United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q ________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1996 Commission File No. 1-123 _________ BROWN-FORMAN CORPORATION (Exact name of Registrant as specified in its Charter) Delaware 61-0143150 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 850 Dixie Highway 40210 Louisville, Kentucky (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (502) 585-1100 ________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: January 31, 1996 Class A Common Stock (voting) 28,988,091 Class B Common Stock (nonvoting) 40,008,147
BROWN-FORMAN CORPORATION Index to Quarterly Report Form 10-Q Part I. Financial Information Item 1. Financial Statements Page Number Condensed Consolidated Statement of Income Three months ended January 31, 1996 and 1995 3 Nine months ended January 31, 1996 and 1995 3 Condensed Consolidated Balance Sheet January 31, 1996 and April 30, 1995 4 Condensed Consolidated Statement of Cash Flows Nine months ended January 31, 1996 and 1995 5 Notes to the Condensed Consolidated Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 10 Signatures 10
PART I - FINANCIAL INFORMATION Item 1. Financial Statements BROWN-FORMAN CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Expressed in thousands except per share amounts) Three Months Ended Nine Months Ended January 31, January 31, 1996 1995 1996 1995 -------- -------- ---------- ---------- Net sales $451,093 $431,112 $1,379,769 $1,275,947 Excise taxes 66,584 67,759 201,264 197,562 Cost of sales 168,028 152,212 510,038 460,155 -------- -------- ---------- ---------- Gross profit 216,481 211,141 668,467 618,230 Selling, general, and administrative expenses 89,156 93,799 276,789 265,920 Advertising expenses 61,741 49,203 178,964 144,891 ------- -------- ---------- ---------- Operating income 65,584 68,139 212,714 207,419 Interest income 733 497 2,049 1,178 Interest expense 5,165 5,758 15,829 17,102 -------- -------- ---------- ---------- Income before income taxes 61,152 62,878 198,934 191,495 Taxes on income 23,045 25,186 75,482 76,627 -------- -------- ---------- ---------- Net income 38,107 37,692 123,452 114,868 Less preferred stock dividend requirements 118 118 353 353 -------- -------- ---------- ---------- Net income applicable to common stock $ 37,989 $ 37,574 $ 123,099 $114,515 ======== ======== ========== ======== Weighted average number of common shares outstanding in thousands 68,996 68,996 68,996 68,996 Per common share: Net income $ .55 $ .55 $ 1.78 1.66 -------- -------- -------- -------- Cash dividends paid $ .2600 $ .2480 $ .7560 $ .7214 ======== ======== ======== ======== See notes to the condensed consolidated statements.
BROWN-FORMAN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Expressed in thousands) January 31, April 30, 1996 1995 (Unaudited) Assets Cash and cash equivalents $ 55,293 $ 62,474 Accounts receivable, net 234,098 234,165 Inventories: Barreled whisky 159,977 163,200 Finished goods 140,160 122,690 Work in process 77,039 58,991 Raw materials and supplies 44,325 37,042 ---------- ---------- Total inventories 421,501 381,923 Other current assets 19,073 19,348 ---------- ---------- Total current assets 729,965 697,910 Property, plant and equipment, net 276,677 252,217 Intangible assets, net 258,644 262,475 Other assets 71,920 72,957 ---------- ---------- Total assets $1,337,206 $1,285,559 ========== ========== Liabilities Commercial paper $ 50,000 $ 50,000 Accounts payable and accrued expenses 200,834 221,347 Current portion of long-term debt 6,023 5,514 Accrued taxes on income 4,390 -- Deferred income taxes 9,047 8,747 Dividends payable 18,057 -- ---------- ---------- Total current liabilities 288,351 285,608 Long-term debt 220,357 246,842 Deferred income taxes 131,382 114,420 Postretirement benefits 51,955 50,776 Other liabilities and deferred income 46,285 42,066 ---------- ---------- Total liabilities 738,330 739,712 Stockholders' Equity Preferred stock 11,779 11,779 Common stockholders' equity 587,097 534,068 ---------- ---------- Total stockholders' equity 598,876 545,847 ---------- ---------- Total liabilities and stockholders' equity $1,337,206 $1,285,559 ========== ========== Note: The balance sheet at April 30, 1995 has been taken from the audited financial statements at that date, and condensed. See notes to the condensed consolidated statements.
