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, 1998
Commission file number 1-123
BROWN-FORMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 61-0143150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Dixie Highway 40210
Louisville, Kentucky (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (502) 585-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
Preferred $0.40 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) $0.15 par value New York Stock Exchange
Class B Common Stock (nonvoting) $0.15 par value New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act: None
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. [|X|]
The aggregate market value, at April 30, 1998, of the voting and nonvoting
equity held by nonaffiliates of the registrant was approximately $2,010,000,000.
The number of shares outstanding for each of the registrant's classes of
Common Stock on May 28, 1998 was:
Class A Common Stock (voting) 28,988,091
Class B Common Stock (nonvoting) 39,698,147
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 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 23, 1998 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 1998 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.
Wine and Spirits Segment
- ------------------------
Wine 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.
The Segment's brands consist of the following:
Jack Daniel's Tennessee Whiskeys
Southern Comfort
Canadian Mist Canadian Whiskies
Early Times Kentucky Whisky
Finlandia Vodkas**
Old Forester Kentucky Straight Bourbon Whisky
Bushmills Irish Whiskeys**
Jack Daniel's Country Cocktails
Gentleman Jack Rare Tennessee Whiskey
Woodford Reserve Kentucky Straight Bourbon Whiskey
Glenmorangie Single Highland Malt Scotch Whiskies**
Forester 1870 Kentucky Straight Bourbon Whisky
Black Bush Special Irish Whiskey**
Tropical Freezes
Pepe Lopez Tequilas
Korbel California Brandy*
Usher's Scotch Whisky**
Oblio Sambucas**
Jack Daniel's & Cola
Southern Comfort & Cola
2
<PAGE>
Fetzer Vineyards California Wines
Korbel California Champagnes and Wines*
Bolla Italian Wines
Jekel Vineyards California Wines
Bonterra Vineyards California Wines
Carmen Vineyards Chilean Wines**
Michel Picard French Wines**
Brolio Italian Wines**
Bel Arbor California Wines
Fontana Candida Italian Wines**
Fontanafredda Italian Wines**
Armstrong Ridge California Champagne*
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 tenth among California varietal wines and sixteenth among all domestic
table wines.
We believe the statistics used to rank these products are reasonably accurate.
Our strategy with respect to the Wine 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.
3
<PAGE>
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 wine 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 at 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.
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-Plated Giftware
Sterling Silver and Stainless Steel Flatware
Contemporary Tabletop, Houseware and Giftware
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, duty free stores 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.
4
<PAGE>
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" trademarks. Pewter and silver-plated giftware products are
also marketed under the "Lenox. Kirk Stieff" 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 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, premium collectible plates, collectible dolls,
wall coverings and candles, subject to the terms of licensing agreements.
The Segment believes that it is the largest domestic manufacturer and marketer
of fine china dinnerware 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 competition in the marketing of its 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. 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, 1998, we employ approximately 7,600 persons, including 1,140
employed on a part-time basis.
We are an equal opportunity employer and we recruit and place employees without
regard to race, color, religion, national or ethnic origin, veteran status, age,
gender, sexual preference, or physical or mental disability.
We believe our employee relations are good.
5
<PAGE>
For information on the effects of compliance with federal, state, and local
environmental regulations, refer to Note 13, "Environmental," on page 35 of our
1998 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.
Significant properties by business segments are as follows:
Wine and Spirits Segment
- ------------------------
The facilities of the Wine 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
- - Bottling facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Woodford County, Kentucky
- Frederiksted, St. Croix, U.S. Virgin Islands
- Mendocino County, California
- Monterey County, California
- Pedemonte, Italy
6
<PAGE>
- - Warehousing facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Collingwood, Ontario
- Shively, Kentucky
- Woodford County, Kentucky
- Mendocino County, California
- Monterey County, California
- Pedemonte, Italy
- Soave, Italy
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 Wine 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 (includes retail store and warehouse) - 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)
7
<PAGE>
- - 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 39 Lenox outlet stores in 26 states and
a Lenox Gift Express store in Pennsylvania. The Segment also
operates 59 Dansk stores in 29 states. In addition, the
Segment operates 2 Crouch & Fitzgerald luggage stores in 2
states and 3 Hartmann luggage outlet stores in 3 states.
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.
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.)
The summary judgment dismissing all claims by Expansion Plus, Inc. against
Brown-Forman and other defendants, affirmed by the Federal Court of Appeals for
the Fifth Circuit in January 1998, has become final and this litigation is
concluded.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
<TABLE>
Principal Occupation and
Name Age Business Experience Family Relationship
---- --- --------------------------------- -------------------
<S> <C> <C> <C>
Owsley Brown II 55 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 1995.
Owsley Brown Frazier 62 Vice Chairman of the company Cousin to Owsley Brown II
since August 1983.
William M. Street 59 Vice Chairman of the company None
since July 1987.
Steven B. Ratoff 55 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.
8
<PAGE>
John P. Bridendall 48 Senior Vice President and None
Director of Corporate
Development since July 1987.
Russell C. Buzby 64 Senior Vice President and None
Executive Director of Human
Resources and Information
Services since July 1987.
Michael B. Crutcher 54 Senior Vice President, General None
Counsel, and Secretary since
May 1989.
Lois A. Mateus 51 Senior Vice President of Corporate None
Communications and Corporate
Services since January 1988.
</TABLE>
PART II
Item 5. Market for the Registrant's Common Equity 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 1998 Annual Report to Stockholders, which information
is incorporated into this report by reference.
Holders of record of Common Stock at April 30, 1998:
Class A Common Stock (Voting) 3,446
Class B Common Stock (Nonvoting) 4,957
The principal market for Brown-Forman common shares is the New York Stock
Exchange.
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 1998 Annual Report to
Stockholders, which information is incorporated into this report by reference.
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 24 of the
1998 Annual Report to Stockholders, which information is incorporated into this
report by reference.
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:
9
<PAGE>
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. Our
operations could also be adversely impacted by incomplete or untimely
resolution of the "Year 2000" issue, as discussed more fully on page 24
of the 1998 Annual Report to Stockholders.
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. The wine and spirits business, both in the United
States and abroad, is also sensitive to political and social trends.
Legal or regulatory measures against beverage alcohol (including its
advertising and promotion) could adversely affect sales. Product
liability litigation against the alcohol industry, while not currently
a major risk factor, could become significant if new lawsuits were
filed against alcohol manufacturers. 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 segment anticipate a continued strengthening of our Lenox and
Hartmann businesses. These projections could be offset by factors such
as poor consumer response rates at Lenox Collections, a soft retail
environment at outlet malls, further department store consolidation, or
weakened demand for tableware, giftware and/or leather goods.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For the information required by this item, refer to the section entitled "Market
Risks" appearing on page 24 of the 1998 Annual Report to Stockholders, which
information is incorporated into this report by reference.
Item 8. Financial Statements and Supplementary Data
For the information required by this item, refer to the Consolidated Financial
Statements, Notes to Consolidated Financial Statements, and Report of Management
appearing on pages 25 through 37 of the 1998 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 1998 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.
10
<PAGE>
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 23, 1998, which information is incorporated into this report by reference:
(a) "Election of Directors" on page 4 through the fourth 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 23, 1998, which information is incorporated into this report by reference:
(a) "Executive Compensation" on pages 8 through 13; (b) "Retirement Plan
Descriptions" on page 14; 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 23, 1998, 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 23, 1998, which
information is incorporated into this report by reference.
