Please see attached case study and question. Please advise if you can assist ASAP
CASE STUDY [100] Obtain the case Brown-Forman Distillers Corporation\" from the EDS. Analyse the case in the form of a report to the board. The report should be in the following format 1.Executive Summary (10) 2.Back Ground (10) 3.Qualitative Analysis (15) 4.Quantitative Analysis(20) 5.Appendices(30) 6.Recommendations(10) 7. Report format & flow of disposition (5) The following are the guidance question that will assist you to analyse the case. Please note that these are only bare minimum 1.Why is Brown - Forman considering buying Southern Comfort? Should Brown-Forman buy Southern Comfort Corporation at the asking price of $94.6 million? 2.On what key assumptions does your answer to the first question depend? How robust is the purchase decision to variations in those key assumptions? 3.If Brown agrees to acquire Southern Comfort, to what key considerations should he devote his attention in order to make the acquisition an economic success? 4.Apart from the possible acquisition, how appropriate is Brown-Forman's hurdle rate of twelve percent for projects in place? 1. At this NQF level (8) you are expected to demonstrate skills in analysing and interpreting vast amount of information in order to come up with an informed decision for stakeholders. 2.You are therefore expected to use supporting spreadsheet in such a way that they aid in the decision making process. Customisation of the models is therefore paramount. Present as part of your answer only the relevant outputs of your model. It is expected that students will have the skill to format excel spreadsheet for printing. Spreadsheets that print rows/columns across a number of pages in a clumsy fashion portrays an ill prepared student and such work will be heavily penalised. 3.The use of models like PORTER, PEST though appropriate, should be handled with extreme caution. Only variables relevant to the case on hand can be used. In some instances, cases may not require the use of a particular model at all and students should not force models onto cases. 4.Financial strategy is a numbers course and as such greater emphasis is place on figures. Business strategy is a supporting element that aids in interpreting the computations. This spreadsheet supports STUDENT analysis of the case, "Brown Forman Distillers Corporation" (Case 57). Please note: This spreadsheet presents Exhibits 1, 2, 3, 6, 7, 9 and 10 from the case. Data are largely hard-coded, and are intended to serve as the foundation for a modeling and valuation analysis by the student. This file contains no suggestions for analysis not otherwise given in the case. Revised: June 19, 1998 Copyright 1998 by the Trustees of the University of Virginia Darden School Foundation. Exhibit 1 BROWN-FORMAN DISTILLERS CORPORATION Comparative Financial Data, 1978 Beta Marginal tax rate Debt/equity Debt-cash/total capital Assets/equity Sales/assets Profit/sales Price/earnings Dividend yield at 4/14/78 Self-sustaining growth rate 1978 expected sales growth Market value/book value American Distilling -------1.41 0.30 1.14 0.50 2.46 1.66 0.012 9.4 NIL 0.049 0.02 0.46 BrownForman -------1.10 0.50 0.247 0.11 1.37 1.46 0.073 8.2 0.043 0.102 0.09 1.26 Heublein -------1.71 0.49 0.55 0.28 2.16 1.80 0.035 9.6 0.056 0.053 0.06 1.53 National Distilling -------0.79 0.47 0.34 0.16 1.65 1.35 0.052 6.5 0.080 0.079 0.08 0.79 Publicker Industries -------1.63 0.40 0.84 0.44 2.04 1.49 0.005 NMF NIL 0.015 0.04 0.63 Seagram -------1.04 0.46 0.53 0.32 1.76 1.22 0.038 8.8 0.042 0.041 0.07 0.75 Hiram Walker -------0.65 0.50 0.20 0.12 1.43 1.04 0.069 7.7 0.062 0.054 0.06 0.77 