United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~October 31, 2021


☐			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. 001-00123

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)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock (voting), $0.15 par value	BFA	New York Stock Exchange
Class B Common Stock (nonvoting), $0.15 par value	BFB	New York Stock Exchange
1.200% Notes due 2026	BF26	New York Stock Exchange
2.600% Notes due 2028	BF28	New York Stock Exchange

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 þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~August 31,~~November 30, 2021


Class A Common Stock (voting), $0.15 par value			169,136,738
Class B Common Stock (nonvoting), $0.15 par value			~~309,715,974~~309,742,854


BROWN-FORMAN CORPORATION
Index to Quarterly Report Form 10-Q

		Page
PART I - FINANCIAL INFORMATION		3

Item 1.	Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3033

Item 4.	Controls and Procedures	3033

PART II - OTHER INFORMATION		3135

Item 1.	Legal Proceedings	3135

Item 1A.	Risk Factors	3135

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3135

Item 3.	Defaults Upon Senior Securities	3135

Item 4.	Mine Safety Disclosures	3135

Item 5.	Other Information	3135

Item 6.	Exhibits	3135

SIGNATURES		3236

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in millions, except per share amounts)


		Three Months Ended			Three Months Ended						Six Months Ended
		July 31,			October 31,						October 31,
			2020			2021			2020		2021		2020		2021
Sales	Sales		$	987		$	1,183	Sales	$	1,272	$	1,283	$	2,259	$	2,466
Excise taxes	Excise taxes		234			277		Excise taxes	287		289		521		566
Net sales	Net sales		753			906		Net sales	985		994		1,738		1,900
Cost of sales	Cost of sales		288			353		Cost of sales	404		404		692		757
Gross profit	Gross profit		465			553		Gross profit	581		590		1,046		1,143
Advertising expenses	Advertising expenses		62			90		Advertising expenses	95		104		157		194
Selling, general, and administrative expenses	Selling, general, and administrative expenses		148			168		Selling, general, and administrative expenses	155		165		303		333

Gain on sale of business	Gain on sale of business		(127)			—		Gain on sale of business	—		—		(127)		—
Other expense (income), net	Other expense (income), net		(5)			6		Other expense (income), net	1		(1)		(4)		5
Operating income	Operating income		387			289		Operating income	330		322		717		611
Non-operating postretirement expense	Non-operating postretirement expense		1			—		Non-operating postretirement expense	2		2		3		2
Interest income	Interest income		—			(1)		Interest income	(1)		(1)		(1)		(2)
Interest expense	Interest expense		20			21		Interest expense	20		20		40		41
Income before income taxes	Income before income taxes		366			269		Income before income taxes	309		301		675		570
Income taxes	Income taxes		42			77		Income taxes	69		65		111		142
Net income	Net income		$	324		$	192	Net income	$	240	$	236	$	564	$	428
Earnings per share:	Earnings per share:							Earnings per share:
Basic	Basic		$	0.68		$	0.40	Basic	$	0.50	$	0.49	$	1.18	$	0.89
Diluted	Diluted		$	0.67		$	0.40	Diluted	$	0.50	$	0.49	$	1.17	$	0.89

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in millions)


		Three Months Ended			Three Months Ended						Six Months Ended
		July 31,			October 31,						October 31,
			2020			2021			2020		2021		2020		2021
Net income	Net income		$	324		$	192	Net income	$	240	$	236	$	564	$	428
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Currency translation adjustments	Currency translation adjustments		62			(10)		Currency translation adjustments	4		(12)		66		(22)
Cash flow hedge adjustments	Cash flow hedge adjustments		(45)			14		Cash flow hedge adjustments	6		10		(39)		24
Postretirement benefits adjustments	Postretirement benefits adjustments		7			4		Postretirement benefits adjustments	5		4		12		8
Net other comprehensive income (loss)	Net other comprehensive income (loss)		24			8		Net other comprehensive income (loss)	15		2		39		10
Comprehensive income	Comprehensive income		$	348		$	200	Comprehensive income	$	255	$	238	$	603	$	438

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions)


		April 30, 2021		July 31, 2021			April 30, 2021		October 31, 2021
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,150	$	1,172	Cash and cash equivalents	$	1,150	$	1,073
Accounts receivable, less allowance for doubtful accounts of $7 at April 30 and $7 at July 31		753		803
Accounts receivable, less allowance for doubtful accounts of $7 at April 30 and $6 at October 31						Accounts receivable, less allowance for doubtful accounts of $7 at April 30 and $6 at October 31	753		933
Inventories:	Inventories:					Inventories:
Barreled whiskey	Barreled whiskey	1,101		1,104		Barreled whiskey	1,101		1,097
Finished goods	Finished goods	323		324		Finished goods	323		338
Work in process	Work in process	199		208		Work in process	199		221
Raw materials and supplies	Raw materials and supplies	128		135		Raw materials and supplies	128		137
Total inventories	Total inventories	1,751		1,771		Total inventories	1,751		1,793

Other current assets	Other current assets	263		246		Other current assets	263		233
Total current assets	Total current assets	3,917		3,992		Total current assets	3,917		4,032
Property, plant and equipment, net	Property, plant and equipment, net	832		816		Property, plant and equipment, net	832		813
Goodwill	Goodwill	779		778		Goodwill	779		776
Other intangible assets	Other intangible assets	676		670		Other intangible assets	676		663
Deferred tax assets	Deferred tax assets	70		70		Deferred tax assets	70		68
Other assets	Other assets	248		253		Other assets	248		264
Total assets	Total assets	$	6,522	$	6,579	Total assets	$	6,522	$	6,616
Liabilities	Liabilities					Liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	679	$	631	Accounts payable and accrued expenses	$	679	$	708
Dividends payable		—		86

Accrued income taxes	Accrued income taxes	34		71		Accrued income taxes	34		56
Short-term borrowings	Short-term borrowings	205		155		Short-term borrowings	205		19

Total current liabilities	Total current liabilities	918		943		Total current liabilities	918		783
Long-term debt	Long-term debt	2,354		2,346		Long-term debt	2,354		2,331
Deferred tax liabilities	Deferred tax liabilities	169		191		Deferred tax liabilities	169		164
Accrued pension and other postretirement benefits	Accrued pension and other postretirement benefits	219		218		Accrued pension and other postretirement benefits	219		218
Other liabilities	Other liabilities	206		198		Other liabilities	206		197
Total liabilities	Total liabilities	3,866		3,896		Total liabilities	3,866		3,693
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common stock:	Common stock:					Common stock:
Class A, voting, $0.15 par value (170,000,000 shares authorized; 170,000,000 shares issued)	Class A, voting, $0.15 par value (170,000,000 shares authorized; 170,000,000 shares issued)	25		25		Class A, voting, $0.15 par value (170,000,000 shares authorized; 170,000,000 shares issued)	25		25
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 314,532,000 shares issued)	Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 314,532,000 shares issued)	47		47		Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 314,532,000 shares issued)	47		47
Additional paid-in capital	Additional paid-in capital	—		2		Additional paid-in capital	—		3
Retained earnings	Retained earnings	3,243		3,255		Retained earnings	3,243		3,491
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax	(422)		(414)		Accumulated other comprehensive income (loss), net of tax	(422)		(412)
Treasury stock, at cost (5,803,000 and 5,684,000 shares at April 30 and July 31, respectively)		(237)		(232)
Treasury stock, at cost (5,803,000 and 5,667,000 shares at April 30 and October 31, respectively)						Treasury stock, at cost (5,803,000 and 5,667,000 shares at April 30 and October 31, respectively)	(237)		(231)
Total stockholders’ equity	Total stockholders’ equity	2,656		2,683		Total stockholders’ equity	2,656		2,923
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	6,522	$	6,579	Total liabilities and stockholders’ equity	$	6,522	$	6,616

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)


		Three Months Ended					Six Months Ended
		July 31,					October 31,
		2020		2021			2020		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	324	$	192	Net income	$	564	$	428
Adjustments to reconcile net income to net cash provided by operations:	Adjustments to reconcile net income to net cash provided by operations:					Adjustments to reconcile net income to net cash provided by operations:
Gain on sale of business	Gain on sale of business	(127)		—		Gain on sale of business	(127)		—
Non-cash asset write-downs	Non-cash asset write-downs	—		6		Non-cash asset write-downs	—		9
Depreciation and amortization	Depreciation and amortization	19		19		Depreciation and amortization	39		40
Stock-based compensation expense	Stock-based compensation expense	3		4		Stock-based compensation expense	6		7
Deferred income tax provision (benefit)	Deferred income tax provision (benefit)	(43)		13		Deferred income tax provision (benefit)	(59)		(23)

Other, net	Other, net	(9)		4		Other, net	(6)		8
Changes in assets and liabilities, excluding the effects of sale of business:	Changes in assets and liabilities, excluding the effects of sale of business:					Changes in assets and liabilities, excluding the effects of sale of business:
Accounts receivable	Accounts receivable	(133)		(55)		Accounts receivable	(295)		(186)
Inventories	Inventories	(57)		(25)		Inventories	(29)		(51)
Other current assets	Other current assets	31		16		Other current assets	52		31
Accounts payable and accrued expenses	Accounts payable and accrued expenses	26		(36)		Accounts payable and accrued expenses	85		43
Accrued income taxes	Accrued income taxes	45		37		Accrued income taxes	35		22
Other operating assets and liabilities	Other operating assets and liabilities	12		10		Other operating assets and liabilities	18		7
Cash provided by operating activities	Cash provided by operating activities	91		185		Cash provided by operating activities	283		335
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sale of business	Proceeds from sale of business	177		—		Proceeds from sale of business	177		—

