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, 1999
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
------------------- ----------------------
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. [ ]
The aggregate market value, at April 30, 1999, of the voting and nonvoting
equity held by nonaffiliates of the registrant was approximately $2,500,000,000.
The number of shares outstanding for each of the registrant's classes of
Common Stock on May 28, 1999 was:
Class A Common Stock (voting) 28,988,091
Class B Common Stock (nonvoting) 39,518,147
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 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 22, 1999 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 1999 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 Whiskey
Southern Comfort
Canadian Mist Canadian Whisky
Early Times Kentucky Whisky
Finlandia Vodkas**
Old Forester Kentucky Straight Bourbon Whisky
Bushmills Irish Whiskeys**
Glenmorangie Single Highland Malt Scotch Whiskies**
Jack Daniel's Country Cocktails
Gentleman Jack Rare Tennessee Whiskey
Jack Daniel's Single Barrel Tennessee Whiskey
Woodford Reserve Kentucky Straight Bourbon Whiskey
Forester 1870 Kentucky Straight Bourbon Whisky
Black Bush Special Irish Whiskey**
Bushmills Malt Single Malt Irish Whiskey**
Ardberg Single Islay Malt Scotch Whisky**
Glen Moray Single Speyside Malt Scotch Whisky**
Tropical Freezes
Pepe Lopez Tequilas
Korbel California Brandy*
Usher's Scotch Whisky**
Oblio Sambucas**
Jack Daniel's & Cola
2
<PAGE>
Southern Comfort & Cola
Don Eduardo Tequilas***
Tuaca Liqueur****
Fetzer Vineyards California Wines
Korbel California Champagnes and Wines*
Bolla Italian Wines
Sonoma-Cutrer Chardonnay 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**
McPherson Australian 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 selected markets by
agency agreements.
*** Part of a joint venture agreement between Brown-Forman and
Tequila Orendain.
**** Part of a joint venture agreement between Brown-Forman and Tuoni & Canepa.
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 ninth among California varietal wines and eighteenth 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.
3
<PAGE>
The principal raw materials used in manufacturing and packaging distilled
spirits are corn, rye, malted barley, glass, cartons, and wood for new white oak
barrels, which are used for storage of bourbon and Tennessee whiskey. None of
these raw materials are in short supply, and there are adequate sources from
which they may be obtained.
The principal raw materials used in the production of wines are grapes and
packaging materials. Grapes are primarily purchased from independent growers
and, from time to time, are adversely affected by weather and other forces which
may limit production. We believe that our relationships with our growers are
good.
Due to aging requirements, production of whiskeys is scheduled to meet demand
three to five years in the future. Accordingly, inventories are larger in
relation to sales and total assets than would be normal for most other
businesses.
The industry is highly competitive and there are many brands sold in the
consumer market. Trade information indicates that we are one of the largest wine
and spirit suppliers in the United States in terms of revenues.
The 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
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.
4
<PAGE>
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 and the
internet, as well as through authorized collectible retailers.
Fine china and casual dinnerware, as well as fine china giftware, are marketed
under the Lenox trademark. Crystal stemware, barware and giftware are marketed
under both the Lenox and Gorham trademarks. Contemporary tabletop, houseware and
giftware products are marketed under the Dansk trademark. Sterling silver and
stainless flatware and sterling giftware are marketed under the Gorham and
"Lenox. Kirk Stieff" 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, 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, 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.
5
<PAGE>
Other Information
- -----------------
As of April 30, 1999, we employ approximately 7,600 persons, including 1,155
employed on a part-time or temporary 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.
For information on the effects of compliance with federal, state, and local
environmental regulations, refer to Note 13, "Environmental," on page 35 of our
1999 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
- Sonoma County, California
- Pedemonte, Italy
- Soave, Italy
- - Warehousing facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Collingwood, Ontario
- Shively, Kentucky
- Woodford County, Kentucky
- Mendocino County, California
- Monterey County, California
- Sonoma County, California
- Pedemonte, Italy
- Soave, Italy
6
<PAGE>
Leased facilities:
- - Production and bottling facility in Dublin, Ireland
- - Wine production and warehousing facility in Mendocino County, California
- - Vineyards in Monterey County, California
We believe that the productive capacities of the 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)
- Lenox/Gorham - Smithfield, Rhode Island
(includes retail store)
- Hartmann - Lebanon, Tennessee (includes retail store)
- - Warehousing facilities:
- Lenox/Dansk/Gorham - Williamsport, Maryland
Leased facilities:
- - Office facilities:
- Dansk headquarters - White Plains, New York
- Norfolk headquarters - Wilmington, Delaware
- Brooks & Bentley headquarters - Kent, England
- - 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 43 Lenox outlet stores in 27 states and
a Lenox Gift Express store in Pennsylvania. The Segment also
operates 52 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.
- - Showrooms:
- Lenox/Dansk/Gorham - New York, New York; Dallas, Texas;
Atlanta, Georgia; Ontario, Canada
7
<PAGE>
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
None.
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 56 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 63 Vice Chairman of the company Cousin to Owsley Brown II
since August 1983.
William M. Street 60 Vice Chairman of the company None
since July 1987.
Steven B. Ratoff 56 Executive Vice President and Chief None
Financial Officer of the company
since December 1994. Private
investor in a number of small
privately-held companies from
February 1992 to November 1994.
Senior Vice President and Chief
Financial Officer for Pharmaceutical
Group of Bristol-Myers Squibb
from January 1990 to January 1992.
John P. Bridendall 49 Senior Vice President and None
Director of Corporate
Development since July 1987.
8
<PAGE>
Michael B. Crutcher 55 Senior Vice President, General None
Counsel, and Secretary since
May 1989.
Lois A. Mateus 52 Senior Vice President of Corporate None
Communications and Corporate
Services since January 1988.
Stanley E. Krangel 48 President of Lenox, Incorporated None
(a subsidiary of Brown-Forman) since
June 1998. President of Lenox
Collections from November 1995 to
June 1998.
</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 1999 Annual Report to Stockholders, which information
is incorporated into this report by reference.
Holders of record of Common Stock at April 30, 1999:
Class A Common Stock (Voting) 3,150
Class B Common Stock (Nonvoting) 4,936
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 1999 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
1999 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 pages
23 and 24 of the 1999 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 1999 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 1999 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 1999 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 22, 1999, which information is incorporated into this report by reference:
(a) "Election of Directors" on page 4 through the fifth 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 22, 1999, which information is incorporated into this report by reference:
(a) "Executive Compensation" on pages 8 through 12; (b) "Retirement Plan
Descriptions" on page 13; and (c) "Director Compensation" on page 14.
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 22, 1999, 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 18 of our definitive proxy
statement for the Annual Meeting of Stockholders to be held July 22, 1999, 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, 1999:
Consolidated Statement of Income for the
years ended April 30, 1997, 1998, and 1999* -- 25
Consolidated Balance Sheet at April 30, 1997, 1998, and 1999* -- 26 - 27
Consolidated Statement of Cash Flows for the
years ended April 30, 1997, 1998, and 1999* -- 28
Consolidated Statement of Stockholders' Equity
for the years ended April 30, 1997, 1998, and 1999* -- 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, 1999, 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, 1999.
