-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GuMSFbnxeSTRC6pqtisDc4OLqTShhGJTikmEI15yXUFQva/8rp6R6PhpOWPrPlJW ml30z5bXRKyXjtHa0obHkA== 0000950131-97-004522.txt : 19970723 0000950131-97-004522.hdr.sgml : 19970723 ACCESSION NUMBER: 0000950131-97-004522 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970722 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROWN FORMAN CORP CENTRAL INDEX KEY: 0000014693 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 610143150 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00123 FILM NUMBER: 97643369 BUSINESS ADDRESS: STREET 1: 850 DIXIE HWY CITY: LOUISVILLE STATE: KY ZIP: 40210 BUSINESS PHONE: 5025851100 MAIL ADDRESS: STREET 1: P O BOX 1080 CITY: LOUISVILLE STATE: KY ZIP: 40201 FORMER COMPANY: FORMER CONFORMED NAME: BROWN FORMAN INC DATE OF NAME CHANGE: 19870816 FORMER COMPANY: FORMER CONFORMED NAME: BROWN FORMAN DISTILLERS CORP DATE OF NAME CHANGE: 19840807 FORMER COMPANY: FORMER CONFORMED NAME: BROWN FORMAN DISTILLERY CO DATE OF NAME CHANGE: 19670730 10-K 1 FORM 10-K United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1997 Commission file number 1-123 BROWN-FORMAN CORPORATION (Exact name of registrant as specified in its charter) Delaware 61-0143150 (State of other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 850 Dixie Highway Louisville, Kentucky 40210 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (502) 585-1100 Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------ Preferred $.40 Cumulative Stock, $10.00 par value, New York Stock Exchange redeemable at company's option at $10.25 per share plus unpaid accrued dividends; liquidating value $10.00 per share plus unpaid accrued dividends Class A Common Stock (voting) $.15 par value New York Stock Exchange Class B Common Stock (nonvoting) $.15 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past (90) days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value, at April 30, 1997, of the voting stock held by nonaffiliates of the registrant was $403,708,767. The number of shares outstanding for each of the registrant's classes of Common Stock on May 28, 1997 was: Class A Common Stock (voting) 28,988,091 Class B Common Stock (nonvoting) 40,008,147 DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Registrant's 1997 Annual Report to Stockholders are incorporated by reference into Parts I, II, and IV of this report. Portions of the Proxy Statement of Registrant for use in connection with the Annual Meeting of Stockholders to be held July 24, 1997 are incorporated by reference into Part III of this report. PART I Item 1. Business - ------ -------- (a) General development of business: Brown-Forman Corporation ("we," "us," or "our" below) was incorporated under the laws of the State of Delaware in 1933, successor to a business founded in 1870 as a partnership and subsequently incorporated under the laws of the Commonwealth of Kentucky in 1901. Our principal executive offices are located at 850 Dixie Highway, Louisville, Kentucky 40210 (mailing address: P.O. Box 1080, Louisville, Kentucky 40201-1080). (b) Financial information about industry segments: Information regarding net sales, operating income, and total assets of each of our business segments is in Note 11 of Notes to Consolidated Financial Statements on page 35 of our 1997 Annual Report to Stockholders, which information is incorporated into this report by reference in response to Item 8. (c) Narrative description of business: The following is a description of our operations. Wines and Spirits Segment - ------------------------- Wines and Spirits operations include manufacturing, bottling, importing, exporting, and marketing a wide variety of alcoholic beverage brands. This Segment also manufactures and markets new and used oak barrels, plastic closures, and plastic bottles. The Segment's brands consist of the following: Tennessee Whiskeys Jack Daniel's Jack Daniel's Single Barrel Jack Daniel's Master Distiller Gentleman Jack Kentucky Straight Bourbon Whiskeys Old Forester Forester 1870 Early Times Woodford Reserve Kentucky Whiskey Early Times -2- Canadian Mist Southern Comfort Pepe Lopez Tequilas Korbel California Brandy* Jack Daniel's Country Cocktails Finlandia Vodkas** Bushmills Irish Whiskeys** Black Bush Special Irish Whiskey** Glenmorangie Single Highland Malts** Usher's Scotch Whisky** Jack Daniel's & Cola Southern Comfort & Cola Tropical Freezes Oblio Sambucas** Jack Daniel's Oak-aged Beers California Wines Fetzer Veneyards Korbel Champagnes* Jekel Vineyards Bel Arbor Armstrong Ridge* Italian Wines Bolla Fontana Candida** Brolio** Fontanafredda** Carmen Vineyards Chilean Wines** Michel Picard French Wines** Noilly Prat Vermouths** * Brands marketed by Brown-Forman worldwide by agency agreement. ** Brands marketed by Brown-Forman in the U.S. and other select markets by agency agreements. Statistics based on case sales, published annually by a leading trade publication, rank Jack Daniel's as the largest selling Tennessee whiskey in the United States, Canadian Mist as the largest selling Canadian whiskey in the United States, and Southern Comfort as the largest selling domestic proprietary liqueur in the United States. A leading industry trade publication reported Korbel California Champagnes as the largest selling premium champagne in the United States. This trade publication also reported that, among numerous imported wines, Bolla Italian Wine is the leading premium Italian table wine in the United States. Fetzer was ranked thirteenth among all domestic table wines. We believe the statistics used to rank these products are reasonably accurate.
-3- Our strategy with respect to the Wines and Spirits Segment is to market high quality products that satisfy consumer preferences and to support them with extensive international, national, and regional marketing programs. These programs are intended to extend consumer brand recognition and brand loyalty. Sales managers and representatives or brokers represent the Segment in all states. The Segment distributes its spirits products domestically either through state agencies or through wholesale distributors. The contracts which we have with many of our distributors have formulas which determine reimbursement to distributors if we terminate them; the amount of reimbursement is based primarily on the distributor's length of service and a percentage of its purchases over time. Some states have statutes which limit our ability to terminate distributor contracts. Jack Daniel's Tennessee Whiskey and Southern Comfort are the principal products exported by the Segment. These brands are sold through contracts with brokers and distributors in most countries. The principal raw materials used in manufacturing and packaging distilled spirits are corn, rye, malted barley, glass, cartons, and wood for new white oak barrels, which are used for storage of bourbon and Tennessee whiskey. None of these raw materials are in short supply, and there are adequate sources from which they may be obtained. The principal raw materials used in the production of wines are grapes and packaging materials. Grapes are primarily purchased from independent growers and, from time to time, are adversely affected by weather and other forces which may limit production. We believe that our relationships with our growers are good. Due to aging requirements, production of whiskeys is scheduled to meet demand three to five years in the future. Accordingly, inventories are larger in relation to sales and total assets than would be normal for most other businesses. The industry is highly competitive and there are many brands sold in the consumer market. Trade information indicates that we are one of the largest wine and spirit suppliers in the United States in terms of revenues. The wines and spirits industry is regulated by the Bureau of Alcohol, Tobacco, and Firearms of the United States Treasury Department with respect to production, blending, bottling, sales, advertising, and transportation of its products. Also, each state regulates advertising, promotion, transportation, sale, and distribution of such products. Under federal regulations, whiskey must be aged for a least two years to be designated "straight whiskey." The Segment ages its straight whiskeys for a minimum of three to five years. Federal regulations also require that "Canadian" whiskey must be manufactured in Canada in compliance with Canadian laws and must be aged in Canada for at least three years. -4- Consumer Durables Segment - ------------------------- The Consumer Durables Segment includes the manufacturing and/or marketing of the following: Fine China Dinnerware Casual Dinnerware and Glassware Crystal Stemware Crystal Barware China and Crystal Giftware China Lamps Collectibles and Jewelry Sterling Silver, Pewter and Silver-Plate Giftware Sterling Silver and Stainless Steel Flatware Contemporary Tabletop, Houseware and Giftware Fine Table Linens Luggage Business Cases and Folios Personal Leather Accessories All of the products of the Segment are sold by segment-employed sales representatives under various compensation arrangements, and where appropriate to the class of trade, by specialized independent commissioned sales representatives and independent distributors. The Segment's products are marketed domestically through authorized retail stores consisting of department stores and specialty and jewelry shops and through retail stores operated by the Segment. Products are also distributed domestically through the institutional, incentive, premium, business gift and military exchange classes of trade, and internationally through authorized retailers and/or distributors in selected foreign markets. Specially created collectible products are distributed both domestically and in selected foreign markets through the direct response/mail-order channel, as well as through authorized collectible retailers. Fine china and casual dinnerware, as well as fine china giftware, are marketed under the Lenox trademark. Crystal stemware, barware and giftware are marketed under both the Lenox and Gorham trademarks. Contemporary tabletop, houseware and giftware products are marketed under the Dansk trademark. Sterling silver and stainless flatware and sterling giftware are marketed under the Gorham and "Lenox. Kirk Stieff Collection" trademarks. Pewter and silver-plated giftware products are also marketed under the "Lenox. Kirk Stieff Collection" trademark. Luggage, business cases, and personal leather accessories are marketed under the Hartmann, Wings, Veronica Hart, and Crouch & Fitzgerald trademarks. The direct response/mail-order sales in the United States of specially designed collectibles are marketed under the Lenox, Princeton Gallery and Gorham trademarks, while such sales abroad are marketed primarily under the Brooks & Bentley trademark. The Lenox, Gorham, and Hartmann brand names hold significant positions in their industries. The Segment has granted licenses for the use of the Lenox trademark on selected fine table linens and premium collector plates, subject to the terms of licensing agreements. The Segment believes that it is the largest domestic manufacturer and marketer of fine china dinnerware and fine crystal stemware, and the only significant domestic manufacturer of fine quality china giftware. The Segment is also a leading manufacturer and distributor of fine quality luggage, business cases, and personal leather accessories. The Segment competes with a number of other companies and is subject to intense foreign -5- competition in the marketing of fine china, contemporary and casual dinnerware, crystal stemware and giftware, stainless flatware and luggage products. In the Segment's china and stainless businesses, competition is based primarily on quality, design, brand, style, product appeal, consumer satisfaction, and price. In its luggage, business case and personal leather accessories business, competition is based primarily on brand awareness, quality, design, style, and price. In its direct response/mail-order business, the most important competitive factors are the brand, product appeal, design, sales/marketing program, service, and price of the products. In its crystal, sterling silver, silver-plated, and pewter businesses, competition is based primarily on price, with quality, design, brand, style, product appeal, and consumer satisfaction also being factors. Clay and feldspar are the principal raw materials used to manufacture china products and silica is the principal raw material used to manufacture crystal products. Gold and platinum are significant raw materials used to decorate china and crystal products. Leather and nylon fabric are the principal raw materials used to manufacture luggage and business cases. Fine silver is the principal raw material used to manufacture sterling silver giftware and flatware products; tin is the principal raw material used to manufacture pewter products; and stainless steel is the principal raw material used to manufacture stainless steel flatware. It is anticipated that raw materials used by the Segment will be in adequate supply. However, the acquisition price of gold, platinum, fine silver, and tin is influenced significantly by worldwide economic events and commodity trading. Sales of certain Segment products are traditionally greater in the second quarter of the fiscal year, primarily because of seasonal holiday buying. Other Information - ----------------- As of April 30, 1997, we employ approximately 7,500 persons, including 1,050 employed on a part-time basis. We are an equal opportunity employer and we recruit and place employees without regard to race, color, national origin, sex, age, religion, disability, or veteran status. We believe our employee relations are good. For information on the effects of compliance with federal, state and local environmental regulations, refer to Note 14, "Environmental," on page 35 of our 1997 Annual Report to Stockholders, which information is incorporated into this report by reference in response to Item 8. Item 2. Properties - ------- ---------- The corporate offices consist of office buildings, including renovated historic structures, all located in Louisville, Kentucky. -6- Significant properties by business segments are as follows: Wines and Spirits Segment - ------------------------- The facilities of the Wines and Spirits Segment are shown below. The owned facilities are held in fee simple. Owned facilities: . Production facilities: - Distilled Spirits and Wines: - Lynchburg, Tennessee - Louisville, Kentucky - Collingwood, Ontario - Shively, Kentucky - Woodford