United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-123
Brown-Forman Corporation
(Exact name of Registrant as specified in its Charter)
Delaware 61-0143150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Dixie Highway
Louisville, Kentucky 40210
(Address of principal executive offices) (Zip Code)
(502) 585-1100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: November 30, 1998
Class A Common Stock ($.15 par value, voting) 28,988,091
Class B Common Stock ($.15 par value, nonvoting) 39,601,947
<PAGE>
BROWN-FORMAN CORPORATION
Index to Quarterly Report Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Statement of Income
Three months ended October 31, 1997 and 1998 3
Six months ended October 31, 1997 and 1998 3
Condensed Consolidated Balance Sheet
April 30, 1998 and October 31, 1998 4
Condensed Consolidated Statement of Cash Flows
Six months ended October 31, 1997 and 1998 5
Notes to the Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended Six Months Ended
October 31, October 31,
1997 1998 1997 1998
------ ------ ------ -------
Net sales $554.2 $577.8 $982.3 $1,023.6
Excise taxes 71.1 72.7 127.4 128.4
Cost of sales 205.0 208.5 359.3 365.4
------ ------ ------ -------
Gross profit 278.1 296.6 495.6 529.8
Selling, general, and
administrative expenses 103.6 111.5 201.8 216.1
Advertising expenses 72.8 77.5 133.4 146.0
------ ------ ------ -------
Operating income 101.7 107.6 160.4 167.7
Interest income 0.6 1.5 1.3 2.5
Interest expense 4.0 3.2 7.9 5.7
------ ------ ------ -------
Income before income taxes 98.3 105.9 153.8 164.5
Taxes on income 37.4 38.6 58.5 60.0
------ ------ ------ -------
Net income 60.9 67.3 95.3 104.5
Less: Preferred stock
dividend requirements 0.1 0.1 0.2 0.2
Preferred stock
redemption premium -- 0.3 -- 0.3
------ ------ ------ -------
Net income applicable to common
stock $ 60.8 $ 66.9 $ 95.1 $ 104.0
====== ====== ====== =======
Earnings per share
- Basic and Diluted $ 0.88 $ 0.97 $ 1.38 $ 1.51
====== ====== ====== =======
Shares (in thousands) used in the
calculation of earnings per share
- Basic 68,996 68,664 68,996 68,674
- Diluted 69,020 68,735 69,021 68,741
Cash dividends declared
per common share $ 0.27 $ 0.28 $ 0.54 $ 0.56
====== ====== ====== =======
See notes to the condensed consolidated financial statements.
3
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BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
April 30, October 31,
1998 1998
(Unaudited)
------- -------
Assets
- ------
Cash and cash equivalents $ 78.3 $ 122.7
Accounts receivable, net 264.5 350.9
Inventories:
Barreled whiskey 187.0 183.2
Finished goods 178.6 201.5
Work in process 88.4 94.2
Raw materials and supplies 48.1 58.7
------- -------
Total inventories 502.1 537.6
Other current assets 23.9 25.1
------- -------
Total current assets 868.8 1,036.3
------- -------
Property, plant and equipment, net 281.1 281.5
Intangible assets, net 249.8 246.1
Other assets 94.2 107.0
------- -------
Total assets $1,493.9 $1,670.9
======= =======
Liabilities
- -----------
Commercial paper $ 107.1 $ 203.1
Accounts payable and accrued expenses 233.3 282.7
Current portion of long-term debt 7.5 8.3
Accrued taxes on income 7.6 8.7
Deferred income taxes 27.4 27.4
------- -------
Total current liabilities 382.9 530.2
Long-term debt 49.8 41.6
Deferred income taxes 149.7 134.2
Accrued postretirement benefits 55.4 56.1
Other liabilities and deferred income 38.8 34.6
------- -------
Total liabilities 676.6 796.7
Stockholders' Equity
- --------------------
Preferred stock 11.8 --
Common stockholders' equity:
Common stock 10.3 10.3
Retained earnings 821.2 888.2
Cumulative translation adjustment (8.8) (3.8)
Treasury stock (310,000 and 358,900 Class B
common shares at April 30 and October 31,
respectively) (17.2) (20.5)
------- -------
Common stockholders' equity 805.5 874.2
------- -------
Total stockholders' equity 817.3 874.2
------- -------
Total liabilities and stockholders' equity $1,493.9 $1,670.9
======= =======
Note: The balance sheet at April 30, 1998, has been taken from the audited
financial statements at that date, and condensed.
See notes to the condensed consolidated financial statements.
