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, 2001
Commission file number 1-123
BROWN-FORMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 61-0143150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Dixie Highway 40210
Louisville, Kentucky (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (502) 585-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
Class A Common Stock (voting) $0.15 par value New York Stock Exchange
Class B Common Stock (nonvoting) $0.15 par value New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value, at April 30, 2001, of the voting and nonvoting
equity held by nonaffiliates of the registrant was approximately $2,100,000,000.
The number of shares outstanding for each of the registrant's classes of
Common Stock on June 30, 2001 was:
Class A Common Stock (voting) 28,988,091
Class B Common Stock (nonvoting) 39,476,769
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2001 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 26, 2001 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 pages 34 and 35 of our 2001 Annual Report to Stockholders, which
information is incorporated into this report by reference in response to Item 8.
(c) Narrative description of business:
The following is a description of our operations.
Wine and Spirits Segment
- ------------------------
Wine and Spirits operations include manufacturing, bottling, importing,
exporting, and marketing a wide variety of alcoholic beverage brands. This
Segment also manufactures and markets new and used oak barrels.
The Segment's brands consist of the following:
Jack Daniel's Tennessee Whiskey
Southern Comfort
Canadian Mist Canadian Whisky
Early Times Kentucky Whisky
Finlandia Vodkas*
Old Forester Kentucky Straight Bourbon Whisky
Glenmorangie Single Highland Malt Scotch Whiskies*
Jack Daniel's Country Cocktails
Gentleman Jack Rare Tennessee Whiskey
Jack Daniel's Single Barrel Tennessee Whiskey
Woodford Reserve Kentucky Straight Bourbon Whiskey
Fetzer Vineyards California Wines
Korbel California Champagnes, Wines and Brandy*
Bolla Italian Wines
Sonoma-Cutrer Chardonnay Wines
Bonterra Vineyards California Wines
Jekel Vineyards California Wines
Fontana Candida Italian Wines*
Don Eduardo Tequilas*
Ardberg Single Islay Malt Scotch Whisky*
Usher's Scotch Whisky*
McPherson Australian Wines*
2
Mariah California Wines
Chateau Tahbilk Australian Wines
Noilly Prat Vermouths*
Tuaca Liqueur*
Pepe Lopez Tequilas
Bel Arbor California Wines
Glen Moray Single Speyside Malt Scotch Whisky*
Michel Picard French Wines*
Owen's Estate Australian Wines*
Geoff Merrill Reserve Australian Wines*
Armstrong Ridge California Champagne*
* Brands represented in the U.S and other select markets by Brown-Forman
Statistics based on case sales, published annually by a leading trade
publication, rank Jack Daniel's as the largest selling bourbon or Tennessee
whiskey in the United States, Canadian Mist as the second-largest selling
Canadian whiskey in the United States, Southern Comfort as the third-largest
selling cordial in the United States, and Early Times as the fourth-largest
selling bourbon in the United States.
A leading industry trade publication reported Korbel California Champagnes as
the largest selling premium champagne in the United States. This trade
publication also reported that, among numerous imported wines, Bolla Italian
Wine is the leading premium Italian table wine in the United States. Fetzer was
ranked tenth among California varietal wines and seventeenth among all domestic
table wines.
We believe the statistics used to rank these products are reasonably accurate.
Our strategy with respect to the Wine and Spirits Segment is to market high
quality products that satisfy consumer preferences and to support them with
extensive international, national, and regional marketing programs. These
programs are intended to extend consumer brand recognition and brand loyalty.
Sales managers and representatives or brokers represent the Segment in all
states. The Segment distributes its spirits products domestically either through
state agencies or through wholesale distributors. The contracts that 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 is 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.
3
Due to aging requirements, production of whiskeys is scheduled to meet demand
three to five years in the future. Accordingly, inventories are larger in
relation to sales and total assets than would be normal for most other
businesses.
The industry is highly competitive and there are many brands sold in the
consumer market. Trade information indicates that we are one of the largest wine
and spirit suppliers in the United States in terms of revenues.
The wine and spirits industry is regulated by the Bureau of Alcohol, Tobacco,
and Firearms of the United States Treasury Department with respect to
production, blending, bottling, sales, advertising, and transportation of its
products. Also, each state regulates advertising, promotion, transportation,
sale, and distribution of such products.
Under federal regulations, whiskey must be aged for at least two years to be
designated "straight whiskey." The Segment ages its straight whiskeys for a
minimum of three to five years. Federal regulations also require that "Canadian"
whiskey must be manufactured in Canada in compliance with Canadian laws and must
be aged in Canada for at least three years.
Consumer Durables Segment
- -------------------------
The Consumer Durables Segment includes the manufacturing and/or marketing of the
following:
Fine China Dinnerware
Casual Dinnerware and Glassware
Crystal Stemware
Crystal Barware
China and Crystal Giftware
Collectibles and Jewelry
Sterling Silver, Silver-Plated and Metal Giftware
Sterling Silver and Stainless Steel Flatware
Contemporary Tabletop, Houseware and Giftware
Luggage
Business Cases
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 specialty stores, and jewelry shops and
through retail stores operated by the Segment. Products are also distributed
domestically through the institutional, incentive, premium, business gift and
military exchange classes of trade, and internationally through authorized
retailers, duty free stores and/or distributors in select foreign markets.
Specially created collectible jewelry and home decor products are distributed
both domestically and in the United Kingdom through the direct response channel,
including mail-order, catalogs and the internet.
4
Fine china and casual dinnerware, as well as fine china giftware, are marketed
under the Lenox trademark. Crystal stemware, barware and giftware, stainless
flatware, and silver-plated and metal giftware are marketed under both the Lenox
and Gorham trademarks. Contemporary tabletop, houseware and giftware products
are marketed under the Dansk trademark. Sterling silver flatware and sterling
giftware are marketed under the Gorham and Kirk Stieff trademarks. Luggage,
business cases, and personal leather accessories are marketed under the
Hartmann, Wings, and hStudio trademarks. The direct response sales in the United
States of specially designed collectible jewelry and home decor products are
marketed under the Lenox and Gorham trademarks, while such sales abroad are
marketed primarily under the Brooks & Bentley trademark.
The Lenox, Gorham, and Hartmann brand names hold significant positions in their
industries. The Segment has granted licenses for the use of the Lenox trademark
on fine table linens, lamps and other electrical lighting products, and candles,
subject to the terms of licensing agreements.
We believe the Segment is the largest domestic manufacturer and marketer of fine
china dinnerware and the only significant domestic manufacturer of fine quality
china giftware. The Segment is also a leading manufacturer and distributor of
fine quality luggage, business cases, and personal leather accessories. The
Segment competes with a number of other companies and is subject to intense
foreign competition in the marketing of its fine china, contemporary and casual
dinnerware, crystal stemware and giftware, stainless flatware, and luggage
products.
In the Segment's china and stainless businesses, competition is based primarily
on quality, design, brand, style, product appeal, consumer satisfaction, and
price. In its luggage, business case and personal leather accessories business,
competition is based primarily on brand awareness, quality, design, style, and
price. In its direct response/mail-order business, the most important
competitive factors are the brand, product appeal, design, sales/marketing
program, service, and price. In its crystal, sterling silver, silver-plated, and
metal giftware 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; 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, and fine
silver is influenced significantly by worldwide economic events and commodity
trading.
Sales of certain Segment products are traditionally greater in the first half of
the fiscal year, primarily because of seasonal holiday buying.
5
Other Information
- -----------------
As of April 30, 2001, we employ approximately 7,400 persons, including 1,700
employed on a part-time or temporary basis.
We are an equal opportunity employer and we recruit and place employees without
regard to race, color, national or ethnic origin, gender, age, religion, veteran
status, sexual preference, or disability.
We believe our employee relations are good.
For information on the effects of compliance with federal, state, and local
environmental regulations, refer to Note 13, "Environmental Matters," on page 35
of our 2001 Annual Report to Stockholders, which information is incorporated
into this report by reference in response to Item 8.
Item 2. Properties
The corporate offices consist of office buildings, including renovated historic
structures, all located in Louisville, Kentucky.
Significant properties by business segments are as follows:
Wine and Spirits Segment
- ------------------------
The facilities of the Wine and Spirits Segment are shown below. The owned
facilities are held in fee simple.
Owned facilities:
- - Production facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Collingwood, Ontario
- Shively, Kentucky
- Woodford County, Kentucky
- Frederiksted, St. Croix, U.S. Virgin Islands
- Mendocino County, California
- Monterey County, California
- Sonoma County, California
- Pedemonte, Italy
- Soave, Italy
- - Warehousing facilities:
- Lynchburg, Tennessee
- Louisville, Kentucky
- Collingwood, Ontario
- Shively, Kentucky
- Woodford County, Kentucky
- Mendocino County, California
- Monterey County, California
- Sonoma County, California
- Pedemonte, Italy
- Soave, Italy
6
Leased facilities:
- - Production and bottling facility in Dublin, Ireland
- - Wine production and warehousing facility in Mendocino County, California
- - Vineyards in Monterey County, California
We believe that the productive capacities of the Wine and Spirits Segment are
adequate for the business, and that the facilities are maintained in a good
state of repair.
Consumer Durables Segment
- -------------------------
The facilities of the Consumer Durables Segment are shown below. The owned
facilities are held in fee simple.
Owned facilities:
- - Office facilities:
- Lenox corporate - Lawrenceville, New Jersey
- Headquarters for Lenox Direct Response/Collectibles
Division (includes retail store and warehouse) - Langhorne,
Pennsylvania
- - Production and office facilities (each of which includes a retail store):
- Lenox - Pomona, New Jersey; Oxford, North Carolina; Kinston,
North Carolina; and Mt. Pleasant, Pennsylvania
- Lenox/Gorham - Smithfield, Rhode Island
- Hartmann - Lebanon, Tennessee
- - Warehousing facilities:
- Lenox/Dansk/Gorham - Williamsport, Maryland
Leased facilities:
- - Office facilities:
- Dansk headquarters - White Plains, New York
- Norfolk headquarters - Wilmington, Delaware
- Brooks & Bentley headquarters - Kent, England
- Hartmann (includes showroom) - New York, New York
- - Warehousing facilities:
- Lenox - South Brunswick, New Jersey (includes retail store);
Oxford, North Carolina; and Kinston, North Carolina
- Lenox/Dansk/Gorham - Williamsport, Maryland
- Hartmann - Lebanon, Tennessee
- - Retail stores:
- The Segment operates 54 Lenox stores in 28 states and 56 Dansk
stores in 28 states. In addition, the Segment operates 5
Hartmann luggage outlet stores in 5 states.
- - Showrooms:
- Lenox/Dansk/Gorham - New York, New York; Dallas, Texas;
Atlanta, Georgia; Ontario, Canada
7
The lease terms expire at various dates and are generally renewable.
We believe that the Segment's facilities are in good condition and are adequate
for the business.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Principal Occupation and
Name Age Business Experience
---- --- ---------------------------------
Owsley Brown II 58 Chairman and Chief Executive Officer
of the company since 1995.