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 27, 1999 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 27, 1999 as indicated:
<TABLE>
<S> <C> <C>
/s/ JERRY E. ABRAMSON /s/ RICHARD P. MAYER /s/ OWSLEY BROWN II
- --------------------------------------- --------------------------------- -----------------------------------------
By: Jerry E. Abramson By: Richard P. Mayer By: Owsley Brown II
Director Director Director, Chairman of the Board
and Chief Executive Officer
/s/ BARRY D. BRAMLEY /s/ STEPHEN E. O'NEIL
- --------------------------------------- ---------------------------------
By: Barry D. Bramley By: Stephen E. O'Neil
Director Director
/s/ GEO. GARVIN BROWN III /s/ DACE BROWN STUBBS /s/ OWSLEY BROWN FRAZIER
- --------------------------------------- --------------------------------- -----------------------------------------
By: Geo. Garvin Brown III By: Dace Brown Stubbs By: Owsley Brown Frazier
Director Director Director, Vice Chairman of the Board
/s/ DONALD G. CALDER /s/ JAMES S. WELCH
- --------------------------------------- ---------------------------------
By: Donald G. Calder By: James S. Welch
Director Director
/s/ LAWRENCE K. PROBUS /s/ STEVEN B. RATOFF /s/ WILLIAM M. STREET
- --------------------------------------- --------------------------------- -----------------------------------------
By: Lawrence K. Probus By: Steven B. Ratoff By: William M. Street
Vice President and Controller Executive Vice President and Director, Vice Chairman of the Board
(Principal Accounting Officer) Chief Financial Officer
(Principal Financial Officer)
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Brown-Forman Corporation
Louisville, Kentucky
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the consolidated financial
position of Brown-Forman Corporation and its Subsidiaries at April 30, 1997,
1998, and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended April 30, 1999, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
consolidated financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
May 26, 1999
S-1
<PAGE>
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 1997, 1998, and 1999
(Expressed in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
Balance at Charged to Balance at
Beginning Costs End
Description of Period and Expenses Deductions of Period
----------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts $13,206 $ 5,530 $ 8,516(1) $10,220
1998
Allowance for Doubtful Accounts $10,220 $ 6,648 $ 5,906(1) $10,962
1999
Allowance for Doubtful Accounts $10,962 $ 7,582 $ 7,385(1) $11,159
</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, 1998 1999 % Change
- --------------------------------------------------------------------------------
Net Sales $1,924 $2,030 5%
Gross Profit $ 979 $1,045 7%
Operating Income $ 307 $ 322 5%
Net Income $ 185 $ 202 9%
Earnings Per Share - Basic and Diluted $ 2.67 $ 2.93 10%
Cash Dividends Paid Per Common Share $ 1.10 $ 1.15 5%
EBITDA $ 358 $ 377 5%
Business Value Added $ 98 $ 106 9%
Return on Average Invested Capital 20.4% 19.8%
Return on Average Common Stockholders' Equity 24.3% 23.6%
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 1999 $2,030 $1,045 $ 202 $2.93 $ 1.15 $71.00 - $51.88 $77.25 - $54.94
Quarters
First 446 233 37 0.54 0.28 58.25 - 51.88 64.25 - 54.94
Second 578 297 67 0.97 0.28 65.00 - 54.75 71.00 - 58.38
Third 520 265 50 0.72 0.295 71.00 - 62.69 77.25 - 68.06
Fourth 486 250 48 0.70 0.295 67.88 - 52.31 73.69 - 56.44
Fiscal 1998 $1,924 $ 979 $ 185 $2.67 $ 1.10 $55.25 - $44.50 $59.00 - $45.00
Quarters
First 428 218 34 0.50 0.27 52.75 - 47.00 54.13 - 47.00
Second 554 278 61 0.88 0.27 51.00 - 44.50 53.19 - 45.00
Third 481 251 46 0.66 0.28 53.00 - 47.25 55.75 - 48.75
Fourth 461 232 44 0.63 0.28 55.25 - 49.38 59.00 - 52.06
</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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Sales $1,279 1,366 1,496 1,658 1,628 1,680 1,807 1,841 1,924 2,030
Gross Profit $ 584 645 719 791 790 824 880 904 979 1,045
Operating Income $ 225 223 234 255 240 268 274 287 307 322
Net Income $ 93 145 146 156 129 149 160 169 185 202
Weighted Average Shares used to
calculate Earnings Per Share
- - Basic 83.9 83.3 82.7 82.7 78.7 69.0 69.0 69.0 68.9 68.6
- - Diluted 83.9 83.3 82.7 82.7 78.7 69.0 69.0 69.0 69.0 68.7
Earnings Per Share
- Basic and Diluted $ 1.10 1.74 1.76 1.88 1.63 2.15 2.31 2.45 2.67 2.93
Cash Dividends Paid
Per Common Share $ 0.63 0.72 0.78 0.86 0.93 0.97 1.02 1.06 1.10 1.15
Invested Capital
- ----------------
Average Invested Capital $ 704 743 823 925 900 835 875 929 948 1,049
Average Common
Stockholders' Equity $ 564 616 686 765 629 493 578 671 756 854
Total Assets $1,021 1,083 1,194 1,311 1,234 1,286 1,381 1,428 1,494 1,735
Long-Term Debt $ 114 112 114 154 299 247 211 63 50 53
Other Key Measures
- ------------------
Gross Margin 45.7% 47.2% 48.1% 47.7% 48.5% 49.1% 48.7% 49.1% 50.9% 51.5%
Operating Margin 17.6% 16.4% 15.6% 15.4% 14.8% 15.9% 15.2% 15.6% 15.9% 15.9%
Effective Tax Rate 48.7% 33.8% 34.6% 35.6% 37.4% 39.8% 37.8% 38.0% 37.6% 36.5%
Return on Average
Invested Capital 14.6% 20.5% 18.8% 18.0% 15.4% 19.5% 19.7% 19.4% 20.4% 19.8%
Return on Average Common
Stockholders' Equity 16.3% 23.5% 21.3% 20.4% 20.4% 30.1% 27.5% 25.2% 24.3% 23.6%
Total Long-Term Debt to
Total Long-Term Capital 16.1% 14.5% 13.4% 15.9% 39.2% 31.1% 25.0% 8.0% 5.7% 5.5%
Total Cash Dividends
Paid to Net Income 57.4% 41.7% 44.4% 45.8% 57.5% 45.3% 44.2% 43.3% 41.2% 39.3%
Cash Flows from Operations $ 125 134 156 193 221 197 167 176 220 213
EBITDA $ 259 256 271 299 286 311 320 337 358 377
</TABLE>
Notes:
1. Includes the operations of Dansk International Designs Ltd., Fetzer
Vineyards, and Sonoma-Cutrer Vineyards since their acquisitions on July 2,
1991, August 31, 1992, and April 15, 1999, respectively.
2. Fiscal 1990 net income and earnings per share were increased by $12 million
and $0.14, respectively, from the cumulative effect of accounting changes.