County, Kentucky - Frederiksted, St. Croix, U.S. Virgin Islands - Mendocino County, California - Monterey County, California - Pedemonte, Italy - Soave, Italy - Oak Barrels: - Louisville, Kentucky - Mendocino County, California - Plastic Closures and Plastic Bottles: - Louisville, Kentucky . Bottling facilities: - Lynchburg, Tennessee - Louisville, Kentucky - Woodford County, Kentucky - Frederiksted, St. Croix, U.S. Virgin Islands - Mendocino County, California - Monterey County, California - Pedemonte, Italy . Warehousing facilities: - Lynchburg, Tennessee - Louisville, Kentucky - Collingwood, Ontario - Shively, Kentucky - Woodford County, Kentucky - Mendocino County, California - Monterey County, California - Pedemonte, Italy - Soave, Italy -7- Leased facilities: . Production and bottling facility in Dublin, Ireland . Wine production and warehousing facility in Mendocino County, California . Vineyards in Monterey County, California We believe that the productive capacities of the wines and Spirits Segment are adequate for the business, and that the facilities are maintained in a good state of repair. Consumer Durables Segment - ------------------------- The facilities of the Consumer Durables Segment are shown below. The owned facilities are held in fee simple. Owned facilities: . Office facilities: - Lenox corporate - Lawrenceville, New Jersey - Headquarters for Lenox Direct Response/Collectibles Division - Langhorne, Pennsylvania . Production and office facilities: - Lenox - Pomona, New Jersey (includes retail store); Oxford, North Carolina; Kinston, North Carolina; and Mt. Pleasant, Pennsylvania (includes retail store) - Gorham - Smithfield, Rhode Island (includes retail store) - Hartmann - Lebanon, Tennessee (includes retail store) . Warehousing facilities: - Lenox/Dansk/Gorham - Williamsport, Maryland Leased facilities: . Office facilities: - Dansk headquarters - White Plains, New York . Production/Warehousing/Office facilities: - Kirk Stieff - Baltimore, Maryland (includes retail store) . Warehousing facilities: - Lenox - South Brunswick, New Jersey (includes retail store); Oxford, North Carolina; Kinston, North Carolina; and Mt. Pleasant, Pennsylvania - Hartmann - Lebanon, Tennessee . Retail stores: - The Segment operates 36 Lenox outlet stores in 26 states and a Lenox Gift Express store in Pennsylvaina. The Segment also operates 63 Dansk stores in 31 states. In addition, the Segment operates 2 Crouch & Fitzgerald luggage stores in 2 states and 1 Hartmann luggage outlet store in Florida. The lease terms expire at various dates and are generally renewable, except for the Crouch & Fitzgerald store leases. We believe that the Segment's facilities are in good condition and are adequate for the business. -8- Item 3. Legal Proceedings Expansion Plus, Inc. v. Brown-Forman Corporation, et al., (United States District Court for the Southern District of Texas, Houston Division, Civil Action No. H-94-3498.) As we reported earlier, we bought a start-up credit card processing business in 1988 from Expansion Plus, Inc. ("EPI"). We built up this business substantially, and sold it in 1993 for $31.2 million. Months after the sale, EPI claimed that we had never acquired full title to the business, that we had to return all or part of it to EPI, and that our sale of the business to a third party represented a conversion of EPI's assets. In October, 1994, EPI filed a tort action against the buyer and us alleging conversion of property, tortious interference with contractual relationships, misappropriation of trade secrets, and breach of a confidential relationship. EPI sought damages of $31.2 million plus punitive damages in an amount ten times actual damages. On January 30, 1997, the trial judge entered summary judgment in our favor, dismissing all of EPI's claims. EPI has appealed to the Federal Appeals Court for the Fifth Circuit. Our counsel have advised us, and it is our opinion, that the disposition of this suit will not have a material adverse effect on our consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant
Principal Occupation and Name Age Business Experience Family Relationship - --------------------- --- ------------------------- ------------------------------- Owsley Brown II 54 Chairman of the Company since Cousin to Owsley Brown Frazier July, 1995. Chief Executive Officer of the company since July 1993. President of the company from July 1987 to July 1993. Owsley Brown Frazier 61 Vice Chairman of the company Cousin to Owsley Brown II since August 1983. William M. Street 58 Vice Chairman of the company None since July 1987.
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Steven B. Ratoff 54 Executive Vice President and Chief None Financial Officer of the company since December 1994. Private investor in a number of small privately-held companies from February 1992 to November 1994. Senior Vice President and Chief Financial Officer for Pharmaceutical Group of Bristol-Myers Squibb from January 1990 to January 1992. John P. Bridendall 47 Senior Vice President and Director of None Corporate Development since July 1987. Russell C. Buzby 63 Senior Vice President and Executive None Director of Human Resources and Information Services since July 1987. Michael B. Crutcher 53 Senior Vice President, General Counsel, None and Secretary since May 1989. Richard E. Stearns 46 President and Chief Executive Officer of None Lenox, Incorporated (a subsidiary of the company) since September 1995. President of Lenox, Incorporated from April 1992 to September 1995. Lois A. Mateus 50 Senior Vice President of Corporate None Communications and Corporate Services since January 1988.
PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Except as presented below, for the information required by this item refer to the section entitled "Quarterly Financial Information" appearing on the "Highlights" page of the 1997 Annual Report to Stockholders, which information is incorporated into this report by reference. Holders of record of Common Stock at April 30, 1997: Class A Common Stock (Voting) 3,156 Class B Common Stock (Nonvoting) 5,054 The principal market for Brown-Forman common shares is the New York Stock Exchange. -10- Item 6. Selected Financial Data For the information required by this item, refer to the section entitled "Selected Financial Data" appearing on page 17 of the 1997 Annual Report to Stockholders, which information is incorporated into this report by reference in response to Item 8. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For the information required by this item, refer to the section entitled "Management's Discussion and Analysis" appearing on pages 18 through 23 of the 1997 Annual Report to Stockholders, which information is incorporated into this report by reference in response to Item 8. Risk Factors Affecting Forward-Looking Statements: From time to time, we may make forward-looking statements related to our anticipated financial performance, business prospects, new products, and similar matters. We make several such statements in the discussion and analysis referred to above, but we do not guarantee that the results indicated will actually be achieved. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we note that the following non-exclusive list of important risk factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in those forward-looking statements: Generally: We operate in highly competitive markets. Our business is subject to changes in general economic conditions, changes in consumer preferences, the degree of acceptance of new products, and the uncertainties of litigation. As our business continues to expand outside the U.S., our financial results are more exposed to foreign exchange rate fluctuations and the health of foreign economies. Beverage Risk Factors: The U.S. beverage alcohol business is highly sensitive to tax increases; an increase in federal or state excise taxes (which we do not anticipate at this time) would depress our domestic beverage business. Our current outlook for our domestic beverage business anticipates continued success of Jack Daniel's Tennessee whiskey, Southern Comfort, and our other core spirits brands. Current expectations from our foreign beverage business could prove to be optimistic if the U.S. dollar strengthens against other currencies or if economic conditions deteriorate in the principal countries where we export our beverage products, including Germany, the United Kingdom, Japan, and Australia. Current expectations for our global beverage business may not be met if consumption trends do not continue to increase. Profits could also be affected if grain or grape prices increase. Consumer Durables Risk Factors: Earnings projections for our consumer durables business anticipate a continued strengthening of our Lenox business. These projections could be offset by factors such as poor consumer response rates at Lenox Collections, weakened demand for fine china, a soft retail environment at outlet malls, or further department store consolidation. -11- Item 8. Financial Statements and Supplementary Date For the information required by this item, refer to the Report of Management, Consolidated Financial Statements, and Notes to Consolidated Financial Statements appearing on pages 24 through 35 of the 1997 Annual Report to Stockholders, which information is incorporated into this report by reference, and the Report of Independent Accountants included on page S-1 of this report. For selected quarterly financial information, refer to the section entitled "Quarterly Financial Information" appearing on the "Highlights" page of the 1997 Annual Report to Stockholders, which information is incorporated into this report by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July 24, 1997, which information is incorporated into this report by reference: (a) "Election of Directors" on page 4 through the third paragraph on page 5 (for information on directors); and (b) the last paragraph on page 7 (for information on delinquent Section 16 filings). Also, see the information with respect to "Executive Officers of the Registrant" under Part I of this report, which information is incorporated herein by reference. Item 11. Executive Compensation For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July 24, 1997, which information is incorporated into this report by reference: (a) "Executive Compensation" on pages 8 through 13; (b) "Retirement Plan Descriptions" on pages 14 and 15; and (c) "Director Compensation" on page 15. Item 12. Security Ownership of Certain Beneficial Owners and Management For the information required by this item, refer to the section entitled "Stock Ownership" appearing on pages 6 through 7 of our definitive proxy statement for the Annual Meeting of Stockholders to be held July 24, 1997, which information is incorporated into this report by reference. Item 13. Certain Relationships and Related Transactions For the information required by this item, refer to the section entitled "Transactions with Management" appearing on page 17 of our definitive proxy statement for the Annual Meeting of Stockholders to be held July 24, 1997, which information is incorporated into this report by reference. -12- 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: Reference -------------------------------------- Annual Form 10-K Report to Annual Report Stockholders Page Pages(s) ------------- ------------- Incorporated by reference to our Annual Report to Stockholders for the year ended April 30, 1997: Report of Management* -- 24 Consolidated Statement of Income for the years ended April 30, 1997, 1996, and 1995* -- 25 Consolidated Balance Sheet at April 30, 1997, 1996, and 1995* -- 26 - 27 Consolidated Statement of Cash Flows for the years ended April 30, 1997, 1996, and 1995* -- 28 Consolidated Statement of Stockholders' Equity for the years ended April 30, 1997, 1996, and 1995* -- 29 Notes to Consolidated Financial Statements* -- 30 - 35 Report of Independent Accountants S-1 -- Consolidated Financial Statement Schedule: II - Valuation and Qualifying Accounts S-2 --
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted either because they are not required under the related instructions, because the information required is included in the consolidated financial statements and notes thereto, or because they are inapplicable. * Incorporated by reference to Item 8 in this report. (a) 3 - Exhibits: Filed with this report: Exhibit Index - ------------- 13 Brown-Forman Corporation's Annual Report to Stockholders for the year ended April 30, 1997, but only to the extent set forth in Items 1, 5, 6, 7, and 8 of this Annual Report on Form 10-K for the year ended April 30, 1997. 21 Subsidiaries of the Registrant. 23 Consent of Coopers & Lybrand L.L.P. independent accountants. -13- 27 Financial Data Schedule (not considered to be filed). Previously Filed: Exhibit Index - ------------- 3(a) Restated Certificate of Incorporation of registrant which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 19, 1994. 3(b) Certificate of Amendment to Restated Certificate of Incorporation of registrant which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 19, 1994. 3(c) Certificate of Ownership and Merger of Brown-Forman Corporation into Brown-Forman, Inc. which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 19, 1994. 3(d) Certificate of Amendment to Restated and Amended Certificate of Incorporation of Brown-Forman Corporation which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 19, 1994. 3(e) The by-laws of registrant, as amended on May 25, 1988, which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 26, 1993. 4(a) Credit Agreement dated as of November 30, 1994, among Brown-Forman Corporation and a group of United States and international banks, which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 17, 1995. 4(b) Amendment No. 1 dated as of February 23, 1996, to the Credit Agreement referenced in 4(a) above, which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 3, 1996. 4(c) The Form of Indenture dated as of March 1, 1994 between Brown-Forman Corporation and The First National Bank of Chicago, as Trustee, which is incorporated into this report by reference to Brown-Forman Corporation's Form S-3 (Registration No. 33-52551) filed on March 8, 1994. 10(a) Description of compensation arrangement with W. L. Lyons Brown, Jr., which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 17, 1995. 10(b) A description of the Brown-Forman Omnibus Compensation Plan, which is incorporated into this report by reference to the Appendix of the registrant's definitive proxy statement for the Annual Meeting of Stockholders held on July 27, 1995. 