Exhibit 2 BROWN-FORMAN DISTILLERS CORPORATION Consolidated Statement of Income (expressed in thousands except per share amounts) Years Ended April 30, 1978 1977 --------------Net sales $457,071 $396,176 Cost of sales 310,539 274,733 --------------Gross profit 146,532 121,443 Selling, advertising, administrative, and general expenses 76,395 69,714 Other income (expense): Write-off of intangible asset (2,300) 0 Miscellaneous, net 1,314 1,760 --------------Earnings before interest and taxes 69,151 53,489 Interest expense 5,804 6,249 --------------Income before taxes 63,347 47,240 Taxes on income 32,100 23,500 --------------Net income $31,247 $23,740 ======== ======== Earnings per common share $2.45 $1.85 Exhibit 3 BROWN-FORMAN DISTILLERS CORPORATION Consolidated Balance Sheet (Expressed in thousands) Assets -----Cash Short-term money market investments Accounts receivable, trade Inventories Other current assets Total current assets Investments in associated companies Property, plant and equipment, at cost: Less accumulated depreciation Net property, plant and equipment Other assets Goodwill, franchises, brands and trademarks Total assets Liabilities and Stockholders' Equity -----------------------------------Current portion of long-term debt Accounts payable and accrued expenses Accrued taxes Deferred income taxes Total current liabilities 9.3% serial notes, less current portion, $5,000 due each September 1, 1979-1988 Deferred income taxes Total liabilities Stockholders' Equity Capital stock: Preferred $0.40 cumulative, 1,177,948 shares authorized and outstanding Class A common stock, voting, issued shares, 4,020,634 Class B common stock, non-voting, issued shares, 8,888,105 Capital surplus Retained earnings Less common treasury stock, at cost (Class A, 61,742 shares; Class B, 261,377 shares) Total stockholders' equity Total liabilities and equity -----April 30,----1978 1977 --------------$8,875 $9,354 20,797 36,171 59,759 40,446 167,142 148,794 1,030 1,380 --------------257,603 236,145 6,554 6,494 81,010 74,229 41,709 38,384 --------------39,301 35,845 6,360 4,716 18,787 21,671 --------------$328,605 $304,871 ======== ======== $5,000 39,361 11,475 1,650 -------57,486 $5,000 32,213 6,659 2,759 -------46,631 50,000 2,894 -------110,380 60,000 1,226 -------107,857 11,779 11,779 1,206 1,206 2,667 91,146 115,349 2,667 91,146 94,138 (3,922) -------218,225 -------$328,605 ======== (3,922) -------197,014 -------$304,871 ======== Exhibit 6 BROWN-FORMAN DISTILLERS CORPORATION Income Statement Southern Comfort Corporation and Subsidiary (for the years ended December 31) Net sales Cost of sales Gross profit Selling, administrative and general expenses Income from operations Other income (expense): Royalties on Canadian sales Interest Rental property, net Other, net Income before income taxes Provision for income taxes Net income Earnings per common share 1977 ---------$64,183,392 45,814,353 ---------18,369,039 10,193,517 ---------8,175,522 1976 ---------$57,308,426 40,909,265 ---------16,399,161 9,446,120 ---------6,953,041 355,940 (62,283) 111,329 2,466 ---------407,452 ---------8,582,974 329,804 (186,210) (141,457) (5,237) ---------(3,100) ---------6,949,941 4,211,512 ---------$4,371,462 ========== 3,453,400 ---------$3,496,541 ========== $79.95 $59.67 Exhibit 7 BROWN-FORMAN DISTILLERS CORPORATION Southern Comfort Corporation and Subsidiary Consolidated Balance Sheets--December 31 ASSETS CURRENT ASSETS Cash Accounts receivable Inventories Prepaid expenses Total current assets Property, at cost: Less: accumulated depreciation Investment in rental property, less accumulated depreciation of $171,996 and $106,878 Total property, net