Fiscal 1994 net income and earnings per share were reduced by $32 million
and $0.41, 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. Fiscal 1990 net income was reduced $60 million to reflect the write-down of
intangible assets of California Cooler.
5. 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.
6. 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. Invested capital is the sum of all interest-
bearing debt and preferred and common equity.
7. Return on Average Common Stockholders' Equity is defined as the sum of
income applicable to common stock divided by average common stockholders'
equity.
8. 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.
9. EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and as such represents a measure of the company's cash flow.
It should be considered in addition to, but not as a substitute for, other
measures of financial performance that are 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 review Brown-Forman's
consolidated financial condition and results of operations for the fiscal years
ended April 30, 1997, 1998 and 1999. 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,
1999, 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 1999 Compared to 1998
Net sales reached record levels in fiscal 1999, growing $105 million, or 5%.
Sales of wine and spirits increased 6%, fueled by worldwide growth of
Jack Daniel's and our premium wine brands. Sales from the consumer durables
segment increased 4%, primarily due to higher revenues from Lenox fine china
and collectibles.
Net Sales
Dollars in Millions
1997 1998 1999
------ ------ ------
Wine and Spirits $1,347 $1,385 $1,468
Consumer Durables 494 539 561
------ ------ ------
Total $1,841 $1,924 $2,030
====== ====== ======
Total change +2% +5% +5%
International sales of $381 million were up 10% in fiscal 1999, driven largely
by gains from Jack Daniel's and Fetzer. This growth reflects our strategic
effort to expand the international distribution of Brown-Forman's leading
brands. Sales outside the United States now represent 22% of our revenues
(excluding excise taxes).
Gross profit performance is a key measure by which we gauge the quality of
volume growth. Fiscal 1999 gross profit growth of 7% outpaced the rate of sales
growth, reflecting a continuous shift toward higher margin products, selected
price increases, and stable costs.
Gross Profit
Dollars in Millions
1997 1998 1999
------ ------ ------
Wine and Spirits $ 662 $ 713 $ 768
Consumer Durables 242 266 277
------ ------ ------
Total $ 904 $ 979 $1,045
====== ====== ======
Total change +3% +8% +7%
By focusing our marketing efforts on high-margin products and realizing
manufacturing efficiencies, we have improved the company's gross margin to
nearly 52% in fiscal 1999.
Operating income for fiscal 1999 improved $16 million, or 5%. Profits from wine
and spirits grew $13 million, attributable to higher volumes, price increases,
and improved product mix, which allowed the company to significantly increase
investments in brand-building activities. The consumer durables segment achieved
a $3 million increase in operating income, primarily reflecting profitable
growth in Lenox fine china and collectible products.
Operating Income
Dollars in Millions
1997 1998 1999
---- ---- ----
Wine and Spirits $257 $271 $284
Consumer Durables 30 35 38
---- ---- ----
Total $287 $307 $322
==== ==== ====
Total change +5% +7% +5%
18
<PAGE>
Earnings per share reached a record $2.93, up 10% over fiscal 1998, reflecting
improved operating income, lower interest expense, and a more favorable
effective tax rate.
1997 1998 1999
---- ---- ----
Earnings Per Share $2.45 $2.67 $2.93
Change +6% +9% +10%
Fiscal 1998 Compared to 1997
Net sales grew $83 million, or 5%, in fiscal 1998. Sales of wine 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%, due to strong growth in sales of collectible items as well
as higher sales of fine china dinnerware and luggage products.
Operating income improved 7% during fiscal 1998. A $14 million increase in
profits from wine and spirits resulted from higher volumes, price increases, and
manufacturing efficiencies. Operating income for the consumer durables segment
increased $5 million in fiscal 1998, reflecting profitable growth in collectible
products and fine china dinnerware.
Earnings per share grew 9% over fiscal 1997 to $2.67 per share. Earnings
growth resulted primarily from improved operating income and lower interest
expense.
BUSINESS VALUE ADDED
Brown-Forman's foremost goal is to increase the value of our shareholders'
investment. To assist us in achieving this objective, we evaluate performance
and compensate our management based on a measure we call Business Value Added
(BVA). BVA represents the company's after-tax operating income less the cost of
capital for our net operating assets, recognizing not only the profits generated
by the company but also the investment required to produce those profits.
Dollars in Millions
1997 1998 1999
---- ---- ----
Business Value Added $87 $98 $106
Change +4% +13% +9%
During the three years ended April 30, 1999, BVA increased at a compounded
annual rate of 9%. The strong 13% growth in fiscal 1998 BVA reflected
significant leverage gained from expanding operating earnings at a faster rate
than invested capital. While 9% BVA growth in fiscal 1999 also reflects this
leverage, it was at a slower rate than 1998 due to technology investments and
the acquisition of Sonoma-Cutrer.
Return on average invested capital declined slightly in fiscal 1999 -- from
20.4% to 19.8% -- largely the result of accumulating cash yielding rates of
return below that of the company's operating assets.
1997 1998 1999
---- ---- ----
Return on Average Invested Capital 19.4% 20.4% 19.8%
19
<PAGE>
Return on average common stockholders' equity has declined, reflecting the use
of free cash flow to reduce debt as a percentage of the company's total capital
structure.
1997 1998 1999
---- ---- ----
Return on Average Common Stockholders' Equity 25.2% 24.3% 23.6%
COMPANY OUTLOOK
We believe the outlook for Brown-Forman's growth is very positive. Current
market conditions for premium wine and spirits brands are especially favorable
in the U.S. -- the company's primary market -- and they remain promising in
other markets as well. In order to capitalize on these opportunities, we plan
to further increase the marketing investments behind our beverage brands. We
will also continue to penetrate new markets by expanding our global sales,
marketing, and distribution resources, as well as developing 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 continuing to create
value for shareholders by capitalizing on its portfolio of powerful brand names.
We continue to focus on products within categories that offer significant growth
opportunities, including casual dining and gift giving.
WINE AND SPIRITS SEGMENT
Summary of Operating Performance
(Dollars expressed in millions)
1997 1998 1999
------ ------ ------
Net Sales $1,347 $1,385 $1,468
% Change 4% 3% 6%
Gross Profit $ 662 $ 713 $ 768
% Change 6% 8% 8%
Advertising Expenses $ 174 $ 197 $ 215
% Change 9% 13% 9%
SG&A Expenses $ 232 $ 245 $ 269
% Change 7% 6% 10%
Operating Income $ 257 $ 271 $ 284
% Change 4% 6% 5%
EBITDA $ 286 $ 302 $ 314
% Change 5% 5% 4%
Gross Margin 49.2% 51.5% 52.3%
Operating Margin 19.1% 19.6% 19.4%
Fiscal 1999 Compared to 1998
Net sales grew $83 million, or 6%, primarily reflecting another record year for
sales of Jack Daniel's. Fetzer Wines and Korbel Champagnes also contributed
significantly to sales growth.
Although tempered by a strong dollar, beverage sales outside the U.S. grew 10%
in fiscal 1999. International sales in fiscal 1999 represented 29% of total
wine and spirits sales (excluding excise taxes) compared to 28% in fiscal 1998.