10(c) Brown-Forman Corporation Restricted Stock Plan which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed July 19, 1994. 10(d) Brown-Forman Corporation Supplemental Excess Retirement Plan, which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 23, 1990. -14- 10(e) Brown-Forman Corporation Stock Appreciation Rights Plan, which is incorporated into this report by reference to Brown-Forman Corporation's 10-K filed on July 23, 1990. 10(f) A description of the Brown-Forman Savings Plan is incorporated into this report by reference to page 10 of the registrant's definitive proxy statement for the Annual Meeting of Stockholders held on July 25, 1996. 10(g) A description of the Brown-Forman Flexible Reimbursement Plan is incorporated into this report by reference to page 10 of the registrant's definitive proxy statement for the Annual Meeting of Stockholders held on July 25, 1996. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. -15- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BROWN-FORMAN CORPORATION ------------------------ (Registrant) /s/ OWSLEY BROWN II ------------------------ Date: May 28, 1997 By: Owsley Brown II Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on May 28, 1997 as indicated: /s/ BARRY D. BRAMLEY /s/ DONALD G. CALDER /s/ OWSLEY BROWN FRAZIER - ------------------------- ---------------------- ------------------------ By: Barry D. Bramley By: Donald G. Calder By: Owsley Brown Frazier Director Director Director, Vice Chairman of the Board /s/ RICHARD P. MAYER /s/ STEPHEN E. O'NEIL /s/ WILLIAM M. STREET - ------------------------- ---------------------- ------------------------ By: Richard P. Mayer By: Stephen E. O'Neil By: William M. Street Director Director Director, Vice Chairman of the Board /s/ JAMES S. WELCH /s/ OWSLEY BROWN II /s/ THOMAS P. BURNET - ------------------------- ---------------------- ------------------------ By: James S. Welch By: Owsley Brown II By: Thomas P. Burnet Director Director, Chairman (Principal Accounting of the Board and Officer) Brown-Forman Chief Executive Corporation Officer Senior Vice President and Chief Financial /s/ GEO. GARVIN BROWN III /s/ STEVEN B. RATOFF Officer Brown-Forman - ------------------------- ---------------------- Beverages Worldwide By: Geo. Garvin Brown III By: Steven B. Ratoff Director Executive Vice President and Chief Financial Officer (Principal Financial Officer)
-16- REPORT OF INDEPENDENT ACCOUNTANTS Brown-Forman Corporation Louisville, Kentucky We have audited the consolidated financial statements of Brown-Forman Corporation and Subsidiaries as of April 30, 1997, 1996, and 1995, and for the years then ended, which financial statements are included on pages 25 through 35 of the 1997 Annual Report to Stockholders of Brown-Forman Corporation and incorporated by reference herein. We have also audited the financial statement schedule listed in the index on page 13 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Brown-Forman Corporation and Subsidiaries as of April 30, 1997, 1996, and 1995 and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Louisville, Kentucky May 27, 1997 S-1 BROWN-FORMAN CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended April 30, 1997, 1996, and 1995 (Expressed in thousands)
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 ----------- --------- ------------ ---------- --------- 1997 Allowance for Doubtful Accounts $13,206 $ 5,530 $ 8,516(1) $10,220 1996 Allowance for Doubtful Accounts $14,061 $ 9,386 $10,241(1) $13,206 1995 Allowance for Doubtful Accounts $12,006 $ 9,343 $ 7,288(1) $14,061
(1) Doubtful accounts written off, net of recoveries. S-2 EX-13 2 ANNUAL REPORT FOR APRIL 30, 1997 Exhibit 13 HIGHLIGHTS (Expressed in millions, except per share amounts and ratios) 1997 1996 % Change Net Sales $1,841 $1,807 2% Gross Profit $ 904 $ 880 3% Operating Income $ 287 $ 274 5% Net Income $ 169 $ 160 6% Earnings Per Share $ 2.45 $ 2.31 6% Cash Dividends Per Commmon Share $ 1.06 $ 1.02 4% Return on Average Invested Capital 19.4% 19.7% Return on Average Common Stockholders' Equity 25.2% 27.5% Regular cash dividends have been paid for the fifty-second consecutive year. QUARTERLY FINANCIAL INFORMATION (expressed in millions, except per share amounts)
Cash Dividends Market Price (High-Low) Net Gross Net Earnings Paid Per Per Common Share Sales Profit Income Per Share Common Share Class A Class B Fiscal 1997 $1,841 $904 $169 $2.45 $1.06 $50.88-$34.75 $51.88-$35.25 Quarters Fourth 433 218 40 .58 .27 50.88-42.38 51.88-42.00 Third 458 219 42 .60 .27 47.25-42.25 47.88-42.13 Second 526 255 55 .80 .26 43.50-36.13 43.88-35.75 First 424 212 32 .47 .26 42.63-34.75 42.25-35.25 Fiscal 1996 $1,807 $808 $160 $2.31 $1.02 $42.00-$32.25 $42.50-$31.50 Quarters Fourth 427 212 36 .52 .26 42.00-36.63 42.50-36.50 Third 451 216 39 .55 .26 39.38-36.50 39.75-36.25 Second 518 249 53 .77 .25 40.25-33.88 40.75-33.63 First 411 203 32 .46 .25 35.00-32.25 34.88-31.50
FINANCIAL TABLE OF CONTENTS 17 Selected Financial Data 18 Management's Discussion and Analysis 24 Report of Management 24 Report of Independent Accountants 25 Consolidated Statement of Income 26 Consolidated Balance Sheet 28 Consolidated Statement of Cash Flows 29 Consolidated Statement of Stockholders' Equity 30 Notes to Consolidated Financial Statements SELECTED FINANCIAL DATA
For Fiscal Year Ended April 30, (Expressed in millions, except per share amounts and ratios) - ------------------------------------------------------------------------------------------------------------------------------------ Operations 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ------------------------------------------------------------------------------------------------------------------------------------ Net Sales $1,841 1,807 1,680 1,628 1,658 1,496 1,366 1,279 1,262 1,330 1,374 - ------------------------------------------------------------------------------------------------------------------------------------ Gross Profit $ 904 880 824 790 791 719 645 584 546 531 534 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income $ 287 274 268 240 255 234 223 225 208 192 182 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 169 160 149 129 156 146 145 93 144 103 90 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share $ 2.45 2.31 2.15 1.63 1.88 1.76 1.74 1.10 1.72 1.08 .93 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Dividends Paid Per Common Share $ 1.06 1.02 .97 .93 .86 .78 .72 .63 .51 .41 .30 - ------------------------------------------------------------------------------------------------------------------------------------ Invested Capital - ------------------------------------------------------------------------------------------------------------------------------------ Average Invested Capital $ 929 875 835 900 925 823 743 704 671 727 802 - ------------------------------------------------------------------------------------------------------------------------------------ Average Common Stockholders' Equity $ 671 578 493 629 765 686 616 564 493 510 547 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $1,428 1,381 1,286 1,234 1,311 1,194 1,083 1,021 1,003 932 1,057 - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Debt $ 63 211 247 299 154 114 112 114 115 191 199 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios - ------------------------------------------------------------------------------------------------------------------------------------ Return on Average Invested Capital 19.4% 19.7% 19.5% 15.4% 18.0% 18.8% 20.5% 14.6% 23.8% 15.7% 12.6% - ------------------------------------------------------------------------------------------------------------------------------------ Return on Average Common Stockholders' Equity 25.2% 27.5% 30.1% 20.4% 20.4% 21.3% 23.5% 16.3% 29.2% 20.2% 16.3% - ------------------------------------------------------------------------------------------------------------------------------------ Total Long-Term Debt to Total Long-Term Capital 8.0% 25.0% 31.1% 39.2% 15.9% 13.4% 14.5% 16.1% 17.2% 29.5% 25.3% - ------------------------------------------------------------------------------------------------------------------------------------ Total Cash Dividends Paid to Net Income 43.3% 44.2% 45.3% 57.5% 45.8% 44.4% 41.7% 57.4% 29.8% 38.9% 32.8% - ------------------------------------------------------------------------------------------------------------------------------------ Gross Margin 49.1% 48.7% 49.1% 48.5% 47.7% 48.1% 47.2% 45.7% 43.3% 39.9% 38.8% - ------------------------------------------------------------------------------------------------------------------------------------ Operating Margin 15.6% 15.2% 15.9% 14.8% 15.4% 15.6% 16.4% 17.6% 16.5% 14.4% 13.2% - ------------------------------------------------------------------------------------------------------------------------------------
Notes: 1. Includes the operations of Fetzer Vineyards and Dansk International Designs Ltd., since their acquisitions on August 31, 1992, and July 2, 1991, respectively. 2. Fiscal 1994 net income and earnings per share were reduced by $32 million and $.14, respectively, from the cumulative effect of accounting changes. Fiscal 1990 net income and earnings per share were increased by $12 million and $.14, respectively, from the cumulative effect of accounting changes. 3. On October 15, 1993, the company sold Brown-Forman Enterprises, its credit card processing operations, resulting in an after-tax gain of $18 million. 4. On January 31, 1989, the company sold the U.S. marketing rights for Martell Cognacs, resulting in an after-tax gain of $22 million. 5. On April 27, 1988, the company sold the ArtCarved jewelry division, resulting in an after-tax gain of $17 million. 6. Net income was reduced $60 million and $33 million to reflect the write- down of intangible assets of California Cooler in fiscal 1990 and 1988, respectively. 7. Earnings per share are calculated using net income reduced by dividend requirements on preferred stock, divided by the weighted average number of common and common equivalent shares outstanding during the year; both earnings per share and cash dividends per common share have been adjusted for 3-for-1 and 3-for-2 common stock splits in fiscal 1994 and 1987, respectively. 8. Return on Average Invested Capital is defined as the sum of net income (excluding extraordinary items) and after-tax interest expense, divided by average invested capital. Average invested capital is the sum of all interest-bearing debt and preferred and common equity, averaged at year end. 9. Return on Average Common Stockholders' Equity is defined as the sum of income applicable to common stock divided by average common stockholders' equity. 10. Total Long-Term Debt to Total Long-Term Capital is defined as long-term debt divided by the sum of long-term debt and preferred and common equity. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS In the discussion below and in the Chairman's letter, we discuss Brown-Forman's consolidated financial condition and results of operations for the fiscal years ended April 30, 1997, 1996 and 1995. We also discuss factors that may affect the company's future financial condition. Please read this section along with Brown-Forman's consolidated financial statements for the year ended April 30, 1997, and the related notes. When we make forward-looking statements about Brown-Forman's anticipated financial performance, business prospects, new products, or similar matters, we do not guarantee that the results indicated will actually be achieved. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we have prepared a non-exclusive list of important risk factors that could cause our actual results to differ materially from anticipated results. You can find this list in Part II, Item 7 of the company's Annual Report on Form 10-K, into which this discussion is incorporated by reference. CONSOLIDATED SALES AND EARNINGS Fiscal 1997 Compared to 1996 Net sales reached record levels in fiscal 1997, growing $34 million, or 2%. Sales of wines and spirits increased 4% resulting from worldwide growth of Jack Daniel's and premium wine brands, partially offset by sharply lower sales of frozen cocktail products. Sales from the consumer durables segment declined 4%, primarily reflecting a planned contraction of the Lenox Collections division. Net Sales
Dollars in Millions Fiscal year 1993 1994 1995 1996 1997 Consumer Durables $ 519 $ 513 $ 542 $ 513 $ 494 Wines and Spirits $1122 $1105 $1138 $1294 $1347 Total change +11% -2% +3% +8% +2%
International sales of $330 million were up 17% in fiscal 1997. This growth reflects our strategic effort to expand the international distribution of Brown-Forman's leading brands. Sales outside the United States represented 21%, 18% and 16% of our revenues (excluding excise taxes) during fiscal 1997, 1996 and 1995, respectively. Gross profit performance is a key measure by which we gauge the quality of volume growth. Gross profit expanded faster than the company's rate of sales growth in fiscal 1997, reflecting the very healthy margins provided by incremental sales of wines and spirits. A gross profit decline for consumer durables was largely the result of scaling back Lenox Collections, a business with relatively high margins. Over the past ten years, we have focused our efforts on marketing high-margin products and realizing manufacturing efficiencies, and have successfully improved the company's gross margin from 38.8% in fiscal 1987 to 49.1% in fiscal 1997. Gross Profit
Dollars in Millions Fiscal year 1993 1994 1995 1996 1997 Consumer Durables $265 $267 $277 $258 $242 Wines and Spirits $520 $517 $547 $622 $662 Total change +10% 0% +4% +7% +3%
Operating income improved $13 million, or 5%, during fiscal 1997. A 4% increase in operating income for the wines and spirits segment resulted from strong worldwide growth of Jack Daniel's and our premium wine brands, partially offset by sharply lower sales of frozen cocktail products and by investments associated with our international expansion initiative. Operating income for the consumer durables segment increased 11% in fiscal 1997, largely reflecting a rebound in profits at Lenox Collections. Operating Income
Dollars in Millions Fiscal year 1993 1994 1995 1996 1997 Consumer Durables $ 24 $ 19 $ 38 $ 27 $ 30 Wines and Spirits $246 $235 $244 $262 $273 Corporate and Other $-15 $-14 $-14 $-15 $-16 Total change +9% -6% +12% +2% +5%
18 Earnings per share reached a record $2.45, up to 6% over fiscal 1996. Earnings growth resulted from improved operating income, as well as lower interest expense.