11
<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>
Reference
Annual
Form 10-K Report to
Annual Report Stockholders
Page Page(s)
<S> <C> <C>
Incorporated by reference to our Annual
Report to Stockholders for the year
ended April 30, 1998:
Consolidated Statement of Income for the
years ended April 30, 1996, 1997, and 1998* -- 25
Consolidated Balance Sheet at April 30, 1996, 1997, and 1998* -- 26 - 27
Consolidated Statement of Cash Flows for the
years ended April 30, 1996, 1997, and 1998* -- 28
Consolidated Statement of Stockholders' Equity
for the years ended April 30, 1996, 1997, and 1998* -- 29
Notes to Consolidated Financial Statements* -- 30 - 36
Report of Management* -- 37
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, 1998, but only to the extent set forth in
Items 1, 5, 6, 7, 7A and 8 of this Annual Report on Form 10-K for
the year ended April 30, 1998.
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP independent accountants.
12
<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.
3(f) Amendment to the by-laws of registrant (to increase the mandatory
retirement age for outside directors), which is incorporated into
this report by reference to Brown-Forman Corporation's Form 10-Q
filed on December 5, 1997.
4 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) 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(b) Brown-Forman Corporation Restricted Stock Plan, which is
incorporated into this report by reference to Brown-Forman
Corporation's 10-K filed on July 19, 1994.
10(c) 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.
10(d) 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(e) A description of the Brown-Forman Savings Plan, which 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(f) A description of the Brown-Forman Flexible Reimbursement Plan,
which 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.
13
<PAGE>
10(g) A description of the Brown-Forman Non-Employee Director
Compensation Plan, which is incorporated into this report by
reference to Brown-Forman Corporation's Form S-8 (Registration No.
333-38649) filed on October 24, 1997.
10(h) Credit Agreement dated as of October 29, 1997, among Brown-Forman
Corporation and a group of United States and international banks,
which is incorporated into this report by reference to Amendment
No. 1 to Brown-Forman Corporation's 10-Q filed on December 15,
1997.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
14
<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, 1998 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, 1998 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/ STEVEN B. RATOFF
- --------------------------------------- --------------------------------- -----------------------------------------
By: James S. Welch By: Owsley Brown II By: Steven B. Ratoff
Director Director, Chairman of the Executive Vice President and
Board and Chief Executive Chief Financial Officer
Officer (Principal Financial Officer)
/s/ GEO. GARVIN BROWN III /s/ LAWRENCE K. PROBUS
- --------------------------------------- ---------------------------------
By: Geo. Garvin Brown III By: Lawrence K. Probus
Director Vice President and Controller
(Principal Accounting Officer)
</TABLE>
15
<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, 1996, 1997, and 1998, and for the
years then ended, which financial statements are included on pages 25 through 36
of the 1998 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 12 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 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, 1996, 1997, and 1998 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/ PricewaterhouseCoopers LLP
Louisville, Kentucky
May 27, 1998
S-1
<PAGE>
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 1996, 1997, and 1998
(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>
1996
Allowance for Doubtful Accounts $14,061 $ 9,386 $10,241(1) $13,206
1997
Allowance for Doubtful Accounts $13,206 $ 5,530 $ 8,516(1) $10,220
1998
Allowance for Doubtful Accounts $10,220 $ 6,648 $ 5,906(1) $10,962
</TABLE>
(1) Doubtful accounts written off, net of recoveries.
S-2
HIGHLIGHTS
(Expressed in millions, except per share amounts and ratios)
- --------------------------------------------------------------------------------
Year Ended April 30, 1997 1998 % Change
- --------------------------------------------------------------------------------
Net Sales $1,841 $1,924 5%
Gross Profit $ 904 $ 979 8%
Operating Income $ 287 $ 307 7%
Net Income $ 169 $ 185 9%
Earnings Per Share - Basic and Diluted $ 2.45 $ 2.67 9%
Cash Dividends Paid Per Common Share $ 1.06 $ 1.10 4%
Shareholder Value Added $ 84 $ 94 12%
Return on Average Invested Capital 19.4% 20.4%
Return on Average Common Stockholders' Equity 25.2% 24.3%
QUARTERLY FINANCIAL INFORMATION
(Expressed in millions, except per share amounts)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings
Per Share- Cash Dividends Market Price (High-Low)
Net Gross Net Basic and Paid Per Per Common Share
Sales Profit Income Diluted Common Share Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1998 $1,924 $ 979 $ 185 $2.67 $ 1.10 $55 1/4 - $44 1/2 $59 - $45
Quarters
First 428 218 34 0.50 0.27 52 3/4 - 47 54 1/8 - 47
Second 554 278 61 0.88 0.27 51 - 44 1/2 53 3/16 - 45
Third 481 251 46 0.66 0.28 53 - 47 1/4 55 3/4 - 48 3/4
Fourth 461 232 44 0.63 0.28 55 1/4 - 49 3/8 59 - 52 1/16
Fiscal 1997 $1,841 $ 904 $ 169 $2.45 $ 1.06 $50 7/8 - $34 3/4 $51 7/8 - $35 1/4
Quarters
First 424 212 32 0.47 0.26 42 5/8 - 34 3/4 42 1/4 - 35 1/4
Second 526 255 55 0.80 0.26 43 1/2 - 36 1/8 43 7/8 - 35 3/4
Third 458 219 42 0.60 0.27 47 1/4 - 42 1/4 47 7/8 - 42 1/8
Fourth 433 218 40 0.58 0.27 50 7/8 - 42 3/8 51 7/8 - 42
</TABLE>
<PAGE>
FINANCIAL TABLE OF CONTENTS
17
Selected Financial Data
18
Management's Discussion and Analysis
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
37
Report of Management
37
Report of Independent Accountants
<PAGE>
SELECTED FINANCIAL DATA
Year Ended April 30,
(Expressed in millions, except per share amounts and ratios)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Sales $1,262 1,279 1,366 1,496 1,658 1,628 1,680 1,807 1,841 1,924
Gross Profit $ 546 584 645 719 791 790 824 880 904 979
Operating Income $ 208 225 223 234 255 240 268 274 287 307
Net Income $ 144 93 145 146 156 129 149 160 169 185
Weighted Average Shares used to
calculate Earnings Per Share
- - Basic 83.9 83.9 83.3 82.7 82.7 78.7 69.0 69.0 69.0 68.9
- - Diluted 83.9 83.9 83.3 82.7 82.7 78.7 69.0 69.0 69.0 69.0
Earnings Per Share
- Basic and Diluted $ 1.72 1.10 1.74 1.76 1.88 1.63 2.15 2.31 2.45 2.67
Cash Dividends Paid
Per Common Share $ 0.51 0.63 0.72 0.78 0.86 0.93 0.97 1.02 1.06 1.10
Invested Capital
- ----------------
Average Invested Capital $ 671 704 743 823 925 900 835 875 929 948
Average Common
Stockholders' Equity $ 493 564 616 686 765 629 493 578 671 756
Total Assets $1,003 1,021 1,083 1,194 1,311 1,234 1,286 1,381 1,428 1,494
Long-Term Debt $ 115 114 112 114 154 299 247 211 63 50
Other Key Measures
- ------------------
Gross Margin 43.3% 45.7% 47.2% 48.1% 47.7% 48.5% 49.1% 48.7% 49.1% 50.9%
Operating Margin 16.5% 17.6% 16.4% 15.6% 15.4% 14.8% 15.9% 15.2% 15.6% 15.9%
Effective Tax Rate 36.0% 48.7% 33.8% 34.6% 35.6% 37.4% 39.8% 37.8% 38.0% 37.6%
Return on Average
Invested Capital 23.8% 14.6% 20.5% 18.8% 18.0% 15.4% 19.5% 19.7% 19.4% 20.4%
Return on Average Common
Stockholders' Equity 29.2% 16.3% 23.5% 21.3% 20.4% 20.4% 30.1% 27.5% 25.2% 24.3%
Total Long-Term Debt to
Total Long-Term Capital 17.2% 16.1% 14.5% 13.4% 15.9% 39.2% 31.1% 25.0% 8.0% 5.7%
Total Cash Dividends
Paid to Net Income 29.8% 57.4% 41.7% 44.4% 45.8% 57.5% 45.3% 44.2% 43.3% 41.2%
Cash Flows from Operations $ 138 125 134 156 193 221 197 167 176 220
EBITDA $ 239 259 256 271 299 286 311 320 337 358
</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 $0.41, respectively, from the cumulative effect of accounting changes.