Additions to property, plant, and equipment	Additions to property, plant, and equipment	(15)		(14)		Additions to property, plant, and equipment	(29)		(33)

Computer software expenditures	Computer software expenditures	—		(1)		Computer software expenditures	(1)		(2)
Cash provided by (used for) investing activities	Cash provided by (used for) investing activities	162		(15)		Cash provided by (used for) investing activities	147		(35)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from short-term borrowings, maturities greater than 90 days	Proceeds from short-term borrowings, maturities greater than 90 days	159		—		Proceeds from short-term borrowings, maturities greater than 90 days	324		—
Repayments of short-term borrowings, maturities greater than 90 days	Repayments of short-term borrowings, maturities greater than 90 days	(70)		—		Repayments of short-term borrowings, maturities greater than 90 days	(230)		—
Net change in short-term borrowings, maturities of 90 days or less	Net change in short-term borrowings, maturities of 90 days or less	(34)		(50)		Net change in short-term borrowings, maturities of 90 days or less	(68)		(184)

Payments of withholding taxes related to stock-based awards	Payments of withholding taxes related to stock-based awards	(9)		(5)		Payments of withholding taxes related to stock-based awards	(14)		(6)

Dividends paid	Dividends paid	(83)		(86)		Dividends paid	(167)		(172)

Cash used for financing activities	Cash used for financing activities	(37)		(141)		Cash used for financing activities	(155)		(362)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	17		(7)		Effect of exchange rate changes on cash and cash equivalents	14		(15)
Net increase in cash and cash equivalents		233		22
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	289		(77)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	675		1,150		Cash and cash equivalents, beginning of period	675		1,150
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	908	$	1,172	Cash and cash equivalents, end of period	$	964	$	1,073

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In these notes, “we,” “us,” “our,” “Brown-Forman,” and the “Company” refer to Brown-Forman Corporation and its consolidated subsidiaries, collectively.

1. Condensed Consolidated Financial Statements

We prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information. In accordance with those rules and regulations, we condensed or omitted certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). In our opinion, the accompanying financial statements include all adjustments, consisting only of normal recurring adjustments (unless otherwise indicated), necessary for a fair statement of our financial results for the periods presented in these financial statements. The results for interim periods are not necessarily indicative of future or annual results.

We suggest that you read these condensed financial statements together with the financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021 (2021 Form 10-K). We prepared the accompanying financial statements on a basis that is substantially consistent with the accounting principles applied in our 2021 Form 10-K.

2. Earnings Per Share

We calculate basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share further includes the dilutive effect of stock-based compensation awards. We calculate that dilutive effect using the “treasury stock method” (as defined by GAAP).

The following table presents information concerning basic and diluted earnings per share:


		Three Months Ended			Three Months Ended						Six Months Ended
		July 31,			October 31,						October 31,
(Dollars in millions, except per share amounts)	(Dollars in millions, except per share amounts)		2020			2021		(Dollars in millions, except per share amounts)	2020		2021		2020		2021

Net income available to common stockholders	Net income available to common stockholders		$	324		$	192	Net income available to common stockholders	$	240	$	236	$	564	$	428

Share data (in thousands):	Share data (in thousands):							Share data (in thousands):
Basic average common shares outstanding	Basic average common shares outstanding		478,327			478,793		Basic average common shares outstanding	478,506		478,857		478,413		478,822
Dilutive effect of stock-based awards	Dilutive effect of stock-based awards		2,102			1,925		Dilutive effect of stock-based awards	2,242		1,661		2,172		1,793
Diluted average common shares outstanding	Diluted average common shares outstanding		480,429			480,718		Diluted average common shares outstanding	480,748		480,518		480,585		480,615

Basic earnings per share	Basic earnings per share		$	0.68		$	0.40	Basic earnings per share	$	0.50	$	0.49	$	1.18	$	0.89
Diluted earnings per share	Diluted earnings per share		$	0.67		$	0.40	Diluted earnings per share	$	0.50	$	0.49	$	1.17	$	0.89

We excluded common stock-based awards for approximately ~~34,000~~301,000 shares and ~~337,000~~ 743,000shares from the calculation of diluted earnings per share for the three months ended ~~July~~October 31, 2020 and 2021, respectively. We excluded common stock-based awards for approximately 168,000 shares and 540,000 shares from the calculation of diluted earnings per share for the six months ended October 31, 2020 and 2021, respectively. We excluded those awards because they were not dilutive for those periods under the treasury stock method.

3. Inventories

~~Inventories are valued~~We value some of our consolidated inventories, including most of our U.S. inventories, at the lower of cost, ~~or net realizable value. Some of our consolidated inventories are valued~~ using the last-in, first-out (LIFO) method ~~which we use for the majority of our U.S. inventories.~~or market value. If the LIFO method had not been used, inventories at current cost would have been $353 million higher than reported as of April 30, 2021, and ~~$361~~$374 million higher than reported as of ~~July~~October 31, 2021. Changes in the LIFO valuation reserve for interim periods are based on an allocation of the projected change for the entire fiscal year, recognized proportionately over the remainder of the fiscal year.

4. Goodwill and Other Intangible Assets

The following table shows the changes in goodwill (which includes no accumulated impairment losses) and other intangible assets during the ~~three~~six months ended ~~July~~October 31, 2021:


(Dollars in millions)	(Dollars in millions)	Goodwill		Other Intangible Assets		(Dollars in millions)	Goodwill		Other Intangible Assets
Balance at April 30, 2021	Balance at April 30, 2021	$	779	$	676	Balance at April 30, 2021	$	779	$	676

Foreign currency translation adjustment	Foreign currency translation adjustment	(1)		(6)		Foreign currency translation adjustment	(3)		(13)
Balance at July 31, 2021		$	778	$	670
Balance at October 31, 2021						Balance at October 31, 2021	$	776	$	663

Our other intangible assets consist of trademarks and brand names, all with indefinite useful lives.

5. Commitments and Contingencies

We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs seek substantial damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a reasonable estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not believe it is reasonably possible that these existing loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations, or liquidity. No material accrued loss contingencies were recorded as of ~~July~~October 31, 2021.

We have guaranteed the repayment by a third-party importer of its obligation under a bank credit facility that it uses in connection with its importation of our products in Russia. If the importer were to default on that obligation, which we believe is unlikely, our maximum possible exposure under the existing terms of the guaranty would be approximately $9$12 million (subject to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant. As of ~~July~~October 31, 2021, our actual exposure under the guaranty of the importer’s obligation was approximately $4$8 million. We also have accounts receivable from that importer of approximately $7$14 million at ~~July~~October 31, 2021, which we expect to collect in full. Based on the financial support we provide to the importer, we believe it meets the definition of a variable interest entity. However, because we do not control this entity, it is not included in our consolidated financial statements.

On May 30, 2019, we notified Bacardi Martini Ltd. (Bacardi) of our intention not to renew the terms of our United Kingdom (U.K.) Cost Sharing Agreement (the Agreement) whereby Bacardi provided certain services (e.g., warehousing and logistics, sales, reporting, treasury, tax, and other services) and Brown-Forman and Bacardi split the associated overhead for those services. For purposes of conducting business, Brown-Forman and Bacardi established a U.K. trade name, “Bacardi Brown-Forman Brands,” through which our products and Bacardi’s products were sold in the U.K. On a monthly basis, Bacardi would remit to us the cash representing revenues from sales of our products, net of our agreed contributions for overhead costs under the Agreement. On April 30, 2020, the Agreement expired according to its terms.

Following delivery of our notice and upon expiration of the Agreement, Bacardi alleged that it was entitled to approximately £49 million under the principle of commercial agency in the U.K., as well as additional compensation for the winding up of business conducted under the Agreement and for remitting the associated funds owed to us. From monthly settlements following the expiration of the Agreement, Bacardi withheld over £50 million owed to us, effectively bypassing the dispute resolution process under the Agreement. This withheld amount is included in accounts receivable in the accompanying condensed consolidated balance sheet as of ~~July~~October 31, 2021.

In response to Bacardi’s actions, we initiated a lawsuit on August 20, 2020, in the Commercial Court in the U.K. seeking reimbursement of the amounts wrongfully withheld (the Commercial Court Action). Shortly thereafter, Bacardi filed a demand for arbitration seeking a determination that it was entitled to compensation as a commercial agent and for additional compensation for the work completed following the expiration of the Agreement (the Arbitration).

Since it was raised, we have disputed Bacardi’s claim of commercial agency compensation and issued a demand that Bacardi adhere to the dispute resolution process mandated by the Agreement. The ruling for the Commercial Court Action was issued on May 19, 2021, in which the Court declined to order Bacardi to return the amounts withheld pending the outcome of the Arbitration. The Arbitration took place the week of July 12, 2021, and ~~we expect~~the decision was rendered December 8, 2021. The decision confirmed that Bacardi was not entitled to compensation as a ~~decision from~~commercial agent but was awarded an immaterial amount for its work in winding up the ~~tribunal in the coming months. Given the pending decision in the Arbitration, we are unable to estimate the range of reasonably possible loss, if any.~~

business.

