstanding 69.0 69.0 69.0 69.0
Per common share:
Net income $ .80 $ .77 $ 1.27 $ 1.23
====== ====== ====== ======
Cash dividends paid $ .260 $ .248 $ .520 $ .496
====== ====== ====== ======
See notes to the condensed consolidated statements.
<PAGE>
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Expressed in millions)
October 31, April 30,
1996 1996
---- ----
(Unaudited)
Assets
- ------
Cash and cash equivalents $ 30.2 $ 53.9
Accounts receivable, net 331.5 256.9
Inventories:
Barreled whisky 160.5 167.1
Finished goods 172.4 168.5
Work in process 85.9 58.5
Raw materials and supplies 42.9 38.5
-------- --------
Total inventories 461.7 432.6
Other current assets 28.7 24.1
-------- --------
Total current assets 852.1 767.5
Property, plant, and equipment, net 287.4 281.2
Intangible assets, net 258.5 258.5
Other assets 76.1 74.3
-------- --------
Total assets $1,474.1 $1,381.5
======== ========
Liabilities
- -----------
Commercial paper $ 50.0 $ 50.0
Accounts payable and accrued expenses 234.3 222.9
Current portion of long-term debt 6.7 6.0
Accrued taxes on income 1.1 2.6
Deferred income taxes 21.4 21.4
-------- --------
Total current liabilities 313.5 302.9
Long-term debt 238.3 211.4
Deferred income taxes 132.3 126.6
Postretirement benefits 53.3 52.2
Other liabilities and deferred income 48.1 54.2
-------- --------
Total liabilities 785.5 747.3
Stockholders' Equity
- --------------------
Preferred stock 11.8 11.8
Common stockholders' equity 676.8 622.4
-------- --------
Total stockholders' equity 688.6 634.2
-------- --------
Total liabilities and
stockholders' equity $1,474.1 $1,381.5
======== ========
Note: The balance sheet at April 30, 1996 has been taken from
the audited financial statements at that date, and condensed.
See notes to the condensed consolidated statements.
<PAGE>
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Expressed in millions; amounts in brackets are reductions of cash)
Six Months Ended
October 31,
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 87.7 $ 85.3
Adjustments to reconcile net income
to net cash provided by (used for)
operations:
Depreciation 20.2 18.1
Amortization of intangible assets 4.6 4.5
Deferred income taxes 5.8 13.4
Other (4.4) (8.7)
Changes in assets and liabilities:
Accounts receivable (74.6) (90.7)
Inventories (29.2) (32.9)
Other current assets (4.6) .8
Accounts payable and accrued expenses 11.4 20.6
Accrued taxes on income (1.5) 2.0
------ ------
Cash provided by operating
activities 15.4 12.4
Cash flows from investing activities:
Additions to property, plant, and
equipment, net (26.4) (28.1)
Other (4.2) (.2)
------ ------
Cash used for investing activities (30.6) (28.3)
Cash flows from financing activities:
Commercial paper 33.2 2.7
Proceeds from long-term debt 1.1 30.0
Reduction of long-term debt (6.7) (5.6)
Cash dividends paid (36.1) (34.5)
------ ------
Cash used for financing activities (8.5) (7.4)
------ ------
Net decrease in cash and cash equivalents (23.7) (23.3)
Cash and cash equivalents, beginning of
period 53.9 62.5
------ ------
Cash and cash equivalents, end of period $ 30.2 $ 39.2
====== =======
See notes to the condensed consolidated statements.
<PAGE>
BROWN-FORMAN CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The condensed consolidated statements have been prepared in
accordance with the company's customary accounting practices as
set forth in the company's 1996 annual report on Form 10-K and
have not been audited. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of this information have been
made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and notes thereto included in the company's April
30, 1996 annual report on Form 10-K. To conform to the current
year presentation, certain reclassifications have been made to
prior year condensed consolidated statements.
2. INVENTORIES
-----------
The company uses the last-in, first-out method for
determining the cost for substantially all inventories. If the
last-in, first-out method had not been used, inventories would
have been $93 million and $85 million higher than reported at
October 31, 1996, and April 30, 1996, respectively.
3. ENVIRONMENTAL
-------------
The company, along with other responsible parties, faces
environmental claims resulting from the cleanup of several
waste deposit sites. The company has accrued its estimated
portion of cleanup costs and expects other responsible parties
and insurance coverage to cover the remaining costs. The
company believes that any additional costs incurred by the
company will not have a material adverse effect on the
company's financial condition or results of operations.
4. CONTINGENCIES
-------------
In the normal course of business, various suits and claims
are brought against the company, some of which seek significant
damages. Many of these suits and claims take years to
adjudicate and it is difficult to predict their outcome. In
the opinion of management, based on advice from legal counsel,
none of these suits or claims will have a material adverse
effect on the company's financial position or results of
operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
The following Discussion and Analysis of Financial
Condition and Results of Operations should be read in
conjunction with the company's April 30, 1996 annual report to
stockholders. The results of operations for the six months
ended October 31, 1996, are not necessarily indicative of the
operating results for the full year.