4
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BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In millions; amounts in parentheses are reductions of cash)
Six Months Ended
October 31,
1997 1998
------ ------
Cash flows from operating activities:
Net income $ 95.3 $ 104.5
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 21.2 23.2
Amortization 4.7 4.7
Deferred income taxes 7.3 (15.5)
Other (7.9) (5.0)
Changes in assets and liabilities:
Accounts receivable (69.0) (86.4)
Inventories (56.4) (35.5)
Other current assets (1.9) (1.2)
Accounts payable and accrued expenses 60.9 49.1
Accrued taxes on income 6.0 1.1
------ ------
Cash provided by operating activities 60.2 39.0
Cash flows from investing activities:
Additions to property, plant, and equipment (20.8) (22.2)
Disposals of property, plant, and equipment 9.9 0.9
Other (7.1) (8.1)
------ ------
Cash used for investing activities (18.0) (29.4)
Cash flows from financing activities:
Net change in commercial paper 0.1 96.0
Proceeds from long-term debt 0.8 --
Reduction of long-term debt (13.6) (7.4)
Acquisition of treasury stock -- (3.0)
Redemption of preferred stock -- (12.1)
Dividends paid (37.5) (38.7)
------ ------
Cash provided by (used for) financing activities (50.2) 34.8
------ ------
Net increase (decrease) in cash and cash equivalents (8.0) 44.4
------ ------
Cash and cash equivalents, beginning of period 58.2 78.3
------ ------
Cash and cash equivalents, end of period $ 50.2 $ 122.7
====== ======
See notes to the condensed consolidated financial statements.
5
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BROWN-FORMAN CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In these notes, "we," "us," and "our" refer to Brown-Forman Corporation.
1. Condensed Consolidated Financial Statements
We prepared these unaudited condensed consolidated statements using our
customary accounting practices as set out in our 1998 annual report on Form 10-K
(the "1998 Annual Report"). We made all of the adjustments (which includes only
normal, recurring adjustments) needed to present this data fairly.
We condensed or left out some of the information found in financial statements
prepared according to generally accepted accounting principles ("GAAP"). You
should read these financial statements together with the 1998 Annual Report,
which does conform to GAAP.
2. Inventories
We use the last-in, first-out method to determine the cost of almost all of our
inventories. If the last-in, first-out method had not been used, inventories
would have $104.4 million higher than reported as of April 30, 1998, and $107.9
million higher than reported as of October 31, 1998.
3. 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. We expect either the other responsible parties or
insurance to cover the remaining costs. We do not believe that any additional
costs we incur to satisfy environmental claims will have a material adverse
effect on our financial condition or results of operations.
4. Contingencies
We get sued in the ordinary course of business. Some suits and claims seek
significant damages. Many of them take years to resolve, which makes it
difficult for us to predict their outcomes. We believe, based on our legal
counsel's advice, that none of the suits and claims pending against us will have
a material adverse effect on our financial condition or results of operations.
5. Earnings Per Share
Basic earnings per share is calculated using net income reduced by dividend
requirements on preferred stock, divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share 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 during the period. The dilutive effect of
outstanding stock options is determined by application of the treasury stock
method.
6
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6. Comprehensive Income
Effective May 1, 1998, we adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." The adoption of SFAS
No. 130 did not have a material impact on our consolidated financial statements.
Comprehensive income, which is defined as the change in equity from transactions
and other events from nonowner sources, was as follows (in millions):
Three Months Ended Six Months Ended
October 31, October 31,
1997 1998 1997 1998
------ ------ ------ -------
Net income $ 60.9 $ 67.3 $ 95.3 $ 104.5
Foreign currency translation adjustment (0.5) 1.8 (1.0) 5.0
------ ------ ------ -------
Comprehensive income $ 60.4 $ 69.1 $ 94.3 $ 109.5
====== ====== ====== =======
7. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. SFAS No. 133 requires
that all derivatives be measured at fair value and recognized in the balance
sheet as either assets or liabilities. SFAS No. 133 requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. The adoption of SFAS No. 133 is not expected to
have a material impact on our consolidated financial statements.
8. Redemption of Preferred Stock
On October 1, 1998, we redeemed all outstanding shares of the company's
preferred stock at a total redemption cost of approximately $12.1 million. The
$0.3 million excess of the redemption cost over the $11.8 million carrying
amount of the preferred shares was deducted from net income to determine net
income applicable to common stock for the three and six month periods ended
October 31, 1998.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following discussion and analysis along with our 1998 Annual
Report. Note that the results of operations for the six months ended October 31,
1998, do not necessarily indicate what our operating results for the full fiscal
year will be. In this Item, "we," "us," and "our" refer to Brown-Forman
Corporation.