6. Debt

Our long-term debt (net of unamortized discount and issuance costs) consists of:


(Principal and carrying amounts in millions)	(Principal and carrying amounts in millions)	April 30, 2021		July 31, 2021		(Principal and carrying amounts in millions)	April 30, 2021		October 31, 2021

2.250% senior notes, $250 principal amount, due January 15, 2023	2.250% senior notes, $250 principal amount, due January 15, 2023	$	249	$	250	2.250% senior notes, $250 principal amount, due January 15, 2023	$	249	$	250
3.500% senior notes, $300 principal amount, due April 15, 2025	3.500% senior notes, $300 principal amount, due April 15, 2025	298		298		3.500% senior notes, $300 principal amount, due April 15, 2025	298		298
1.200% senior notes, €300 principal amount, due July 7, 2026	1.200% senior notes, €300 principal amount, due July 7, 2026	362		354		1.200% senior notes, €300 principal amount, due July 7, 2026	362		345
2.600% senior notes, £300 principal amount, due July 7, 2028	2.600% senior notes, £300 principal amount, due July 7, 2028	415		414		2.600% senior notes, £300 principal amount, due July 7, 2028	415		407
4.000% senior notes, $300 principal amount, due April 15, 2038	4.000% senior notes, $300 principal amount, due April 15, 2038	294		294		4.000% senior notes, $300 principal amount, due April 15, 2038	294		295
3.750% senior notes, $250 principal amount, due January 15, 2043	3.750% senior notes, $250 principal amount, due January 15, 2043	248		248		3.750% senior notes, $250 principal amount, due January 15, 2043	248		248
4.500% senior notes, $500 principal amount, due July 15, 2045	4.500% senior notes, $500 principal amount, due July 15, 2045	488		488		4.500% senior notes, $500 principal amount, due July 15, 2045	488		488

		$	2,354	$	2,346		$	2,354	$	2,331

Our short-term borrowings of $205 million as of April 30, 2021 ~~and $155~~included of $195 million ~~as of July 31, 2021, consisted primarily~~ of borrowings under our commercial paper program. There were no borrowings under that program as of October 31, 2021.


(Dollars in millions)	(Dollars in millions)	April 30, 2021	July 31, 2021	(Dollars in millions)	April 30, 2021	October 31, 2021
Commercial paper	Commercial paper	$195	$135	Commercial paper	$195	$—
Average interest rate	Average interest rate	0.16%	0.17%	Average interest rate	0.16%	—%
Average remaining days to maturity	Average remaining days to maturity	24	16	Average remaining days to maturity	24	0

7. Stockholders’ Equity

The following table shows the changes in stockholders’ equity by quarter during the ~~three~~six months ended ~~July~~October 31, 2020:


(Dollars in millions)	(Dollars in millions)	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total		(Dollars in millions)	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total
Balance at April 30, 2020	Balance at April 30, 2020	$	25	$	47	$	—	$	2,708	$	(547)	$	(258)	$	1,975	Balance at April 30, 2020	$	25	$	47	$	—	$	2,708	$	(547)	$	(258)	$	1,975

Net income	Net income							324						324		Net income							324						324
Net other comprehensive income (loss)	Net other comprehensive income (loss)									24				24		Net other comprehensive income (loss)									24				24
Declaration of cash dividends	Declaration of cash dividends							(167)						(167)		Declaration of cash dividends							(167)						(167)

Stock-based compensation expense	Stock-based compensation expense					3								3		Stock-based compensation expense					3								3
Stock issued under compensation plans	Stock issued under compensation plans											10		10		Stock issued under compensation plans											10		10
Loss on issuance of treasury stock issued under compensation plans	Loss on issuance of treasury stock issued under compensation plans					(3)		(16)						(19)		Loss on issuance of treasury stock issued under compensation plans					(3)		(16)						(19)
Balance at July 31, 2020	Balance at July 31, 2020	$	25	$	47	—		$	2,849	$	(523)	$	(248)	$	2,150	Balance at July 31, 2020	25		47		—		2,849		(523)		(248)		2,150
Net income																Net income							240						240
Net other comprehensive income (loss)																Net other comprehensive income (loss)									15				15

Stock-based compensation expense																Stock-based compensation expense					3								3
Stock issued under compensation plans																Stock issued under compensation plans											5		5
Loss on issuance of treasury stock issued under compensation plans																Loss on issuance of treasury stock issued under compensation plans					(3)		(7)						(10)
Balance at October 31, 2020																Balance at October 31, 2020	$	25	$	47	$	—	$	3,082	$	(508)	$	(243)	$	2,403

The following table shows the changes in stockholders’ equity by quarter during the ~~three~~six months ended ~~July~~October 31, 2021:


(Dollars in millions)	(Dollars in millions)	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total		(Dollars in millions)	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total
Balance at April 30, 2021	Balance at April 30, 2021	$	25	$	47	$	—	$	3,243	$	(422)	$	(237)	$	2,656	Balance at April 30, 2021	$	25	$	47	$	—	$	3,243	$	(422)	$	(237)	$	2,656

Net income	Net income							192						192		Net income							192						192
Net other comprehensive income (loss)	Net other comprehensive income (loss)									8				8		Net other comprehensive income (loss)									8				8
Declaration of cash dividends	Declaration of cash dividends							(172)						(172)		Declaration of cash dividends							(172)						(172)

Stock-based compensation expense	Stock-based compensation expense					4								4		Stock-based compensation expense					4								4
Stock issued under compensation plans	Stock issued under compensation plans											5		5		Stock issued under compensation plans											5		5
Loss on issuance of treasury stock issued under compensation plans	Loss on issuance of treasury stock issued under compensation plans					(2)		(8)						(10)		Loss on issuance of treasury stock issued under compensation plans					(2)		(8)						(10)

Balance at July 31, 2021	Balance at July 31, 2021	$	25	$	47	$	2	$	3,255	$	(414)	$	(232)	$	2,683	Balance at July 31, 2021	25		47		2		3,255		(414)		(232)		2,683

Net income																Net income							236						236
Net other comprehensive income (loss)																Net other comprehensive income (loss)									2				2

Stock-based compensation expense																Stock-based compensation expense					3								3
Stock issued under compensation plans																Stock issued under compensation plans											1		1
Loss on issuance of treasury stock issued under compensation plans																Loss on issuance of treasury stock issued under compensation plans					(2)		—						(2)

Balance at October 31, 2021																Balance at October 31, 2021	$	25	$	47	$	3	$	3,491	$	(412)	$	(231)	$	2,923

The following table shows the change in each component of accumulated other comprehensive income (AOCI), net of tax, during the ~~three~~six months ended ~~July~~October 31, 2021:


(Dollars in millions)	(Dollars in millions)	Currency Translation Adjustments		Cash Flow Hedge Adjustments		Postretirement Benefits Adjustments		Total AOCI		(Dollars in millions)	Currency Translation Adjustments		Cash Flow Hedge Adjustments		Postretirement Benefits Adjustments		Total AOCI
Balance at April 30, 2021	Balance at April 30, 2021	$	(179)	$	(16)	$	(227)	$	(422)	Balance at April 30, 2021	$	(179)	$	(16)	$	(227)	$	(422)
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(10)		14		4		8		Net other comprehensive income (loss)	(22)		24		8		10
Balance at July 31, 2021		$	(189)	$	(2)	$	(223)	$	(414)
Balance at October 31, 2021										Balance at October 31, 2021	$	(201)	$	8	$	(219)	$	(412)

The following table shows the cash dividends declared per share on our Class A and Class B common stock during the ~~three~~six months ended ~~July~~October 31, 2021:

Declaration Date

Record Date

Payable Date

Amount per Share

May 27, 2021

June 8, 2021

July 1, 2021

$0.1795

July 22, 2021

September 3, 2021

October 1, 2021

$0.1795

As announced on November 18, 2021, our Board of Directors increased the quarterly cash dividend on our Class A and Class B common stock from $0.1795 per share to $0.1885 per share. The quarterly cash dividend is payable on December 28, 2021, to stockholders of record on December 3, 2021.

In addition, the Board declared a special cash dividend of $1.00 per share on our Class A and Class B common stock. The special cash dividend is payable on December 29, 2021, to stockholders of record on December 9, 2021.

8. Net Sales

The following table shows our net sales by geography:


		Three Months Ended			Three Months Ended						Six Months Ended
		July 31,			October 31,						October 31,
(Dollars in millions)	(Dollars in millions)		2020			2021		(Dollars in millions)	2020		2021		2020		2021
United States	United States		$	387		$	450	United States	$	522	$	462	$	909	$	912
Developed International1	Developed International1		231			269		Developed International1	266		297		497		566
Emerging2	Emerging2		107			150		Emerging2	160		187		267		337
Travel Retail3	Travel Retail3		13			21		Travel Retail3	22		28		35		49
Non-branded and bulk4	Non-branded and bulk4		15			16		Non-branded and bulk4	15		20		30		36
Total	Total		$	753		$	906	Total	$	985	$	994	$	1,738	$	1,900

1Represents net sales of branded products to “advanced economies” as defined by the International Monetary Fund (IMF), excluding the United States. Our largest developed international markets are Australia, Germany, the United Kingdom, France, and Canada.