BROWN-FORMAN CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Expressed in thousands; amounts in brackets are reductions of cash) Nine Months Ended January 31, 1996 1995 -------- -------- Cash flows from operating activities: Net income $123,452 $114,868 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation 27,858 28,438 Amortization of intangible assets 6,678 6,676 Deferred income taxes 16,937 17,298 Other (2,298) (3,070) Changes in assets and liabilities: Accounts receivable 8,249 55,190 Inventories (28,575) (25,195) Other current assets 470 (1,171) Accounts payable and accrued expenses (33,720) (30,016) Accrued taxes on income 4,179 (3,815) -------- -------- Cash provided by operating activities 123,230 159,203 Cash flows from investing activities: Additions to property, plant, and equipment, net (42,526) (23,280) Investment in affiliate, net of cash (8,216) -- Other (465) (1,123) -------- -------- Cash used for investing activities (51,207) (24,403) Cash flows from financing activities: Commercial paper (51,005) (54,229) Proceeds from long-term debt 30,000 -- Reduction of long-term debt (5,685) (11,541) Cash dividends paid (52,514) (50,127) -------- -------- Cash used for financing activities (79,204) (115,897) -------- -------- Net increase (decrease) in cash and cash equivalents (7,181) 18,903 Cash and cash equivalents, beginning of period 62,474 30,540 -------- -------- Cash and cash equivalents, end of period $ 55,293 $ 49,443 ======== ======== See notes to the condensed consolidated statements.
BROWN-FORMAN CORPORATION NOTES TO THE CONDENSED CONSOLIDATED STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- The condensed consolidated statements have been prepared in accordance with the company's customary accounting practices as set forth in the company's 1995 annual report on Form 10-K and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of this information have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the company's April 30, 1995 annual report on Form 10-K. To conform to the current year presentation, certain reclassifications have been made to prior year condensed consolidated statements. 2. INVENTORIES ----------- The company uses the last-in, first-out method for determining the cost for substantially all inventories. If the last-in, first-out method had not been used, inventories would have been $82,635,000 and $70,497,000 higher than reported at January 31, 1996, and April 30, 1995, respectively. 3. 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 coverage to cover the remaining costs. The company believes that any additional costs incurred by the company will not have a material adverse effect on the company's financial condition or results of operations. 4. 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 financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial - ------ ------------------------------------------------- Condition and Results of Operations ----------------------------------- The following Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the company's April 30, 1995 annual report to stockholders. The results of operations for the nine months ended January 31, 1996, are not necessarily indicative of the operating results for the full year. Results of Operations - --------------------- Third Quarter Fiscal 1996 Compared to Third Quarter Fiscal 1995 - --------------------------------------------------------------- A summary of operating performance follows (expressed in thousands, except percentage and per share amounts): THREE MONTHS ENDED JANUARY 31, % 1996 1995 CHANGE -------- -------- ------ Net Sales - --------- Wines & Spirits $317,179 $293,477 8.1 Consumer Durables 133,914 137,635 (2.7) -------- -------- Total $451,093 $431,112 4.6 Operating Income $ 65,584 $ 68,139 (4.2) - ---------------- Net Income $ 38,107 $ 37,692 1.1 - ---------- Earnings Per Share $ 0.55 $ 0.54 1.1 - ------------------ Effective Tax Rate 37.7% 40.1% - ------------------ Sales of the company's wines and spirits segment were up 8% for the quarter, led by international growth of Jack Daniel's Tennessee Whiskey and gains for the company's premium wine brands. Jack Daniel's continues to show impressive growth in many of its established international markets, and the company is encouraged by consumer response to Brown-Forman's recent initiatives in newer markets. Brown-Forman's wines are benefiting from positive U.S. consumption trends for premium table wine, due in part to continuing media reports about scientific research indicating that regular moderate consumption of alcohol helps reduce the risk of heart disease. Revenues from Brown-Forman's consumer durables segment declined 3% for the quarter. The decline was primarily attributable to poor response rates experienced by the Lenox Collections direct marketing division, as well as a generally soft retail environment. Full year earnings for the consumer durables segment are forecast to be below last year's level, largely as a result of the poor performance of the company's direct marketing division. Operating income for the quarter was down 4% compared to last year. Earnings gains attributable to Brown-Forman's beverage brands were offset by disappointing results at Lenox, as well as by continuing investments to establish new beverage products and new international markets.