William M. Street 62 Vice Chairman of the company
since 1987.
Phoebe A. Wood 48 Executive Vice President and Chief
Financial Officer of the company
since February 2001. Vice President
and Chief Financial Officer for
Propel, Inc. (a subsidiary of
Motorola) from August 2000 to
February 2001. Vice President,
Finance, Planning and Control for
ARCO Alaska, Inc. from 1996 to 2000.
Michael B. Crutcher 57 Senior Vice President, General
Counsel, and Secretary since 1989.
Donald C. Berg 46 Senior Vice President and
Director of Corporate Development
and Strategy since May 2001.
President of the company's Advancing
Markets Group (AMG) from August 1999
to May 2001. Senior Vice President
and Managing Director of AMG from
August 1997 to August 1999. Senior
Vice President, Sales and Marketing
for AMG from 1995 to August 1997.
Lois A. Mateus 54 Senior Vice President of Corporate
Communications and Corporate
Services since 1988.
James S. Welch, Jr. 42 Executive Director of Human
Resources since March 1999. Vice
President of Human Resources for
Brown-Forman Beverages Worldwide
from January 1998 to March 1999.
Vice President of the company's
Business Consulting Group from 1995
to January 1998.
Stanley E. Krangel 50 President of Lenox, Incorporated
(a subsidiary of Brown-Forman) since
June 1998. President of Lenox
Collections from 1995 to June 1998.
8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Except as presented below, for the information required by this item refer to
the section entitled "Quarterly Financial Information" appearing on the
"Highlights" page of the 2001 Annual Report to Stockholders, which information
is incorporated into this report by reference.
Holders of record of Common Stock at April 30, 2001:
Class A Common Stock (Voting) 3,765
Class B Common Stock (Nonvoting) 4,486
The principal market for Brown-Forman common shares is the New York Stock
Exchange.
Item 6. Selected Financial Data
For the information required by this item, refer to the section entitled
"Selected Financial Data" appearing on page 17 of the 2001 Annual Report to
Stockholders, which information is incorporated into this report by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For the information required by this item, refer to the section entitled
"Management's Discussion and Analysis" appearing on pages 18 through 24 of the
2001 Annual Report to Stockholders, which information is incorporated into this
report by reference.
Risk Factors Affecting Forward-Looking Statements:
From time to time, we may make forward-looking statements related to our
anticipated financial performance, business prospects, new products, and similar
matters. We make several such statements in the discussion and analysis referred
to above, but we do not guarantee that the results indicated will actually be
achieved.
9
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. To comply with the terms of the safe harbor, we note
that the following non-exclusive list of important risk factors could cause our
actual results and experience to differ materially from the anticipated results
or other expectations expressed in those forward-looking statements:
Generally: We operate in highly competitive markets. Our business is
subject to changes in general economic conditions, changes in consumer
preferences, the degree of acceptance of new products, and the
uncertainties of litigation. As our business continues to expand
outside the United States, our financial results are more exposed to
foreign exchange rate fluctuations and the health of foreign economies.
Beverage Risk Factors: 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. This
assumption is based in part on favorable demographic trends in the U.S.
and many international markets for the sale of spirits and wine.
Current expectations for our global beverage business may not be met if
these demographic trends do not translate into corresponding sales
increases. Profits could also be affected by increases in the price of
grain, grapes or energy. Beverage wholesalers and retailers in the
U.S. appear to be lowering their beverage trade inventories, which
adversely affects shipments. In common with most other consumer
businesses, our domestic beverage business will be hurt if the U.S.
economy softens further or goes into a recession. Profits from our
international beverage business may be adversely affected if the U.S.
dollar continues to strengthen against other currencies or if economic
conditions deteriorate in the principal countries where we export our
beverage products, including the United Kingdom, Germany, Japan, and
Australia.
The wine and spirits business, both in the United States and abroad,
is also sensitive to political and social trends. The U.S. beverage
alcohol business is highly sensitive to tax increases; an increase in
the federal excise tax (which we do not anticipate at this time) would
depress our domestic beverage business. Legal or regulatory measures
against beverage alcohol (including its advertising and promotion)
could adversely affect sales. Product liability litigation against
the alcohol industry, while not currently a major risk factor, could
become significant if new lawsuits were filed against alcohol
manufacturers.
Consumer Durables Risk Factors: Earnings projections for our consumer
durables segment anticipate a continued strengthening of our Lenox
business and the revitalization of our Hartmann business. These
projections could be offset by factors such as poor consumer response
to direct mail, a soft retail environment, further department store
consolidation, or weakened demand for tableware, giftware and/or
leather goods. Consumer durables are usually discretionary purchases
and our business would be impacted if the U.S. economy softens further
or goes into a recession.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For the information required by this item, refer to the section entitled "Market
Risks" appearing on page 24 of the 2001 Annual Report to Stockholders, which
information is incorporated into this report by reference.
10
Item 8. Financial Statements and Supplementary Data
For the information required by this item, refer to the Consolidated Financial
Statements, Notes to Consolidated Financial Statements, Report of Independent
Accountants, and Report of Management appearing on pages 25 through 37 of the
2001 Annual Report to Stockholders, which information is incorporated into this
report by reference. For selected quarterly financial information, refer to the
section entitled "Quarterly Financial Information" appearing on the "Highlights"
page of the 2001 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 26, 2001, which information is incorporated into this report by reference:
(a) "Election of Directors" on page 4 through the fourth paragraph on page 5
(for information on directors); and (b) the last paragraph on page 7 (for
information on delinquent Section 16 filings). Also, see the information with
respect to "Executive Officers of the Registrant" under Part I of this report,
which information is incorporated herein by reference.
Item 11. Executive Compensation
For the information required by this item, refer to the following sections of
our definitive proxy statement for the Annual Meeting of Stockholders to be held
July 26, 2001, which information is incorporated into this report by reference:
(a) "Executive Compensation" on pages 10 through 13; (b) "Retirement Plan
Descriptions" on page 14; and (c) "Director Compensation" on page 15.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For the information required by this item, refer to the section entitled "Stock
Ownership" appearing on pages 6 through 7 of our definitive proxy statement for
the Annual Meeting of Stockholders to be held July 26, 2001, 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 26, 2001, which
information is incorporated into this report by reference.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 and 2 - Index to Consolidated Financial Statements and Schedule:
Reference
Annual
Form 10-K Report to
Annual Report Stockholders
Page Page(s)
Incorporated by reference to our Annual
Report to Stockholders for the year
ended April 30, 2001:
Consolidated Statement of Income for the
years ended April 30, 1999, 2000, and 2001* -- 25
Consolidated Balance Sheet at April 30, 1999, 2000, and 2001* -- 26 - 27
Consolidated Statement of Cash Flows for the
years ended April 30, 1999, 2000, and 2001* -- 28
Consolidated Statement of Stockholders' Equity
for the years ended April 30, 1999, 2000, and 2001* -- 29
Notes to Consolidated Financial Statements* -- 30 - 36
Report of Management* -- 37
Report of Independent Accountants* -- 37
Consolidated Financial Statement Schedule:
Report of Independent Accountants on Financial Statement Schedule S-1 --
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, 2001, but only to the extent set forth in
Items 1, 5, 6, 7, 7A and 8 of this Annual Report on Form 10-K for
the year ended April 30, 2001.
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP independent accountants.
12
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 Form 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 Form 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 Form 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 Form
10-K filed on July 19, 1994.
3(e) The by-laws of registrant, as amended on May 25, 2000, which is
incorporated into this report by reference to Brown-Forman
Corporation's Form 8-K filed on May 31, 2000.
4 The Form of Indenture dated as of March 1, 1994 between
Brown-Forman Corporation and The First National Bank of Chicago, as
Trustee, which is incorporated into this report by reference to
Brown-Forman Corporation's Form S-3 (Registration No. 33-52551)
filed on March 8, 1994.
10(a) A description of the Brown-Forman Omnibus Compensation Plan, which
is incorporated into this report by reference to the Appendix of
the registrant's definitive proxy statement for the Annual Meeting
of Stockholders held on July 27, 1995.
10(b) Brown-Forman Corporation Restricted Stock Plan, which is
incorporated into this report by reference to Brown-Forman
Corporation's Form 10-K filed on July 19, 1994.
10(c) Brown-Forman Corporation Supplemental Excess Retirement Plan, which
is incorporated into this report by reference to Brown-Forman
Corporation's Form 10-K filed on July 23, 1990.
10(d) Brown-Forman Corporation Stock Appreciation Rights Plan, which is
incorporated into this report by reference to Brown-Forman
Corporation's Form 10-K filed on July 23, 1990.
10(e) A description of the Brown-Forman Savings Plan, which is
incorporated into this report by reference to page 10 of the
registrant's definitive proxy statement for the Annual Meeting of
Stockholders held on July 25, 1996.
10(f) A description of the Brown-Forman Flexible Reimbursement Plan,
which is incorporated into this report by reference to page 10 of
the registrant's definitive proxy statement for the Annual Meeting
of Stockholders held on July 25, 1996.
13
10(g) A description of the Brown-Forman Non-Employee Director
Compensation Plan, which is incorporated into this report by
reference to Brown-Forman Corporation's Form S-8 (Registration No.
333-38649) filed on October 24, 1997.
10(h) Credit Agreement dated as of October 29, 1997, among Brown-Forman
Corporation and a group of United States and international banks,
which is incorporated into this report by reference to Amendment
No. 1 to Brown-Forman Corporation's Form 10-Q filed on December 15,
1997.
(b) Reports on Form 8-K:
On September 6, 2000, the Registrant filed a report on Form 8-K announcing
its purchase of 61,992 shares of its Class B Common Stock in a private
transaction and the promotion of certain executives within its beverage
organization.
On November 9, 2000, the Registrant filed a report on Form 8-K announcing a
presentation by John P. Bridendall, Senior Vice President and Director of
Corporate Development, at the Morgan Stanley Dean Witter Global Consumer
Group Conference.
On November 15, 2000, the Registrant filed a report on Form 8-K announcing
the election of William M. Street to the office of President of Brown-Forman
Corporation.
On February 16, 2001, the Registrant filed a report on Form 8-K regarding
its issuance of a press release to announce earnings for the quarter ended
January 31, 2001, as well as a conference call to discuss the earnings
release.
On February 21, 2001, the Registrant filed a report on Form 8-K announcing
its purchase of 13,358 shares of its Class B Common Stock in a private
transaction and a presentation by William M. Street at the CAGNY Conference
in Naples, Florida.
On July 19, 2001, the Registrant filed a report on Form 8-K announcing its
purchase of 96,831 shares of its Class A Common Stock and 93,085 shares of
its Class B Common Stock in a private transaction.
