Certificate Of Ownership And Merger - BROWN FORMAN CORP - 7-19-1994

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Exhibit 3(c) CERTIFICATE OF OWNERSHIP AND MERGER MERGING BROWN-FORMAN CORPORATION INTO BROWN-FORMAN INC. Brown-Forman Inc., a corporation organized and existing under the laws of Delaware, DOES HEREBY CERTIFY: FIRST: That this corporation was incorporated on the 19th day of October, 1933, pursuant to the General Corporation Law of the State of Delaware. SECOND: That this corporation owns all the outstanding shares of the stock of Brown-Forman Corporation, a corporation incorporated on the 25th day of August, 1956, pursuant to the laws of the State of Tennessee. THIRD: That this corporation, by the following resolutions of its Board of Directors, duly adopted at a meeting held on the 22nd of May, 1987, determined to merge into itself said Brown- Forman Corporation: RESOLVED; WHEREAS, This corporation owns all the issued and outstanding shares of Brown-Forman Corporation, a Tennessee corporation, and WHEREAS, The Board of Directors deems it in the best interests of this corporation to merge into itself BrownForman Corporation; IT IS HEREBY RESOLVED, That Brown-Forman Inc. merge with its subsidiary, Brown-Forman Corporation, and assume all of said subsidiary's liabilities and obligations, effective as of July 21, 1987 (the "Effective Date"); and FURTHER RESOLVED, That, as part of such merger, Brown-Forman Inc. shall be the surviving corporation; and FURTHER RESOLVED, Brown-Forman Inc. shall change its name to Brown-Forman Corporation as of the Effective Date; and FURTHER RESOLVED, That the officers of Brown- Forman Inc. be and hereby are directed to execute, file and record all documents including a Certificate of Ownership and Merger and take all other actions necessary to effect the foregoing resolutions so that they shall be effective on the Effective Date. IN WITNESS WHEREOF, said Brown-Forman Inc. has caused this certificate to be signed by W. L. Lyons Brown, Jr., its Chairman of the Board of Directors, and attested by John S. Moremen, its Secretary, this 23d day of July, 1987. BROWN-FORMAN INC. By /s/ W.L. Lyons Brown, Jr. ------------------------------Chairman of the Board of Directors FURTHER RESOLVED, That, as part of such merger, Brown-Forman Inc. shall be the surviving corporation; and FURTHER RESOLVED, Brown-Forman Inc. shall change its name to Brown-Forman Corporation as of the Effective Date; and FURTHER RESOLVED, That the officers of Brown- Forman Inc. be and hereby are directed to execute, file and record all documents including a Certificate of Ownership and Merger and take all other actions necessary to effect the foregoing resolutions so that they shall be effective on the Effective Date. IN WITNESS WHEREOF, said Brown-Forman Inc. has caused this certificate to be signed by W. L. Lyons Brown, Jr., its Chairman of the Board of Directors, and attested by John S. Moremen, its Secretary, this 23d day of July, 1987. BROWN-FORMAN INC. By /s/ W.L. Lyons Brown, Jr. ------------------------------Chairman of the Board of Directors ATTEST: By: /s/ John S. Moremen --------------------------Secretary CERTIFICATE OF AMENDMENT TO RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF BROWN-FORMAN CORPORATION The undersigned (i) President and Chief Executive Officer, and (ii) Secretary, respectively, of Brown-Forman Corporation (the "Corporation") hereby certify that the amendment to the Corporation's Restated and Amended Certificate of Incorporation set forth below has been duly adopted in accordance with the provisions of Section 242(b) of the Delaware General Corporation Law: The first paragraph of Article Fourth of the Corporation's Restated and Amended Certificate of Incorporation is amended in its entirety to read as follows: FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is Ninety-One Million, One Hundred Seventy-Seven Thousand, Nine Hundred Forty-Eight (91,177,948) shares, divided into (a) One Million, One Hundred Seventy-Seven Thousand, Nine Hundred Forty-Eight (1,177,948) shares of Preferred Stock of the par value of Ten Dollars ($10) each; (b) Thirty Million (30,000,000) shares of Class A Common Stock of the par value of Fifteen Cents (15c) each; and (c) Sixty Million (60,000,000) shares of Class B Common Stock of the par value of Fifteen Cents (15c) each. The amendment set forth above was adopted by the Corporation's Board of Directors at a regular meeting thereof on March 31, 1994 as provided in the Delaware General Corporation Law. CERTIFICATE OF AMENDMENT TO RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF BROWN-FORMAN CORPORATION The undersigned (i) President and Chief Executive Officer, and (ii) Secretary, respectively, of Brown-Forman Corporation (the "Corporation") hereby certify that the amendment to the Corporation's Restated and Amended Certificate of Incorporation set forth below has been duly adopted in accordance with the provisions of Section 242(b) of the Delaware General Corporation Law: The first paragraph of Article Fourth of the Corporation's Restated and Amended Certificate of Incorporation is amended in its entirety to read as follows: FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is Ninety-One Million, One Hundred Seventy-Seven Thousand, Nine Hundred Forty-Eight (91,177,948) shares, divided into (a) One Million, One Hundred Seventy-Seven Thousand, Nine Hundred Forty-Eight (1,177,948) shares of Preferred Stock of the par value of Ten Dollars ($10) each; (b) Thirty Million (30,000,000) shares of Class A Common Stock of the par value of Fifteen Cents (15c) each; and (c) Sixty Million (60,000,000) shares of Class B Common Stock of the par value of Fifteen Cents (15c) each. The amendment set forth above was adopted by the Corporation's Board of Directors at a regular meeting thereof on March 31, 1994 as provided in the Delaware General Corporation Law. The amendment set forth above was adopted as of May 18, 1994 by written consent of the holders of a majority of stock entitled to vote thereon as provided in the Delaware General Corporation Law. Dated: May 19, 1994 By: /s/ Oswley Brown II -----------------------Owsley Brown II President and Chief Executive Officer By: /s/ Michael B. Crutcher ------------------------Michael B. Crutcher Secretary COMMONWEALTH OF KENTUCKY COUNTY OF JEFFERSON ) ) ) SS. I, Notary Public in and for the Commonwealth and County aforesaid, do hereby certify that on this day there personally appeared before me, Owsley Brown II and Michael B. Crutcher, who, being by me first duly sworn, declared that they are (i) President and Chief Executive Officer, and (ii) Secretary, respectively, of BrownForman Corporation, that they signed the foregoing document in their capacities as such and that the statements contained therein are true and correct. IN TESTIMONY WHEREOF, witness my signature and notarial seal this 19th day of May, 1994. (SEAL) /s/ Bonita B. Cress ----------------------------Notary Public The amendment set forth above was adopted as of May 18, 1994 by written consent of the holders of a majority of stock entitled to vote thereon as provided in the Delaware General Corporation Law. Dated: May 19, 1994 By: /s/ Oswley Brown II -----------------------Owsley Brown II President and Chief Executive Officer By: /s/ Michael B. Crutcher ------------------------Michael B. Crutcher Secretary COMMONWEALTH OF KENTUCKY COUNTY OF JEFFERSON ) ) ) SS. I, Notary Public in and for the Commonwealth and County aforesaid, do hereby certify that on this day there personally appeared before me, Owsley Brown II and Michael B. Crutcher, who, being by me first duly sworn, declared that they are (i) President and Chief Executive Officer, and (ii) Secretary, respectively, of BrownForman Corporation, that they signed the foregoing document in their capacities as such and that the statements contained therein are true and correct. IN TESTIMONY WHEREOF, witness my signature and notarial seal this 19th day of May, 1994. (SEAL) /s/ Bonita B. Cress ----------------------------Notary Public My Commission Expires: 8/31/96 2 Exhibit 10(a) BROWN-FORMAN CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN Revisions effective: May 1, 1993 DEFINITIONS Board: the Company's Board of Directors. Company: Brown-Forman Corporation, a Delaware corporation. Fiscal Year: the Company's operating year which begins May 1 and ends on April 30. Participant: a participant in the Plan. See Section III for eligibility. Plan: the Company's Management Incentive Compensation Plan. Exhibit 10(a) BROWN-FORMAN CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN Revisions effective: May 1, 1993 DEFINITIONS Board: the Company's Board of Directors. Company: Brown-Forman Corporation, a Delaware corporation. Fiscal Year: the Company's operating year which begins May 1 and ends on April 30. Participant: a participant in the Plan. See Section III for eligibility. Plan: the Company's Management Incentive Compensation Plan. Plan Administrator: the administrator of the Plan, as defined in Section II. Step: a move of one salary grade in the same bonus group or a move of one bonus group in the same salary grade. Subsidiary: a corporation, a majority of the outstanding shares of voting stock of which the Company owns, directly or indirectly. I. OBJECTIVES The objectives of the Company's Management Incentive Compensation Plan are: A. To optimize the profitability and growth of the Company through incentives, consistent with the other goals of the organization; B. To promote teamwork among members of management staffs, as well as to encourage excellence in the performance of individual responsibilities; C. To provide significant incentive opportunity for those members of management who make significant contributions to the Company's success; D. To allow participants in the Plan to share in the success of the Company. II. PLAN ADMINISTRATOR The Management Incentive Compensation Plan will be administered by the Compensation Committee of the Board for Participants in Group I, as defined in Section V, and by the Management Salary Committee for all other Participants. The Plan Administrator shall have the authority to construe, interpret, and administer the Plan subject to the limitations set forth herein. The Plan Administrator may designate officers of the Company or a Subsidiary to implement administration. III. ELIGIBILITY A. Key Members of Management Participation in this Plan shall include those officers and employees of the Company or a Subsidiary who because III. ELIGIBILITY A. Key Members of Management Participation in this Plan shall include those officers and employees of the Company or a Subsidiary who because of their position and responsibilities comprise, in the opinion of the Plan Administrator as discussed in Section II above, key members of management of the Company. B. Directors Directors of the Company who are also employees of the Company or a Subsidiary shall be eligible to participate. Members of the Board who are not also employees of the Company or a Subsidiary shall, however, be ineligible for awards under this Plan. C. A person who is compensated on the basis of a fee or retainer, as distinguished from salary, shall not be eligible, nor shall any employee or officer who is a current participant in any other Company or individual incentive program. IV. EFFECTIVE DATE This Plan shall be effective starting with the fiscal year beginning May 1, 1980, and shall remain in effect until terminated by the Board. V. INCENTIVE AWARD POTENTIALS A. Bonus Groups Participants shall be classified into one of four incentive groups designated by Roman numerals I through IV, and into one of two incentive subgroups designated by the letters A through B. The incentive groups are defined by their level of decision-making: Group Group Group Group I: II: III: IV: Top decision makers Other key senior management decision makers Other key executives and managers All other Participants These incentive group designations, used in conjunction with the subgroups A through B, comprise bonus groups specifying levels of targeted incentive award ("Target Award"). The Target Award for a Participant in a fiscal year shall be determined by multiplying the midpoint of the Participant's salary grade for the fiscal year by the percentage applicable to the Participant's bonus group, as set forth in Exhibit A. Exhibit A also defines the level of maximum incentive award per Participant. B. Prorations The Plan Administrator may add a Participant to the Plan, or change the award potentials of a Participant, due to a Participant's hiring, transfer, promotion or demotion during the fiscal year. A Participant who is hired or has a change of grade during the fiscal year will receive a prorated award potential for time spent in each grade. A newly hired Participant's length of service, for proration purposes, will be calculated based on the date of employment rounded to the nearest one-half month. A demoted Participant, or a Participant promoted one or more steps, will have his or her award potential prorated based on the date of demotion or promotion rounded to the nearest one-half month. Should a change in grade produce a change of more than two steps, the bonus potential will also be prorated at 50% of the new potential and 50% of the old potential for a period of one year from the date of the change. This Participant, or a Participant promoted one or more steps, will have his or her award potential prorated based on the date of demotion or promotion rounded to the nearest one-half month. Should a change in grade produce a change of more than two steps, the bonus potential will also be prorated at 50% of the new potential and 50% of the old potential for a period of one year from the date of the change. This is in addition to any applicable proration for part-year coverage by one or both bonus potentials. A Participant who works during a fiscal year in more than one group or Subsidiary with different plan goals and payment determination will receive a prorated award potential for time spent in each group or Subsidiary. C. Neither Plan eligibility, participation in this Plan, the granting of any incentive award potential, nor the receipt of any incentive payment shall give any employee any right to a subsequent award or payment, or to continued employment by the Company or a Subsidiary for any period of time. The Company specifically reserves the right and authority to dismiss or discharge any employee. VI. PERFORMANCE GOALS AND DETERMINATION OF PAYMENT Because the Plan includes Participants from multiple groups and divisions of the Company, performance goals and determination of payment will vary across organizational units and/or bonus groups. Those exhibits following Exhibit A comprise group-by-group summaries of performance goals and payment determinations. Incentive payments granted to a Participant for a fiscal year shall be paid in cash within 90 days after the close of that fiscal year. However, no employee or officer has any vested interest or right to any award unless and until such award is actually paid. VII. TERMINATION If a Participant terminates from the employ of the Company before the end of the fiscal year, such Participant may, at the discretion of the Plan Administrator, be eligible to receive a pro rata award based upon the Participant's Target Award, the level of achievement in relation to targeted goals, and the amount of time worked. The Plan Administrator will determine the payment date for a pro rata award. VIII. LEAVE OF ABSENCE OR DISABILITY A Participant who becomes disabled or who is granted a leave of absence during a fiscal year may, at the discretion of the Plan Administrator, be eligible to receive a pro rata award based upon the Participant's Target Award, the level of achievement in relation to targeted goals, and the amount of time worked. The Plan Administrator will determine the payment date for a pro rata award. IX. DEATH If a Participant dies before the end of the fiscal year, his or her estate may, at the discretion of the Plan Administrator, be eligible to receive a pro rata award based upon the Participant's Target Award, the level of achievement in relation to targeted goals, and the amount of time worked. The Participant's estate will be paid the full value of the award if the entire fiscal year was completed but death occurred prior to payment. The Plan Administrator will determine the payment date for a pro rata bonus award. X. NORMAL OR EARLY RETIREMENT A Participant who retires before a fiscal year end may, at the discretion of the Plan Administrator, be eligible to receive a pro rata award based upon the Participant's Target Award, the level of achievement in relation to targeted goals, and the amount of time worked. The Plan Administrator will determine the payment date for a pro rata award. XI. WITHHOLDING OF TAXES IX. DEATH If a Participant dies before the end of the fiscal year, his or her estate may, at the discretion of the Plan Administrator, be eligible to receive a pro rata award based upon the Participant's Target Award, the level of achievement in relation to targeted goals, and the amount of time worked. The Participant's estate will be paid the full value of the award if the entire fiscal year was completed but death occurred prior to payment. The Plan Administrator will determine the payment date for a pro rata bonus award. X. NORMAL OR EARLY RETIREMENT A Participant who retires before a fiscal year end may, at the discretion of the Plan Administrator, be eligible to receive a pro rata award based upon the Participant's Target Award, the level of achievement in relation to targeted goals, and the amount of time worked. The Plan Administrator will determine the payment date for a pro rata award. XI. WITHHOLDING OF TAXES The Plan Administrator may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes which the Company is required by any law or regulation of any governmental authority, whether Federal, state, or local, domestic or foreign, to withhold in connection with any incentive payment under the provisions of this Plan; including, but not limited to, the withholding of payment of all or any portion of such award until the Participant reimburses the Company for the amount the Company is required to withhold with respect to such taxes, or cancelling any portion of such award in an amount sufficient to reimburse itself for the amount it is required to so withhold, or selling any property contingently credited by the Company for the purpose of paying such award, in order to withhold or reimburse itself for the amount it is required to so withhold. XII. AMENDMENTS The Board reserves the right to modify or terminate this Plan, with or without notice, in whole or in part, at any time. EXHIBIT A: POTENTIAL INCENTIVE AWARD LEVELS - - ----------------------------------------------------------------AWARDS AS % OF SALARY GRADE MIDPOINT -----------------------------------------------BONUS GROUP THRESHOLD TARGET MAXIMUM - - -----------------------------------------------------------------I As approved annually by the Plan Administrator - - -----------------------------------------------------------------II-A 11.2% 37.3% - - -------------------------------------------------II-B 9.4% 31.3% - - -------------------------------------------------III-A 9.2% 30.7% - - -------------------------------------------------- See Note 2 III-B 7.5% 24.7% - - -------------------------------------------------IV-A 4.6% 15.2% - - -------------------------------------------------IV-B 2.3% 7.6% - - ------------------------------------------------------------------ Notes: 1. Market pay levels may dictate that awards be made at less than these target amounts, but greater amounts will EXHIBIT A: POTENTIAL INCENTIVE AWARD LEVELS - - ----------------------------------------------------------------AWARDS AS % OF SALARY GRADE MIDPOINT -----------------------------------------------BONUS GROUP THRESHOLD TARGET MAXIMUM - - -----------------------------------------------------------------I As approved annually by the Plan Administrator - - -----------------------------------------------------------------II-A 11.2% 37.3% - - -------------------------------------------------II-B 9.4% 31.3% - - -------------------------------------------------III-A 9.2% 30.7% - - -------------------------------------------------- See Note 2 III-B 7.5% 24.7% - - -------------------------------------------------IV-A 4.6% 15.2% - - -------------------------------------------------IV-B 2.3% 7.6% - - ------------------------------------------------------------------ Notes: 1. Market pay levels may dictate that awards be made at less than these target amounts, but greater amounts will not be granted. 2. There is no set maximum on an individual's incentive award. Instead, each business unit has an aggregate maximum incentive award equal to 170% of the sum of the target incentives for which all participants in that business unit are eligible, as shown. EXHIBIT B: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR BFBC PARTICIPANTS 1. The Management Salary Committee of the Company will annually set a threshold level and a maximum level of Brown-Forman Beverage Company income for calculation of the bonus pool available for award to BFBC Participants. 2. The size of the bonus pool available for award to BFBC Participants will vary with the level of BFBC capital employed during the fiscal year, and with the level of BFBC income achieved for such year in excess of the threshold level, but will in no case exceed the total of awards at maximum as provided in Exhibit A. 3. Ninety-three percent (93%) of the bonus pool will be awarded to BFBC Participants based upon each BFBC Participant's Target Award as a percentage of the total of all BFBC Participants' Target Awards. 4. Two percent (2%) of the bonus pool will be distributed by the Chairman and the President of BFBC to BFBC Participants whose fiscal year performance has been extraordinary, upon recommendation of a Group Executive. 5. Five percent (5%) of the bonus pool will be distributed by Group Executives to BFBC Participants on a discretionary basis, based upon the Group Executive's evaluation of the BFBC Participant's fiscal year performance. 6. A Group Executive may withhold all or any portion of a BFBC Participant's award if the BFBC Participant's fiscal year performance has been significantly below job standards, as defined in the BFBC Participant's position description. Any amount so withheld must be distributed by the Group Executive to other BFBC Participants on EXHIBIT B: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR BFBC PARTICIPANTS 1. The Management Salary Committee of the Company will annually set a threshold level and a maximum level of Brown-Forman Beverage Company income for calculation of the bonus pool available for award to BFBC Participants. 2. The size of the bonus pool available for award to BFBC Participants will vary with the level of BFBC capital employed during the fiscal year, and with the level of BFBC income achieved for such year in excess of the threshold level, but will in no case exceed the total of awards at maximum as provided in Exhibit A. 3. Ninety-three percent (93%) of the bonus pool will be awarded to BFBC Participants based upon each BFBC Participant's Target Award as a percentage of the total of all BFBC Participants' Target Awards. 4. Two percent (2%) of the bonus pool will be distributed by the Chairman and the President of BFBC to BFBC Participants whose fiscal year performance has been extraordinary, upon recommendation of a Group Executive. 5. Five percent (5%) of the bonus pool will be distributed by Group Executives to BFBC Participants on a discretionary basis, based upon the Group Executive's evaluation of the BFBC Participant's fiscal year performance. 