Display silver, at cost 1977 ---------- 1976 ---------- $1,341,190 12,118,758 7,365,841 35,952 ---------20,861,741 $750,108 12,305,064 6,554,342 59,218 ---------19,668,732 5,556,624 2,439,268 ---------3,117,356 4,933,708 2,105,195 ---------2,828,513 1,614,633 ---------4,731,989 152,297 ---------$25,746,027 ========== 1,673,585 ---------4,502,098 152,297 ---------$24,323,127 ========== $0 62,067 7,096,549 1,076,973 8,343 738,279 ---------8,982,211 $2,350,000 858,461 4,933,465 1,489,093 8,493 572,571 ---------10,212,083 35,827 1,297,894 0 51,200 166,870 169,870 120,000 23,363,049 ---------23,649,919 120,000 19,011,274 ---------19,301,144 6,921,930 ---------16,727,989 ---------$25,746,027 ========== 6,539,194 ---------12,761,950 ---------$24,323,127 ========== LIABILITIIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to bank, unsecured Current portion of long-term notes payable Federal spirits and rectification taxes 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 Stockholders' equity: Preferred stock, no par redeemable at $10, $0.50 cumulative outstanding 33,374 and 33,974 shares Common stock, $1 par, authorized 170,000 shares, issued 120,000 shares Retained earnings Less: Treasury stock, at cost, 66,214 and 65,437 common shares Exhibit 9 BROWN-FORMAN DISTILLERS CORPORATION Assumptions Used in Southern Comfort Cash Flow Forecast 1978 -----PROFIT PER CASE U.S. domestic Revenue Cost of goods Advertising Selling Regular Transition Export Revenue Cost of goods Advertising Brokerage Selling exp. 1979 ------ 1980 ------ 1981 ------ 1982 ------ 1983 ------ 1984 ------ 1985 ------ 1986 ------ 1987 ------ 1988 ------ $49.62 33.52 4.07 $50.62 34.10 4.01 $51.42 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 0.55 0.71 0.58 0.34 0.59 0.15 0.60 0.61 0.62 0.63 0.63 0.65 0.67 0.70 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 0.05 0.05 0.05 0.06 23.21 23.80 25.16 26.15 27.15 28.15 29.15 1.37 2.72 0.06 1.36 2.69 0.06 1.37 2.68 0.06 1.37 2.67 0.06 1.37 2.67 0.07 1.37 2.67 0.07 1.37 2.67 0.08 Canada Royalty Concentrate profit 3.48 1.55 3.48 1.55 3.48 1.55 3.48 1.55 3.48 1.55 3.48 1.55 4.00 1.55 4.00 1.55 4.00 1.55 4.00 1.55 4.00 1.55 CASE VOLUMES (in thousands) U.S. Export Canada 1140 325 115 1225 350 125 1315 380 138 1410 405 150 1510 425 160 1615 445 170 1725 463 180 1835 480 190 1923 490 200 1984 500 210 2015 500 220 1665 430 1800 380 400 122 1944 180 400 132 2100 2268 2449 2645 2857 3086 3332 3599 400 142 400 154 166 179 194 209 226 244 CORPORATE LEVEL G&A Expense Transition Settlements Interest expense 113 Exhibit 10 BROWN-FORMAN DISTILLERS CORPORATION Stock Price Data 1/3/78 2/1/78 3/1/78 4/3/78 5/1/78 6/1/78 6/2/78 6/9/78 6/16/78 6/23/78 6/30/78 Brown Forman Class A -------19.875 19.750 20.500 21.875 23.500 24.750 24.875 25.625 26.375 26.000 25.625 Class B -------20.000 19.375 20.500 21.250 23.750 24.875 S&P 500 Index -------93.82 89.93 87.19 88.46 97.67 97.35 25.000 26.375 27.000 26.500 24.875 98.14 99.93 97.42 95.85 95.53 This spreadsheet supports STUDENT analysis of the case, "Brown Forman Distillers Corporation" (Case 57). Please note: This spreadsheet presents Exhibits 1, 2, 3, 6, 7, 9 and 10 from the case. Data are largely hard-coded, and are intended to serve as the foundation for a modeling and valuation analysis by the student. This file contains no suggestions for analysis not otherwise given in the case. Revised: June 19, 1998 Copyright 1998 by the Trustees of the University of Virginia Darden School Foundation. Exhibit 1 BROWN-FORMAN DISTILLERS CORPORATION Comparative Financial Data, 1978 Beta Marginal tax rate Debt/equity Debt-cash/total capital Assets/equity Sales/assets Profit/sales Price/earnings