Gross profit expanded $55 million, as our gross margin increased from 51.5% to
52.3%. Higher margins are attributable to selected price increases, continued
improvement in product mix, and stable costs.
Advertising expenses grew 9%, reflecting a substantial increase in spending to
build consumer equity for our premium brands, particularly Jack Daniel's,
Fetzer, and Finlandia. Selling, general, and administrative expenses increased
10%, reflecting significant technology investments as well as continued
expansion of the sales infrastructure for international markets.
Dollars in Millions
1997 1998 1999
---- ---- ----
Wine and Spirits Advertising $174 $197 $215
Change +9% +13% +9%
20
<PAGE>
Operating income increased 5%, largely as a result of higher profits from the
Jack Daniel's, Korbel, and Fetzer brands.
Fiscal 1998 Compared to 1997
Net sales grew $38 million, or 3%, driven by higher sales for the Jack Daniel's
family of brands and Fetzer. Fiscal 1998 results also included 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.
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 spending
to support established brands such as Jack Daniel's and Fetzer, as well as new
brands like Finlandia. Selling, general, and administrative expenses rose 6%,
primarily due to investments associated with the company's strategy to expand
our brands into new international markets.
Operating income increased 6%, as the operating margin for wine and spirits
improved from 19.1% to 19.6%.
Business Environment for Wine and Spirits
Societal attitudes towards drinking and governmental policy reflecting those
attitudes heavily influence the business environment for spirits and wines.
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 take a prominent
role in encouraging responsible consumption of their products and in warning
against alcohol abuse. Brown-Forman plays a leading role in several social
awareness organizations around the that fight alcohol abuse, encourage self-
regulation of marketing and sales practices, and partner with government health
officials.
Brown-Forman participates in political trade association activity with other
distillers and vintners to achieve a more favorable political and social
environment in the U.S. for the sale of our products. Similarly, Brown-Forman
works to secure favorable trade, 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 legislation to increase federal
excise taxes on distilled spirits is currently pending, but a future tax
increase cannot be ruled out. Similarly, legislators periodically introduce
legislation to increase beverage alcohol taxes at a state level. Some cities
have enacted ordinances banning billboard advertising of alcohol beverages.
Although there is no law banning television advertising of liquor, most
television networks and local affiliated stations currently decline to accept
such distilled spirits advertising.
Tax rates and advertising restrictions also affect the beverage alcohol markets
outside the U.S., but the impact of those changes in any one market is not
significant to the company's overall business.
The creation of the European Union and the consequent reduction of trading
barriers and adoption of a single currency affect Brown-Forman's business in
Europe. We may find increased pressure on the retail sales price of our products
because of growing cross-border competition.
In the publicity surrounding the settlement of the class action tort litigation
against the tobacco companies in the U.S., some commentators have suggested that
other industries, such as firearms, alcohol, fast foods, and automobiles may be
next. (In fact, a number of suits are currently pending against firearms
manufacturers). However, we do not believe the legal theories that created
liability for the tobacco companies apply to beverage alcohol. Most
importantly, the products are different. When used as intended, beverage
alcohol 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.
Since Biblical times, the drinking of beverage alcohol for social, ceremonial
and religious purposes has been deeply interwoven into the traditions of many
societies. The dangers of alcohol abuse are commonly known and have never been
concealed by alcohol producers. Indeed, distillers are at the forefront of
efforts to combat drunk driving and underage drinking. Lastly, state and
federal governments stringently regulate the content, manufacture, marketing,
and sale of beverage alcohol, including the placement and content of health
warning labels on the container. The federal government has also recently
approved language encouraging consumers to learn more about the "health effects"
of wine consumption by consulting with their doctors or reviewing the U.S.D.A.
Dietary Guidelines for Americans.
Speculation continues about further consolidation within the spirits industry.
Although such consolidation theoretically could hinder the distribution and
marketing of our spirits products, to date that has not happened and it seems
unlikely to do so. Brown-Forman does not have major investments in overseas
distribution networks and our products are typically sought after for
distribution by other major companies and we expect that to continue.
21
<PAGE>
CONSUMER DURABLES SEGMENT
Summary of Operating Performance
(Dollars expressed in millions)
1997 1998 1999
------ ------ ------
Net Sales $ 494 $ 539 $ 561
% Change (4%) 9% 4%
Gross Profit $ 242 $ 266 $ 277
% Change (6%) 10% 4%
Advertising Expenses $ 55 $ 63 $ 71
% Change (22%) 14% 14%
SG&A Expenses $ 157 $ 168 $ 168
% Change (2%) 7% --
Operating Income $ 30 $ 35 $ 38
% Change 11% 17% 8%
EBITDA $ 51 $ 56 $ 63
% Change 6% 11% 12%
Gross Margin 48.9% 49.4% 49.4%
Operating Margin 6.1% 6.6% 6.8%
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 1999 Compared to 1998
Net sales grew $22 million, or 4%, primarily reflecting increased revenues from
direct marketing and catalog operations. Also, tableware sales experienced
solid gains in the wholesale and retail channels. These results were partially
offset by reduced demand for giftware and luggage products during the year.
Gross profit increased $11 million in fiscal 1999, growing at the same rate as
sales, as gross margins held constant across most product lines.
Advertising expenses grew 14%, due principally to increased advertising of
collectible products. Selling, general, and administrative expenses were flat
compared to last year as a result of strong cost controls.
Operating income improved $3 million, or 8%, primarily reflecting profitable
growth in tableware and collectible products, offset partially by a decline in
demand for giftware and luggage products.
Fiscal 1998 Compared to 1997
Net sales grew $45 million, or 9%, in fiscal 1998, led by strong volume gains in
direct marketing and catalog sales of collectible items. Sales of fine china to
department stores increased modestly during the year, as did sales of tableware
and giftware from the company's retail stores. Sales of Hartmann luggage goods
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% in fiscal 1998, due to a greater mix of higher-margin direct
marketing and catalog sales.
Advertising expenses grew 14% due primarily to increased advertising of
collectible items. 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 collectible
and dinnerware products.
LIQUIDITY AND CAPITAL RESOURCES
Our cash flows from operations continue to provide more than adequate capital to
meet operating and capital expenditure requirements, pay dividends, and fund
acquisition opportunities. We consider our ability to internally generate cash
to be a significant financial strength.
Free cash flow is the cash remaining from operations after satisfying working
capital requirements and business reinvestment needs. A consolidated statement
of cash flows is summarized as follows:
(Expressed in millions)
1997 1998 1999
------ ------ ------
EBITDA $ 337 $ 358 $ 377
Interest expense, net (14) (11) (4)
Taxes on income (104) (111) (116)
Change in deferred taxes 10 19 (25)
Other (53) (35) (19)
------ ------ ------
Cash from operating activities 176 220 213
Additions to property, plant,
and equipment (55) (44) (46)
Acquisitions and other investments (1) (2) (71)
------ ------ ------
Free cash flow 120 174 96
Dividends (73) (76) (79)
Net proceeds from debt (43) (61) 101
Redemption of preferred stock -- -- (12)
Acquisition of treasury stock -- (17) (13)
------ ------ ------
Cash used for financing activities (116) (154) (3)
------ ------ ------
Increase in cash $ 4 $ 20 $ 93
====== ====== ======
22
<PAGE>
Cash provided by operations decreased $7 million in fiscal 1999, primarily
attributable to new U.S. tax regulations which resulted in a partial liquidation
of deferred income taxes. Cash used for investing activities increased
$71 million in fiscal 1999, due primarily to the acquisition of Sonoma-Cutrer
Vineyards, as well as technology investments.