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 which
follows, but we do not guarantee that the results indicated will actually be
achieved.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. To comply with the terms of the safe harbor, we
note that the following non-exclusive list of important risk factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in those forward-looking statements:
Generally: We operate in highly competitive markets. Our business is subject
to changes in general economic conditions, changes in consumer preferences, the
degree of acceptance of new products, and the uncertainties of litigation. As
our business continues to expand outside the United States, 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.
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 for 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 to which 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.
8
<PAGE>
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.
Results of Operations:
Second Quarter Fiscal 1999 Compared to Second Quarter Fiscal 1998
Here is a summary of our operating performance (expressed in millions,
except percentage and per share amounts):
Three Months Ended
October 31,
1997 1998 Change
------ ------ ------
Net Sales:
Wine & Spirits $391.7 $401.2 2 %
Consumer Durables 162.5 176.6 9 %
------ ------
Total $554.2 $577.8 4 %
Gross Profit:
Wine & Spirits $197.5 $207.2 5 %
Consumer Durables 80.6 89.4 11 %
------ ------
Total $278.1 $296.6 7 %
Operating Income (Expense):
Wine & Spirits $ 83.5 $ 87.4 5 %
Consumer Durables 22.0 24.7 13 %
Corporate (3.8) (4.5) 19 %
------ ------
Total $101.7 $107.6 6 %
Net Income $ 60.9 $ 67.3 10 %
Earnings per Share - Basic and Diluted $ 0.88 $ 0.97 10 %
Effective Tax Rate 38.0% 36.5%
Sales for our wine and spirits segment increased 2%, largely due to growth by
Jack Daniel's in the United States and key international markets as well as
solid worldwide volume gains by Fetzer and Bolla wines, offset partially by
volume declines in some other spirits brands. Gross profit and operating income
from the wine and spirits segment both increased 5% for the quarter, reflecting
increased revenues, an improved mix of higher-margin product sales, and
favorable production costs.
9
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Revenues from our consumer durables segment increased 9% for the quarter,
reflecting a strong performance by the catalog and direct marketing operations
of Lenox Collections and an increase in sales of fine china to department
stores. Gross profit and operating income for the segment improved 11% and 13%,
respectively, due principally to the increase in higher-margin Lenox Collections
sales.
Net interest expense declined from last year's second quarter due to lower net
debt balances. The reduction in the company's consolidated effective tax rate
reflects lower effective state tax rates.
Results of Operations:
Six Months Fiscal 1999 Compared to Six Months Fiscal 1998
Here is a summary of our operating performance (expressed in millions,
except percentage and per share amounts):
Six Months Ended
October 31,
1997 1998 Change
------- -------- ------
Net Sales:
Wine & Spirits $ 709.1 $ 736.3 4 %
Consumer Durables 273.2 287.3 5 %
------- --------
Total $ 982.3 $1,023.6 4 %
Gross Profit:
Wine & Spirits $ 362.3 $ 385.1 6 %
Consumer Durables 133.3 144.7 9 %
------- --------
Total $ 495.6 $ 529.8 7 %
Operating Income (Expense):
Wine & Spirits $ 148.6 $ 156.0 5 %
Consumer Durables 20.5 21.6 5 %
Corporate (8.7) (9.9) 14 %
------- --------
Total $ 160.4 $ 167.7 5 %
Net Income $ 95.3 $ 104.5 10 %
Earnings per Share - Basic and Diluted $ 1.38 $ 1.51 10 %
Effective Tax Rate 38.0% 36.5%
Sales of our wine and spirits increased 4% for the six months ended October 31,
driven by strong worldwide growth by Jack Daniel's and by volume gains for
Fetzer in international markets. Gross profit and operating income from the
wine and spirits segment improved 6% and 5%, respectively, reflecting increased
sales as well as favorable production costs. A portion of the gain in gross
profit was reinvested in advertising and marketing programs designed to
strengthen our brands.
10
<PAGE>
Revenues from our consumer durables segment increased 5% for the period, largely
due to volume gains for Lenox Collections. Gross profit for the segment
improved 9%, driven by higher revenues and an increased mix of high-margin
collectible products. The 5% growth in operating income for the segment
reflects the gross profit gains, partially offset by higher advertising as well
as costs incurred to introduce new Hartmann product lines.
Net interest expense decreased from last year due to lower net debt balances.
The decline in the company's consolidated effective tax rate reflects lower
effective state tax rates.
As discussed in Note 7 to the accompanying condensed consolidated financial
statements, we are required to adopt SFAS No. 133 by May 1, 2000. The adoption
of SFAS No. 133 is not expected to have a material impact on our consolidated
financial statements.