Fiscal 1990 net income and earnings per share were increased by $12 million
and $0.14, 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. Fiscal 1990 net income was reduced $60 million to reflect the write-down of
intangible assets of California Cooler.
6. Weighted average shares, earnings per share and cash dividends paid per
common share have been adjusted for a 3-for-1 common stock split in fiscal
1994.
7. 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.
8. Return on Average Common Stockholders' Equity is defined as the sum of
income applicable to common stock divided by average common stockholders'
equity.
9. 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.
10. EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and as such represents a measure of the company's liquidity.
It should be considered in addition to, but not as a substitute for, other
measures of financial performance in accordance with generally accepted
accounting principles.
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, 1996, 1997 and 1998. 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,
1998, 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 1998 Compared to 1997
Net sales reached record levels in fiscal 1998, growing $83 million, or 5%.
Sales of wines and spirits increased 3%, as solid growth of Jack Daniel's and
wines was tempered by a decline in sales of frozen cocktails. Revenues from the
consumer durables segment improved 9%, reflecting strong growth by the Lenox
Collections direct marketing division as well as higher sales of fine china
dinnerware and luggage products.
Net Sales
Dollars in Millions
1996 1997 1998
------ ------ ------
Wine and Spirits $1,294 $1,347 $1,385
Consumer Durables 513 494 539
------ ------ ------
Total $1,807 $1,841 $1,924
====== ====== ======
Total change +8% +2% +5%
International sales of $347 million were up 5% in fiscal 1998, despite a
significant strengthening of the U.S dollar. Growth outside the U.S. reflects
our successful efforts to expand the international distribution of
Brown-Forman's leading brands. Sales outside the United States represented 18%,
21% and 21% of our revenues (excluding excise taxes) during fiscal 1996, 1997
and 1998, respectively.
Gross profit performance is a key measure by which we gauge the quality of
volume growth. Fiscal 1998 gross profit improved 8%, significantly exceeding the
rate of sales growth. By focusing our marketing efforts on high-margin products
and realizing manufacturing efficiencies, we have steadily improved the
company's gross margin from less than 40% in fiscal 1988 to nearly 51% in fiscal
1998.
Gross Profit
Dollars in Millions
1996 1997 1998
---- ---- ----
Wine and Spirits $622 $662 $713
Consumer Durables 258 242 266
---- ---- ----
Total $880 $904 $979
==== ==== ====
Total change +7% +3% +8%
Operating income for fiscal 1998 improved $20 million, or 7%. Profits from wine
and spirits grew $16 million, reflecting higher volumes, price increases and
manufacturing efficiencies, allowing the company to increase its investment in
brand building and international expansion initiatives. The consumer durables
segment achieved a $5 million increase in operating income, reflecting
profitable growth of Lenox Collections and fine china dinnerware.
Operating Income
Dollars in Millions
1996 1997 1998
---- ---- ----
Wine and Spirits $262 $273 $289
Consumer Durables 27 30 35
Corporate (15) (16) (17)
---- ---- ----
Total $274 $287 $307
==== ==== ====
Total change +2% +5% +7%
18
<PAGE>
Earnings per share reached a record $2.67, up 9% over fiscal 1997. Earnings
growth resulted from improved operating income, lower interest expense and a
slightly more favorable effective tax rate.
1996 1997 1998
---- ---- ----
Earnings Per Share $2.31 $2.45 $2.67
Change +7% +6% +9%
Fiscal 1997 Compared to 1996
Net sales grew $34 million, or 2%, in fiscal 1997. Sales of wine 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 Lenox Collections.
Operating income improved $13 million, or 5%, during fiscal 1997. A 4% increase
in operating income for the wine 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.
Earnings per share grew 6% over fiscal 1996 to $2.45 per share, reflecting
higher operating income and lower interest expense.
SHAREHOLDER VALUE ADDED
Brown-Forman's foremost goal is to increase the value of our shareholders'
investment. To assist us in achieving this objective, we gauge performance and
compensate our management based on a measure we call Shareholder Value Added
(SVA). SVA represents the company's after-tax operating income less our cost of
capital, which recognizes not only the profits generated by the company but also
the investment required to produce those profits.
Dollars in Millions
1996 1997 1998
---- ---- ----
Shareholder Value Added $80 $84 $94
Change +7% +4% +12%
During the three years ended April 30, 1998, SVA increased at an annual compound
rate of 8%. Strong 12% growth in fiscal 1998 SVA reflects the leverage gained
from expanding operating earnings at a faster rate than invested capital.
Return on average invested capital increased from 19.4% to 20.4%, reflecting
continued growth in profits and careful management of invested capital.
1996 1997 1998
---- ---- ----
Return on Average Invested Capital 19.7% 19.4% 20.4%
19
<PAGE>
Return on average common stockholders' equity has declined over the past three
years, reflecting our use of free cash flow to reduce debt as a percentage of
the company's total capital structure.
1996 1997 1998
---- ---- ----
Return on Average Common Stockholders' Equity 27.5% 25.2% 24.3%
COMPANY OUTLOOK
We believe the outlook for Brown-Forman's growth is very positive. Market
conditions for premium wine and spirits brands remain promising and, in order to
capitalize on these opportunities, we plan to further increase the marketing
investments behind our beverage brands. 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.
The outlook is also positive for our consumer durables business. Lenox dominates
the U.S. market for fine china dinnerware, and is creating value for
shareholders by capitalizing on its powerful brand name. Continued focus will be
placed on developing categories which offer significant growth opportunities,
including products designed for casual dining and gift giving.
WINE AND SPIRITS SEGMENT
Summary of Operating Performance
(Expressed in millions, except percentages)
1996 1997 1998
------ ------ ------
Net Sales $1,294 $1,347 $1,385
% Change 14% 4% 3%
Gross Profit $ 622 $ 662 $ 713
% Change 14% 6% 8%
Advertising Expenses $ 160 $ 174 $ 197
% Change 24% 9% 13%
SG&A Expenses $ 200 $ 215 $ 227
% Change 15% 8% 5%
Operating Income $ 262 $ 273 $ 289
% Change 8% 4% 6%
Net Income $ 167 $ 173 $ 183
% Change 8% 3% 6%
EBITDA $ 286 $ 301 $ 318
% Change 7% 5% 5%
Gross Margin 48.1% 49.2% 51.5%
Operating Margin 20.2% 20.3% 20.8%
Fiscal 1998 Compared to 1997
Net sales grew $38 million, or 3%, driven by record sales for the Jack Daniel's
family of brands and Fetzer. Fiscal 1998 results also include the first full
year of sales for Finlandia and Michel Picard, brands added to our U.S.
portfolio in fiscal 1997. Partially offsetting these gains were a continued
decline in frozen cocktail sales and lower volumes for Canadian Mist.
A key growth initiative for Brown-Forman has been to accelerate expansion into
international markets. Although tempered by the stronger dollar, beverage sales
outside the U.S. grew 5% in fiscal 1998. International sales in both fiscal 1997
and 1998 represented 28% of total wine and spirits sales excluding excise taxes.
20
<PAGE>
Wine and Spirits Geographic Sales Mix
(excluding excise taxes)
Dollars in Millions
1996 1997 1998
------ ------ ------
U.S. $ 749 $ 760 $ 784
International 282 330 347
------ ------ ------
Total $1,031 $1,090 $1,131
====== ====== ======
Gross profit expanded at a much stronger pace than sales, growing 8% in fiscal
1998. Price increases, favorable product mix and manufacturing efficiencies
combined to improve the gross margin for our wine and spirits segment from 49.2%
to 51.5%.
Advertising expenses grew 13%, reflecting a substantial increase in consumer
spending to support established brands such as Jack Daniel's and Fetzer, as well
as new brands like Finlandia. Selling, general and administrative expenses
increased 5%, primarily reflecting further investment in the sales
infrastructure for international markets.
Operating income increased 6%, as the operating margin for wine and spirits
improved from 20.3% to 20.8%. Net income also increased 6%, reflecting
operating growth as well as a reduction in the segment's effective tax rate
from 36.8% to 36.5%.
Fiscal 1997 Compared to 1996
Net sales grew $53 million, or 4%, primarily reflecting a strong performance by
Jack Daniel's. 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.
Gross profit margin increased from 48.1% to 49.2%, reflecting price increases, a
favorable product mix and lower costs.
Advertising expenses grew 9% as the company increased spending in support of its
major brands, principally Jack Daniel's and Southern Comfort. Selling, general
and administrative expenses rose 8%, primarily reflecting investments associated
with the company's strategy to expand our brands into new international markets.
Operating income increased 4%, largely as a result of higher profits from Jack
Daniel's and our premium wine brands. These gains were partially offset by lower
sales of frozen cocktails and by investments in international markets. Net
income grew 3%, reflecting operating growth, partially offset by an increase in
the segment's effective tax rate from 36.3% to 36.8%.
Business and Social Environment for Spirits and Wines
The business environment for spirits and wines is strongly influenced by
societal attitudes toward drinking and governmental policy reflecting those
attitudes. While in most societies the majority of people either consume
beverage alcohol or are neutral regarding its use, a minority oppose drinking.
Opponents of beverage alcohol typically seek to reduce the number of outlets for
sale, to increase the shelf price through higher taxes and to impose
restrictions on advertising.
Brown-Forman strongly opposes abusive drinking and contributes significant
amounts of money to programs aimed at understanding and curbing alcohol abuse.
We also support and abide by voluntary industry marketing and advertising
guidelines. Brown-Forman and other beverage alcohol producers are in the
forefront of encouraging responsible consumption of their products and in
warning against alcohol abuse. The sale of spirits and wines takes place against
the backdrop of this debate about the proper role of beverage alcohol in
society.
Distillers and vintners, such as Brown-Forman, seek to compete vigorously in the
marketplace and to protect the rights of adult consumers to purchase their
products. In the U.S. and in international markets, Brown-Forman participates in
trade association activity with other distillers and vintners to work for a more
favorable political and social environment for the sale of our products. In the
U.S., Brown-Forman is a member of the Distilled Spirits Council of the United
States and The Wine Institute, organizations which oppose punitive legislation
and seek to obtain fair treatment for the company and its consumers. Similarly,
Brown-Forman works to secure favorable legislative and regulatory treatment in
foreign markets, including open access to foreign markets for U.S.-made spirits
and wines.
Beverage alcohol sales are particularly sensitive to higher tax rates. In
Brown-Forman's largest market, the U.S., no federal legislation is currently
pending to increase federal excise taxes, but a future tax increase cannot be
ruled out. Similarly, there are periodic efforts to increase beverage alcohol
taxes at a state level. While there has been discussion (and legislation
introduced) to ban television advertising of spirits in the U.S., nothing has
come of it. However, most TV networks and local affiliated stations currently
decline to accept distilled spirits advertising.
Outside the U.S., the beverage alcohol market is also affected by tax rates and
advertising restrictions, but the impact of those policies in any one market is
not significant to the company's overall business.
21
<PAGE>
The creation of the European Union and the consequent elimination of trading
barriers and adoption of a single currency affect Brown-Forman's business in
Europe. These changes may transform the spirits and wines distribution system in
Europe, which is built on a country basis, by encouraging cross-border sales.
Brown-Forman is not a significant owner of European distribution companies, but
we may find pressure on the retail sales price of our products because of
increased cross-border competition.
In the publicity surrounding the class action tort litigation against the
tobacco companies in the U.S. and the U.K. (and accompanying U.S. legislation to
implement a proposed tobacco settlement), some commentators have suggested that
other industries, such as alcohol, fast foods and automobiles may be next. To
our knowledge, no such litigation is pending against Brown-Forman or any other
alcohol producer. Our view is that there are very significant differences
between tobacco and beverage alcohol that make such litigation, if filed,
unlikely to be successful. Beverage alcohol, when used as intended, is not
harmful to otherwise healthy consumers. Indeed, scientists and health care
experts report that beverage alcohol may have positive cardiovascular health
benefits when consumed by otherwise healthy adults. Although Brown-Forman does
not recommend that consumers drink beverage alcohol for health reasons, the
potential health benefits of responsible beverage alcohol consumption are an
important distinction between alcohol and tobacco. The drinking of beverage
alcohol for social, ceremonial and religious purposes is deeply interwoven,
since Biblical times, into the traditions of many societies. The dangers of
alcohol abuse are commonly known and have never been concealed by alcohol
producers. Beverage alcohol producers have been in the forefront of encouraging
responsible consumption of their products and in warning against alcohol abuse.
Lastly, the content, manufacture, marketing and sale of beverage alcohol are
subject to stringent regulation by the state and federal governments, including
the placement of health warning labels on the container.
The recent merger of Grand Metropolitan and Guinness created United Distillers &
Vintners, by far the largest global spirits company. There is speculation about
further consolidation of the major spirits companies. Although there is fierce
competition among the different major spirits producers, these companies also
act as distributors for each other's products in different markets. For
instance, United Distillers & Vintners distributes Jack Daniel's and Southern
Comfort in the U.K. and Bacardi distributes our spirits products in most of
continental Europe. Although the consolidation of spirits producers could
theoretically hinder the distribution and marketing of our spirits products, to
date that has not happened and it seems unlikely to do so. As Brown-Forman
generally does not own major distribution companies, our products are sought
after for distribution by other major companies and we expect that to continue.
CONSUMER DURABLES SEGMENT
Summary of Operating Performance
(Expressed in millions, except percentages)
1996 1997 1998
------ ------ ------
Net Sales $ 513 $ 494 $ 539
% Change (5%) (4%) 9%
Gross Profit $ 258 $ 242 $ 266
% Change (7%) (6%) 10%
Advertising Expenses $ 71 $ 55 $ 63
% Change (2%) (22%) 14%
SG&A Expenses $ 160 $ 157 $ 168
% Change (4%) (2%) 7%
Operating Income $ 27 $ 30 $ 35
% Change (29%) 11% 17%
Net Income $ 14 $ 16 $ 19
% Change (29%) 16% 23%
EBITDA $ 48 $ 51 $ 56
% Change (17%) 6% 11%
Gross Margin 50.3% 48.9% 49.4%
Operating Margin 5.3% 6.1% 6.6%
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 1998 Compared to 1997
Net sales grew $45 million, or 9%, led by strong volume gains in the direct mail
and catalog business of Lenox Collections. Sales of fine china to department
stores increased modestly during the year, as did sales of tableware and
giftware from the company's retail division. Sales of Hartmann Luggage grew at a
double-digit rate for the year, attributable to product line innovations and
aggressive marketing efforts.
Gross profit increased $24 million and improved as a percentage of net sales
from 48.9% to 49.4%, reflecting a greater mix of sales from Lenox Collections
products which carry higher margins.
Advertising expenses grew 14% due primarily to increased spending by Lenox
Collections. Selling, general and administrative expenses rose 7%, reflecting a
slower rate of growth than sales and gross profit.
Operating income improved 17%, driven largely by profit gains for Lenox
Collections and the company's retail stores. Net income grew 23%, reflecting
operating growth as well as a reduction in the segment's effective tax rate from
47.5% to 45.0%.
22
<PAGE>
Fiscal 1997 Compared to 1996
Net sales 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.
Advertising expenses declined 22% due primarily to the contraction of Lenox
Collections. Selling, general and administrative expenses did not change
significantly from fiscal 1996.
Operating income increased $3 million, or 11%, primarily as a result of improved
profitability of the scaled-down Lenox Collections business. Segment profits
were also enhanced by stronger consumer demand at our retail stores. Net income
grew 16%, reflecting the net impact of the factors discussed above as well as a
reduction in the segment's effective tax rate from 49.6% to 47.5%.
LIQUIDITY AND CAPITAL RESOURCES
Our cash flows from operations continue to provide more than adequate capital to
meet operating and capital expenditure requirements and pay dividends. 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 business
reinvestment opportunities. A consolidated statement of cash flows is summarized
as follows:
(Expressed in millions)
1996 1997 1998
------ ------ ------
EBITDA $ 320 $ 337 $ 358
Interest expense, net (17) (14) (11)
Taxes on income (97) (104) (111)
Other (39) (43) (16)
------ ------ ------
Cash from operating activities 167 176 220
Cash used for investing activities (67) (56) (46)
------ ------ ------
Free cash flow 100 120 174
Dividends (71) (73) (76)
Reduction of debt (37) (43) (61)
Acquisition of treasury stock -- -- (17)
------ ------ ------
Cash used for financing activities (108) (116) (154)
------ ------ ------
Increase (decrease) in cash $ (8) $ 4 $ 20
====== ====== ======
Cash provided by operations increased $44 million in fiscal 1998, primarily
reflecting higher net income and an increase in accounts payable and accrued
expenses. Cash used for investing activities declined $10 million in fiscal
1998, reflecting lower outlays for capital expenditures as well as proceeds
received from the sale of manufacturing assets.
During fiscal 1998, Brown-Forman repurchased 310,000 shares of its Class B
common stock on the open market at a cost of $17 million to fund the company's
stock option plans. The company intends to continue to acquire its common shares
in the open market for this purpose.
Cash provided by operations increased $9 million in fiscal 1997, mainly
attributable to higher net income for the year. Cash used for investing
activities in fiscal 1997 primarily reflected capital expenditures to expand
manufacturing and office facilities and enhance the company's information
systems.
We have a $300 million revolving credit agreement that expires in fiscal 2003.
At April 30, 1998, we had no outstanding borrowings under this agreement. At
April 30, 1998, we had $220 million of unused debt capacity on our $250 million
shelf registration, which was filed with the Securities and Exchange Commission
in fiscal 1994.
CAPITAL EXPENDITURES
We invested $59 million in property, plant and equipment in fiscal 1996,
$55 million in fiscal 1997, and $44 million in fiscal 1998. These expenditures
primarily reflect the expansion and modernization of company-wide production
facilities.
Capital Expenditures
Dollars in Millions
1996 1997 1998
---- ---- ----
Wine and Spirits $43 $40 $31
Consumer Durables 16 14 13
Corporate -- 1 --
---- ---- ----
Total $59 $55 $44
==== ==== ====
23
<PAGE>
Capital expenditures for fiscal 1999 are expected to approximate $55 million,
primarily for expanding and enhancing our production facilities. Fiscal 1999
capital expenditure requirements are expected to be met with internally
generated funds.
We have conducted a comprehensive review of our information systems to identify
those systems which may be affected by the "Year 2000" issue and we have
developed an implementation plan to resolve the issue. In preparing our systems
for the year 2000, we expect to incur internal staff costs as well as external
consulting and other costs over the next two fiscal years. The cost of new
systems software will be capitalized. Other costs of the project will be
expensed as incurred.
Because we have replaced or updated many of our information systems in recent
years, the costs to be incurred in addressing the Year 2000 issue are not
expected to be significant and, thus, are not expected to have a material impact
on our financial condition, results of operations or cash flows. This
expectation assumes that our existing forecast of costs to be incurred
contemplates all significant actions required and that we will not be obligated
to incur significant Year 2000 related costs on behalf of our customers or
suppliers.
DIVIDENDS
Quarterly dividends were increased 4% in fiscal 1998 to $0.28, which results in
an indicated annual dividend of $1.12 per common share. The increase was based
on the expectation of continued strong cash flow. Cash dividends paid as a
percentage of net income were 41% in fiscal 1998, compared to 44% and 43% for
fiscal 1996 and fiscal 1997, respectively.
1996 1997 1998
----- ----- -----
Cash Dividends Paid Per Common Share $1.02 $1.06 $1.10
DERIVATIVE FINANCIAL INSTRUMENTS
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.
We use foreign currency forward contracts and purchased options, with durations
of generally less than one year, as protection against the risk that the
eventual U.S. dollar cash flows resulting from the sale and purchase of goods in
foreign currencies will be adversely affected by changes in exchange rates.
While these hedging instruments are subject to fluctuations in value from
movement in the foreign currency exchange rates, such fluctuations are 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
trading purposes.
We had outstanding foreign currency forward and purchased option contracts,
hedging primarily German mark, Spanish peseta, British pound and Japanese yen
revenues, with notional amounts totaling $28 million, $40 million and $84
million at April 30, 1996, 1997 and 1998, respectively. The company's credit
exposure is limited to the fair value of the contracts (which did not exceed
$1 million at April 30, 1996, 1997 and 1998) rather than the notional amounts.
The company does not obtain collateral or other security to support the
contracts. However, the contracts are entered into with major financial
institutions, thereby decreasing the risk of credit loss.
MARKET RISKS
The company holds debt obligations, foreign currency forward and option
contracts, and commodity future contracts which are exposed to risk from changes
in interest rates, foreign currency exchange rates and commodity prices,
respectively. We have established policies, procedures and internal processes
governing the management of these market risks. As of April 30, 1998, the
exposure to these market risks is not considered material.
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 financial condition, results of operations or cash flows.
