<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1997
Commission file number 1-123
BROWN-FORMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 61-0143150
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Dixie Highway
Louisville, Kentucky 40210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 585-1100
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------
<S> <C>
Preferred $.40 Cumulative Stock, $10.00 par value, New York Stock Exchange
redeemable at company's option at $10.25 per share
plus unpaid accrued dividends; liquidating value
$10.00 per share plus unpaid accrued dividends
Class A Common Stock (voting) $.15 par value New York Stock Exchange
Class B Common Stock (nonvoting) $.15 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act None
</TABLE>
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value, at April 30, 1997, of the voting stock held by
nonaffiliates of the registrant was $403,708,767.
The number of shares outstanding for each of the registrant's classes of Common
Stock on May 28, 1997 was:
Class A Common Stock (voting) 28,988,091
Class B Common Stock (nonvoting) 40,008,147
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's 1997 Annual Report to Stockholders are incorporated
by reference into Parts I, II, and IV of this report. Portions of the Proxy
Statement of Registrant for use in connection with the Annual Meeting of
Stockholders to be held July 24, 1997 are incorporated by reference into Part
III of this report.
<PAGE>
PART I
Item 1. Business
- ------ --------
(a) General development of business:
Brown-Forman Corporation ("we," "us," or "our" below) was incorporated under
the laws of the State of Delaware in 1933, successor to a business founded in
1870 as a partnership and subsequently incorporated under the laws of the
Commonwealth of Kentucky in 1901. Our principal executive offices are located
at 850 Dixie Highway, Louisville, Kentucky 40210 (mailing address: P.O. Box
1080, Louisville, Kentucky 40201-1080).
(b) Financial information about industry segments:
Information regarding net sales, operating income, and total assets of each of
our business segments is in Note 11 of Notes to Consolidated Financial
Statements on page 35 of our 1997 Annual Report to Stockholders, which
information is incorporated into this report by reference in response to Item 8.
(c) Narrative description of business:
The following is a description of our operations.
Wines and Spirits Segment
- -------------------------
Wines and Spirits operations include manufacturing, bottling, importing,
exporting, and marketing a wide variety of alcoholic beverage brands. This
Segment also manufactures and markets new and used oak barrels, plastic
closures, and plastic bottles.
The Segment's brands consist of the following:
Tennessee Whiskeys
Jack Daniel's
Jack Daniel's Single Barrel
Jack Daniel's Master Distiller
Gentleman Jack
Kentucky Straight Bourbon Whiskeys
Old Forester
Forester 1870
Early Times
Woodford Reserve
Kentucky Whiskey
Early Times
-2-
<PAGE>
<TABLE>
<S> <C>
Canadian Mist
Southern Comfort
Pepe Lopez Tequilas
Korbel California Brandy*
Jack Daniel's Country Cocktails
Finlandia Vodkas**
Bushmills Irish Whiskeys**
Black Bush Special Irish Whiskey**
Glenmorangie Single Highland Malts**
Usher's Scotch Whisky**
Jack Daniel's & Cola
Southern Comfort & Cola
Tropical Freezes
Oblio Sambucas**
Jack Daniel's Oak-aged Beers
California Wines
Fetzer Veneyards
Korbel Champagnes*
Jekel Vineyards
Bel Arbor
Armstrong Ridge*
Italian Wines
Bolla
Fontana Candida**
Brolio**
Fontanafredda**
Carmen Vineyards Chilean Wines**
Michel Picard French Wines**
Noilly Prat Vermouths**
* Brands marketed by Brown-Forman worldwide by agency agreement.
** Brands marketed by Brown-Forman in the U.S. and other select markets by
agency agreements.
Statistics based on case sales, published annually by a leading trade
publication, rank Jack Daniel's as the largest selling Tennessee whiskey in the
United States, Canadian Mist as the largest selling Canadian whiskey in the
United States, and Southern Comfort as the largest selling domestic proprietary
liqueur in the United States.
A leading industry trade publication reported Korbel California Champagnes as
the largest selling premium champagne in the United States. This trade
publication also reported that, among numerous imported wines, Bolla Italian
Wine is the leading premium Italian table wine in the United States. Fetzer was
ranked thirteenth among all domestic table wines.
We believe the statistics used to rank these products are reasonably accurate.
</TABLE>
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<PAGE>
Our strategy with respect to the Wines and Spirits Segment is to market high
quality products that satisfy consumer preferences and to support them with
extensive international, national, and regional marketing programs. These
programs are intended to extend consumer brand recognition and brand loyalty.
Sales managers and representatives or brokers represent the Segment in all
states. The Segment distributes its spirits products domestically either through
state agencies or through wholesale distributors. The contracts which we have
with many of our distributors have formulas which determine reimbursement to
distributors if we terminate them; the amount of reimbursement is based
primarily on the distributor's length of service and a percentage of its
purchases over time. Some states have statutes which limit our ability to
terminate distributor contracts.
Jack Daniel's Tennessee Whiskey and Southern Comfort are the principal products
exported by the Segment. These brands are sold through contracts with brokers
and distributors in most countries.
The principal raw materials used in manufacturing and packaging distilled
spirits are corn, rye, malted barley, glass, cartons, and wood for new white oak
barrels, which are used for storage of bourbon and Tennessee whiskey. None of
these raw materials are in short supply, and there are adequate sources from
which they may be obtained.
The principal raw materials used in the production of wines are grapes and
packaging materials. Grapes are primarily purchased from independent growers
and, from time to time, are adversely affected by weather and other forces which
may limit production. We believe that our relationships with our growers are
good.
Due to aging requirements, production of whiskeys is scheduled to meet demand
three to five years in the future. Accordingly, inventories are larger in
relation to sales and total assets than would be normal for most other
businesses.
The industry is highly competitive and there are many brands sold in the
consumer market. Trade information indicates that we are one of the largest wine
and spirit suppliers in the United States in terms of revenues.
The wines and spirits industry is regulated by the Bureau of Alcohol, Tobacco,
and Firearms of the United States Treasury Department with respect to
production, blending, bottling, sales, advertising, and transportation of its
products. Also, each state regulates advertising, promotion, transportation,
sale, and distribution of such products.
Under federal regulations, whiskey must be aged for a least two years to be
designated "straight whiskey." The Segment ages its straight whiskeys for a
minimum of three to five years. Federal regulations also require that "Canadian"
whiskey must be manufactured in Canada in compliance with Canadian laws and must
be aged in Canada for at least three years.
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<PAGE>
Consumer Durables Segment
- -------------------------
The Consumer Durables Segment includes the manufacturing and/or marketing of the
following:
Fine China Dinnerware
Casual Dinnerware and Glassware
Crystal Stemware
Crystal Barware
China and Crystal Giftware
China Lamps
Collectibles and Jewelry
Sterling Silver, Pewter and Silver-Plate Giftware
Sterling Silver and Stainless Steel Flatware
Contemporary Tabletop, Houseware and Giftware
Fine Table Linens
Luggage
Business Cases and Folios
Personal Leather Accessories
All of the products of the Segment are sold by segment-employed sales
representatives under various compensation arrangements, and where appropriate
to the class of trade, by specialized independent commissioned sales
representatives and independent distributors.
The Segment's products are marketed domestically through authorized retail
stores consisting of department stores and specialty and jewelry shops and
through retail stores operated by the Segment. Products are also distributed
domestically through the institutional, incentive, premium, business gift and
military exchange classes of trade, and internationally through authorized
retailers and/or distributors in selected foreign markets. Specially created
collectible products are distributed both domestically and in selected foreign
markets through the direct response/mail-order channel, as well as through
authorized collectible retailers.
Fine china and casual dinnerware, as well as fine china giftware, are marketed
under the Lenox trademark. Crystal stemware, barware and giftware are marketed
under both the Lenox and Gorham trademarks. Contemporary tabletop, houseware and
giftware products are marketed under the Dansk trademark. Sterling silver and
stainless flatware and sterling giftware are marketed under the Gorham and
"Lenox. Kirk Stieff Collection" trademarks. Pewter and silver-plated giftware
products are also marketed under the "Lenox. Kirk Stieff Collection" trademark.
Luggage, business cases, and personal leather accessories are marketed under the
Hartmann, Wings, Veronica Hart, and Crouch & Fitzgerald trademarks. The direct
response/mail-order sales in the United States of specially designed
collectibles are marketed under the Lenox, Princeton Gallery and Gorham
trademarks, while such sales abroad are marketed primarily under the Brooks &
Bentley trademark.
The Lenox, Gorham, and Hartmann brand names hold significant positions in their
industries. The Segment has granted licenses for the use of the Lenox trademark
on selected fine table linens and premium collector plates, subject to the terms
of licensing agreements.
The Segment believes that it is the largest domestic manufacturer and marketer
of fine china dinnerware and fine crystal stemware, and the only significant
domestic manufacturer of fine quality china giftware. The Segment is also a
leading manufacturer and distributor of fine quality luggage, business cases,
and personal leather accessories. The Segment competes with a number of other
companies and is subject to intense foreign
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<PAGE>
competition in the marketing of fine china, contemporary and casual dinnerware,
crystal stemware and giftware, stainless flatware and luggage products.
In the Segment's china and stainless businesses, competition is based primarily
on quality, design, brand, style, product appeal, consumer satisfaction, and
price. In its luggage, business case and personal leather accessories business,
competition is based primarily on brand awareness, quality, design, style, and
price. In its direct response/mail-order business, the most important
competitive factors are the brand, product appeal, design, sales/marketing
program, service, and price of the products. In its crystal, sterling silver,
silver-plated, and pewter businesses, competition is based primarily on price,
with quality, design, brand, style, product appeal, and consumer satisfaction
also being factors.
Clay and feldspar are the principal raw materials used to manufacture china
products and silica is the principal raw material used to manufacture crystal
products. Gold and platinum are significant raw materials used to decorate china
and crystal products. Leather and nylon fabric are the principal raw materials
used to manufacture luggage and business cases. Fine silver is the principal raw
material used to manufacture sterling silver giftware and flatware products; tin
is the principal raw material used to manufacture pewter products; and stainless
steel is the principal raw material used to manufacture stainless steel
flatware. It is anticipated that raw materials used by the Segment will be in
adequate supply. However, the acquisition price of gold, platinum, fine silver,
and tin is influenced significantly by worldwide economic events and commodity
trading.
Sales of certain Segment products are traditionally greater in the second
quarter of the fiscal year, primarily because of seasonal holiday buying.
Other Information
- -----------------
As of April 30, 1997, we employ approximately 7,500 persons, including 1,050
employed on a part-time basis.
We are an equal opportunity employer and we recruit and place employees without
regard to race, color, national origin, sex, age, religion, disability, or
veteran status.
We believe our employee relations are good.
For information on the effects of compliance with federal, state and local
environmental regulations, refer to Note 14, "Environmental," on page 35 of our
1997 Annual Report to Stockholders, which information is incorporated into this
report by reference in response to Item 8.
Item 2. Properties
- ------- ----------
The corporate offices consist of office buildings, including renovated historic
structures, all located in Louisville, Kentucky.
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<PAGE>
Significant properties by business segments are as follows:
Wines and Spirits Segment
- -------------------------
The facilities of the Wines and Spirits Segment are shown below. The owned
facilities are held in fee simple.