Liquidity and Financial Condition
Cash and cash equivalents increased by $44.4 million during the six months ended
October 31, 1998, as cash provided by operating and financing activities
exceeded cash used for investing activities. Cash provided by operations
totaled $39.0 million, primarily reflecting net income for the period and an
increase in accounts payable and accrued expenses related largely to grape
purchases. Those amounts were partially offset by an increase in accounts
receivable due to the normal seasonality of revenues, an increase in inventories
in anticipation of future sales growth, and a partial liquidation of deferred
income taxes in compliance with new U.S. tax regulations. Cash of $29.4 million
was used for investing activities, consisting mostly of expenditures to expand
and modernize our production facilities and enhance our information systems.
Cash provided by financing activities was $34.8 million, primarily reflecting
short-term borrowings offset partially by dividend payments. Cash provided by
financing activities was also reduced by $12.1 million used to redeem our
preferred stock on October 1, 1998.
Dividends
The Board of Directors increased the quarterly cash dividend 5.4% from $0.28 to
$0.295 per share on both Class A and Class B common stock, payable January 1,
1999. As a result, the indicated annual cash dividend per share rose from $1.12
to $1.18.
Year 2000 Issue
Until recently, computer programs generally were written using two digits rather
than four to define the applicable year. Accordingly, programs may recognize a
date using "00" as the year 1900 instead of as the year 2000. This problem may
affect the company's information technology systems (IT systems), such as
financial, order entry, inventory control and forecasting systems, and non-IT
systems that contain computer chips, such as production equipment and security
systems. It may also affect the technology systems of third party vendors and
customers, and of governmental entities upon which the company's business
ordinarily relies.
11
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The Company is addressing the Year 2000 issues in three phases: assessment,
design of appropriate remediation, and implementation. For our IT systems, we
have substantially completed the assessment and remediation design phases and
are in the implementation phase, which consists of replacing or repairing non-
compliant systems, testing the new systems and training employees to use them.
We expect to complete the implementation phase by the summer of 1999. Also, we
have begun assessing the Year 2000 compliance of our non-IT systems and we
expect to complete this assessment by the end of this fiscal year. We plan to
complete the design and implementation of any remediation necessary with respect
to these non-IT systems by the summer of 1999. In addition, we are assessing
the Year 2000 preparedness of important customers and suppliers and are
monitoring their remediation efforts.
The total cost of Year 2000 issues is currently estimated at approximately $20
million. Of the total estimated cost, we expect that approximately one-half will
be attributable to new systems and thus capitalized. The other one-half will be
expensed as incurred. All costs are expected to be funded through operating
cash flows. Through October 31, 1998, we have incurred approximately $11
million, of which $7 million has been capitalized and $4 million has been
expensed.
We expect to manage the Year 2000 issues in a timely manner and, based on our
efforts to date, we believe that substantial disruptions in our business
operations due to Year 2000 non-compliance of our systems are unlikely.
However, it is not possible to anticipate all possible future outcomes,
especially since third parties are involved. Thus, there could be circumstances
in which the company would be unable to process customer orders, produce or ship
products, invoice customers, collect payments, receive customary governmental
approvals or authorizations as they relate to our business, or perform other
normal business activities. To address these risks, we have begun and intend to
continue developing contingency plans designed to mitigate potential disruptions
in operations, including stockpiling raw materials and finished goods,
identifying alternative sources of supplies, creating back-up order processing
and invoicing procedures, and other appropriate measures. We expect to complete
development and testing of these contingency plans by October 1999.
The costs, expected completion dates and risks described above represent
management's best estimates. However, there can be no guarantee that these
estimates will prove to be accurate. Actual results could differ significantly.
If we do not successfully complete anticipated replacements and other
remediation to our IT systems, if unanticipated disruptions in our non-IT
systems occur, or if any of our significant vendors or customers do not
successfully achieve Year 2000 compliance on a timely basis, our operations or
financial results could be adversely affected in the future.
12
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Euro Conversion
On January 1, 1999, the euro will be adopted as the national currency of certain
member countries of the European Union. The euro will be used as a non-cash
transaction currency during a transition period ending January 1, 2002, after
which euro-denominated bills and coins will be issued and the countries' former
currencies will be withdrawn from circulation. Because Europe is one of our
markets, the euro conversion raises issues such as the modification of
information systems to accommodate euro-denominated transactions, the
recalculation of currency risk, and the competitive impact of cross-border price
transparency. However, we do not expect the euro conversion to have a material
impact on the company's financial condition or results of operations.
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. We expect either the other responsible parties or
insurance to cover the remaining costs. We do not believe that any additional
costs we incur to satisfy environmental claims will have a material adverse
effect on our financial condition or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since April 30, 1998, there have been no material changes in the company's
interest rate, foreign currency and commodity price exposures, the types of
derivative financial instruments used to hedge those exposures, or the
underlying market conditions.