24
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF INCOME
(Expressed in millions, except per share amounts)
- --------------------------------------------------------------------------------
Year Ended April 30, 1996 1997 1998
- --------------------------------------------------------------------------------
Net sales $1,807 $1,841 $1,924
Excise taxes 263 257 255
Cost of sales 664 680 690
--------------------------------
Gross profit 880 904 979
Advertising expenses 231 229 260
Selling, general and administrative expenses 375 388 412
--------------------------------
Operating income 274 287 307
Interest income 3 3 3
Interest expense 20 17 14
--------------------------------
Income before income taxes 257 273 296
Taxes on income 97 104 111
--------------------------------
Net income $ 160 $ 169 $ 185
================================
Earnings per share - basic and diluted $ 2.31 $ 2.45 $ 2.67
================================
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
Brown-Forman Corporation
CONSOLIDATED BALANCE SHEET
(Expressed in millions, except share and per share amounts)
- --------------------------------------------------------------------------------
April 30, 1996 1997 1998
- --------------------------------------------------------------------------------
Assets
- ------
Cash and cash equivalents $ 54 $ 58 $ 78
Accounts receivable, less allowance for doubtful accounts
of $13 in 1996, $10 in 1997 and $11 in 1998 257 263 265
Inventories:
Barreled whiskey 167 176 187
Finished goods 169 172 179
Work in process 59 66 88
Raw materials and supplies 38 37 48
-------------------------
Total inventories 433 451 502
Other current assets 24 30 24
-------------------------
Total Current Assets 768 802 869
Property, plant and equipment, net 281 292 281
Intangible assets, less accumulated amortization
of $108 in 1996, $120 in 1997 and $130 in 1998 259 254 250
Other assets 73 80 94
-------------------------
Total Assets $1,381 $1,428 $1,494
=========================
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
- --------------------------------------------------------------------------------
April 30, 1996 1997 1998
- --------------------------------------------------------------------------------
Liabilities
- -----------
Commercial paper $ 50 $ 155 $ 107
Accounts payable and accrued expenses 223 209 233
Current portion of long-term debt 6 7 7
Accrued taxes on income 3 6 8
Deferred income taxes 21 22 27
-------------------------
Total Current Liabilities 303 399 382
Long-term debt 211 63 50
Deferred income taxes 127 136 150
Accrued postretirement benefits 52 54 55
Other liabilities and deferred income 54 46 40
-------------------------
Total Liabilities 747 698 677
-------------------------
Stockholders' Equity
- --------------------
Capital Stock:
Preferred $0.40 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, $0.15 par value;
authorized shares, 30,000,000;
issued shares, 28,988,091 4 4 4
Class B common stock, nonvoting, $0.15 par value;
authorized shares, 60,000,000;
issued shares, 40,008,147 6 6 6
Retained earnings 616 712 821
Cumulative translation adjustment (4) (4) (9)
Treasury stock, at cost
(310,000 Class B common shares in 1998) -- -- (17)
-------------------------
Common Stockholders' Equity 622 718 805
-------------------------
Total Stockholders' Equity 634 730 817
-------------------------
Total Liabilities and Stockholders' Equity $1,381 $1,428 $1,494
=========================
27
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in millions; amounts in brackets are reductions of cash)
- --------------------------------------------------------------------------------
Year Ended April 30, 1996 1997 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 160 $ 169 $ 185
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation 37 41 42
Amortization 9 9 9
Deferred income taxes 26 10 19
Other (5) (7) (14)
Change in assets and liabilities, excluding
the effects of businesses acquired or sold:
Accounts receivable (18) (6) (2)
Inventories (40) (24) (52)
Other current assets (2) (1) 7
Accounts payable and accrued expenses (8) (14) 24
Accrued taxes on income 3 4 2
Accrued postretirement benefits 1 2 1
Other liabilities and deferred income 4 (7) (1)
-------------------------
Cash provided by operating activities 167 176 220
-------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (59) (55) (44)
Disposals of property, plant and equipment 3 3 13
Investment in affiliate, net of cash acquired (8) -- --
Other (3) (4) (15)
-------------------------
Cash (used for) investing activities (67) (56) (46)
-------------------------
Cash flows from financing activities:
Net change in commercial paper (60) (39) (48)
Proceeds from long-term debt 30 3 1
Reduction of long-term debt (7) (7) (14)
Dividends paid (71) (73) (76)
Acquisition of treasury stock -- -- (17)
-------------------------
Cash (used for) financing activities (108) (116) (154)
-------------------------
Net increase (decrease) in cash and cash equivalents (8) 4 20
Cash and cash equivalents, beginning of year 62 54 58
-------------------------
Cash and cash equivalents, end of year $ 54 $ 58 $ 78
=========================
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
Years Ended April 30, 1996, 1997 and 1998
(Expressed in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Cumulative
Preferred Class Class Retained Translation Treasury
Total Stock A B Earnings Adjustment Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1995 $ 546 $ 12 $ 4 $ 6 $ 527 $ (3) $ --
Net income 160 160
Cash dividends
Preferred, per share $0.40 (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 $0.40 (1) (1)
Common, per share $1.06 (72) (72)
---------------------------------------------------------------------------------------------
Balance, April 30, 1997 730 12 4 6 712 (4) --
---------------------------------------------------------------------------------------------
Net income 185 185
Cash dividends
Preferred, per share $0.40 (1) (1)
Common, per share $1.10 (75) (75)
Foreign currency translation
adjustment (5) (5)
Acquisition of treasury stock
(310,000 Class B common shares) (17) (17)
---------------------------------------------------------------------------------------------
Balance, April 30, 1998 $ 817 $ 12 $ 4 $ 6 $ 821 $(9) $ (17)
=============================================================================================
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 and per option 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 86% of
consolidated inventories are valued using the last-in, first-out (LIFO) method.
All remaining inventories are valued using the first-in, first-out and average
cost methods.
If the LIFO method had not been used, inventories would have been $85, $98 and
$104 higher than reported at April 30, 1996, 1997 and 1998, 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.
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 long-lived assets and certain
identifiable intangibles to be reviewed for impairment value, based upon
undiscounted future cash flows, and appropriate losses to 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.
Revenue Recognition
- -------------------
The company recognizes revenue when goods are shipped.
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 Translation
- ----------------------------
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.
Earnings Per Share
- ------------------
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share, was adopted during 1998. The adoption of
SFAS No. 128 did not change the company's previously-reported earnings per
share.
Basic earnings per share (basic EPS) is calculated using net income reduced by
dividend requirements on preferred stock, divided by the weighted average number
of common shares outstanding during the year. Diluted earnings per share
(diluted EPS) is calculated in the same manner, except that the denominator also
includes additional common shares that would have been issued if outstanding
stock options had been exercised, as determined by application of the treasury
stock method. Preferred stock dividend requirements were $0.5 in 1996, 1997 and
1998. The weighted average number of shares used to calculate basic EPS was
68,996,238 for both 1996 and 1997 and 68,933,284 for 1998. The weighted average
number of shares used to calculate diluted EPS was 68,996,238 for 1996,
69,013,904 for 1997, and 68,987,157 for 1998.
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
- -----
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities," which
was 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 did
not have a material effect on the consolidated financial statements. See Note 13
for discussion of the company's environmental commitments and contingencies.
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," was issued in March 1998 and provides authoritative guidance
regarding the recognition of costs incurred for internal-use computer software.
SOP 98-1 was retroactively adopted by the company for costs incurred after
May 1, 1997, as encouraged by the SOP. The adoption of SOP 98-1 did not have a
material effect on the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income," which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 requires companies
to classify items defined as "other comprehensive income" by their nature in a
financial statement, and to display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The adoption of
SFAS No. 130 will not have a material impact on the consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes standards for
reporting information about a company's operating segments and requires certain
disclosures about a company's products and services, the geographic areas in
which it operates and its major customers. Although the company has not
determined the effect that adoption of SFAS No. 131 may have on the format of
the consolidated financial statement disclosures, it will have no effect on the
company's consolidated financial condition, results of operations or cash flows.
2. CREDIT FACILITIES
The company has a $300 revolving credit agreement with various domestic and
international banks that expires in fiscal 2003. The most restrictive of the
agreement's covenants requires the company to maintain a minimum level of net
worth. At April 30, 1998, net worth exceeded the required level, as defined in
the agreement, by $467. At April 30, 1998, the company had no outstanding
borrowings under this agreement. At April 30, 1998, the company also had
available for issuance $220 of debt securities under a shelf registration filing
with the Securities and Exchange Commission.