6. A Group Executive may withhold all or any portion of a BFBC Participant's award if the BFBC Participant's fiscal year performance has been significantly below job standards, as defined in the BFBC Participant's position description. Any amount so withheld must be distributed by the Group Executive to other BFBC Participants on a discretionary basis, based upon the Group Executive's evaluation of those BFBC Participants' fiscal year performance. EXHIBIT C: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR PARTICIPANTS IN GROUP I 1. As soon as is practical for each fiscal year, the Board of Directors, in its absolute discretion, shall establish Earnings Per Share goals for the said fiscal year, which shall reflect what the Board of Directors deems to be, in light of all existing and foreseen circumstances, appropriate Earnings Per Share goals. 2. The term "Earnings Per Share" as used herein shall mean the audited Earnings Per Share as presented in the Company's Annual Report adjusted for the after-tax effect of incentive payments. Adjustments due to changes in the accounting principles during the fiscal year, the impact of acquisitions during the fiscal year, and extraordinary or unusual items may be made at the discretion of the Plan Administrator. 3. Incentive compensation funds for Group I Participants will be generated by actual performance based upon Earnings Per Share of the Company as approved by the Board of Directors. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator. 4. Upon the attainment of minimal goals as approved by the Board of Directors, a Group I Participant will accrue 100% of the appropriate incentive compensation amount computed as soon as practical after the certification of results by the Company's independent auditors. EXHIBIT D: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR EXHIBIT C: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR PARTICIPANTS IN GROUP I 1. As soon as is practical for each fiscal year, the Board of Directors, in its absolute discretion, shall establish Earnings Per Share goals for the said fiscal year, which shall reflect what the Board of Directors deems to be, in light of all existing and foreseen circumstances, appropriate Earnings Per Share goals. 2. The term "Earnings Per Share" as used herein shall mean the audited Earnings Per Share as presented in the Company's Annual Report adjusted for the after-tax effect of incentive payments. Adjustments due to changes in the accounting principles during the fiscal year, the impact of acquisitions during the fiscal year, and extraordinary or unusual items may be made at the discretion of the Plan Administrator. 3. Incentive compensation funds for Group I Participants will be generated by actual performance based upon Earnings Per Share of the Company as approved by the Board of Directors. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator. 4. Upon the attainment of minimal goals as approved by the Board of Directors, a Group I Participant will accrue 100% of the appropriate incentive compensation amount computed as soon as practical after the certification of results by the Company's independent auditors. EXHIBIT D: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP II 1. Incentive compensation funds for non-BFBC Participants in Group II will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group II will automatically accrue 100% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results. EXHIBIT E: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP III 1. Incentive compensation funds for non-BFBC Participants in Group III will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group III-A will automatically accrue 100% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results, and 50% against these targets if a non-BFBC Participant is in Group III-B. 3. The remaining 50% of the accrued incentive compensation amount for non-BFBC Participants in Group III-B will be distributed in whole or in part on a discretionary basis. The discretionary awards will be based on the manager's evaluation of individual performance, upon approval by the Group Executive. EXHIBIT D: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP II 1. Incentive compensation funds for non-BFBC Participants in Group II will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group II will automatically accrue 100% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results. EXHIBIT E: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP III 1. Incentive compensation funds for non-BFBC Participants in Group III will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group III-A will automatically accrue 100% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results, and 50% against these targets if a non-BFBC Participant is in Group III-B. 3. The remaining 50% of the accrued incentive compensation amount for non-BFBC Participants in Group III-B will be distributed in whole or in part on a discretionary basis. The discretionary awards will be based on the manager's evaluation of individual performance, upon approval by the Group Executive. EXHIBIT F: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP IV 1. Incentive compensation funds for non-BFBC Participants in Group IV will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group IV will automatically accrue 50% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results. 3. The remaining 50% of the accrued incentive compensation amount for non-BFBC Participants in Group IV will be distributed in whole or in part on a discretionary basis. The discretionary awards will be based on the manager's evaluation of individual performance, upon approval by the Group Executive. EXHIBIT E: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP III 1. Incentive compensation funds for non-BFBC Participants in Group III will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group III-A will automatically accrue 100% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results, and 50% against these targets if a non-BFBC Participant is in Group III-B. 3. The remaining 50% of the accrued incentive compensation amount for non-BFBC Participants in Group III-B will be distributed in whole or in part on a discretionary basis. The discretionary awards will be based on the manager's evaluation of individual performance, upon approval by the Group Executive. EXHIBIT F: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP IV 1. Incentive compensation funds for non-BFBC Participants in Group IV will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group IV will automatically accrue 50% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results. 3. The remaining 50% of the accrued incentive compensation amount for non-BFBC Participants in Group IV will be distributed in whole or in part on a discretionary basis. The discretionary awards will be based on the manager's evaluation of individual performance, upon approval by the Group Executive. Exhibit 10(b) BROWN-FORMAN CORPORATION RESTRICTED STOCK PLAN DEFINITIONS BOARD: the Company's Board of Directors. COMPANY: Brown-Forman Corporation, a Delaware corporation. EARNINGS PER SHARE: the Company's audited earnings per share as presented in the Company's Annual Report, as adjusted for the after-tax effect of incentive awards under incentive plans maintained by the Company. The Plan Administrator may adjust Earnings Per Share for the purposes of this Plan to account for changes in the EXHIBIT F: FISCAL 1994 PERFORMANCE GOALS AND PAYMENT DETERMINATION FOR NON-BFBC PARTICIPANTS IN GROUP IV 1. Incentive compensation funds for non-BFBC Participants in Group IV will be generated by actual performance against the corporate and/or divisional operating plans for which the Participant primarily works. Incentive payments will be earned pursuant to a schedule set for each fiscal year by the Plan Administrator (Exhibit A). The schedule will be based on an annual plan and will be established as soon as practical for each fiscal year. 2. Upon attainment of minimal goals as approved by the Executive Committee, a non-BFBC Participant in Group IV will automatically accrue 50% of the appropriate incentive compensation amount computed in accordance with corporate and/or divisional performance results. 3. The remaining 50% of the accrued incentive compensation amount for non-BFBC Participants in Group IV will be distributed in whole or in part on a discretionary basis. The discretionary awards will be based on the manager's evaluation of individual performance, upon approval by the Group Executive. Exhibit 10(b) BROWN-FORMAN CORPORATION RESTRICTED STOCK PLAN DEFINITIONS BOARD: the Company's Board of Directors. COMPANY: Brown-Forman Corporation, a Delaware corporation. EARNINGS PER SHARE: the Company's audited earnings per share as presented in the Company's Annual Report, as adjusted for the after-tax effect of incentive awards under incentive plans maintained by the Company. The Plan Administrator may adjust Earnings Per Share for the purposes of this Plan to account for changes in the accounting principles during the Fiscal Year, the impact of acquisitions during the Fiscal Year, and extraordinary or unusual items. ESCROW AGENT: National City Trust (formerly First Kentucky Trust Company). FISCAL YEAR: a year beginning May 1 and ending April 30. PARTICIPANTS: participants in the Plan. (See Section 3 for eligibility.) PLAN: the Brown-Forman Corporation Restricted Stock Plan. PLAN ADMINISTRATOR: the Compensation Committee of the Board. RESTRICTED STOCK: Class A Common Stock and/or Class B Common Stock of the Company, restricted as set forth below, which is purchased and held by the Escrow Agent in the name of the Plan's Participants. SALARY: the straight-time annualized amount (before deferrals) paid to a Participant for work performed, excluding seasonal supplement, bonus, long-term incentive, and expense reimbursement payments of all kinds. SALARY GRADE MIDPOINT: the middle value of the range of salary levels typically permitted for a given grade or rank assigned to a Participant. Exhibit 10(b) BROWN-FORMAN CORPORATION RESTRICTED STOCK PLAN DEFINITIONS BOARD: the Company's Board of Directors. COMPANY: Brown-Forman Corporation, a Delaware corporation. EARNINGS PER SHARE: the Company's audited earnings per share as presented in the Company's Annual Report, as adjusted for the after-tax effect of incentive awards under incentive plans maintained by the Company. The Plan Administrator may adjust Earnings Per Share for the purposes of this Plan to account for changes in the accounting principles during the Fiscal Year, the impact of acquisitions during the Fiscal Year, and extraordinary or unusual items. ESCROW AGENT: National City Trust (formerly First Kentucky Trust Company). FISCAL YEAR: a year beginning May 1 and ending April 30. PARTICIPANTS: participants in the Plan. (See Section 3 for eligibility.) PLAN: the Brown-Forman Corporation Restricted Stock Plan. PLAN ADMINISTRATOR: the Compensation Committee of the Board. RESTRICTED STOCK: Class A Common Stock and/or Class B Common Stock of the Company, restricted as set forth below, which is purchased and held by the Escrow Agent in the name of the Plan's Participants. SALARY: the straight-time annualized amount (before deferrals) paid to a Participant for work performed, excluding seasonal supplement, bonus, long-term incentive, and expense reimbursement payments of all kinds. SALARY GRADE MIDPOINT: the middle value of the range of salary levels typically permitted for a given grade or rank assigned to a Participant. STEP: a move of one salary grade in the same bonus group or a move of one bonus group in the same salary grade. SUBSIDIARY: a corporation, a majority of the outstanding shares of voting stock of which the Company owns, directly or indirectly. WINDOW PERIOD: a period beginning on the third business day following the public release of the Company's quarterly or annual sales and earnings information, and ending on the twelfth business day following such public release. 1. OBJECTIVES: The Plan's objectives are to: (a) optimize the Company's profitability and growth through long-term stock incentives, consistent with the Company's other goals; (b) encourage teamwork among members of management staffs and excellence in the performance of individual responsibilities; (c) provide significant rewards for those members of management who make significant contributions to the Company's success; and (d) allow Participants to share in the Company's long-term success. 2. PLAN ADMINISTRATOR: The Plan Administrator shall construe, interpret, and administer the Plan subject to the limitations set forth below. 3. ELIGIBILITY: (a) Participation in this Plan is limited to those employees of the Company and its Subsidiaries who, because of their position and responsibilities, constitute (in the opinion of the Plan Administrator) key members of the Company's management. (b) Members of the Board who are also employees of the Company or a Subsidiary may participate in the Plan; other Board members may not. (c) A person compensated on a fee or retainer basis, as distinguished from salary, may not participate in the Plan. 4. EFFECTIVE DATE: This Plan shall be effective starting with Fiscal Year 1989, and shall remain in effect until the Board terminates it. 5. PARTICIPATION: (a) (1) Five groups are eligible to participate in the Plan: Group I-A: Group I-B: Groups II-A and II-B: Group III-A: Chief Other Other Other Executive Officer top decision makers key senior management decision makers key executives and managers (2) During a Fiscal Year, the Plan Administrator may add a Participant to a group or change a Participant's eligibility in the Plan due to a Participant's hiring or promotion. Changes in eligibility due to a promotion of three or more steps for a twelve month period will be based on 50% of the old bonus award eligibility plus 50% of the new bonus award eligibility. A newly hired Participant's length of service, for proration purposes, will be calculated based on the Participant's date of employment (rounded to the nearest one-half month). Awards to promoted Participants will be prorated based on the date of promotion (rounded to the nearest one-half month). (b) Awards will be determined for Participants within each group as follows: (1) Groups I-A and I-B - Top Decision Makers: For each Fiscal Year, the Plan Administrator will establish Earnings Per Share goals (threshold, plan, and maximum) upon which the awards for Group I-A and I-B Participants will be based. Awards will be calculated as a percentage of each Participant's Salary as of the first day of the Fiscal Year for which the award is being made. (2) Groups II-A and II-B - Other Key Senior Management Decision Makers: For each Fiscal Year, the Plan Administrator will establish Earnings Per Share goals and/or divisional operating goals (threshold, plan, and maximum) for which the Participant works, and upon which the awards for Group IIA and II-B Participants will be based. Awards will be calculated as a percentage of each Participant's Salary Grade Midpoint as of the first day of the Fiscal Year for which the award is being made. (3) Group III-A - Other Key Executives and Managers: For each Fiscal Year, the Plan Administrator will establish the divisional or corporate operating goals (threshold, plan, and maximum) for which the Participant works and upon which the awards for Group III-A Participants will be based. Awards will be calculated as a percentage of each Participant's Salary Grade Midpoint as of the first day of the Fiscal Year for which the award is being made. 6. OTHER TERMS AND CONDITIONS OF INCENTIVE AWARDS: Receiving an award under this Plan shall not give a Participant any right to a later award or to continued employment by the Company or a Subsidiary for any period of time, nor shall granting an award give the Company or a Subsidiary any right to a Participant's continued services for any period of time. -2- 3. ELIGIBILITY: (a) Participation in this Plan is limited to those employees of the Company and its Subsidiaries who, because of their position and responsibilities, constitute (in the opinion of the Plan Administrator) key members of the Company's management. (b) Members of the Board who are also employees of the Company or a Subsidiary may participate in the Plan; other Board members may not. (c) A person compensated on a fee or retainer basis, as distinguished from salary, may not participate in the Plan. 4. EFFECTIVE DATE: This Plan shall be effective starting with Fiscal Year 1989, and shall remain in effect until the Board terminates it. 5. PARTICIPATION: (a) (1) Five groups are eligible to participate in the Plan: Group I-A: Group I-B: Groups II-A and II-B: Group III-A: Chief Other Other Other Executive Officer top decision makers key senior management decision makers key executives and managers (2) During a Fiscal Year, the Plan Administrator may add a Participant to a group or change a Participant's eligibility in the Plan due to a Participant's hiring or promotion. Changes in eligibility due to a promotion of three or more steps for a twelve month period will be based on 50% of the old bonus award eligibility plus 50% of the new bonus award eligibility. A newly hired Participant's length of service, for proration purposes, will be calculated based on the Participant's date of employment (rounded to the nearest one-half month). Awards to promoted Participants will be prorated based on the date of promotion (rounded to the nearest one-half month). (b) Awards will be determined for Participants within each group as follows: (1) Groups I-A and I-B - Top Decision Makers: For each Fiscal Year, the Plan Administrator will establish Earnings Per Share goals (threshold, plan, and maximum) upon which the awards for Group I-A and I-B Participants will be based. Awards will be calculated as a percentage of each Participant's Salary as of the first day of the Fiscal Year for which the award is being made. (2) Groups II-A and II-B - Other Key Senior Management Decision Makers: For each Fiscal Year, the Plan Administrator will establish Earnings Per Share goals and/or divisional operating goals (threshold, plan, and maximum) for which the Participant works, and upon which the awards for Group IIA and II-B Participants will be based. Awards will be calculated as a percentage of each Participant's Salary Grade Midpoint as of the first day of the Fiscal Year for which the award is being made. (3) Group III-A - Other Key Executives and Managers: For each Fiscal Year, the Plan Administrator will establish the divisional or corporate operating goals (threshold, plan, and maximum) for which the Participant works and upon which the awards for Group III-A Participants will be based. Awards will be calculated as a percentage of each Participant's Salary Grade Midpoint as of the first day of the Fiscal Year for which the award is being made. 6. OTHER TERMS AND CONDITIONS OF INCENTIVE AWARDS: Receiving an award under this Plan shall not give a Participant any right to a later award or to continued employment by the Company or a Subsidiary for any period of time, nor shall granting an award give the Company or a Subsidiary any right to a Participant's continued services for any period of time. -2- 7. GRANT OF AWARDS: (a) Timing: As soon as practical after the certification of financial results by the Company's independent auditors (and subject to adjustment by the Plan Administrator), awards as determined under Section 5 shall be payable in 7. GRANT OF AWARDS: (a) Timing: As soon as practical after the certification of financial results by the Company's independent auditors (and subject to adjustment by the Plan Administrator), awards as determined under Section 5 shall be payable in shares of Restricted Stock to be held in escrow for the Participant by the Escrow Agent until such time as restrictions lapse. (b) Calculation of Awards; Adjustments: (1) The number of shares of Restricted Stock awarded to a Participant for a Fiscal Year shall be determined by dividing the dollar value of the award for such Fiscal Year, as determined under Subsection 5(b) above, by the weighted average of the closing price of the Company's Class A Common Stock and/or Class B Common Stock for the last five trading days of the previous Fiscal Year, rounded up to the next whole share. (2) The total number of shares of Restricted Stock which the Plan Administrator may award to all Participants during a Fiscal Year shall be limited to 1% of the number of shares of Class A and Class B Common Stock outstanding on the date that the Plan Administrator determines awards. (3) The Plan Administrator may, subject to Paragraph 7(b)(2), in its sole discretion, adjust awards of Restricted Stock to account for: stock dividends or stock splits; a recapitalization, reorganization, merger, consolidation, or other change in capitalization; the Company's sale of all or a significant part of its assets; any distribution to stockholders other than a cash dividend; securities of the Company or another entity's being exchanged for or received in lieu of the Company's Class A or Class B Common Stock; or new, different, or additional shares or other securities of the Company or of any other corporation's being received by the holders of outstanding shares of the Company's Class A Common Stock or Class B Common Stock. Any such adjustment by the Plan Administrator, and any determination by the Plan Administrator that an adjustment is not appropriate, shall be effective and binding for all purposes of this Plan and of all shares of Restricted Stock then outstanding. 8. RESTRICTIONS: (a) Except as provided below, a Participant may not sell, exchange, transfer, pledge, hypothecate, or otherwise dispose of shares of Restricted Stock. (b) The restrictions set forth in Subsection 8(a) on the shares of Restricted Stock constituting a Fiscal Year's award shall lapse as to one-third of such shares at the end of each of the second, third, and fourth Fiscal Years succeeding the Fiscal Year for which the award is granted. (c) Participants will receive dividends on Restricted Stock as declared and paid by the Company, commencing with the receipt of Restricted Stock. (d) If the Company decides to undergo a consolidation or merger, or to sell, lease, or convey all or substantially all the assets of the Company, the restrictions on Restricted Stock may be waived at the discretion of the Plan Administrator. (e) If a Participant sells any shares of stock of the Company which were acquired under this Plan within 60 days after the date when the restrictions on such shares lapse, the Company will bear the Participant's cost of selling such shares. (f) If a Participant leaves the employ of the Company because of death, permanent disability, retirement, or early retirement under the Company's Salaried Employee Retirement Plan, or at the request of the Company (other than for "cause"), the Participant will receive shares of Restricted Stock as specified in Sections 9, 10, 11, or 12 of this Plan. -3- (g) Each certificate evidencing shares of Restricted Stock shall bear an appropriate legend referring to the restrictions applicable to such shares. 9. RESIGNATION OR TERMINATION: If a Participant voluntarily leaves the employ of the Company or is terminated for cause (for example, acts of dishonesty or gross misconduct), the Participant shall forfeit any and all interest in the Plan and any Restricted Stock. Exceptions may be granted at the discretion of the Plan (g) Each certificate evidencing shares of Restricted Stock shall bear an appropriate legend referring to the restrictions applicable to such shares. 9. RESIGNATION OR TERMINATION: If a Participant voluntarily leaves the employ of the Company or is terminated for cause (for example, acts of dishonesty or gross misconduct), the Participant shall forfeit any and all interest in the Plan and any Restricted Stock. Exceptions may be granted at the discretion of the Plan Administrator. Participants terminated by the Company for any other reasons will receive all Restricted Stock free from restrictions and will be granted a pro-rata award for the Fiscal Year in which they were terminated. These awards will be free of restrictions at a time determined by the Plan Administrator but in no event later than described in Subsection 8(b) above. 10. DISABILITY: A Participant eligible for an award of Restricted Stock who becomes totally and permanently disabled during a Fiscal Year may, at the discretion of the Plan Administrator, be granted a pro-rata Restricted Stock award based on salary grade midpoint, level of achievement in relation to targets, and amount of time worked. This award and any Restricted Stock previously granted shall be released from all restrictions as soon as possible after the determination of total and permanent disability. 11. DEATH: A Participant who was eligible for an award of Restricted Stock and dies during the Fiscal Year may, at the discretion of the Plan Administrator, have granted to his or her estate a pro-rata Restricted Stock award based on salary grade midpoint, level of achievement in relation to targets, and amount of time worked. This award and any Restricted Stock previously granted shall be released from all restrictions as soon as possible after the date of death. 12. NORMAL OR EARLY RETIREMENT: A Participant who is eligible for an award of Restricted Stock and retires during a Fiscal Year may, at the discretion of the Plan Administrator, be awarded a pro-rata Restricted Stock award based on salary grade midpoint, level of achievement in relation to targets, and the amount of time worked. Participants who retire at the end of the Fiscal Year will be awarded the full number of Restricted Stock shares. These awards and any Restricted Stock previously granted shall be released from all restrictions at a time determined by the Plan Administrator, but in no event later than described in Subsection 8(b) above. 13. SHARE WITHHOLDING: Participants may elect, subject to the approval of the Plan Administrator, to satisfy, in whole or in part, the tax liability arising upon the vesting of the Restricted Stock by one of the methods set forth below. The maximum value of the shares which may be withheld pursuant to Subsections (a) or (b) below, or the value of the shares which may be surrendered pursuant to Subsection (c) below, is limited to the sum of the maximum federal, state, and local income tax rates in the state in which the Participant is resident times the value of the vesting shares of Restricted Stock. (a) A Participant may deliver to the Plan Administrator, more than six months before the vesting of Restricted Stock, a written election to have shares withheld. Any modification or revocation of such an election shall be effective no earlier than six months following the date it is delivered to the Plan Administrator. (b) A Participant may deliver to the Plan Administrator, during a Window Period, a written election to have shares withheld. Any modification or revocation of such an election may be made only during a Window Period. (c) A Participant may deliver to the Company, within 60 business days before or after the vesting of Restricted Stock, previously owned shares. -4- 14. AMENDMENTS: The Plan Administrator has full power and final authority to construe, interpret and administer the Plan. The Board has the right to change, modify, or terminate the Plan, with or without notice, in whole or in part, at any time. -5- Exhibit 13 14. AMENDMENTS: The Plan Administrator has full power and final authority to construe, interpret and administer the Plan. The Board has the right to change, modify, or terminate the Plan, with or without notice, in whole or in part, at any time. -5- Exhibit 13 HIGHLIGHTS (Expressed in thousands, except per share amounts and ratios) - - ---------------------------------------------------------------------------------------------------1994 1993 % CHANGE - - ---------------------------------------------------------------------------------------------------EXCLUDING UNUSUAL ITEMS - - ---------------------------------------------------------------------------------------------------Net Sales $1,665,120 $1,691,683 (2%) - - ---------------------------------------------------------------------------------------------------Operating Income $ 248,541 $ 259,212 (4%) - - ---------------------------------------------------------------------------------------------------Net Income $ 151,649 $ 158,690 (4%) - - ---------------------------------------------------------------------------------------------------Earnings Per Share $ 1.92 $ 1.91 1% - - ---------------------------------------------------------------------------------------------------Return on Average Invested Capital 17.8% 18.2% - - ---------------------------------------------------------------------------------------------------Return on Average Common Stockholders' Equity 23.6% 20.7% - - ---------------------------------------------------------------------------------------------------INCLUDING UNUSUAL ITEMS - - ---------------------------------------------------------------------------------------------------Net Sales $1,665,120 $1,691,683 (2%) - - ---------------------------------------------------------------------------------------------------Operating Income $ 240,361 $ 255,382 (6%) - - ---------------------------------------------------------------------------------------------------Net Income $ 128,527 $ 156,190 (18%) - - ---------------------------------------------------------------------------------------------------Earnings Per Share $ 1.63 $ 1.88 (13%) - - ---------------------------------------------------------------------------------------------------Cash Dividends Per Share $ .93 $ .86 8% - - ---------------------------------------------------------------------------------------------------Return on Average Invested Capital 15.4% 18.0% - - ---------------------------------------------------------------------------------------------------Return on Average Common Stockholders' Equity 20.4% 20.4% - - ---------------------------------------------------------------------------------------------------- Fiscal 1994 and 1993 were affected by unusual items discussed on page 18. Regular cash dividends have been paid for the forty-ninth consecutive year. QUARTERLY FINANCIAL INFORMATION (Expressed in thousands, except per share amounts) - - ----------------------------------------------------------------------------------------------------Per Share of Common --------------------------------Cash Market Net Gross Net Net Dividends -----------Sales Profit Income Income Paid Class A - - ----------------------------------------------------------------------------------------------------Fiscal 1994 $1,665,120 $826,883 $128,527 $1.63 $.9267 $29.92 -$23. - - ----------------------------------------------------------------------------------------------------Quarters - - ----------------------------------------------------------------------------------------------------Fourth 396,428 198,100 30,327 .44 .2367 29.88 - 28. - - ----------------------------------------------------------------------------------------------------Third 413,312 203,522 38,773 .48 .2367 29.92 - 23. - - ----------------------------------------------------------------------------------------------------Second 465,725 230,588 62,515 .76 .2267 25.58 - 24. Exhibit 13 HIGHLIGHTS (Expressed in thousands, except per share amounts and ratios) - - ---------------------------------------------------------------------------------------------------1994 1993 % CHANGE - - ---------------------------------------------------------------------------------------------------EXCLUDING UNUSUAL ITEMS - - ---------------------------------------------------------------------------------------------------Net Sales $1,665,120 $1,691,683 (2%) - - ---------------------------------------------------------------------------------------------------Operating Income $ 248,541 $ 259,212 (4%) - - ---------------------------------------------------------------------------------------------------Net Income $ 151,649 $ 158,690 (4%) - - ---------------------------------------------------------------------------------------------------Earnings Per Share $ 1.92 $ 1.91 1% - - ---------------------------------------------------------------------------------------------------Return on Average Invested Capital 17.8% 18.2% - - ---------------------------------------------------------------------------------------------------Return on Average Common Stockholders' Equity 23.6% 20.7% - - ---------------------------------------------------------------------------------------------------INCLUDING UNUSUAL ITEMS - - ---------------------------------------------------------------------------------------------------Net Sales $1,665,120 $1,691,683 (2%) - - ---------------------------------------------------------------------------------------------------Operating Income $ 240,361 $ 255,382 (6%) - - ---------------------------------------------------------------------------------------------------Net Income $ 128,527 $ 156,190 (18%) - - ---------------------------------------------------------------------------------------------------Earnings Per Share $ 1.63 $ 1.88 (13%) - - ---------------------------------------------------------------------------------------------------Cash Dividends Per Share $ .93 $ .86 8% - - ---------------------------------------------------------------------------------------------------Return on Average Invested Capital 15.4% 18.0% - - ---------------------------------------------------------------------------------------------------Return on Average Common Stockholders' Equity 20.4% 20.4% - - ---------------------------------------------------------------------------------------------------- Fiscal 1994 and 1993 were affected by unusual items discussed on page 18. Regular cash dividends have been paid for the forty-ninth consecutive year. QUARTERLY FINANCIAL INFORMATION (Expressed in thousands, except per share amounts) - - ----------------------------------------------------------------------------------------------------Per Share of Common --------------------------------Cash Market Net Gross Net Net Dividends -----------Sales Profit Income Income Paid Class A - - ----------------------------------------------------------------------------------------------------Fiscal 1994 $1,665,120 $826,883 $128,527 $1.63 $.9267 $29.92 -$23. - - ----------------------------------------------------------------------------------------------------Quarters - - ----------------------------------------------------------------------------------------------------Fourth 396,428 198,100 30,327 .44 .2367 29.88 - 28. - - ----------------------------------------------------------------------------------------------------Third 413,312 203,522 38,773 .48 .2367 29.92 - 23. - - ----------------------------------------------------------------------------------------------------Second 465,725 230,588 62,515 .76 .2267 25.58 - 24. - - ----------------------------------------------------------------------------------------------------First 389,655 194,673 (3,088) (.04) .2267 28.25 - 24. -------------------------------------------------------------------------------------------------------Fiscal 1993 $1,691,683 $824,747 $156,190 $1.88 $.8600 $29.08 -$24. - - ----------------------------------------------------------------------------------------------------Quarters - - ----------------------------------------------------------------------------------------------------Fourth 403,384 200,318 32,520 .39 .2267 26.92 - 24. - - ----------------------------------------------------------------------------------------------------Third 426,267 200,983 37,240 .45 .2267 28.17 - 25. - - ----------------------------------------------------------------------------------------------------Second 464,918 229,922 51,232 .62 .2033 29.08 - 27. - - ----------------------------------------------------------------------------------------------------First 397,114 193,524 35,198 .42 .2033 28.17 - 26. - - ----------------------------------------------------------------------------------------------------- 1. All per common share data reflect the three-for-one stock split on May 20, 1994. 2. On May 1, 1993, the company adopted Statements of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and No. 112, "Employers' Accounting for Postemployment Benefits." In the third quarter of 1994, the company adopted Statement of Financial Accounting Standards No. 116, "Accounting for Contributions Received and Contributions Made," and restated the first quarter as if adoption had occurred May 1, 1993. The cumulative effect of these accounting changes reduced net income in the first quarter of 1994 by $32,542,000 or $.39 per share. 3. Quarterly earnings per share amounts do not add to year-to-date earnings per share for fiscal 1994 because of changes in the number of outstanding shares during the year. FINANCIAL TABLE OF CONTENTS 17 Report of Management 18 Financial Review Charts 20 Financial Review 24 11-Year Consolidated Selected Financial Data 26 Consolidated Statement of Income 27 Consolidated Statement of Cash Flows 28 Consolidated Balance Sheet 30 Consolidated Statement of Stockholders' Equity 31 Notes to Consolidated Financial Statements 36 Report of Independent Accountants REPORT OF MANAGEMENT We are responsible for the presentation of the information contained in the consolidated financial statements and FINANCIAL TABLE OF CONTENTS 17 Report of Management 18 Financial Review Charts 20 Financial Review 24 11-Year Consolidated Selected Financial Data 26 Consolidated Statement of Income 27 Consolidated Statement of Cash Flows 28 Consolidated Balance Sheet 30 Consolidated Statement of Stockholders' Equity 31 Notes to Consolidated Financial Statements 36 Report of Independent Accountants REPORT OF MANAGEMENT We are responsible for the presentation of the information contained in the consolidated financial statements and for its integrity and objectivity. Our statements have been prepared in accordance with generally accepted accounting principles and include amounts based on our best estimates and judgments with appropriate consideration given to materiality. We also prepared the related financial information and are responsible for its accuracy and consistency with the financial statements. The consolidated financial statements have been audited by Coopers & Lybrand, independent certified public accountants. We have made available to Coopers & Lybrand all the company's financial records and related data, as well as the minutes of stockholders', directors', and other appropriate meetings. Furthermore, we believe that all representations made to Coopers & Lybrand 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 costs that financial records are reliable for preparing financial statements. The company has an internal audit function that is intended to provide a review and monitoring process that allows the company to be reasonably sure that the system of internal control operates effectively. In addition, as part of the audit of the financial statements, Coopers & Lybrand completed a study and evaluation of selected internal accounting controls to establish a basis for reliance thereon in determining the nature, timing, and extent of audit tests to be applied. We have considered the internal auditors' and Coopers & Lybrand'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, 1994, the system of internal REPORT OF MANAGEMENT We are responsible for the presentation of the information contained in the consolidated financial statements and for its integrity and objectivity. Our statements have been prepared in accordance with generally accepted accounting principles and include amounts based on our best estimates and judgments with appropriate consideration given to materiality. We also prepared the related financial information and are responsible for its accuracy and consistency with the financial statements. The consolidated financial statements have been audited by Coopers & Lybrand, independent certified public accountants. We have made available to Coopers & Lybrand all the company's financial records and related data, as well as the minutes of stockholders', directors', and other appropriate meetings. Furthermore, we believe that all representations made to Coopers & Lybrand 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 costs that financial records are reliable for preparing financial statements. The company has an internal audit function that is intended to provide a review and monitoring process that allows the company to be reasonably sure that the system of internal control operates effectively. In addition, as part of the audit of the financial statements, Coopers & Lybrand completed a study and evaluation of selected internal accounting controls to establish a basis for reliance thereon in determining the nature, timing, and extent of audit tests to be applied. We have considered the internal auditors' and Coopers & Lybrand'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, 1994, the system of internal control is adequate to accomplish the objectives discussed herein. We also recognize our responsibility for fostering a strong ethical climate so that the company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the company's Code of Conduct, which is publicized throughout the company. The Code of Conduct addresses, among other things, the necessity of ensuring open communication within the company; disclosure of potential conflicts of interests; compliance with all applicable domestic and foreign laws, including those relating to financial disclosure; and maintaining the confidentiality of proprietary information. The company has a systematic program to assess compliance with the Code of Conduct. The Board of Directors, through its Audit Committee, comprised solely of directors who are not employees of the company, meets with management, the internal auditors and the independent certified public accountants to ensure that each is properly discharging its respective responsibilities. Both the independent certified public 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 President and Chief Executive Officer /s/ Clifford G. Rompf, Jr. - - ----------------------------Clifford G. Rompf, Jr. Senior Vice President 17 FINANCIAL REVIEW This section supplements the consolidated financial statements beginning on page 24 and will assist the reader in evaluating Brown-Forman's fiscal 1994 results of operations and financial condition. UNUSUAL ITEMS: Net income for fiscal 1994 contains unusual income and expense items. Notes 2, 5, and 6, on pages 31 and 32, discuss a $33 million charge resulting from the adoption of Statements of Financial Accounting Standards No. 106, No. 112, and No. 116. The charge to net income from adopting these accounting standards was recorded as the cumulative effect of changes in accounting principles. Note 8, on page 34, discusses a $5 million charge associated with the consumer durables segment for the closing or reformatting FINANCIAL REVIEW This section supplements the consolidated financial statements beginning on page 24 and will assist the reader in evaluating Brown-Forman's fiscal 1994 results of operations and financial condition. UNUSUAL ITEMS: Net income for fiscal 1994 contains unusual income and expense items. Notes 2, 5, and 6, on pages 31 and 32, discuss a $33 million charge resulting from the adoption of Statements of Financial Accounting Standards No. 106, No. 112, and No. 116. The charge to net income from adopting these accounting standards was recorded as the cumulative effect of changes in accounting principles. Note 8, on page 34, discusses a $5 million charge associated with the consumer durables segment for the closing or reformatting of certain retail stores. Note 10, on page 35, discusses an unusual charge of $3 million for the retroactive effect of a higher tax rate on earnings from January 1, 1993 to April 30, 1993, and a noncash charge to restate the deferred tax liability at the new corporate tax rate. Note 3, on page 32, discusses an $18 million gain from the sale of the company's credit card processing business. The fiscal 1994 unusual items reflect a net $23 million reduction to net income. Net income for fiscal 1993 was reduced $3 million from a write-down of assets in the consumer durables segment. The following table is included to assist the reader in understanding unusual items: (Expressed in earnings per share) - - -----------------------------------------------------------Post-Split Pre-Split - - -----------------------------------------------------------1994 1993 1994 1993 ============================================================ As reported $1.63 $1.88 $4.88 $5.65 - - -----------------------------------------------------------Adjustments for unusual items: Gain on sale of business (23) -(.70) -- - -----------------------------------------------------------Adoption of new accounting standards .41 -1.24 -- - -----------------------------------------------------------Higher tax legislation (1) .04 -.14 -- - -----------------------------------------------------------Consumer durables charges .07 .03 .21 .09 - - -----------------------------------------------------------Adjusted Earnings Per Share $1.92 $1.91 $5.77 $5.74 - - -------------------------------============================= (1) In addition, fiscal 1994 earnings per share were affected by a 1% higher tax rate on current earnings. Adjusted to reflect the lower statutory rate effective in fiscal 1993, fiscal 1994 EPS would have been $1.94 ($5.83 on a pre-split basis). STOCKHOLDERS' EQUITY: On January 14, 1994, the company concluded a Dutch auction tender offer, acquiring 2,734,452 shares of Class A and 10,933,518 shares of Class B common stock at a total cost of $408 million. While interest costs associated with the share purchase lowered net income, the purchase had a positive effect on earnings per share, adding $.07 to fiscal 1994 results. The company expects future earnings per share to benefit significantly by the purchase. This benefit will be affected as the company expects to pursue several investment strategies in fiscal 1995 that will moderate near-term earnings growth, but help achieve greater longterm results. The company recorded a three-for-one stock split for all shares of Class A and Class B common stock, paid in the form of a stock dividend. The stock dividend was distributed on May 20, 1994. All per share amounts have been retroactively restated to reflect the stock split. The company retired its treasury stock in 1994. The Consolidated Statement of Stockholders' Equity details the effect of this retirement. RESULTS OF CONSOLIDATED OPERATIONS SALES: Net sales decreased slightly in fiscal 1994 due to lower first-half sales of Jack Daniel's Country Cocktails and lower sales of consumer durables. The reduction in sales was partially offset by the full year effect of Fetzer Vineyards and increased international wines and spirits sales. Overseas sales increased from the prior year due to double-digit growth of both Jack Daniel's and Early Times. Consumer durables net sales declined due to significant reductions in sales at Lenox Collections. Excluding brands acquired, developed internally, sold, or eliminated, consolidated net sales were unchanged in fiscal 1994, increased 3% in fiscal 1993, and increased 2% in fiscal 1992. OPERATING INCOME: Operating income during fiscal 1994 decreased largely due to lower shipments of Jack Daniel's Country Cocktails in the first half of the year. The consumer durables segment also contributed to the decrease. Partially offsetting these decreases was a $2 million improvements in operating income from venture businesses. EARNINGS: Fiscal 1994 earnings were reduced by higher net interest expense resulting from the above mentioned stock purchase. On October 15, 1993, the company sold substantially all the assets of its credit card processing operations. The sale resulted in a pretax gain of $30 million ($18 million or $.23 per share after tax). Additional tax expense of $3 million, or $.04 per share, resulted from tax legislation signed into law August 10, 1993. This increase recognizes the retroactive effect of a higher tax rate on earnings from January 1, 1993 through April 30, 1993, and the recording of a noncash charge to restate the company's deferred tax liability at the new corporate tax rate. In addition, tax expense, compared to prior years, increased $2 million, or $.02 per share, from a higher statutory tax rate on fiscal 1994 earnings. Future earnings will also be negatively affected by these higher statutory rates. The company expects the effective tax rate in fiscal 1995 to be approximately 39%. Fiscal 1994, 1993, and 1992 effective tax rates also contain benefits from adjustment of prior years' tax accruals. Excluding unusual items, earnings per share reached a record level in fiscal 1994. Earnings per share computations were positively affected by a reduction in the average number of common shares outstanding due to the company's purchase of 2,734,452 Class A common shares and 10,933,518 Class B common shares for $408 million in fiscal 1994 and 268,500 Class B common shares for $7 million in fiscal 1992. 20 SUMMARY OF CONSOLIDATED OPERATING PERFORMANCE (Expressed in thousands, except percentage amounts and earnings per common share) - - --------------------------------------------------------------------------------------------1994 1993 1992 - - --------------------------------------------------------------------------------------------NET SALES $1,665,120 $1,691,683 $1,519,787 - - --------------------------------------------------------------------------------------------% Change (1.6%) 11.3% 9.5% - - --------------------------------------------------------------------------------------------OPERATING INCOME - - --------------------------------------------------------------------------------------------As Reported $ 240,361 $ 255,382 $233,818 - - --------------------------------------------------------------------------------------------% Change (5.9%) 9.2% 4.6% - - --------------------------------------------------------------------------------------------Excluding Unusual Items $ 248,541 $ 259,212 $233,818 - - --------------------------------------------------------------------------------------------% Change (4.1%) 10.9% 4.6% - - --------------------------------------------------------------------------------------------NET INCOME - - --------------------------------------------------------------------------------------------As Reported $ 128,527 $ 156,190 $146,353 - - --------------------------------------------------------------------------------------------% Change (17.7%) 6.7% .8% - - --------------------------------------------------------------------------------------------Excluding Unusual Items $ 151,649 $ 158,690 $146,353 - - --------------------------------------------------------------------------------------------% Change (4.4%) 8.4% .8% - - --------------------------------------------------------------------------------------------EARNINGS PER COMMON SHARE - - --------------------------------------------------------------------------------------------As Reported $ 1.63 $ 1.88 $ 1.76 - - --------------------------------------------------------------------------------------------% Change (13.3%) 6.8% 1.1% - - --------------------------------------------------------------------------------------------Excluding Unusual Items $ 1.92 $ 1.91 $ 1.76 - - --------------------------------------------------------------------------------------------% Change .5% 8.5% 1.1% - - --------------------------------------------------------------------------------------------EFFECTIVE TAX RATE - - --------------------------------------------------------------------------------------------As Reported 37.4% 35.6% 34.6% SUMMARY OF CONSOLIDATED OPERATING PERFORMANCE (Expressed in thousands, except percentage amounts and earnings per common share) - - --------------------------------------------------------------------------------------------1994 1993 1992 - - --------------------------------------------------------------------------------------------NET SALES $1,665,120 $1,691,683 $1,519,787 - - --------------------------------------------------------------------------------------------% Change (1.6%) 11.3% 9.5% - - --------------------------------------------------------------------------------------------OPERATING INCOME - - --------------------------------------------------------------------------------------------As Reported $ 240,361 $ 255,382 $233,818 - - --------------------------------------------------------------------------------------------% Change (5.9%) 9.2% 4.6% - - --------------------------------------------------------------------------------------------Excluding Unusual Items $ 248,541 $ 259,212 $233,818 - - --------------------------------------------------------------------------------------------% Change (4.1%) 10.9% 4.6% - - --------------------------------------------------------------------------------------------NET INCOME - - --------------------------------------------------------------------------------------------As Reported $ 128,527 $ 156,190 $146,353 - - --------------------------------------------------------------------------------------------% Change (17.7%) 6.7% .8% - - --------------------------------------------------------------------------------------------Excluding Unusual Items $ 151,649 $ 158,690 $146,353 - - --------------------------------------------------------------------------------------------% Change (4.4%) 8.4% .8% - - --------------------------------------------------------------------------------------------EARNINGS PER COMMON SHARE - - --------------------------------------------------------------------------------------------As Reported $ 1.63 $ 1.88 $ 1.76 - - --------------------------------------------------------------------------------------------% Change (13.3%) 6.8% 1.1% - - --------------------------------------------------------------------------------------------Excluding Unusual Items $ 1.92 $ 1.91 $ 1.76 - - --------------------------------------------------------------------------------------------% Change .5% 8.5% 1.1% - - --------------------------------------------------------------------------------------------EFFECTIVE TAX RATE - - --------------------------------------------------------------------------------------------As Reported 37.4% 35.6% 34.6% - - --------------------------------------------------------------------------------------------Excluding Unusual Items 35.6% 35.6% 34.6% - - --------------------------------------------------------------------------------------------RETURNS ON INVESTED CAPITAL AND EQUITY - - --------------------------------------------------------------------------------------------1994 1993 1992 - - --------------------------------------------------------------------------------------------RETURN ON AVERAGE INVESTED CAPITAL - - --------------------------------------------------------------------------------------------As Reported 15.4% 18.0% 18.8% - - --------------------------------------------------------------------------------------------Five-Year Average 17.5% 19.1% 18.7% - - --------------------------------------------------------------------------------------------Excluding Unusual Items 17.8% 18.2% 18.8% - - --------------------------------------------------------------------------------------------Five-Year Average 19.2% 19.9% 19.6% - - --------------------------------------------------------------------------------------------RETURN ON AVERAGE COMMON STOCKHOLDERS' EQUITY - - --------------------------------------------------------------------------------------------As Reported 20.4% 20.4% 21.3% - - --------------------------------------------------------------------------------------------Five-Year Average 20.4% 22.1% 22.1% - - --------------------------------------------------------------------------------------------Excluding Unusual Items 23.6% 20.7% 21.3% - - --------------------------------------------------------------------------------------------Five-Year Average 22.5% 23.1% 23.2% - - --------------------------------------------------------------------------------------------- In 1994 the company experienced an increase in its return on average common stockholders' equity, excluding unusual items, due to the purchase of its common stock. 21 FINANCIAL REVIEW WINES AND SPIRITS SEGMENT Summary of Operating Performance (Expressed in thousands, except percentage amounts) - - ----------------------------------------------------------1994 1993 1992 =========================================================== NET SALES $1,141,455 $1,154,549 $1,015,043 - - ----------------------------------------------------------% Change (1.1%) 13.7% (0.3%) - - ----------------------------------------------------------NET SALES LESS EXCISE TAXES $ 877,762 $ 877,397 $ 755,374 - - ----------------------------------------------------------% Change -16.2% 0.8% - - ----------------------------------------------------------OPERATING INCOME $ 235,004 $ 245,693 $ 220,967 - - ----------------------------------------------------------% Change (4.4%) 11.2% 4.4% - - ----------------------------------------------------------- The wines and spirits business is Brown-Forman's largest segment representing 69% of net sales in 1994, 68% in 1993, and 67% in 1992. Net sales, excluding brands which have been sold, discontinued, acquired, or developed internally during the periods reported, increased 1% in fiscal 1994, 3% in fiscal 1993, and decreased 1% in fiscal 1992. SALES: Sales outside the U.S. continued to grow to record levels. Jack Daniel's and Early Times experienced double-digit sales volume growth with increases registered in most major overseas markets. Southern Comfort sales volume overseas was unchanged from last year. Sales in fiscal 1994 were lower due to the very successful introduction of Jack Daniel's Country Cocktails in fiscal 1993. Typical of most successful new products, introductory sales of Country Cocktails in 1993 were enhanced by high rates of initial consumer trial and the establishment of trade inventory levels. Although volumes for Country Cocktails moderated in fiscal 1994, it continues to provide high margins, while broadening the consumer franchise for Jack Daniel's Tennessee Whiskey. Sales for the segment were increased by the full-year effect of Fetzer Vineyards acquired in August 1992. Canadian Mist, Southern Comfort, and Early Times all experienced sales volume declines in the U.S. market in fiscal 1994, following growth in fiscal 1993. The declines in volume primarily reflect consumption trends as well as a reduction of trade inventory levels. OPERATING INCOME: Wines and spirits operating income declined in 1994 due primarily to lower shipments of Country Cocktails in the first half of the year. The decrease was partially offset by the full-year effect of Fetzer Vineyards and increased worldwide sales of Jack Daniel's. In 1993 the increase in operating income was due to the successful introduction of Jack Daniel's Country Cocktails, overseas results, and the acquisition of Fetzer Vineyards. In 1992 the increase in operating income was due primarily to price increases taken on major brands as well as international volume growth. ORGANIZATION: The company announced in May 1994, the creation of Brown-Forman Beverages Worldwide, a new global beverage organization designed to accelerate overseas growth for the company's beverage brands. Investments required to realize the full potential of this new company will moderate near-term earnings growth. However, these investments are expected to help the company achieve even greater long-term results. BUSINESS ENVIRONMENT: Concern over alcoholic beverage consumption and the adverse societal effects of alcohol abuse has risen during the past several years, both domestically and abroad. it is not clear how the vigorous debate will be resolved between those who seek to preserve the traditional freedom of adults to consume beverage alcohol responsibly and those who would restrict consumption by various means. Despite a gradual but steady decline in alcohol consumption by Americans over time, Brown-Forman has increased its market share, profits and dividends by strong brand building, concentrating on premium products, introducing new products and diversification. There are periodic efforts at both the federal and state levels to raise the already high tax rates on beverage alcohol. Recent attention has focused on the possibility of higher federal taxes on spirits as a possible source for FINANCIAL REVIEW WINES AND SPIRITS SEGMENT Summary of Operating Performance (Expressed in thousands, except percentage amounts) - - ----------------------------------------------------------1994 1993 1992 =========================================================== NET SALES $1,141,455 $1,154,549 $1,015,043 - - ----------------------------------------------------------% Change (1.1%) 13.7% (0.3%) - - ----------------------------------------------------------NET SALES LESS EXCISE TAXES $ 877,762 $ 877,397 $ 755,374 - - ----------------------------------------------------------% Change -16.2% 0.8% - - ----------------------------------------------------------OPERATING INCOME $ 235,004 $ 245,693 $ 220,967 - - ----------------------------------------------------------% Change (4.4%) 11.2% 4.4% - - ----------------------------------------------------------- The wines and spirits business is Brown-Forman's largest segment representing 69% of net sales in 1994, 68% in 1993, and 67% in 1992. Net sales, excluding brands which have been sold, discontinued, acquired, or developed internally during the periods reported, increased 1% in fiscal 1994, 3% in fiscal 1993, and decreased 1% in fiscal 1992. SALES: Sales outside the U.S. continued to grow to record levels. Jack Daniel's and Early Times experienced double-digit sales volume growth with increases registered in most major overseas markets. Southern Comfort sales volume overseas was unchanged from last year. Sales in fiscal 1994 were lower due to the very successful introduction of Jack Daniel's Country Cocktails in fiscal 1993. Typical of most successful new products, introductory sales of Country Cocktails in 1993 were enhanced by high rates of initial consumer trial and the establishment of trade inventory levels. Although volumes for Country Cocktails moderated in fiscal 1994, it continues to provide high margins, while broadening the consumer franchise for Jack Daniel's Tennessee Whiskey. Sales for the segment were increased by the full-year effect of Fetzer Vineyards acquired in August 1992. Canadian Mist, Southern Comfort, and Early Times all experienced sales volume declines in the U.S. market in fiscal 1994, following growth in fiscal 1993. The declines in volume primarily reflect consumption trends as well as a reduction of trade inventory levels. OPERATING INCOME: Wines and spirits operating income declined in 1994 due primarily to lower shipments of Country Cocktails in the first half of the year. The decrease was partially offset by the full-year effect of Fetzer Vineyards and increased worldwide sales of Jack Daniel's. In 1993 the increase in operating income was due to the successful introduction of Jack Daniel's Country Cocktails, overseas results, and the acquisition of Fetzer Vineyards. In 1992 the increase in operating income was due primarily to price increases taken on major brands as well as international volume growth. ORGANIZATION: The company announced in May 1994, the creation of Brown-Forman Beverages Worldwide, a new global beverage organization designed to accelerate overseas growth for the company's beverage brands. Investments required to realize the full potential of this new company will moderate near-term earnings growth. However, these investments are expected to help the company achieve even greater long-term results. BUSINESS ENVIRONMENT: Concern over alcoholic beverage consumption and the adverse societal effects of alcohol abuse has risen during the past several years, both domestically and abroad. it is not clear how the vigorous debate will be resolved between those who seek to preserve the traditional freedom of adults to consume beverage alcohol responsibly and those who would restrict consumption by various means. Despite a gradual but steady decline in alcohol consumption by Americans over time, Brown-Forman has increased its market share, profits and dividends by strong brand building, concentrating on premium products, introducing new products and diversification. There are periodic efforts at both the federal and state levels to raise the already high tax rates on beverage alcohol. Recent attention has focused on the possibility of higher federal taxes on spirits as a possible source for funding health care reform. While there are no federal governmental proposals at the time of this writing to increase beverage alcohol taxes, if such taxes were imposed they would adversely affect the U.S. wines and spirits business. CONSUMER DURABLES SEGMENT Summary of Operating Performance (Expressed in thousands, except percentage amounts) - - ---------------------------------------------------------------1994 1993 1992 ================================================================ NET SALES $513,612 $519,038 $492,189 - - ---------------------------------------------------------------% Change (1.0%) 5.5% 35.6% - - ---------------------------------------------------------------OPERATING INCOME - - ---------------------------------------------------------------As Reported $ 18,953 $ 24,454 $ 40,365 - - ---------------------------------------------------------------% Change (22.5%) (39.4%) 26.6% - - ---------------------------------------------------------------Excluding Unusual Items $ 27,133 $ 28,284 $ 40,365 - - ---------------------------------------------------------------% Change (4.1%) (29.9%) 26.6% - - ---------------------------------------------------------------- The consumer durables segment represented 31% of net sales in 1994, 31% in 1993, and 32% in 1992. This segment includes combined results for the domestic and international consumer durables businesses. SALES: Excluding divisions acquired or divested, net sales decreased 1% in fiscal 1994, increased 2% in fiscal 1993, and increased 9% in fiscal 1992. Net sales for fiscal 1994 decreased due primarily to significantly lower sales at Lenox Collections, partially offset by increased sales at Lenox China and Hartmann Luggage. Net sales for fiscal 1993 increased primarily from the full year effect of the acquisition of Dansk and sales increases at Lenox Collections and Lenox China. The increase in fiscal 1992 sales was driven by growth at Lenox Collections and the acquisition of Dansk in July 1991. OPERATING INCOME: Operating income for fiscal 1994 was reduced $8.2 million for charges associated with closing or reformatting certain retail stores, which will allow future efforts to concentrate on retail formats that have shown the most promise. Excluding unusual items, operating income decreased slightly due largely to lower sales at Lenox Collections and investments to improve communications and logistics at Lenox. 22 Operating income for fiscal 1993, excluding the $3.8 million write-off of assets associated with slow-moving and obsolete assets, decreased significantly from 1992 due to weakened demand related to economic conditions, intense competitive activity, higher per-unit manufacturing costs at the china production facilities, and a diminished success rate for new product introductions at Lenox Collections. During 1992, the segment experienced mixed results. Lenox China and Lenox Collections achieved growth, which was partially offset by start-up costs associated with opening new domestic retail leather goods stores and expansion of china and leather products outside the U.S. OTHER SEGMENT Summary Operating Performance (Expressed in thousands, except percentage amounts) - - -----------------------------------------------------------------------------------1994 1993 1992 - - -----------------------------------------------------------------------------------NET SALES $10,053 $18,096 $ 12,555 - - -----------------------------------------------------------------------------------% Change (44.4%) 44.1% 89.5% - - -----------------------------------------------------------------------------------OPERATING INCOME/(LOSS) $ 453 $(1,917) $(14,779) - - -----------------------------------------------------------------------------------% Change (N/A) 87.0% (79.9%) - - ------------------------------------------------------------------------------------ Operating income for fiscal 1993, excluding the $3.8 million write-off of assets associated with slow-moving and obsolete assets, decreased significantly from 1992 due to weakened demand related to economic conditions, intense competitive activity, higher per-unit manufacturing costs at the china production facilities, and a diminished success rate for new product introductions at Lenox Collections. During 1992, the segment experienced mixed results. Lenox China and Lenox Collections achieved growth, which was partially offset by start-up costs associated with opening new domestic retail leather goods stores and expansion of china and leather products outside the U.S. OTHER SEGMENT Summary Operating Performance (Expressed in thousands, except percentage amounts) - - -----------------------------------------------------------------------------------1994 1993 1992 - - -----------------------------------------------------------------------------------NET SALES $10,053 $18,096 $ 12,555 - - -----------------------------------------------------------------------------------% Change (44.4%) 44.1% 89.5% - - -----------------------------------------------------------------------------------OPERATING INCOME/(LOSS) $ 453 $(1,917) $(14,779) - - -----------------------------------------------------------------------------------% Change (N/A) 87.0% (79.9%) - - ------------------------------------------------------------------------------------ The increase in operating income in fiscal 1994 and the significant decline in the operating loss for fiscal 1993 was primarily due to a reduction in the scope of the company's aquaculture business and increased operating revenues from the company's credit card processing business. Fiscal 1992 contained a $3.5 million write-down of aquaculture assets. See Note 3, on page 32, for information related to the sale of the company's credit card processing business during fiscal 1994. Effective November 1, 1993, the company discontinued the use of this segment. CONSOLIDATED FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES Brown-Forman's cash flow continues to provide more than adequate capital to meet operating and capital expenditure requirements, to pay record dividends, and to fund acquisition opportunities. See Consolidated Statement of Cash Flows on page 27. Cash generated from operating activities for the combined three-year period of 1992, 1993 and 1994 has been higher than amounts needed for ongoing capital expenditure requirements, dividends, and debt repayments. Cash requirements have increased over the past three years reflecting the purchase of approximately $408 million of the company's common stock, acquisition activity, and increases in dividend payments, partially offset by reductions in working capital, principally inventory and accounts payable. Cash generated by operations increased 15%, 23%, and 16% in fiscal 1994, 1993, and 1992, respectively. Net working capital excluding the sale of the company's credit card processing business, decreased $160 million in fiscal 1994 reflecting a reduction in cash and cash equivalents resulting from the stock purchase, lower finished goods inventory due to successful inventory reductions in the consumer durables segment and lower case goods of Jack Daniel's Country Cocktails, and increased accounts payable and commercial paper. These reductions were partially offset by an increase in barreled whisky. Fiscal 1993 net working capital, excluding acquisitions of businesses, increased $92 million, reflecting an increase in cash and cash equivalents, higher accounts receivable, a reduction in short-term debt and accrued taxes on income, partially offset by a reduction in inventories. Fiscal 1992 net working capital, excluding acquisitions of businesses, decreased $5 million primarily from a decrease in cash and cash equivalents, partially offset by higher accounts receivables due to increased sales, and a reduction of accrued liabilities. The company has a $150 million revolving credit agreement that expires in fiscal 1998 and $130 million in revolving credit agreements that expire in fiscal 1995. At April 30, 1994, the company had no outstanding borrowings under these agreements. At April 30, 1994, the company also had available for issuance $250 million of debt securities under a shelf registration filing with the Securities and Exchange Commission. The company expects to retire $100 million of 9.375% debt on April 1, 1995. However, due to a previously arranged option to swap interest rates, the company does not expect this transaction to result in a change in interest expense. See Note 9 on page 34. CAPITAL EXPENDITURES Brown-Forman invested $27 million in property, plant, and equipment in fiscal 1994, $34 million in fiscal 1993, and $52 million in fiscal 1992. Capital expenditures are expected to be approximately $45 to $50 million in fiscal 1995 primarily for upgrading and expansion of production facilities in the wines and spirits segment, and improving the effectiveness of Lenox operations. Fiscal 1993 and fiscal 1992 expenditures reflect the modernization of production facilities and projects to expand the capacity at Lenox China. In fiscal 1995, capital expenditure requirements are expected to be met with internally generated funds. DIVIDENDS Fiscal 1994 dividends per common share were at record levels and increased 8% to $.927 from $.86 in fiscal 1993. The increase is based on the expectations of continued strong and stable cash flow. Quarterly dividends were increased in fiscal 1994 from $.227 to $.237, which results in an indicated annual dividend of $.947 per common share. Cash dividends per common share increased from $.78 in 1992 to $.86 in 1993, an increase of 10%. The percent of cash dividends paid to net income was 58% in fiscal 1994, compared to 46% and 44% for fiscal 1993 and fiscal 1992, respectively. Brown-Forman has paid regular cash dividends for 49 consecutive years. ENVIRONMENTAL Note 13, on page 36, discusses the effects of environmental issues on BrownForman's financial statements. 23 11-YEAR CONSOLIDATED SELECTED FINANCIAL DATA For Fiscal Year Ended April 30, (Expressed in thousands, except per share amounts and ratios) - - ----------------------------------------------------------------------------------------------------OPERATIONS 1994 1993 ========================================================================================================= Net Sales $1,665,120 1,691,683 - - ----------------------------------------------------------------------------------------------------Excise Taxes $ 263,693 277,152 - - ----------------------------------------------------------------------------------------------------Net Sales Less Excise Taxes $1,401,427 1,414,531 - - ----------------------------------------------------------------------------------------------------Gross Profit $ 826,883 824,747 - - ----------------------------------------------------------------------------------------------------Operating Income $ 240,361 255,382 - - ----------------------------------------------------------------------------------------------------Interest Income $ 3,984 3,113 - - ----------------------------------------------------------------------------------------------------Interest Expense $ 17,195 15,918 - - ----------------------------------------------------------------------------------------------------Income Before Cumulative Effect of Accounting Changes $ 161,069 156,190 - - ----------------------------------------------------------------------------------------------------Cumulative Effect of Accounting Changes $ (32,542) -- - ----------------------------------------------------------------------------------------------------Net Income $ 128,527 156,190 - - ----------------------------------------------------------------------------------------------------Weighted Average Common Shares Outstanding 78,657 82,664 - - ----------------------------------------------------------------------------------------------------Earnings Per Common Share: - - ----------------------------------------------------------------------------------------------------Income Before Cumulative Effect of Accounting Changes $ 2.04 1.88 - - ----------------------------------------------------------------------------------------------------Cumulative Effect of Account Changes $ (.41) -- - ----------------------------------------------------------------------------------------------------Net Income $ 1.63 1.88 - - ----------------------------------------------------------------------------------------------------Cash Dividends Per Common Share $ .93 .86 - - ----------------------------------------------------------------------------------------------------Common Stock Splits 3-FOR-1 - - ----------------------------------------------------------------------------------------------------- INVESTED CAPITAL IN THE BUSINESS - - ----------------------------------------------------------------------------------------------------Current Debt $ 59,096 6,389 - - ----------------------------------------------------------------------------------------------------Long-Term Debt $ 299,061 154,408 - - ----------------------------------------------------------------------------------------------------Preferred Stock $ 11,779 11,779 - - ----------------------------------------------------------------------------------------------------- 11-YEAR CONSOLIDATED SELECTED FINANCIAL DATA For Fiscal Year Ended April 30, (Expressed in thousands, except per share amounts and ratios) - - ----------------------------------------------------------------------------------------------------OPERATIONS 1994 1993 ========================================================================================================= Net Sales $1,665,120 1,691,683 - - ----------------------------------------------------------------------------------------------------Excise Taxes $ 263,693 277,152 - - ----------------------------------------------------------------------------------------------------Net Sales Less Excise Taxes $1,401,427 1,414,531 - - ----------------------------------------------------------------------------------------------------Gross Profit $ 826,883 824,747 - - ----------------------------------------------------------------------------------------------------Operating Income $ 240,361 255,382 - - ----------------------------------------------------------------------------------------------------Interest Income $ 3,984 3,113 - - ----------------------------------------------------------------------------------------------------Interest Expense $ 17,195 15,918 - - ----------------------------------------------------------------------------------------------------Income Before Cumulative Effect of Accounting Changes $ 161,069 156,190 - - ----------------------------------------------------------------------------------------------------Cumulative Effect of Accounting Changes $ (32,542) -- - ----------------------------------------------------------------------------------------------------Net Income $ 128,527 156,190 - - ----------------------------------------------------------------------------------------------------Weighted Average Common Shares Outstanding 78,657 82,664 - - ----------------------------------------------------------------------------------------------------Earnings Per Common Share: - - ----------------------------------------------------------------------------------------------------Income Before Cumulative Effect of Accounting Changes $ 2.04 1.88 - - ----------------------------------------------------------------------------------------------------Cumulative Effect of Account Changes $ (.41) -- - ----------------------------------------------------------------------------------------------------Net Income $ 1.63 1.88 - - ----------------------------------------------------------------------------------------------------Cash Dividends Per Common Share $ .93 .86 - - ----------------------------------------------------------------------------------------------------Common Stock Splits 3-FOR-1 - - ----------------------------------------------------------------------------------------------------- INVESTED CAPITAL IN THE BUSINESS - - ----------------------------------------------------------------------------------------------------Current Debt $ 59,096 6,389 - - ----------------------------------------------------------------------------------------------------Long-Term Debt $ 299,061 154,408 - - ----------------------------------------------------------------------------------------------------Preferred Stock $ 11,779 11,779 - - ----------------------------------------------------------------------------------------------------Common Stockholders' Equity $ 451,908 806,334 - - ----------------------------------------------------------------------------------------------------Invested Capital $ 821,844 978,920 - - ----------------------------------------------------------------------------------------------------Average Invested Capital $ 900,382 924,557 - - ----------------------------------------------------------------------------------------------------Average Common Stockholders' Equity $ 629,126 764,862 - - ----------------------------------------------------------------------------------------------------New Working Capital $ 368,850 509,894 - - ----------------------------------------------------------------------------------------------------Total Assets $1,233,849 1,310,998 - - ----------------------------------------------------------------------------------------------------RATIOS - - ----------------------------------------------------------------------------------------------------Return on Average Invested Capital 15.4% 18.0% - - ----------------------------------------------------------------------------------------------------Return on Average Common Stockholders' Equity 20.4% 20.4% - - ----------------------------------------------------------------------------------------------------Total Long-Term Debt to Total Long-Term Capital 39.2% 15.9% - - ----------------------------------------------------------------------------------------------------Total Cash Dividends Paid to Net Income 57.5% 45.8% - - ----------------------------------------------------------------------------------------------------Current Assets to Current Liabilities 2.3:1 3.4:1 - - ----------------------------------------------------------------------------------------------------- Notes: 1. Average invested capital, return on average invested capital, return on average common stockholders' equity, and total long-term debt to total long-term capital are defined on page 19. 2. Includes the operations of Fetzer Vineyards, Dansk International Designs Ltd., and California Cooler Co., since their acquisitions on August 31, 1992, July 2, 1991, and September 5, 1985 respectively. 3. On October 15, 1993, the company sold Brown-Forman Enterprises, its credit card processing operations, resulting in an after-tax gain of $18,350,000. - - ----------------------------------------------------------------------------------------------------1991 1990 1989 1988 1987 1986 1985 1984 - - ----------------------------------------------------------------------------------------------------1,387,780 1,303,985 1,293,991 1,360,282 1,405,846 1,288,808 1,208,113 1,146,343 - - ----------------------------------------------------------------------------------------------------268,930 276,006 281,298 288,010 306,355 293,944 279,721 282,550 - - ----------------------------------------------------------------------------------------------------1,118,850 1,027,979 1,012,693 1,072,272 1,099,491 994,864 928,392 863,793 - - ----------------------------------------------------------------------------------------------------666,444 609,196 578,739 561,509 564,802 519,471 470,705 426,075 - - ----------------------------------------------------------------------------------------------------223,467 224,944 208,480 191,684 182,126 190,080 188,088 175,448 - - ----------------------------------------------------------------------------------------------------7,154 7,250 6,172 1,513 1,814 1,309 1,945 2,975 - - ----------------------------------------------------------------------------------------------------11,075 16,654 24,821 18,399 22,125 28,145 35,749 34,969 - - ----------------------------------------------------------------------------------------------------145,233 80,979 144,497 103,399 89,584 86,376 81,684 73,554 - - ----------------------------------------------------------------------------------------------------11,526 - - ----------------------------------------------------------------------------------------------------145,233 92,505 144,497 103,399 89,584 86,376 81,684 73,554 - - ----------------------------------------------------------------------------------------------------83,303 83,933 83,933 95,060 96,249 96,211 106,524 113,271 - - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------1.74 .96 1.72 1.08 .93 .89 .76 .65 - - ----------------------------------------------------------------------------------------------------.14 - - ----------------------------------------------------------------------------------------------------1.74 1.10 1.72 1.08 .93 .89 .76 .65 - - ----------------------------------------------------------------------------------------------------.72 .63 .51 .41 .30 .22 .20 .20 - - ----------------------------------------------------------------------------------------------------3-for-2 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------2,236 827 25,830 790 19,544 30,490 28,214 43,597 - - ----------------------------------------------------------------------------------------------------112,278 114,484 115,281 190,973 199,454 235,919 266,162 264,411 - - ----------------------------------------------------------------------------------------------------11,779 11,779 11,779 11,779 11,779 11,779 11,779 11,779 - - ----------------------------------------------------------------------------------------------------648,788 583,521 543,900 442,601 577,938 516,365 454,053 506,521 - - ----------------------------------------------------------------------------------------------------775,081 710,611 696,790 646,143 808,715 794,553 760,208 826,308 - - ----------------------------------------------------------------------------------------------------742,846 703,701 671,467 727,429 801,634 777,381 793,258 680,131 - - ----------------------------------------------------------------------------------------------------616,155 563,711 493,251 510,270 547,152 485,209 480,287 481,147 - - ----------------------------------------------------------------------------------------------------431,347 388,197 313,153 287,371 336,657 309,894 325,845 356,535 - - ----------------------------------------------------------------------------------------------------1,082,597 1,020,984 1,003,272 932,284 1,056,699 1,037,799 935,383 982,827 - - ----------------------------------------------------------------------------------------------------20.5% 14.6% 23.8% 15.7% 12.6% 12.9% 12.6% 13.4% - - ----------------------------------------------------------------------------------------------------23.5% 16.3% 29.2% 20.2% 16.3% 17.7% 16.9% 15.2% - - ----------------------------------------------------------------------------------------------------14.5% 16.1% 17.2% 29.5% 25.3% 30.9% 36.4% 33.8% - - ----------------------------------------------------------------------------------------------------41.7% 57.4% 29.8% 38.9% 32.8% 25.3% 26.2% 30.8% - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------1991 1990 1989 1988 1987 1986 1985 1984 - - ----------------------------------------------------------------------------------------------------1,387,780 1,303,985 1,293,991 1,360,282 1,405,846 1,288,808 1,208,113 1,146,343 - - ----------------------------------------------------------------------------------------------------268,930 276,006 281,298 288,010 306,355 293,944 279,721 282,550 - - ----------------------------------------------------------------------------------------------------1,118,850 1,027,979 1,012,693 1,072,272 1,099,491 994,864 928,392 863,793 - - ----------------------------------------------------------------------------------------------------666,444 609,196 578,739 561,509 564,802 519,471 470,705 426,075 - - ----------------------------------------------------------------------------------------------------223,467 224,944 208,480 191,684 182,126 190,080 188,088 175,448 - - ----------------------------------------------------------------------------------------------------7,154 7,250 6,172 1,513 1,814 1,309 1,945 2,975 - - ----------------------------------------------------------------------------------------------------11,075 16,654 24,821 18,399 22,125 28,145 35,749 34,969 - - ----------------------------------------------------------------------------------------------------145,233 80,979 144,497 103,399 89,584 86,376 81,684 73,554 - - ----------------------------------------------------------------------------------------------------11,526 - - ----------------------------------------------------------------------------------------------------145,233 92,505 144,497 103,399 89,584 86,376 81,684 73,554 - - ----------------------------------------------------------------------------------------------------83,303 83,933 83,933 95,060 96,249 96,211 106,524 113,271 - - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------1.74 .96 1.72 1.08 .93 .89 .76 .65 - - ----------------------------------------------------------------------------------------------------.14 - - ----------------------------------------------------------------------------------------------------1.74 1.10 1.72 1.08 .93 .89 .76 .65 - - ----------------------------------------------------------------------------------------------------.72 .63 .51 .41 .30 .22 .20 .20 - - ----------------------------------------------------------------------------------------------------3-for-2 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------2,236 827 25,830 790 19,544 30,490 28,214 43,597 - - ----------------------------------------------------------------------------------------------------112,278 114,484 115,281 190,973 199,454 235,919 266,162 264,411 - - ----------------------------------------------------------------------------------------------------11,779 11,779 11,779 11,779 11,779 11,779 11,779 11,779 - - ----------------------------------------------------------------------------------------------------648,788 583,521 543,900 442,601 577,938 516,365 454,053 506,521 - - ----------------------------------------------------------------------------------------------------775,081 710,611 696,790 646,143 808,715 794,553 760,208 826,308 - - ----------------------------------------------------------------------------------------------------742,846 703,701 671,467 727,429 801,634 777,381 793,258 680,131 - - ----------------------------------------------------------------------------------------------------616,155 563,711 493,251 510,270 547,152 485,209 480,287 481,147 - - ----------------------------------------------------------------------------------------------------431,347 388,197 313,153 287,371 336,657 309,894 325,845 356,535 - - ----------------------------------------------------------------------------------------------------1,082,597 1,020,984 1,003,272 932,284 1,056,699 1,037,799 935,383 982,827 - - ----------------------------------------------------------------------------------------------------20.5% 14.6% 23.8% 15.7% 12.6% 12.9% 12.6% 13.4% - - ----------------------------------------------------------------------------------------------------23.5% 16.3% 29.2% 20.2% 16.3% 17.7% 16.9% 15.2% - - ----------------------------------------------------------------------------------------------------14.5% 16.1% 17.2% 29.5% 25.3% 30.9% 36.4% 33.8% - - ----------------------------------------------------------------------------------------------------41.7% 57.4% 29.8% 38.9% 32.8% 25.3% 26.2% 30.8% - - ----------------------------------------------------------------------------------------------------3.3:1 3.0:1 2.5:1 2.7:1 2.8:1 2.5:1 3.0:1 3.1:1 - - ----------------------------------------------------------------------------------------------------- 4. On January 31, 1989, the company sold the U.S. marketing rights for Martell Cognacs resulting in an after-tax gain of $22,300,000. 5. On April 27, 1988, the company sold the ArtCarved jewelry division resulting in an after-tax gain of $16,700,000. 6. Net income was reduced $59,900,000 and $33,000,000 to reflect the write-off of the intangible assets of California Cooler in 1990 and 1988, respectively. 7. Earnings per common share are based on the weighted average number of common shares outstanding during each year; both earnings and cash dividends per common share have been appropriately adjusted for the 3-for-1 and 3-for-2 stock splits in fiscal 1994 and 1987, respectively. 25 CONSOLIDATED STATEMENT OF INCOME (Expressed in thousands, except per share amounts) - - ----------------------------------------------------------------------------------------------------Year Ended April 30, 1994 199 ========================================================================================================= Net sales $1,665,120 $1,691 - - ----------------------------------------------------------------------------------------------------Excise taxes 263,693 277 - - ----------------------------------------------------------------------------------------------------Cost of sales 574,544 589 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Gross profit 826,883 824 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------Selling, general, and administrative expenses 384,276 364 - - ----------------------------------------------------------------------------------------------------Advertising expenses 202,246 204 - - ------------------------------------------------------------------------------------================= Operating income 240,361 255 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------Gain on sale of business before income taxes 30,077 - - ----------------------------------------------------------------------------------------------------Interest income 3,984 3 - - ----------------------------------------------------------------------------------------------------Interest expense 17,195 15 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Income before income taxes and cumulative effect of accounting changes 257,227 242 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------Taxes on income 96,158 86 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Income before cumulative effect of accounting changes 161,069 156 - - ----------------------------------------------------------------------------------------------------Cumulative effect of accounting changes (32,542) - - ------------------------------------------------------------------------------------================= Net income $ 128,527 $ 156 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Earnings per common share: - - ----------------------------------------------------------------------------------------------------Income before cumulative effect of accounting changes $ 2.04 $ - - ----------------------------------------------------------------------------------------------------Cumulative effect of accounting changes (.41) - - ------------------------------------------------------------------------------------================= Net income $ 1.63 $ - - ------------------------------------------------------------------------------------================= CONSOLIDATED STATEMENT OF INCOME (Expressed in thousands, except per share amounts) - - ----------------------------------------------------------------------------------------------------Year Ended April 30, 1994 199 ========================================================================================================= Net sales $1,665,120 $1,691 - - ----------------------------------------------------------------------------------------------------Excise taxes 263,693 277 - - ----------------------------------------------------------------------------------------------------Cost of sales 574,544 589 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Gross profit 826,883 824 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------Selling, general, and administrative expenses 384,276 364 - - ----------------------------------------------------------------------------------------------------Advertising expenses 202,246 204 - - ------------------------------------------------------------------------------------================= Operating income 240,361 255 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------Gain on sale of business before income taxes 30,077 - - ----------------------------------------------------------------------------------------------------Interest income 3,984 3 - - ----------------------------------------------------------------------------------------------------Interest expense 17,195 15 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Income before income taxes and cumulative effect of accounting changes 257,227 242 - - ----------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------Taxes on income 96,158 86 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Income before cumulative effect of accounting changes 161,069 156 - - ----------------------------------------------------------------------------------------------------Cumulative effect of accounting changes (32,542) - - ------------------------------------------------------------------------------------================= Net income $ 128,527 $ 156 - - ------------------------------------------------------------------------------------================= - - ----------------------------------------------------------------------------------------------------Earnings per common share: - - ----------------------------------------------------------------------------------------------------Income before cumulative effect of accounting changes $ 2.04 $ - - ----------------------------------------------------------------------------------------------------Cumulative effect of accounting changes (.41) - - ------------------------------------------------------------------------------------================= Net income $ 1.63 $ - - ------------------------------------------------------------------------------------================= The accompanying notes are an integral part of the consolidated financial statements. 26 CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in thousands; amounts in brackets are reductions of cash) - - ----------------------------------------------------------------------------------------------------Year Ended April 30, 1994 - - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES: - - ----------------------------------------------------------------------------------------------------Net income $ 128,527 $ - - ----------------------------------------------------------------------------------------------------Adjustments to reconcile net income to net cash provided by (used for) operations: - - ----------------------------------------------------------------------------------------------------Cumulative effect of changes in accounting principles 32,542 - - ----------------------------------------------------------------------------------------------------Depreciation 36,588 - - ----------------------------------------------------------------------------------------------------Amortization of intangible assets 9,435 - - ----------------------------------------------------------------------------------------------------Deferred income taxes 6,405 - - ----------------------------------------------------------------------------------------------------Gain on sale of business, net of income taxes (18,350) - - ----------------------------------------------------------------------------------------------------Other 384 - - ----------------------------------------------------------------------------------------------------Change in assets and liabilities, excluding the effects of businesses acquired and sold: - - ----------------------------------------------------------------------------------------------------Accounts receivable (1,659) - - ----------------------------------------------------------------------------------------------------Inventories 7,073 - - ----------------------------------------------------------------------------------------------------Other current assets 3,715 - - ----------------------------------------------------------------------------------------------------Accounts payable and accrued expenses 31,528 - - ----------------------------------------------------------------------------------------------------Accrued taxes on income (15,335) - - ----------------------------------------------------------------------------------------------------Cash provided by operating activities 220,853 - - ----------------------------------------------------------------------------------------------------CASH FLOWS FROM INVESTING ACTIVITIES: - - ----------------------------------------------------------------------------------------------------Proceeds from sale of business 31,837 - - ----------------------------------------------------------------------------------------------------Acquisition of businesses, net of cash acquired of $3,999 in 1992 -- - ----------------------------------------------------------------------------------------------------Equity investment -- - ----------------------------------------------------------------------------------------------------Additions to property, plant, and equipment (27,433) - - ----------------------------------------------------------------------------------------------------Disposals of property, plant, and equipment 1,788 - - ----------------------------------------------------------------------------------------------------Net sales (purchases) of short-term investments 18,146 - - ----------------------------------------------------------------------------------------------------Other (5,426) - - ----------------------------------------------------------------------------------------------------Cash provided by (used for) investing activities 18,912 - - ----------------------------------------------------------------------------------------------------CASH FLOWS FROM FINANCING ACTIVITIES: - - ----------------------------------------------------------------------------------------------------Commercial paper 204,229 - - ----------------------------------------------------------------------------------------------------Proceeds from long-term debt -- - ----------------------------------------------------------------------------------------------------Reduction of long-term debt (6,869) - - ----------------------------------------------------------------------------------------------------Reduction of debt assumed in acquisition of businesses -- - ----------------------------------------------------------------------------------------------------Retirement of notes payable -- - ----------------------------------------------------------------------------------------------------Acquisition of treasury stock (407,659) - - ----------------------------------------------------------------------------------------------------Dividends paid (73,838) - - ----------------------------------------------------------------------------------------------------Cash (used for) financing activities (284,137) - - ----------------------------------------------------------------------------------------------------Net increase (decrease) in cash and cash equivalents (44,372) - - ----------------------------------------------------------------------------------------------------Cash and cash equivalents, beginning of year 74,912 - - ----------------------------------------------------------------------------------------------------Cash and cash equivalents, end of year $ 30,540 $ - - ----------------------------------------------------------------------------------------------------The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED BALANCE SHEEET (Expressed in thousands, except per share amounts) - - ------------------------------------------------------------------------------April 30, 1994 1993 1992 =============================================================================== ASSETS - - ------------------------------------------------------------------------------Cash and cash equivalents $ 30,540 $ 74,912 $ 50,030 - - ------------------------------------------------------------------------------Short-term investments -18,146 16,905 - - ------------------------------------------------------------------------------Accounts receivable, less allowance for doubtful accounts of $12,006 in 1994, $10,432 in 1993, and $7,970 in 1992 240,580 238,921 208,271 - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------Inventories: - - ------------------------------------------------------------------------------Barreled whiskey 143,785 137,880 144,538 - - ------------------------------------------------------------------------------Finished goods 122,976 142,640 147,777 - - ------------------------------------------------------------------------------Work in progress 59,984 56,857 29,238 - - ------------------------------------------------------------------------------Raw materials and supplies 31,697 28,139 30,869 - - ------------------------------------------===================================== Total inventories 358,442 365,516 352,422 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------Other current assets 20,344 22,759 23,850 - - ------------------------------------------===================================== TOTAL CURRENT ASSETS 649,906 720,254 651,478 - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------Property, plant, and equipment, at no cost: - - ------------------------------------------------------------------------------Land 17,604 17,466 14,924 - - ------------------------------------------------------------------------------Buildings 167,500 164,134 148,496 - - ------------------------------------------------------------------------------Equipment 325,271 309,647 284,487 - - ------------------------------------------===================================== 510,375 491,247 447,907 - - ------------------------------------------------------------------------------Less accumulated depreciation (264,397) (233,807) (204,631) - - ------------------------------------------===================================== Net property, plant, and equipment 245,978 257,440 243,276 - - ------------------------------------------------------------------------------Intangible assets, less accumulated amortization of $89,471 in 1994, $80,036 in 1993, and $71,395 in 1992 276,358 279,681 245,235 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------Other assets 61,607 53,623 53,533 - - ------------------------------------------===================================== TOTAL ASSETS $1,233,849 $1,310,998 $1,193,522 CONSOLIDATED BALANCE SHEEET (Expressed in thousands, except per share amounts) - - ------------------------------------------------------------------------------April 30, 1994 1993 1992 =============================================================================== ASSETS - - ------------------------------------------------------------------------------Cash and cash equivalents $ 30,540 $ 74,912 $ 50,030 - - ------------------------------------------------------------------------------Short-term investments -18,146 16,905 - - ------------------------------------------------------------------------------Accounts receivable, less allowance for doubtful accounts of $12,006 in 1994, $10,432 in 1993, and $7,970 in 1992 240,580 238,921 208,271 - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------Inventories: - - ------------------------------------------------------------------------------Barreled whiskey 143,785 137,880 144,538 - - ------------------------------------------------------------------------------Finished goods 122,976 142,640 147,777 - - ------------------------------------------------------------------------------Work in progress 59,984 56,857 29,238 - - ------------------------------------------------------------------------------Raw materials and supplies 31,697 28,139 30,869 - - ------------------------------------------===================================== Total inventories 358,442 365,516 352,422 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------Other current assets 20,344 22,759 23,850 - - ------------------------------------------===================================== TOTAL CURRENT ASSETS 649,906 720,254 651,478 - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------Property, plant, and equipment, at no cost: - - ------------------------------------------------------------------------------Land 17,604 17,466 14,924 - - ------------------------------------------------------------------------------Buildings 167,500 164,134 148,496 - - ------------------------------------------------------------------------------Equipment 325,271 309,647 284,487 - - ------------------------------------------===================================== 510,375 491,247 447,907 - - ------------------------------------------------------------------------------Less accumulated depreciation (264,397) (233,807) (204,631) - - ------------------------------------------===================================== Net property, plant, and equipment 245,978 257,440 243,276 - - ------------------------------------------------------------------------------Intangible assets, less accumulated amortization of $89,471 in 1994, $80,036 in 1993, and $71,395 in 1992 276,358 279,681 245,235 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------Other assets 61,607 53,623 53,533 - - ------------------------------------------===================================== TOTAL ASSETS $1,233,849 $1,310,998 $1,193,522 - - ------------------------------------------===================================== The accompanying notes are an integral part of the consolidated financial statements. 28 - - --------------------------------------------------------------------------------------------------April 30, 1994 1993 1992 - - --------------------------------------------------------------------------------------------------April 30, 1994 1993 1992 =================================================================================================== LIABILITIES - - --------------------------------------------------------------------------------------------------Commercial paper $ 54,229 $ 20,772 - - --------------------------------------------------------------------------------------------------Accounts payable and accrued expenses 216,175 $ 180,664 159,258 - - --------------------------------------------------------------------------------------------------Current portion of long-term debt 4,867 6,389 73 - - --------------------------------------------------------------------------------------------------Accrued taxes on income 3,815 7,424 16,702 - - --------------------------------------------------------------------------------------------------Deferred income taxes 1,970 15,883 17,340 =================================================================================================== TOTAL CURRENT LIABILITIES 281,056 210,360 214,145 - - --------------------------------------------------------------------------------------------------Long-term debt 299,061 154,408 114,191 - - --------------------------------------------------------------------------------------------------Deferred income taxes 102,267 108,971 106,545 - - --------------------------------------------------------------------------------------------------Accrued postretirement benefits 47,223 - - --------------------------------------------------------------------------------------------------Other liabilities and deferred income 40,555 19,136 23,483 =================================================================================================== TOTAL LIABILITIES 770,162 492,875 458,364 - - --------------------------------------------------------------------------------------------------STOCKHOLDERS' EQUITY - - --------------------------------------------------------------------------------------------------Capital Stock: - - --------------------------------------------------------------------------------------------------Preferred $.40 cumulative, $10 par value, redeemable at company's option at $10.25 per share plus unpaid accrued dividends; 1,177,948 shares authorized and outstanding 11,779 11,779 11,779 =================================================================================================== Class A common stock, voting, $.15 par value; authorized shares, 30,000,000; issued shares, 28,988,091 4,348 1,809 1,809 - - --------------------------------------------------------------------------------------------------Class B common stock, nonvoting, $.15 par value; authorized shares, 60,000,000; issued shares, 40,008,147 6,001 4,000 4,000 - - --------------------------------------------------------------------------------------------------Capital in excess of par value of common stock 89,735 89,717 - - --------------------------------------------------------------------------------------------------Retained earnings 445,643 1,057,461 972,833 - - --------------------------------------------------------------------------------------------------Cumulative translation adjustment (4,084) (2,421) (740) - - --------------------------------------------------------------------------------------------------Less common treasury stock, at cost: (1993 and 1992: Class A, 4,463,163 shares; Class B, 29,051,280 shares) (344,240) (344,240) =================================================================================================== COMMON STOCKHOLDERS' EQUITY 451,908 806,344 723,379 =================================================================================================== TOTAL STOCKHOLDERS' EQUITY 463,687 818,123 735,158 =================================================================================================== TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,233,849 $1,310,998 $1,193,522 =================================================================================================== 29 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended April 30, 1994, 1993, and 1992 (Expressed in thousands, except share amounts) - - ----------------------------------------------------------------------------------------------------Common Stock --------------Capital in Cum Preferred Class Class Excess of Retained Tra Total Stock A B Par Value Earnings Adj - - ----------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended April 30, 1994, 1993, and 1992 (Expressed in thousands, except share amounts) - - ----------------------------------------------------------------------------------------------------Common Stock --------------Capital in Cum Preferred Class Class Excess of Retained Tra Total Stock A B Par Value Earnings Adj - - ----------------------------------------------------------------------------------------------------Balance, April 30, 1991 $ 660,567 $11,779 $1,809 $ 4,000 $89,748 $ 891,479 $( - - ----------------------------------------------------------------------------------------------------Net income 146,353 146,353 - - ----------------------------------------------------------------------------------------------------Cash dividends Preferred, per share $.40 (471) (471) Common, per share $.78 (64,528) (64,528) - - ----------------------------------------------------------------------------------------------------Acquisition of treasury stock (Class B, 268,500 shares) (6,999) - - ----------------------------------------------------------------------------------------------------Foreign currency translation adjustment 267 - - ----------------------------------------------------------------------------------------------------Other (31) (31) ========================================================================================================= Balance, April 30, 1992 735,158 11,779 1,809 4,000 89,717 972,833 - - ----------------------------------------------------------------------------------------------------Net income 156,190 156,190 - - ----------------------------------------------------------------------------------------------------Cash dividends Preferred, per share $.40 (471) (471) Common, per share $.86 (71,091) (71,091) - - ----------------------------------------------------------------------------------------------------Foreign currency translation adjustment (1,681) ( - - ----------------------------------------------------------------------------------------------------Other 18 18 ========================================================================================================= Balance, April 30, 1993 818,123 11,779 1,809 4,000 89,735 1,057,461 ( - - ----------------------------------------------------------------------------------------------------Net income 128,527 128,527 - - ----------------------------------------------------------------------------------------------------Cash dividends Preferred, per share $.40 (471) (471) Common, per share $.93 (73,367) (73,367) - - ----------------------------------------------------------------------------------------------------Acquisition of treasury stock (Class A, 2,734,452 shares and Class B, 10,933,518 shares) (407,659) - - ----------------------------------------------------------------------------------------------------Retirement of treasury stock (Class A, 7,197,615 shares and Class B, 39,984,798 shares) -(360) (1,999) (89,822) (659,718) - - ----------------------------------------------------------------------------------------------------Issuance of shares in connection with 3-for-1 stock split -2,899 4,000 (6,899) - - ----------------------------------------------------------------------------------------------------Foreign currency translation adjustment (1,663) ( - - ----------------------------------------------------------------------------------------------------Other 197 87 110 ========================================================================================================= Balance, April 30, 1994 $463,687 $11,779 $4,348 $6,001 $ -$ 445,643 $( ========================================================================================================= The accompanying notes are an integral part of the consolidated financial statements. 30 1. ACCOUNTING POLICIES A brief description of the principal accounting methods and policies follows: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries. 1. ACCOUNTING POLICIES A brief description of the principal accounting methods and policies follows: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries. CASH EQUIVALENTS Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. SHORT-TERM INVESTMENTS Short-term interest bearing investments are those with maturities of less than one year but greater than three months when purchased. These investments are readily convertible to cash and are stated at cost, which approximates fair value. INVENTORIES Inventories are stated at the lower of cost or market. Approximately 84% at April 30, 1994, 83% at April 30, 1993, and 80% at April 30, 1992 of the total amount of consolidated inventories are stated on the basis of the last-in, first-out (LIFO) method. All remaining inventories generally are valued using the first-in, first-out and average cost methods. If the LIFO method had not been used, inventories would have been $71,626,000, $62,347,000, and $45,326,000 higher than reported at April 30, 1994, 1993, and 1992, respectively. A substantial portion of barreled whisky will not be sold within one year because of the duration of the aging process. All barreled whisky is classified in current assets 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 whisky held for aging are included in inventory costs. DEPRECIATION Provision for depreciation is made on the basis of estimated useful lives of depreciable assets, principally using the straight-line method. INTANGIBLE ASSETS 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. Intangible assets are carried at an amount not exceeding estimated recoverability. The company assesses the recoverability of the carrying value of intangible assets based primarily on forecasted profitability and cash flows of the related business. DEFERRED INCOME Deferred income represents proceeds received from a multi-year agreement for the distribution rights of certain of the company's spirits brands in the export market. These proceeds are being recognized over a ten-year period. REVENUE RECOGNITION The company recognizes revenue when goods are shipped or services are performed. Interchange fees, which are amounts collected for credit card issuing organizations, are not included in revenues. These fees were $21,094,000, $33,324,000, and $20,326,000 for 1994, 1993, and 1992, respectively. EARNINGS PER COMMON SHARE Earnings per common share are based upon the weighted average common shares outstanding of 78,657,432 in 1994, 82,664,208 in 1993, and 82,720,695 in 1992, after recognition of dividend requirements on preferred stock. All common share and per share information have been retroactively restated to reflect the three- for-one stock split on May 20, 1994. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the current year's presentation. 2. ACCOUNTING CHANGES On May 1, 1993, the company adopted Statements of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." See Postretirement Benefits Other Than Pensions and Postemployment Benefits on page 32. In the third quarter of 1994, the company adopted Statement of Financial Accounting Standards No. 116, "Accounting for Contributions Received and Contributions Made," and restated the first quarter as if adoption had occurred May 1, 1993. Accordingly, the company recorded a liability for charitable contributions unconditionally pledged but not yet paid. The cumulative effect of these changes in accounting principles are as follows (in thousands). FAS Statement No. - - -------------------------------------------------106 112 116 Total - - -------------------------------------------------Pretax charge $43,684 $2,817 $6,721 $53,222 - - -------------------------------------------------Income taxes 16,955 1,104 2,621 20,680 - - -------------------------------------------------Net charge $26,729 $1,713 $4,100 $32,542 - - -------------------------------------------------Net charge per common share $ .34 $ .02 $ .05 $ .41 - - -------------------------------------------------- Effective January 31, 1994, the company adopted Statement of Position 93-7, "Reporting on Advertising Costs." This statement was issued by the American Institute of Certified Public Accountants and requires the company to prospectively capitalize and amortize direct-response advertising to better match revenues with expenses. The company continues to expense other advertising costs as incurred. On May 1, 1993, the company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The adoption of these standards did not materially affect 1994 earnings before the cumulative effect of accounting changes. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. CHANGES IN OPERATIONS SALE OF CREDIT CARD OPERATIONS On October 15, 1993, the company sold substantially all the assets of its credit card processing operations. The sale resulted in a pretax gain of approximately $30,077,000 ($18,350,000 or $.23 per share after-tax). ACQUISITION OF FETZER VINEYARDS On August 31, 1993, the company purchased the outstanding stock of Fetzer Vineyards of Mendocino County, California. The cost of acquiring the stock was approximately $64,200,000 and included, among other costs, $4,600,000 in cash, $47,500,000 in notes to the previous owners and four annual payments of $2,800,000 per year beginning fiscal 1996. In addition, the company assumed approximately $27,000,000 of Fetzer Vineyards debt. The acquisition has been accounted for as a purchase, and accordingly, the operating results of Fetzer have been consolidated with the company since the acquisition date. The excess of the acquisition cost over the fair NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. CHANGES IN OPERATIONS SALE OF CREDIT CARD OPERATIONS On October 15, 1993, the company sold substantially all the assets of its credit card processing operations. The sale resulted in a pretax gain of approximately $30,077,000 ($18,350,000 or $.23 per share after-tax). ACQUISITION OF FETZER VINEYARDS On August 31, 1993, the company purchased the outstanding stock of Fetzer Vineyards of Mendocino County, California. The cost of acquiring the stock was approximately $64,200,000 and included, among other costs, $4,600,000 in cash, $47,500,000 in notes to the previous owners and four annual payments of $2,800,000 per year beginning fiscal 1996. In addition, the company assumed approximately $27,000,000 of Fetzer Vineyards debt. The acquisition has been accounted for as a purchase, and accordingly, the operating results of Fetzer have been consolidated with the company since the acquisition date. The excess of the acquisition cost over the fair value of the net assets acquired is approximately $47,000,000 which is being amortized over forty years. ACQUISITION OF DANSK The company acquired Dansk International Designs Ltd. ("Dansk") on July 2, 1991. The total capital invested in Dansk was approximately $87,400,000, made up of the purchase price of acquiring all the outstanding stock for approximately $65,500,000, net of $2,000,000 of excess cash acquired, and the assumption of $21,900,000 of Dansk debt. The acquisition has been accounted for as a purchase, and accordingly, the operating results of Dansk have been consolidated with the company since the acquisition date. The excess of the acquisition cost over the fair value of the identifiable net assets acquired is approximately $45,800,000 which is being amortized over forty years. OTHER ACQUISITIONS During 1993, the company acquired a 20% interest in Swift and Moore Pty. Limited, an importer and marketer of spirits and wines in Australia for $9,512,000. During 1992, the company acquired certain assets of Jekel Vineyards and Wings Luggage. Jekel Vineyards is a Monterey County, California winery which produces super-premium, estate-bottled wines. These acquisitions were accounted for as purchases. 4. COMMITMENTS Rentals of real estate, office and data processing equipment, vehicles, and manufacturing equipment under operating leases amounted to approximately $20,700,000, $19,200,000, and $19,000,000 for 1994, 1993, and 1992, respectively. The company has commitments related primarily to minimum lease payments totaling $22,700,000 in 1995; $16,300,000 in 1996; $13,100,000 in 1997; $10,300,000 in 1998; $8,100,000 in 1999; and $10,100,000 after 1999. 5. POSTEMPLOYMENT BENEFITS The company provides postemployment benefits to certain former or inactive employees. Effective May 1, 1993, the company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for those benefits. The cumulative effect of adopting this accounting standard resulted in a one-time pretax charge of $2,817,000 ($1,713,000 or $.02 per share after tax). 6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The company provides certain health care and life insurance benefits for eligible retirees. Effective May 1, 1993, the company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Under SFAS No. 106, the company accrues the cost of these benefits over employers' active service periods. The company elected to recognize this change in accounting on the immediately recognition basis. The adoption of this standard resulted in a one-time pretax charge totaling $43,684,000 ($26,729,000 or $.34 per share after tax). The postretirement benefit expense for 1994 includes the following components (in thousands): Service cost of benefits earned $1,898 - - -------------------------------------------------------Interest cost on accumulated postretirement benefit obligation 3,495 - - -------------------------------------------------------Postretirement benefit expense $5,393 - - -------------------------------------------------------- Prior to May 1, 1993, retiree health care and life insurance benefits were expensed as paid and totaled $1,950,000 in 1993 and $2,073,000 in 1992. The 1994 postretirement benefit liability includes the following components (in thousands): Actuarial present value of accumulated postretirement obligation: - - -----------------------------------------------------------Retirees $25,525 - - -----------------------------------------------------------Fully eligible active plan participants 3,878 - - -----------------------------------------------------------Other active plan participants 20,040 - - -----------------------------------------------------------49,443 - - -----------------------------------------------------------Unrecognized net loss 2,220 - - -----------------------------------------------------------Accrued postretirement benefit liability $47,223 - - ------------------------------------------------------------ The assumed discount rate used to determine the accumulated postretirement benefit obligation for April 30, 1994 was 7%. As of April 30, 1994, the assumed health care cost trend rate for participants under age 65 was 13.5%, for participants age 65 and over, the rate was 12.5%. The health care cost trend rate was assumed to decline gradually to 5% over 10 years. A one-percentage point increase in the assumed health care cost trend rate would have increased the accumulated postretirement benefit obligation as of April 30, 1994 by $6,123,000 and the postretirement benefit expense by $834,000. 32 7. PENSION PLANS The company has defined benefit pension plans covering certain employees. The benefits for these plans are based primarily on years of service and employees pay near retirement for the salaried employees and stated amounts for each year of service for the union and hourly employees. The company also has unfunded plans that provide retirement benefits in excess of qualified plan formulas or regulatory limitations for certain employees. Pension income (expense) was $(1,096,000) for 1994, $347,000 for 1993, and $1,096,000 for 1992. Net pension income (expense) for 1994, 1993, and 1992 includes the following components (in thousands): - - ---------------------------------------------------------------1994 1993 1992 - - ---------------------------------------------------------------- - ---------------------------------------------------------------Benefit cost for service during the year $ (7,775) $ (6,187) $ (6,011) - - ---------------------------------------------------------------Interest cost on projected benefit obligation (14,555) (13,668) (12,735) - - ---------------------------------------------------------------Actual return on plan assets 33,580 23,293 40,983 - - ---------------------------------------------------------------Net amortization and deferral (12,346) (3,091) (21,141) - - ---------------------------------------------------------------Net pension income (expense) $ (1,096) $ 347 $ 1,096 - - ---------------------------------------------------------------- The amounts included in the accompanying consolidated balance sheet were based on the funded status of the plans at January 31, 1994, and 1993 and are as follows (in thousands): 7. PENSION PLANS The company has defined benefit pension plans covering certain employees. The benefits for these plans are based primarily on years of service and employees pay near retirement for the salaried employees and stated amounts for each year of service for the union and hourly employees. The company also has unfunded plans that provide retirement benefits in excess of qualified plan formulas or regulatory limitations for certain employees. Pension income (expense) was $(1,096,000) for 1994, $347,000 for 1993, and $1,096,000 for 1992. Net pension income (expense) for 1994, 1993, and 1992 includes the following components (in thousands): - - ---------------------------------------------------------------1994 1993 1992 - - ---------------------------------------------------------------- - ---------------------------------------------------------------Benefit cost for service during the year $ (7,775) $ (6,187) $ (6,011) - - ---------------------------------------------------------------Interest cost on projected benefit obligation (14,555) (13,668) (12,735) - - ---------------------------------------------------------------Actual return on plan assets 33,580 23,293 40,983 - - ---------------------------------------------------------------Net amortization and deferral (12,346) (3,091) (21,141) - - ---------------------------------------------------------------Net pension income (expense) $ (1,096) $ 347 $ 1,096 - - ---------------------------------------------------------------- The amounts included in the accompanying consolidated balance sheet were based on the funded status of the plans at January 31, 1994, and 1993 and are as follows (in thousands): 1994 - - ----------------------------------------------------------------------------------------------------Plan Assets Obligations P Exceed Exceed Obligations Plan Assets O - - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------Actuarial present value of benefit obligations: - - ----------------------------------------------------------------------------------------------------Vested benefit obligations $152,849 $ 16,280 - - ----------------------------------------------------------------------------------------------------Nonvested benefit obligations 10,243 1,475 - - ----------------------------------------------------------------------------------------------------Accumulated benefit obligations 163,092 17,755 - - ----------------------------------------------------------------------------------------------------Additional amounts related to assumed pay increases 29,123 2,944 - - ----------------------------------------------------------------------------------------------------Projected benefit obligations 192,215 20,699 - - ----------------------------------------------------------------------------------------------------Plan assets at fair value 246,793 2,873 - - ----------------------------------------------------------------------------------------------------Plan assets in excess of (less than) benefit obligations 54,578 (17,826) - - ----------------------------------------------------------------------------------------------------Unamortized net (assets) obligations at date of adoption (31,900) 3,462 - - ----------------------------------------------------------------------------------------------------Unrecognized net (gain) loss resulting from experience different from that assumed and changes in actuarial assumptions 13,888 (1,484) - - ----------------------------------------------------------------------------------------------------Unrecognized prior service cost 2,879 5,684 - - ----------------------------------------------------------------------------------------------------Adjustment required to recognize minimum liability -(5,458) - - ----------------------------------------------------------------------------------------------------Contributions subsequent to measurement date -270 - - ----------------------------------------------------------------------------------------------------Prepaid (accrued) pension cost $ 39,445 $(15,352) - - ----------------------------------------------------------------------------------------------------- The projected benefit obligation was determined using a weighted average discount rate of 7% for 1994, 8% for 1993, and 8.5% for 1992. The weighted average rate of future compensation increases was 4% for 1994, 5% for 1993, and 5.5% for 1992. The expected rate of return on plan assets was 9.5% for these years. The plans' for 1993, and 5.5% for 1992. The expected rate of return on plan assets was 9.5% for these years. The plans' assets consist primarily of stocks and bonds. The company's policy for funded plans is to make contributions equal to or greater than the requirements prescribed by the Employee Retirement Income Security Act (ERISA). 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. BUSINESS SEGMENT INFORMATION The company's operations have been classified into three business segments: wines and spirits, consumer durables, and other. The wines and spirits segment includes the production, importing, and marketing of wines and distilled spirits. The consumer durables segment includes the manufacture and sale of china, crystal, ceramic and crystal collectibles, silver, pewter, and luggage. Through October 1993, the other segment included a credit card transaction processing business and an aquaculture business. The credit card transaction processing business was sold in October 1993 and the use of this segment was discontinued. Summarized financial information by business segment for 1994, 1993, and 1992 is as follows (in thousands): - - ---------------------------------------------------------------------1994 1993 1992 ====================================================================== Net sales: - - ---------------------------------------------------------------------Wines and Spirits $1,141,455 $1,154,549 $1,015,043 - - ---------------------------------------------------------------------Consumer Durables 513,612 519,038 492,189 - - ---------------------------------------------------------------------Other 10,053 18,096 12,555 ====================================================================== $1,665,120 $1,691,683 $1,519,787 ====================================================================== Operating income: - - ---------------------------------------------------------------------Wines and Spirits $ 235,004 $ 245,693 $ 220,967 - - ---------------------------------------------------------------------Consumer Durables 18,953 24,454 40,365 - - ---------------------------------------------------------------------Other 453 (1,917) (14,779) - - ---------------------------------------------------------------------Corporate (14,049) (12,848) (12,735) ====================================================================== $ 240,361 $ 255,382 $ 233,818 ====================================================================== Total assets: - - ---------------------------------------------------------------------Wines and Spirits $ 676,086 $ 659,911 $ 555,316 - - ---------------------------------------------------------------------Consumer Durables 500,707 539,682 559,688 - - ---------------------------------------------------------------------Other -8,536 6,635 - - ---------------------------------------------------------------------Corporate 57,056 102,869 71,883 ====================================================================== $1,233,849 $1,310,998 $1,193,522 ====================================================================== Depreciation and amortization: - - ---------------------------------------------------------------------Wines and Spirits $ 22,108 $ 19,981 $ 17,131 - - ---------------------------------------------------------------------Consumer Durables 23,436 22,982 19,492 - - ---------------------------------------------------------------------Other 271 597 459 - - ---------------------------------------------------------------------Corporate 208 195 171 ====================================================================== $ 46,023 $ 43,755 $ 37,253 ====================================================================== Capital expenditures: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. BUSINESS SEGMENT INFORMATION The company's operations have been classified into three business segments: wines and spirits, consumer durables, and other. The wines and spirits segment includes the production, importing, and marketing of wines and distilled spirits. The consumer durables segment includes the manufacture and sale of china, crystal, ceramic and crystal collectibles, silver, pewter, and luggage. Through October 1993, the other segment included a credit card transaction processing business and an aquaculture business. The credit card transaction processing business was sold in October 1993 and the use of this segment was discontinued. Summarized financial information by business segment for 1994, 1993, and 1992 is as follows (in thousands): - - ---------------------------------------------------------------------1994 1993 1992 ====================================================================== Net sales: - - ---------------------------------------------------------------------Wines and Spirits $1,141,455 $1,154,549 $1,015,043 - - ---------------------------------------------------------------------Consumer Durables 513,612 519,038 492,189 - - ---------------------------------------------------------------------Other 10,053 18,096 12,555 ====================================================================== $1,665,120 $1,691,683 $1,519,787 ====================================================================== Operating income: - - ---------------------------------------------------------------------Wines and Spirits $ 235,004 $ 245,693 $ 220,967 - - ---------------------------------------------------------------------Consumer Durables 18,953 24,454 40,365 - - ---------------------------------------------------------------------Other 453 (1,917) (14,779) - - ---------------------------------------------------------------------Corporate (14,049) (12,848) (12,735) ====================================================================== $ 240,361 $ 255,382 $ 233,818 ====================================================================== Total assets: - - ---------------------------------------------------------------------Wines and Spirits $ 676,086 $ 659,911 $ 555,316 - - ---------------------------------------------------------------------Consumer Durables 500,707 539,682 559,688 - - ---------------------------------------------------------------------Other -8,536 6,635 - - ---------------------------------------------------------------------Corporate 57,056 102,869 71,883 ====================================================================== $1,233,849 $1,310,998 $1,193,522 ====================================================================== Depreciation and amortization: - - ---------------------------------------------------------------------Wines and Spirits $ 22,108 $ 19,981 $ 17,131 - - ---------------------------------------------------------------------Consumer Durables 23,436 22,982 19,492 - - ---------------------------------------------------------------------Other 271 597 459 - - ---------------------------------------------------------------------Corporate 208 195 171 ====================================================================== $ 46,023 $ 43,755 $ 37,253 ====================================================================== Capital expenditures: - - ---------------------------------------------------------------------Wines and Spirits $ 19,699 $ 15,968 $ 13,194 - - ---------------------------------------------------------------------Consumer Durables 7,464 17,148 32,931 - - ---------------------------------------------------------------------Other 168 355 5,611 - - ---------------------------------------------------------------------Corporate 102 145 405 ====================================================================== $ 27,433 $ 33,616 $ 52,141 $ 27,433 $ 33,616 $ 52,141 ====================================================================== Consumer durables' operating income was reduced by $8,180,000 ($5,350,000 after-tax) for the closing or reformatting of seven retail stores in 1994 and reduced by $3,830,000 ($2,500,000 after-tax) for the writedown of slow-moving and obsolete assets in 1993. There were no significant intersegment sales or transfers during 1994, 1993, and 1992. Operating income by business segment excludes interest income, interest expense, and net unallocated corporate expenses. Corporate assets consist principally of cash and cash equivalents, short-term investments, certain corporate receivables, and other assets. 9. FINANCIAL INSTRUMENTS The company has sold an option to swap interest rates that effectively eliminates the call feature and establishes a fixed interest rate on the $100,000,000 of notes through their maturity date, April 1, 1998. The carrying amount of the option represents deferred income, which will reduce interest expense over the term of the option. The carrying amount of cash and cash equivalents, short-term investments, and commercial paper approximates fair value due to the short maturities of these instruments. The value of longterm debt and the option to swap are based on quoted market prices, discounted cash flows, and estimates of the cost to terminate or otherwise settle. A comparison of the carrying value and fair value of these instruments is as follows (in thousands): - - ------------------------------------------------------------------------1994 1993 ========================================================================= Carrying Fair Carrying Fair Amount Value Amount Value ========================================================================= Assets: - - ------------------------------------------------------------------------Cash and cash equivalents $ 30,540 $ 30,540 $ 74,912 $ 74,912 - - ------------------------------------------------------------------------Short-term investments --18,146 18,146 - - ------------------------------------------------------------------------Liabilities: - - ------------------------------------------------------------------------Commercial paper 54,229 54,229 --- - ------------------------------------------------------------------------Long-term debt 303,928 308,248 160,797 167,016 - - ------------------------------------------------------------------------Option to swap interest rates 913 5,650 1,146 8,000 - - ------------------------------------------------------------------------- The company has entered into foreign exchange forward contracts to reduce its exposure to fluctuations in foreign exchange rates. While these instruments are subject to the risk of loss from changes in exchange rates, these losses would generally be offset by related gains. The company's foreign exchange forward contracts on hand at April 30, 1994 and 1993 totaled $26,500,000 and $16,400,000, respectively. The carrying value of these financial instruments approximates fair value. 34 10. TAXES ON INCOME Taxes on income for fiscal 1994 includes a $5,300,000 charge resulting from an increase in the corporate income tax rate. Included in this amount is a charge of $3,580,000 for the retroactive effect of a higher tax rate on earnings from January 1, 1993 to April 30, 1993, and a noncash charge to restate the deferred tax liability at the new corporate tax rate. The provision for taxes on income is composed of the following (in thousands): - - ------------------------------------------------------1994 1993 1992 ======================================================= Currently payable: - - ------------------------------------------------------- 10. TAXES ON INCOME Taxes on income for fiscal 1994 includes a $5,300,000 charge resulting from an increase in the corporate income tax rate. Included in this amount is a charge of $3,580,000 for the retroactive effect of a higher tax rate on earnings from January 1, 1993 to April 30, 1993, and a noncash charge to restate the deferred tax liability at the new corporate tax rate. The provision for taxes on income is composed of the following (in thousands): - - ------------------------------------------------------1994 1993 1992 ======================================================= Currently payable: - - ------------------------------------------------------Federal $69,539 $64,667 $54,095 - - ------------------------------------------------------Foreign 3,877 4,222 4,451 - - ------------------------------------------------------State and Local 16,594 14,688 13,661 - - ------------------------------------------------------90,010 83,577 72,207 - - ------------------------------------------------------- - ------------------------------------------------------Deferred: - - ------------------------------------------------------Federal 6,401 3,659 5,280 - - ------------------------------------------------------Foreign (27) (699) (576) - - ------------------------------------------------------State and Local (226) (150) 428 - - ------------------------------------------------------6,148 2,810 5,132 - - ------------------------------------------------------$96,158 $86,387 $77,339 - - ------------------------------------------------------- United States and foreign components of income before income taxes and the cumulative effect of accounting changes are as follows (in thousands): - - --------------------------------------------------------1994 1993 1992 ========================================================= United States $220,880 $211,777 $189,108 - - --------------------------------------------------------Foreign 36,347 30,800 34,584 - - --------------------------------------------------------$257,227 $242,577 $223,692 - - --------------------------------------------------------- The following is a reconciliation of the effective tax rates with the United States statutory rates: Percent of Income Before Taxes - - -----------------------------------------------------------------1994 1993 1992 ================================================================== Statutory rate 35.0% 34.0% 34.0% - - -----------------------------------------------------------------State taxes, net of U.S. Federal tax benefit 4.1 4.0 4.2 - - -----------------------------------------------------------------Income taxed at other than U.S. Federal statutory rate (1.5) (1.2) (1.9) - - -----------------------------------------------------------------Tax benefit of Foreign Sales Corporation (1.3) (.9) (.8) - - -----------------------------------------------------------------Nondeductible amortization 1.1 1.2 1.1 - - -----------------------------------------------------------------Adjustment of prior years' accruals (2.1) (1.7) (2.2) Adjustment of prior years' accruals (2.1) (1.7) (2.2) - - -----------------------------------------------------------------Adjustment of prior years' rate 1.2 --- - -----------------------------------------------------------------Other, net .9 .2 .2 - - -----------------------------------------------------------------37.4% 35.6% 34.6% - - ------------------------------------------------------------------ Deferred tax assets and liabilities for 1994 are composed of the following (in thousands): Deferred Tax - - -------------------------------------------------------------Assets Liabilities - - -------------------------------------------------------------Postretirement and other benefits $30,527 -- - -------------------------------------------------------------Various accrued liabilities and other 31,400 -- - -------------------------------------------------------------Intercompany transactions -$112,116 - - -------------------------------------------------------------Depreciation -22,068 - - -------------------------------------------------------------Undistributed foreign earnings -17,318 - - -------------------------------------------------------------Pension plans -13,857 - - -------------------------------------------------------------Other -805 - - -------------------------------------------------------------$61,927 $166,164 - - -------------------------------------------------------------- The 1993 deferred provision arose principally from $3,473,000 related to undistributed foreign earnings, $677,000 related to deferred income, partially offset by $2,396,000 related to intercompany transactions. The 1992 deferred provision arose principally from $3,284,000 related to undistributed foreign earnings, $2,196,000 related to deferred income, and $3,671,000 related to intercompany transactions. Deferred income taxes were not provided on certain undistributed earnings ($58,854,000 at April 30, 1994) 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 $20,128,000 would have been provided. Cash paid for income taxes was $93,618,000 in 1994, $73,055,000 in 1993, and $67,255,000 in 1992. 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses are composed of the following (in thousands): April 30, 1994 1993 1992 ============================================================= Accounts payable, trade $ 55,084 $ 38,725 $ 35,838 - - ------------------------------------------------------------Accrued expenses: - - ------------------------------------------------------------Compensation and commissions 37,840 35,453 36,904 - - ------------------------------------------------------------Excise and other nonincome taxes 16,183 17,576 14,604 - - ------------------------------------------------------------Interest 9,042 8,476 10,330 - - ------------------------------------------------------------Advertising 39,356 35,401 20,988 - - ------------------------------------------------------------Other 58,670 45,033 40,594 - - ------------------------------------------------------------161,091 141,939 123,420 - - ------------------------------------------------------------$216,175 $180,664 $159,258 - - ------------------------------------------------------------- 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. LONG-TERM DEBT At April 30, the company's long-term debt consisted of the following (in thousands, except percentage amounts): April 30, 1994 1993 1992 ===================================================================== Commercial paper, 3.6% to 4.0% $150,000 --- - --------------------------------------------------------------------9.375% notes, 9.421% effective rate due 1998 99,880 $ 99,850 $ 99,820 - - --------------------------------------------------------------------11.25% notes, due through 1999 38,753 44,632 -- - --------------------------------------------------------------------Variable rate industrial revenue bonds 13,840 13,840 13,840 - - --------------------------------------------------------------------Other 1,455 2,475 604 - - -----------------------------------================================== 303,928 160,797 114,264 - - --------------------------------------------------------------------Less current portion 4,867 6,389 73 - - -----------------------------------================================== $299,061 $154,408 $114,191 - - -----------------------------------================================== The $100,000.00 of 9.375% notes are due in 1998 and callable at par in 1995. See Note 9 on page 34 for a related financial instrument. The variable rate industrial revenue bonds are due through 2026 at rates varying from 3.3% to 3.5%. At April 30, 1994, $150,000,000 of commercial paper is classified as long-term debt in accordance with the company's intent and ability to refinance obligations on a long-term basis. Long-term debt payment requirements for the five fiscal years after April 30, 1994 are as follows: 1995 - $4,867,000; 1996 - $5,414,000; 1997 $6,023,000; 1998 - $256,581,000; 1999 - $7,455,000. Cash paid for interest was $16,629,000 in 1994, $17,771,000 in 1993, and $12,283,000 in 1992. 13. ENVIRONMENTAL The company, along with other responsible parties, faces environmental claims resulting from the cleanup of several waste deposit sites. The company has accrued $2,800,000 to cover its portion of these cleanup costs. The company currently anticipates that all other costs of remediating these sites, estimated at $8,200,000, are expected to be paid by other responsible parties or insurance coverage. The company believes that any additional costs incurred by the company will not have a material adverse effect on the company's financial condition or results of operations. 14. CREDIT FACILITIES The company has a $150,000,000 revolving credit agreement that expires in fiscal 1998 and $130,000,000 in revolving credit agreements that expire in fiscal 1995. At April 30, 1994, the company had no outstanding borrowings under these agreements. The most restrictive of the agreement's covenants requires the company to maintain a minimum level of net worth. At April 30, 1994, net worth, as defined in the agreement, exceeded the required level by $271,347,000. At April 30, 1994, the company also had available for issuance $250,000,000 of debt securities under a shelf registration filing with the Securities and Exchange Commission. 15. CONTINGENCIES Various suits and claims (asserted and unasserted) arising in the ordinary course of business are pending or threatened against the company. These include product liability suits against the company that allege injury from the consumption of alcoholic beverages and suits that allege employment discrimination based on the plaintiffs' age. While some of these suits and claims seek significant financial recoveries from the company, based on a considered evaluation of all known and threatened litigation, and on the advice of counsel, management believes that the ultimate resolution of these matters will not have a material adverse effect on the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. LONG-TERM DEBT At April 30, the company's long-term debt consisted of the following (in thousands, except percentage amounts): April 30, 1994 1993 1992 ===================================================================== Commercial paper, 3.6% to 4.0% $150,000 --- - --------------------------------------------------------------------9.375% notes, 9.421% effective rate due 1998 99,880 $ 99,850 $ 99,820 - - --------------------------------------------------------------------11.25% notes, due through 1999 38,753 44,632 -- - --------------------------------------------------------------------Variable rate industrial revenue bonds 13,840 13,840 13,840 - - --------------------------------------------------------------------Other 1,455 2,475 604 - - -----------------------------------================================== 303,928 160,797 114,264 - - --------------------------------------------------------------------Less current portion 4,867 6,389 73 - - -----------------------------------================================== $299,061 $154,408 $114,191 - - -----------------------------------================================== The $100,000.00 of 9.375% notes are due in 1998 and callable at par in 1995. See Note 9 on page 34 for a related financial instrument. The variable rate industrial revenue bonds are due through 2026 at rates varying from 3.3% to 3.5%. At April 30, 1994, $150,000,000 of commercial paper is classified as long-term debt in accordance with the company's intent and ability to refinance obligations on a long-term basis. Long-term debt payment requirements for the five fiscal years after April 30, 1994 are as follows: 1995 - $4,867,000; 1996 - $5,414,000; 1997 $6,023,000; 1998 - $256,581,000; 1999 - $7,455,000. Cash paid for interest was $16,629,000 in 1994, $17,771,000 in 1993, and $12,283,000 in 1992. 13. ENVIRONMENTAL The company, along with other responsible parties, faces environmental claims resulting from the cleanup of several waste deposit sites. The company has accrued $2,800,000 to cover its portion of these cleanup costs. The company currently anticipates that all other costs of remediating these sites, estimated at $8,200,000, are expected to be paid by other responsible parties or insurance coverage. The company believes that any additional costs incurred by the company will not have a material adverse effect on the company's financial condition or results of operations. 14. CREDIT FACILITIES The company has a $150,000,000 revolving credit agreement that expires in fiscal 1998 and $130,000,000 in revolving credit agreements that expire in fiscal 1995. At April 30, 1994, the company had no outstanding borrowings under these agreements. The most restrictive of the agreement's covenants requires the company to maintain a minimum level of net worth. At April 30, 1994, net worth, as defined in the agreement, exceeded the required level by $271,347,000. At April 30, 1994, the company also had available for issuance $250,000,000 of debt securities under a shelf registration filing with the Securities and Exchange Commission. 15. CONTINGENCIES Various suits and claims (asserted and unasserted) arising in the ordinary course of business are pending or threatened against the company. These include product liability suits against the company that allege injury from the consumption of alcoholic beverages and suits that allege employment discrimination based on the plaintiffs' age. While some of these suits and claims seek significant financial recoveries from the company, based on a considered evaluation of all known and threatened litigation, and on the advice of counsel, management believes that the ultimate resolution of these matters will not have a material adverse effect on the company's financial position or results of operations. 16. QUARTERLY RESULTS (UNAUDITED) The 1994 and 1993 unaudited quarterly results are presented on the highlights page. REPORT OF INDEPENDENT ACCOUNTANTS BROWN-FORMAN CORPORATION We have audited the accompanying consolidated balance sheets of Brown-Forman Corporation and Subsidiaries as of April 30, 1994, 1993, and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Brown-Forman Corporation and Subsidiaries at April 30, 1994, 1993, and 1992, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Notes 2, 5, and 6 to the consolidated financial statements, in 1994 the company adopted changes in its methods of accounting for postretirement benefits other than pensions, postemployment benefits, and contributions. /s/ Coopers & Lybrand - - ---------------------------Louisville, Kentucky June 10, 1994 36 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES Percentage of Voting Securities Owned ------------- Name ---Jack Daniel Distillery, Lem Motlow, Prop., Inc. Fetzer Vineyards Lenox, Incorporated Dansk International Designs Ltd. Mt. Eagle Corporation Canadian Mist Distillers, Limited The Jos. Garneau Co., S.A. Thoroughbred Plastics Corporation Early Times Distillers Company Brown-Forman International F.S.C., Ltd. L-H Limited Longnorth, Limited Clintock, Limited Chissick Limited Lantone, Limited State or Jurisdiction of Incorporation ---------------- 100% 90.1% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (1) (2) (2) (2) (3) (2) (3) (2) (3) Kentucky California New Jersey New York Delaware Ontario, Canada Switzerland Kentucky Delaware U.S. Virgin Islands United Kingdom Ireland Ireland Ireland Ireland The above companies are included in the consolidated financial statements. The names of certain subsidiaries Exhibit 21 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES Percentage of Voting Securities Owned ------------- Name ---Jack Daniel Distillery, Lem Motlow, Prop., Inc. Fetzer Vineyards Lenox, Incorporated Dansk International Designs Ltd. Mt. Eagle Corporation Canadian Mist Distillers, Limited The Jos. Garneau Co., S.A. Thoroughbred Plastics Corporation Early Times Distillers Company Brown-Forman International F.S.C., Ltd. L-H Limited Longnorth, Limited Clintock, Limited Chissick Limited Lantone, Limited State or Jurisdiction of Incorporation ---------------- 100% 90.1% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (1) (2) (2) (2) (3) (2) (3) (2) (3) Kentucky California New Jersey New York Delaware Ontario, Canada Switzerland Kentucky Delaware U.S. Virgin Islands United Kingdom Ireland Ireland Ireland Ireland The above companies are included in the consolidated financial statements. The names of certain subsidiaries have been omitted which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. (1) A wholly-owned subsidiary of Lenox, Incorporated. (2) Includes qualifying shares assigned to Brown-Forman Corporation. (3) A wholly-owned subsidiary of Longnorth, Limited. Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Brown-Forman Corporation on Form S-3, (File No. 33-52551) of our report which includes an explanatory paragraph for the company's adoption of changes in its methods of accounting for postretirement benefits other than pensions, postemployment benefits, and contributions, dated June 10, 1994, on our audits of the consolidated financial statements and financial statement schedules of Brown-Forman Corporation as of April 30, 1994, 1993, and 1992, and for the years ended April 30, 1994, 1993, and 1992, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand - - ---------------------------Louisville, Kentucky July 19, 1994 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Brown-Forman Corporation on Form S-3, (File No. 33-52551) of our report which includes an explanatory paragraph for the company's adoption of changes in its methods of accounting for postretirement benefits other than pensions, postemployment benefits, and contributions, dated June 10, 1994, on our audits of the consolidated financial statements and financial statement schedules of Brown-Forman Corporation as of April 30, 1994, 1993, and 1992, and for the years ended April 30, 1994, 1993, and 1992, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand - - ---------------------------Louisville, Kentucky July 19, 1994