Owned facilities:
. Production facilities:
- Distilled Spirits and Wines:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Collingwood, Ontario
- Shively, Kentucky
- Woodford County, Kentucky
- Frederiksted, St. Croix, U.S. Virgin Islands
- Mendocino County, California
- Monterey County, California
- Pedemonte, Italy
- Soave, Italy
- Oak Barrels:
- Louisville, Kentucky
- Mendocino County, California
- Plastic Closures and Plastic Bottles:
- Louisville, Kentucky
. Bottling facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Woodford County, Kentucky
- Frederiksted, St. Croix, U.S. Virgin Islands
- Mendocino County, California
- Monterey County, California
- Pedemonte, Italy
. Warehousing facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Collingwood, Ontario
- Shively, Kentucky
- Woodford County, Kentucky
- Mendocino County, California
- Monterey County, California
- Pedemonte, Italy
- Soave, Italy
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<PAGE>
Leased facilities:
. Production and bottling facility in Dublin, Ireland
. Wine production and warehousing facility in Mendocino County, California
. Vineyards in Monterey County, California
We believe that the productive capacities of the wines and Spirits Segment are
adequate for the business, and that the facilities are maintained in a good
state of repair.
Consumer Durables Segment
- -------------------------
The facilities of the Consumer Durables Segment are shown below. The owned
facilities are held in fee simple.
Owned facilities:
. Office facilities:
- Lenox corporate - Lawrenceville, New Jersey
- Headquarters for Lenox Direct Response/Collectibles
Division - Langhorne, Pennsylvania
. Production and office facilities:
- Lenox - Pomona, New Jersey (includes retail store); Oxford, North
Carolina; Kinston, North Carolina; and Mt. Pleasant,
Pennsylvania (includes retail store)
- Gorham - Smithfield, Rhode Island (includes retail store)
- Hartmann - Lebanon, Tennessee (includes retail store)
. Warehousing facilities:
- Lenox/Dansk/Gorham - Williamsport, Maryland
Leased facilities:
. Office facilities:
- Dansk headquarters - White Plains, New York
. Production/Warehousing/Office facilities:
- Kirk Stieff - Baltimore, Maryland (includes retail store)
. Warehousing facilities:
- Lenox - South Brunswick, New Jersey (includes retail store); Oxford,
North Carolina; Kinston, North Carolina; and Mt. Pleasant,
Pennsylvania
- Hartmann - Lebanon, Tennessee
. Retail stores:
- The Segment operates 36 Lenox outlet stores in 26 states and a Lenox
Gift Express store in Pennsylvaina. The Segment also operates 63
Dansk stores in 31 states. In addition, the Segment operates 2
Crouch & Fitzgerald luggage stores in 2 states and 1 Hartmann
luggage outlet store in Florida.
The lease terms expire at various dates and are generally renewable, except for
the Crouch & Fitzgerald store leases.
We believe that the Segment's facilities are in good condition and are adequate
for the business.
-8-
<PAGE>
Item 3. 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 we reported earlier, we bought a start-up credit card processing business in
1988 from Expansion Plus, Inc. ("EPI"). We built up this business substantially,
and sold it in 1993 for $31.2 million. Months after the sale, EPI claimed that
we had never acquired full title to the business, that we had to return all or
part of it to EPI, and that our sale of the business to a third party
represented a conversion of EPI's assets.
In October, 1994, EPI filed a tort action against the buyer and us alleging
conversion of property, tortious interference with contractual relationships,
misappropriation of trade secrets, and breach of a confidential relationship.
EPI sought damages of $31.2 million plus punitive damages in an amount ten times
actual damages.
On January 30, 1997, the trial judge entered summary judgment in our favor,
dismissing all of EPI's claims. EPI has appealed to the Federal Appeals Court
for the Fifth Circuit.
Our counsel have advised us, and it is our opinion, that the disposition of
this suit will not have a material adverse effect on our consolidated financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Business Experience Family Relationship
- --------------------- --- ------------------------- -------------------------------
<S> <C> <C> <C>
Owsley Brown II 54 Chairman of the Company since Cousin to Owsley Brown Frazier
July, 1995. Chief Executive Officer
of the company since July 1993.
President of the company from
July 1987 to July 1993.
Owsley Brown Frazier 61 Vice Chairman of the company Cousin to Owsley Brown II
since August 1983.
William M. Street 58 Vice Chairman of the company None
since July 1987.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Steven B. Ratoff 54 Executive Vice President and Chief None
Financial Officer of the company
since December 1994. Private
investor in a number of small
privately-held companies from
February 1992 to November 1994.
Senior Vice President and Chief
Financial Officer for Pharmaceutical
Group of Bristol-Myers Squibb from
January 1990 to January 1992.
John P. Bridendall 47 Senior Vice President and Director of None
Corporate Development since July 1987.
Russell C. Buzby 63 Senior Vice President and Executive None
Director of Human Resources and
Information Services since July 1987.
Michael B. Crutcher 53 Senior Vice President, General Counsel, None
and Secretary since May 1989.
Richard E. Stearns 46 President and Chief Executive Officer of None
Lenox, Incorporated (a subsidiary of
the company) since September 1995.
President of Lenox, Incorporated from
April 1992 to September 1995.
Lois A. Mateus 50 Senior Vice President of Corporate None
Communications and Corporate Services
since January 1988.
</TABLE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Except as presented below, for the information required by this item refer to
the section entitled "Quarterly Financial Information" appearing on the
"Highlights" page of the 1997 Annual Report to Stockholders, which information
is incorporated into this report by reference.
Holders of record of Common Stock at April 30, 1997:
Class A Common Stock (Voting) 3,156
Class B Common Stock (Nonvoting) 5,054
The principal market for Brown-Forman common shares is the New York Stock
Exchange.
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<PAGE>
Item 6. Selected Financial Data
For the information required by this item, refer to the section entitled
"Selected Financial Data" appearing on page 17 of the 1997 Annual Report to
Stockholders, which information is incorporated into this report by reference in
response to Item 8.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For the information required by this item, refer to the section entitled
"Management's Discussion and Analysis" appearing on pages 18 through 23 of the
1997 Annual Report to Stockholders, which information is incorporated into this
report by reference in response to Item 8.
Risk Factors Affecting Forward-Looking Statements:
From time to time, we may make forward-looking statements related to our
anticipated financial performance, business prospects, new products, and similar
matters. We make several such statements in the discussion and analysis referred
to above, but we do not 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, we note
that the following non-exclusive list of important risk factors could cause our
actual results and experience to differ materially from the anticipated results
or other expectations expressed in those forward-looking statements:
Generally: We operate in highly competitive markets. Our 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 financial results 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 federal or state excise taxes
(which we do not anticipate at this time) would depress our domestic
beverage business. Our current outlook for our domestic beverage
business anticipates continued success of Jack Daniel's Tennessee
whiskey, Southern Comfort, and our other core spirits brands. Current
expectations from our foreign beverage business could prove to be
optimistic if the U.S. dollar strengthens against other currencies or if
economic conditions deteriorate in the principal countries where we
export our beverage products, including Germany, the United Kingdom,
Japan, and Australia. Current expectations for our global beverage
business may not be met if consumption trends do not continue to
increase. Profits could also be affected if grain or grape prices
increase.
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, weakened demand for fine
china, a soft retail environment at outlet malls, or further department
store consolidation.
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<PAGE>
Item 8. Financial Statements and Supplementary Date
For the information required by this item, refer to the Report of Management,
Consolidated Financial Statements, and Notes to Consolidated Financial
Statements appearing on pages 24 through 35 of the 1997 Annual Report to
Stockholders, which information is incorporated into this report by reference,
and the Report of Independent Accountants included on page S-1 of this report.
For selected quarterly financial information, refer to the section entitled
"Quarterly Financial Information" appearing on the "Highlights" page of the 1997
Annual Report to Stockholders, which information is incorporated into this
report by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
For the information required by this item, refer to the following sections of
our definitive proxy statement for the Annual Meeting of Stockholders to be held
July 24, 1997, which information is incorporated into this report by reference:
(a) "Election of Directors" on page 4 through the third paragraph on page 5 (for
information on directors); and (b) the last paragraph on page 7 (for information
on delinquent Section 16 filings). Also, see the information with respect to
"Executive Officers of the Registrant" under Part I of this report, which
information is incorporated herein by reference.
Item 11. Executive Compensation
For the information required by this item, refer to the following sections of
our definitive proxy statement for the Annual Meeting of Stockholders to be held
July 24, 1997, which information is incorporated into this report by reference:
(a) "Executive Compensation" on pages 8 through 13; (b) "Retirement Plan
Descriptions" on pages 14 and 15; and (c) "Director Compensation" on page 15.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For the information required by this item, refer to the section entitled "Stock
Ownership" appearing on pages 6 through 7 of our definitive proxy statement for
the Annual Meeting of Stockholders to be held July 24, 1997, which information
is incorporated into this report by reference.
Item 13. Certain Relationships and Related Transactions
For the information required by this item, refer to the section entitled
"Transactions with Management" appearing on page 17 of our definitive proxy
statement for the Annual Meeting of Stockholders to be held July 24, 1997, which
information is incorporated into this report by reference.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- -----------------------------------------------------------------
(a) 1 and 2 - Index to Consolidated Financial Statements and Schedules:
<TABLE>
<S> <C> <C>
Reference
--------------------------------------
Annual
Form 10-K Report to
Annual Report Stockholders
Page Pages(s)
------------- -------------
Incorporated by reference to our Annual
Report to Stockholders for the year
ended April 30, 1997:
Report of Management* -- 24
Consolidated Statement of Income for the
years ended April 30, 1997, 1996, and 1995* -- 25
Consolidated Balance Sheet at April 30, 1997, 1996, and 1995* -- 26 - 27
Consolidated Statement of Cash Flows for the
years ended April 30, 1997, 1996, and 1995* -- 28
Consolidated Statement of Stockholders' Equity
for the years ended April 30, 1997, 1996, and 1995* -- 29
Notes to Consolidated Financial Statements* -- 30 - 35
Report of Independent Accountants S-1 --
Consolidated Financial Statement Schedule:
II - Valuation and Qualifying Accounts S-2 --
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted either
because they are not required under the related instructions, because the
information required is included in the consolidated financial statements and
notes thereto, or because they are inapplicable.
* Incorporated by reference to Item 8 in this report.
(a) 3 - Exhibits:
Filed with this report:
Exhibit Index
- -------------
13 Brown-Forman Corporation's Annual Report to Stockholders for the year
ended April 30, 1997, but only to the extent set forth in Items 1, 5, 6,
7, and 8 of this Annual Report on Form 10-K for the year ended April 30,
1997.
21 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P. independent accountants.
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<PAGE>
27 Financial Data Schedule (not considered to be filed).
Previously Filed:
Exhibit Index
- -------------
3(a) Restated Certificate of Incorporation of registrant which is
incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 19, 1994.
3(b) Certificate of Amendment to Restated Certificate of Incorporation of
registrant which is incorporated into this report by reference to
Brown-Forman Corporation's 10-K filed on July 19, 1994.
3(c) Certificate of Ownership and Merger of Brown-Forman Corporation into
Brown-Forman, Inc. which is incorporated into this report by reference
to Brown-Forman Corporation's 10-K filed on July 19, 1994.
3(d) Certificate of Amendment to Restated and Amended Certificate of
Incorporation of Brown-Forman Corporation which is incorporated into
this report by reference to Brown-Forman Corporation's 10-K filed on
July 19, 1994.
3(e) The by-laws of registrant, as amended on May 25, 1988, which is
incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 26, 1993.