3. DEBT
At April 30, the company's long-term debt consisted of the following:
April 30, 1996 1997 1998
- -----------------------------------------------------------------
Commercial paper $ 144 $ -- $ --
6.82% to 7.38% medium-term notes,
due 2005 30 30 30
11.25% notes, due through 1999 28 22 16
Variable rate industrial
revenue bonds, due through 2026 14 17 10
Other 1 1 1
--------------------------
217 70 57
Less current portion 6 7 7
--------------------------
$ 211 $ 63 $ 50
==========================
At April 30, 1996, commercial paper of $144 was classified as long-term debt due
to the credit available under the long-term credit facilities discussed in
Note 2 and the company's intent to refinance those borrowings on a long-term
basis. Long-term debt payments of $7 and $8 are required during 1999 and 2000,
respectively. No additional debt payments are required through 2003. Cash paid
for interest was $21 in 1996, $18 in 1997 and $15 in 1998. Excluding the effect
of the interest rate agreement discussed below, the weighted average interest
rates on commercial paper were 5.4% at April 30, 1996 and 5.6% at April 30, 1997
and 1998. The weighted average interest rates on the variable rate industrial
revenue bonds were 4.2%, 4.6% and 4.3% at April 30, 1996, 1997 and 1998,
respectively.
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 was amortized as a
reduction of interest expense through April 1, 1998.
4. COMMITMENTS
Rental payments for real estate, vehicles, and office, computer and
manufacturing equipment under operating leases amounted to approximately $25,
$28 and $28 for 1996, 1997 and 1998, respectively. The company has commitments
related primarily to minimum lease payments of $24 in 1999, $19 in 2000, $8 in
2001, $5 in 2002, $2 in 2003, and $3 thereafter.
31
<PAGE>
5. FOREIGN CURRENCY RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
The company uses foreign currency forward contracts and purchased options,
with durations of generally less than one year, as protection against the risk
that the eventual U.S. dollar cash flows resulting from the sale and purchase of
goods in foreign currencies will be adversely affected by changes in exchange
rates. While these hedging instruments are subject to fluctuations in value
from movement in the foreign currency exchange rates, such fluctuations are
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 trading purposes.
The company had outstanding foreign currency forward and purchased option
contracts, hedging primarily German mark, Spanish peseta, British pound and
Japanese yen revenues, with notional amounts totaling $28, $40 and $84 at
April 30, 1996, 1997 and 1998, respectively. The company's credit exposure is
limited to the fair value of the contracts (see Note 6) rather than the notional
amounts. The company does not obtain collateral or other security to support the
contracts. However, the contracts are entered into with major financial
institutions, thereby decreasing the risk of credit loss.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, short-term investments and
commercial paper approximates the carrying amount due to the short maturities of
these instruments. The fair 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 fair value of foreign currency contracts is
based on quoted market prices. A comparison of the fair values and carrying
amounts of these instruments is as follows:
1997 1998
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Assets:
Cash and
cash equivalents $ 58 $ 58 $ 78 $ 78
Foreign currency
contracts -- -- 1 1
Liabilities:
Commercial paper 155 155 107 107
Long-term debt 70 72 57 60
7. BALANCE SHEET INFORMATION
April 30, 1996 1997 1998
- --------------------------------------------------------------------------------
Property, plant and equipment
- -----------------------------
Land $ 17 $ 17 $ 17
Buildings 173 200 206
Equipment 404 421 423
-------------------------------------
594 638 646
Less accumulated depreciation 313 346 365
-------------------------------------
$ 281 $ 292 $281
=====================================
Accounts payable
and accrued expenses
- --------------------
Accounts payable, trade $ 74 $ 83 $ 90
Accrued expenses:
Compensation and commissions 40 42 50
Excise and other non-income taxes 17 19 18
Interest 6 5 4
Advertising 29 14 19
Other 57 46 52
-------------------------------------
149 126 143
-------------------------------------
$ 223 $ 209 $233
=====================================
8. TAXES ON INCOME
Taxes on income are composed of the following:
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
Current:
Federal $ 54 $ 76 $ 73
Foreign 5 6 5
State and local 12 12 14
------------------------------------
71 94 92
------------------------------------
Deferred:
Federal 21 7 16
State and local 5 3 3
------------------------------------
26 10 19
------------------------------------
$ 97 $104 $111
====================================
32
<PAGE>
United States and foreign components of income before income taxes are as
follows:
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
United States $229 $237 $261
Foreign 28 36 35
------------------------------------
$257 $273 $296
====================================
The following is a reconciliation of the effective tax rates with the United
States' statutory rate:
Percent of Income Before Taxes
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State taxes, net of U.S.
Federal tax benefit 4.1 4.0 3.7
Income taxed at other than U.S.
Federal statutory rate (2.2) (1.5) (1.7)
Tax benefit of Foreign
Sales Corporation (1.3) (0.9) (0.8)
Nondeductible amortization 1.2 1.1 1.0
Other, net 1.0 0.3 0.4
-------------------------------------
37.8% 38.0% 37.6%
=====================================
Deferred tax assets and liabilities are composed of the following:
April 30, 1996 1997 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Postretirement and other benefits $ 36 $ 38 $ 40
Accrued liabilities and other 15 20 16
-----------------------------------
Total deferred tax assets 51 58 56
-----------------------------------
Deferred tax liabilities:
Intercompany transactions 141 152 168
Property, plant and equipment 21 24 23
Undistributed foreign earnings 17 17 17
Pension plans 18 20 23
Other 2 3 2
-----------------------------------
Total deferred tax liabilities 199 216 233
-----------------------------------
Net deferred tax liability $148 $158 $177
===================================
Deferred income taxes were not provided on certain undistributed earnings ($59,
$73 and $91 at April 30, 1996, 1997 and 1998, respectively) 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 $20, $24 and $28 would
have been provided in 1996, 1997 and 1998, respectively.
Cash paid for income taxes was $65 in 1996, $91 in 1997 and $90 in 1998.
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:
1996 1997 1998
- --------------------------------------------------------------
Service cost of benefits earned $ 1 $ 1 $ 1
Interest cost on accumulated post-
retirement benefit obligation 3 3 3
-----------------------
Postretirement benefit expense $ 4 $ 4 $ 4
=======================
The postretirement benefit liability includes the following components:
1996 1997 1998
- --------------------------------------------------------------
Actuarial present value of accumulated postretirement obligations:
Retirees $21 $22 $22
Fully eligible active participants 1 1 1
Other active participants 21 17 19
-----------------------
43 40 42
Unrecognized net gain 9 14 12
Unrecognized prior service cost -- -- 1
-----------------------
Accrued postretirement benefits $52 $54 $55
=======================
Assumptions:
Discount Rate 7.0% 7.5% 7.0%
Health care cost trend rates:
Present rate before age 65 7.7% 7.3% 7.0%
Present rate age 65 and after 6.8% 6.6% 6.3%
A 1% increase in the assumed health care cost trend rate would have increased
the accumulated postretirement benefit obligation as of April 30, 1998 by $5
and the postretirement benefit expense for 1998 by $1. The company expects its
health care cost trend rates to gradually decline to 5.0% by 2004 and remain
level thereafter.