14
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 24, 2001 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 24, 2001 as indicated:
/s/ JERRY E. ABRAMSON /s/ RICHARD P. MAYER /s/ OWSLEY BROWN II
- --------------------------------------- --------------------------------- -----------------------------------------
By: Jerry E. Abramson By: Richard P. Mayer By: Owsley Brown II
Director Director Director, Chairman of the Board
and Chief Executive Officer
/s/ BARRY D. BRAMLEY /s/ STEPHEN E. O'NEIL
- --------------------------------------- ---------------------------------
By: Barry D. Bramley By: Stephen E. O'Neil
Director Director
/s/ GEO. GARVIN BROWN III /s/ DACE BROWN STUBBS /s/ OWSLEY BROWN FRAZIER
- --------------------------------------- --------------------------------- -----------------------------------------
By: Geo. Garvin Brown III By: Dace Brown Stubbs By: Owsley Brown Frazier
Director Director Director, Former Vice Chairman
of the Board
/s/ DONALD G. CALDER
- ---------------------------------------
By: Donald G. Calder
Director
/s/ LAWRENCE K. PROBUS /s/ PHOEBE A. WOOD /s/ WILLIAM M. STREET
- --------------------------------------- --------------------------------- -----------------------------------------
By: Lawrence K. Probus By: Phoebe A. Wood By: William M. Street
Vice President and Controller Executive Vice President and Director, President
(Principal Accounting Officer) Chief Financial Officer
(Principal Financial Officer)
15
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Brown-Forman Corporation
Our audits of the consolidated financial statements referred to in our report
dated May 24, 2001 appearing in the 2001 Annual Report to Shareholders of
Brown-Forman Corporation and Subsidiaries (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
May 24, 2001
S-1
BROWN-FORMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended April 30, 1999, 2000, and 2001
(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
----------- ---------- ------------ ---------- ----------
1999
Allowance for Doubtful Accounts $10,962 $ 7,582 $ 7,385(1) $11,159
2000
Allowance for Doubtful Accounts $11,159 $ 5,833 $ 5,346(1) $11,646
2001
Allowance for Doubtful Accounts $11,646 $ 6,083 $ 5,469(1) $12,260
(1) Doubtful accounts written off, net of recoveries.
S-2
Exhibit 13
HIGHLIGHTS
(Expressed in millions, except per share amounts and ratios)
- --------------------------------------------------------------------------------
Year Ended April 30, 2000 2001 % Change
- --------------------------------------------------------------------------------
Net Sales $2,134 $2,180 2%
Gross Profit $1,103 $1,153 5%
Operating Income $ 348 $ 374 7%
Net Income $ 218 $ 233 7%
Earnings Per Share - Basic and Diluted $ 3.18 $ 3.40 7%
Cash Dividends Paid Per Common Share $ 1.21 $ 1.28 6%
EBITDA $ 410 $ 438 7%
Business Value Added $ 111 $ 108 (2%)
Return on Average Invested Capital 18.4% 17.9%
Return on Average Common Stockholders' Equity 22.4% 21.0%
Gross Margin 51.7% 52.9%
Operating Margin 16.3% 17.1%
QUARTERLY FINANCIAL INFORMATION
(Expressed in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings
Per Share- Cash Dividends Market Price (High-Low)
Net Gross Net Basic and Paid Per Per Common Share
Sales Profit Income Diluted Common Share Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 2001 $2,180 $1,153 $ 233 $3.40 $ 1.28 $71.00 - $49.00 $72.00 - $50.00
Quarters
First 466 255 43 0.62 0.31 57.50 - 49.00 60.94 - 50.00
Second 647 340 80 1.17 0.31 60.75 - 49.75 61.19 - 50.44
Third 559 290 56 0.82 0.33 68.75 - 59.00 69.25 - 58.75
Fourth 508 268 54 0.79 0.33 71.00 - 58.00 72.00 - 57.65
Fiscal 2000 $2,134 $1,103 $ 218 $3.18 $ 1.21 $63.38 - $45.00 $68.50 - $46.38
Quarters
First 437 231 38 0.56 0.295 62.25 - 56.25 67.25 - 61.50
Second 642 321 73 1.06 0.295 63.38 - 54.75 68.38 - 57.81
Third 557 284 55 0.80 0.31 63.25 - 50.56 68.50 - 54.00
Fourth 498 267 52 0.76 0.31 55.00 - 45.00 57.63 - 46.38
FINANCIAL TABLE OF CONTENTS
17
Selected Financial Data
18
Management's Discussion and Analysis
25
Consolidated Statement of Income
26
Consolidated Balance Sheet
28
Consolidated Statement of Cash Flows
29
Consolidated Statement of Stockholders' Equity
30
Notes to Consolidated Financial Statements
37
Report of Management
37
Report of Independent Accountants
SELECTED FINANCIAL DATA
Year Ended April 30,
(Expressed in millions, except per share amounts and ratios)
Operations 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Sales $1,490 1,644 1,606 1,672 1,793 1,824 1,906 2,009 2,134 2,180
Gross Profit $ 714 777 768 815 864 885 956 1,019 1,103 1,153
Operating Income $ 234 255 240 268 274 287 307 322 348 374
Net Income $ 146 156 129 149 160 169 185 202 218 233
Weighted Average Shares used to
calculate Earnings Per Share
- - Basic 82.7 82.7 78.7 69.0 69.0 69.0 68.9 68.6 68.5 68.5
- - Diluted 82.7 82.7 78.7 69.0 69.0 69.0 69.0 68.7 68.6 68.6
Earnings Per Share
- Basic and Diluted $ 1.76 1.88 1.63 2.15 2.31 2.45 2.67 2.93 3.18 3.40
Cash Dividends Paid
Per Common Share $ 0.78 0.86 0.93 0.97 1.02 1.06 1.10 1.15 1.21 1.28
Invested Capital
- ----------------
Average Invested Capital $ 823 925 900 835 875 929 948 1,049 1,238 1,357
Average Common
Stockholders' Equity $ 686 765 629 493 578 671 756 854 974 1,110
Total Assets $1,194 1,311 1,234 1,286 1,381 1,428 1,494 1,735 1,802 1,939
Long-Term Debt $ 114 154 299 247 211 63 50 53 41 40
Other Key Measures
- ------------------
Gross Margin 47.9% 47.3% 47.8% 48.8% 48.2% 48.5% 50.2% 50.7% 51.7% 52.9%
Operating Margin 15.7% 15.5% 15.0% 16.0% 15.3% 15.8% 16.1% 16.0% 16.3% 17.1%
Effective Tax Rate 34.6% 35.6% 37.4% 39.8% 37.8% 38.0% 37.6% 36.5% 36.5% 36.3%
Return on Average
Invested Capital 18.8% 18.0% 15.4% 19.5% 19.7% 19.4% 20.4% 19.8% 18.4% 17.9%
Return on Average Common
Stockholders' Equity 21.3% 20.4% 20.4% 30.1% 27.5% 25.2% 24.3% 23.6% 22.4% 21.0%
Total Debt to Total Capital 15.5% 16.4% 43.6% 35.7% 29.6% 23.6% 16.7% 24.5% 20.3% 17.1%
Total Cash Dividends
Paid to Net Income 44.4% 45.8% 57.5% 45.3% 44.2% 43.3% 41.2% 39.3% 38.1% 37.7%
Cash Flows from Operations $ 156 193 221 197 167 176 220 213 241 231
EBITDA $ 271 299 286 311 320 337 358 377 410 438
Notes:
1. Includes the operations of Dansk International Designs Ltd., Fetzer
Vineyards, and Sonoma-Cutrer Vineyards since their acquisitions on July 2,
1991, August 31, 1992, and April 15, 1999, respectively.
2. Fiscal 1994 net income and earnings per share were reduced by $32 million
and $0.41, respectively, from the cumulative effect of accounting changes.
3. On October 15, 1993, the company sold Brown-Forman Enterprises, its credit
card processing operations, resulting in an after-tax gain of $18 million.
4. Weighted average shares, earnings per share, and cash dividends paid per
common share have been adjusted for a 3-for-1 common stock split in fiscal
1994.
5. Return on Average Invested Capital is defined as the sum of net income
(excluding extraordinary items) and after-tax interest expense, divided by
average invested capital. Invested capital is the sum of all interest-
bearing debt and preferred and common equity.
6. Return on Average Common Stockholders' Equity is defined as income
applicable to common stock divided by average common stockholders' equity.
7. Total Debt to Total Capital is defined as debt divided by the sum of debt
and preferred and common equity.
8. EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and as such represents a measure of the company's cash flow.
It should be considered in addition to, but not as a substitute for, other
measures of financial performance that are in accordance with generally
accepted accounting principles.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the discussion below, and in the Chairman's letter, we review Brown-Forman's
consolidated financial condition and results of operations for the fiscal years
ended April 30, 1999, 2000 and 2001. 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,
2001, 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 SUMMARY OF OPERATING PERFORMANCE
Fiscal 2001 Compared to 2000
Net sales reached record levels in fiscal 2001, growing $2% or $46 million.
Sales of wine and spirits increased 2%, as solid growth of Jack Daniel's
Tennessee Whiskey was tempered by lower shipments of Korbel Champagne following
the Millennium boom. Revenues from the consumer durables segment improved 3%,
fueled by gains in catalogue, direct mail, and Internet channels.
Net Sales
Dollars in Millions
1999 2000 2001
------ ------ ------
Wine and Spirits $1,447 $1,543 $1,573
Consumer Durables 562 591 607
------ ------ ------
Total $2,009 $2,134 $2,180
====== ====== ======
Total change +5% +6% +2%
International sales of $370 million were up 4% in fiscal 2001 despite a
weakening of foreign currencies against the U.S. dollar. Sales in the United
States, representing 81% of our revenues (excluding excise taxes), grew 2% in
fiscal 2001. A slowing U.S. economy softened sales trends during the last half
of the fiscal year, particularly in the traditional wholesale channels of our
consumer durables segment.
Gross profit is a key measure by which we gauge the quality of our performance.
Fiscal 2001 gross profit growth of 5% outpaced the rate of sales gains,
reflecting a continuing shift toward higher-margin products, as well as benefits
from selected price increases and stable costs.
Gross Profit
Dollars in Millions
1999 2000 2001
------ ------ ------
Wine and Spirits $ 742 $ 812 $ 849
Consumer Durables 277 291 304
------ ------ ------
Total $1,019 $1,103 $1,153
====== ====== ======
Total change +7% +8% +5%
By focusing marketing efforts on high-margin products and realizing
manufacturing efficiencies, the company's gross margin achieved a record level
of nearly 53% in fiscal 2001. This ongoing trend has been a particularly
impressive achievement given the weakening of foreign currencies over the past
five years, which has depressed our results when translated into U.S. dollars.
Fiscal Gross
Year Margin
------ ------
1991 47.1%
1992 47.9%
1993 47.3%
1994 47.8%
1995 48.8%
1996 48.2%
1997 48.5%
1998 50.2%
1999 50.7%
2000 51.7%
2001 52.9%
18
Operating income for fiscal 2001 improved $26 million, or 7%. A $23 million
increase in profits from wine and spirits was driven primarily by growth of Jack
Daniel's. Operating income for the consumer durables segment increased $3
million, largely attributable to successful new products sold directly to
consumers. In addition to the negative impact of weakening foreign currencies,
Brown-Forman's earnings growth was tempered by lower profits from Korbel
Champagne, sales of used barrels, and Hartmann luggage.
Operating Income
Dollars in Millions
1999 2000 2001
---- ---- ----
Wine and Spirits $284 $304 $327
Consumer Durables 38 44 47
---- ---- ----
Total $322 $348 $374
==== ==== ====
Total change +5% +8% +7%
Earnings per share reached a record $3.40, up 7% over fiscal 2000. A slower
growth rate in 2001 principally reflects an industry-wide contraction in sales
of sparkling wine and used barrels, as well as weakening foreign currencies and
a softer U.S. economy.
1999 2000 2001
---- ---- ----
Earnings Per Share $2.93 $3.18 $3.40
Change +10% +9% +7%
Fiscal 2000 Compared to 1999
Net sales grew $125 million, or 6%, in fiscal 2000. Sales of wine and spirits
increased 7%, primarily driven by higher volumes for the Jack Daniel's family of
brands, Korbel Champagne, and Fetzer Wines, as well as the addition of
Sonoma-Cutrer. Sales from the consumer durables segment improved 5%, reflecting
higher revenues from dinnerware and collectibles.
Gross profit growth of 8% outpaced the rate of sales growth. A continuing shift
toward higher-margin products, selected price increases, and stable costs has
resulted in a significant improvement in Brown-Forman's gross margin over the
past ten years.
Operating income improved 8% during fiscal 2000. Profits from wine and spirits
grew $20 million, due principally to strong results by Jack Daniel's and Fetzer.
Operating income for the consumer durables segment increased $6 million in
fiscal 2000, reflecting broad improvement across most product lines and channels
of distribution.
Earnings per share grew 9% over fiscal 1999 to $3.18 per share, fueled by strong
operating income growth.
BUSINESS VALUE ADDED
Brown-Forman's foremost goal is to increase the value of our shareholders'
investment. To assist us in achieving this objective, we evaluate performance
and compensate our management based on a measure we call Business Value Added
(BVA). We define BVA as the company's after-tax operating income less a capital
charge for net operating assets employed, recognizing not only the profits
generated by the company but also the investment required to produce those
profits.
Business Value Added
Dollars in Millions
1999 2000 2001
---- ---- ----
Adjusted for deferred taxes;
investments in Sonoma-Cutrer
and Finlandia $108 $124 $133
As defined 106 111 108
19
BVA, as defined, grew 9% in fiscal 1999 and 4% in fiscal 2000, and declined 2%
in fiscal 2001. These results were affected by a change in U.S. tax regulations,
requiring us to repay a $200 million deferred tax liability over a four-year
period ending in fiscal 2003. Further, although we expect recent investments in
Sonoma-Cutrer and Finlandia will enhance BVA over the long term, these
investments have also diluted BVA growth rates. Adjusted for these items, BVA
increased 10% in fiscal 1999, 14% in fiscal 2000, and 8% in fiscal 2001.
Returns on average invested capital and stockholders' equity were similarly
influenced by these same factors. As a result, the company's returns have
therefore trended lower, but remain at very healthy rates.
1999 2000 2001
---- ---- ----
Return on Average Invested Capital 19.8% 18.4% 17.9%
Return on Average Common Stockholders' Equity 23.6% 22.4% 21.0%
COMPANY OUTLOOK
We believe the outlook for Brown-Forman's growth is positive. Long-term
demographic trends for premium wine and spirits brands remain favorable in the
U.S. -- the company's primary market -- and, despite challenges posed by a
continued weakening of international currencies, prospects remain promising in
other important markets as well. To capitalize on these opportunities, we plan
additional increases in the marketing investments behind our beverage brands. We
will also continue to penetrate new markets by expanding our global sales,
marketing, and distribution resources, as well as developing new products within
promising market segments. Expanding Brown-Forman's portfolio of premium brands
represents another opportunity for growth, as illustrated by the company's
investments in Finlandia, Glenmorangie, and Tuaca during fiscal 2001.
The outlook is also positive for our consumer durables business. Lenox is the
leader in the U.S. market for fine china dinnerware, and is continuing to create
value for shareholders by capitalizing on its portfolio of powerful brand names.
While a softening U.S. economy has slowed growth for Lenox and Hartmann products
sold through traditional wholesale channels, we are successfully developing new
distribution channels that reach consumers directly.
We expect fiscal 2002 earnings to grow at a rate comparable to fiscal 2001.
First quarter comparisons to last year will be difficult, however, as
significant currency hedging gains in the first quarter of fiscal 2001 will not
be replicated in fiscal 2002.
WINE AND SPIRITS SEGMENT
Summary of Operating Performance
(Dollars in millions)
1999 2000 2001
------ ------ ------
Net Sales $1,447 $1,543 $1,573
% Change 6% 7% 2%
Gross Profit $ 742 $ 812 $ 849
% Change 8% 9% 5%
Advertising Expenses $ 191 $ 206 $ 214
% Change 9% 8% 4%
SG&A Expenses $ 267 $ 303 $ 309
% Change 10% 14% 2%
Operating Income $ 284 $ 304 $ 327
% Change 5% 7% 8%
EBITDA $ 314 $ 341 $ 367
% Change 4% 8% 8%
Gross Margin 51.3% 52.6% 54.0%
Operating Margin 19.6% 19.7% 20.8%
Fiscal 2001 Compared to 2000
Net sales improved $30 million, or 2%, driven by strong results for the Jack
Daniel's family of brands. Jack Daniel's Black Label experienced excellent
consumer demand around the world, with worldwide annual depletions up 6%.
Depletions improved 3% in the United States, the brand's biggest market. Volumes
grew at a double-digit rate in Western Europe and other important overseas
markets.
We expanded our distribution rights to Finlandia Vodka during fiscal 2001, which
also contributed to higher beverage sales. While unit volumes for Fetzer and
Bolla declined modestly, higher prices yielded increased revenue for both
brands. Shipments of Korbel Champagnes declined significantly in fiscal 2001,
reflecting an industry-wide contraction in sales of sparkling wines.
20
Worldwide depletions (case sales from wholesalers to retailers, representing our
best approximation of consumer purchases) for our major brands were as follows
in fiscal 2001:
Nine-Liter Change From
Cases Fiscal 2000
---------- -----------
Spirits:
Jack Daniel's 6,365,000 +6%
Canadian Mist 2,375,000 -2%
Southern Comfort 2,120,000 --
Early Times 1,115,000 -3%
Finlandia 925,000* N/A
Wine:
Fetzer 2,810,000 -3%
Bolla 1,550,000 -2%
Korbel Champagnes 990,000 -32%
*Represents nine months' volume for most of the world. Brown-Forman's
distribution rights to Finlandia were expanded to include most global markets
effective August 1, 2000.
Gross profit expanded 5%, or $37 million. Gross margin increased from 52.6% to
54.0%, continuing a long-term trend of steady improvement.
Fiscal Gross
Year Margin
------ ------
1991 44.8%
1992 45.3%
1993 45.7%
1994 45.8%
1995 47.5%
1996 47.3%
1997 48.3%
1998 50.5%
1999 51.3%
2000 52.6%
2001 54.0%
Advertising expenses grew 4% as measured in U.S. dollars, up 7% on a local
currency basis. Selling, general, and administrative expenses increased a modest
2%, reflecting productivity gains from recent process and technology
improvements.
Dollars in Millions
1999 2000 2001
---- ---- ----
Wine and Spirits Advertising $191 $206 $214
Change +9% +8% +4%
Operating income improved 8% in fiscal 2001. Strong results for the Jack
Daniel's family of brands were tempered by two adverse industry-wide events.
Although Korbel Champagne gained market share during the year, a sharp decline
in the U.S. sparkling wine category following the Millennium boom resulted in
lower volumes for the brand. In addition, a slowdown in Scotch production led to
a significant decline in sales of used barrels to Scotch whisky distillers.
Excluding Korbel and the used barrel business, segment operating income improved
13%.
Weakening currencies in Europe and Australia have constrained beverage sales and
profit growth over the past several years, and current conditions indicate this
trend will continue into fiscal 2002.
Fiscal 2000 Compared to 1999
Net sales grew $96 million, or 7%, due principally to higher volumes for the
Jack Daniel's family of brands, Korbel Champagne, Fetzer and Finlandia, as well
as the addition of Sonoma-Cutrer and Tuaca.
Gross profit grew 9% during fiscal 2000. Improvement in gross margin from 51.3%
to 52.6% reflected the realization of cost efficiencies and modest price
increases, as well as an improving product mix. Several new and developing
brands contributed to growth in gross profit, including Woodford Reserve,
Sonoma-Cutrer, Tuaca, Glenmorangie, Don Eduardo, and McPherson Wines.
Advertising expenses increased 8%, reflecting a sustained commitment to brand-
building and future growth. Selling, general, and administrative expenses rose
14%, primarily due to incremental costs associated with the acquisition of
Sonoma-Cutrer, as well as significant investments to improve our processes and
systems.
Operating income increased 7%, fueled by strong worldwide performance for the
Jack Daniel's family of brands, as well as U.S. growth for Fetzer and Bolla
wines, Southern Comfort, and Finlandia Vodka.
21
Business Environment for Wine and Spirits
Our ability to market and sell our beverage alcohol products depends heavily on
government policy towards those products and the attitude of society in general
toward drinking. This is true both in the United States, Brown-Forman's largest
market, and around the world.
The most significant public issues involving the alcohol industry are the
problems associated with improper use of beverage alcohol. Brown-Forman strongly
opposes abusive drinking and contributes significant amounts of money to
programs aimed at understanding and curbing alcohol abuse, especially drunk
driving and underage drinking. We also support and abide by voluntary industry
marketing and advertising guidelines. Brown-Forman and other beverage alcohol
producers take a prominent role in encouraging responsible consumption of our
products and in warning against alcohol abuse. Brown-Forman supports social
awareness organizations that fight alcohol abuse and provide education about
beverage alcohol, often in partnership with government health officials.
As a society, we are more likely to curb alcohol abuse through better education
about beverage alcohol and moderate drinking than with restrictions on alcohol
advertising and sales or punitive taxation. Especially in the U.S., distilled
spirits are at a disadvantage to beer and wine in taxation, advertising and the
number and type of sales outlets. A major goal of Brown-Forman and other
distillers is to achieve greater cultural acceptance of our products and
equality with beer and wine in access to the consumer. Among the objectives
Brown-Forman seeks are: greater access to television advertising for liquor;
fairer rules for product distribution, so that our customers can purchase our
beverage products more conveniently; freedom to advertise our products outdoors,
in the face of some municipal ordinances that discriminate against billboard
advertising of beverage alcohol; expanded distribution and fairer taxation of
low-proof ready-to-drink spirits drinks, which often have restricted
distribution and higher taxes than similar wine and malt based products; and
improved access to foreign markets, many of which have discriminatory taxation
or other non-tariff barriers to U.S. beverage imports.