4(a) Credit Agreement dated as of November 30, 1994, among Brown-Forman
Corporation and a group of United States and international banks, which
is incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 17, 1995.
4(b) Amendment No. 1 dated as of February 23, 1996, to the Credit Agreement
referenced in 4(a) above, which is incorporated into this report by
reference to Brown-Forman Corporation's 10-K filed on July 3, 1996.
4(c) The Form of Indenture dated as of March 1, 1994 between Brown-Forman
Corporation and The First National Bank of Chicago, as Trustee, which
is incorporated into this report by reference to Brown-Forman
Corporation's Form S-3 (Registration No. 33-52551) filed on March 8,
1994.
10(a) Description of compensation arrangement with W. L. Lyons Brown, Jr.,
which is incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 17, 1995.
10(b) A description of the Brown-Forman Omnibus Compensation Plan, which is
incorporated into this report by reference to the Appendix of the
registrant's definitive proxy statement for the Annual Meeting of
Stockholders held on July 27, 1995.
10(c) Brown-Forman Corporation Restricted Stock Plan which is incorporated
into this report by reference to Brown-Forman Corporation's 10-K filed
July 19, 1994.
10(d) Brown-Forman Corporation Supplemental Excess Retirement Plan, which is
incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 23, 1990.
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<PAGE>
10(e) Brown-Forman Corporation Stock Appreciation Rights Plan, which is
incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 23, 1990.
10(f) A description of the Brown-Forman Savings Plan is incorporated into
this report by reference to page 10 of the registrant's definitive
proxy statement for the Annual Meeting of Stockholders held on July 25,
1996.
10(g) A description of the Brown-Forman Flexible Reimbursement Plan is
incorporated into this report by reference to page 10 of the
registrant's definitive proxy statement for the Annual Meeting of
Stockholders held on July 25, 1996.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ OWSLEY BROWN II
------------------------
Date: May 28, 1997 By: Owsley Brown II
Chairman of the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on May 28, 1997 as indicated:
<TABLE>
<S> <C> <C>
/s/ BARRY D. BRAMLEY /s/ DONALD G. CALDER /s/ OWSLEY BROWN FRAZIER
- ------------------------- ---------------------- ------------------------
By: Barry D. Bramley By: Donald G. Calder By: Owsley Brown Frazier
Director Director Director, Vice Chairman
of the Board
/s/ RICHARD P. MAYER /s/ STEPHEN E. O'NEIL /s/ WILLIAM M. STREET
- ------------------------- ---------------------- ------------------------
By: Richard P. Mayer By: Stephen E. O'Neil By: William M. Street
Director Director Director, Vice Chairman
of the Board
/s/ JAMES S. WELCH /s/ OWSLEY BROWN II /s/ THOMAS P. BURNET
- ------------------------- ---------------------- ------------------------
By: James S. Welch By: Owsley Brown II By: Thomas P. Burnet
Director Director, Chairman (Principal Accounting
of the Board and Officer) Brown-Forman
Chief Executive Corporation
Officer
Senior Vice President
and Chief Financial
/s/ GEO. GARVIN BROWN III /s/ STEVEN B. RATOFF Officer Brown-Forman
- ------------------------- ---------------------- Beverages Worldwide
By: Geo. Garvin Brown III By: Steven B. Ratoff
Director Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
</TABLE>
-16-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Brown-Forman Corporation
Louisville, Kentucky
We have audited the consolidated financial statements of Brown-Forman
Corporation and Subsidiaries as of April 30, 1997, 1996, and 1995, and for the
years then ended, which financial statements are included on pages 25 through 35
of the 1997 Annual Report to Stockholders of Brown-Forman Corporation and
incorporated by reference herein. We have also audited the financial statement
schedule listed in the index on page 13 of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brown-Forman
Corporation and Subsidiaries as of April 30, 1997, 1996, and 1995 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
May 27, 1997
S-1
<PAGE>
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 1997, 1996, and 1995
(Expressed in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
---------
Balance at Charged to Balance at
Beginning Costs End
Description of Period and Expenses Deductions of Period
----------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts $13,206 $ 5,530 $ 8,516(1) $10,220
1996
Allowance for Doubtful Accounts $14,061 $ 9,386 $10,241(1) $13,206
1995
Allowance for Doubtful Accounts $12,006 $ 9,343 $ 7,288(1) $14,061
</TABLE>
(1) Doubtful accounts written off, net of recoveries.
S-2
<PAGE>
Exhibit 13
HIGHLIGHTS
(Expressed in millions, except per share amounts and ratios)
1997 1996 % Change
Net Sales $1,841 $1,807 2%
Gross Profit $ 904 $ 880 3%
Operating Income $ 287 $ 274 5%
Net Income $ 169 $ 160 6%
Earnings Per Share $ 2.45 $ 2.31 6%
Cash Dividends Per Commmon Share $ 1.06 $ 1.02 4%
Return on Average Invested Capital 19.4% 19.7%
Return on Average Common Stockholders' Equity 25.2% 27.5%
Regular cash dividends have been paid for the fifty-second consecutive year.
QUARTERLY FINANCIAL INFORMATION
(expressed in millions, except per share amounts)
<TABLE>
<CAPTION>
Cash Dividends Market Price (High-Low)
Net Gross Net Earnings Paid Per Per Common Share
Sales Profit Income Per Share Common Share Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997 $1,841 $904 $169 $2.45 $1.06 $50.88-$34.75 $51.88-$35.25
Quarters
Fourth 433 218 40 .58 .27 50.88-42.38 51.88-42.00
Third 458 219 42 .60 .27 47.25-42.25 47.88-42.13
Second 526 255 55 .80 .26 43.50-36.13 43.88-35.75
First 424 212 32 .47 .26 42.63-34.75 42.25-35.25
Fiscal 1996 $1,807 $808 $160 $2.31 $1.02 $42.00-$32.25 $42.50-$31.50
Quarters
Fourth 427 212 36 .52 .26 42.00-36.63 42.50-36.50
Third 451 216 39 .55 .26 39.38-36.50 39.75-36.25
Second 518 249 53 .77 .25 40.25-33.88 40.75-33.63
First 411 203 32 .46 .25 35.00-32.25 34.88-31.50
</TABLE>
<PAGE>
FINANCIAL TABLE OF CONTENTS
17 Selected Financial Data
18 Management's Discussion and Analysis
24 Report of Management
24 Report of Independent Accountants
25 Consolidated Statement of Income
26 Consolidated Balance Sheet
28 Consolidated Statement of Cash Flows
29 Consolidated Statement of Stockholders' Equity
30 Notes to Consolidated Financial Statements
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For Fiscal Year Ended April 30,
(Expressed in millions, except per share amounts and ratios)
- ------------------------------------------------------------------------------------------------------------------------------------
Operations 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $1,841 1,807 1,680 1,628 1,658 1,496 1,366 1,279 1,262 1,330 1,374
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit $ 904 880 824 790 791 719 645 584 546 531 534
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income $ 287 274 268 240 255 234 223 225 208 192 182
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 169 160 149 129 156 146 145 93 144 103 90
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share $ 2.45 2.31 2.15 1.63 1.88 1.76 1.74 1.10 1.72 1.08 .93
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Paid
Per Common Share $ 1.06 1.02 .97 .93 .86 .78 .72 .63 .51 .41 .30
- ------------------------------------------------------------------------------------------------------------------------------------
Invested Capital
- ------------------------------------------------------------------------------------------------------------------------------------
Average Invested Capital $ 929 875 835 900 925 823 743 704 671 727 802
- ------------------------------------------------------------------------------------------------------------------------------------
Average Common
Stockholders' Equity $ 671 578 493 629 765 686 616 564 493 510 547
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $1,428 1,381 1,286 1,234 1,311 1,194 1,083 1,021 1,003 932 1,057
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 63 211 247 299 154 114 112 114 115 191 199
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Average
Invested Capital 19.4% 19.7% 19.5% 15.4% 18.0% 18.8% 20.5% 14.6% 23.8% 15.7% 12.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Average Common
Stockholders' Equity 25.2% 27.5% 30.1% 20.4% 20.4% 21.3% 23.5% 16.3% 29.2% 20.2% 16.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt to
Total Long-Term Capital 8.0% 25.0% 31.1% 39.2% 15.9% 13.4% 14.5% 16.1% 17.2% 29.5% 25.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Cash Dividends
Paid to Net Income 43.3% 44.2% 45.3% 57.5% 45.8% 44.4% 41.7% 57.4% 29.8% 38.9% 32.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Margin 49.1% 48.7% 49.1% 48.5% 47.7% 48.1% 47.2% 45.7% 43.3% 39.9% 38.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Margin 15.6% 15.2% 15.9% 14.8% 15.4% 15.6% 16.4% 17.6% 16.5% 14.4% 13.2%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1. Includes the operations of Fetzer Vineyards and Dansk International Designs
Ltd., since their acquisitions on August 31, 1992, and July 2, 1991,
respectively.
2. Fiscal 1994 net income and earnings per share were reduced by $32 million
and $.14, respectively, from the cumulative effect of accounting changes.
Fiscal 1990 net income and earnings per share were increased by $12 million
and $.14, respectively, from the cumulative effect of accounting changes.
3. On October 15, 1993, the company sold Brown-Forman Enterprises, its credit
card processing operations, resulting in an after-tax gain of $18 million.
4. On January 31, 1989, the company sold the U.S. marketing rights for Martell
Cognacs, resulting in an after-tax gain of $22 million.
5. On April 27, 1988, the company sold the ArtCarved jewelry division,
resulting in an after-tax gain of $17 million.
6. Net income was reduced $60 million and $33 million to reflect the write-
down of intangible assets of California Cooler in fiscal 1990 and 1988,
respectively.
7. Earnings per share are calculated using net income reduced by dividend
requirements on preferred stock, divided by the weighted average number of
common and common equivalent shares outstanding during the year; both
earnings per share and cash dividends per common share have been adjusted
for 3-for-1 and 3-for-2 common stock splits in fiscal 1994 and 1987,
respectively.
8. Return on Average Invested Capital is defined as the sum of net income
(excluding extraordinary items) and after-tax interest expense, divided by
average invested capital. Average invested capital is the sum of all
interest-bearing debt and preferred and common equity, averaged at year
end.
9. Return on Average Common Stockholders' Equity is defined as the sum of
income applicable to common stock divided by average common stockholders'
equity.
10. Total Long-Term Debt to Total Long-Term Capital is defined as long-term
debt divided by the sum of long-term debt and preferred and common equity.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the discussion below and in the Chairman's letter, we discuss Brown-Forman's
consolidated financial condition and results of operations for the fiscal years
ended April 30, 1997, 1996 and 1995. We also discuss factors that may affect the
company's future financial condition. Please read this section along with
Brown-Forman's consolidated financial statements for the year ended April 30,
1997, and the related notes.
When we make forward-looking statements about Brown-Forman's anticipated
financial performance, business prospects, new products, or similar matters, we
do not 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, we have
prepared a non-exclusive list of important risk factors that could cause our
actual results to differ materially from anticipated results. You can find this
list in Part II, Item 7 of the company's Annual Report on Form 10-K, into which
this discussion is incorporated by reference.
CONSOLIDATED SALES AND EARNINGS
Fiscal 1997 Compared to 1996
Net sales reached record levels in fiscal 1997, growing $34 million, or 2%.