Earnings Per Share Fiscal year 1993 1994 1995 1996 1997 As reported $1.88 $1.63 $2.15 $2.31 $2.45 Excluding unusual items $1.91 $1.92 $2.15 $2.31 $2.45
Fiscal 1996 Compared to 1995 Net sales increased $127 million, or 8%, in fiscal 1996. Sales of wines and spirits improved 14%, aided by new product introductions, further expansion into international markets, and growth of our wine brands. A 5% sales decline for the consumer durables segment reflected significantly lower response rates for Lenox Collections and a generally soft retail environment for consumer durables. Operating income improved $6 million, or 2%, during fiscal 1996, driven by an $18 million increase in profits from the wines and spirits segment. Operating income growth in the wines and spirits segment was generated from the same sources responsible for increased sales: new products, international expansion, and higher wine volume. The consumer durables segment experienced an $11 million drop in operating income, principally related to the sharp decline in consumer demand for collectible products marketed by Lenox Collections. Earnings grew 7% over fiscal 1995 to $2.31 per share, reflecting higher operating income, lower net interest expense, and a lower effective tax rate. The drop in our fiscal 1996 effective tax rate reflected benefits from foreign operations and a shift in the earnings mix towards businesses that carry a lower relative tax rate. Unusual Items Reported earnings for fiscal 1994 reflect a net reduction of $.29 per share, consisting of a $.41 charge for the adoption of new accounting standards, a $.07 charge related to the closing or reformatting of certain retail stores in the consumer durables segment and a $.04 decline resulting from an increase in the statutory corporate tax rate, partially offset by a $.23 gain on the sale of business. Reported earnings for fiscal 1993 reflect a reduction of $.03 per share related to the write-down of slow-moving and obsolete assets in the consumer durables segment. SHAREHOLDER RETURNS Brown-Forman's most important financial objective is to increase the value of our stockholders' investment. Long-term growth in the market value of our stock is a good indication of our success in delivering an attractive return to shareholders. A $100 investment in Brown-Forman's Class B stock ten years ago would have grown to $430 by the end of fiscal 1997, assuming reinvestment of all dividends and ignoring personal taxes and transaction costs. This represents an annualized return of 16% over the ten-year period. During fiscal 1997, the market value of an investment in Brown-Forman rose 31% compared to a 25% gain by the S&P 500 for the same period.
Total Shareholder Return (Including dividend reinvestment) Fiscal year B-F (Class B) S&P 500 S&P Beverage Index Alcohol Index 1987 $100 $100 $100 1988 $104 $ 94 $ 97 1989 $149 $115 $127 1990 $140 $127 $129 1991 $185 $149 $175 1992 $185 $170 $194 1993 $203 $188 $190 1994 $234 $196 $208 1995 $266 $230 $216 1996 $328 $300 $266 1997 $430 $376 $331 10 year annual growth 16% 14% 13%
Return on average invested capital remained strong at 19.4%, reflecting continued profitable growth and careful management of capital.
Return on Average Invested Capital Fiscal year 1993 1994 1995 1996 1997 As reported 18.0% 15.4% 19.5% 19.7% 19.4% Excluding unusual items 18.2% 17.8% 19.5% 19.7% 19.4%
19 MANAGEMENT'S DISCUSSION AND ANALYSIS Return on average common stockholders' equity also remained at a superior level in fiscal 1997. A decline over the past two years reflects the impact of reducing debt as a percentage of the company's total capital structure.
Return on Average Common Stockholders' Equity Fiscal year 1993 1994 1995 1996 1997 As reported 20.4% 20.4% 30.1% 27.5% 25.2% Excluding unusual items 20.7% 23.6% 30.1% 27.5% 25.2%
COMPANY OUTLOOK We believe the outlook for Brown-Forman's growth is very positive. Market conditions for premium wines and spirits brands are improving worldwide and, in order to capitalize on these opportunities, we plan to significantly increase the marketing investments behind our beverage brands in fiscal 1998. For the longer term, we will continue to penetrate new markets by expanding our global sales, marketing and distribution resources, as well as develop new products within promising market segments such as premium spirits, wines and low-alcohol beverages. The outlook is also positive for our consumer durables business. Lenox continues to dominate the U.S. market for fine china dinnerware, supplying seven of the top ten patterns sold in U.S. department stores last year. Additional focus will be placed on new products designed for causal dining and gift giving--categories which offer significant growth opportunities. WINES AND SPIRITS SEGMENT
Summary of Operating Performance (Expressed in millions, except percentages) 1997 1996 1995 - ------------------------------------------------------------- Net Sales $1,347 $1,294 $1,138 % Change 4% 14% 3% Gross Profit $ 662 $ 662 $ 547 % Change 6% 14% 6% Operating Income $ 273 $ 262 $ 244 % Change 4% 8% 4%
Fiscal 1997 Compared to 1996 Net sales in fiscal 1997 grew $53 million, or 4%, largely reflecting record sales volume for Jack Daniel's. Worldwide consumption of Brown-Forman's flagship brand rose 5% in fiscal 1997 with annual volume surpassing 5 million cases for the first time. In addition to continued strong international growth, sales of Jack Daniel's also benefited from improving U.S. consumption trends. Also contributing to segment sales growth was a significant increase in revenues from the Fetzer, Bolla and Korbel wine brands, largely as a result of price increases during the year. These positive results were partially offset by significantly lower sales of Tropical Freezes, a line of frozen cocktails introduced in fiscal 1996. Typical of most successful new products, introductory sales of Tropical Freezes were enhanced in 1996 by high rates of initial consumer trial and the establishment of trade inventory levels. First year sales also benefited from favorable weather conditions in most parts of the U.S. Brown-Forman's principal growth initiative is to accelerate expansion into international markets. Beverage sales outside the U.S. grew strongly in fiscal 1997, up 20%, largely attributable to continued double-digit growth for Jack Daniel's. International sales in fiscal 1997 represented 28% of total wines and spirits sales, excluding excise taxes, compared to 25% in fiscal 1996 and 22% in fiscal 1995.
Wines and Spirits Geographic Sales Mix (excluding excise taxes) Dollars in Millions Fiscal year 1993 1994 1995 1996 1997 International $168 $190 $197 $ 282 $ 330 U.S. $676 $651 $681 $ 749 $ 760 Total $844 $841 $878 $1,031 $1,090
20 Another major growth initiative for Brown-Forman is to add new beverage products through internal development, acquisition, or agency agreement. Approximately 21% of fiscal 1997 beverage sales, excluding excise taxes, were generated from products introduced or brands added since fiscal 1992, down from 22% in fiscal 1996 due to lower sales of Tropical Freezes. During fiscal 1997 the company obtained the U.S. marketing rights to Finlandia Vodka, the third best-selling imported vodka in the U.S., and Michel Picard, a promising line of French varietal wines. We also introduced two new super-premium whiskeys--Jack Daniel's Single Barrel and Woodford Reserve Distiller's Select. These additions represent positive steps that should add to growth in the future. Gross profit grew 6% compared to net sales growth of 4%, as price increases, a favorable product mix, and lower costs improved the gross margin for our wines and spirits segment from 48.1% to 49.2%. Operating income increased $11 million, or 4%, to a record level in fiscal 1997. The increase primarily reflects higher profits from Jack Daniel's and our premium wine brands. These gains were partially offset by decreased sales of frozen cocktail products and by continued investments in international markets. The segment's operating margin improved slightly from 20.2% to 20.3% in fiscal 1997. Fiscal 1996 Compared to 1995 Net sales in fiscal 1996 increased $156 million, or 14%, due to strong consumer trial of our frozen cocktail products, increases in worldwide volume of Jack Daniel's and Southern Comfort, and growth of the company's premium wine brands. Brown-Forman's wine business benefited from media reports on scientific research indicating that moderate consumption of beverage alcohol helps reduce the risk of heart disease. Volume levels for our other major spirits brands were lower, largely reflecting consumption trends in the U.S. over that period. Gross profit grew at the same rate as sales in fiscal 1996, 14%, indicating that incremental sales carried healthy margins. Operating income increased $18 million, or 8%, as a result of higher overseas sales of Jack Daniel's, increased consumer demand for our premium wine brands, new product introductions, and modest price increases on selected major spirits brands in the domestic market. The segment's operating margin declined from 21.4% to 20.2% in fiscal 1996, reflecting investments associated with expansion into new international markets and increased advertising expenses related to both established brands and new product introductions. Business Environment for Wines and Spirits The sale of beverage alcohol around the world takes place against a backdrop of long-standing public debate over the role of drinking in society. Brown-Forman and the public are rightfully concerned about alcohol abuse. We strongly oppose abusive drinking and contribute significant amounts of money to programs aimed at curbing and understanding alcohol abuse. We also support and abide by industry marketing and advertising codes. We believe that adults have the right to make informed choices about whether to drink and the right to consume beverage alcohol responsibly. Some critics of beverage alcohol, however, seek to restrict not only alcohol abuse but also overall alcohol consumption. These industry opponents promote policies such as sales and advertising restrictions, punitive taxes, additional warning requirements and the dissemination of biased information about alcohol and health. We will continue to oppose these efforts. Beverage alcohol sales are particularly sensitive to higher tax rates, which increase the shelf price to the consumer. The company is not aware of any proposed legislation to increase federal excise taxes, but such an increase cannot be ruled out as part of future tax legislation likely to come before Congress. Several states have also recently considered increasing their excise taxes on spirits. If Congress expands its efforts to return responsibility for expensive social programs to the states, many more states may consider similar regressive taxes--despite the fact that the last federal excise tax increase on spirits resulted in a loss of tax revenues collected. An excise tax increase at the federal level or in major market states would adversely affect the market for beverage alcohol. In 1996, the Distilled Spirits Council of the United States (the trade association representing the distilled spirits industry) lifted a long-standing voluntary ban on radio and television advertising of distilled spirits in its Code of Good Practice. Some producers are advertising distilled spirits on radio and television in selected U.S. markets. The industry believes that since the wine and beer sectors of the beverage alcohol market have advertised in these media for years, producers of distilled spirits--whose beverages contain an equivalent amount of alcohol per serving--should be able to market their products in the same fashion. This development has generated considerable controversy and threats of regulation by federal, state and local governments. The company has not aired national ads for its distilled spirits products on radio or television, but believes that it has the right to do so, as long as such advertising is properly aimed at adult audiences and otherwise meets the standards of the Code of Good Practice. It is not clear how distilled spirits producers, including the company, will be affected either by the controversy over broadcast advertising or by the potential ability to advertise on the air. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS CONSUMER DURABLES SEGMENT Summary of Operating Performance (Expressed in millions, except percentages) 1997 1996 1995 - ----------------------------------------------------- Net Sales $ 494 $ 513 $542 % Change (4%) (5%) 5% Gross Profit $ 242 $ 258 $277 % Change (6%) (7%) 4% Operating Income $ 30 $ 27 $ 38 % Change 11% (29%) 41% Our consumer durables segment includes fine china, crystal, silver, pewter and luggage products marketed under the Lenox, Dansk, Gorham, Kirk Stieff and Hartmann brand names. Fiscal 1997 Compared to 1996 Net sales of consumer durables declined $19 million, or 4%, in fiscal 1997, primarily reflecting a planned contraction at Lenox Collections, as well as a decline in sales of fine china to department stores. Revenues from our Lenox and Dansk retail stores improved solidly, with same store sales up 10% over fiscal 1996. Gross profit decreased $16 million in fiscal 1997, largely attributable to the contraction of Lenox Collections and lower sales of fine china to department stores. Operating income increased $3 million, or 11%, primarily as a result of improved profitability of the scaled-down Lenox Collections business. By focusing marketing efforts on the strongest product offerings, we have been able to return the Collections business to a profitable position on a smaller sales base. Segment profits were also enhanced by stronger consumer demand at our retail stores. Fiscal 1996 Compared to 1995 Net sales declined $29 million, or 5%, largely reflecting a sharp decline in consumer response rates at Lenox Collections. Results were also affected to a lesser extent by a difficult retail environment for outlet stores and consolidation within the department store distribution channel. Operating income decreased $11 million, or 29%, principally from the decline in consumer response rates within the direct mail collectible business. LIQUIDITY AND CAPITAL RESOURCES Our cash flows from operations continue to provide more than adequate capital to meet operating and capital expenditure requirements, pay dividends, and fund acquisition opportunities. We consider our ability to internally generate cash to be a significant financial strength. Free cash flow is the cash remaining from operations after satisfying internal and external business reinvestment opportunities. A consolidated statement of cash flows is summarized as follows: (Expressed in millions) 1997 1996 1995 - ----------------------------------------------------- Cash flows provided by (used for): Operations $ 183 $ 171 $197 Investment activities (63) (71) (43) -------------------------- Free Cash Flow 120 100 154 Cash flows (used for): Financing activities: Dividends (73) (71) (67) Reduction in debt (43) (37) (56) -------------------------- Increase (decrease in cash)$ 4 $ (8) $ 31 ========================== Cash provided by operations increased $12 million in fiscal 1997, mainly attributable to higher net income for the year. Cash used for investment activities in fiscal 1997 primarily reflect capital expenditures to expand manufacturing and office facilities and enhance the company's information systems. Cash provided by operations decreased $26 million in fiscal 1996, primarily as a result of lower earnings at Lenox and an increased investment in working capital. Cash used for investment activities rose $28 million in fiscal 1996, primarily due to increasing Brown-Forman's investment in the company that supplies Bolla Italian wines. We have a $300 million revolving credit agreement that expires in fiscal 2001. At April 30, 1997, we had no outstanding borrowings under this agreement. At April 30, 1997, we had $220 million remaining on our $250 million shelf registration, which was filed with the Securities and Exchange Commission in fiscal 1994. 22 Total Long-Term Debt to Total Long-Term Capital (at April 30) Fiscal year 1993 1994 1995 1996 1997 Long-Term Capital $973 $763 $793 $845 $793 Long-Term Debt $154 $299 $247 $211 $ 63
CAPITAL EXPENDITURES We invested $55 million in property, plant and equipment in fiscal 1997, $59 million in fiscal 1996, and $51 million in fiscal 1995. These expenditures were primarily for the expansion and modernization of company-wide production facilities. Capital expenditures for fiscal 1998 are expected to approximate the 1997 level. Fiscal 1998 capital expenditure requirements primarily represent the continued expansion and modernization of our production facilities and the enhancement of our information systems, and are expected to be met with internally generated funds. DIVIDENDS Quarterly dividends were increased 4% in fiscal 1997 to $.27, based on the expectation of continued strong cash flow. Cash dividends paid as a percentage of net income were 43% in fiscal 1997, compared to 44% and 45% for fiscal 1996 and fiscal 1995, respectively. We have paid regular cash dividends for 52 consecutive years. Cash Dividends Paid Per Common Share 1993 1994 1995 1996 1997 $.86 $.93 $.97 $1.02 $1.06
DERIVATIVE FINANCIAL INSTRUMENTS We use derivative financial instruments to reduce our exposure to adverse fluctuations in interest and foreign exchange rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the change in value of the underlying exposures being hedged. We are not a party to leveraged derivatives and do not hold or issue financial instruments for speculative purposes. We previously sold an option to swap interest rates that effectively eliminated the call feature on $100 million of 9.375% notes for the period April 1, 1995 to April 1, 1998. This option was exercised April 1, 1995, effectively converting $100 million of commercial paper from floating interest rate obligations to 9.375% fixed rate obligations for the period April 1, 1995 to April 1, 1998. The option on this swap was sold in order to manage the level of fixed and floating rate debt. The premium received on the sale of this option is being amortized as a reduction of interest expense through April 1, 1998. FOREIGN CURRENCIES The U.S. dollar is the functional currency for substantially all of our consolidated operations. For these operations, all gains and losses from currency transactions are included in current income. For certain foreign equity investments, the functional currency is the local currency. The cumulative translation effects for the equity investments using functional currencies other than the U.S. dollar are included in the cumulative translation adjustment in stockholders' equity. Foreign currency forwards and options, which typically expire within one year, are used to hedge payments and receipts of foreign currencies related to the purchase and sale of good overseas. Realized gains and losses on these contracts are recognized in the same period as the hedged transactions. While these hedges are subject to the risk of loss from fluctuations in exchange rates, these losses would be offset by gains on the transactions being hedged. We had foreign exchange contracts on hand at April 30, 1997, 1996 and 1995, primarily hedging German mark, Spanish peseta, British pound and Japanese yen revenues, totaling $40 million, $28 million and $11 million, respectively. As a result of the growth of our international business in recent years, Brown-Forman's foreign currency receipts exceed the company's foreign currency payments. Accordingly, to the extent this foreign currency exposure is not hedged, the company's results of operations and financial position are negatively impacted by a weakening of foreign currencies against the U.S. dollar and positively impacted by a strengthening of the foreign currencies. ENVIRONMENTAL Along with other responsible parties, we face environmental claims resulting from the cleanup of several waste deposit sites. We have accrued our estimated portion of cleanup costs and expect either the other responsible parties or insurance to cover the remaining costs. We believe that any additional costs incurred to satisfy environmental claims will not have a material adverse effect on the company's quarterly or annual results of operations or financial condition. 