2Represents net sales of branded products to “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico, Poland, Brazil, and Russia.

3Represents net sales of branded products to global duty-free customers, other travel retail customers, and the U.S. military regardless of customer location.

4Includes net sales of used barrels, bulk whiskey and wine, and contract bottling regardless of customer location.

The following table shows our net sales by product category:


		Three Months Ended			Three Months Ended						Six Months Ended
		July 31,			October 31,						October 31,
(Dollars in millions)	(Dollars in millions)		2020			2021		(Dollars in millions)	2020		2021		2020		2021
Whiskey1	Whiskey1		$	595		$	707	Whiskey1	$	775	$	767	$	1,370	$	1,474
Tequila2	Tequila2		68			90		Tequila2	84		86		152		176
Wine3	Wine3		41			53		Wine3	71		69		112		122
Vodka4	Vodka4		19			25		Vodka4	26		32		45		57
Non-branded and bulk5	Non-branded and bulk5		15			16		Non-branded and bulk5	15		20		30		36
Rest of portfolio	Rest of portfolio		15			15		Rest of portfolio	14		20		29		35
Total	Total		$	753		$	906	Total	$	985	$	994	$	1,738	$	1,900

1Includes all whiskey spirits and whiskey-based flavored liqueurs, ready-to-drink, and ready-to-pour products. The brands included in this category are the Jack Daniel's family of brands, the Woodford Reserve family of brands, the Old Forester family of brands, GlenDronach, ~~BenRiach,~~Benriach, Glenglassaugh, Slane Irish Whiskey, and Coopers’ Craft.

2Includes the Herradura family of brands, el Jimador, New Mix, Pepe Lopez, and Antiguo.

3Includes Korbel Champagne and Sonoma-Cutrer wines.

4Includes Finlandia.

5Includes net sales of used barrels, bulk whiskey and wine, and contract bottling.

9. Pension and Other Postretirement Benefits

The following table shows the components of the net cost of pension and other postretirement benefits recognized for our U.S. benefit plans. Information about similar international plans is not presented due to immateriality.


		Three Months Ended			Three Months Ended						Six Months Ended
		July 31,			October 31,						October 31,
(Dollars in millions)	(Dollars in millions)		2020			2021		(Dollars in millions)	2020		2021		2020		2021
Pension Benefits:	Pension Benefits:							Pension Benefits:
Service cost	Service cost		$	7		$	7	Service cost	$	6	$	6	$	13	$	13
Interest cost	Interest cost		6			5		Interest cost	6		6		12		11
Expected return on plan assets	Expected return on plan assets		(12)			(11)		Expected return on plan assets	(11)		(11)		(23)		(23)

Amortization of net actuarial loss			7			6

Amortization of:								Amortization of:
Prior service cost (credit)								Prior service cost (credit)	—		—		1		1
Net actuarial loss								Net actuarial loss	7		6		13		12
Settlement charge								Settlement charge	—		1		—		1
Net cost	Net cost		$	8		$	7	Net cost	$	8	$	8	$	16	$	15

Other Postretirement Benefits:	Other Postretirement Benefits:							Other Postretirement Benefits:

Interest cost	Interest cost		$	1		$	—	Interest cost	1		—		$	1	$	1

Amortization of prior service cost (credit)	Amortization of prior service cost (credit)		(1)			—		Amortization of prior service cost (credit)	(1)		—		(1)		(1)

Net cost	Net cost		$	—		$	—	Net cost	$	—	$	—	$	—	$	—

10. Income Taxes

Our consolidated interim effective tax rate is based on our expected annual operating income, statutory tax rates, and income tax laws in the various jurisdictions where we operate. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the fiscal quarter in which the related event or a change in judgment occurs. The expected effective tax rate on ordinary income for the fiscal year is ~~24.9%~~23.1%, which is greater than the U.S. federal statutory rate of 21.0%, due to state income taxes, the effects of foreign operations, and the ~~reversal of prepaid taxes~~tax expense on prior intercompany sales of inventory ~~recorded~~that is recognized at tax rates higher than current statutory tax rates.

The effective tax rate of ~~28.5%~~24.9% for the ~~three~~six months ended ~~July~~October 31, 2021, is higher than the expected tax rate of ~~24.9%~~23.1% on ordinary income for the full fiscal year, primarily due to athe true-up of prior year ~~true-up of~~ deferred tax liabilities and the impact of tax rate changes enacted in certain foreign ~~jurisdictions.~~jurisdictions, which is partially offset by the excess tax benefits related to stock-based compensation. The ~~28.5%~~24.9% effective tax rate for the ~~three~~six months ended ~~July~~October 31, 2021, ~~was~~is higher than the

effective tax rate of ~~11.6%~~16.4% for the same period last year, primarily ~~reflecting~~due to a deferred tax benefit recognized in the prior year period related to an intercompany transfer of assets, ~~the reversal~~increased true-ups of ~~prepaid taxes on prior intercompany sales of inventory recorded at higher than current statutory tax rates, a~~ prior year ~~true-up of deferred~~ tax liabilities, and the impact of current year changes in tax laws in certain foreign and state jurisdictions.

We ~~have asserted~~continue to assert that the undistributed earnings of ~~the majority~~most of our foreign subsidiaries are reinvested indefinitely outside the United States. Therefore, no income taxes have been provided for any outside basis differences inherent in these subsidiaries other than those that were subject to the one-time repatriation tax. We ~~have a limited number of subsidiaries that are not permanently reinvested~~previously changed our indefinite reinvestment assertion with respect to current year earnings and ~~therefore we have recorded the deferred tax liability related to the~~prior year undistributed earnings for select foreign subsidiaries (but not for their outside basis differences). No deferred taxes have been recorded as no withholding would be due on their distribution. No further changes have been made to our indefinite reinvestment assertion.

11. Derivative Financial Instruments and Hedging Activities

We are subject to market risks, including the effect of fluctuations in foreign currency exchange rates, commodity prices, and interest rates. We use derivatives to help manage financial exposures that occur in the normal course of business. We formally document the purpose of each derivative contract, which includes linking the contract to the financial exposure it is designed to mitigate. We do not hold or issue derivatives for trading or speculative purposes.

We use currency derivative contracts to limit our exposure to the foreign currency exchange rate risk that we cannot mitigate internally by using netting strategies. We designate most of these contracts as cash flow hedges of forecasted transactions ~~(expected~~

(expected to occur within three years). We record all changes in the fair value of cash flow hedges in AOCI until the underlying hedged transaction occurs, at which time we reclassify that amount to earnings.

We do not designate some of our currency derivatives as hedges because we use them to partially offset the immediate earnings impact of changes in foreign currency exchange rates on existing assets or liabilities. We immediately recognize the change in fair value of these contracts in earnings.

We had outstanding currency derivatives, related primarily to our euro, British pound, and Australian dollar exposures, with notional amounts for all hedged currencies totaling $1,218 million at April 30, 2021, and ~~$1,072~~$992 million at ~~July~~October 31, 2021. The maximum term of outstanding derivative contracts was approximately 36 months at both April 30, 2021, and ~~July~~October 31, 2021.

We also use foreign currency-denominated debt instruments to help manage our foreign currency exchange rate risk. We designate a portion of those debt instruments as net investment hedges, which are intended to mitigate foreign currency exposure related to non-U.S. dollar net investments in certain foreign subsidiaries. Any change in value of the designated portion of the hedging instruments is recorded in AOCI, offsetting the foreign currency translation adjustment of the related net investments that is also recorded in AOCI. The amount of foreign currency-denominated debt instruments designated as net investment hedges was $680 million at April 30, 2021, and ~~$708~~$694 million at ~~July~~October 31, 2021.

At inception, we expect each financial instrument designated as a hedge to be highly effective in offsetting the financial exposure it is designed to mitigate. We also assess the effectiveness on an ongoing basis. If determined to no longer be highly effective, designation and accounting for the instrument as a hedge would be discontinued.

We use forward purchase contracts with suppliers to protect against corn price volatility. We expect to take physical delivery of the corn underlying each contract and use it for production over a reasonable period of time. Accordingly, we account for these contracts as normal purchases rather than as derivative instruments.