Sales of wines and spirits increased 4% resulting from worldwide growth of Jack
Daniel's and premium wine brands, partially offset by sharply lower sales of
frozen cocktail products. Sales from the consumer durables segment declined 4%,
primarily reflecting a planned contraction of the Lenox Collections division.
Net Sales
<TABLE>
<CAPTION>
Dollars in Millions
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
Consumer Durables $ 519 $ 513 $ 542 $ 513 $ 494
Wines and Spirits $1122 $1105 $1138 $1294 $1347
Total change +11% -2% +3% +8% +2%
</TABLE>
International sales of $330 million were up 17% in fiscal 1997. This growth
reflects our strategic effort to expand the international distribution of
Brown-Forman's leading brands. Sales outside the United States represented 21%,
18% and 16% of our revenues (excluding excise taxes) during fiscal 1997, 1996
and 1995, respectively.
Gross profit performance is a key measure by which we gauge the quality of
volume growth. Gross profit expanded faster than the company's rate of sales
growth in fiscal 1997, reflecting the very healthy margins provided by
incremental sales of wines and spirits. A gross profit decline for consumer
durables was largely the result of scaling back Lenox Collections, a business
with relatively high margins. Over the past ten years, we have focused our
efforts on marketing high-margin products and realizing manufacturing
efficiencies, and have successfully improved the company's gross margin from
38.8% in fiscal 1987 to 49.1% in fiscal 1997.
Gross Profit
<TABLE>
<CAPTION>
Dollars in Millions
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
Consumer Durables $265 $267 $277 $258 $242
Wines and Spirits $520 $517 $547 $622 $662
Total change +10% 0% +4% +7% +3%
</TABLE>
Operating income improved $13 million, or 5%, during fiscal 1997. A 4% increase
in operating income for the wines and spirits segment resulted from strong
worldwide growth of Jack Daniel's and our premium wine brands, partially offset
by sharply lower sales of frozen cocktail products and by investments associated
with our international expansion initiative. Operating income for the consumer
durables segment increased 11% in fiscal 1997, largely reflecting a rebound in
profits at Lenox Collections.
Operating Income
<TABLE>
<CAPTION>
Dollars in Millions
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
Consumer Durables $ 24 $ 19 $ 38 $ 27 $ 30
Wines and Spirits $246 $235 $244 $262 $273
Corporate and Other $-15 $-14 $-14 $-15 $-16
Total change +9% -6% +12% +2% +5%
</TABLE>
18
<PAGE>
Earnings per share reached a record $2.45, up to 6% over fiscal 1996. Earnings
growth resulted from improved operating income, as well as lower interest
expense.
<TABLE>
<CAPTION>
Earnings Per Share
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
As reported $1.88 $1.63 $2.15 $2.31 $2.45
Excluding unusual items $1.91 $1.92 $2.15 $2.31 $2.45
</TABLE>
Fiscal 1996 Compared to 1995
Net sales increased $127 million, or 8%, in fiscal 1996. Sales of wines and
spirits improved 14%, aided by new product introductions, further expansion into
international markets, and growth of our wine brands. A 5% sales decline for the
consumer durables segment reflected significantly lower response rates for Lenox
Collections and a generally soft retail environment for consumer durables.
Operating income improved $6 million, or 2%, during fiscal 1996, driven by an
$18 million increase in profits from the wines and spirits segment. Operating
income growth in the wines and spirits segment was generated from the same
sources responsible for increased sales: new products, international expansion,
and higher wine volume. The consumer durables segment experienced an $11 million
drop in operating income, principally related to the sharp decline in consumer
demand for collectible products marketed by Lenox Collections.
Earnings grew 7% over fiscal 1995 to $2.31 per share, reflecting higher
operating income, lower net interest expense, and a lower effective tax rate.
The drop in our fiscal 1996 effective tax rate reflected benefits from foreign
operations and a shift in the earnings mix towards businesses that carry a lower
relative tax rate.
Unusual Items
Reported earnings for fiscal 1994 reflect a net reduction of $.29 per share,
consisting of a $.41 charge for the adoption of new accounting standards, a $.07
charge related to the closing or reformatting of certain retail stores in the
consumer durables segment and a $.04 decline resulting from an increase in the
statutory corporate tax rate, partially offset by a $.23 gain on the sale of
business. Reported earnings for fiscal 1993 reflect a reduction of $.03 per
share related to the write-down of slow-moving and obsolete assets in the
consumer durables segment.
SHAREHOLDER RETURNS
Brown-Forman's most important financial objective is to increase the value of
our stockholders' investment. Long-term growth in the market value of our stock
is a good indication of our success in delivering an attractive return to
shareholders. A $100 investment in Brown-Forman's Class B stock ten years ago
would have grown to $430 by the end of fiscal 1997, assuming reinvestment of all
dividends and ignoring personal taxes and transaction costs. This represents an
annualized return of 16% over the ten-year period. During fiscal 1997, the
market value of an investment in Brown-Forman rose 31% compared to a 25% gain by
the S&P 500 for the same period.
<TABLE>
<CAPTION>
Total Shareholder Return
(Including dividend reinvestment)
Fiscal year B-F (Class B) S&P 500 S&P Beverage
Index Alcohol Index
<S> <C> <C> <C>
1987 $100 $100 $100
1988 $104 $ 94 $ 97
1989 $149 $115 $127
1990 $140 $127 $129
1991 $185 $149 $175
1992 $185 $170 $194
1993 $203 $188 $190
1994 $234 $196 $208
1995 $266 $230 $216
1996 $328 $300 $266
1997 $430 $376 $331
10 year annual growth 16% 14% 13%
</TABLE>
Return on average invested capital remained strong at 19.4%, reflecting
continued profitable growth and careful management of capital.
<TABLE>
<CAPTION>
Return on Average Invested Capital
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
As reported 18.0% 15.4% 19.5% 19.7% 19.4%
Excluding unusual items 18.2% 17.8% 19.5% 19.7% 19.4%
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Return on average common stockholders' equity also remained at a superior level
in fiscal 1997. A decline over the past two years reflects the impact of
reducing debt as a percentage of the company's total capital structure.
<TABLE>
<CAPTION>
Return on Average Common Stockholders' Equity
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
As reported 20.4% 20.4% 30.1% 27.5% 25.2%
Excluding unusual items 20.7% 23.6% 30.1% 27.5% 25.2%
</TABLE>
COMPANY OUTLOOK
We believe the outlook for Brown-Forman's growth is very positive. Market
conditions for premium wines and spirits brands are improving worldwide and, in
order to capitalize on these opportunities, we plan to significantly increase
the marketing investments behind our beverage brands in fiscal 1998. For the
longer term, we will continue to penetrate new markets by expanding our global
sales, marketing and distribution resources, as well as develop new products
within promising market segments such as premium spirits, wines and low-alcohol
beverages.
The outlook is also positive for our consumer durables business. Lenox continues
to dominate the U.S. market for fine china dinnerware, supplying seven of the
top ten patterns sold in U.S. department stores last year. Additional focus will
be placed on new products designed for causal dining and gift giving--categories
which offer significant growth opportunities.
WINES AND SPIRITS SEGMENT
<TABLE>
<CAPTION>
Summary of Operating Performance
(Expressed in millions, except percentages)
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,347 $1,294 $1,138
% Change 4% 14% 3%
Gross Profit $ 662 $ 662 $ 547
% Change 6% 14% 6%
Operating Income $ 273 $ 262 $ 244
% Change 4% 8% 4%
</TABLE>
Fiscal 1997 Compared to 1996
Net sales in fiscal 1997 grew $53 million, or 4%, largely reflecting record
sales volume for Jack Daniel's. Worldwide consumption of Brown-Forman's flagship
brand rose 5% in fiscal 1997 with annual volume surpassing 5 million cases for
the first time. In addition to continued strong international growth, sales of
Jack Daniel's also benefited from improving U.S. consumption trends. Also
contributing to segment sales growth was a significant increase in revenues from
the Fetzer, Bolla and Korbel wine brands, largely as a result of price increases
during the year. These positive results were partially offset by significantly
lower sales of Tropical Freezes, a line of frozen cocktails introduced in fiscal
1996. Typical of most successful new products, introductory sales of Tropical
Freezes were enhanced in 1996 by high rates of initial consumer trial and the
establishment of trade inventory levels. First year sales also benefited from
favorable weather conditions in most parts of the U.S.
Brown-Forman's principal growth initiative is to accelerate expansion into
international markets. Beverage sales outside the U.S. grew strongly in fiscal
1997, up 20%, largely attributable to continued double-digit growth for Jack
Daniel's. International sales in fiscal 1997 represented 28% of total wines and
spirits sales, excluding excise taxes, compared to 25% in fiscal 1996 and 22% in
fiscal 1995.
<TABLE>
<CAPTION>
Wines and Spirits Geographic Sales Mix
(excluding excise taxes)
Dollars in Millions
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
International $168 $190 $197 $ 282 $ 330
U.S. $676 $651 $681 $ 749 $ 760
Total $844 $841 $878 $1,031 $1,090
</TABLE>
20
<PAGE>
Another major growth initiative for Brown-Forman is to add new beverage products
through internal development, acquisition, or agency agreement. Approximately
21% of fiscal 1997 beverage sales, excluding excise taxes, were generated from
products introduced or brands added since fiscal 1992, down from 22% in fiscal
1996 due to lower sales of Tropical Freezes. During fiscal 1997 the company
obtained the U.S. marketing rights to Finlandia Vodka, the third best-selling
imported vodka in the U.S., and Michel Picard, a promising line of French
varietal wines. We also introduced two new super-premium whiskeys--Jack Daniel's
Single Barrel and Woodford Reserve Distiller's Select. These additions represent
positive steps that should add to growth in the future.
Gross profit grew 6% compared to net sales growth of 4%, as price increases, a
favorable product mix, and lower costs improved the gross margin for our wines
and spirits segment from 48.1% to 49.2%.
Operating income increased $11 million, or 4%, to a record level in fiscal 1997.
The increase primarily reflects higher profits from Jack Daniel's and our
premium wine brands. These gains were partially offset by decreased sales of
frozen cocktail products and by continued investments in international markets.
The segment's operating margin improved slightly from 20.2% to 20.3% in fiscal
1997.
Fiscal 1996 Compared to 1995
Net sales in fiscal 1996 increased $156 million, or 14%, due to strong consumer
trial of our frozen cocktail products, increases in worldwide volume of Jack
Daniel's and Southern Comfort, and growth of the company's premium wine brands.
Brown-Forman's wine business benefited from media reports on scientific research
indicating that moderate consumption of beverage alcohol helps reduce the risk
of heart disease. Volume levels for our other major spirits brands were lower,
largely reflecting consumption trends in the U.S. over that period.
Gross profit grew at the same rate as sales in fiscal 1996, 14%, indicating that
incremental sales carried healthy margins.
Operating income increased $18 million, or 8%, as a result of higher overseas
sales of Jack Daniel's, increased consumer demand for our premium wine brands,
new product introductions, and modest price increases on selected major spirits
brands in the domestic market. The segment's operating margin declined from
21.4% to 20.2% in fiscal 1996, reflecting investments associated with expansion
into new international markets and increased advertising expenses related to
both established brands and new product introductions.
Business Environment for Wines and Spirits
The sale of beverage alcohol around the world takes place against a backdrop of
long-standing public debate over the role of drinking in society. Brown-Forman
and the public are rightfully concerned about alcohol abuse. We strongly oppose
abusive drinking and contribute significant amounts of money to programs aimed
at curbing and understanding alcohol abuse. We also support and abide by
industry marketing and advertising codes.