13
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PART II - OTHER INFORMATION
Item 2. Changes in Securities
On October 1, 1998, the Corporation redeemed all issued and outstanding shares
of its preferred stock, par value $10.00 per share (the "Preferred Stock"), for
a redemption price of $10.25 per share. This redemption was carried out
pursuant to resolutions approved by the Board of Directors on July 23, 1998 and
a notice of redemption dated August 1, 1998 mailed to all holders of Preferred
Stock. The Corporation's Restated Certificate of Incorporation, as amended (the
"Certificate") provided that, once redeemed, the Preferred Stock could not be
re-issued and shall be retired. Coincident with the redemption, the Corporation
filed a Certificate of Cancelation with the Delaware Secretary of State, thereby
effectively deleting all references to the Preferred Stock from the
Corporation's Certificate. The Certificate of Cancelation is filed as an
exhibit to this report.
On December 3, 1998, pursuant to resolutions adopted by the Board of Directors
on November 19, 1998, the Corporation filed a Restated Certificate of
Incorporation with the Delaware Secretary of State, which Restated Certificate
of Incorporation is filed as an exhibit to this report. The Restated
Certificate eliminates all references to the Preferred Stock as well as
incorporates all other amendments made to the Certificate since last restated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Exhibit
------- -------
3(i)(a) Certificate of Cancelation
3(i)(b) Restated Certificate of Incorporation
27 Financial Data Schedule
(b) Reports on Form 8-K: None
14
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SIGNATURES
As required by the Securities Exchange Act of 1934, the Registrant has caused
this report to be signed on its behalf by the undersigned authorized officer.
BROWN-FORMAN CORPORATION
(Registrant)
Date: December 10, 1998 By: /s/ Steven B. Ratoff
Steven B. Ratoff
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)
15
BROWN-FORMAN CORPORATION
CERTIFICATE OF CANCELATION
Brown-Forman Corporation, a corporation
organized and existing under the General Corporation Law
of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
First, That at a meeting of the Board of Directors held on
July 23, 1998, a resolution was duly adopted which
provided for the redemption, on October 1, 1998, of all
issued and outstanding shares of the Preferred Stock,
$10.00 par value per share (the "Preferred Stock"), of the
Corporation.
Second, That the redemption of the Preferred Stock, as
authorized by the resolution of July 23, 1998, has been
completed in accordance with the provisions of the
Restated Certificate of Incorporation of the Corporation,
as amended (the "Certificate") and the General
Corporation Law of the State of Delaware.
Third, That the Certificate prohibits the reissue of the
Preferred Stock after redemption, and the Preferred Stock
has therefore been retired.
Fourth, That pursuant to section 243 of the General
Corporation Law of the State of Delaware, upon the
effective date of filing of this Certificate of Elimination, the
Certificate shall be amended to reduce the authorized
number of shares of Preferred Stock to zero, and to
otherwise in all respects eliminate all references to the
Preferred Stock.
IN WITNESS WHEREOF, the undersigned duly
authorized officer, has caused this Certificate of Elimination
to be signed on the 5th day of October, 1998.
BROWN-FORMAN CORPORATION
By: /s/ Michael B. Crutcher
Michael B. Crutcher,
Senior Vice President,
General Counsel and Secretary
We, the undersigned, being the Chairman of the Board and Chief
Executive Officer, and Secretary, respectively, of Brown-Forman Corporation, a
corporation organized under the General Corporation Law of the State of Delaware
on October 19, 1933, as Brown-Forman Distillery Company, do hereby certify under
seal of the Corporation as follows:
I. The following Restated Certificate of Incorporation correctly sets forth
without change the corresponding provisions of the Corporation's Restated
Certificate of Incorporation as heretofore amended, and supersedes the Restated
Certificate of Incorporation and all previous amendments thereto:
RESTATED CERTIFICATE OF INCORPORATION
OF
BROWN-FORMAN CORPORATION
FIRST: The name of this Corporation is BROWN-FORMAN CORPORATION.
SECOND: The registered office of the Corporation in the State of
Delaware is to be located at 1209 Orange Street, City of Wilmington, County of
New Castle. The name and post office address of its registered agent in the
State of Delaware is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, County of New Castle, Delaware 19801.
