Assume that the total COGS for Southern Comfort will increase at 7.5685% annually, same as the sales growth rate. State your own assumptions based on given data and build an integrated, pro forma financial model (Earnings Statement, Balance Sheet and Cash Flow Statement) of Southern Comfort based on Exhibits 6, 7 and 9 . Balance Sheet Data should begin for the year 1978, and Earnings Statement data should begin for the year 1979. Forecast the model out through (and including) the year 1988. Build the model in such a way that all income not used to pay interest and dividends goes towards paying down the long-term debt.

Exhibit 6 BROWN-FORMAN DISTILLERS CORPORATION Southern Comfort Corporation and Subsidiary Income Statement (For the years ended December 31) 1976 1977 Net sales $ 57,308,426 40,909,265 $ 64,183,392 45,814,353 Cost of sales Gross profit 16,399,161 18,369,039 Selling, administrative, and general Expenses 9,446,120 10,193,517 Income from operations 6,953,041 8,175,522 Other income (expense): Royalties on Canadian sales Interest Rental property, net Other, net 329,804 (186,210) (141,457) (5,237) (3,100) 6,949,941 355,940 (62,283) 111,329 2.466 407,452 8,582,974 Income before income taxes Provision for income taxes 3.453.400 4,211,512 4,371,462 Net income 3,496,541 Earnings per common share $_ 59.67 $_ 7995 Source: Annual Report. Exhibit 7 BROWN-FORMAN DISTILLERS CORPORATION Southern Comfort Corporation and Subsidiary Consolidated Balance Sheets, December 31 1976 1977 $ Assets Current Assets Cash Accounts receivable Inventories Prepaid expenses Total current assets $ 750,108 12,305,064 6,554,342 59,218 19.668.732 1,341,190 12,118,758 7,365,841 35,952 20.861,741 Property, at cost: Less: Accumulated depreciation 4,933,708 2.105.195 2,828,513 5,556,624 2.439.268 3,117,356 Investment in rental property, less accumulated Depreciation of S171,996 and $106,878 Total property, net Display Silver, at cost 1,673,585 4,502,098 152.297 $ 24.323.127 1,614,633 4,731,989 152.297 $ 25,746,027 62,067 7,096,549 1,076,973 Liabilities and Stockholders' Equity Current Liabilities Notes payable to bank, unsecured Current portion of long-term notes payable Federal spirits and rectification taxes payable Accounts payable and accrued expenses Dividends payable Income taxes Total current liabilities Long-Term Notes Payable, less current portion Deferred Compensation Payable, less Current portion $ 2,350,000 858,461 4,933,465 1,489,093 8,493 572 571 10.212.083 1.297.894 8,343 738.279 8.982 211 35.827 51.200 Stockholders' Equity Preferred stock, no par redeemable at $10, $.50 cumulative outstanding 33,374 and 33,974 shares Common stock, S1 par, authorized 170,000 Shares, issued 120,000 shares Retained earnings 169,870 166,870 120,000 19,011,274 19,301,144 120,000 23,363,049 23,649,919 Less: treasury stock, at cost, 66,214 And 65,437 common shares 6.539.194 12.761.950 $24.323.127 6.921.930 16.727.989 25.746,027 Source: Annual Report. Exhibit 9 BROWN-FORMAN DISTILLERS CORPORATION Assumptions Used in Southern Comfort Cash-Flow Forecast In dollars except for case volumes in units and expenses [in $000] 1978 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 $51.42 Profit per case U.S. domestic Revenue Cost of goods Advertising Selling Regular Transition $49.62 33.52 4.07 S50.62 34.10 4.01 34.75 3.80 $52.42 35.41 3.68 $52.92 36.14 3.83 $53.92 36.93 3.89 $54.92 37.78 3.92 $55.92 38.70 3.97 $56.92 39.70 3.33 $57.92 40.77 3.18 $58.92 41.93 3.37 58 59 55 .71 .60 61 62 63 63 65 .67 70 34 15 23.21 23.80 25.16 26.15 28.15 29.15 Export Revenue Cost of goods Advertising Brokerage Selling exp. 19.21 20.32 21.50 22.55 7.08 and increases at 8% annually thereafter. 1.44 1.38 1.37 1.37 2.75 2.76 2.75 2.85 05 .05 .05 .06 27.15 1.37 1.37 2.72 .06 1.36 2.69 .06 1.37 2.68 .06 1.37 2.67 .06 1.37 2.67 .07 2.67 08 3.48 3.48 3.48 3.48 Canada Royalty Concentrate Profit 3.48 3.48 4.00 4.00 4.00 4.00 4.00 155 165 1.55 155 1.55 1.55 1.55 1.55 1.55 1.55 1.55 1.55 1.55 1,225 1,510 Case volumes in thousands) U.S. Export Canada 1,140 325 115 350 1,315 380 138 1,410 405 150 425 160 1,615 445 170 1,725 463 180 1,835 480 190 1,923 490 200 1,984 500 210 2,015 500 220 125 2,100 2,268 2,449 2645 2,857 3,086 3,332 3,599 Corporate level G&A Expense Transition Settlements Interest expense 1,665 430 400 113 1,800 380 400 122 1,944 180 400 132 400 142 154 166 179194 209 226 244 For forecasting purposes, investment to maintain plant and equipment could be expected to be offset by depreciation expense, but there would be