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.
We have a $300 million revolving credit agreement that expires in fiscal 2003.
At April 30, 1999, we had no outstanding borrowings under this agreement. At
April 30, 1999, we had $220 million remaining on our $250 million shelf
registration filing with the Securities and Exchange Commission.
CAPITAL EXPENDITURES
We invested $55 million in property, plant, and equipment in fiscal 1997,
$44 million in fiscal 1998, and $46 million in fiscal 1999. These expenditures
primarily reflect the expansion and modernization of company-wide production
facilities.
Capital Expenditures
Dollars in Millions
1997 1998 1999
---- ---- ----
Wine and Spirits $40 $31 $34
Consumer Durables 14 13 12
---- ---- ----
Total $55 $44 $46
==== ==== ====
Capital expenditures for fiscal 2000 are expected to approximate $70 million,
up significantly from recent levels due to plans to expand production capacity
facilities. Fiscal 2000 capital expenditure requirements are expected to be
met with internally generated funds.
DIVIDENDS
Quarterly dividends were increased 5% in fiscal 1999 to $0.295 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 43% in fiscal 1997, 41% in
fiscal 1998, and 39% in fiscal 1999.
1997 1998 1999
----- ----- -----
Cash Dividends Paid per Common Share $1.06 $1.10 $1.15
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 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.
The Company is addressing the Year 2000 issues in three phases: assessment,
design of appropriate remediation, and implementation. For our IT systems, we
have completed the assessment and remediation design phases and have
substantially completed 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 fully complete the implementation phase by
the summer of 1999. Also, we have completed the assessment of Year 2000
compliance of our non-IT systems. 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 readiness
of important customers and suppliers and are monitoring their remediation
efforts.
23
<PAGE>
The total cost of Year 2000 issues is currently estimated at $25 million. Of
the total estimated cost, we expect that approximately 60% will be attributable
to new systems and thus capitalized. The other 40% will be expensed as
incurred. All costs are expected to be funded through operating cash flows.
Through April 30, 1999, we have incurred approximately $19 million, of which
$12 million has been capitalized and $7 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.
DERIVATIVE FINANCIAL INSTRUMENTS
As a result of the growth of our international business over the past several
years, the company's foreign currency receipts exceed its foreign currency
payments. To the extent this foreign currency exposure is not hedged, the
company's results of operations and financial position are negatively affected
by a weakening of foreign currencies against the U.S. dollar and are positively
impacted by a strengthening of foreign currencies.
We use foreign currency options and forward contracts, with average maturities
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 option and forward contracts, hedging
primarily European euro, British pound, and Japanese yen revenues, with notional
amounts totaling $40 million, $84 million, and $96 million at April 30, 1997,
1998 and 1999, respectively. The company's credit exposure is limited to the
fair value of the contracts ($0, $1 million, and $2 million at April 30, 1997,
1998, and 1999, respectively) rather than the notional amounts. Foreign
currency contracts are entered into with major financial institutions with
investment grade credit ratings, 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, 1999, 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 position, 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, 1997 1998 1999
- --------------------------------------------------------------------------------
Net sales $1,841 $1,924 $2,030
Excise taxes 257 255 254
Cost of sales 680 690 731
--------------------------------
Gross profit 904 979 1,045
Advertising expenses 229 260 286
Selling, general, and administrative expenses 388 412 437
--------------------------------
Operating income 287 307 322
Interest income 3 3 6
Interest expense 17 14 10
--------------------------------
Income before income taxes 273 296 318
Taxes on income 104 111 116
--------------------------------
Net income $ 169 $ 185 $ 202
================================
Earnings per share - Basic and Diluted $ 2.45 $ 2.67 $ 2.93
================================
Weighted average shares used to calculate earnings per share:
Basic 69.0 68.9 68.6
Diluted 69.0 69.0 68.7
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, 1997 1998 1999
- --------------------------------------------------------------------------------
Assets
- ------
Cash and cash equivalents $ 58 $ 78 $ 171
Accounts receivable, less allowance for doubtful accounts
of $10 in 1997, $11 in 1998 and $11 in 1999 263 265 274
Inventories:
Barreled whiskey 176 187 196
Finished goods 172 179 184
Work in process 66 88 89
Raw materials and supplies 37 48 56
-------------------------
Total inventories 451 502 525
Other current assets 30 24 29
-------------------------
Total Current Assets 802 869 999
Property, plant and equipment, net 292 281 348
Intangible assets, less accumulated amortization
of $120 in 1997, $130 in 1998 and $135 in 1999 254 250 264
Other assets 80 94 124
-------------------------
Total Assets $1,428 $1,494 $1,735
=========================
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
- --------------------------------------------------------------------------------
April 30, 1997 1998 1999
- --------------------------------------------------------------------------------
Liabilities
- -----------
Commercial paper $ 155 $ 107 $ 226
Accounts payable and accrued expenses 209 233 242
Current portion of long-term debt 7 7 18
Accrued taxes on income 6 8 --
Deferred income taxes 22 27 31
-------------------------
Total Current Liabilities 399 382 517
Long-term debt 63 50 53
Deferred income taxes 136 150 137
Accrued postretirement benefits 54 55 57
Other liabilities and deferred income 46 40 54
-------------------------
Total Liabilities 698 677 818
-------------------------
Stockholders' Equity
- --------------------
Capital Stock:
Preferred $0.40 cumulative, $10 par value;
1,177,948 authorized and outstanding shares
redeemed in 1999 at $10.25 per share plus
unpaid accrued dividends 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 712 821 945
Cumulative translation adjustment (4) (9) (8)
Treasury stock, at cost
(310,000 and 490,000 Class B common shares
in 1998 and 1999, respectively) -- (17) (30)
-------------------------
Common Stockholders' Equity 718 805 917
-------------------------
Total Stockholders' Equity 730 817 917
-------------------------
Total Liabilities and Stockholders' Equity $1,428 $1,494 $1,735
=========================
27
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in millions; amounts in brackets are reductions of cash)
- --------------------------------------------------------------------------------
Year Ended April 30, 1997 1998 1999
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 169 $ 185 $ 202
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation 41 42 46
Amortization 9 9 9
Deferred income taxes 10 19 (25)
Other (7) (14) (5)
Change in assets and liabilities, excluding
the effects of businesses acquired or sold:
Accounts receivable (6) (2) (5)
Inventories (24) (52) (8)
Other current assets (1) 7 2
Accounts payable and accrued expenses (14) 24 8
Accrued taxes on income 4 2 (8)
Accrued postretirement benefits 2 1 2
Other liabilities and deferred income (7) (1) (5)
-------------------------
Cash provided by operating activities 176 220 213
-------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (55) (44) (46)
Disposals of property, plant and equipment 3 13 2
Acquisition of business, net of cash acquired -- -- (54)
Other (4) (15) (19)
-------------------------
Cash (used for) investing activities (56) (46) (117)
-------------------------
Cash flows from financing activities:
Net change in commercial paper (39) (48) 119
Proceeds from long-term debt 3 1 --
Reduction of long-term debt (7) (14) (18)
Dividends paid (73) (76) (79)
Acquisition of treasury stock -- (17) (13)
Redemption of preferred stock -- -- (12)
-------------------------
Cash (used for) financing activities (116) (154) (3)
-------------------------
Net increase in cash and cash equivalents 4 20 93
Cash and cash equivalents, beginning of year 54 58 78
-------------------------
Cash and cash equivalents, end of year $ 58 $ 78 $171
=========================
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
For the Years Ended April 30, 1997, 1998 and 1999
(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, 1996 634 12 4 6 616 (4) --
Net income 169 169
Foreign currency translation
adjustment -- --
-------
Comprehensive income 169
Cash dividends
Preferred, per share $0.40 (1) (1)
Common, per share $1.06 (72) (72)
-------
Total cash dividends (73)
---------------------------------------------------------------------------------------------
Balance, April 30, 1997 730 12 4 6 712 (4) --
Net income 185 185
Foreign currency translation
adjustment (5) (5)
-------
Comprehensive income 180
Cash dividends
Preferred, per share $0.40 (1) (1)
Common, per share $1.10 (75) (75)
-------
Total cash dividends (76)
Acquisition of treasury stock
(310,000 Class B common shares) (17) (17)
---------------------------------------------------------------------------------------------
Balance, April 30, 1998 $ 817 $ 12 $ 4 $ 6 $ 821 $(9) $ (17)
Net income 202 202
Foreign currency translation
adjustment 1 1
-------
Comprehensive income 203
Cash dividends
Common, per share $1.15 (79) (79)
Acquisition of treasury stock
(180,000 Class B common shares) (13) (13)
Redemption of preferred stock (12) (12)
Tax benefit related to restricted
stock incentive plan 1 1
---------------------------------------------------------------------------------------------
Balance, April 30, 1999 $ 917 $ -- $ 4 $ 6 $ 945 $(8) $ (30)
=============================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars expressed 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 $98, $104, and
$110 higher than reported at April 30, 1997, 1998, and 1999, 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.
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
- ------------------
Basic earnings per share (basic EPS) is calculated using net income reduced by
dividends 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 dividends were $0.40 per share in 1997 and 1998 and
$0.20 per share in 1999.
On October 1, 1998, the company redeemed all 1,177,948 outstanding shares of its
preferred stock for $10.25 per share. The $0.25 per share excess of the
redemption cost over the carrying amount of the preferred shares was deducted
from net income to determine net income applicable to common stock for 1999.
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
- -----
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 the
consolidated financial statements.
2. ACQUISITION OF SONOMA-CUTRER VINEYARDS
In April 1999, the company acquired a majority interest in Sonoma-Cutrer
Vineyards, Inc. for $69, net of $32 of monetary assets (cash and tax benefits
receivable, offset by assumed debt) received. The acquisition has been
accounted for as a purchase. The excess of the acquisition cost over the fair
value of the identifiable tangible and intangible net assets acquired was $25,
which is being amortized over forty years.
The operating results of Sonoma-Cutrer have been consolidated with the company
since the acquisition date. Consolidated pro forma operating results for 1997,
1998 and 1999 would not have been materially different from the actual amounts
reported for those years.
During certain periods prior to April 15, 2004, the company has the option to
purchase or may be required by the minority shareholders of Sonoma-Cutrer to
purchase the minority interest at a total cost of between $30 and $36.
3. COMMITMENTS
Rental payments for real estate, vehicles, and office, computer and
manufacturing equipment under operating leases amounted to approximately $28 in
1997, 1998, and 1999. The company has commitments related primarily to minimum
lease payments of $25 in 2000, $13 in 2001, $8 in 2002, $4 in 2003, $2 in 2004,
and $3 thereafter.
4. 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, 1999, net worth exceeded the required level, as defined in
the agreement, by $567. At April 30, 1999, the company had no outstanding
borrowings under this agreement. At April 30, 1999, the company also had
available for issuance $220 of debt securities under a shelf registration filing
with the Securities and Exchange Commission.
5. DEBT
At April 30, the company's long-term debt consisted of the following:
April 30, 1997 1998 1999
- -----------------------------------------------------------------
6.82% to 7.38% medium-term notes,
due 2005 $ 30 $ 30 30
Variable rate industrial
revenue bonds, due through 2026 17 10 10
Other 23 17 31
--------------------------
70 57 71
Less current portion 7 7 18
--------------------------
$ 63 $ 50 $ 53
==========================
Long-term debt payment requirements for the five fiscal years after April 30,
1999 are as follows: $18 in 2000; $7 in 2001; $2 in 2002; $2 in 2003; and
$2 in 2004. Cash paid for interest was $18 in 1997, $15 in 1998, and $11 in
1999. Excluding the effect of the interest rate agreement discussed below, the
weighted average interest rates on commercial paper were 5.6% at April 30, 1997
and 1998 and 4.9% at April 30, 1999. The weighted average interest rates on the
variable rate industrial revenue bonds were 4.6%, 4.3%, and 4.1% at April 30,
1997, 1998, and 1999, 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.
31
<PAGE>
6. FOREIGN CURRENCY RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
The company uses foreign currency options and forward contracts, with average
maturities 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 option and forward contracts,
hedging primarily European euro, British pound, and Japanese yen revenues, with
notional amounts totaling $40, $84, and $96 at April 30, 1997, 1998, and 1999,
respectively. The company's credit exposure is limited to the fair value of the
contracts (see Note 7) rather than the notional amounts. Foreign currency
contracts are entered into with major financial institutions with investment
grade credit ratings, thereby decreasing the risk of credit loss.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents 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:
1998 1999
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Assets:
Cash and
cash equivalents $ 78 $ 78 $171 $171
Foreign currency
contracts 1 1 1 2
Liabilities:
Commercial paper 107 107 226 226
Long-term debt 57 60 71 73
8. BALANCE SHEET INFORMATION
April 30, 1997 1998 1999
- --------------------------------------------------------------------------------
Property, plant and equipment
- -----------------------------
Land $ 17 $ 17 $ 60
Buildings 200 206 228
Equipment 421 423 454
------------------------------------
638 646 742
Less accumulated depreciation 346 365 394
------------------------------------
$292 $281 348
====================================
Accounts payable
and accrued expenses
- --------------------
Accounts payable, trade $ 83 $ 90 $ 76
Accrued expenses:
Compensation and commissions 42 50 59
Excise and other non-income taxes 19 18 21
Interest 5 4 3
Advertising 14 19 20
Other 46 52 63
------------------------------------
126 143 166
------------------------------------
$209 $233 $242
====================================
9. TAXES ON INCOME
Taxes on income are composed of the following:
- --------------------------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------------------------
Current:
Federal $ 76 $ 73 $126
Foreign 6 5 6
State and local 12 14 9
------------------------------------
94 92 141
------------------------------------
Deferred:
Federal 7 16 (21)
State and local 3 3 (4)
------------------------------------
10 19 (25)
------------------------------------
$104 $111 $116
====================================
32
<PAGE>
United States and foreign components of income before income taxes are as
follows:
- --------------------------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------------------------
United States $237 $261 $283
Foreign 36 35 35
------------------------------------
$273 $296 $318
====================================
The following is a reconciliation of the effective tax rates with the United
States' statutory rate:
Percent of Income Before Taxes
- --------------------------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State taxes, net of U.S.