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:
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
Benefit cost for service during the year $(7) $(9) $(9)
Interest cost on projected benefit obligation (17) (16) (18)
Actual return on plan assets 79 51 72
Net amortization and deferral (54) (23) (41)
---------------------------------
Net pension income $ 1 $ 3 $ 4
=================================
The amounts included in the accompanying consolidated balance sheet were based
on the funded status of the plans at January 31, 1997 and 1998 and are as
follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Plan Assets Obligations Plan Assets Obligations
Exceed Exceed Exceed Exceed
Obligations Plan Assets Obligations Plan Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $178 $ 21 $202 $ 27
Nonvested benefit obligations 11 2 13 2
------------------------------------------------------
Accumulated benefit obligations 189 23 215 29
Additional amounts related to assumed pay increases 32 6 35 5
------------------------------------------------------
Projected benefit obligations 221 29 250 34
Plan assets at fair value 339 7 398 9
------------------------------------------------------
Plan assets in excess of (less than) benefit obligations 118 (22) 148 (25)
Unamortized net (assets) obligations at date of adoption (21) 2 (17) 2
Unrecognized net (gain) loss resulting from experience
different from that assumed and changes in actuarial assumptions (48) -- (74) 2
Unrecognized prior service cost 4 5 3 5
Adjustment required to recognize minimum liability -- (3) -- (6)
------------------------------------------------------
Prepaid (accrued) pension cost $ 53 $(18) $ 60 $(22)
======================================================
</TABLE>
The projected benefit obligation was determined using a weighted average
discount rate of 7% for 1996, 7.5% for 1997 and 7% for 1998. The weighted
average rate of future compensation increases was 4% for 1996, 4.5% for 1997 and
4% for 1998. The expected rate of return on plan assets was 9.5% for 1996 and
10% for 1997 and 1998. 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: wine
and spirits, and consumer durables. The wine 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 1996, 1997 and 1998 is
as follows:
1996 1997 1998
- --------------------------------------------------------------------------------
Net sales:
Wine and Spirits $1,294 $1,347 $1,385
Consumer Durables 513 494 539
-----------------------------------------------
$1,807 $1,841 $1,924
===============================================
Earnings before interest, taxes, depreciation and amortization (EBITDA):
Wine and Spirits $ 286 $ 301 $ 318
Consumer Durables 48 51 56
Corporate (14) (15) (16)
-----------------------------------------------
$ 320 $ 337 $ 358
===============================================
Operating income:
Wine and Spirits $ 262 $ 273 $ 289
Consumer Durables 27 30 35
Corporate (15) (16) (17)
-----------------------------------------------
$ 274 $ 287 $ 307
===============================================
Total assets:
Wine and Spirits $ 835 $ 885 $ 914
Consumer Durables 480 470 483
Corporate 66 73 97
-----------------------------------------------
$1,381 $1,428 $1,494
===============================================
Depreciation and amortization:
Wine and Spirits $ 24 $ 28 $ 29
Consumer Durables 21 21 21
Corporate 1 1 1
-----------------------------------------------
$ 46 $ 50 $ 51
===============================================
Capital expenditures:
Wine and Spirits $ 43 $ 40 $ 31
Consumer Durables 16 14 13
Corporate -- 1 --
-----------------------------------------------
$ 59 $ 55 $ 44
===============================================
Sales outside the U.S.:
Wine and Spirits $ 254 $ 304 $ 320
Consumer Durables 28 26 27
-----------------------------------------------
$ 282 $ 330 $ 347
===============================================
There were no significant intersegment sales or transfers during 1996, 1997 or
1998. 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.
12. 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, results of operations or cash flows.
13. 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 by the company will not have a material adverse
effect on the company's consolidated financial position, results of operations
or cash flows.
35
<PAGE>
14. STOCK OPTIONS
Under the Brown-Forman Corporation Omnibus Compensation Plan (the Plan), the
company may grant stock options and other stock-based incentive awards for a
total of 1,500,000 shares of common stock to eligible employees until April 30,
2005. All shares delivered under the Plan will be issued from treasury stock
acquired by the company.
Stock options are granted at an exercise price of not less than the fair value
of the underlying stock on the date of the grant. Stock options granted under
the Plan generally become exercisable after a period of three years from the
first day of the fiscal year of grant and expire seven years thereafter. As of
April 30, 1998, no other stock-based awards have been granted under the Plan.
The company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for stock
options. Accordingly, no compensation expense has been recognized. Had
compensation expense for the stock options been determined based on the fair
value at the grant dates consistent with the methodology prescribed under
SFAS No. 123, "Accounting for Stock-Based Compensation," the company's net
income would have been reduced by $0.3 in 1997 and $0.9 in 1998. The company's
basic and diluted earnings per share would have been reduced by $0.01 per share
in 1997 and 1998.
The fair values of the options granted in 1997 and 1998 were $8.74 per option
and $12.24 per option, respectively. The fair values were estimated using the
Black-Scholes pricing model with the following assumptions: risk-free interest
rates of 6.7% in 1997 and 6.2% in 1998; expected volatility of 19.1% in 1997 and
18.1% in 1998; expected dividend yields of 2.9% in 1997 and 2.2% in 1998; and an
expected life of 6 years in both 1997 and 1998.
The following table summarizes option activity for the years ended April 30,
1997 and 1998. All options are for an equivalent number of shares of Class B
common stock.
Weighted
Options Average
Outstanding Exercise Price
- --------------------------------------------------------------------------------
Balance, April 30, 1996 -- --
Granted 157,073 $ 36.13
Forfeited (4,589) 36.13
------------------------------------------
Balance, April 30, 1997 152,484 36.13
Granted 250,277 49.13
Forfeited (15,677) 42.09
------------------------------------------
Balance, April 30, 1998 387,084 44.29
==========================================
The following table summarizes the status of stock options outstanding as of
April 30, 1998, by exercise price:
Remaining
Exercise Options Contractual
Price Outstanding Life (Years)
- -------- ----------- ------------
$ 36.13 144,000 8
49.13 243,084 9
-----------
387,084
===========
36
<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 and 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, 1998, 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, 1996, 1997 and 1998, 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, 1996, 1997 and 1998, 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, 1998
37
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Percentage State or
of Voting Jurisdiction
Name Securities Owned of Incorporation
- ---- ---------------- ----------------
Brown-Forman Beverages Australia Pty. Ltd. 100% Australia
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 100% California
Fratelli Bolla International Wines, Inc. 96% Kentucky
Hartmann, Incorporated 100% Delaware
Jack Daniel's Properties, Inc. 100% Delaware
Lenox, Incorporated 100% New Jersey
Mt. Eagle Corporation 100% Delaware
Norfolk Investments, Inc. 100% (1) Delaware
Dansk International Designs Ltd. 100% (1) New York
Brooks & Bentley Limited 100% (1) United Kingdom
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 - W.S. Karoulias S.A. 75% (3) Greece
Pitts Bay Trading Limited 75% (3) Bermuda
Lantone 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
Fratelli Bolla, S.p.A. 97% (7) Italy
Jack Daniel Distillery,
Lem Motlow, Prop., Inc. 100% (8) Tennessee
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 not 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 54% by Fratelli Bolla International Wines, Inc. and 43% by The Joseph
Garneau Co., S.A.
(8) Owned by Jack Daniel's Properties, Inc.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Brown-Forman Corporation on Form S-3 (File Nos. 33-12413 and 33-52551) and
Form S-8 (File Nos. 333-08311 and 333-38649), of our report dated May 27, 1998,
on our audits of the consolidated financial statements and financial statement
schedule of Brown-Forman Corporation and Subsidiaries as of April 30, 1996,
1997, and 1998, and for the years ended April 30, 1996, 1997, and 1998, which
report is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
July 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's April 30, 1998 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-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 265
<ALLOWANCES> 11
<INVENTORY> 502
<CURRENT-ASSETS> 869
<PP&E> 646
<DEPRECIATION> 365
<TOTAL-ASSETS> 1,494
<CURRENT-LIABILITIES> 382
<BONDS> 50
0
12
<COMMON> 10
<OTHER-SE> 795
<TOTAL-LIABILITY-AND-EQUITY> 1,494
<SALES> 1,924
<TOTAL-REVENUES> 1,924
<CGS> 945<F1>
<TOTAL-COSTS> 945<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 296
<INCOME-TAX> 111
<INCOME-CONTINUING> 185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> 2.67<F2>
<EPS-DILUTED> 2.67<F3>
<FN>
<F1>Includes excise taxes of $255 million.
<F2>Represents Basic EPS, calculated in accordance with SFAS No. 128.
<F3>Represents Diluted EPS, calculated in accordance with SFAS No. 128.
</FN>
</TABLE>