The following tables present the pre-tax impact that changes in the fair value of our derivative instruments and non-derivative hedging instruments had on AOCI and earnings:


			Three Months Ended						Three Months Ended
			July 31,						October 31,
(Dollars in millions)	(Dollars in millions)	Classification	2020		2021		(Dollars in millions)	Classification	2020		2021

Currency derivatives designated as cash flow hedges:	Currency derivatives designated as cash flow hedges:						Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	Net gain (loss) recognized in AOCI	n/a	$	(49)	$	15	Net gain (loss) recognized in AOCI	n/a	$	14	$	15
Net gain (loss) reclassified from AOCI into earnings	Net gain (loss) reclassified from AOCI into earnings	Sales	11		(3)		Net gain (loss) reclassified from AOCI into earnings	Sales	5		2

Currency derivatives not designated as hedging instruments:	Currency derivatives not designated as hedging instruments:						Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings	Net gain (loss) recognized in earnings	Sales	$	(6)	$	2	Net gain (loss) recognized in earnings	Sales	$	1	$	1
Net gain (loss) recognized in earnings	Net gain (loss) recognized in earnings	Other income (expense), net	8		1		Net gain (loss) recognized in earnings	Other income (expense), net	3		(1)

Foreign currency-denominated debt designated as net investment hedge:	Foreign currency-denominated debt designated as net investment hedge:						Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI	Net gain (loss) recognized in AOCI	n/a	$	(39)	$	7	Net gain (loss) recognized in AOCI	n/a	$	6	$	14

Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:	Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:						Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:
Sales	Sales		$	987	$	1,183	Sales		$	1,272	$	1,283
Other income (expense), net	Other income (expense), net		5		(6)		Other income (expense), net		(1)		1


		Six Months Ended
		October 31,
(Dollars in millions)	Classification	2020		2021

Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	n/a	$	(35)	$	30
Net gain (loss) reclassified from AOCI into earnings	Sales	16		(1)









Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings	Sales	$	(5)	$	3
Net gain (loss) recognized in earnings	Other income (expense), net	11		—


Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI	n/a	$	(33)	$	22



Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:
Sales		$	2,259	$	2,466
Other income (expense), net		4		(5)

We expect to reclassify $5$1 million of deferred net ~~losses~~gains on cash flow hedges recorded in AOCI as of ~~July~~October 31, 2021, to earnings during the next 12 months. This reclassification would offset the anticipated earnings impact of the underlying hedged exposures. The actual amounts that we ultimately reclassify to earnings will depend on the exchange rates in effect when the underlying hedged transactions occur.

The following table presents the fair values of our derivative instruments:


			April 30, 2021				July 31, 2021						April 30, 2021				October 31, 2021
(Dollars in millions)	(Dollars in millions)	Classification	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		(Dollars in millions)	Classification	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Designated as cash flow hedges:	Designated as cash flow hedges:										Designated as cash flow hedges:
Currency derivatives	Currency derivatives	Other current assets	$	4	$	(2)	$	4	$	(2)	Currency derivatives	Other current assets	$	4	$	(2)	$	12	$	(6)
Currency derivatives	Currency derivatives	Other assets	—		—		2		(1)		Currency derivatives	Other assets	—		—		8		(3)
Currency derivatives	Currency derivatives	Accrued expenses	4		(18)		5		(11)		Currency derivatives	Accrued expenses	4		(18)		1		(6)
Currency derivatives	Currency derivatives	Other liabilities	1		(18)		2		(8)		Currency derivatives	Other liabilities	1		(18)		—		(2)

Not designated as hedges:	Not designated as hedges:										Not designated as hedges:
Currency derivatives	Currency derivatives	Other current assets	1		—		1		—		Currency derivatives	Other current assets	1		—		—		—
Currency derivatives	Currency derivatives	Other assets	—		—		—		—		Currency derivatives	Other assets	—		—		—		—
Currency derivatives	Currency derivatives	Accrued expenses	—		—		—		—		Currency derivatives	Accrued expenses	—		—		1		(1)
Currency derivatives	Currency derivatives	Other liabilities	—		—		—		—		Currency derivatives	Other liabilities	—		—		—		—

The fair values reflected in the above table are presented on a gross basis. However, as discussed further below, the fair values of those instruments subject to net settlement agreements are presented on a net basis in our balance sheets.

In our statements of cash flows, we classify cash flows related to cash flow hedges in the same category as the cash flows from the hedged items.

Credit risk. We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of the contracts. To manage this risk, we contract only with major financial institutions that have ~~earned~~ investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association (ISDA) agreements that allow for net settlement of the derivative contracts. Also, we have established counterparty credit guidelines that we monitor regularly, and we monetize contracts when we believe it is warranted. Because of these safeguards, we believe we have no derivative positions that warrant credit valuation adjustments.

Our derivative instruments require us to maintain a specific level of creditworthiness, which we have maintained. If our creditworthiness were to fall below that level, then the counterparties to our derivative instruments could request immediate

payment or collateralization for derivative instruments in net liability positions. The aggregate fair value of all derivatives with creditworthiness requirements that were in a net liability position was $30 million at April 30, 2021, and ~~$11~~$7 million at ~~July~~October 31, 2021.

Offsetting. As noted above, our derivative contracts are governed by ISDA agreements that allow for net settlement of derivative contracts with the same counterparty. It is our policy to present the fair values of current derivatives (i.e., those with a remaining term of 12 months or less) with the same counterparty on a net basis in our balance sheets. Similarly, we present the fair values of noncurrent derivatives with the same counterparty on a net basis. We do not net current derivatives with noncurrent derivatives in our balance sheets.

The following table summarizes the gross and net amounts of our derivative contracts:


(Dollars in millions)	(Dollars in millions)	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Gross Amounts Not Offset in Balance Sheet		Net Amounts		(Dollars in millions)	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Gross Amounts Not Offset in Balance Sheet		Net Amounts
April 30, 2021	April 30, 2021											April 30, 2021
Derivative assets	Derivative assets	$	10	$	(7)	$	3	$	(1)	$	2	Derivative assets	$	10	$	(7)	$	3	$	(1)	$	2
Derivative liabilities	Derivative liabilities	(38)		7		(31)		1		(30)		Derivative liabilities	(38)		7		(31)		1		(30)
July 31, 2021
October 31, 2021												October 31, 2021
Derivative assets	Derivative assets	14		(10)		4		(1)		3		Derivative assets	22		(11)		11		—		11
Derivative liabilities	Derivative liabilities	(22)		10		(12)		1		(11)		Derivative liabilities	(18)		11		(7)		—		(7)

No cash collateral was received or pledged related to our derivative contracts as of April 30, 2021, or ~~July~~October 31, 2021.

12. Fair Value Measurements

The following table summarizes the assets and liabilities measured or disclosed at fair value on a recurring basis:


		April 30, 2021				July 31, 2021					April 30, 2021				October 31, 2021
		Carrying		Fair		Carrying		Fair			Carrying		Fair		Carrying		Fair
(Dollars in millions)	(Dollars in millions)	Amount		Value		Amount		Value		(Dollars in millions)	Amount		Value		Amount		Value
Assets	Assets									Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,150	$	1,150	$	1,172	$	1,172	Cash and cash equivalents	$	1,150	$	1,150	$	1,073	$	1,073
Currency derivatives	Currency derivatives	3		3		4		4		Currency derivatives	3		3		11		11

Liabilities	Liabilities									Liabilities
Currency derivatives	Currency derivatives	31		31		12		12		Currency derivatives	31		31		7		7
Short-term borrowings	Short-term borrowings	205		205		155		155		Short-term borrowings	205		205		19		19

Long-term debt	Long-term debt	2,354		2,663		2,346		2,718		Long-term debt	2,354		2,663		2,331		2,669

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We categorize the fair values of assets and liabilities into three levels based on the assumptions (inputs) used to determine those values. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are:

•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 – Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in inactive markets; or other inputs that are observable or can be derived from or corroborated by observable market data.

•Level 3 – Unobservable inputs supported by little or no market activity.

We determine the fair values of our currency derivatives (forward contracts) using standard valuation models. The significant inputs used in these models, which are readily available in public markets or can be derived from observable market transactions, include the applicable spot exchange rates, forward exchange rates, and interest rates. These fair value measurements are categorized as Level 2 within the valuation hierarchy.

We determine the fair value of long-term debt primarily based on the prices at which identical or similar debt has recently traded in the market and also considering the overall market conditions on the date of valuation. These fair value measurements are categorized as Level 2 within the valuation hierarchy.

The fair values of cash, cash equivalents, and short-term borrowings approximate the carrying amounts due to the short maturities of these instruments.

We measure some assets and liabilities at fair value on a nonrecurring basis. That is, we do not measure them at fair value on an ongoing basis, but we do adjust them to fair value in some circumstances (for example, when we determine that an asset is impaired). During the ~~three~~six months ended ~~July~~October 31, 2021, we recognized a non-cash impairment ~~charge~~charges of $6$9 million for certain fixed assets. The impairment ~~charge was~~charges, which were based on our ~~measurement~~measurements of the estimated fair ~~value~~values of those assets, ~~which is~~are categorized as Level 2 within the valuation hierarchy. The remaining carrying amount of those assets is not significant. No other material nonrecurring fair value measurements were required during the periods presented in these financial statements.