Dividend yield at 4/14/78 Self-sustaining growth rate 1978 expected sales growth Market value/book value American Distilling -------1.41 0.30 1.14 0.50 2.46 1.66 0.012 9.4 NIL 0.049 0.02 0.46 BrownForman -------1.10 0.50 0.247 0.11 1.37 1.46 0.073 8.2 0.043 0.102 0.09 1.26 Heublein -------1.71 0.49 0.55 0.28 2.16 1.80 0.035 9.6 0.056 0.053 0.06 1.53 National Distilling -------0.79 0.47 0.34 0.16 1.65 1.35 0.052 6.5 0.080 0.079 0.08 0.79 Publicker Industries -------1.63 0.40 0.84 0.44 2.04 1.49 0.005 NMF NIL 0.015 0.04 0.63 Seagram -------1.04 0.46 0.53 0.32 1.76 1.22 0.038 8.8 0.042 0.041 0.07 0.75 Hiram Walker -------0.65 0.50 0.20 0.12 1.43 1.04 0.069 7.7 0.062 0.054 0.06 0.77 Exhibit 2 BROWN-FORMAN DISTILLERS CORPORATION Consolidated Statement of Income (expressed in thousands except per share amounts) Years Ended April 30, 1978 1977 --------------Net sales $457,071 $396,176 Cost of sales 310,539 274,733 --------------Gross profit 146,532 121,443 Selling, advertising, administrative, and general expenses 76,395 69,714 Other income (expense): Write-off of intangible asset (2,300) 0 Miscellaneous, net 1,314 1,760 --------------Earnings before interest and taxes 69,151 53,489 Interest expense 5,804 6,249 --------------Income before taxes 63,347 47,240 Taxes on income 32,100 23,500 --------------Net income $31,247 $23,740 ======== ======== Earnings per common share $2.45 $1.85 Exhibit 3 BROWN-FORMAN DISTILLERS CORPORATION Consolidated Balance Sheet (Expressed in thousands) Assets -----Cash Short-term money market investments Accounts receivable, trade Inventories Other current assets Total current assets Investments in associated companies Property, plant and equipment, at cost: Less accumulated depreciation Net property, plant and equipment Other assets Goodwill, franchises, brands and trademarks Total assets Liabilities and Stockholders' Equity -----------------------------------Current portion of long-term debt Accounts payable and accrued expenses Accrued taxes Deferred income taxes Total current liabilities 9.3% serial notes, less current portion, $5,000 due each September 1, 1979-1988 Deferred income taxes Total liabilities Stockholders' Equity Capital stock: Preferred $0.40 cumulative, 1,177,948 shares authorized and outstanding Class A common stock, voting, issued shares, 4,020,634 Class B common stock, non-voting, issued shares, 8,888,105 Capital surplus Retained earnings Less common treasury stock, at cost (Class A, 61,742 shares; Class B, 261,377 shares) Total stockholders' equity Total liabilities and equity -----April 30,----1978 1977 --------------$8,875 $9,354 20,797 36,171 59,759 40,446 167,142 148,794 1,030 1,380 --------------257,603 236,145 6,554 6,494 81,010 74,229 41,709 38,384 --------------39,301 35,845 6,360 4,716 18,787 21,671 --------------$328,605 $304,871 ======== ======== $5,000 39,361 11,475 1,650 -------57,486 $5,000 32,213 6,659 2,759 -------46,631 50,000 2,894 -------110,380 60,000 1,226 -------107,857 11,779 11,779 1,206 1,206 2,667 91,146 115,349 2,667 91,146 94,138 (3,922) -------218,225 -------$328,605 ======== (3,922) -------197,014 -------$304,871 ======== Exhibit 6 BROWN-FORMAN DISTILLERS CORPORATION Income Statement Southern Comfort Corporation and Subsidiary (for the years ended December 31) Net sales Cost of sales Gross profit Selling, administrative and general expenses Income from operations Other income (expense): Royalties on Canadian sales Interest Rental property, net Other, net Income before income taxes Provision for income taxes Net income Earnings per common share 1977 ---------$64,183,392 45,814,353 ---------18,369,039 10,193,517 ---------8,175,522 1976 ---------$57,308,426 40,909,265 ---------16,399,161 9,446,120 ---------6,953,041 355,940 (62,283) 111,329 2,466 ---------407,452 ---------8,582,974 329,804 (186,210) (141,457) (5,237) ---------(3,100) ---------6,949,941 4,211,512 ---------$4,371,462 ========== 3,453,400 ---------$3,496,541 ========== $79.95 $59.67 Exhibit 7 BROWN-FORMAN DISTILLERS CORPORATION Southern Comfort Corporation and Subsidiary Consolidated Balance Sheets--December 31 ASSETS CURRENT ASSETS Cash Accounts receivable Inventories Prepaid expenses Total current assets Property, at cost: Less: accumulated depreciation Investment in rental property, less accumulated depreciation of $171,996 and $106,878 Total property, net Display silver, at cost 1977 ---------- 1976 ---------- $1,341,190 12,118,758 7,365,841 35,952 ---------20,861,741 $750,108 12,305,064 6,554,342 59,218 ---------19,668,732 5,556,624 2,439,268 ---------3,117,356 4,933,708 2,105,195 ---------2,828,513 1,614,633 ---------4,731,989 152,297 ---------$25,746,027 ========== 1,673,585 ---------4,502,098 152,297 ---------$24,323,127 ========== $0 62,067 7,096,549 1,076,973 8,343 738,279 ---------8,982,211 $2,350,000 858,461 4,933,465 1,489,093 8,493 572,571 ---------10,212,083 35,827 1,297,894 0 51,200 166,870 169,870 120,000 23,363,049 ---------23,649,919 120,000 19,011,274 ---------19,301,144 6,921,930 ---------16,727,989 ---------$25,746,027 ========== 6,539,194 ---------12,761,950 ---------$24,323,127 ========== LIABILITIIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to bank, unsecured Current portion of long-term notes payable Federal spirits and rectification taxes 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 Stockholders' equity: Preferred stock, no par redeemable at $10, $0.50 cumulative outstanding 33,374 and 33,974 shares Common stock, $1 par, authorized 170,000 shares, issued 120,000 shares Retained earnings Less: Treasury stock, at cost, 66,214 and 65,437 common shares Exhibit 9 BROWN-FORMAN DISTILLERS CORPORATION Assumptions Used in Southern Comfort Cash Flow Forecast 1978 -----PROFIT PER CASE U.S. domestic Revenue Cost of goods Advertising Selling Regular Transition Export Revenue Cost of goods Advertising Brokerage Selling exp. 1979 ------ 1980 ------ 1981 ------ 1982 ------ 1983 ------ 1984 ------ 1985 ------ 1986 ------ 1987 ------ 1988 ------ $49.62 33.52 4.07 $50.62 34.10 4.01 $51.42 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 0.55 0.71 0.58 0.34 0.59 0.15 0.60 0.61 0.62 0.63 0.63 0.65 0.67 0.70 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 0.05 0.05 0.05 0.06 23.21 23.80 25.16 26.15 27.15 28.15 29.15 1.37 2.72 0.06 1.36 2.69 0.06 1.37 2.68 0.06 1.37 2.67 0.06 1.37 2.67 0.07 1.37 2.67 0.07 1.37 2.67 0.08 Canada Royalty Concentrate profit 3.48 1.55 3.48 1.55 3.48 1.55 3.48 1.55 3.48 1.55 3.48 1.55 4.00 1.55 4.00 1.55 4.00 1.55 4.00 1.55 4.00 1.55 CASE VOLUMES (in thousands) U.S. Export Canada 1140 325 115 1225 350 125 1315 380 138 1410 405 150 1510 425 160 1615 445 170 1725 463 180 1835 480 190 1923 490 200 1984 500 210 2015 500 220 1665 430 1800 380 400 122 1944 180 400 132 2100 2268 2449 2645 2857 3086 3332 3599 400 142 400 154 166 179 194 209 226 244 CORPORATE LEVEL G&A Expense Transition Settlements Interest expense 113 Exhibit 10 BROWN-FORMAN DISTILLERS CORPORATION Stock Price Data 1/3/78 2/1/78 3/1/78 4/3/78 5/1/78 6/1/78 6/2/78 6/9/78 6/16/78 6/23/78 6/30/78 Brown Forman Class A -------19.875 19.750 20.500 21.875 23.500 24.750 24.875 25.625 26.375 26.000 25.625 Class B -------20.000 19.375 20.500 21.250 23.750 24.875 S&P 500 Index -------93.82 89.93 87.19 88.46 97.67 97.35 25.000 26.375 27.000 26.500 24.875 98.14 99.93 97.42 95.85 95.53