23 REPORT OF MANAGEMENT We are responsible for the presentation of the information contained in the consolidated financial statements and for its integrity and objectivity. Our statements have been prepared in accordance with generally accepted accounting principles and include amounts based on our best estimates and judgments with appropriate consideration given to materiality. We also prepared the related financial information and are responsible for its accuracy and consistency with the financial statements. The consolidated financial statements have been audited by Coopers & Lybrand L.L.P., independent accountants. We have made available to Coopers & Lybrand L.L.P. all the company's financial records and related data, as well as the minutes of stockholders', directors', and other appropriate meetings. Furthermore, we believe that all representations made to Coopers & Lybrand L.L.P. during the audit were valid and appropriate. We are responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance at reasonable cost that financial records are reliable for preparing financial statements and that assets are properly accounted for and safeguarded. The company has an internal audit function that is intended to provide a review and monitoring process that allows the company to be reasonably sure that the system of internal control operates effectively. In addition, as part of the audit of the financial statements, Coopers & Lybrand L.L.P. completed a study and evaluation of selected internal accounting controls to establish a basis for reliance thereon in determining the nature, timing, and extent of audit tests to be applied. We have considered the internal auditors' and Coopers & Lybrand L.L.P.'s recommendations concerning the system of internal control and have taken actions that we believe are cost-effective in the circumstances to respond appropriately to these recommendations. We believe that as of April 30, 1997, the system of internal control is adequate to accomplish the objectives discussed herein. We also recognize our responsibility for fostering a strong ethical climate so that the company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the company's Code of Conduct, which is publicized throughout the company. The Code of Conduct addresses, among other things, the necessity of ensuring open communication within the company; the disclosure of potential conflicts of interests; the compliance with all applicable domestic and foreign laws, including those relating to financial disclosure; and the maintenance of the confidentiality of proprietary information. The company has a systematic program to assess compliance with the Code of Conduct. The Board of Directors, through its Audit Committee, composed solely of directors who are not employees of the company, meets with management, the internal auditors and the independent accountants to ensure that each is properly discharging its respective responsibilities. Both the independent accountants and the internal auditors have free access to the Audit Committee, without management present, to discuss the results of their work, including internal accounting controls and the quality of financial reporting. /s/ Owsley Brown II Owsley Brown II Chairman of the Board and Chief Executive Officer /s/ Steven B. Ratoff Steven B. Ratoff Executive Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS BROWN-FORMAN CORPORATION We have audited the accompanying consolidated balance sheet of Brown- Forman Corporation and Subsidiaries as of April 30, 1997, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Brown-Forman Corporation and Subsidiaries at April 30, 1997, 1996 and 1995, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Louisville, Kentucky May 27, 1997 24 Brown-Forman Corporation CONSOLIDATED STATEMENT OF INCOME (Expressed in millions, except per share amounts) - ------------------------------------------------------------------------------- Year Ended April 30, 1997 1996 1995 =============================================================================== Net sales $1,841 $1,807 $1,680 - ------------------------------------------------------------------------------- Excise taxes 257 263 260 - ------------------------------------------------------------------------------- Cost of sales 680 664 596 - -------------------------------------------------============================== - ------------------------------------------------------------------------------- Gross profit 904 880 824 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Selling, general, and administrative expenses 388 375 355 - ------------------------------------------------------------------------------- Advertising expenses 229 231 201 - -------------------------------------------------============================== Operating income 287 274 268 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Interest income 3 3 2 - -------------------------------------------------============================== Interest expense 17 20 23 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Income before income taxes 273 257 247 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Taxes on income 104 97 98 - -------------------------------------------------============================== - ------------------------------------------------------------------------------- Net income $ 169 $ 160 $ 149 - -------------------------------------------------============================== - ------------------------------------------------------------------------------- Earnings per share $ 2.45 $ 2.31 $ 2.15 - -------------------------------------------------============================== The accompanying notes are an integral part of the consolidated financial statements. 25 Brown-Forman Corporation CONSOLIDATED BALANCE SHEET
(Expressed in millions, except share and per share amounts) - ------------------------------------------------------------------------------- April 30, 1997 1996 1995 =============================================================================== Assets - ------------------------------------------------------------------------------- Cash and cash equivalents $ 58 $ 54 $ 62 - ------------------------------------------------------------------------------- Accounts receivable, less allowance for doubtful accounts of $10 in 1997, $13 in 1996, and $14 in 1995 263 257 234 - ------------------------------------------------------------------------------- Inventories: - ------------------------------------------------------------------------------- Barreled whiskey 176 167 163 - ------------------------------------------------------------------------------- Finished goods 172 169 123 - ------------------------------------------------------------------------------- Work in process 66 59 59 - ------------------------------------------------------------------------------- Raw materials and supplies 37 38 37 - --------------------------------------------------------======================= Total inventories 451 433 382 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Other current assets 30 24 20 - --------------------------------------------------------======================= Total Current Assets 802 768 698 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Property, plant, and equipment, net 292 281 252 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Intangible assets, less accumulated amortization of $120 in 1997, $108 in 1996, and $98 in 1995 254 259 263 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Other assets 80 73 73 - --------------------------------------------------------======================= Total Assets $1,428 $1,381 $1,286 - --------------------------------------------------------=======================
The accompanying notes are an integral part of the consolidated financial statements. 26
- -------------------------------------------------------------------------------------------------------- April 30, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- Liabilities - -------------------------------------------------------------------------------------------------------- Commercial paper $ 155 $ 50 $ 50 - -------------------------------------------------------------------------------------------------------- Accounts payable and accrued expenses 209 223 221 - -------------------------------------------------------------------------------------------------------- Current portion of long-term debt 7 6 6 - -------------------------------------------------------------------------------------------------------- Accrued taxes on income 6 3 -- - -------------------------------------------------------------------------------------------------------- Deferred income taxes 22 21 9 - -------------------------------------------------------------------------------------------------------- Total Current Liabilities 399 303 286 - -------------------------------------------------------------------------------------------------------- Long-term debt 63 211 247 - -------------------------------------------------------------------------------------------------------- Deferred income taxes 136 127 114 - -------------------------------------------------------------------------------------------------------- Accrued postretirement benefits 54 52 51 - -------------------------------------------------------------------------------------------------------- Other liabilities and deferred income 46 54 42 - -------------------------------------------------------------------------------------------------------- Total Liabilities 698 747 740 - -------------------------------------------------------------------------------------------------------- Stockholders' Equity - -------------------------------------------------------------------------------------------------------- Capital Stock: - -------------------------------------------------------------------------------------------------------- Preferred $.40 cumulative, $10 par value, redeemable at company's option at $10.25 per share plus unpaid accrued dividends; 1,177,948 shares authorized and outstanding 12 12 12 - -------------------------------------------------------------------------------------------------------- Class A common stock, voting, $.15 par value; authorized shares, 30,000,000; issued shares, 28,988,091 4 4 4 - -------------------------------------------------------------------------------------------------------- Class B common stock, nonvoting, $.15 par value; authorized shares, 60,000,000; issued shares, 40,008,147 6 6 6 - -------------------------------------------------------------------------------------------------------- Retained earnings 712 616 527 - -------------------------------------------------------------------------------------------------------- Cumulative translation adjustment (4) (4) (3) - -------------------------------------------------------------------------------------------------------- Common Stockholders' Equity 718 622 534 - -------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 730 634 546 - -------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $1,428 $1,381 $1,286 - --------------------------------------------------------------------------------------------------------
27
Brown-Forman Corporation CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in millions; amounts in brackets are reductions of cash) - ------------------------------------------------------------------------------- Year Ended April 30, 1997 1996 1995 =============================================================================== Cash flows from operating activities: - ------------------------------------------------------------------------------- Net income $ 169 $ 160 $ 149 - ------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by (used for) operations: - ------------------------------------------------------------------------------- Depreciation 41 37 35 - ------------------------------------------------------------------------------- Amortization 9 9 9 - ------------------------------------------------------------------------------- Deferred income taxes 10 26 19 - ------------------------------------------------------------------------------- Other --- (1) (4) - ------------------------------------------------------------------------------- Change in assets and liabilities, excluding the effects of businesses acquired: - ------------------------------------------------------------------------------- Accounts receivable (6) (18) 6 - ------------------------------------------------------------------------------- Inventories (24) (40) (24) - ------------------------------------------------------------------------------- Other current assets ( 1) (2) 1 - ------------------------------------------------------------------------------- Accounts payable and accrued expenses (14) (8) 5 - ------------------------------------------------------------------------------- Accrued taxes on income 4 3 (4) - ------------------------------------------------------------------------------- Accrued postretirement benefits 2 1 4 - ------------------------------------------------------------------------------- Other liabilities and deferred income (7) 4 1 - ------------------------------------------------------========================= Cash provided by operating activities 183 171 197 - ------------------------------------------------------========================= Cash flows from investing activities: - ------------------------------------------------------------------------------- Additions to property, plant, and equipment (55) (59) (51) - ------------------------------------------------------------------------------- Disposals of property, plant, and equipment 3 3 10 - ------------------------------------------------------------------------------- Investment in affiliate, net of cash acquired --- (8) --- - ------------------------------------------------------------------------------- Other (11) (7) (2) - ------------------------------------------------------========================= Cash (used for) investing activities (63) (71) (43) - ------------------------------------------------------========================= Cash flows from financing activities: - ------------------------------------------------------------------------------- Net change in commercial paper (39) (60) 50 - ------------------------------------------------------------------------------- Proceeds from long-term debt 3 30 --- - ------------------------------------------------------------------------------- Reduction of long-term debt (7) (7) (106) - ------------------------------------------------------------------------------- Dividends paid (73) (71) (67) - ------------------------------------------------------========================= Cash (used for) financing activities (116) (108) (123) - ------------------------------------------------------========================= Net increase (decrease) in cash and cash equivalents 4 (8) 31 - ------------------------------------------------------------------------------- Cash and cash equivalents, beginning of year 54 62 31 - ------------------------------------------------------========================= Cash and cash equivalents, end of year $ 58 $ 54 $ 62 - ------------------------------------------------------=========================
The accompanying notes are an integral part of the consolidated financial statements. 28 Brown-Forman Corporation CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended April 30, 1997, 1996 and 1995 (Expressed in millions, except per share amounts) - ------------------------------------------------------------------------------------------------------------------------ Common Stock ----------------- Cumulative Preferred Class Class Retained Translation Total Stock A B Earnings Adjustment - ------------------------------------------------------------------------------------------------------------------------ Balance, April 30, 1994 $464 $12 $4 $6 $446 $(4) - ------------------------------------------------------------------------------------------------------------------------ Net income 149 149 - ------------------------------------------------------------------------------------------------------------------------ Cash dividends Preferred, per share $.40 (1) (1) Common, per share $.97 (67) (67) - ------------------------------------------------------------------------------------------------------------------------ Foreign currency translation adjustment 1 1 - --------------------------------------------------====================================================================== Balance, April 30, 1995 546 12 4 6 527 (3) - ------------------------------------------------------------------------------------------------------------------------ Net income 160 160 - ------------------------------------------------------------------------------------------------------------------------ Cash dividends Preferred, per share $.40 (1) (1) Common, per share $1.02 (70) (70) - ------------------------------------------------------------------------------------------------------------------------ Foreign currency translation adjustment (1) (1) - --------------------------------------------------====================================================================== Balance, April 30, 1996 634 12 4 6 616 (4) - ------------------------------------------------------------------------------------------------------------------------ Net income 169 169 - ------------------------------------------------------------------------------------------------------------------------ Cash dividends Preferred, per share $.40 (1) (1) Common, per share $1.06 (72) (72) - --------------------------------------------------====================================================================== Balance, April 30, 1997 $730 $12 $4 $6 $712 $(4) - --------------------------------------------------====================================================================== The accompanying notes are an integral part of the consolidated financial statements.