13. Other Comprehensive Income

The following tables show the components of net other comprehensive income (loss):


						Three Months Ended							Three Months Ended
						October 31, 2020							October 31, 2021
(Dollars in millions)																(Dollars in millions)	Pre-Tax		Tax		Net		Pre-Tax		Tax		Net
Currency translation adjustments:																Currency translation adjustments:
Net gain (loss) on currency translation																Net gain (loss) on currency translation	$	5	$	(1)	$	4	$	(9)	$	(3)	$	(12)
Reclassification to earnings																Reclassification to earnings	—		—		—		—		—		—
Other comprehensive income (loss), net																Other comprehensive income (loss), net	5		(1)		4		(9)		(3)		(12)
Cash flow hedge adjustments:																Cash flow hedge adjustments:
Net gain (loss) on hedging instruments																Net gain (loss) on hedging instruments	14		(4)		10		15		(4)		11
Reclassification to earnings1																Reclassification to earnings1	(5)		1		(4)		(2)		1		(1)
Other comprehensive income (loss), net																Other comprehensive income (loss), net	9		(3)		6		13		(3)		10
Postretirement benefits adjustments:																Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost																Net actuarial gain (loss) and prior service cost	—		—		—		(1)		—		(1)
Reclassification to earnings2																Reclassification to earnings2	7		(2)		5		7		(2)		5
Other comprehensive income (loss), net																Other comprehensive income (loss), net	7		(2)		5		6		(2)		4

Total other comprehensive income (loss), net																Total other comprehensive income (loss), net	$	21	$	(6)	$	15	$	10	$	(8)	$	2

		Three Months Ended							Three Months Ended								Six Months Ended						Six Months Ended
		July 31, 2020							July 31, 2021								October 31, 2020						October 31, 2021
(Dollars in millions)	(Dollars in millions)	Pre-Tax		Tax			Net		Pre-Tax		Tax			Net		(Dollars in millions)	Pre-Tax		Tax		Net		Pre-Tax		Tax		Net
Currency translation adjustments:	Currency translation adjustments:															Currency translation adjustments:
Net gain (loss) on currency translation	Net gain (loss) on currency translation	$	53	$	9		$	62	$	(8)	$	(2)		$	(10)	Net gain (loss) on currency translation	$	58	$	8	$	66	$	(17)	$	(5)	$	(22)
Reclassification to earnings	Reclassification to earnings	—		—			—		—		—			—		Reclassification to earnings	—		—		—		—		—		—
Other comprehensive income (loss), net	Other comprehensive income (loss), net	53		9			62		(8)		(2)			(10)		Other comprehensive income (loss), net	58		8		66		(17)		(5)		(22)
Cash flow hedge adjustments:	Cash flow hedge adjustments:															Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	Net gain (loss) on hedging instruments	(49)		12			(37)		15		(3)			12		Net gain (loss) on hedging instruments	(35)		8		(27)		30		(7)		23
Reclassification to earnings1	Reclassification to earnings1	(11)		3			(8)		3		(1)			2		Reclassification to earnings1	(16)		4		(12)		1		—		1
Other comprehensive income (loss), net	Other comprehensive income (loss), net	(60)		15			(45)		18		(4)			14		Other comprehensive income (loss), net	(51)		12		(39)		31		(7)		24
Postretirement benefits adjustments:	Postretirement benefits adjustments:															Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	Net actuarial gain (loss) and prior service cost	—		—			—		—		—			—		Net actuarial gain (loss) and prior service cost	—		—		—		(1)		—		(1)
Reclassification to earnings2	Reclassification to earnings2	10		(3)			7		6		(2)			4		Reclassification to earnings2	17		(5)		12		13		(4)		9
Other comprehensive income (loss), net	Other comprehensive income (loss), net	10		(3)			7		6		(2)			4		Other comprehensive income (loss), net	17		(5)		12		12		(4)		8

Total other comprehensive income (loss), net	Total other comprehensive income (loss), net	$	3	$	21		$	24	$	16	$	(8)		$	8	Total other comprehensive income (loss), net	$	24	$	15	$	39	$	26	$	(16)	$	10

1Pre-tax amount for each period is classified as sales in the accompanying condensed consolidated statements of operations.

2For the ~~three~~six months ended ~~July~~October 31, 2020, $4 of the pre-tax amount of ~~$10~~$17 is classified in gain on sale of business in the accompanying condensed consolidated statements of operations. Otherwise, the pre-tax amount for each period is classified as non-operating postretirement expense.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with both our unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended April 30, ~~2021.~~2021 (2021 Form 10-K). Note that the results of operations for the ~~three~~six months ended ~~July~~October 31, 2021, are not necessarily indicative of future or annual results. In this Item, “we,” “us,” “our,” “Brown-Forman,” and the “Company” refer to Brown-Forman Corporation and its consolidated subsidiaries, collectively.

Presentation Basis

Non-GAAP Financial Measures

We use some financial measures in this report that are not measures of financial performance under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures, defined below, should be viewed as supplements to (not substitutes for) our results of operations and other measures reported under GAAP. Other companies may not define or calculate these non-GAAP measures in the same way.

“Underlying change” in measures of statements of operations. We present changes in certain measures, or line items, of the statements of operations that are adjusted to an “underlying” basis. We use “underlying change” for the following measures of the statements of operations: (a) underlying net sales; (b) underlying cost of sales; (c) underlying gross profit; (d) underlying advertising expenses; (e) underlying selling, general, and administrative (SG&A) expenses; (f) underlying other expense (income) net; (g) underlying operating expenses1; and (h) underlying operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, (3) estimated net changes in distributor inventories, and (4) impairment charges. We explain these adjustments below.

•“Acquisitions and divestitures.” This adjustment removes (a) the gain or loss recognized on sale of divested brands, (b) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction, transition, and integration costs), and (c) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). Excluding non-comparable periods allows us to include the effects of acquired and divested brands only to the extent that results are comparable year over year.

During fiscal 2021, we sold our Early Times, Canadian Mist, and Collingwood brands and related assets, which resulted in a pre-tax gain of $127 million, and entered into a related transition services agreement (TSA) for these brands. Also, during fiscal 2021, we acquired Part Time Rangers Limited, which owns Part Time Rangers RTDs.

This adjustment removes (a) transaction and integration costs related to the acquisitions and divestitures, (b) the gain on sale of Early Times, Canadian Mist, and Collingwood and related assets, (c) operating activity for the non-comparable period for Early Times, Canadian Mist, and Collingwood, which is activity in the first quarter of fiscal 2021, (d) the net sales and operating expenses recognized pursuant to the TSA related to (i) contract bottling services and (ii) distribution services in certain markets, and (e) operating activity for Part Time Rangers Holdings Limited for the non-comparable period, which is activity in the first ~~quarter~~two quarters of fiscal 2021. We believe that these adjustments allow for us to better understand our underlying results on a comparable basis.

•“Foreign exchange.” We calculate the percentage change in certain line items of the statements of operations in accordance with GAAP and adjust to exclude the cost or benefit of currency fluctuations. Adjusting for foreign exchange allows us to understand our business on a constant-dollar basis, as fluctuations in exchange rates can distort the underlying trend both positively and negatively. (In this report, “dollar” always means the U.S. dollar unless stated otherwise.) To eliminate the effect of foreign exchange fluctuations when comparing across periods, we translate current-year results at prior-year rates and remove transactional and hedging foreign exchange gains and losses from current- and prior-year periods.

•“Estimated net change in distributor inventories.” This adjustment refers to the estimated net effect of changes in distributor inventories on changes in certain line items of the statements of operations. For each period compared, we use our volume information from our distributors to estimate the effect of distributor inventory changes in certain line items of the statements of operations. We believe that this adjustment reduces the effect of varying levels of distributor inventories on changes in certain line items of the statements of operations and allows us to understand better our underlying results and trends.

1Operating expenses include advertising expense, SG&A expense, and other expense (income), net.

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•“Impairment charges.” This adjustment removes the impact of impairment charges from our results of operations. During the first ~~quarter~~half of fiscal 2022, we recognized a non-cash impairment ~~charge~~charges of $6$9 million for certain fixed assets. We believe that this adjustment allows for us to better understand our underlying results on a comparable basis. See Note 12 to the Condensed Consolidated Financial Statements for more information.

We use the non-GAAP measures “underlying change” to: (a) understand our performance from period to period on a consistent basis; (b) compare our performance to that of our competitors; (c) calculate components of management incentive compensation; (d) plan and forecast; and (e) communicate our financial performance to the board of directors, stockholders, and investment community. We provide reconciliations of the “underlying change” in certain line items of the statements of operations to their nearest GAAP measures in the tables under “Results of Operations - Year-Over-Year Period Comparisons.” We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure.

When we provide guidance for underlying change for certain measures of the statements of operations, we do not provide guidance for the corresponding GAAP change because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including the estimated net change in distributor inventories and foreign exchange, each of which could have a significant impact to our GAAP income statement measures.

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Definitions

Aggregations.

From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the International Monetary Fund (IMF), and we aggregate brands by beverage alcohol category. Below, we define the geographic and brand aggregations used in this report.

Geographic Aggregations.

In “Results of Operations - Fiscal 2022 Year-to-Date Highlights,” we provide supplemental information for our largest markets ranked by percentage of total fiscal 2021 net sales. In addition to markets that are listed by country name, we include the following aggregations:

•“Developed International” markets are “advanced economies” as defined by the IMF, excluding the United States. Our largest developed international markets are Australia, Germany, the United Kingdom, France, and Canada. This aggregation represents our net sales of branded products to these markets.

•“Emerging” markets are “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico, Poland, Brazil, and Russia. This aggregation represents our net sales of branded products to these markets.

•“Travel Retail” represents our net sales of branded products to global duty-free customers, other travel retail customers, and the U.S. military, regardless of customer location.

•“Non-branded and bulk” includes our net sales of used barrels, bulk whiskey and wine, and contract bottling, regardless of customer location.

Brand Aggregations.

In “Results of Operations - Fiscal 2022 Year-to-Date Highlights,” we provide supplemental information for our largest brands ranked by percentage of total fiscal 2021 net sales. In addition to brands that are listed by name, we include the following aggregations:

•“Whiskey” includes all whiskey spirits and whiskey-based flavored liqueurs, ready-to-drink (RTD), and ready-to-pour products (RTP). The brands included in this category are the Jack Daniel’s family of brands, the Woodford Reserve family of brands (Woodford Reserve), the Old Forester family of brands (Old Forester), GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and Coopers’ Craft.

•“American whiskey” includes the Jack Daniel’s family of brands, premium bourbons (defined below), and super-premium American whiskey (defined below).