Federal tax benefit 4.0 3.7 2.2
Income taxed at other than U.S.
Federal statutory rate (1.5) (1.7) (1.7)
Tax benefit of Foreign
Sales Corporation (0.9) (0.8) (1.1)
Nondeductible amortization 1.1 1.0 1.0
Other, net 0.3 0.4 1.1
-------------------------------------
38.0% 37.6% 36.5%
=====================================
Deferred tax assets and liabilities are composed of the following:
April 30, 1997 1998 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Postretirement and other benefits $ 38 $ 40 $ 42
Accrued liabilities and other 20 16 15
-----------------------------------
Total deferred tax assets 58 56 57
-----------------------------------
Deferred tax liabilities:
Intercompany transactions 152 168 134
Property, plant and equipment 24 23 38
Undistributed foreign earnings 17 17 17
Pension plans 20 23 26
Other 3 2 10
-----------------------------------
Total deferred tax liabilities 216 233 225
-----------------------------------
Net deferred tax liability $158 $177 $168
===================================
Deferred income taxes were not provided on undistributed earnings ($98, $112,
and $133 at April 30, 1997, 1998, and 1999, 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 $21, $24, and $28 would
have been provided in 1997, 1998, and 1999, respectively.
Cash paid for income taxes was $91 in 1997, $90 in 1998, and $150 in 1999.
10. PENSION AND POSTRETIREMENT BENEFITS
The company sponsors various defined benefit pension and postretirement plans
covering most full-time employees. Information about these plans is presented
below.
Components of net periodic pension benefit income:
Pension
- --------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------
Service cost $ 9 $ 9 $10
Interest cost 16 18 19
Expected return on plan assets (26) (29) (33)
Amortization of:
Unrecognized prior service cost 1 1 1
Unrecognized net asset (3) (3) (3)
-----------------------
Net periodic benefit income $(3) $(4) $(6)
=======================
Prior service costs are amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits.
Components of net periodic postretirement benefit cost
Postretirement
- --------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------
Service cost $ 1 $ 1 $ 1
Interest cost 3 3 3
-----------------------
Net periodic benefit cost $ 4 $ 4 $ 4
=======================
33
<PAGE>
Change in benefit obligation:
Pension Postretirement
- ------------------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------
Obligation at beginning of year $250 $284 $ 40 $ 42
Service cost 10 10 1 1
Interest cost 18 19 3 3
Plan amendments -- 5 (1) --
Actuarial loss 19 23 1 2
Benefits paid (13) (14) (2) (2)
----------------------------------
Obligation at end of year $284 $327 $ 42 $ 46
==================================
Change in plan assets:
Pension Postretirement
- ------------------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------
Fair value at beginning of year $346 $407 $ -- $ --
Actual return on plan assets 72 84 -- --
Company contributions 2 1 2 2
Benefits paid (13) (14) (2) (2)
----------------------------------
Fair value at end of year $407 $478 $ -- $ --
==================================
Plan assets consist primarily of stocks and bonds.
Selected information for plans with accumulated benefit obligations in excess
of plan assets:
Pension Postretirement
- ------------------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------
Projected benefit obligation $(26) $(28) $(42) $(46)
Accumulated benefit obligation (22) (24) (42) (46)
Fair value of plan assets 2 2 -- --
Funded status:
Pension Postretirement
- ------------------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------
Funded status $123 $151 $(42) $(46)
Unrecognized net gain (72) (99) (12) (10)
Unrecognized prior service cost 8 11 (1) (1)
Unrecognized transition asset (15) (12) -- --
----------------------------------
Net amount recognized $ 44 $ 51 $(55) $(57)
==================================
Net amounts recognized in the consolidated balance sheet:
Pension Postretirement
- ------------------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------
Prepaid benefit cost $ 60 $ 68 $ -- $ --
Accrued benefit liability (22) (22) (55) (57)
Intangible asset 6 5 -- --
----------------------------------
Net amount recognized $ 44 $ 51 $(55) $(57)
==================================
Weighted-average assumptions:
Pension
- --------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------
Discount rate 7.5% 7.0% 6.5%
Expected return on plan assets 10.0% 10.0% 10.0%
Rate of compensation increase 4.5% 4.0% 4.0%
Postretirement
- --------------------------------------------------------------
1997 1998 1999
- --------------------------------------------------------------
Discount rate 7.5% 7.0% 6.5%
Health care cost trend rates:
Present rate before age 65 7.3% 7.0% 6.6%
Present rate age 65 and after 6.6% 6.3% 6.1%
The health care cost trend rates are projected to decline gradually to 5.0% by
2004 and to remain at that level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for postretirement
medical plans. A one percentage point increase (or decrease) in assumed health
care cost trend rates would have increased (or decreased) the accumulated
postretirement benefit obligation as of April 30, 1999 by $6 and the aggregate
service and interest costs for 1999 by $1.
34
<PAGE>
11. BUSINESS SEGMENT INFORMATION
The company is organized into two operating segments, as defined by
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" -- wine and spirits, and consumer durables. These two segments
reflect the two categories of products from which the company derives its
revenues. 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.
The accounting policies of the segments are the same as the policies described
in Note 1. There are no intersegment revenues.
The following tables reconcile segment operating results and asset information
to consolidated amounts.
1997 1998 1999
- --------------------------------------------------------------------------------
Net sales:
Wine and spirits $1,347 $1,385 $1,468
Consumer durables 494 539 562
-----------------------------------------------
Consolidated $1,841 $1,924 $2,030
===============================================
Earnings before interest, taxes, depreciation,
and amortization (EBITDA):
Wine and spirits $ 286 $ 302 $ 314
Consumer durables 51 56 63
-----------------------------------------------
Consolidated $ 337 $ 358 $ 377
===============================================
Operating income:
Wine and spirits $ 257 $ 271 $ 284
Consumer durables 30 35 38
Amounts not allocated to segments:
Interest expense, net (14) (10) (4)
-----------------------------------------------
Consolidated income
before income taxes $ (273) $ 296 $ 318
===============================================
Depreciation and amortization:
Wine and spirits $ 29 $ 30 $ 30
Consumer durables 21 21 25
-----------------------------------------------
Consolidated $ 50 $ 51 $ 55
===============================================
Total assets:
Wine and spirits $ 960 $1,013 $1,275
Consumer durables 468 481 460
-----------------------------------------------
Consolidated $1,428 $1,494 $1,735
===============================================
Additions to long-lived assets:
Wine and spirits $ 41 $ 31 $ 99
Consumer durables 14 13 19
-----------------------------------------------
Consolidated $ 55 $ 44 $ 118
===============================================
The following table presents geographic information about net sales:
1997 1998 1999
- --------------------------------------------------------------------------------
Net sales:
United States $1,511 $1,577 $1,649
Other countries 330 347 381
-----------------------------------------------
$1,841 $1,924 $2,030
===============================================
Net sales are attributed to countries based on location of customer.