some additional investment in working capital as sales grew. ? On seasonal borrowings for working-capital financing. Analysts at Brown-Forman viewed this item as virtually an operating expense and considered including it in their forecast of free cash flows. Source: Brown-Forman Distillers Corporation estimates. Exhibit 6 BROWN-FORMAN DISTILLERS CORPORATION Southern Comfort Corporation and Subsidiary Income Statement (For the years ended December 31) 1976 1977 Net sales $ 57,308,426 40,909,265 $ 64,183,392 45,814,353 Cost of sales Gross profit 16,399,161 18,369,039 Selling, administrative, and general Expenses 9,446,120 10,193,517 Income from operations 6,953,041 8,175,522 Other income (expense): Royalties on Canadian sales Interest Rental property, net Other, net 329,804 (186,210) (141,457) (5,237) (3,100) 6,949,941 355,940 (62,283) 111,329 2.466 407,452 8,582,974 Income before income taxes Provision for income taxes 3.453.400 4,211,512 4,371,462 Net income 3,496,541 Earnings per common share $_ 59.67 $_ 7995 Source: Annual Report. Exhibit 7 BROWN-FORMAN DISTILLERS CORPORATION Southern Comfort Corporation and Subsidiary Consolidated Balance Sheets, December 31 1976 1977 $ Assets Current Assets Cash Accounts receivable Inventories Prepaid expenses Total current assets $ 750,108 12,305,064 6,554,342 59,218 19.668.732 1,341,190 12,118,758 7,365,841 35,952 20.861,741 Property, at cost: Less: Accumulated depreciation 4,933,708 2.105.195 2,828,513 5,556,624 2.439.268 3,117,356 Investment in rental property, less accumulated Depreciation of S171,996 and $106,878 Total property, net Display Silver, at cost 1,673,585 4,502,098 152.297 $ 24.323.127 1,614,633 4,731,989 152.297 $ 25,746,027 62,067 7,096,549 1,076,973 Liabilities and Stockholders' Equity Current Liabilities Notes payable to bank, unsecured Current portion of long-term notes payable Federal spirits and rectification taxes payable Accounts payable and accrued expenses Dividends payable Income taxes Total current liabilities Long-Term Notes Payable, less current portion Deferred Compensation Payable, less Current portion $ 2,350,000 858,461 4,933,465 1,489,093 8,493 572 571 10.212.083 1.297.894 8,343 738.279 8.982 211 35.827 51.200 Stockholders' Equity Preferred stock, no par redeemable at $10, $.50 cumulative outstanding 33,374 and 33,974 shares Common stock, S1 par, authorized 170,000 Shares, issued 120,000 shares Retained earnings 169,870 166,870 120,000 19,011,274 19,301,144 120,000 23,363,049 23,649,919 Less: treasury stock, at cost, 66,214 And 65,437 common shares 6.539.194 12.761.950 $24.323.127 6.921.930 16.727.989 25.746,027 Source: Annual Report. Exhibit 9 BROWN-FORMAN DISTILLERS CORPORATION Assumptions Used in Southern Comfort Cash-Flow Forecast In dollars except for case volumes in units and expenses [in $000] 1978 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 $51.42 Profit per case U.S. domestic Revenue Cost of goods Advertising Selling Regular Transition $49.62 33.52 4.07 S50.62 34.10 4.01 34.75 3.80 $52.42 35.41 3.68 $52.92 36.14 3.83 $53.92 36.93 3.89 $54.92 37.78 3.92 $55.92 38.70 3.97 $56.92 39.70 3.33 $57.92 40.77 3.18 $58.92 41.93 3.37 58 59 55 .71 .60 61 62 63 63 65 .67 70 34 15 23.21 23.80 25.16 26.15 28.15 29.15 Export Revenue Cost of goods Advertising Brokerage Selling exp. 19.21 20.32 21.50 22.55 7.08 and increases at 8% annually thereafter. 1.44 1.38 1.37 1.37 2.75 2.76 2.75 2.85 05 .05 .05 .06 27.15 1.37 1.37 2.72 .06 1.36 2.69 .06 1.37 2.68 .06 1.37 2.67 .06 1.37 2.67 .07 2.67 08 3.48 3.48 3.48 3.48 Canada Royalty Concentrate Profit 3.48 3.48 4.00 4.00 4.00 4.00 4.00 155 165 1.55 155 1.55 1.55 1.55 1.55 1.55 1.55 1.55 1.55 1.55 1,225 1,510 Case volumes in thousands) U.S. Export Canada 1,140 325 115 350 1,315 380 138 1,410 405 150 425 160 1,615 445 170 1,725 463 180 1,835 480 190 1,923 490 200 1,984 500 210 2,015 500 220 125 2,100 2,268 2,449 2645 2,857 3,086 3,332 3,599 Corporate level G&A Expense Transition Settlements Interest expense 1,665 430 400 113 1,800 380 400 122 1,944 180 400 132 400 142 154 166 179194 209 226 244 For forecasting purposes, investment to maintain plant and equipment could be expected to be offset by depreciation expense, but there would be some additional investment in working capital as sales grew. ? On seasonal borrowings for working-capital financing. Analysts at Brown-Forman viewed this item as virtually an operating expense and considered including it in their forecast of free cash flows. Source: Brown-Forman Distillers Corporation estimates