Beverage alcohol sales are sensitive to higher tax rates. In the U.S., no
legislation to increase federal excise taxes on distilled spirits is currently
pending, but a future tax increase cannot be ruled out. Similarly, state
legislatures periodically increase beverage alcohol taxes and there are even
local taxes in a few states. The cumulative effect of such tax increases over
time hurts sales. With more than half of what a consumer pays going to taxes
(approximately 58% of the price of a typical bottle of bourbon), distilled
spirits are the highest taxed consumer product in the U.S. Brown-Forman works
for reasonable excise tax reductions to remedy this situation. Tax rates and
advertising restrictions also affect beverage alcohol markets outside the U.S.,
but to date the impact of those changes in any one market is not significant to
the company's overall business.
Sales revenue from international markets is affected by the strength of the U.S.
dollar. Over the past several years, the strong dollar has limited the revenue
growth of our international business, especially in Europe, despite excellent
unit sales growth. A further strengthening of the dollar would have adverse
effects on our dollar revenues.
In the publicity surrounding the many lawsuits against the tobacco industry (and
the onset of litigation against the gun industry), some commentators have
suggested that other industries, such as alcohol, fast foods and automobiles,
may be next. However, we do not believe the legal theories that created
liability for the tobacco companies apply to beverage alcohol. Most importantly,
the products are different. When used as intended, beverage alcohol is not
harmful to otherwise healthy individuals. Unlike tobacco, moderate consumption
of beverage alcohol is believed to convey health benefits to many consumers. In
particular, scientists and health care experts report that beverage alcohol may
have positive cardiovascular health benefits for many otherwise healthy adults.
Although Brown-Forman does not recommend that adults drink beverage alcohol for
health reasons, the potential health benefits of responsible beverage alcohol
consumption are another important distinction between alcohol and tobacco. The
dangers of alcohol abuse are commonly known and have never been concealed by
alcohol producers. Indeed, distillers are at the forefront of efforts to combat
drunk driving and underage drinking. Lastly, state and federal governments
stringently regulate the content, manufacture, marketing, and sale of beverage
alcohol, and in particular the federal government requires the placement of a
warning label on the beverage container.
We are in a period of consolidation in the beverage alcohol industry, most
notably illustrated by the pending sale of the Seagram Spirits and Wine Group.
Brown-Forman partnered with Bacardi Ltd. in an effort to purchase the Seagram
business, but was outbid. Brown-Forman recognizes the value of increasing the
scale of its spirits and wine business, particularly as it relates to our
influence within the U.S. distribution system. However, Brown-Forman also looks
at the overall cost of an acquisition and attempts to expand its portfolio only
by acquiring brands that are additive on a net basis to the value of our
company. Our recent equity investments in Finlandia Vodka, Glenmorangie Scotch
Whisky and Sonoma-Cutrer Wines illustrate this philosophy.
Brown-Forman has not made major investments in overseas distribution networks
and mostly employs other spirits producers to distribute and market our products
outside the U.S. Although consolidation among spirits producers theoretically
could hinder the distribution of our spirits products in the future, to date
this has rarely happened. Other spirits companies typically seek to distribute
our premium spirits and wine brands and we expect that demand to continue.
22
CONSUMER DURABLES SEGMENT
Summary of Operating Performance
(Dollars in millions)
1999 2000 2001
------ ------ ------
Net Sales $ 562 $ 591 $ 607
% Change 4% 5% 3%
Gross Profit $ 277 $ 291 $ 304
% Change 4% 5% 4%
Advertising Expenses $ 71 $ 75 $ 81
% Change 14% 5% 8%
SG&A Expenses $ 168 $ 172 $ 176
% Change -- 2% 3%
Operating Income $ 38 $ 44 $ 47
% Change 8% 16% 6%
EBITDA $ 63 $ 69 $ 71
% Change 12% 10% 2%
Gross Margin 49.4% 49.3% 50.1%
Operating Margin 6.8% 7.5% 7.7%
Our consumer durables segment includes fine china, crystal, silver, and luggage
products marketed under the Lenox, Dansk, Gorham, Kirk Stieff, and Hartmann
brand names.
Fiscal 2001 Compared to 2000
Net sales increased $16 million, or 3%, in fiscal 2001, fueled by gains in
catalogue, direct mail, and Internet channels. Sales through traditional
wholesale channels softened during the last half of the fiscal year,
attributable to a weaker U.S. economy. Hartmann, the smallest of the company's
consumer durables businesses, suffered an unusually difficult holiday season,
a trend that continued through the fourth quarter.
Gross profit for the segment increased $13 million. Gross margin improved from
49.3% to 50.1%, reflecting an improved product mix and the benefits of
investments made to rationalize manufacturing capacity.
Advertising expenses were up 8%, due primarily to increased advertising of
collectible items. Selling, general, and administrative expenses rose 3%, and
included expenses of $1 million incurred during the second half of the year to
improve Hartmann's future performance. Management of costs, combined with a
reduction in required working capital, has helped boost returns for our consumer
durables segment.
Operating income improved 6% for the year. Strong growth in sales of collectible
items resulted in a fourth consecutive year of double-digit earnings gains for
Lenox. This performance was partially offset by a $5 million decline in earnings
at Hartmann. Hartmann is expected to return to profitability in fiscal 2002.
Fiscal 2000 Compared to 1999
Net sales increased $29 million, or 5%, as china, crystal, and stainless
flatware lines all performed strongly. Several casual dinnerware patterns
introduced during the year were particularly successful, including new lines
designed for seasonal use. Revenues from the wholesale channel increased more
than 7%, while same-store sales for company-owned stores rose 5%. The Lenox
Collections direct marketing group continued to grow by reaching more consumers
through its successful catalogue, direct mail, and Internet venues. Hartmann
luggage also realized solid gains in sales and profits.
Gross profit increased $14 million in fiscal 2000, as gross margins held
constant across most product lines.
Advertising expenses were up $4 million, due primarily to increased spending to
promote collectible items and new casual dinnerware patterns. Selling, general,
and administrative expenses rose 2%, reflecting the continuation of strong cost
control measures.
Operating income improved $6 million, or 16%, with gains sourced broadly across
most product lines and channels of distribution.
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.
A consolidated statement of cash flows is summarized below:
Cash Flows
(Expressed in millions)
1999 2000 2001
------ ------ ------
EBITDA $ 377 $ 410 $ 438
Interest expense, net (4) (5) (8)
Taxes on income (116) (125) (133)
Change in deferred taxes (25) (51) (40)
Other (19) 12 (26)
------ ------ ------
Cash from operating activities 213 241 231
Additions to property, plant,
and equipment (46) (78) (96)
------ ------ ------
Free cash flow 167 163 135
Acquisitions and other investments (71) (41) (116)
Dividends (79) (83) (87)
Net change in debt 101 (30) (23)
Redemption of preferred stock (12) -- --
Acquisition of treasury stock (13) -- (3)
------ ------ ------
Increase in cash $ 93 $ 9 $ 94
====== ====== ======
Cash provided by operations declined $10 million in fiscal 2001, primarily due
to higher inventory levels in both business segments. Cash used for investments
increased significantly, driven by the acquisition of equity stakes in
Finlandia, Glenmorangie, and Tuaca.
23
Cash provided by operations increased $28 million in fiscal 2000, primarily
reflecting higher net income and successful efforts to lower the working capital
requirements for our consumer durables business, offset partially by a reduction
in deferred income taxes.
We have revolving credit agreements for $100 million and $300 million that
expire in fiscal 2002 and 2003, respectively. At April 30, 2001, we had no
outstanding borrowings under these agreements. At April 30, 2001, we had $220
million remaining on our $250 million shelf registration.
CAPITAL EXPENDITURES
We invested $46 million in property, plant, and equipment in fiscal 1999, $78
million in fiscal 2000, and $96 million in fiscal 2001. An increase in capital
expenditures primarily reflects the expansion and modernization of company-wide
production facilities. The company has been making significant investments to
increase the capacity for distilling and warehousing Jack Daniel's whiskey, as
well as expanding our vineyard and winemaking capacity.
Capital Expenditures
Dollars in Millions
1999 2000 2001
---- ---- ----
Wine and Spirits $34 $63 $78
Consumer Durables 12 15 18
---- ---- ----
Total $46 $78 $96
==== ==== ====
Capital expenditures for fiscal 2002 are expected to approximate the fiscal 2001
level as we continue to expand the capacity of our wine and spirits production
facilities in response to growing consumer demand for our premium beverage
brands. Fiscal 2002 capital expenditure requirements are expected to be met with
internally generated funds.
DIVIDENDS
Quarterly dividends were increased 6% in fiscal 2001 to $0.33, resulting in an
annualized dividend of $1.32 per common share. This increase was based on the
expectation of continued strong cash flow. Cash dividends paid as a percentage
of net income were 39% in fiscal 1999, and 38% in fiscal years 2000 and 2001.
1999 2000 2001
----- ----- -----
Cash Dividends Paid per Common Share $1.15 $1.21 $1.28
DERIVATIVE FINANCIAL INSTRUMENTS
As a result of the growth of Brown-Forman's international business over the past
several years, the company's foreign currency receipts exceed its foreign
currency payments. To the extent this foreign currency exposure is not hedged,
the company's results of operations and financial position are negatively
impacted by a weakening of foreign currencies against the U.S. dollar and are
positively impacted by a strengthening of the foreign currencies.
We use foreign currency options and forward contracts, generally with average
maturities of less than one year, to protect against the risk that the eventual
U.S. dollar cash flows resulting from the sale and purchase of goods in foreign
currencies will be adversely affected by changes in exchange rates. While these
hedging instruments are subject to fluctuations in value from movement in the
foreign currency exchange rates, such fluctuations are offset by the change in
value of the underlying exposures being hedged. We are not a party to leveraged
derivatives and do not hold or issue financial instruments for trading purposes.
We had outstanding foreign currency option and forward contracts, hedging
primarily European euro, British pound, and Japanese yen revenues, with notional
amounts totaling $96 million, $55 million, and $98 million at April 30, 1999,
2000 and 2001, respectively. The company's credit exposure is limited to the
fair value of the contracts ($2 million, $4 million, and $4 million at April 30,
1999, 2000, and 2001, respectively) rather than the notional amounts. We enter
into foreign currency contracts only with major financial institutions with
investment grade credit ratings, thereby decreasing the risk of credit loss.
MARKET RISKS
The company holds debt obligations, foreign currency forward and option
contracts, and commodity future contracts that are exposed to risk from changes
in interest rates, foreign currency exchange rates, and commodity prices,
respectively. We have established policies, procedures and internal processes
governing the management of these market risks. As of April 30, 2001, the
exposure to these market risks is not considered material.
ENVIRONMENTAL
Along with other responsible parties, we face environmental claims resulting
from the cleanup of several waste deposit sites. We have accrued our estimated
portion of cleanup costs and expect either the other responsible parties or
insurance to cover the remaining costs. We believe that any additional costs
incurred to satisfy environmental claims will not have a material adverse effect
on the company's financial position, results of operations, or cash flows.