We believe that adults have the right to make informed choices about whether to
drink and the right to consume beverage alcohol responsibly. Some critics of
beverage alcohol, however, seek to restrict not only alcohol abuse but also
overall alcohol consumption. These industry opponents promote policies such as
sales and advertising restrictions, punitive taxes, additional warning
requirements and the dissemination of biased information about alcohol and
health. We will continue to oppose these efforts.
Beverage alcohol sales are particularly sensitive to higher tax rates, which
increase the shelf price to the consumer. The company is not aware of any
proposed legislation to increase federal excise taxes, but such an increase
cannot be ruled out as part of future tax legislation likely to come before
Congress. Several states have also recently considered increasing their excise
taxes on spirits. If Congress expands its efforts to return responsibility for
expensive social programs to the states, many more states may consider similar
regressive taxes--despite the fact that the last federal excise tax increase on
spirits resulted in a loss of tax revenues collected. An excise tax increase at
the federal level or in major market states would adversely affect the market
for beverage alcohol.
In 1996, the Distilled Spirits Council of the United States (the trade
association representing the distilled spirits industry) lifted a long-standing
voluntary ban on radio and television advertising of distilled spirits in its
Code of Good Practice. Some producers are advertising distilled spirits on radio
and television in selected U.S. markets. The industry believes that since the
wine and beer sectors of the beverage alcohol market have advertised in these
media for years, producers of distilled spirits--whose beverages contain an
equivalent amount of alcohol per serving--should be able to market their
products in the same fashion. This development has generated considerable
controversy and threats of regulation by federal, state and local governments.
The company has not aired national ads for its distilled spirits products on
radio or television, but believes that it has the right to do so, as long as
such advertising is properly aimed at adult audiences and otherwise meets the
standards of the Code of Good Practice. It is not clear how distilled spirits
producers, including the company, will be affected either by the controversy
over broadcast advertising or by the potential ability to advertise on the air.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSUMER DURABLES SEGMENT
Summary of Operating Performance
(Expressed in millions, except percentages)
1997 1996 1995
- -----------------------------------------------------
Net Sales $ 494 $ 513 $542
% Change (4%) (5%) 5%
Gross Profit $ 242 $ 258 $277
% Change (6%) (7%) 4%
Operating Income $ 30 $ 27 $ 38
% Change 11% (29%) 41%
Our consumer durables segment includes fine china, crystal, silver, pewter and
luggage products marketed under the Lenox, Dansk, Gorham, Kirk Stieff and
Hartmann brand names.
Fiscal 1997 Compared to 1996
Net sales of consumer durables declined $19 million, or 4%, in fiscal 1997,
primarily reflecting a planned contraction at Lenox Collections, as well as a
decline in sales of fine china to department stores. Revenues from our Lenox and
Dansk retail stores improved solidly, with same store sales up 10% over fiscal
1996.
Gross profit decreased $16 million in fiscal 1997, largely attributable to the
contraction of Lenox Collections and lower sales of fine china to department
stores.
Operating income increased $3 million, or 11%, primarily as a result of improved
profitability of the scaled-down Lenox Collections business. By focusing
marketing efforts on the strongest product offerings, we have been able to
return the Collections business to a profitable position on a smaller sales
base. Segment profits were also enhanced by stronger consumer demand at our
retail stores.
Fiscal 1996 Compared to 1995
Net sales declined $29 million, or 5%, largely reflecting a sharp decline in
consumer response rates at Lenox Collections. Results were also affected to a
lesser extent by a difficult retail environment for outlet stores and
consolidation within the department store distribution channel.
Operating income decreased $11 million, or 29%, principally from the decline in
consumer response rates within the direct mail collectible business.
LIQUIDITY AND CAPITAL RESOURCES
Our cash flows from operations continue to provide more than adequate capital to
meet operating and capital expenditure requirements, pay dividends, and fund
acquisition opportunities. We consider our ability to internally generate cash
to be a significant financial strength.
Free cash flow is the cash remaining from operations after satisfying internal
and external business reinvestment opportunities. A consolidated statement of
cash flows is summarized as follows:
(Expressed in millions)
1997 1996 1995
- -----------------------------------------------------
Cash flows provided by
(used for):
Operations $ 183 $ 171 $197
Investment activities (63) (71) (43)
--------------------------
Free Cash Flow 120 100 154
Cash flows (used for):
Financing activities:
Dividends (73) (71) (67)
Reduction in debt (43) (37) (56)
--------------------------
Increase (decrease in cash)$ 4 $ (8) $ 31
==========================
Cash provided by operations increased $12 million in fiscal 1997, mainly
attributable to higher net income for the year. Cash used for investment
activities in fiscal 1997 primarily reflect capital expenditures to expand
manufacturing and office facilities and enhance the company's information
systems.
Cash provided by operations decreased $26 million in fiscal 1996, primarily as a
result of lower earnings at Lenox and an increased investment in working
capital. Cash used for investment activities rose $28 million in fiscal 1996,
primarily due to increasing Brown-Forman's investment in the company that
supplies Bolla Italian wines.
We have a $300 million revolving credit agreement that expires in fiscal 2001.
At April 30, 1997, we had no outstanding borrowings under this agreement. At
April 30, 1997, we had $220 million remaining on our $250 million shelf
registration, which was filed with the Securities and Exchange Commission in
fiscal 1994.
22
<PAGE>
Total Long-Term Debt to
Total Long-Term Capital (at April 30)
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal year 1993 1994 1995 1996 1997
Long-Term Capital $973 $763 $793 $845 $793
Long-Term Debt $154 $299 $247 $211 $ 63
</TABLE>
CAPITAL EXPENDITURES
We invested $55 million in property, plant and equipment in fiscal 1997, $59
million in fiscal 1996, and $51 million in fiscal 1995. These expenditures were
primarily for the expansion and modernization of company-wide production
facilities.
Capital expenditures for fiscal 1998 are expected to approximate the 1997 level.
Fiscal 1998 capital expenditure requirements primarily represent the continued
expansion and modernization of our production facilities and the enhancement of
our information systems, and are expected to be met with internally generated
funds.
DIVIDENDS
Quarterly dividends were increased 4% in fiscal 1997 to $.27, based on the
expectation of continued strong cash flow. Cash dividends paid as a percentage
of net income were 43% in fiscal 1997, compared to 44% and 45% for fiscal 1996
and fiscal 1995, respectively. We have paid regular cash dividends for 52
consecutive years.
Cash Dividends Paid
Per Common Share
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
$.86 $.93 $.97 $1.02 $1.06
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative financial instruments to reduce our exposure to adverse
fluctuations in interest and foreign exchange rates. While these hedging
instruments are subject to fluctuations in value, such fluctuations are
generally offset by the change in value of the underlying exposures being
hedged. We are not a party to leveraged derivatives and do not hold or issue
financial instruments for speculative purposes. We previously sold an option to
swap interest rates that effectively eliminated the call feature on $100 million
of 9.375% notes for the period April 1, 1995 to April 1, 1998. This option was
exercised April 1, 1995, effectively converting $100 million of commercial paper
from floating interest rate obligations to 9.375% fixed rate obligations for the
period April 1, 1995 to April 1, 1998. The option on this swap was sold in order
to manage the level of fixed and floating rate debt. The premium received on the
sale of this option is being amortized as a reduction of interest expense
through April 1, 1998.
FOREIGN CURRENCIES
The U.S. dollar is the functional currency for substantially all of our
consolidated operations. For these operations, all gains and losses from
currency transactions are included in current income. For certain foreign equity
investments, the functional currency is the local currency. The cumulative
translation effects for the equity investments using functional currencies other
than the U.S. dollar are included in the cumulative translation adjustment in
stockholders' equity.
Foreign currency forwards and options, which typically expire within one year,
are used to hedge payments and receipts of foreign currencies related to the
purchase and sale of good overseas. Realized gains and losses on these contracts
are recognized in the same period as the hedged transactions. While these hedges
are subject to the risk of loss from fluctuations in exchange rates, these
losses would be offset by gains on the transactions being hedged. We had
foreign exchange contracts on hand at April 30, 1997, 1996 and 1995, primarily
hedging German mark, Spanish peseta, British pound and Japanese yen revenues,
totaling $40 million, $28 million and $11 million, respectively.
As a result of the growth of our international business in recent years,
Brown-Forman's foreign currency receipts exceed the company's foreign currency
payments. Accordingly, to the extent this foreign currency exposure is not
hedged, the company's results of operations and financial position are
negatively impacted by a weakening of foreign currencies against the U.S. dollar
and positively impacted by a strengthening of the foreign currencies.
ENVIRONMENTAL
Along with other responsible parties, we face environmental claims resulting
from the cleanup of several waste deposit sites. We have accrued our estimated
portion of cleanup costs and expect either the other responsible parties or
insurance to cover the remaining costs. We believe that any additional costs
incurred to satisfy environmental claims will not have a material adverse effect
on the company's quarterly or annual results of operations or financial
condition.
23
<PAGE>
REPORT OF MANAGEMENT
We are responsible for the presentation of the information contained in
the consolidated financial statements and for its integrity and objectivity. Our
statements have been prepared in accordance with generally accepted accounting
principles and include amounts based on our best estimates and judgments with
appropriate consideration given to materiality. We also prepared the related
financial information and are responsible for its accuracy and consistency with
the financial statements.
The consolidated financial statements have been audited by Coopers &
Lybrand L.L.P., independent accountants. We have made available to Coopers &
Lybrand L.L.P. all the company's financial records and related data, as well as
the minutes of stockholders', directors', and other appropriate meetings.
Furthermore, we believe that all representations made to Coopers & Lybrand
L.L.P. during the audit were valid and appropriate.
We are responsible for establishing and maintaining a system of internal
control designed to provide reasonable assurance at reasonable cost that
financial records are reliable for preparing financial statements and that
assets are properly accounted for and safeguarded. The company has an internal
audit function that is intended to provide a review and monitoring process that
allows the company to be reasonably sure that the system of internal control
operates effectively. In addition, as part of the audit of the financial
statements, Coopers & Lybrand L.L.P. completed a study and evaluation of
selected internal accounting controls to establish a basis for reliance thereon
in determining the nature, timing, and extent of audit tests to be applied. We
have considered the internal auditors' and Coopers & Lybrand L.L.P.'s
recommendations concerning the system of internal control and have taken actions
that we believe are cost-effective in the circumstances to respond appropriately
to these recommendations. We believe that as of April 30, 1997, the system of
internal control is adequate to accomplish the objectives discussed herein.
We also recognize our responsibility for fostering a strong ethical
climate so that the company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the company's Code of Conduct, which is
publicized throughout the company. The Code of Conduct addresses, among other
things, the necessity of ensuring open communication within the company; the
disclosure of potential conflicts of interests; the compliance with all
applicable domestic and foreign laws, including those relating to financial
disclosure; and the maintenance of the confidentiality of proprietary
information. The company has a systematic program to assess compliance with the
Code of Conduct.
The Board of Directors, through its Audit Committee, composed solely of
directors who are not employees of the company, meets with management, the
internal auditors and the independent accountants to ensure that each is
properly discharging its respective responsibilities. Both the independent
accountants and the internal auditors have free access to the Audit Committee,
without management present, to discuss the results of their work, including
internal accounting controls and the quality of financial reporting.