THIRD: The nature of the business and the objects and purposes to be
transacted, promoted and carried on by the Corporation are to do, in any part of
the world, any and all things herein mentioned and set forth, as fully and to
the same extent, to all intents and purposes, as natural persons might or could
do, viz:
1. To manufacture, distill, compound, blend, rectify, combine,
buy, sell, distribute, deal in, export, import, store and
warehouse all kinds of distilled spirits, whiskey, gin, high
wines, alcohol and all kinds of cereals, grains, beets,
yeasts, oils, molasses, and all articles used or useful in
connection with the operation of a distillery, and all
products or by-products of such articles;
2. To manufacture, buy, sell, deal in, distribute, store and
warehouse such cooperage as may be used or useful in the
operation of a distillery;
3. To manufacture, buy, sell, distribute, grow, import, export,
store and warehouse all materials and supplies and other
articles used or useful or incidental to the operation of a
distillery business;
4. To carry on a general distilling, redistilling, compounding,
blending, bottling, cooperage, storage and warehousing
business;
5. To issue, register, certify, buy, sell, pledge, assign,
transfer, exchange, guarantee and otherwise deal in storage or
warehouse receipts;
6. To acquire by purchase or otherwise, own, mortgage, pledge,
sell, assign, transfer, and otherwise acquire and dispose of
and deal in and with goods, wares and merchandise and real and
personal property of every class and description wheresoever
situated;
7. To purchase, acquire, hold, guarantee, sell, assign, transfer,
mortgage, pledge, exchange, or otherwise dispose of shares of
the capital stock, bonds, debentures, evidences of
indebtedness and other securities of any corporation or
association, whether foreign or domestic, private or
governmental, whether now or hereafter organized, and to issue
in exchange therefore its own stocks, bonds or other
obligations or securities, and while the holder of any such
shares of stock or other securities to exercise all the
rights, powers and privileges of ownership, including the
right to vote thereon to the same extent as a natural person
might or could do;
8. To sell or in any manner dispose of, mortgage or pledge any
stock, bonds or other obligations or any property, real or
personal, which at any time may be held by the Corporation as
and when and upon such terms and conditions as the Board of
Directors shall determine.
9. To acquire all or any part of the goodwill, rights, property
and business of any person, entity, partnership, association
or corporation heretofore or hereafter engaged in any business
similar to any business which the Corporation has power to
conduct, to pay for the same in cash or in stock, bonds or
other obligations of the Corporation or otherwise, to hold,
utilize and in any manner dispose of the whole or any part of
the rights and property so acquired, and to assume in
connection therewith any liabilities of any such person,
entity, partnership, association or corporation and conduct
in any lawful manner the whole or any part of the business
thus acquired;
10. To acquire, hold, use, sell, assign, lease and grant licenses
in respect of, mortgage or otherwise dispose of, letters
patent of the United States, or any foreign country, patents,
patent rights, licenses and privileges, inventions,
improvements and processes, trademarks, and trade-names,
relating to or useful in connection with any business of the
Corporation;
11. To enter into, make, perform and carry out contracts of every
kind for any lawful purpose without limit as to amount, with
any person, firm, association or Corporation, municipality,
county, state, territory, government or other municipal or
governmental sub-division;
12. From time to time, without limit as to amount, to borrow or
raise moneys for any of the purposes of the Corporation and to
draw, make, accept, endorse, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds, debentures
and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment thereof
and of the interest thereon by mortgage on, or pledge,
conveyance or assignment in trust of, the whole or any part of
the assets of the Corporation, real, personal or mixed,
including contract rights, whether at the time owned or
thereafter acquired, and to sell, pledge or otherwise dispose
of such securities or other obligations of the Corporation for
its corporate purposes. To loan its uninvested funds and/or
surplus from time to time to such extent as the Corporation
may deem advisable, with such security, if any, as the Board
of Directors may determine.
13. To purchase, hold, sell, transfer, reissue or cancel the
shares of its own capital stock or any securities or other
obligations of the Corporation in the manner and to the extent
now or hereafter permitted by the laws of Delaware;
14. The Corporation may conduct its business in the State of
Delaware, in other states, the District of Columbia, the
territories and colonies of the United States, and in foreign
countries, and may hold, own, improve, mortgage, sell, convey,
and otherwise dispose of real and personal property of every
class and description in any of the states, districts,
territories or colonies of the United States, and in all
foreign countries, subject to the laws of such state,
district, territory, colony or country;
15. In general, to carry on any other business in connection with
the foregoing, whether manufacturing or otherwise, and to have
and to do any and all things incident to or in connection with
the objects and purposes of the Corporation hereinabove set
forth; provided, however, that the Corporation shall not in
any state, territory, district, possession or country carry on
any business, or exercise any powers, which a corporation
organized under the laws thereof could not carry on or
exercise. It is the intention that the objects specified in
this Third clause shall, except where otherwise expressed in
said clause, be in no wise limited or restricted by reference
to or inference from the terms of any other clause in this
Certificate of Incorporation, but that the several objects
specified in this clause shall be regarded as independent
objects, nor shall anything in this clause be held to limit or
restrict, in any manner, the powers of this Corporation.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Ninety Million (90,000,000) shares,
divided into (a) Thirty Million (30,000,000) shares of Class A Common Stock of
the par value of Fifteen Cents ($0.15) each and (b) Sixty Million
(60,000,000) shares of Class B Common Stock of the par value of Fifteen Cents
($0.15) each.