24
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF INCOME
(Expressed in millions, except per share amounts)
- --------------------------------------------------------------------------------
Year Ended April 30, 1999 2000 2001
- --------------------------------------------------------------------------------
Net sales $2,009 $2,134 $2,180
Excise taxes 254 257 256
Cost of sales 736 774 771
--------------------------------
Gross profit 1,019 1,103 1,153
Advertising expenses 263 281 295
Selling, general, and administrative expenses 434 474 484
--------------------------------
Operating income 322 348 374
Interest income 6 10 8
Interest expense 10 15 16
--------------------------------
Income before income taxes 318 343 366
Taxes on income 116 125 133
--------------------------------
Net income $ 202 $ 218 $ 233
================================
Earnings per share - Basic and Diluted $ 2.93 $ 3.18 $ 3.40
================================
Weighted average shares used to calculate earnings per share:
Basic 68.6 68.5 68.5
Diluted 68.7 68.6 68.6
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, 1999 2000 2001
- --------------------------------------------------------------------------------
Assets
- ------
Cash and cash equivalents $ 171 $ 180 $ 86
Accounts receivable, less allowance for doubtful accounts
of $11 in 1999, $12 in 2000 and $12 in 2001 274 294 303
Inventories:
Barreled whiskey 191 202 219
Finished goods 189 184 216
Work in process 89 80 93
Raw materials and supplies 56 48 49
-------------------------
Total inventories 525 514 577
Other current assets 29 32 28
-------------------------
Total Current Assets 999 1,020 994
Property, plant and equipment, net 348 376 424
Intangible assets, less accumulated amortization
of $135 in 1999, $146 in 2000 and $156 in 2001 264 270 263
Other assets 124 136 258
-------------------------
Total Assets $1,735 $1,802 $1,939
=========================
The accompanying notes are an integral part of the consolidated financial
statements.
26
- --------------------------------------------------------------------------------
April 30, 1999 2000 2001
- --------------------------------------------------------------------------------
Liabilities
- -----------
Commercial paper $ 226 $ 220 $ 204
Accounts payable and accrued expenses 235 271 281
Current portion of long-term debt 18 6 --
Accrued taxes on income -- 1 45
Deferred income taxes 31 15 8
-------------------------
Total Current Liabilities 510 513 538
Long-term debt 53 41 40
Deferred income taxes 137 95 62
Accrued postretirement benefits 57 58 59
Other liabilities and deferred income 61 47 53
-------------------------
Total Liabilities 818 754 752
-------------------------
Stockholders' Equity
- --------------------
Capital Stock:
Class A common stock, voting, $0.15 par value;
authorized shares, 30,000,000;
issued shares, 28,988,091 4 4 4
Class B common stock, nonvoting, $0.15 par value;
authorized shares, 60,000,000;
issued shares, 40,008,147 6 6 6
Retained earnings 945 1,080 1,226
Cumulative translation adjustment (8) (12) (17)
Treasury stock, at cost
(490,000, 484,000 and 537,000 Class B common
shares in 1999, 2000, and 2001, respectively) (30) (30) (32)
-------------------------
Total Stockholders' Equity 917 1,048 1,187
-------------------------
Total Liabilities and Stockholders' Equity $1,735 $1,802 $1,939
=========================
27
Brown-Forman Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in millions; amounts in brackets are reductions of cash)
- --------------------------------------------------------------------------------
Year Ended April 30, 1999 2000 2001
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 202 $ 218 $ 233
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation 46 52 53
Amortization 9 10 11
Deferred income taxes (25) (51) (40)
Other (5) (14) (20)
Change in assets and liabilities, excluding
the effects of businesses acquired or sold:
Accounts receivable (5) (20) (9)
Inventories (8) 8 (63)
Other current assets 2 (3) 3
Accounts payable and accrued expenses 8 36 10
Accrued taxes on income (8) 1 44
Accrued postretirement benefits 2 1 1
Other liabilities and deferred income (5) 3 8
-------------------------
Cash provided by operating activities 213 241 231
-------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (46) (78) (96)
Acquisition of businesses, net of cash acquired (54) (27) (114)
Other (17) (14) (2)
-------------------------
Cash (used for) investing activities (117) (119) (212)
-------------------------
Cash flows from financing activities:
Net change in commercial paper 119 (6) (16)
Reduction of long-term debt (18) (24) (7)
Dividends paid (79) (83) (87)
Acquisition of treasury stock (13) -- (3)
Redemption of preferred stock (12) -- --
-------------------------
Cash (used for) financing activities (3) (113) (113)
-------------------------
Net increase (decrease) in cash and cash equivalents 93 9 (94)
Cash and cash equivalents, beginning of year 78 171 180
-------------------------
Cash and cash equivalents, end of year $171 $180 $ 86
=========================
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, 1999, 2000 and 2001
(Expressed in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Cumulative
Preferred Class Class Retained Translation Treasury
Total Stock A B Earnings Adjustment Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1998 $ 817 $ 12 $ 4 $ 6 $ 821 $(9) $ (17)
Net income 202 202
Foreign currency translation
adjustment 1 1
-------
Comprehensive income 203
Cash dividends
Common, per share $1.15 (79) (79)
Acquisition of treasury stock
(180,000 Class B common shares) (13) (13)
Redemption of preferred stock (12) (12)
Tax benefit related to stock-based
compensation plans 1 1
---------------------------------------------------------------------------------------------
Balance, April 30, 1999 917 -- 4 6 945 (8) (30)
Net income 218 218
Foreign currency translation
adjustment (4) (4)
-------
Comprehensive income 214
Cash dividends
Common, per share $1.21 (83) (83)
---------------------------------------------------------------------------------------------
Balance, April 30, 2000 1,048 -- 4 6 1,080 (12) (30)
Net income 233 233
Foreign currency translation
adjustment (5) (5)
-------
Comprehensive income 228
Cash dividends
Common, per share $1.28 (87) (87)
Acquisition of treasury stock
(75,350 Class B common shares) (3) (3)
Treasury stock issued under
compensation plans 1 1
---------------------------------------------------------------------------------------------
Balance, April 30, 2001 $1,187 $ -- $ 4 $ 6 $1,226 $(17) $ (32)
=============================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars expressed in millions, except per share and per option amounts)
1. ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. Investments in affiliates in which the company has the ability to
exercise significant influence, but not control, are accounted for by the equity
method. All other investments in affiliates are carried at cost. Intercompany
transactions are eliminated.
Cash Equivalents
- ----------------
Cash equivalents include demand deposits with banks and all highly liquid
investments with original maturities of three months or less.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Approximately 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 and average
cost methods.
If the LIFO method had not been used, inventories would have been $110, $110,
and $105 higher than reported at April 30, 1999, 2000, and 2001, respectively.
A substantial portion of barreled whiskey will not be sold within one year
because of the duration of the aging process. All barreled whiskey is classified
as a current asset in accordance with industry practice. Bulk wine inventories
are classified as work in process.
Warehousing, insurance, ad valorem taxes, and other carrying charges applicable
to barreled whiskey are included in inventory costs.
Long-Lived Assets
- -----------------
Property, plant, and equipment are stated at cost. Provision for depreciation is
made on the basis of estimated useful lives of depreciable assets, principally
using the straight-line method.
Intangible assets, principally the excess of purchase price over the fair value
of identifiable net assets of acquired businesses, are stated at cost less
accumulated amortization. These assets are amortized using the straight-line
method over their estimated useful lives, not exceeding forty years.
Revenue Recognition
- -------------------
The company recognizes revenue when goods are shipped, which represents the time
that title to the goods and risk of loss passes to the customer.
Advertising Costs
- -----------------
Advertising costs are charged to expense as incurred, except for direct-response
advertising costs, which are capitalized and amortized over periods not
exceeding one year.
Foreign Currency Translation
- ----------------------------
The U.S. dollar is the functional currency for substantially all of the
company's consolidated operations. For these operations, all gains and losses
from currency transactions are included in income currently. For certain foreign
equity investments, the functional currency is the local currency. The
cumulative translation effects for the equity investments using functional
currencies other than the U.S. dollar are included in the cumulative translation
adjustment in stockholders' equity.
Earnings Per Share
- ------------------
Basic earnings per share (basic EPS) is calculated using net income reduced by
dividends on preferred stock, divided by the weighted average number of common
shares outstanding during the year. Diluted earnings per share (diluted EPS) is
calculated in the same manner, except that the denominator also includes
additional common shares that would have been issued if outstanding stock
options had been exercised, as determined by application of the treasury stock
method.
On October 1, 1998, the company redeemed all 1,177,948 outstanding shares of its
preferred stock for $10.25 per share. The $0.25 per share excess of the
redemption cost over the carrying amount of the preferred shares was deducted
from net income to determine net income applicable to common stock for 1999.
Treasury Stock
- --------------
As of April 30, 2001, the company holds approximately 537,000 shares of its
Class B common stock as treasury stock. The company intends to use these shares
to satisfy future exercises of employee stock options.
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.
Other
- -----
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Statement No. 133 requires that all derivatives be measured at fair value and
recognized in the balance sheet as either assets or liabilities. Statement No.
133 also requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
formal documentation, designation, and assessment of the effectiveness of
derivatives that receive hedge accounting.
Statement No. 133, as amended by Statements No. 137 and 138, was adopted by the
company as of May 1, 2001. The adoption did not have a material impact on the
company's consolidated financial statements.
30
2. ACQUISITIONS
In April 1999, the company acquired a majority interest in Sonoma-Cutrer
Vineyards, Inc. for $69, net of $32 of monetary assets (cash and tax benefits
receivable, offset by assumed debt) received. The company acquired the remaining
interests for $27 and $3 during 2000 and 2001, respectively. The acquisition has
been accounted for as a purchase. The excess of the acquisition costs over the
fair value of the identifiable tangible and intangible net assets acquired was
$39, which is being amortized over forty years.
On May 17, 2000, the company reached an agreement with Glenmorangie plc to
expand the company's sales and marketing of the Glenmorangie and Ardberg Single
Malt Scotch brands from the U.S. to certain additional global markets. In
connection with this arrangement, the company purchased shares representing
approximately 22% of the equity of Glenmorangie plc at a cost of $15. The cost
of the acquisition, which was accounted for as a purchase, was not in excess of
the fair value of the identifiable tangible and intangible net assets that were
acquired.
On June 15, 2000, the company agreed to form a global alliance with Altia Group
Ltd to market and sell Finlandia Vodka. Brown-Forman acquired 45% of Finlandia
Vodka Worldwide Ltd (FVW), which owns the Finlandia trademark and the rights to
market Finlandia Vodka, at a purchase price of approximately $84. The
acquisition was accounted for as a purchase. The excess of the acquisition costs
over the fair value of the identifiable tangible and intangible net assets
acquired was $75, which is being amortized over forty years. During the
three-year period ending December 31, 2006, Brown-Forman may be required to
acquire all or some of Altia's remaining 55% interest in FVW. Acquisition of the
entire 55% remaining interest would cost 638 Finnish marks (approximately $91 at
April 30, 2001) plus interest of 4.5% per year from the initial purchase date.