/s/ Owsley Brown II
Owsley Brown II
Chairman of the Board
and Chief Executive Officer
/s/ Steven B. Ratoff
Steven B. Ratoff
Executive Vice President
and Chief Financial Officer
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
BROWN-FORMAN CORPORATION
We have audited the accompanying consolidated balance sheet of Brown-
Forman Corporation and Subsidiaries as of April 30, 1997, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brown-Forman
Corporation and Subsidiaries at April 30, 1997, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
May 27, 1997
24
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF INCOME
(Expressed in millions, except per share amounts)
- -------------------------------------------------------------------------------
Year Ended April 30, 1997 1996 1995
===============================================================================
Net sales $1,841 $1,807 $1,680
- -------------------------------------------------------------------------------
Excise taxes 257 263 260
- -------------------------------------------------------------------------------
Cost of sales 680 664 596
- -------------------------------------------------==============================
- -------------------------------------------------------------------------------
Gross profit 904 880 824
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Selling, general, and administrative expenses 388 375 355
- -------------------------------------------------------------------------------
Advertising expenses 229 231 201
- -------------------------------------------------==============================
Operating income 287 274 268
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Interest income 3 3 2
- -------------------------------------------------==============================
Interest expense 17 20 23
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Income before income taxes 273 257 247
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Taxes on income 104 97 98
- -------------------------------------------------==============================
- -------------------------------------------------------------------------------
Net income $ 169 $ 160 $ 149
- -------------------------------------------------==============================
- -------------------------------------------------------------------------------
Earnings per share $ 2.45 $ 2.31 $ 2.15
- -------------------------------------------------==============================
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
Brown-Forman Corporation
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Expressed in millions, except share and per share amounts)
- -------------------------------------------------------------------------------
April 30, 1997 1996 1995
===============================================================================
<S> <C> <C> <C>
Assets
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 58 $ 54 $ 62
- -------------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful accounts
of $10 in 1997, $13 in 1996, and $14 in 1995 263 257 234
- -------------------------------------------------------------------------------
Inventories:
- -------------------------------------------------------------------------------
Barreled whiskey 176 167 163
- -------------------------------------------------------------------------------
Finished goods 172 169 123
- -------------------------------------------------------------------------------
Work in process 66 59 59
- -------------------------------------------------------------------------------
Raw materials and supplies 37 38 37
- --------------------------------------------------------=======================
Total inventories 451 433 382
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Other current assets 30 24 20
- --------------------------------------------------------=======================
Total Current Assets 802 768 698
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Property, plant, and equipment, net 292 281 252
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Intangible assets, less accumulated amortization
of $120 in 1997, $108 in 1996, and $98 in 1995 254 259 263
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Other assets 80 73 73
- --------------------------------------------------------=======================
Total Assets $1,428 $1,381 $1,286
- --------------------------------------------------------=======================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
April 30, 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------
Commercial paper $ 155 $ 50 $ 50
- --------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 209 223 221
- --------------------------------------------------------------------------------------------------------
Current portion of long-term debt 7 6 6
- --------------------------------------------------------------------------------------------------------
Accrued taxes on income 6 3 --
- --------------------------------------------------------------------------------------------------------
Deferred income taxes 22 21 9
- --------------------------------------------------------------------------------------------------------
Total Current Liabilities 399 303 286
- --------------------------------------------------------------------------------------------------------
Long-term debt 63 211 247
- --------------------------------------------------------------------------------------------------------
Deferred income taxes 136 127 114
- --------------------------------------------------------------------------------------------------------
Accrued postretirement benefits 54 52 51
- --------------------------------------------------------------------------------------------------------
Other liabilities and deferred income 46 54 42
- --------------------------------------------------------------------------------------------------------
Total Liabilities 698 747 740
- --------------------------------------------------------------------------------------------------------
Stockholders' Equity
- --------------------------------------------------------------------------------------------------------
Capital Stock:
- --------------------------------------------------------------------------------------------------------
Preferred $.40 cumulative, $10 par value, redeemable at company's
option at $10.25 per share plus unpaid accrued dividends;
1,177,948 shares authorized and outstanding 12 12 12
- --------------------------------------------------------------------------------------------------------
Class A common stock, voting, $.15 par value;
authorized shares, 30,000,000; issued shares, 28,988,091 4 4 4
- --------------------------------------------------------------------------------------------------------
Class B common stock, nonvoting, $.15 par value;
authorized shares, 60,000,000; issued shares, 40,008,147 6 6 6
- --------------------------------------------------------------------------------------------------------
Retained earnings 712 616 527
- --------------------------------------------------------------------------------------------------------
Cumulative translation adjustment (4) (4) (3)
- --------------------------------------------------------------------------------------------------------
Common Stockholders' Equity 718 622 534
- --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 730 634 546
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,428 $1,381 $1,286
- --------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in millions; amounts in brackets are reductions of cash)
- -------------------------------------------------------------------------------
Year Ended April 30, 1997 1996 1995
===============================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
- -------------------------------------------------------------------------------
Net income $ 169 $ 160 $ 149
- -------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used for) operations:
- -------------------------------------------------------------------------------
Depreciation 41 37 35
- -------------------------------------------------------------------------------
Amortization 9 9 9
- -------------------------------------------------------------------------------
Deferred income taxes 10 26 19
- -------------------------------------------------------------------------------
Other --- (1) (4)
- -------------------------------------------------------------------------------
Change in assets and liabilities, excluding
the effects of businesses acquired:
- -------------------------------------------------------------------------------
Accounts receivable (6) (18) 6
- -------------------------------------------------------------------------------
Inventories (24) (40) (24)
- -------------------------------------------------------------------------------
Other current assets ( 1) (2) 1
- -------------------------------------------------------------------------------
Accounts payable and accrued expenses (14) (8) 5
- -------------------------------------------------------------------------------
Accrued taxes on income 4 3 (4)
- -------------------------------------------------------------------------------
Accrued postretirement benefits 2 1 4
- -------------------------------------------------------------------------------
Other liabilities and deferred income (7) 4 1
- ------------------------------------------------------=========================
Cash provided by operating activities 183 171 197
- ------------------------------------------------------=========================
Cash flows from investing activities:
- -------------------------------------------------------------------------------
Additions to property, plant, and equipment (55) (59) (51)
- -------------------------------------------------------------------------------
Disposals of property, plant, and equipment 3 3 10
- -------------------------------------------------------------------------------
Investment in affiliate, net of cash acquired --- (8) ---
- -------------------------------------------------------------------------------
Other (11) (7) (2)
- ------------------------------------------------------=========================
Cash (used for) investing activities (63) (71) (43)
- ------------------------------------------------------=========================
Cash flows from financing activities:
- -------------------------------------------------------------------------------
Net change in commercial paper (39) (60) 50
- -------------------------------------------------------------------------------
Proceeds from long-term debt 3 30 ---
- -------------------------------------------------------------------------------
Reduction of long-term debt (7) (7) (106)
- -------------------------------------------------------------------------------
Dividends paid (73) (71) (67)
- ------------------------------------------------------=========================
Cash (used for) financing activities (116) (108) (123)
- ------------------------------------------------------=========================
Net increase (decrease) in cash and cash equivalents 4 (8) 31
- -------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 54 62 31
- ------------------------------------------------------=========================
Cash and cash equivalents, end of year $ 58 $ 54 $ 62
- ------------------------------------------------------=========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended April 30, 1997, 1996 and 1995 (Expressed in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------
Common Stock
----------------- Cumulative
Preferred Class Class Retained Translation
Total Stock A B Earnings Adjustment
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1994 $464 $12 $4 $6 $446 $(4)
- ------------------------------------------------------------------------------------------------------------------------
Net income 149 149
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends
Preferred, per share $.40 (1) (1)
Common, per share $.97 (67) (67)
- ------------------------------------------------------------------------------------------------------------------------
Foreign currency translation
adjustment 1 1
- --------------------------------------------------======================================================================
Balance, April 30, 1995 546 12 4 6 527 (3)
- ------------------------------------------------------------------------------------------------------------------------
Net income 160 160
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends
Preferred, per share $.40 (1) (1)
Common, per share $1.02 (70) (70)
- ------------------------------------------------------------------------------------------------------------------------
Foreign currency translation
adjustment (1) (1)
- --------------------------------------------------======================================================================
Balance, April 30, 1996 634 12 4 6 616 (4)
- ------------------------------------------------------------------------------------------------------------------------
Net income 169 169
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends
Preferred, per share $.40 (1) (1)
Common, per share $1.06 (72) (72)
- --------------------------------------------------======================================================================
Balance, April 30, 1997 $730 $12 $4 $6 $712 $(4)
- --------------------------------------------------======================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. Investments in affiliates in which the company has the ability to
exercise significant influence, but not control, are accounted for by the equity
method. All other investments in affiliates are carried at cost. Intercompany
transactions are eliminated.
Cash Equivalents
Cash equivalents include demand deposits with banks and all highly liquid
investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Approximately 85% of
consolidated inventories are valued using the last-in, first-out (LIFO) method.
All remaining inventories are valued using the first-in, first-out or average
cost methods.
If the LIFO method had not been used, inventories would have been $98, $85 and
$70 higher than reported at April 30, 1997, 1996 and 1995, respectively.
A substantial portion of barreled whiskey will not be sold within one year
because of the duration of the aging process. All barreled whiskey is classified
as a current asset in accordance with industry practice. Bulk wine inventories
are classified as work in process.
Warehousing, insurance, ad valorem taxes, and other carrying charges applicable
to barreled whiskey are included in inventory costs.
Revenue Recognition
The company recognizes revenue when goods are shipped.
Long-Lived Assets
Property, plant, and equipment are stated at cost. Provision for depreciation is
made on the basis of estimated useful lives of depreciable assets, principally
using the straight-line method.
Intangible assets, principally the excess of purchase price over the fair value
of identifiable net assets of acquired businesses, are stated at cost less
accumulated amortization. These assets are amortized using the straight-line
method over their estimated useful lives, not exceeding forty years.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
was adopted during 1996. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment value, based upon
undiscounted future cash flows, and appropriate losses be recognized whenever
the carrying amount of an asset may not be recovered. The adoption of SFAS No.
121 did not have a material effect on the consolidated financial statements.
Advertising Costs
Advertising costs are charged to expense as incurred, except for direct-response
advertising costs, which are capitalized and amortized over periods not
exceeding one year.
Foreign Currency and Hedging Activities
The U.S. dollar is the functional currency for substantially all of the
company's consolidated operations. For these operations, all gains and losses
from currency transactions are included in income currently. For certain foreign
equity investments, the functional currency is the local currency. The
cumulative translation effects for the equity investments using functional
currencies other than the U.S. dollar are included in the cumulative
translation adjustment in stockholders' equity.
The company uses foreign currency forwards and options to hedge payments and
receipts of foreign currencies related to the purchase and sale of goods
overseas. The purpose of these hedges is to protect against the risk that
currency movements would adversely affect the company's revenues and product
costs. While these hedges are subject to the risk of loss from fluctuations in
exchange rates, these losses would be offset by gains on the transactions being
hedged. Realized gains and losses on these hedging instruments are recognized in
income in the same period as the underlying transaction. The company does not
engage in currency speculation.
Stock-Based Compensation
The company applies the intrinsic value based method permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation," in accounting for its stock option
grants, which generally does not result in the recognition of compensation
expense. The company's stock option grants are discussed in Note 12.