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions, except per share amounts) 1. ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of all majority-owned subsidiaries. Investments in affiliates in which the company has the ability to exercise significant influence, but not control, are accounted for by the equity method. All other investments in affiliates are carried at cost. Intercompany transactions are eliminated. Cash Equivalents Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. Inventories Inventories are stated at the lower of cost or market. Approximately 85% of consolidated inventories are valued using the last-in, first-out (LIFO) method. All remaining inventories are valued using the first-in, first-out or average cost methods. If the LIFO method had not been used, inventories would have been $98, $85 and $70 higher than reported at April 30, 1997, 1996 and 1995, respectively. A substantial portion of barreled whiskey will not be sold within one year because of the duration of the aging process. All barreled whiskey is classified as a current asset in accordance with industry practice. Bulk wine inventories are classified as work in process. Warehousing, insurance, ad valorem taxes, and other carrying charges applicable to barreled whiskey are included in inventory costs. Revenue Recognition The company recognizes revenue when goods are shipped. Long-Lived Assets Property, plant, and equipment are stated at cost. Provision for depreciation is made on the basis of estimated useful lives of depreciable assets, principally using the straight-line method. Intangible assets, principally the excess of purchase price over the fair value of identifiable net assets of acquired businesses, are stated at cost less accumulated amortization. These assets are amortized using the straight-line method over their estimated useful lives, not exceeding forty years. Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was adopted during 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment value, based upon undiscounted future cash flows, and appropriate losses be recognized whenever the carrying amount of an asset may not be recovered. The adoption of SFAS No. 121 did not have a material effect on the consolidated financial statements. Advertising Costs Advertising costs are charged to expense as incurred, except for direct-response advertising costs, which are capitalized and amortized over periods not exceeding one year. Foreign Currency and Hedging Activities The U.S. dollar is the functional currency for substantially all of the company's consolidated operations. For these operations, all gains and losses from currency transactions are included in income currently. For certain foreign equity investments, the functional currency is the local currency. The cumulative translation effects for the equity investments using functional currencies other than the U.S. dollar are included in the cumulative translation adjustment in stockholders' equity. The company uses foreign currency forwards and options to hedge payments and receipts of foreign currencies related to the purchase and sale of goods overseas. The purpose of these hedges is to protect against the risk that currency movements would adversely affect the company's revenues and product costs. While these hedges are subject to the risk of loss from fluctuations in exchange rates, these losses would be offset by gains on the transactions being hedged. Realized gains and losses on these hedging instruments are recognized in income in the same period as the underlying transaction. The company does not engage in currency speculation. Stock-Based Compensation The company applies the intrinsic value based method permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," in accounting for its stock option grants, which generally does not result in the recognition of compensation expense. The company's stock option grants are discussed in Note 12. Earnings Per Share Earnings per share are calculated using net income reduced by dividend requirements on preferred stock, divided by the weighted average number of common and common equivalent shares outstanding during the year. The weighted average number of common and common equivalent shares was 69,013,904 during 1997 and 68,996,238 during 1996 and 1995. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. 30 Other SFAS No. 128, "Earnings per Share," was issued in February 1997, and establishes standards for computing and presenting earnings per share. SFAS No. 128 will be effective for financial statements for periods ending after December 15, 1997 and will require the restatement of prior-period earnings per share data presented in those financial statements. The adoption of SFAS No. 128 is not expected to change the company's previously-reported earnings per share. Statement of Position (SOP) 97-1, "Environmental Remediation Liabilities," which was issued in October 1996 and will be adopted by the company effective May 1, 1997, provides authoritative guidance for the recognition, measurement and disclosure of environmental remediation liabilities in financial statements. The adoption of SOP 96-1 is not expected to have a material effect on the consolidated financial statements. See Note 14 for discussion of the company's environmental commitments and contingencies. 2 BALANCE SHEET INFORMATION
April 30, 1997 1996 1995 - -------------------------------------------------------------------------------- Property, Plant, and equipment - -------------------------------------------------------------------------------- Land $ 17 $ 17 $ 17 - -------------------------------------------------------------------------------- Buildings 200 173 164 - -------------------------------------------------------------------------------- Equipment 421 404 350 - -------------------------------------------------------------------------------- 638 594 531 - -------------------------------------------------------------------------------- Less accumulated depreciation 346 313 279 - -------------------------------------------------------------------------------- $292 $281 $252 - -------------------------------------------------------------------------------- Accounts payable and accrued expenses - -------------------------------------------------------------------------------- Accounts payable, trade $ 83 $ 74 $ 68 - -------------------------------------------------------------------------------- Accrued expenses: - -------------------------------------------------------------------------------- Compensation and commissions 42 40 45 - -------------------------------------------------------------------------------- Excise and other non-income taxes 19 17 21 - -------------------------------------------------------------------------------- Interest 5 6 7 - -------------------------------------------------------------------------------- Advertising 14 29 31 - -------------------------------------------------------------------------------- Other 46 57 49 - -------------------------------------------------------------------------------- 126 149 153 - -------------------------------------------------------------------------------- $209 $223 $221 - --------------------------------------------------------------------------------
3. CHANGES IN OPERATIONS In December 1995, Brown-Forman increased its equity investment in the company that supplies Bolla Italian wines. Subsequent to this transaction, Brown-Forman accounts for its investment in the supplier using the consolidated basis of accounting. 4. CREDIT FACILITIES The company has a $300 revolving credit agreement with various domestic and international banks that expires in fiscal 2001. The most restrictive of the agreement's covenants requires the company to maintain a minimum level of net worth. At April 30, 1997, the company also had available for issuance $220 of debt securities under a shelf registration filing with the Securities and Exchange Commission. 5. DEBT At April 30, the company's long-term debt consisted of the following:
April 30, 1997 1996 1995 - -------------------------------------------------------------------------------- Commercial paper $ -- $144 $204 - -------------------------------------------------------------------------------- 6.82% to 7.38% medium-term notes, due 2005 30 30 -- - -------------------------------------------------------------------------------- 11.25% notes, due through 1999 22 28 34 - -------------------------------------------------------------------------------- Variable rate industrial revenue bonds, due through 2026 17 14 14 - -------------------------------------------------------------------------------- Other 1 1 1 - -------------------------------------------------------------------------------- 70 217 253 - -------------------------------------------------------------------------------- Less current portion 7 6 6 - -------------------------------------------------------------------------------- $ 63 $211 $247 - --------------------------------------------------------------------------------
The company has an interest rate agreement to convert $100 of its commercial paper from variable rates to a fixed rate of 9.375%. This contract matures in 1998. See Note 6 for a description of the financial instrument. At April 30, 1996 and 1995, commercial paper of $144 and $204, respectively, was classified as long-term debt due to the credit available under the long-term credit facilities discussed in Note 4 and the company's intent to refinance those borrowings on a long-term basis. Long-term debt payment requirements for the five fiscal years after April 30, 1997 are as follows: 1998 -- $7; 1999 -- $7; 2000 -- $8; 2001 -- $2; 2002 -- $0. Cash paid for interest was $18 in 1997, $21 in 1996, and $25 in 1995. Excluding the effect of the interest rate agreement discussed above, the weighted average interest rates on commercial paper were 5.6%, 5.4% and 4.9% at April 30, 1997, 1996 and 1995, respectively. The weighted average interest rates on the variable rate industrial revenue bonds were 4.6%, 4.2% and 4.9% at April 30, 1997, 1996 and 1995, respectively. 31 6. FINANCIAL INSTRUMENTS The Company uses derivative financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest and foreign exchange rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the change in value of the underlying exposures being hedged. The company is not a party to leveraged derivatives and does not hold or issue financial instruments for speculative purposes. Interest Rate Management The company sold an option in 1990 to swap interest rates that effectively eliminated the call feature on certain 9.375% notes for the period April 1, 1995 to April 1, 1998. This option was exercised April 1, 1995, effectively converting $100 of commercial paper from floating interest rate obligations to 9.375% fixed rate obligations for the period April 1, 1995 to April 1, 1998. The option on this swap was sold in order to manage the level of fixed and floating rate debt. The premium received on the sale of this option is being amortized as a reduction of interest expense through April 1, 1998. Foreign Currency Management The U.S. dollar is the functional currency for substantially all of the company's consolidated operations. For these operations, all gains and losses from currency transactions are included in income currently. For certain foreign equity investments, the functional currency is the local currency. The cumulative translation effects for equity investments using functional currencies other than the U.S. dollar are included in the cumulative translation adjustment in stockholders' equity. The company uses foreign currency forwards and options, which typically expire within one year, to hedge payments and receipts of foreign currencies related to the purchase and sale of goods overseas. Realized gains and losses on these contracts are recognized in the same period as the hedged transactions. The company had foreign exchange forward contracts on hand at April 30, 1997, 1996 and 1995, primarily hedging German mark, Spanish peseta, British pound and Japanese yen revenues, totaling $40, $28 and $11, respectively. Carrying Amount and Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, short-term investments, and commercial paper approximates fair value due to the short maturities of these instruments. The value of long-term debt is estimated using discounted cash flows based on the company's incremental borrowing rates for similar types of borrowings. The values of interest rate and foreign currency are based on quoted market prices. A comparison of the carrying amount and fair value of these instruments is as follows:
1997 1996 - -------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------- Assets: - -------------------------------------------------------------------------------- Cash and cash equivalents $ 58 $ 58 $ 54 $ 54 - -------------------------------------------------------------------------------- Foreign currency instruments -- -- -- -- - -------------------------------------------------------------------------------- Liabilities: - -------------------------------------------------------------------------------- Commercial paper 155 155 50 50 - -------------------------------------------------------------------------------- Long-term debt 70 72 217 217 - -------------------------------------------------------------------------------- Interest rate instrument -- 3 1 6 - --------------------------------------------------------------------------------
7. COMMITMENTS Rental payments for real estate, office and data processing equipment, vehicles, and manufacturing equipment under operating leases amounted to approximately $28, $25, and $16 for 1997, 1996 and 1995, respectively. The company has commitments related primarily to minimum lease payments as follows: 1998 -- $23; 1999 -- $19; 2000-- $15; 2001 -- $5; 2002 -- $3; after 2002 -- $4. 8. TAXES ON INCOME Taxes on income are composed of the following:
- -------------------------------------------------------------------------------- 1997 1996 1995 ================================================================================ Currently payable: - -------------------------------------------------------------------------------- Federal $ 76 $ 54 $ 62 - -------------------------------------------------------------------------------- Foreign 6 5 2 - -------------------------------------------------------------------------------- State and Local 12 12 15 - -----------------------------------------------------=========================== 94 71 79 - -----------------------------------------------------=========================== - -------------------------------------------------------------------------------- Deferred: - -------------------------------------------------------------------------------- Federal 7 21 15 - -------------------------------------------------------------------------------- Foreign -- -- 1 - -------------------------------------------------------------------------------- State and Local 3 5 3 - -----------------------------------------------------=========================== 10 26 19 - -----------------------------------------------------=========================== $104 $ 97 $ 98 - -----------------------------------------------------===========================
32 United States and foreign components of income before income taxes are as follows;
- ------------------------------------------- 1997 1996 1995 - ------------------------------------------- United States $237 $229 $227 - ------------------------------------------- Foreign 36 28 20 - ------------------------------------------- $273 $257 $247 - ----------------------=====================
The following is a reconciliation of the effective tax rates with the United States' statutory rate: Percent of Income Before Taxes - ------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------- Statutory rate 35.0% 35.0% 35.0% - ------------------------------------------------------- State taxes, net of U.S. Federal tax benefit 4.0 4.1 4.6 - ------------------------------------------------------- Income taxed at other than U.S. Federal statutory rate (1.5) (2.2) (.7) - ------------------------------------------------------- Tax benefit of Foreign Sales Corporation (.9) (1.3) (1.1) - ------------------------------------------------------- Nondeductible amortization 1.1 1.2 1.2 - ------------------------------------------------------- Adjustment of prior years' accruals (.3) .3 (.3) - ------------------------------------------------------- Other, net .6 .7 1.1 - ------------------------------------------------------- 38.0% 37.8% 39.8% - --------------------------------=======================