Net interest expense declined 16% from last year's third quarter due to lower net debt balances. A favorable effective tax rate reflects benefits from foreign operations and a shift in earnings toward operations that carry a lower relative tax rate. Nine Months Fiscal 1996 Compared to Nine Months Fiscal 1995 - ----------------------------------------------------------- A summary of operating performance follows (expressed in thousands, except percentage and per share amounts): NINE MONTHS ENDED JANUARY 31, % 1996 1995 CHANGE --------- ---------- ------ Net Sales - --------- Wines & Spirits $ 979,228 $ 858,521 14.1 Consumer Durables 400,541 417,426 (4.0) ---------- ---------- Total $1,379,769 $1,275,947 8.1 Operating Income $ 212,714 $ 207,419 2.6 - ---------------- Net Income $ 123,452 $ 114,868 7.5 - ---------- Earnings Per Share $ 1.78 $ 1.66 7.5 - ------------------ Effective Tax Rate 37.9% 40.0% - ------------------ Sales of the company's wines and spirits segment were up 14% for the nine months ending January 31, led by the successful introduction of Tropical Freezes, increased worldwide sales of Jack Daniel's, and growth of the company's premium wine brands. Revenues from the consumer durables segment were down 4% for the period, primarily reflecting lower response rates at the Lenox Collections direct marketing division, as well as a difficult retail environment for consumer durables in general. Consolidated operating income was 3% better than last year due to higher overseas sales of Jack Daniel's, growth of the company's premium wine brands, and the successful introduction of new beverage products. Favorable beverage performance was somewhat offset by poor results for consumer durables, and increased investments associated with expansion into international markets. Net interest expense continued to be favorable compared to last year as a result of lower net debt balances. A decline in the effective tax rate reflects benefits from foreign operations and a shift in earnings toward operations that carry a lower relative tax rate. The company expects that Brown- Forman's full-year effective tax rate in fiscal 1996 will approximate 38%. For the remainder of fiscal 1996, any additional earnings growth will likely be modest, reflecting continued investments in the company's beverage brands and the current environment for consumer durables.
Financial Condition at January 31, 1996 Compared to Financial - ------------------------------------------------------------- Condition at April 30, 1995 - --------------------------- Cash provided by operating activities was down 31% from the same period last year due largely to an increased mix of international sales, which generally carry longer credit terms. Additions to property, plant, and equipment increased over last year and reflect the company's plans to upgrade and expand its wines and spirits production facilities. The company issued $30 million of ten-year notes in the first quarter of fiscal 1996, proceeds of which were used for debt retirement and other general corporate purposes. Total net working capital increased 2% from April 30, 1995 to $421 million, principally reflecting additions to inventory in anticipation of future sales growth. Dividends - --------- On January 25, 1996 the company's Board of Directors declared a regular quarterly cash dividend of $.26 per share on both Class A and Class B Common Stock. In addition, a $.10 per share cash dividend was also declared on the Preferred Stock. Stockholders of record on March 7, 1996 will receive the cash dividend on April 1, 1996. As a result, total cash dividends paid per common share in fiscal 1996 will be $1.016, a 5% increase over last year. 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 these cleanup costs and expects other responsible parties and insurance coverage to cover the remaining costs. The company believes that any additional costs incurred by the company will not have a material adverse effect on the company's financial condition or results of operations.
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a)Exhibits: Exhibit Number Exhibit ------ ------- 27 Financial Data Schedule (b)Reports on Form 8-K: 1.) There were no reports on Form 8-K filed during the quarter ended January 31, 1996. SIGNATURES Pursuant to the requirements 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/ Steven B. Ratoff Date: March 6, 1996 By:_____________________________ Steven B. Ratoff Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer)