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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-123
BROWN-FORMAN CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 61-0143150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 Dixie Highway
Louisville, Kentucky 40210
(Address of principal executive offices) (Zip Code)
(502) 585-1100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: November 30, 2002
Class A Common Stock ($.15 par value, voting) 28,891,260
Class B Common Stock ($.15 par value, nonvoting) 39,528,738
BROWN-FORMAN CORPORATION
Index to Quarterly Report Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Statement of Income
Three months ended October 31, 2001 and 2002 3
Six months ended October 31, 2001 and 2002 3
Condensed Consolidated Balance Sheet
April 30, 2002 and October 31, 2002 4
Condensed Consolidated Statement of Cash Flows
Six months ended October 31, 2001 and 2002 5
Notes to the Condensed Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Certifications 17 - 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended Six Months Ended
October 31, October 31,
2001 2002 2001 2002
------- ------- -------- --------
Net sales $ 647.8 $ 691.6 $1,121.4 $1,171.1
Excise taxes 68.3 84.5 120.0 140.0
Cost of sales 250.3 268.3 424.1 444.9
------- ------- -------- --------
Gross profit 329.2 338.8 577.3 586.2
Advertising expenses 83.3 86.4 154.7 164.7
Selling, general, and
administrative expenses 118.2 123.4 232.5 237.6
Other expense, net 3.7 4.5 4.8 3.3
------- ------- -------- --------
Operating income 124.0 124.5 185.3 180.6
Interest income 0.9 0.6 2.0 1.2
Interest expense 2.7 1.3 5.2 3.0
------- ------- -------- --------
Income before income taxes 122.2 123.8 182.1 178.8
Taxes on income 42.1 42.7 62.8 61.7
------- ------- -------- --------
Net income $ 80.1 $ 81.1 $ 119.3 $ 117.1
======= ======= ======== ========
Earnings per share
- Basic and Diluted $ 1.17 $ 1.18 $ 1.74 $ 1.71
======= ======= ======== ========
Shares (in thousands) used in the
calculation of earnings per share
- Basic 68,285 68,406 68,361 68,391
- Diluted 68,417 68,592 68,494 68,592
Cash dividends declared
per common share $ 0.33 $ 0.35 $ 0.66 $ 0.70
======= ======= ======== ========
See notes to the condensed consolidated financial statements.
3
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
April 30, October 31,
2002 2002
(Unaudited)
-------- --------
Assets
- ------
Cash and cash equivalents $ 115.6 $ 136.4
Accounts receivable, net 280.4 404.3
Inventories:
Barreled whiskey 219.2 212.4
Finished goods 182.9 226.2
Work in process 117.8 115.9
Raw materials and supplies 57.9 65.4
-------- --------
Total inventories 577.8 619.9
Other current assets 55.0 50.2
-------- --------
Total current assets 1,028.8 1,210.8
Property, plant and equipment, net 437.4 446.3
Investment in affiliates 127.4 133.6
Goodwill 246.5 246.5
Other assets 175.6 177.5
-------- --------
Total assets $2,015.7 $2,214.7
======== ========
Liabilities
- -----------
Commercial paper $ 167.4 $ 259.2
Accounts payable and accrued expenses 295.9 325.0
Accrued taxes on income 31.5 49.2
-------- --------
Total current liabilities 494.8 633.4
Long-term debt 40.2 40.2
Deferred income taxes 57.8 36.0
Accrued postretirement benefits 59.5 61.1
Other liabilities 52.5 55.9
-------- --------
Total liabilities 704.8 826.6
Stockholders' Equity
- --------------------
Common stock 10.3 10.3
Retained earnings 1,360.1 1,429.5
Accumulated other comprehensive loss (19.5) (15.8)
Treasury stock (648,132 and 578,430 common shares
at April 30 and October 31, respectively) (40.0) (35.9)
-------- --------
Total stockholders' equity 1,310.9 1,388.1
-------- --------
Total liabilities and stockholders' equity $2,015.7 $2,214.7
======== ========
Note: The balance sheet at April 30, 2002, has been taken from the audited
financial statements at that date, and condensed.
See notes to the condensed consolidated financial statements.
4
BROWN-FORMAN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In millions; amounts in parentheses are reductions of cash)
Six Months Ended
October 31,
2001 2002
------- -------
Cash flows from operating activities:
Net income $ 119.3 $ 117.1
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 26.6 27.7
Deferred income taxes (17.3) (19.6)
Other (7.3) (3.7)
Changes in assets and liabilities:
Accounts receivable (73.8) (122.8)
Inventories (57.0) (41.5)
Other current assets 9.9 4.8
Accounts payable and accrued expenses 29.5 27.9
Accrued taxes on income 12.1 17.7
Other noncurrent assets and liabilities (0.4) 3.9
------- -------
Cash provided by operating activities 41.6 11.5
Cash flows from investing activities:
Additions to property, plant, and equipment (38.3) (36.2)
Computer software expenditures (1.4) (1.9)
Trademark and patent expenditures (0.7) (0.3)
------- -------
Cash used for investing activities (40.4) (38.4)
Cash flows from financing activities:
Net change in commercial paper 64.6 91.8
Acquisition of treasury stock (12.7) --
Proceeds from exercise of stock options -- 3.8
Dividends paid (45.1) (47.9)
------- -------
Cash provided by financing activities 6.8 47.7
------- -------
Net increase in cash and cash equivalents 8.0 20.8
Cash and cash equivalents, beginning of period 86.1 115.6
------- -------
Cash and cash equivalents, end of period $ 94.1 $ 136.4
======= =======
See notes to the condensed consolidated financial statements.
5
BROWN-FORMAN CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In these notes, "we," "us," and "our" refer to Brown-Forman Corporation.
1. Condensed Consolidated Financial Statements
We prepared these unaudited condensed consolidated statements using our
customary accounting practices as set out in our 2002 annual report on Form 10-K
(the "2002 Annual Report"). We made all of the adjustments (which include only
normal, recurring adjustments) needed to present this data fairly.
We condensed or omitted some of the information found in financial statements
prepared according to generally accepted accounting principles ("GAAP"). You
should read these financial statements together with the 2002 Annual Report,
which does conform to GAAP.
2. Inventories
We use the last-in, first-out ("LIFO") method to determine the cost of most of
our inventories. If the LIFO method had not been used, inventories would have
been $109.7 million higher than reported as of April 30, 2002, and $117.4
million higher than reported as of October 31, 2002. Changes in the LIFO
valuation reserve for interim periods are based on a proportionate allocation of
the estimated change for the entire fiscal year.
3. Advertising Costs
We expense most advertising costs when we incur the costs or, in some cases,
when we recognize revenues related to advertising activities. We capitalize and
amortize certain direct-response advertising costs over periods not exceeding
one year.
4. Taxes on Income
Our consolidated effective tax rate may differ from current statutory rates due
to the recognition of amounts for events or transactions that do not have tax
consequences. We use the estimated annual effective tax rate in determining our
interim results.
5. Earnings Per Share
Basic earnings per share is calculated as net income divided by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is calculated in the same manner, except that the denominator also
includes additional common shares that would have been issued if outstanding
stock options had been exercised during the period. The dilutive effect of
outstanding stock options is determined by application of the treasury stock
method.
6
6. Environmental
Along with other responsible parties, we face environmental claims resulting
from the cleanup of several waste deposit sites. We have accrued our estimated
portion of cleanup costs. We expect either the other responsible parties or
insurance to cover the remaining costs. We do not believe that any additional
costs we incur to satisfy environmental claims will have a material adverse
effect on our financial condition or results of operations.
7. Contingencies
We get sued in the ordinary course of business. Some suits and claims seek
significant damages. Many of them take years to resolve, which makes it
difficult for us to predict their outcomes. We believe, based on our legal
counsel's advice, that none of the suits and claims pending against us will have
a material adverse effect on our financial condition or results of operations.
8. Business Segment Information
(Dollars in millions) Three Months Ended Six Months Ended
October 31, October 31,
2001 2002 2001 2002
------ ------ -------- --------
Net sales:
Wine and spirits $474.6 $517.9 $ 817.2 $ 878.0
Consumer durables 173.2 173.7 304.2 293.1
------ ------ -------- --------
Consolidated net sales $647.8 $691.6 $1,121.4 $1,171.1
====== ====== ======== ========
Operating income:
Wine and spirits $109.1 $105.5 $ 171.3 $ 167.2
Consumer durables 14.9 19.0 14.0 13.4
------ ------ -------- --------
124.0 124.5 185.3 180.6
Interest expense, net 1.8 0.7 3.2 1.8
------ ------ -------- --------
Income before income taxes $122.2 $123.8 $ 182.1 $ 178.8
====== ====== ======== ========
April 30, October 31,
2002 2002
Goodwill: ------ ------
Wine and spirits $116.2 $116.2
Consumer durables 130.3 130.3
------ ------
$246.5 $246.5
====== ======
7
9. Comprehensive Income
Comprehensive income, which includes all changes in equity except those
resulting from investments by shareholders and distributions to shareholders,
was as follows:
(Dollars in millions) Three Months Ended Six Months Ended
October 31, October 31,
2001 2002 2001 2002
------ ------ ------ ------
Net income $ 80.1 $ 81.1 $119.3 $117.1
Other comprehensive income:
Net gain (loss) on cash flow hedges (0.8) 2.7 0.4 (1.2)
Change in unrealized gain/loss
on securities -- (0.4) -- (0.3)
Minimum pension liability adjustment -- -- -- (0.4)
Foreign currency translation
adjustment 0.4 0.3 1.0 5.6
------ ------ ------ ------
Other comprehensive income (loss) (0.4) 2.6 1.4 3.7
------ ------ ------ ------
Comprehensive income $ 79.7 $ 83.7 $120.7 $120.8
====== ====== ====== ======
Accumulated other comprehensive loss (income) consisted of the following:
(Dollars in millions) April 30, October 31,
2002 2002
------ ------
Cumulative translation adjustment $ 15.8 $ 10.2
Minimum pension liability adjustment 3.0 3.4
Unrealized gain on cash flow hedge contracts 0.9 2.1
Unrealized loss (gain) on securities (0.2) 0.1
------ ------
$ 19.5 $ 15.8
====== ======
10. New Accounting Pronouncement
In June, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Exit or Disposal Activities." That Statement addresses the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including certain severance-type costs and costs to
close or consolidate facilities. Statement No. 146 requires liabilities
associated with exit and disposal activities to be expensed as incurred and will
impact the timing of recognition for exit or disposal activities that are
initiated after December 31, 2002.
11. Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following discussion and analysis along with our 2002 Annual
Report. Note that the results of operations for the six months ended October 31,
2002 do not necessarily indicate what our operating results for the full fiscal
year will be. In this Item, "we," "us," and "our" refer to Brown- Forman
Corporation.
Important Note on Forward-Looking Statements:
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to a number of important risks and uncertainties, which could cause actual
results to differ materially from those discussed in these statements. They
include but are not limited to further deterioration of the U.S. economy,
significant strengthening of the U.S. dollar against other currencies,
deterioration in economic conditions in principal countries to which we export
beverage products, and a decline in discretionary consumer spending. Further
weakening of the pricing environment in the U.S. wine business could also
adversely affect earnings. The company's beverage alcohol business is sensitive
to higher tax rates, especially federal excise taxes; an increase in those
taxes, or other measures adopted to restrict beverage sales (whether in the U.S.
or abroad), can hurt our business. Consumer Durables sales could also be hurt by
a decline in sales of products to department stores, or a reduction in retail
space in department stores devoted to tableware, giftware and/or luggage
products. Lower levels of consumer confidence could translate into lessening
demands for consumer durables sold through the direct-mail channel.
Other factors, unrelated to our specific business, could affect earnings. These
include the unknown impact of a war in the Middle East, or other outbreak of
hostilities, adverse effects of additional terrorist attacks and related events,
or an ongoing lack of investor confidence relating to perceived inadequacies in
the financial reporting systems of U.S. companies. The statements in this report
are also subject to the factors mentioned in the section entitled "Important
Information Regarding Forward-Looking Statements" on page 38 of the Company's
Annual Report to Stockholders and referred to in Part I, Item 7 of the Company's
Form 10-K for 2002, which Brown-Forman incorporates by reference. Brown-Forman
has no current intention of updating or revising any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
otherwise required by law.
9
Results of Operations:
Second Quarter Fiscal 2003 Compared to Second Quarter Fiscal 2002
Here is a summary of our operating performance (expressed in millions,
except percentage and per share amounts):
Three Months Ended
October 31,
2001 2002 Change
------ ------ ------
Net Sales:
Wine & Spirits $474.6 $517.9 9 %
Consumer Durables 173.2 173.7 --
------ ------
Total $647.8 $691.6 7 %
Gross Profit:
Wine & Spirits $248.8 $253.7 2 %
Consumer Durables 80.4 85.1 6 %
------ ------
Total $329.2 $338.8 3 %
Operating Income:
Wine & Spirits $109.1 $105.5 (3 %)
Consumer Durables 14.9 19.0 27 %
------ ------
Total $124.0 $124.5 --
Net Income $ 80.1 $ 81.1 1 %
Earnings per Share - Basic and Diluted $ 1.17 $ 1.18 1 %
Effective Tax Rate 34.5% 34.5%
The company's earnings per share for the quarter ended October 31, 2002 was
$1.18, compared to $1.17 for the same period last year. Solid earnings growth
for Jack Daniel's and Southern Comfort was largely offset by lower operating
income from our wine business. Results also included a $0.06 per share loss
related to the company's joint venture for the distribution of Jack Daniel's
Original Hard Cola, reflecting significant media spending ahead of expected
future revenues. Operating profit for Consumer Durables improved $4 million
compared to a depressed quarter last year.
Worldwide depletions for Jack Daniel's Tennessee Whiskey remained healthy for
the quarter, led by solid growth in the United States, Western Europe and Asia.
While depletions for Southern Comfort were essentially flat, gross profit and
operating income improved significantly due to price increases.
Profits for our wine brands were down significantly in the quarter due to higher
product costs and a very competitive pricing environment in the U.S. Although
depletion trends for Korbel remained healthy, Fetzer and Bolla volumes were
soft. As a result of lower gross margins and slowing volume trends, wine
operating profit for fiscal 2003 is expected to be substantially lower than last
year.
10
Effective August 1, 2002, we began selling our spirits products directly to the
trade in the U.K. via a cost sharing arrangement with Bacardi. As a result, we
now record U.K. excise taxes for spirits sales in both sales and cost of sales.
The excise tax change had the effect of boosting the beverage segment's revenue
growth for the quarter by three percentage points, while lowering segment gross
margins by one and one-half percentage points.
While net sales for Consumer Durables were flat for the quarter, efficiency
improvements and firmer pricing contributed to gross profit growth of 6%.
Segment operating income for fiscal 2003 is expected to improve significantly
from the $17 million earned last year, which included $17 million of
non-recurring costs related to closing three manufacturing facilities. A weak
U.S. retail environment continues to temper near-term prospects for the segment,
however. We had previously estimated full-year operating income for Consumer
Durables would be in a range of $37 to $40 million. While we undertake no
ongoing obligation to update projections, we now estimate fiscal 2003 operating
profits for the segment will be in a range of $32 to $37 million, reflecting
sluggish retail sales during the early weeks of the current holiday period.
The company recognized approximately $0.03 per share in Business Improvement
costs during the quarter, primarily for expenses related to a strategic
realignment in the beverage segment announced in August. We anticipate an
additional $0.04 per share in business improvement investments during the second
half of this fiscal year to complete the series of Business Improvement Program
initiatives that were announced in July 2001.
11
Results of Operations:
Six Months Fiscal 2003 Compared to Six Months Fiscal 2002
Here is a summary of our operating performance (expressed in millions,
except percentage and per share amounts):
Six Months Ended
October 31,
2001 2002 Change
-------- -------- ------
Net Sales:
Wine & Spirits $ 817.2 $ 878.0 7 %
Consumer Durables 304.2 293.1 (4 %)
-------- --------
Total $1,121.4 $1,171.1 4 %
Gross Profit:
Wine & Spirits $ 435.1 $ 445.2 2 %
Consumer Durables 142.2 141.0 (1 %)
-------- --------
Total $ 577.3 $ 586.2 2 %
Operating Income:
Wine & Spirits $ 171.3 $ 167.2 (2 %)
Consumer Durables 14.0 13.4 (4 %)
-------- --------
Total $ 185.3 $ 180.6 (3 %)
Net Income $ 119.3 $ 117.1 (2 %)
Earnings per Share - Basic and Diluted $ 1.74 $ 1.71 (2 %)
Effective Tax Rate 34.5% 34.5%
Earnings per share for the first six months ended October 31, 2002 was $1.71,
down slightly from the $1.74 per share earned last year. Lower first half
earnings primarily reflect a one-time reduction in trade inventory levels due to
a new arrangement for distributing our spirits brands in the United Kingdom, as
well as weakness in the wine business.
As discussed earlier, we began selling our spirits products directly to the
trade in the U.K. effective August 1, 2002. The company previously recognized
income when we sold goods to our third party distributor in the U.K. The company
now retains title to the goods until they are sold to the retail trade, creating
a delay in revenue recognition. The change in U.K. distribution lowered first
half operating income by $0.17 per share. The effect on full year profits is
expected to be negligible, however, as the company is earning a higher profit
margin on U.K. spirits sales. In assessing revenue and gross margin trends, it
is also notable that we now record U.K. excise taxes for spirits sales in both
sales and cost of sales. The excise tax change had the effect of boosting first
half revenue growth for our beverage segment by two percentage points, while
lowering segment gross margins by one percentage point.
12
Outlook:
Brown-Forman's prior guidance of 9% to 12% earnings growth for fiscal 2003 did
not anticipate the additional investment in Finlandia Vodka Worldwide (as
discussed below), and also assumed a stronger U.S. economy. We now believe that
earnings for the year ended April 30, 2003, will likely grow in a range of 6% to
10% over fiscal 2002 earnings per share of $3.33. This revised outlook continues
to anticipate a strong and increasing level of marketing support behind our core
spirits brands.
Looking beyond fiscal 2003, we reiterate our goal to achieve high single-digit,
or low double-digit, earnings per share growth. Assuming a stable U.S. economy,
fiscal 2004 earnings should benefit from cost savings resulting from business
improvement investments made in 2002 and 2003, a full year of higher profits
resulting from the new distribution arrangement for the company's spirits brands
in the United Kingdom, and increased profits from stronger European currencies
if the U.S. dollar remains at its current value.
Liquidity and Financial Condition
Cash and cash equivalents increased by $20.8 million during the six months ended
October 31, 2002, as cash provided by operating and financing activities
exceeded cash used for investing activities. Cash provided by operations totaled
$11.5 million, primarily reflecting net income before depreciation offset
largely by seasonal working capital requirements and a liquidation of deferred
income taxes in compliance with revised U.S. tax regulations. Cash of $47.7
million was provided by financing activities, primarily reflecting proceeds from
the issuance of commercial paper offset by dividends paid during the period.
Cash of $38.4 million was used for investing activities, consisting mostly of
expenditures to expand and modernize our production and distribution facilities.
Dividends:
The Board of Directors increased the quarterly cash dividend 7.1% from $0.35 to
$0.375 per share on both Class A and Class B common stock, payable January 1,
2003. As a result, the indicated annual cash dividend per share rose from $1.40
to $1.50.
Finlandia:
As announced on November 21, 2002, and noted above, we have agreed to acquire an
additional 35% interest in Finlandia Vodka Worldwide (FVW), the joint venture
company that owns the Finlandia brand and trademark, for 70.2 million euros.
This will increase our interest in the venture to 80%. Altia, our Finnish
partner, will retain a 20% interest and continue its role as exclusive supplier
of vodka to FVW. We will assume full marketing responsibility for the Finlandia
brand, and will significantly increase brand spending in the U.S. and other
important vodka markets. The transaction will be financed with cash and is
expected to reduce Brown-Forman's earnings by $0.03 per share in fiscal 2003 and
$0.08 to $0.10 per share in fiscal 2004, showing annual improvement thereafter.
13
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since April 30, 2002, there have been no material changes in the company's
interest rate, foreign currency and commodity price exposures, the types of
derivative financial instruments used to hedge those exposures, or the
underlying market conditions.
Item 4. Controls and Procedures
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on this
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic SEC reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions.
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Brown-Forman Corporation has filed an action in the High Court of Justice of
London, England, seeking judicial confirmation that it had no contractual
obligation to renew its agreement ("Agreement") with Diageo Great Britain
Limited for the distribution of Jack Daniel's Tennessee Whiskey in the United
Kingdom. The Agreement expired July 31, 2002.
Under the Agreement, Diageo had an option to renew its exclusive distribution
rights, provided it met certain performance criteria as measured by Her
Majesty's Customs & Excise importation statistics and tendered a renewal
payment. Diageo did not meet the contractually agreed-upon performance criteria,
nor did it tender the renewal payment. Diageo claims that it did have a right to
renew and has counterclaimed for lost profits from distribution of the brand
during the renewal period, which it estimates at between $54 million and $66
million. The matter is now at the initial pleadings stage. No trial date has
been set.
Brown-Forman and its legal advisors believe that their construction of the
contract is correct and that Diageo had no right to renew the Agreement. It will
vigorously pursue a judicial determination to that effect.
It is the opinion of management, based on advice of legal counsel, that the
ultimate disposition of this case will not have a material adverse effect on the
company's consolidated financial position or results of operations.
Item 5. Other Information
On December 6, 2002, W. L. Lyons Brown III, senior vice president of
Brown-Forman Beverages Worldwide, and director of spirits sales for the U.S.
open states division, resigned for personal reasons.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
On November 1, 2002, the Registrant filed a report on Form 8-K announcing
the election of Matthew R. Simmons and Ina Brown Bond to the company's
board of directors.
15
SIGNATURES
As required by the Securities Exchange Act of 1934, the Registrant has caused
this report to be signed on its behalf by the undersigned authorized officer.
BROWN-FORMAN CORPORATION
(Registrant)
Date: December 11, 2002 By: /s/ Phoebe A. Wood
Phoebe A. Wood
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial Officer)
16
CERTIFICATIONS
I, Owsley Brown II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brown-Forman
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 11, 2002 By: /s/ Owsley Brown II
Owsley Brown II
Chief Executive Officer
17
I, Phoebe A. Wood, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brown-Forman
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 11, 2002 By: Phoebe A. Wood
Phoebe A. Wood
Chief Financial Officer
18