Authorized but unissued shares of Class A Common Stock and of Class B
Common Stock may be issued and sold from time to time by the Corporation for
such consideration and upon such terms as may from time to time be fixed by the
Board of Directors, without action by the stockholders.
Rights of Class A Common Stock and Class B Common Stock.
Every share of the common stock of both classes, whenever and for
whatever consideration issued, shall be entitled to the same rights as every
other share of common stock in all distributions of earnings or assets of the
Corporation distributable to the holders of the common stock.
Except as herein provided, the holders of the Class A Common Stock
shall have full and exclusive voting powers. The Class B Common Stock shall be
in all respects equal and identical to the Class A Common Stock except that the
holders of the Class B Common Stock shall have no voting powers in the election
of directors, or on any question, except as otherwise provided by the laws of
Delaware.
General Provisions.
No holder of any stock of the Corporation as such shall be entitled as
of right to purchase or subscribe for any part of any stock of the Corporation
authorized by this Restated Certificate of Incorporation or of any additional
stock of any class to be issued by reason of any increase of the authorized
stock of the Corporation or of any bonds, certificates of indebtedness,
debentures, or other securities convertible into stock of the Corporation, but
any stock authorized by this Restated Certificate of Incorporation, or any such
additional authorized issue of stock or of securities convertible into stock,
may be issued and disposed of by the Board of Directors to such persons, firms,
corporations, or associations, and upon such terms as the Board of Directors may
in its discretion determine, without offering any thereof on the same terms or
on any terms to the stockholders then of record or to any class of stockholders.
FIFTH: This Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever. Stock of the Corporation
which has been declared by the Board of Directors to be full paid stock in
accordance with the existing laws of the State of Delaware in such case made and
provided shall not be liable to any further assessment or call thereon, nor
shall the holder thereof be liable for any further payment thereon or in respect
thereto, anything herein or in the constitution or law of any other state,
territory or dependency or country now in force or hereafter enacted to the
contrary notwithstanding.
SEVENTH: The number of Directors of the Corporation shall be fixed by
the By-laws and may be altered from time to time as may be provided therein, but
shall never be less than three (3). In case of any increase in the number of
Directors, the additional Directors may be elected by the Directors then in
office or by the Stockholders at any annual or special meeting, as shall be
provided in the By-Laws. It shall not be necessary to be a stockholder in order
to be a Director.
EIGHTH: All corporate powers shall be exercised by the Board of
Directors except as otherwise provided by statute or by this Certificate of
Incorporation.
In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter and amend the By-Laws of the Corporation;
To set apart out of any funds of the Corporation available for
dividends, a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created;
To authorize the payment of compensation to the Directors for services
to the Corporation, including fees for attendance at meetings of the Board of
Directors, and to determine the amounts of such compensation and fees;
The Board of Directors may from time to time create and issue, whether
or not in connection with the issue and sale of any shares of stock or other
securities of the Corporation, rights or options entitling the holders thereof
to purchase from the Corporation any shares of its capital stock, such rights or
options to be evidenced by or in such instrument or instruments as shall be
approved by the Board of Directors. The terms upon which, the time or times,
which may be limited or unlimited in duration, at or within which, and the price
or prices at which any such shares may be purchased from the Corporation upon
the exercise of any such rights or options shall be such as shall be fixed and
stated in a resolution or resolutions adopted by the Board of Directors
providing for the creation and issue of such rights or options, and, in every
case, set forth or incorporated by reference in the instrument or instruments
evidencing such rights or options;
To procure the Corporation to be licensed or recognized in any state,
county, city or other municipality of the United States, the District of
Columbia, and in any foreign country and in any town, city or municipality
thereof, to conduct its business and to have one or more offices therein.
From time to time to determine whether and to what extent, and at what
times and places, and under what conditions and regulations, the accounts and
books of the Corporation (other than the stock ledger), or any of them, shall be
open to the inspection of the Stockholders, and no Stockholder shall have any
right to inspect any account or book or document of this Corporation, except as
permitted by statute or authorized by the Board of Directors, or by a resolution
of the Stockholders;
If the By-Laws so provide, to designate three (3) or more of their
number to constitute an Executive Committee, which Committee shall, for the time
being, as provided in the By-Laws of the Corporation, have and exercise any or
all of the powers of the Board of Directors in the management of the business
and affairs of this Corporation, and have power to authorize the seal of this
Corporation to be affixed to all papers which may require it;
Both Stockholders and Directors shall have power, if the By-Laws so
provide, to hold their meetings, either within or without the State of Delaware,
and to have one or more offices outside the State of Delaware, in addition to
the principal office in Delaware; and the books of the Corporation may (subject
to the provisions of the statute) be kept outside of the State of Delaware, at
such places as may be, from time to time, designated by the Board of Directors;
Pursuant to the affirmative vote of the holders of at least a majority
of the shares of stock issued and outstanding and entitled to vote, given at a
Stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the shares of stock issued and
outstanding and entitled to vote, the Board of Directors shall have power and
authority at any meeting, to sell, lease or exchange all of the property and
assets of this Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions as its Board of Directors deem
expedient and for the best interests of the Corporation;
This Corporation may, in its By-Laws, confer powers, additional to the
foregoing, upon the Directors, in addition to the powers and authorities
expressly conferred upon them by statute.
NINTH: A Director of this Corporation shall not be disqualified by his
office from dealing or contracting with this Corporation either as a vendor,
purchaser, or otherwise, nor shall any transaction or contract of this
Corporation be void or voidable by reason of the fact that any director or any
firm of which any director is a member or any corporation of which any director
is a shareholder, officer or director, is in any way interested in such
transaction or contract, provided that such transaction or contract is or shall
be authorized, ratified or approved, either (1) by a vote of a majority or a
quorum of the Board of Directors without counting in such majority or quorum any
director so interested or member of a firm so interested or a shareholder,
officer or director of a corporation so interested, or (2) by the written
consent or by vote at a stockholders' meeting of the holders of record of a
majority in number of all the outstanding shares of capital stock of this
Corporation entitled to vote; nor shall any director be liable to account to
this Corporation for any profits realized by and from or through any such
transaction, or contract of this Corporation authorized, ratified or approved as
aforesaid by reason of the fact that he or any firm of which he is a member or
any corporation of which he is a shareholder, officer or director was interested
in such transaction or contract. Nothing herein contained shall create any
liability in the events above described or prevent the authorization,
ratification or approval of such contracts in any other manner provided by law.
A director shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except that he may be liable (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section*174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal benefit.
TENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 3883 of the Revised Code of 1915 of said State, or on
the application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 43 of the General
Corporation Law of the State of Delaware, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said Court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the Court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ELEVENTH: The Corporation reserves the right to amend, alter, change,
or repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
Stockholders herein are granted, subject to this reservation.
II. The Capital of the Corporation will not be reduced under or by reason of
this Restated Certificate of Incorporation.
III. In accordance with Section 245(b) of the General Corporation Laws of the
State of Delaware, the Restated Certificate of Incorporation of Brown-Forman
Corporation was duly adopted by the Board of Directors of the Corporation at a
meeting duly held on November 19, 1998.
IV. The Restated Certificate of Incorporation of Brown-Forman Corporation set
forth above only restates and integrates and does not further amend the
Certificate of Incorporation of Brown-Forman Corporation as heretofore amended,
and there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
IN WITNESS WHEREOF, this Certificate is made under the seal of said
Brown-Forman Corporation and signed by Owsley Brown II, its Chairman of the
Board and Chief Executive Officer, and by Michael B. Crutcher, its Secretary,
this 1st day of December, 1998.
/s/ Owsley Brown II
--------------------
Owsley Brown II
Chairman of the Board and Chief
Executive Officer
/s/ Michael B. Crutcher
------------------------
Michael B. Crutcher
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's October 31, 1998 Quarterly Report Form 10-Q and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 123
<SECURITIES> 0
<RECEIVABLES> 351<F1>
<ALLOWANCES> 0 <F1>
<INVENTORY> 538
<CURRENT-ASSETS> 1,036
<PP&E> 666
<DEPRECIATION> 384
<TOTAL-ASSETS> 1,671
<CURRENT-LIABILITIES> 530
<BONDS> 42
0
0
<COMMON> 10
<OTHER-SE> 864
<TOTAL-LIABILITY-AND-EQUITY> 1,671
<SALES> 1,024
<TOTAL-REVENUES> 1,024
<CGS> 494<F2>
<TOTAL-COSTS> 494<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 165
<INCOME-TAX> 60
<INCOME-CONTINUING> 105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105
<EPS-PRIMARY> 1.51<F3>
<EPS-DILUTED> 1.51<F4>
<FN>
<F1>Accounts receivable is shown net of allowance for doubtful accounts.
Allowance for doubtful accounts has not changed materially from the
April 30, 1998 balance.
<F2>Includes excise taxes of $128 million.
<F3>Represents Basic EPS, calculated in accordance with SFAS No. 128.
<F4>Represents Diluted EPS, calculated in accordance with SFAS No. 128.
</FN>
</TABLE>