Long-lived assets located outside the United States are not significant.
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, 1999, 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, $0.9 in 1998, and $1.5 in 1999.
The company's basic and diluted earnings per share would have been reduced by
$0.01 per share in 1997 and 1998 and $0.02 per share in 1999.
The fair values of the options granted during 1997, 1998, and 1999 were $8.74,
$12.24, and $13.74 per option, respectively. The fair values were estimated
using the Black-Scholes pricing model with the following assumptions:
1997 1998 1999
- --------------------------------------------------------------
Risk-free interest rate 6.7% 6.2% 5.5%
Expected volatility 19.1% 18.1% 17.4%
Expected dividend yield 2.9% 2.2% 2.2%
Expected life (years) 6 6 6
The following table summarizes option activity for the three years ended
April 30, 1999. 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 157,741 $ 36.13
Forfeited (4,589) 36.13
------------------------------------------
Balance, April 30, 1997 153,152 36.13
Granted 250,277 49.13
Forfeited (15,677) 42.09
------------------------------------------
Balance, April 30, 1998 387,752 44.27
Granted 245,880 61.25
Forfeited (18,043) 45.18
------------------------------------------
Balance, April 30, 1999 615,589 51.03
==========================================
The following table summarizes the status of stock options outstanding as of
April 30, 1999, by exercise price:
Remaining
Exercise Options Contractual
Price Outstanding Life (Years)
- -------- ----------- ------------
$ 36.13 138,484 7
49.13 231,985 8
61.25 245,120 9
-----------
615,589
===========
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
PricewaterhouseCoopers LLP, independent accountants. We have made available to
PricewaterhouseCoopers LLP 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
PricewaterhouseCoopers LLP 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,
PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP'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, 1999, 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
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Brown-Forman
Corporation and Subsidiaries ("the Company") at April 30, 1997, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended April 30, 1999, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
May 26, 1999
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 Beverages North Asia, L.L.C. 100% Delaware
Brown-Forman International FSC, Ltd. 100% U.S. Virgin Islands
B-F Korea, L.L.C. 100% Delaware
Brown-Forman Beverages Poland 100% Poland
Brown-Forman Relocation Corp. 100% Kentucky
Brown-Forman Travel, Inc. 100% Kentucky
Canadian Mist Distillers, Limited 100% Ontario, Canada
Early Times Distillers Company 100% Delaware
Fetzer Vineyards 100% California
Fratelli Bolla International Wines, Inc. 93% Kentucky
Hartmann Incorporated 100% Delaware
Heddon's Gate Investments, L.L.C. 100% Delaware
Jack Daniel's Properties, Inc. 100% Delaware
Lenox, Incorporated 100% New Jersey
Mt. Eagle Corporation 100% Delaware
Sonoma-Cutrer Vineyards, Inc. 80% California
Southern Comfort Properties, Inc. 100% California
The Joseph Garneau Co., S.A. 100% (1) Switzerland
Longnorth Limited 100% (1) (3) Ireland
Chissick Limited 100% (1) (4) Ireland
Clintock Limited 100% (1) (4) Ireland
Brooks & Bentley Limited 100% (2) United Kingdom
Brooks & Bentley A.F. 100% (2) Norway
Dansk International Designs Ltd. 100% (2) New York
Norfolk Investments, Inc. 100% (2) Delaware
Voldgade Investment Holdings A/S 100% (3) Denmark
Brown-Forman Mauritius Limited 100% (4) Mauritius
Brown Forman -- W.S. Karoulias, S.A. 75% (4) Greece
Pitts Bay Trading Limited 75% (4) Bermuda
Drake Investments, Inc. 100% (5) Delaware
Jack Daniel Distillery,
Lem Motlow, Prop., Inc. 100% (5) Tennessee
Brown-Forman Korea Ltd. 100% (6) Korea
Brown-Forman Beverages Worldwide,
Comercio de Bebidas Ltda. 100% (7) Brazil
Brown-Forman Worldwide, L.L.C. 100% (7) Delaware
Fratelli Bolla, S.p.A. 100% (8) Italy
JDPI Investments, L.L.C. 100% (9) Delaware
Amercain Investments C.V. 100% (10) Netherlands
Brown-Forman Beverages Africa, Ltd. 100% (11) Bermuda
The companies listed above constitute all active subsidiaries in which
Brown-Forman Corporation owns, either directly or indirectly, the majority of
the voting securities. No other active affiliated companies are controlled by
Brown-Forman Corporation.
(1) Includes qualifying shares assigned to Brown-Forman Corporation.
(2) Owned by Lenox, Incorporated.
(3) Owned by Amercain Investments C.V.
(4) Owned by Longnorth Limited.
(5) Owned by Jack Daniel's Properties, Inc.
(6) Owned by B-F Korea, L.L.C.
(7) Owned 99% by Brown-Forman Corporation and 1% by Early Times Distillers
Company.
(8) Owned 57% by Fratelli Bolla International Wines, Inc. and 43% by
The Joseph Garneau Co., S.A.
(9) Owned 99% by Jack Daniel's Properties, Inc. and 1% by Fetzer Vineyards.
(10) Owned 95% by Brown-Forman Corporation and 5% by Heddon's Gate
Investments, L.L.C.
(11) Owned 99% by Clintock Limited and 1% by Longnorth Limited.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 33-12413 and 33-52551) and Form S-8 (Nos.
333-08311, 333-38649, 333-74567 and 333-77903) of Brown-Forman Corporation of
our report dated May 26, 1999 relating to the financial statements and
financial statement schedule, which appears in Brown-Forman Corporation's
Annual Report on Form 10-K for the year ended April 30, 1999.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
July 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's April 30, 1999 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-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 171
<SECURITIES> 0
<RECEIVABLES> 274
<ALLOWANCES> 11
<INVENTORY> 525
<CURRENT-ASSETS> 999
<PP&E> 742
<DEPRECIATION> 394
<TOTAL-ASSETS> 1,735
<CURRENT-LIABILITIES> 517
<BONDS> 53
0
0
<COMMON> 10
<OTHER-SE> 907
<TOTAL-LIABILITY-AND-EQUITY> 1,735
<SALES> 2,030
<TOTAL-REVENUES> 2,030
<CGS> 985<F1>
<TOTAL-COSTS> 985<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 318
<INCOME-TAX> 116
<INCOME-CONTINUING> 202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202
<EPS-BASIC> 2.93<F2>
<EPS-DILUTED> 2.93<F3>
<FN>
<F1>Includes excise taxes of $254 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>