Risk Factors Affecting Forward-Looking Statements
From time to time, Brown-Forman may make forward-looking
statements related to its anticipated financial performance,
business prospects, new products, and similar matters. Such
statements are not a guarantee that the results indicated will
actually be achieved.
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. To comply with the
terms of the safe harbor, the company notes that the following
non-exclusive list of important risk factors could cause actual
results and experience to differ materially from the
anticipated results or other expectations expressed in those
forward-looking statements.
Generally: The company operates in highly competitive markets.
Its business is subject to changes in general economic
conditions, changes in consumer preferences, the degree of
acceptance of new products, and the uncertainties of
litigation. As our business continues to expand outside
the U.S., our revenues are more exposed to foreign
exchange rate fluctuations and the health of foreign
economies.
Beverage Risk Factors: The U. S. beverage alcohol business is
highly sensitive to tax increases; an increase in the
federal or state excise tax (which the company does not
anticipate at this time) would depress our domestic
beverage business. Our current outlook for our domestic
beverage business anticipates: (a) continued success of
Jack Daniel's Tennessee whiskey, Southern Comfort, and our
other core spirits brands; and (b) a decline from last
year in profit from our pre-blended frozen drink product
lines. Current expectations from our foreign beverage
business could prove to be optimistic if economic
conditions deteriorate in the principal countries where
the company exports its beverage products, including
Germany, the United Kingdom, Japan, and Australia.
Consumer Durables Risk Factors: Earnings projections for our
consumer durables business anticipate a continued
strengthening of our Lenox business. These projections
could be offset by factors such as poor consumer response
rates at Lenox Collections, soft demand for Lenox products
at outlet malls and department stores, or further
department store consolidation.
<PAGE>
Results of Operations
- ---------------------
Second Quarter Fiscal 1997 Compared to Second Quarter Fiscal 1996
- -----------------------------------------------------------------
A summary of operating performance follows (expressed in
millions, except percentage and per share amounts):
THREE MONTHS ENDED
OCTOBER 31, %
1996 1995 CHANGE
---- ---- ------
Net Sales
- ---------
Wines & Spirits $ 373.9 $ 364.3 3
Consumer Durables 151.7 153.9 (1)
------- -------
Total $ 525.6 $ 518.2 1
Operating Income $ 93.4 $ 90.0 4
- ----------------
Net Income $ 55.4 $ 53.2 4
- ----------
Earnings Per Share $ 0.80 $ 0.77 4
- ------------------
Effective Tax Rate 38.0% 37.7%
- ------------------
Sales of the company's wines and spirits increased 3% for
the quarter. Higher volumes of Jack Daniel's in international
markets and increased sales of the company's premium table
wines more than offset a decline in sales of Tropical Freezes.
Although second year sales of Tropical Freezes have been
significantly below last year's introductory levels, the brand
continues to represent a viable entry in the company's low-
alcohol portfolio. Revenues from the consumer durables segment
declined 1% in the second quarter, reflecting a planned
contraction of the Lenox Collections business, as well as lower
sales of china and crystal to department and specialty stores.
Second quarter operating income was up 4%. Increased
profitability within the consumer durables segment reflected
aggressive cost-cutting efforts within the company's
restructured Lenox Collections unit. Strong volume gains for
Jack Daniel's internationally helped the wines and spirits
segment, while earnings were negatively affected by lower sales
and higher costs associated with the company's pre-blended
frozen drinks, increased grape costs, and continued investment
in developing international markets.
Net interest expense declined reflecting both lower debt
levels and lower average rates for commercial paper borrowings.
<PAGE>
Six Months Fiscal 1997 Compared to Six Months Fiscal 1996
- ---------------------------------------------------------
A summary of operating performance follows (expressed in
millions, except percentage and per share amounts):
SIX MONTHS ENDED
OCTOBER 31, %
1996 1995 CHANGE
---- ---- ------
Net Sales
- ---------
Wines & Spirits $698.2 $662.1 5
Consumer Durables 251.8 266.6 (6)
------ ------
Total $950.0 $928.7 2
Operating Income $149.1 $147.1 1
- ----------------
Net Income $ 87.7 $ 85.3 3
- ----------
Earnings Per Share $ 1.27 $ 1.23 3
- ------------------
Effective Tax Rate 38.0% 38.1%
- ------------------
A 5% increase in revenues from wines and spirits was
attributable to strong sales of Jack Daniel's worldwide and
higher sales of the company's premium table wines. Segment
sales growth was partially offset by lower sales of Tropical
Freezes, which were significantly below last year's
introductory levels. Consumer durable revenues were down 6%,
due primarily to the planned contraction of Lenox Collections.
Brown-Forman's first half operating income increased 1%.
Improved profitability of the consumer durables was largely the
result of aggressive cost-cutting efforts within the company's
restructured Lenox Collections unit. Wines and spirits segment
results benefited from worldwide sales gains for Jack Daniel's
Tennessee Whiskey, which continues to grow at double-digit
rates outside the United States. Profit growth from strong
consumer demand for Brown-Forman's premium wine brands has been
tempered by increased grape costs. First half profits from
wines and spirits were negatively affected by lower sales and
higher costs associated with the company's pre-blended frozen
drinks and by the cost of continually pursuing international
marketing and partnership opportunities in developing beverage
markets.
Net interest expense declined, reflecting both lower debt
levels and lower average rates for commercial paper.
Positive trends within the wines and spirits segment are
expected to lead to improved period-to-period earnings
comparisons during the second half of the year and a moderate
increase in full year earnings.
<PAGE>
Financial Condition at October 31, 1996 Compared to Financial
- -------------------------------------------------------------
Condition at April 30, 1996
- ---------------------------
The company's activities in the first half ended October
31, 1996 resulted in a net decrease in cash and cash
equivalents. Cash provided by operating activities was
comparable to last year. Additions to property, plant, and
equipment largely reflect the company's plans to upgrade and
expand production facilities in the wines and spirits segment.
Net commercial paper increased $33 million, proceeds of which
were used for debt retirement and other general corporate
purposes. Total net working capital increased 16% from April
30, 1996 to $539 million.
Dividends
- ---------
The Board of Directors increased the quarterly cash
dividend 3.9% from $.26 to $.27 per share on Class A and Class
B common stock payable January 1, 1997. As a result, the
indicated annual cash dividend per share rose from $1.04 to
$1.08 per share.
Environmental
- -------------
The company, along with other responsible parties, faces
environmental claims resulting from the cleanup of several
waste deposit sites. The company has accrued its estimated
portion of these cleanup costs and expects other responsible
parties and insurance coverage to cover the remaining costs.
The company believes that any additional environmental defense
costs it incurs will not have a material adverse effect on the
company's financial condition or results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Expansion Plus, Inc. v. Brown-Forman Corporation, et al.,
(United States District Court for the Southern District of
Texas, Houston Division, Civil Action No. H-94-3498.)
As previously reported, in 1988, Brown-Forman purchased a
start-up credit card processing business from Expansion Plus,
Inc. ("EPI"), which Brown-Forman developed into a much larger
business and sold in 1993 for $31,250,000. Several months
after the sale, EPI claimed that Brown-Forman never acquired
full title to the credit card processing business, was
obligated to return all or part of it to EPI, and that the sale
of the business to a third party represented a conversion of
assets owned by EPI.
In October, 1994, EPI filed a tort action against Brown-
Forman and the purchaser of the business alleging conversion of
property, tortious interference with contractual relationships,
misappropriation of trade secrets and breach of a confidential
relationship and seeking damages of $31,250,000 plus punitive
damages in an amount ten times actual damages.
On May 21, 1996, a Magistrate Judge entered a Memorandum
and Recommendation that all of EPI's tort claims against Brown-
Forman be dismissed. EPI filed Objections to the Magistrate's
Recommendation and moved to amend its complaint to include a
breach of contract claim. By Orders of September 30, the
District Judge overruled EPI's motion to amend its complaint
and directed the Magistrate Judge to reconsider parts of the
Recommendation in light of new arguments raised by EPI. On
November 20, the Magistrate Judge entered a Supplemental
Memorandum and Recommendation that all of EPI's claims against
Brown-Forman be dismissed. EPI has filed Objections to the
Supplemental Recommendation which will be considered by the
District Judge. The trial, previously scheduled for September,
1996, has been postponed indefinitely.
In the opinion of management, and based upon the advice of
legal counsel, the disposition of this suit will not have a
material adverse effect on the company's consolidated financial
position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a)Exhibits:
Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule
(b)Reports on Form 8-K:
1.) There were no reports on Form 8-K filed during the
quarter ended October 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
BROWN-FORMAN CORPORATION
(Registrant)
Date: December 11, 1996 By: /s/ Steven B. Ratoff
_______________________________
Steven B. Ratoff
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's July 31, 1996 Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> OCT-31-1996
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 332<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 462
<CURRENT-ASSETS> 852
<PP&E> 620
<DEPRECIATION> 333
<TOTAL-ASSETS> 1,474
<CURRENT-LIABILITIES> 314
<BONDS> 238
<COMMON> 677
0
12
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,474
<SALES> 950
<TOTAL-REVENUES> 950
<CGS> 482<F2>
<TOTAL-COSTS> 482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 142
<INCOME-TAX> 54
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<FN>
<F1>Accounts receivable is shown net of allowance for doubtful accounts.
Allowance for doubtful accounts has not changed materially from the
April 30, 1996 balance.
<F2>Cost of goods sold and total costs include excise taxes of $129 million.
</FN>
</TABLE>
