You should read the following discussion and analysis along with our 1996 Annual Report. Note that the results of operations for the nine months ended January 31, 1997, 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.

Risk Factors Affecting Forward-Looking Statements:
From time to time, we may make forward-looking statements related to our anticipated financial performance, business prospects, new products, and similar matters. We make several such statements in the discussion and analysis which follows, but we do not guarantee that the results indicated will actually be achieved.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we note that the following non- exclusive list of important risk factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in those forward-looking statements:

Generally: We operate in highly competitive markets. Our business is subject to changes in general economic conditions, changes in consumer preferences, the degree of acceptance of new products, and the uncertainties of litigation. As our business continues to expand outside the U.S., our revenues are more exposed to foreign exchange rate fluctuations and the health of foreign economies.

Beverage Risk Factors: The U.S. beverage alcohol business is highly sensitive to tax increases; an increase in federal or state excise taxes (which we do not anticipate at this time) would depress our domestic beverage business. Our current outlook for our domestic beverage business anticipates: (a) continued success of Jack Daniel's Tennessee whiskey, Southern Comfort, and our other core spirits brands; and (b) a decline from last year in profit from our frozen cocktail product lines. Current expectations from our foreign beverage business could prove to be optimistic if economic conditions deteriorate in the principal countries where we export our beverage products, including Germany, the United Kingdom, Japan, and Australia.

Consumer Durables Risk Factors: Earnings projections for our consumer durables business anticipate a continued strengthening of our Lenox business. These projections could be offset by factors such as poor consumer response rates at Lenox Collections, a soft retail environment at outlet malls, or further department store consolidation.

                                 Three Months Ended
                                     January 31,        %
                                  1997       1996   Change
                                ------     ------   ------
Net Sales
- ---------
   Wines & Spirits              $325.2     $317.2      3
   Consumer Durables             133.0      133.9     (1)
                                ------     ------
      Total                     $458.2     $451.1      2

Operating Income                $ 70.7     $ 65.6      8
- ----------------
Net Income                      $ 41.6     $ 38.1      9
- ----------

Earnings Per Share              $ 0.60     $ 0.55      9
- ------------------

Effective Tax Rate                38.0%      37.7%
- ------------------

Sales for our wines and spirits segment were up 3%, led by domestic growth for our major wines and spirits brands. International sales of wines and spirits were lower as a result of several unusual factors including a change in distributors and an excise duty increase, both of which affected the timing of international shipments.

Revenues from our consumer durables segment declined 1% for the quarter, reflecting lower sales at our restructured Lenox Collections unit. Profitability at Collections was up compared to last year, however, contributing to an increase in third quarter profits for the consumer durables segment. Based on year-to-date results, we expect solid growth in full-year segment earnings.

Operating income for the quarter increased 8% -- our strongest performance in five quarters and in line with our expectations.

Net interest expense declined 18% from last year's third quarter due to lower net debt balances.

                                 Nine Months Ended
                                    January 31,      %
                                1997        1996   Change
                              --------    --------
Net Sales
- ---------
   Wines & Spirits            $1,023.4    $  979.3     5
   Consumer Durables             384.8       400.5    (4)
                              --------    --------
      Total                   $1,408.2    $1,379.8     2

Operating Income              $  219.8    $  212.7     3
- ----------------

Net Income                    $  129.3    $  123.5     5
- ----------

Earnings Per Share            $   1.87    $   1.78     5
- ------------------

Effective Tax Rate                38.0%       37.9%
- ------------------

Sales of our wines and spirits increased 5% for the nine months ending January 31, as sales of Jack Daniel's outside the United states continued to grow at double-digit rates. Jack Daniel's has also performed well in the United States, benefiting from improved consumption trends for distilled spirits. Sales for our Wine Group increased sharply during the last nine months, while shipments of Tropical Freezes were significantly below last year's introductory levels.

Revenues from the consumer durables segment were down 4% for the period, primarily reflecting the planned contraction at the Lenox Collections direct marketing division, while sales of other consumer durables divisions were ahead of the same period last year.

Consolidated operating income was 3% better than last year. This was fueled largely by strong worldwide growth of Jack Daniel's and increased earnings from the consumer durables segment. These gains were somewhat offset by lower sales of low alcohol products and increased investments associated with expansion into international markets.

Net interest expense continued to be favorable compared to last year as a result of lower net debt balances. We expect that our full-year effective tax rate in fiscal 1997 will remain unchanged from our current rate of 38.0%.

Cash provided by operating activities was up 29% from the same period last year. Lower accounts receivable balances were attributable to reduced sales at Lenox Collections and generally improved company-wide days sales outstanding. Working capital required to finance inventories was favorable compared to last year, when initial building of low alcohol beverage inventories occurred. These favorable cash flow comparisons were offset somewhat by lower accounts payable and accrued expenses and a smaller increase in deferred income taxes. Additions to property, plant, and equipment continue to reflect our plans to upgrade and expand our wines and spirits production facilities. We have used excess cash for debt retirement and payment of dividends.

On January 23, 1997, our Board of Directors declared a regular quarterly cash dividend of $.27 per share on both Class A and Class B Common Stock. They also declared a $.10 per share cash dividend on the Preferred Stock. Stockholders of record on March 5, 1997 will receive the cash dividend on April 1, 1997. As a result, total cash dividends paid per common share in fiscal 1997 will be $1.06, a 4% increase over last year.

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.