•“Jack Daniel’s family of brands” includes Jack Daniel’s Tennessee Whiskey (JDTW), Jack Daniel’s RTD and RTP products (JD RTD/RTP), Jack Daniel’s Tennessee Honey (JDTH), Gentleman Jack, Jack Daniel’s Tennessee Fire (JDTF), Jack Daniel’s Tennessee Apple (JDTA), Jack Daniel’s Single Barrel Collection (JDSB), Jack Daniel’s Tennessee Rye Whiskey (JDTR), Jack Daniel’s No. 27 Gold Tennessee Whiskey, Jack Daniel’s Sinatra Select, and Jack Daniel’s Bottled-in-Bond.

•“Jack Daniel’s RTD and RTP” products include all RTD line extensions of Jack Daniel’s, such as Jack Daniel’s & Cola, Jack Daniel’s Country Cocktails, Jack Daniel’s & Diet Cola, Jack & Ginger, Jack Daniel’s Double Jack, Gentleman Jack & Cola, Jack Daniel’s American Serve, Jack Daniel’s Tennessee Honey RTD, Jack Daniel’s Berry, Jack Daniel’s Lynchburg Lemonade, Jack Daniel’s Whiskey & Seltzer, and the seasonal Jack Daniel’s Winter Jack RTP.

•“Premium bourbons” includes Woodford Reserve, Old Forester, and Coopers’ Craft.

•“Super-premium American whiskey” includes Woodford Reserve, Gentleman Jack, JDSB, JDTR, Jack Daniel’s No. 27 Gold Tennessee Whiskey, and Jack Daniel’s Sinatra Select.

•“Tequila” includes the Herradura family of brands (Herradura), el Jimador, New Mix, Pepe Lopez, and Antiguo.

•“Wine” includes Korbel Champagnes and Sonoma-Cutrer wines.

•“Vodka” includes Finlandia.

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•“Non-branded and bulk” includes our net sales of used barrels, bulk whiskey and wine, and contract bottling regardless of customer location.

Other Metrics.

•“Depletions.” We generally record revenues when we ship or deliver our products to our customers. “Depletions” is a term commonly used in the beverage alcohol industry to describe volume. Depending on the context, depletions usually means either (a) our shipments directly to retail or wholesale customers for owned distribution markets or (b) shipments from our distributor customers to retailers and wholesalers in other markets. We believe that depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do. In this document, unless otherwise specified, we refer to depletions when discussing volume.

•“Consumer takeaway.” When discussing trends in the market, we refer to consumer takeaway, a term commonly used in the beverage alcohol industry that refers to the purchase of product by consumers from retail outlets, including products purchased through e-premise channels, as measured by volume or retail sales value. This information is provided by third parties, such as Nielsen and the National Alcohol Beverage Control Association (NABCA). Our estimates of market share or changes in market share are derived from consumer takeaway data using the retail sales value metric. We believe consumer takeaway is a leading indicator of how consumer demand is trending.

Important Information on Forward-Looking Statements:

This report contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “aim,” “anticipate,” “aspire,” “believe,” “can,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “might,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” “would,” and similar words indicate forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and uncertainties include, but are not limited to:

•Our substantial dependence upon the continued growth of the Jack Daniel’s family of brands

•Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks

•Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs

•Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers

•Changes in consumer preferences, consumption, or purchase patterns – particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; further legalization of marijuana; shifts in consumer purchase practices; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation

•Production facility, aging warehouse, or supply chain ~~disruption~~disruptions

•Imprecision in supply/demand forecasting

•Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor

•Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the risk of the resulting negative economic impact and related governmental actions

•Unfavorable global or regional economic conditions, particularly related to the COVID-19 pandemic, and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations

•Product recalls or other product liability claims, product tampering, contamination, or quality issues

•Negative publicity related to our company, products, brands, marketing, executive leadership, employees, board of directors, family stockholders, operations, business performance, or prospects

•Failure to attract or retain key executive or employee talent

•Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value

•Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including additional

retaliatory tariffs on American whiskeys and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and distributors; compliance with local trade practices and other regulations; terrorism; and health pandemics

•Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations

•Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar

•Changes in laws, regulatory measures, or governmental policies – especially those that affect the production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products

•Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur

•Decline in the social acceptability of beverage alcohol in significant markets

•Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products

•Counterfeiting and inadequate protection of our intellectual property rights

•Significant legal disputes and proceedings, or government investigations

•Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws

•Our status as a family “controlled company” under New York Stock Exchange rules, and our dual-class share structure

For further information on these and other risks, please see the risks and uncertainties described in Part I, Item 1A. Risk Factors of our 2021 Form 10-K and those described from time to time in our future reports filed with the Securities and Exchange ~~Commission.~~Commission (SEC).

2022

Overview

During the first ~~quarter~~half of fiscal 2022, we experienced strong, broad-based net sales growth across ~~all~~most of our IMF geographic clusters and Travel Retail channel due to the gradual re-opening of the on-premise channel, some degree of travel and tourism returning, and growing premiumization trends. While the financial impact of COVID-19 on our business is difficult to measure, we believe the timing and pace of global vaccination rates, governmental actions to lower or eliminate restrictions in certain economies around the world, and the post-pandemic economic recovery positively impacted our results when compared to the same period last year. We further discuss the effect of COVID-19 on our results where relevant below.

Our ~~underlying~~ results during the ~~three months ended July 31, 2021,~~first half of fiscal 2022 were negatively impacted by supply chain disruptions, largely related to glass supply. These disruptions impacted our finished goods inventories, along with the inventories of our distributors and ~~retailers.~~retailers, and negatively affected our net sales and input costs. We further discuss the effect of supply chain disruptions on our results where relevant below.

Fiscal 2022 Year-to-Date Highlights

•We delivered reported net sales of ~~$0.9~~$1.9 billion, for the six months ended October 31, 2021, an increase of ~~20%~~9% compared to the same period last year. ~~Excluding an estimated net increase in distributor inventories~~This growth was driven primarily by (a) JDTW; (b) Herradura and el Jimador; (c) Woodford Reserve; (d) JD RTDs; (e) the continued international launch of JDTA; and (f) Finlandia. These gains were partially offset by the effect of acquisitions and divestitures, ~~we grew underlying~~an estimated net ~~sales 18% for the three months ended July 31, 2021. Underlying growth was driven by (a) JDTW; (b) our premium bourbon brands, led by Woodford Reserve~~decrease in distributor inventories, and ~~Old Forester; (c) Herradura and el Jimador; (d) broad-based growth of JDTH; and (e) the continued international launch of JDTA. These gains were partially offset by~~ lower volumes of New ~~Mix reflecting difficult comparisons as a result of the temporary supply disruption of the beer industry in Mexico during the first quarter of fiscal 2021 due to COVID-19 related shutdowns.~~Mix. Supply chain disruptions had an adverse effect on year-to-date results. From a geographic perspective, ~~the United States,~~ emerging markets, developed international markets, and the Travel Retail channel all contributed significantly to ~~underlying~~ net sales growth.

•Reported advertising expense increased ~~46%~~24% for the ~~three~~six months ended ~~July~~October 31, 2021. Underlying advertising expense increased 44% after adjusting for the negative effect of foreign exchange and the effect of acquisitions and divestitures. The increase in underlying advertising expense was2021, driven primarily by the cycling of a substantial reduction in promotional activity during the same period last year due to COVID-19.

•Reported SG&A expense increased ~~14%~~10% for the ~~three~~six months ended ~~July~~October 31, ~~2021. Underlying SG&A expense increased 11% after adjusting for the negative effect of foreign exchange. The increase in underlying SG&A expense was~~2021, driven primarily by (a) ~~the~~ timing of compensation related expenses, (b) accruals for non-income-based tax contingencies, and (c) the cycling of lower discretionary spend during the same period last year due to COVID-19.

•We delivered reported operating income of ~~$289~~$611 million, for the six months ended October 31, 2021, a decrease of ~~25%~~15% compared to the same period last year. Underlying operating income grew 15% after excluding (a) the effect of acquisitions and divestitures, (b) an estimated net increase in distributor inventories, (c) the negative effect of foreign exchange, and (d) the effect of impairment charges.

•We delivered diluted earnings per share of ~~$0.40~~$0.89 for the ~~three~~six months ended ~~July~~October 31, 2021, a decrease of ~~41%~~24% from the ~~$0.67~~$1.17 reported for the same period last year, which included an estimated $0.19 per share benefit from the gain on sale of Early Times, Canadian Mist, and ~~Collingwood.~~Collingwood brands.