Earnings Per Share
Earnings per share are calculated using net income reduced by dividend
requirements on preferred stock, divided by the weighted average number of
common and common equivalent shares outstanding during the year. The weighted
average number of common and common equivalent shares was 69,013,904 during 1997
and 68,996,238 during 1996 and 1995.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities; disclosure of contingent
assets and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses during the period. Actual results could differ
from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
30
<PAGE>
Other
SFAS No. 128, "Earnings per Share," was issued in February 1997, and establishes
standards for computing and presenting earnings per share. SFAS No. 128 will be
effective for financial statements for periods ending after December 15, 1997
and will require the restatement of prior-period earnings per share data
presented in those financial statements. The adoption of SFAS No. 128 is not
expected to change the company's previously-reported earnings per share.
Statement of Position (SOP) 97-1, "Environmental Remediation Liabilities," which
was issued in October 1996 and will be adopted by the company effective May 1,
1997, provides authoritative guidance for the recognition, measurement and
disclosure of environmental remediation liabilities in financial statements.
The adoption of SOP 96-1 is not expected to have a material effect on the
consolidated financial statements. See Note 14 for discussion of the company's
environmental commitments and contingencies.
2 BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
April 30, 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Property, Plant, and equipment
- --------------------------------------------------------------------------------
Land $ 17 $ 17 $ 17
- --------------------------------------------------------------------------------
Buildings 200 173 164
- --------------------------------------------------------------------------------
Equipment 421 404 350
- --------------------------------------------------------------------------------
638 594 531
- --------------------------------------------------------------------------------
Less accumulated depreciation 346 313 279
- --------------------------------------------------------------------------------
$292 $281 $252
- --------------------------------------------------------------------------------
Accounts payable
and accrued expenses
- --------------------------------------------------------------------------------
Accounts payable, trade $ 83 $ 74 $ 68
- --------------------------------------------------------------------------------
Accrued expenses:
- --------------------------------------------------------------------------------
Compensation and commissions 42 40 45
- --------------------------------------------------------------------------------
Excise and other non-income taxes 19 17 21
- --------------------------------------------------------------------------------
Interest 5 6 7
- --------------------------------------------------------------------------------
Advertising 14 29 31
- --------------------------------------------------------------------------------
Other 46 57 49
- --------------------------------------------------------------------------------
126 149 153
- --------------------------------------------------------------------------------
$209 $223 $221
- --------------------------------------------------------------------------------
</TABLE>
3. CHANGES IN OPERATIONS
In December 1995, Brown-Forman increased its equity investment in the company
that supplies Bolla Italian wines. Subsequent to this transaction,
Brown-Forman accounts for its investment in the supplier using the consolidated
basis of accounting.
4. CREDIT FACILITIES
The company has a $300 revolving credit agreement with various domestic and
international banks that expires in fiscal 2001. The most restrictive of the
agreement's covenants requires the company to maintain a minimum level of net
worth. At April 30, 1997, the company also had available for issuance $220 of
debt securities under a shelf registration filing with the Securities and
Exchange Commission.
5. DEBT
At April 30, the company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
April 30, 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Commercial paper $ -- $144 $204
- --------------------------------------------------------------------------------
6.82% to 7.38% medium-term
notes, due 2005 30 30 --
- --------------------------------------------------------------------------------
11.25% notes, due through 1999 22 28 34
- --------------------------------------------------------------------------------
Variable rate industrial revenue
bonds, due through 2026 17 14 14
- --------------------------------------------------------------------------------
Other 1 1 1
- --------------------------------------------------------------------------------
70 217 253
- --------------------------------------------------------------------------------
Less current portion 7 6 6
- --------------------------------------------------------------------------------
$ 63 $211 $247
- --------------------------------------------------------------------------------
</TABLE>
The company has an interest rate agreement to convert $100 of its commercial
paper from variable rates to a fixed rate of 9.375%. This contract matures in
1998. See Note 6 for a description of the financial instrument.
At April 30, 1996 and 1995, commercial paper of $144 and $204, respectively, was
classified as long-term debt due to the credit available under the long-term
credit facilities discussed in Note 4 and the company's intent to refinance
those borrowings on a long-term basis. Long-term debt payment requirements for
the five fiscal years after April 30, 1997 are as follows: 1998 -- $7; 1999 --
$7; 2000 -- $8; 2001 -- $2; 2002 -- $0. Cash paid for interest was $18 in 1997,
$21 in 1996, and $25 in 1995. Excluding the effect of the interest rate
agreement discussed above, the weighted average interest rates on commercial
paper were 5.6%, 5.4% and 4.9% at April 30, 1997, 1996 and 1995, respectively.
The weighted average interest rates on the variable rate industrial revenue
bonds were 4.6%, 4.2% and 4.9% at April 30, 1997, 1996 and 1995, respectively.
31
<PAGE>
6. FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments for the purpose of reducing
its exposure to adverse fluctuations in interest and foreign exchange rates.
While these hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the change in value of the underlying
exposures being hedged. The company is not a party to leveraged derivatives and
does not hold or issue financial instruments for speculative purposes.
Interest Rate Management
The company sold an option in 1990 to swap interest rates that effectively
eliminated the call feature on certain 9.375% notes for the period April 1, 1995
to April 1, 1998. This option was exercised April 1, 1995, effectively
converting $100 of commercial paper from floating interest rate obligations to
9.375% fixed rate obligations for the period April 1, 1995 to April 1, 1998. The
option on this swap was sold in order to manage the level of fixed and floating
rate debt. The premium received on the sale of this option is being amortized as
a reduction of interest expense through April 1, 1998.
Foreign Currency Management
The U.S. dollar is the functional currency for substantially all of the
company's consolidated operations. For these operations, all gains and losses
from currency transactions are included in income currently. For certain foreign
equity investments, the functional currency is the local currency. The
cumulative translation effects for equity investments using functional
currencies other than the U.S. dollar are included in the cumulative translation
adjustment in stockholders' equity.
The company uses foreign currency forwards and options, which typically expire
within one year, to hedge payments and receipts of foreign currencies related
to the purchase and sale of goods overseas. Realized gains and losses on these
contracts are recognized in the same period as the hedged transactions. The
company had foreign exchange forward contracts on hand at April 30, 1997, 1996
and 1995, primarily hedging German mark, Spanish peseta, British pound and
Japanese yen revenues, totaling $40, $28 and $11, respectively.
Carrying Amount and Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, short-term investments, and
commercial paper approximates fair value due to the short maturities of these
instruments. The value of long-term debt is estimated using discounted cash
flows based on the company's incremental borrowing rates for similar types of
borrowings. The values of interest rate and foreign currency are based on quoted
market prices. A comparison of the carrying amount and fair value of these
instruments is as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Assets:
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and
cash equivalents $ 58 $ 58 $ 54 $ 54
- --------------------------------------------------------------------------------
Foreign currency
instruments -- -- -- --
- --------------------------------------------------------------------------------
Liabilities:
- --------------------------------------------------------------------------------
Commercial paper 155 155 50 50
- --------------------------------------------------------------------------------
Long-term debt 70 72 217 217
- --------------------------------------------------------------------------------
Interest rate instrument -- 3 1 6
- --------------------------------------------------------------------------------
</TABLE>
7. COMMITMENTS
Rental payments for real estate, office and data processing equipment, vehicles,
and manufacturing equipment under operating leases amounted to approximately
$28, $25, and $16 for 1997, 1996 and 1995, respectively. The company has
commitments related primarily to minimum lease payments as follows: 1998 --
$23; 1999 -- $19; 2000-- $15; 2001 -- $5; 2002 -- $3; after 2002 -- $4.
8. TAXES ON INCOME
Taxes on income are composed of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
================================================================================
<S> <C> <C> <C>
Currently payable:
- --------------------------------------------------------------------------------
Federal $ 76 $ 54 $ 62
- --------------------------------------------------------------------------------
Foreign 6 5 2
- --------------------------------------------------------------------------------
State and Local 12 12 15
- -----------------------------------------------------===========================
94 71 79
- -----------------------------------------------------===========================
- --------------------------------------------------------------------------------
Deferred:
- --------------------------------------------------------------------------------
Federal 7 21 15
- --------------------------------------------------------------------------------
Foreign -- -- 1
- --------------------------------------------------------------------------------
State and Local 3 5 3
- -----------------------------------------------------===========================
10 26 19
- -----------------------------------------------------===========================
$104 $ 97 $ 98
- -----------------------------------------------------===========================
</TABLE>
32
<PAGE>
United States and foreign components of income before income taxes are as
follows;
<TABLE>
<CAPTION>
- -------------------------------------------
1997 1996 1995
- -------------------------------------------
<S> <C> <C> <C>
United States $237 $229 $227
- -------------------------------------------
Foreign 36 28 20
- -------------------------------------------
$273 $257 $247
- ----------------------=====================
</TABLE>
<TABLE>
<CAPTION>
The following is a reconciliation of the effective tax rates with the United
States' statutory rate:
Percent of Income Before Taxes
- -------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
- -------------------------------------------------------
State taxes, net of U.S.
Federal tax benefit 4.0 4.1 4.6
- -------------------------------------------------------
Income taxed at other than
U.S. Federal statutory rate (1.5) (2.2) (.7)
- -------------------------------------------------------
Tax benefit of Foreign
Sales Corporation (.9) (1.3) (1.1)
- -------------------------------------------------------
Nondeductible amortization 1.1 1.2 1.2
- -------------------------------------------------------
Adjustment of prior years'
accruals (.3) .3 (.3)
- -------------------------------------------------------
Other, net .6 .7 1.1
- -------------------------------------------------------
38.0% 37.8% 39.8%
- --------------------------------=======================
</TABLE>
<TABLE>
<CAPTION>
Deferred tax assets and liabilities are composed of the following:
April 30, 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
- ------------------------------------------------------------
Postretirement and other benefits $ 38 $ 36 $ 32
- ------------------------------------------------------------
Accrued liabilities and other 20 15 31
- ------------------------------------------------------------
Total deferred tax assets 58 51 63
- ------------------------------------------------------------
Deferred tax liabilities:
- ------------------------------------------------------------
Intercompany transactions 152 141 132
- ------------------------------------------------------------
Depreciation 24 21 20
- ------------------------------------------------------------
Undistributed foreign earnings 17 17 17
- ------------------------------------------------------------
Pension plans 20 18 16
- ------------------------------------------------------------
Other 3 2 1
- --------------------------------------======================
Total deferred tax liabilities 216 199 186
- --------------------------------------======================
Net deferred tax liability $158 $148 $123
- --------------------------------------======================
</TABLE>
Deferred income taxes were not provided on certain undistributed earnings ($73
at April 30, 1997 and $59 at April 30, 1996 and 1995) of certain foreign
subsidiaries because such undistributed earnings are expected to be reinvested
indefinitely overseas. If these amounts were not considered permanently
reinvested, additional deferred taxes of approximately $24 in 1997 and $20 in
1996 and 1995 would have been provided. The U.S. Congress is currently
considering legislation which, if adopted, would prevent the company from
deferring tax on certain types of income to future years.
Cash paid for income taxes was $91 in 1997, $65 in 1996 and $86 in 1995.
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company provides certain health care and life insurance benefits for
eligible retirees.