3. COMMITMENTS
Rental payments for real estate, vehicles, and office, computer, and
manufacturing equipment under operating leases amounted to approximately $28 in
1999, $26 in 2000, and $28 in 2001. The company has commitments related
primarily to minimum lease payments of $24 in 2002, $16 in 2003, $12 in 2004,
$10 in 2005, $6 in 2006, and $33 thereafter.
The company has contracted with various growers and wineries to supply portions
of its future grape and bulk wine requirements. While most of these contracts
call for prices to be determined by market conditions, certain contracts provide
for minimum purchase prices.
4. CREDIT FACILITIES
The company has revolving credit agreements with various domestic and
international banks for $100 and $300 that expire in fiscal 2002 and 2003,
respectively. The most restrictive of the agreements' covenants requires the
company to maintain a minimum level of net worth. At April 30, 2001, net worth
exceeded the required level, as defined in the agreements, by $837. At April 30,
2001, the company had no outstanding borrowings under these agreements. At April
30, 2000, the company also had available for issuance $220 of debt securities
under a shelf registration.
5. DEBT
The company's long-term debt consisted of the following:
April 30, 1999 2000 2001
- -----------------------------------------------------------------
6.82% to 7.38% medium-term notes,
due 2005 $ 30 $ 30 $ 30
Variable rate industrial
revenue bonds, due through 2026 10 10 10
Other 31 7 --
--------------------------
71 47 40
Less current portion 18 6 --
--------------------------
$ 53 $ 41 $ 40
==========================
No long-term debt payments are required until fiscal 2006. Cash paid for
interest was $11 in 1999, $15 in 2000, and $16 in 2001. The weighted average
interest rates on commercial paper were 4.9% at April 30, 1999, 6.1% at April
30, 2000, and 4.8% at April 30, 2001. The weighted average interest rates on the
variable rate industrial revenue bonds were 4.1%, 5.2%, and 4.3% at April 30,
1999, 2000, and 2001, respectively.
6. FOREIGN CURRENCY RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
The company uses foreign currency options and forward contracts, generally with
average maturities of less than one year, as protection against the risk that
the eventual U.S. dollar cash flows resulting from the sale and purchase of
goods in foreign currencies will be adversely affected by changes in exchange
rates. While these hedging instruments are subject to fluctuations in value from
movement in the foreign currency exchange rates, such fluctuations are offset by
the change in value of the underlying exposures being hedged. The company is not
a party to leveraged derivatives and does not hold or issue financial
instruments for trading purposes.
The company had outstanding foreign currency option and forward contracts,
hedging primarily European euro, British pound, and Japanese yen revenues, with
notional amounts totaling $96, $55, and $98 at April 30, 1999, 2000, and 2001,
respectively. The company's credit exposure is limited to the fair value of the
contracts (see Note 7) rather than the notional amounts. Foreign currency
contracts are entered into with major financial institutions with investment
grade credit ratings, thereby decreasing the risk of credit loss.
31
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents and commercial paper approximates
the carrying amount due to the short maturities of these instruments. The fair
value of long-term debt is estimated using discounted cash flows based on the
company's incremental borrowing rates for similar types of borrowings. The fair
value of foreign currency contracts is based on quoted market prices. A
comparison of the fair values and carrying amounts of these instruments is as
follows:
2000 2000
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Assets:
Cash and
cash equivalents $180 $180 $ 86 $ 86
Foreign currency
contracts 1 4 4 4
Liabilities:
Commercial paper 220 220 204 204
Long-term debt 47 47 40 42
8. BALANCE SHEET INFORMATION
April 30, 1999 2000 2001
- --------------------------------------------------------------------------------
Property, plant, and equipment
- ------------------------------
Land $ 60 $ 74 $ 78
Buildings 228 234 258
Equipment 454 491 529
------------------------------------
742 799 865
Less accumulated depreciation 394 423 441
------------------------------------
$348 $376 $424
====================================
Accounts payable
and accrued expenses
- --------------------
Accounts payable, trade $ 76 $ 79 $ 79
Accrued expenses:
Compensation and commissions 52 67 66
Excise and other non-income taxes 21 14 16
Interest 3 3 3
Advertising 20 53 59
Other 63 55 58
------------------------------------
159 192 202
------------------------------------
$235 $271 $281
====================================
9. TAXES ON INCOME
Taxes on income are composed of the following:
- --------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------
Current:
Federal $126 $160 $153
Foreign 6 4 6
State and local 9 12 14
------------------------------------
141 176 173
------------------------------------
Deferred:
Federal (21) (43) (34)
State and local (4) (8) (6)
------------------------------------
(25) (51) (40)
------------------------------------
$116 $125 $133
====================================
United States and foreign components of income before income taxes are as
follows:
- --------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------
United States $283 $307 $326
Foreign 35 36 40
------------------------------------
$318 $343 $366
====================================
The following is a reconciliation of the effective tax rates with the United
States' statutory rate:
Percent of Income Before Taxes
- --------------------------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State taxes, net of U.S.
Federal tax benefit 2.2 2.2 2.3
Income taxed at other than U.S.
Federal statutory rate (1.7) (1.2) (1.0)
Tax benefit of Foreign
Sales Corporation (1.1) (1.0) (1.2)
Nondeductible amortization 1.0 1.0 1.0
Other, net 1.1 0.5 0.2
-------------------------------------
36.5% 36.5% 36.3%
=====================================
32
Deferred tax assets and liabilities are composed of the following:
April 30, 1999 2000 2001
- --------------------------------------------------------------------------------
Deferred tax assets:
Postretirement and other benefits $ 42 $ 44 $ 46
Accrued liabilities and other 15 19 12
-----------------------------------
Total deferred tax assets 57 63 58
-----------------------------------
Deferred tax liabilities:
Intercompany transactions 134 84 31
Property, plant, and equipment 38 36 35
Undistributed foreign earnings 17 17 17
Pension plans 26 31 36
Other 10 5 9
-----------------------------------
Total deferred tax liabilities 225 173 128
-----------------------------------
Net deferred tax liability $168 $110 $ 70
===================================
Deferred income taxes were not provided on undistributed earnings ($133, $136,
and $149 at April 30, 1999, 2000, and 2001, respectively) of certain foreign
subsidiaries because such undistributed earnings are expected to be reinvested
indefinitely overseas. If these amounts were not considered permanently
reinvested, additional deferred taxes of approximately $28, $30, and $33 would
have been provided in 1999, 2000, and 2001, respectively.
Cash paid for income taxes was $150 in 1999, $174 in 2000, and $131 in 2001.
10. PENSION AND POSTRETIREMENT BENEFITS
The company sponsors various defined benefit pension and postretirement plans
covering most full-time employees. Information about these plans is presented
below.
Components of net periodic pension benefit cost (income):
Pension
- ---------------------------------------------------------------
1999 2000 2001
- ---------------------------------------------------------------
Service cost $10 $12 $ 12
Interest cost 19 21 25
Expected return on plan assets (33) (38) (44)
Amortization of:
Unrecognized net gain -- -- (2)
Unrecognized prior service cost 1 1 1
Unrecognized net asset (3) (3) (3)
------------------------
Net periodic benefit cost (income) $(6) $(7) $(11)
========================
Prior service costs are amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits.
Components of net periodic postretirement benefit cost:
Postretirement
- --------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------
Service cost $ 1 $ 1 $ 1
Interest cost 3 3 3
-----------------------
Net periodic benefit cost $ 4 $ 4 $ 4
=======================
Change in benefit obligation:
Pension Postretirement
- ------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------
Obligation at beginning of year $327 $329 $ 46 $ 45
Service cost 12 12 1 1
Interest cost 21 25 3 3
Plan amendments 1 1 -- --
Actuarial loss (gain) (17) 15 (3) --
Benefits paid (15) (16) (2) (2)
----------------------------------
Obligation at end of year $329 $366 $ 45 $ 47
==================================
Change in plan assets:
Pension Postretirement
- ------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------
Fair value at beginning of year $478 $516 $ -- $ --
Actual return on plan assets 52 15 -- --
Company contributions 1 1 2 2
Benefits paid (15) (16) (2) (2)
----------------------------------
Fair value at end of year $516 $516 $ -- $ --
==================================
Plan assets consist primarily of stocks and bonds.
Selected information for plans with accumulated benefit obligations in excess of
plan assets:
Pension Postretirement
- ------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------
Projected benefit obligation $(30) $(30) $(45) $(47)
Accumulated benefit obligation (25) (25) (45) (47)
Fair value of plan assets 3 -- -- --
33
Funded status:
Pension Postretirement
- ------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------
Funded status $188 $150 $(45) $(47)
Unrecognized net gain (130) (83) (12) (11)
Unrecognized prior service cost 10 10 (1) (1)
Unrecognized transition asset (9) (6) -- --
----------------------------------
Net amount recognized $ 59 $ 71 $(58) $(59)
==================================
Net amounts recognized in the consolidated balance sheet:
Pension Postretirement
- ------------------------------------------------------------------------
2000 2001 2000 2001
- ------------------------------------------------------------------------
Prepaid benefit cost $ 79 $ 93 $ -- $ --
Accrued benefit liability (24) (26) (58) (59)
Intangible asset 4 4 -- --
----------------------------------
Net amount recognized $ 59 $ 71 $(58) $(59)
==================================
Weighted-average assumptions:
Pension
- --------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------
Discount rate 6.5% 7.8% 7.5%
Expected return on plan assets 10.0% 10.0% 10.0%
Rate of compensation increase 4.0% 4.5% 4.5%
Postretirement
- --------------------------------------------------------------
1999 2000 2001
- --------------------------------------------------------------
Discount rate 6.5% 7.8% 7.5%
Health care cost trend rates:
Present rate before age 65 6.6% 6.3% 6.0%
Present rate age 65 and after 6.1% 5.9% 5.7%
The health care cost trend rates are projected to decline gradually to 5.0% by
2004 and to remain at that level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for postretirement
medical plans. A one percentage point increase in assumed health care cost trend
rates would have increased the accumulated postretirement benefit obligation as
of April 30, 2001 by $5 and the aggregate service and interest costs for 2001 by
$1. A one percentage point decrease in assumed health care cost trend rates
would have decreased the accumulated postretirement benefit obligation as of
April 30, 2001 by $5 and the aggregate service and interest costs for 2001 by
$1.
11. BUSINESS SEGMENT INFORMATION
The company is organized into two operating segments, as defined by FASB
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" -- wine and spirits, and consumer durables. These two segments
reflect the two categories of products from which the company derives its
revenues. The wine and spirits segment includes the production, importing, and
marketing of wines and distilled spirits. The consumer durables segment includes
the manufacture and sale of china, crystal, ceramic and crystal collectibles,
silver, luggage, and leather accessories.
The accounting policies of the segments are the same as the policies described
in Note 1. There are no intersegment revenues.
The following tables reconcile segment operating results and asset information
to consolidated amounts.
1999 2000 2001
- --------------------------------------------------------------------------------
Net sales:
Wine and spirits $1,447 $1,543 $1,573
Consumer durables 562 591 607
-----------------------------------------------
Consolidated $2,009 $2,134 $2,180
===============================================
Earnings before interest, taxes, depreciation,
and amortization (EBITDA):
Wine and spirits $ 314 $ 341 $ 367
Consumer durables 63 69 71
-----------------------------------------------
Consolidated $ 377 $ 410 $ 438
===============================================
Operating income:
Wine and spirits $ 284 $ 304 $ 327
Consumer durables 38 44 47
Amounts not allocated to segments:
Interest expense, net (4) (5) (8)
-----------------------------------------------
Consolidated income
before income taxes $ 318 $ 343 $ 366
===============================================
Depreciation and amortization:
Wine and spirits $ 30 $ 37 $ 40
Consumer durables 25 25 24
-----------------------------------------------
Consolidated $ 55 $ 62 $ 64
===============================================
34
Total assets:
Wine and spirits $1,275 $1,349 $1,468
Consumer durables 460 453 471
-----------------------------------------------
Consolidated $1,735 $1,802 $1,939
===============================================
Additions to long-lived assets:
Wine and spirits $ 99 $ 69 $ 80
Consumer durables 19 19 20
---------------------------------------------
Consolidated $ 118 $ 88 $ 100
===============================================
The following table presents geographic information about net sales:
1999 2000 2001
- --------------------------------------------------------------------------------
Net sales:
United States $1,649 $1,777 $1,810
Other countries 360 357 370
-----------------------------------------------
$2,009 $2,134 $2,180
===============================================
Net sales are attributed to countries based on location of customer. Long-lived
assets located outside the United States are not significant.
12. CONTINGENCIES
In the normal course of business, various suits and claims are brought against
the company, some of which seek significant damages. Many of these suits and
claims take years to adjudicate, and it is difficult to predict their outcome.
In the opinion of management, based on advice from legal counsel, none of these
suits or claims will have a material adverse effect on the company's
consolidated financial position, results of operations, or cash flows.
13. ENVIRONMENTAL MATTERS
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 it incurs will not have a material adverse effect on the
company's consolidated financial position, results of operations, or cash flows.
14. STOCK OPTIONS
Under the Brown-Forman Corporation Omnibus Compensation Plan (the Plan), the
company may grant stock options and other stock-based incentive awards for a
total of 3,400,000 shares of common stock to eligible employees until April 30,
2005. All shares delivered under the Plan will be issued from treasury stock
acquired by the company.
Stock options are granted at an exercise price of not less than the fair value
of the underlying stock on the date of the grant. Except for the stock options
granted on September 1, 1999, discussed below, stock options granted under the
Plan generally become exercisable after a period of three years from the first
day of the fiscal year of grant and expire seven years thereafter. The fair
values of the options granted during 1999, 2000, and 2001 were $13.74, $16.37,
and $14.38 per option, respectively. Fair values were estimated using the
Black-Scholes pricing model with the following assumptions:
1999 2000 2001
- --------------------------------------------------------------
Risk-free interest rate 5.5% 5.9% 6.2%
Expected volatility 17.4% 21.6% 24.0%
Expected dividend yield 2.2% 2.2% 2.2%
Expected life (years) 6 6 6
On September 1, 1999, the company made a special grant of 486,250 stock options
with an exercise price of $100 per share, which become exercisable on May 1,
2006 and expire on September 1, 2007. The fair value of these options was $5.77
per option, using the Black-Scholes pricing model with the following
assumptions: a risk-free interest rate of 6.0%, expected volatility of 18.0%, an
expected dividend yield of 2.2%, and an expected life of 8 years.
As of April 30, 2001, no other stock-based awards have been granted under the
Plan.
The company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for stock
options. Accordingly, no compensation expense has been recognized. Had
compensation expense for the stock options been determined based on the fair
value at the grant dates consistent with the methodology prescribed under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," the company's net
income would have been reduced by $1.5 in 1999, $2.6 in 2000, and $3.2 in 2001.
The company's basic and diluted earnings per share would have been reduced by
$0.02 per share in 1999, $0.04 per share in 2000, and $0.05 per share in 2001.
35
The following table summarizes option activity for the three years ended April
30, 2001. All options are for an equivalent number of shares of Class B common
stock.
Weighted
Options Average
Outstanding Exercise Price
- --------------------------------------------------------------------------------
Balance, April 30, 1998 387,752 $ 44.27
Granted 245,880 61.25
Forfeited (18,043) 45.18
------------------------------------------
Balance, April 30, 1999 615,589 51.03
Granted 804,268 85.09
Exercised (6,154) 36.13
Forfeited (13,958) 88.10
------------------------------------------
Balance, April 30, 2000 1,399,745 70.30
Granted 414,886 52.60
Exercised (21,802) 43.93
Forfeited (2,825) 49.13
------------------------------------------
Balance, April 30, 2001 1,790,004 66.55
==========================================
The following table summarizes the status of stock options outstanding as of
April 30, 2001, by exercise price:
Remaining
Exercise Price Options Contractual Options
Per Option Outstanding Life (Years) Exercisable
- -------------- ----------- ------------ -----------
$ 36.13 122,018 5.0 122,018
49.13 215,292 6.0 215,292
50.44 396,841 9.0 --
61.25 245,830 7.0 --
62.25 316,678 8.0 --
100.00 493,345 6.3 --
----------- -----------
1,790,004 337,310
=========== ===========
36
REPORT OF MANAGEMENT
We are responsible for the presentation of the information contained in the
consolidated financial statements and for its integrity and objectivity. Our
statements have been prepared in accordance with generally accepted accounting
principles and include amounts based on our best estimates and judgments with
appropriate consideration given to materiality. We also prepared the related
financial information and are responsible for its accuracy and consistency with
the financial statements.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants. We have made available to
PricewaterhouseCoopers LLP all the company's financial records and related data,
as well as the minutes of stockholders', directors', and other appropriate
meetings. Furthermore, we believe that all representations made to
PricewaterhouseCoopers LLP during the audit were valid and appropriate.
We are responsible for establishing and maintaining a system of internal control
designed to provide reasonable assurance at reasonable cost that financial
records are reliable for preparing financial statements and that assets are
properly accounted for and safeguarded. The company has an internal audit
function that is intended to provide a review and monitoring process that allows
the company to be reasonably sure that the system of internal control operates
effectively. In addition, as part of the audit of the financial statements,
PricewaterhouseCoopers LLP completed a study and evaluation of selected internal
accounting controls to establish a basis for reliance thereon in determining the
nature, timing, and extent of audit tests to be applied. We have considered the
internal auditors' and PricewaterhouseCoopers LLP's recommendations concerning
the system of internal control and have taken actions that we believe are cost-
effective in the circumstances to respond appropriately to these
recommendations. We believe that as of April 30, 2001, 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 and Compliance Guidelines, which set
forth the company's compliance program. The compliance program addresses, among
other things, the necessity of ensuring open communication through the company;
the disclosure of potential conflict of interest; 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 for assessing compliance with
these standards, including a review by the Audit Committee of the Board of
Directors.
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/ Phoebe A. Wood
Phoebe A. Wood
Executive Vice President
and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
BROWN-FORMAN CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Brown-Forman
Corporation and Subsidiaries ("the Company") at April 30, 1999, 2000 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended April 30, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
May 24, 2001
37
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Percentage State or
of Voting Jurisdiction
Name Securities Owned of Incorporation
- ---- ---------------- ----------------
AMG Trading, L.L.C. 100% Delaware
Brown-Forman Beverages Australia Pty. Ltd. 100% Australia
Brown-Forman Beverages North Asia, L.L.C. 100% Delaware
Brown-Forman International FSC, Ltd. 100% U.S. Virgin Islands
B-F Korea, L.L.C. 100% Delaware
Brown-Forman Beverages Poland 100% Poland
Brown-Forman Beverages UK, Ltd. 100% United Kingdom
Brown-Forman Relocation Corp. 100% Kentucky
Brown-Forman Travel, Inc. 100% Kentucky
Canadian Mist Distillers, Limited 100% Ontario, Canada
Early Times Distillers Company 100% Delaware
Fetzer Vineyards 100% California
Fratelli Bolla International Wines, Inc. 100% Kentucky
Hartmann Incorporated 100% Delaware
Heddon's Gate Investments, L.L.C. 100% Delaware
Jack Daniel's Properties, Inc. 100% Delaware
Lenox, Incorporated 100% New Jersey
Mt. Eagle Corporation 100% Delaware
Sonoma-Cutrer Vineyards, Inc. 100% California
Southern Comfort Properties, Inc. 100% California
Washington Investments, L.L.C. 100% Kentucky
West Main Interactive, L.L.C. 100% Delaware
Longnorth Limited 100% (1) (3) Ireland
Chissick Limited 100% (1) (4) Ireland
Clintock Limited 100% (1) (4) Ireland
Brooks & Bentley Limited 100% (2) United Kingdom
Dansk International Designs Ltd. 100% (2) New York
Norfolk Investments, Inc. 100% (2) Delaware
Voldgade Investment Holdings A/S 100% (3) Denmark
Brown-Forman Mauritius Limited 100% (4) Mauritius
Pitts Bay Trading Limited 75% (4) Bermuda
BFC Tequila Limited 67% (4) Ireland
Drake Investments, Inc. 100% (5) Delaware
Jack Daniel Distillery,
Lem Motlow, Prop., Inc. 100% (5) Tennessee
Brown-Forman Korea Ltd. 100% (6) Korea
Fratelli Bolla, S.p.A. 100% (7) Italy
Brown-Forman Beverages Worldwide,
Comercio de Bebidas Ltda. 100% (8) Brazil
Brown-Forman Worldwide, L.L.C. 100% (8) Delaware
JDPI Investments, L.L.C. 100% (9) Delaware
Amercain Investments C.V. 100% (10) Netherlands
Brown-Forman Beverages Africa, Ltd. 100% (11) Bermuda
The companies listed above constitute all active subsidiaries in which
Brown-Forman Corporation owns, either directly or indirectly, the majority of
the voting securities. No other active affiliated companies are controlled by
Brown-Forman Corporation.
(1) Includes qualifying shares assigned to Brown-Forman Corporation.
(2) Owned by Lenox, Incorporated.
(3) Owned by Amercain Investments C.V.
(4) Owned by Longnorth Limited.
(5) Owned by Jack Daniel's Properties, Inc.
(6) Owned by B-F Korea, L.L.C.
(7) Owned by Fratelli Bolla International Wines, Inc.
(8) Owned 99% by Brown-Forman Corporation and 1% by Early Times Distillers
Company.
(9) Owned 99% by Jack Daniel's Properties, Inc. and 1% by Fetzer Vineyards.
(10) Owned 95% by Brown-Forman Corporation and 5% by Heddon's Gate
Investments, L.L.C.
(11) Owned 99% by Clintock Limited and 1% by Longnorth Limited.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (Nos. 33-12413, 33-52551) and Form S-8 (No. 333-08311,
333-38649, 333-74567 and 333-77903) of Brown-Forman Corporation of our report
dated May 24, 2001 relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
May 24, 2001 relating to the financial statement schedule, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
July 26, 2001