Deferred tax assets and liabilities are composed of the following: April 30, 1997 1996 1995 - ------------------------------------------------------------ Deferred tax assets: - ------------------------------------------------------------ Postretirement and other benefits $ 38 $ 36 $ 32 - ------------------------------------------------------------ Accrued liabilities and other 20 15 31 - ------------------------------------------------------------ Total deferred tax assets 58 51 63 - ------------------------------------------------------------ Deferred tax liabilities: - ------------------------------------------------------------ Intercompany transactions 152 141 132 - ------------------------------------------------------------ Depreciation 24 21 20 - ------------------------------------------------------------ Undistributed foreign earnings 17 17 17 - ------------------------------------------------------------ Pension plans 20 18 16 - ------------------------------------------------------------ Other 3 2 1 - --------------------------------------====================== Total deferred tax liabilities 216 199 186 - --------------------------------------====================== Net deferred tax liability $158 $148 $123 - --------------------------------------======================
Deferred income taxes were not provided on certain undistributed earnings ($73 at April 30, 1997 and $59 at April 30, 1996 and 1995) of certain foreign subsidiaries because such undistributed earnings are expected to be reinvested indefinitely overseas. If these amounts were not considered permanently reinvested, additional deferred taxes of approximately $24 in 1997 and $20 in 1996 and 1995 would have been provided. The U.S. Congress is currently considering legislation which, if adopted, would prevent the company from deferring tax on certain types of income to future years. Cash paid for income taxes was $91 in 1997, $65 in 1996 and $86 in 1995. 9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The company provides certain health care and life insurance benefits for eligible retirees. The postretirement benefit expense includes the following components:
1997 1996 1995 - ------------------------------------------------------------ Service cost of benefits earned $ 1 $ 1 $ 2 - ------------------------------------------------------------ Interest cost on accumulated post- retirement benefit obligation 3 3 3 - --------------------------------------====================== Postretirement benefit expense $ 4 $ 4 $ 5 - --------------------------------------======================
The postretirement benefit liability includes the following components:
1997 1996 1995 - -------------------------------------------------------------------- Actuarial present value of accumulated postretirement obligation: - -------------------------------------------------------------------- Retirees $22 $21 $21 - -------------------------------------------------------------------- Fully eligible active participants 1 1 1 - -------------------------------------------------------------------- Other active participants 17 21 15 - -----------------------------------------------===================== 40 43 37 - -------------------------------------------------------------------- Unrecognized net gain 14 9 14 - -----------------------------------------------===================== Accrued postretirement benefit $54 $52 $51 - -----------------------------------------------===================== Assumptions: - -------------------------------------------------------------------- Discount Rate 7.5% 7.0% 8.5% - -------------------------------------------------------------------- Healthcare cost trend rates: - -------------------------------------------------------------------- Present rate before age 65 7.3% 7.7% 8.0% - -------------------------------------------------------------------- Present rate age 65 and after 6.6% 6.8% 7.0% - -------------------------------------------------------------------- Ultimate rate in seven years 5.0% 5.0% 5.0% - --------------------------------------------------------------------
A 1% increase in the assumed health care cost trend rate would have increased the accumulated postretirement benefit obligation as of April 30, 1997, by $6 and the postretirement benefit expense by $1. 33 10. PENSION PLANS The company has defined benefit pension plans covering certain employees. The benefits for these plans are based primarily on years of service and employees' pay near retirement for salaried employees and stated amounts for each year of service for union and hourly employees. The company also has unfunded plans that provide retirement benefits in excess of qualified plan formulas or regulatory limitations for certain employees. Net pension income includes the following components: - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 =================================================================================================================================== Benefit cost for service during the year $ (9) $ (7) $ (8) - ----------------------------------------------------------------------------------------------------------------------------------- Interest cost on projected benefit Obligation (16) (17) (14) - ----------------------------------------------------------------------------------------------------------------------------------- Actual return (loss) on plan assets 51 79 (5) - ----------------------------------------------------------------------------------------------------------------------------------- Net amortization and deferral (23) (54) 27 - ----------------------------------------------------------------------------------------------------------------------------------- Net pension income $ 3 $ 1 $ -- - -----------------------------------------------------------------------------------------------------------------------------------
The amounts included in the accompanying consolidated balance sheet were based on the funded status of the plans at January 31, 1997 and 1996 and are as follows: - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 =================================================================================================================================== Plan Assets Obligations Plan Assets Obligations Exceed Exceed Exceed Exceed Obligations Plans Assets Obligations Plans Assets - ----------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: - ----------------------------------------------------------------------------------------------------------------------------------- Vested benefit obligations $ 178 $ 21 $ 171 $ 23 - ----------------------------------------------------------------------------------------------------------------------------------- Nonvested benefit obligations 11 2 11 2 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligations 189 23 182 25 - ----------------------------------------------------------------------------------------------------------------------------------- Additional amounts related to assumed pay increases 32 6 30 3 - ----------------------------------------------------------------------------------------------------------------------------------- Projected benefit obligations 221 29 212 28 - ----------------------------------------------------------------------------------------------------------------------------------- Plan assets at fair value 339 7 300 5 - ----------------------------------------------------------------------------------------------------------------------------------- Plan assets in excess of (less than) benefit obligations 118 (22) 88 (23) - ----------------------------------------------------------------------------------------------------------------------------------- Unamortized net (assets) obligations at date of adoption (21) 2 (25) 3 - ----------------------------------------------------------------------------------------------------------------------------------- Unrecognized net (gain) loss resulting from experience different from that assumed and changes in actuarial assumptions (48) -- (20) 2 - ----------------------------------------------------------------------------------------------------------------------------------- Unrecognized prior service cost 4 5 3 5 - ----------------------------------------------------------------------------------------------------------------------------------- Adjustment required to recognized minimum liability -- (3) -- (7) - ----------------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 53 $ (18) $ 46 $ (20) - -----------------------------------------------------------------------------------------------------------------------------------
The projected benefit obligation was determined using a weighted average discount rate of 7.5% for 1997, 7% for 1996, and 8.5% for 1995. The weighted average rate of future compensation increases was 4.5% for 1997, 4% for 1996, and 5.5% for 1995. The expected rate of return on plan assets was 10% for 1997 and 9.5% for 1996 and 1995. The plans' assets consist primarily of stocks and bonds. The company's policy for funded plans is to make contributions equal to or greater than the requirements prescribed by the Employee Retirement Income Security Act. 34 11. BUSINESS SEGMENT INFORMATION The company's operations have been classified into two business segments: wines and spirits, and consumer durables. The wines and spirits segment includes the production, importing and marketing of wines and distilled spirits. The consumer durables segment includes the manufacture and sale of china, crystal, ceramic and crystal collectibles, silver, pewter, luggage and leather accessories. Summarized financial information by business segment for 1997, 1996 and 1995 is as follows:
1997 1996 1995 - ------------------------------------------------------------ Net sales: - ------------------------------------------------------------ Wines and Spirits $1,347 $1,294 $1,138 - ------------------------------------------------------------ Consumer Durables 494 513 542 - --------------------------------============================ $1,841 $1,807 $1,680 - --------------------------------============================ Operating income: - ------------------------------------------------------------ Wines and Spirits $ 273 $ 262 $ 244 - ------------------------------------------------------------ Consumer Durables 30 27 38 - ------------------------------------------------------------ Corporate (16) (15) (14) - --------------------------------============================ $ 287 $ 274 $ 268 - --------------------------------============================ Total assets: - ------------------------------------------------------------ Wines and Spirits $ 885 $ 835 $ 716 - ------------------------------------------------------------ Consumer Durables 470 480 480 - ------------------------------------------------------------ Corporate 73 66 90 - --------------------------------============================ $1,428 $1,381 $1,286 - --------------------------------============================ Depreciation and amortization: - ------------------------------------------------------------ Wines and Spirits $ 28 $ 24 $ 23 - ------------------------------------------------------------ Consumer Durables 21 21 20 - ------------------------------------------------------------ Corporate 1 1 1 - --------------------------------============================ $ 50 $ 46 $ 44 - --------------------------------============================ Capital expenditures: - ------------------------------------------------------------ Wines and Spirits $ 40 $ 43 $ 38 - ------------------------------------------------------------ Consumer Durables 14 16 13 - ------------------------------------------------------------ Corporate 1 -- -- - --------------------------------============================ $ 55 $ 59 $ 51 - --------------------------------============================
There were no significant intersegment sales or transfers during 1997, 1996 or 1995. Operating income by business segment excludes interest income, interest expense, and unallocated corporate expenses. Corporate assets consist principally of cash and cash equivalents, certain corporate receivables, and other assets. Sales outside the United States, consist principally of exports of wines and spirits, amounted to approximately $330, $282 and $221 in 1997, 1996 and 1995, respectively. 12. STOCK OPTIONS On July 25, 1996, pursuant the Brown-Forman Corporation Omnibus Compensation Plan (the Plan), the company granted approximately 157,000 stock options for an equal number of shares of Class B common stock to certain officers and key employees of the company and its subsidiaries. Each option had an exercise price of $36.125, the fair market value of a share of Class B common stock at the date of grant. Approximately 5,000 of the options were forfeited during 1997. The approximately 152,000 options outstanding at April 30, 1997 become exercisable on May 1, 1999, and expire on April 30, 2006. A total of 1,500,000 shares of common stock have been reserved for issuance under the Plan. The company applies the intrinsic value based method permitted by SFAS No. 123 in accounting for the stock options. Accordingly, no compensation expense has been recognized. Had compensation cost been determined based on the fair value at the grant dates, the effect on the company's 1997 net earnings would not have been material. 13 CONTINGENCIES In the normal course of business, various suits and claims are brought against the company, some of which seek significant damages. Many of these suits and claims take years to adjudicate, and it is difficult to predict their outcome. In the opinion of management, based on advice from legal counsel, none of these suits or claims will have a material adverse effect on the company's consolidated financial position or results of operations. 14 ENVIRONMENTAL The company, along with other responsible parties, faces environmental claims resulting from the cleanup of several waste deposit sites. The company has accrued its estimated portion of cleanup costs and expects other responsible parties and insurance to cover the remaining costs. The company believes that any additional costs incurred will not have a material adverse effect on the company's quarterly or annual results of operations or financial position. 35 EX-21 3 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Percentage State or of Voting Jurisdiction Name Securities Owned of Incorporation ---- ---------------- ---------------- Brown-Forman International F.S.C., Ltd. 100% U.S. Virgin Islands Canadian Mist Distillers, Limited 100% Ontario, Canada Early Times Distillers Company 100% Delaware Fetzer Vineyards 90.1% California Fratelli Bola International Wines, Inc 95% Kentucky Hartmann Luggage Company 100% Delaware Jack Daniel Distillery, Lem Motlow, Prop., Inc 100% Kentucky Lenox, Incorporated 100% New Jersey Mt. Eagle Corporation 100% Delaware Thoroughbred Plastics Corporaton 100% Kentucky Norkfolk Investments, Inc. 100% /(1)/ Delaware Dansk International Designs Ltd. 100% /(1)/ New York Brooks & Bentley Limited 100% /(1)/ United Kingdom Brooks & Bentley S.A.R.L. 100% /(1)/ France Brooks & Bentley AF 100% /(1)/ Norway Longnorth Limited 100% /(2)/ Ireland The Joseph Garneau Co., S.A. 100% /(2)/ Switzerland Chissick Limited 100% /(2)(3)/ Ireland Clintock Limited 100% /(2)(3)/ Ireland Lantone Limited 100% /(2)(3)/ Channel Islands Brown-Forman Mauritius, Limited 100% /(3)/ Mauritius Brown-Forman Worldwide B.V. 100% /(3)/ Netherlands Brown-Forman - W.S. Karoulias S.A. 75% /(3)/ Greece Pitts Bay Trading Limited 75% /(3)/ Bermuda Latone Delaware, Inc. 100% /(4)/ Delaware Brown-Forman Beverages Worldwide Comercio de Bebidas Ltda. 100% /(5)/ Brazil Brown-Forman Worldwide, L.L.C. 100% /(5)/ Delaware Brown-Forman Beverages Africa, Ltd. 100% /(6)/ Bermuda Frantelli Bolla, S.p.A. 88% /(7)/ Italy Drake Investments, Inc. 100% /(8)/ Delaware The above companies are included in the consolidated financial statements. The names of certain subsidiaries have been omitted which, if considered in the aggregate as a single subsidiary, would constitute a significant subsidiary. /(1)/ Owned by Lenox, Incorporated. /(2)/ Includes qualifying shares assigned to Brown-Forman Corporation. /(3)/ Owned by Longnorth Limited. /(4)/ Owned by Lantone Limited. /(5)/ Owned 99% by Brown-Forman Corporation and 1% by Early Times Distillers Company. /(6)/ Owned 99% by Clintock Limited and 1% by Longnorth Limited. /(7)/ Owned 45% by Fratelli Bolla International Wines, Inc. and 43% by the Joseph Garneau Co., S.A. /(8)/ Owned by Jack Daniel Distillery, Lem Motlow, Prop., Inc. EX-23 4 CONSENT OF COOPERS & LYBRAND L.L.P. Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Brown-Forman Corporation on Form S-3 (File No. 33-52551) and Form S-8 (File No. 333-08311), of our report dated May 27, 1997, on our audits of the consolidated financial statements and financial statement schedule of Brown-Forman Corporation as of April 30, 1997, 1996, and 1995, and for the years ended April 30, 1997, 1996, and 1995, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Louisville, Kentucky July 21, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from The Company's April 30, 1997 Annual Report and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR APR-30-1997 MAY-01-1996 APR-30-1997 58 0 263 10 451 802 638 346 1,428 399 63 0 12 10 708 1,428 1,841 1,841 937 937 0 0 17 273 104 169 0 0 0 169 2.45 2.45 Includes excise taxes of $257 million.
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