The postretirement benefit expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 1 $ 1 $ 2
- ------------------------------------------------------------
Interest cost on accumulated post-
retirement benefit obligation 3 3 3
- --------------------------------------======================
Postretirement benefit expense $ 4 $ 4 $ 5
- --------------------------------------======================
</TABLE>
The postretirement benefit liability includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated postretirement obligation:
- --------------------------------------------------------------------
Retirees $22 $21 $21
- --------------------------------------------------------------------
Fully eligible active participants 1 1 1
- --------------------------------------------------------------------
Other active participants 17 21 15
- -----------------------------------------------=====================
40 43 37
- --------------------------------------------------------------------
Unrecognized net gain 14 9 14
- -----------------------------------------------=====================
Accrued postretirement benefit $54 $52 $51
- -----------------------------------------------=====================
Assumptions:
- --------------------------------------------------------------------
Discount Rate 7.5% 7.0% 8.5%
- --------------------------------------------------------------------
Healthcare cost trend rates:
- --------------------------------------------------------------------
Present rate before age 65 7.3% 7.7% 8.0%
- --------------------------------------------------------------------
Present rate age 65 and after 6.6% 6.8% 7.0%
- --------------------------------------------------------------------
Ultimate rate in seven years 5.0% 5.0% 5.0%
- --------------------------------------------------------------------
</TABLE>
A 1% increase in the assumed health care cost trend rate would have increased
the accumulated postretirement benefit obligation as of April 30, 1997, by $6
and the postretirement benefit expense by $1.
33
<PAGE>
10. PENSION PLANS
The company has defined benefit pension plans covering certain employees. The
benefits for these plans are based primarily on years of service and employees'
pay near retirement for salaried employees and stated amounts for each year of
service for union and hourly employees. The company also has unfunded plans that
provide retirement benefits in excess of qualified plan formulas or regulatory
limitations for certain employees. Net pension income includes the following
components:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C>
Benefit cost for service during the year $ (9) $ (7) $ (8)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest cost on projected benefit Obligation (16) (17) (14)
- -----------------------------------------------------------------------------------------------------------------------------------
Actual return (loss) on plan assets 51 79 (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Net amortization and deferral (23) (54) 27
- -----------------------------------------------------------------------------------------------------------------------------------
Net pension income $ 3 $ 1 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amounts included in the accompanying consolidated balance sheet were based
on the funded status of the plans at January 31, 1997 and 1996 and are as
follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996
===================================================================================================================================
Plan Assets Obligations Plan Assets Obligations
Exceed Exceed Exceed Exceed
Obligations Plans Assets Obligations Plans Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
- -----------------------------------------------------------------------------------------------------------------------------------
Vested benefit obligations $ 178 $ 21 $ 171 $ 23
- -----------------------------------------------------------------------------------------------------------------------------------
Nonvested benefit obligations 11 2 11 2
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 189 23 182 25
- -----------------------------------------------------------------------------------------------------------------------------------
Additional amounts related to assumed pay increases 32 6 30 3
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 221 29 212 28
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value 339 7 300 5
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) benefit obligations 118 (22) 88 (23)
- -----------------------------------------------------------------------------------------------------------------------------------
Unamortized net (assets) obligations at date of adoption (21) 2 (25) 3
- -----------------------------------------------------------------------------------------------------------------------------------
Unrecognized net (gain) loss resulting from experience
different from that assumed and changes in actuarial assumptions (48) -- (20) 2
- -----------------------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost 4 5 3 5
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustment required to recognized minimum liability -- (3) -- (7)
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 53 $ (18) $ 46 $ (20)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation was determined using a weighted average
discount rate of 7.5% for 1997, 7% for 1996, and 8.5% for 1995. The weighted
average rate of future compensation increases was 4.5% for 1997, 4% for 1996,
and 5.5% for 1995. The expected rate of return on plan assets was 10% for 1997
and 9.5% for 1996 and 1995. The plans' assets consist primarily of stocks and
bonds. The company's policy for funded plans is to make contributions equal to
or greater than the requirements prescribed by the Employee Retirement Income
Security Act.
34
<PAGE>
11. BUSINESS SEGMENT INFORMATION
The company's operations have been classified into two business segments: wines
and spirits, and consumer durables. The wines and spirits segment includes the
production, importing and marketing of wines and distilled spirits. The consumer
durables segment includes the manufacture and sale of china, crystal, ceramic
and crystal collectibles, silver, pewter, luggage and leather accessories.
Summarized financial information by business segment for 1997, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
- ------------------------------------------------------------
Wines and Spirits $1,347 $1,294 $1,138
- ------------------------------------------------------------
Consumer Durables 494 513 542
- --------------------------------============================
$1,841 $1,807 $1,680
- --------------------------------============================
Operating income:
- ------------------------------------------------------------
Wines and Spirits $ 273 $ 262 $ 244
- ------------------------------------------------------------
Consumer Durables 30 27 38
- ------------------------------------------------------------
Corporate (16) (15) (14)
- --------------------------------============================
$ 287 $ 274 $ 268
- --------------------------------============================
Total assets:
- ------------------------------------------------------------
Wines and Spirits $ 885 $ 835 $ 716
- ------------------------------------------------------------
Consumer Durables 470 480 480
- ------------------------------------------------------------
Corporate 73 66 90
- --------------------------------============================
$1,428 $1,381 $1,286
- --------------------------------============================
Depreciation and amortization:
- ------------------------------------------------------------
Wines and Spirits $ 28 $ 24 $ 23
- ------------------------------------------------------------
Consumer Durables 21 21 20
- ------------------------------------------------------------
Corporate 1 1 1
- --------------------------------============================
$ 50 $ 46 $ 44
- --------------------------------============================
Capital expenditures:
- ------------------------------------------------------------
Wines and Spirits $ 40 $ 43 $ 38
- ------------------------------------------------------------
Consumer Durables 14 16 13
- ------------------------------------------------------------
Corporate 1 -- --
- --------------------------------============================
$ 55 $ 59 $ 51
- --------------------------------============================
</TABLE>
There were no significant intersegment sales or transfers during 1997, 1996 or
1995. Operating income by business segment excludes interest income, interest
expense, and unallocated corporate expenses. Corporate assets consist
principally of cash and cash equivalents, certain corporate receivables, and
other assets.
Sales outside the United States, consist principally of exports of wines and
spirits, amounted to approximately $330, $282 and $221 in 1997, 1996 and 1995,
respectively.
12. STOCK OPTIONS
On July 25, 1996, pursuant the Brown-Forman Corporation Omnibus Compensation
Plan (the Plan), the company granted approximately 157,000 stock options for an
equal number of shares of Class B common stock to certain officers and key
employees of the company and its subsidiaries. Each option had an exercise price
of $36.125, the fair market value of a share of Class B common stock at the date
of grant. Approximately 5,000 of the options were forfeited during 1997. The
approximately 152,000 options outstanding at April 30, 1997 become exercisable
on May 1, 1999, and expire on April 30, 2006. A total of 1,500,000 shares of
common stock have been reserved for issuance under the Plan.
The company applies the intrinsic value based method permitted by SFAS No. 123
in accounting for the stock options. Accordingly, no compensation expense has
been recognized. Had compensation cost been determined based on the fair value
at the grant dates, the effect on the company's 1997 net earnings would not have
been material.
13 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
consolidated financial position or results of operations.
14 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 to cover the remaining costs. The company believes that
any additional costs incurred will not have a material adverse effect on the
company's quarterly or annual results of operations or financial position.
35
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Percentage State or
of Voting Jurisdiction
Name Securities Owned of Incorporation
---- ---------------- ----------------
Brown-Forman International F.S.C., Ltd. 100% U.S. Virgin Islands
Canadian Mist Distillers, Limited 100% Ontario, Canada
Early Times Distillers Company 100% Delaware
Fetzer Vineyards 90.1% California
Fratelli Bola International Wines, Inc 95% Kentucky
Hartmann Luggage Company 100% Delaware
Jack Daniel Distillery, Lem Motlow, Prop., Inc 100% Kentucky
Lenox, Incorporated 100% New Jersey
Mt. Eagle Corporation 100% Delaware
Thoroughbred Plastics Corporaton 100% Kentucky
Norkfolk Investments, Inc. 100% /(1)/ Delaware
Dansk International Designs Ltd. 100% /(1)/ New York
Brooks & Bentley Limited 100% /(1)/ United Kingdom
Brooks & Bentley S.A.R.L. 100% /(1)/ France
Brooks & Bentley AF 100% /(1)/ Norway
Longnorth Limited 100% /(2)/ Ireland
The Joseph Garneau Co., S.A. 100% /(2)/ Switzerland
Chissick Limited 100% /(2)(3)/ Ireland
Clintock Limited 100% /(2)(3)/ Ireland
Lantone Limited 100% /(2)(3)/ Channel Islands
Brown-Forman Mauritius, Limited 100% /(3)/ Mauritius
Brown-Forman Worldwide B.V. 100% /(3)/ Netherlands
Brown-Forman - W.S. Karoulias S.A. 75% /(3)/ Greece
Pitts Bay Trading Limited 75% /(3)/ Bermuda
Latone Delaware, Inc. 100% /(4)/ Delaware
Brown-Forman Beverages Worldwide
Comercio de Bebidas Ltda. 100% /(5)/ Brazil
Brown-Forman Worldwide, L.L.C. 100% /(5)/ Delaware
Brown-Forman Beverages Africa, Ltd. 100% /(6)/ Bermuda
Frantelli Bolla, S.p.A. 88% /(7)/ Italy
Drake Investments, Inc. 100% /(8)/ Delaware
The above companies are included in the consolidated financial statements. The
names of certain subsidiaries have been omitted which, if considered in the
aggregate as a single subsidiary, would constitute a significant subsidiary.
/(1)/ Owned by Lenox, Incorporated.
/(2)/ Includes qualifying shares assigned to Brown-Forman Corporation.
/(3)/ Owned by Longnorth Limited.
/(4)/ Owned by Lantone Limited.
/(5)/ Owned 99% by Brown-Forman Corporation and 1% by Early Times Distillers
Company.
/(6)/ Owned 99% by Clintock Limited and 1% by Longnorth Limited.
/(7)/ Owned 45% by Fratelli Bolla International Wines, Inc. and 43% by the
Joseph Garneau Co., S.A.
/(8)/ Owned by Jack Daniel Distillery, Lem Motlow, Prop., Inc.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Brown-Forman Corporation on Form S-3 (File No. 33-52551) and Form S-8 (File No.
333-08311), of our report dated May 27, 1997, on our audits of the consolidated
financial statements and financial statement schedule of Brown-Forman
Corporation as of April 30, 1997, 1996, and 1995, and for the years ended April
30, 1997, 1996, and 1995, which report is included in this Annual Report on Form
10-K.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
July 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
The Company's April 30, 1997 Annual Report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 263
<ALLOWANCES> 10
<INVENTORY> 451
<CURRENT-ASSETS> 802
<PP&E> 638
<DEPRECIATION> 346
<TOTAL-ASSETS> 1,428
<CURRENT-LIABILITIES> 399
<BONDS> 63
0
12
<COMMON> 10
<OTHER-SE> 708
<TOTAL-LIABILITY-AND-EQUITY> 1,428
<SALES> 1,841
<TOTAL-REVENUES> 1,841
<CGS> 937<F1>
<TOTAL-COSTS> 937<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 273
<INCOME-TAX> 104
<INCOME-CONTINUING> 169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
<FN>
<F1> Includes excise taxes of $257 million.
</FN>
</TABLE>