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																			Summary of Operating Performance
		Three Months Ended July 31,				Three Months Ended October 31,										Six Months Ended October 31,
(Dollars in millions)	(Dollars in millions)		2020				2021			Reported Change		Underlying Change1			(Dollars in millions)	2020				2021			Reported Change		Underlying Change1		2020			2021			Reported Change		Underlying Change1
Net sales	Net sales		$	753			$	906		20	%	18	%		Net sales	$	985			$	994		1	%	7	%	$	1,738		$	1,900		9	%	12	%
Cost of sales	Cost of sales		288				353			23	%	19	%		Cost of sales	404				404			—	%	6	%	692			757			9	%	12	%
Gross profit	Gross profit		465				553			19	%	17	%		Gross profit	581				590			2	%	8	%	1,046			1,143			9	%	12	%
Advertising	Advertising		62				90			46	%	44	%		Advertising	95				104			10	%	9	%	157			194			24	%	23	%
SG&A	SG&A		148				168			14	%	11	%		SG&A	155				165			6	%	6	%	303			333			10	%	8	%
Gain on sale of business	Gain on sale of business		(127)				—			NA		NA			Gain on sale of business												(127)			—			nm		n/a
Other expense (income), net	Other expense (income), net		(5)				6			(222	%)	80	%		Other expense (income), net	1				(1)			nm		nm		(4)			5			nm		nm
Operating income	Operating income		387				289			(25	%)	15	%		Operating income	330				322			(2	%)	10	%	717			611			(15	%)	13	%

Total operating expenses2	Total operating expenses2		$	205			$	264		29	%	20	%		Total operating expenses2	$	251			$	268		7	%	5	%	$	456		$	532		17	%	12	%

As a percentage of net sales3	As a percentage of net sales3														As a percentage of net sales3
Gross profit	Gross profit		61.7		%		61.0		%	(0.7)	pp				Gross profit	59.0		%		59.3		%	0.3	pp			60.2		%	60.1		%	(0.1)	pp

Operating income	Operating income		51.4		%		31.9		%	(19.5)	pp				Operating income	33.5		%		32.3		%	(1.2)	pp			41.2		%	32.1		%	(9.1)	pp
Non-operating postretirement expense	Non-operating postretirement expense		$	1			$	—		(67	%)				Non-operating postretirement expense	$	2			$	2		(13	%)			$	3		$	2		(40	%)
Interest expense, net	Interest expense, net		$	20			$	20		1	%				Interest expense, net	$	19			$	19		(2	%)			$	39		$	39		(1	%)
Effective tax rate	Effective tax rate		11.6		%		28.5		%	16.9	pp				Effective tax rate	22.1		%		21.6		%	(0.5)	pp			16.4		%	24.9		%	8.5	pp
Diluted earnings per share	Diluted earnings per share		$	0.67			$	0.40		(41	%)				Diluted earnings per share	$	0.50			$	0.49		(2	%)			$	1.17		$	0.89		(24	%)
Note: Totals may differ due to rounding	Note: Totals may differ due to rounding													Note: Totals may differ due to rounding

1See “Non-GAAP Financial Measures” above for details on our use of “underlying change,” including how we calculate these measures and why we believe this information is useful to readers.

2Operating expenses include advertising expense, SG&A expense, and other expense (income), net.

3Year-over-year changes in percentages are reported in percentage points (pp).

Fiscal 2022 Outlook

Below we discuss our updated outlook for fiscal 2022, reflecting the trends, developments, and uncertainties we expect to affect our business. This updated outlook revises certain aspects of the fiscal 2022 outlook included in Part ~~II,~~I, Item 7.2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2021~~first quarter 2022 Form ~~10-K.~~10-Q. When we provide guidance for underlying change for certain measures of the statements of operations, we do not provide guidance for the corresponding GAAP change because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including the estimated net change in distributor inventories and foreign exchange, each of which could have a significant impact to our GAAP income statement measures.

~~Due to the~~•Underlying net sales. While volatility and uncertainty ~~that continues to exist~~persists in the operating environment ~~including recent~~due to COVID-19 ~~trends~~ and ~~global~~ supply chain disruptions, we remain confident in our growth momentum and have revised ~~some of~~ our ~~expectations for fiscal 2022.~~ full year underlying net sales outlook from mid-single digit growth to high-single digit growth.

Currently, we are managing through the impact of global supply chain disruptions, including glass supply, and have deployed a number of risk mitigation strategies to address the various constraints on our business. While we expect ~~these~~supply chain disruptions to persist throughout the fiscal year, we believe the impact will become less significant in the second half of the year.

~~We expect a more significant unfavorable impact from supply chain disruptions and higher input costs related to agave, transportation costs, and commodity prices to negatively impact our~~•Reported gross margin. ~~As a result of these factors, we~~ We continue to expect reported gross margin to be flat or slightly down for the full year ~~versus~~compared to fiscal 2021, reflecting the ~~slight improvement originally expected.~~unfavorable impacts of supply chain disruptions, higher input costs related to commodity prices, and higher transportation costs. Our outlook reflects the modest positive impact of the January 1, 2022 suspension of tariffs on American whiskey exports to the European Union.

~~Despite these challenges,~~•Underlying operating expenses. Considering the revised underlying net sales outlook and our intent to align advertising investment growth with underlying net sales growth, we ~~still anticipate~~have revised our underlying operating expense expectation from mid-single digit growth ~~in underlying net sales, underlying~~to high-single digit growth for the full year.

•Underlying operating ~~expenses, and underlying operating income for fiscal 2022.~~

income.As a result of ~~these~~the above factors, ~~coupled with unusual comparisons to last year,~~ we now expect high-single digit underlying operating income growth for the ~~seasonality of our results to be volatile during the~~full year.

~~We expect our~~

•Effective tax rate. Our effective tax rate outlook continues to be in the range of ~~about~~approximately 22-23%.

We continue to anticipate that our quarterly results will be volatile for the remainder of fiscal 2022, particularly underlying advertising expense and underlying operating income, as a result of the unusual comparisons to last year.

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Results of Operations – Fiscal 2022 Year-to-Date Highlights

Market Highlights

The following table provides supplemental information for our largest markets. We discuss results of the markets most affecting our performance below the table. Unless otherwise indicated, all related commentary is for the ~~three~~six months ended ~~July~~October 31, 2021, compared to the same period last year.


Top Markets1	Top Markets1									Top Markets1
Three months ended July 31, 2021		Net Sales % Change vs. 2021
Six months ended October 31, 2021												Six months ended October 31, 2021	Net Sales % Change vs. 2021
Geographic area2	Geographic area2	Reported		Acquisitions and Divestitures		Foreign Exchange		Est. Net Chg in Distributor Inventories		Underlying3		Geographic area2	Reported		Acquisitions and Divestitures		Foreign Exchange		Est. Net Chg in Distributor Inventories		Underlying3
United States	United States	16	%	3	%	—	%	(4	%)	16	%	United States	—	%	3	%	—	%	3	%	6	%
Developed International	Developed International	17	%	1	%	(1	%)	(5	%)	12	%	Developed International	14	%	—	%	—	%	(2	%)	12	%
Australia	Australia	4	%	—	%	(1	%)	—	%	3	%	Australia	6	%	—	%	(1	%)	—	%	4	%
Germany	Germany	24	%	—	%	(2	%)	—	%	22	%	Germany	18	%	—	%	—	%	—	%	18	%
United Kingdom	United Kingdom	(3	%)	—	%	7	%	(1	%)	2	%	United Kingdom	10	%	—	%	3	%	(1	%)	13	%
France	France	14	%	—	%	(3	%)	—	%	11	%	France	4	%	—	%	(1	%)	—	%	4	%
Canada	Canada	(4	%)	1	%	(9	%)	11	%	—	%	Canada	(14	%)	1	%	(5	%)	21	%	3	%
Rest of Developed International	Rest of Developed International	57	%	5	%	(6	%)	(32	%)	24	%	Rest of Developed International	36	%	2	%	(2	%)	(14	%)	22	%
Emerging	Emerging	40	%	—	%	(1	%)	(5	%)	34	%	Emerging	26	%	—	%	(2	%)	—	%	25	%
Mexico	Mexico	12	%	—	%	(10	%)	—	%	2	%	Mexico	9	%	—	%	(9	%)	—	%	1	%
Poland	Poland	18	%	—	%	(7	%)	—	%	11	%	Poland	3	%	—	%	(1	%)	—	%	2	%
Brazil	Brazil	46	%	—	%	3	%	16	%	64	%	Brazil	31	%	—	%	(1	%)	13	%	43	%
Russia	Russia	37	%	—	%	(3	%)	(39	%)	(6	%)	Russia	26	%	—	%	(11	%)	7	%	22	%
Rest of Emerging	Rest of Emerging	80	%	1	%	14	%	(24	%)	72	%	Rest of Emerging	50	%	—	%	4	%	(5	%)	49	%
Travel Retail	Travel Retail	61	%	2	%	(5	%)	17	%	74	%	Travel Retail	38	%	3	%	(2	%)	26	%	64	%
Non-branded and bulk	Non-branded and bulk	5	%	(5	%)	—	%	—	%	—	%	Non-branded and bulk	18	%	1	%	—	%	—	%	18	%
Total	Total	20	%	2	%	—	%	(4	%)	18	%	Total	9	%	2	%	(1	%)	2	%	12	%
Note: Results may differ due to rounding	Note: Results may differ due to rounding											Note: Results may differ due to rounding

1“Top Markets” are ranked based on percentage of total fiscal 2021 net sales. See 2021 Form 10-K “Results of Operations - Fiscal 2021 Market Highlights” and Note 8 to the Condensed Consolidated Financial Statements.

2See “Definitions” above for definitions of market aggregations presented here.

3See “Non-GAAP Financial Measures” above for details on our use of “underlying change” in net sales, including how we calculate this measure and why we believe this information is useful to readers.

Net sales growth ~~in many~~for some of the markets discussed below was positively impacted by comparisons against COVID-19 related declines during the same period last year. See “Overview” above for more information.

United States

•United States. Reported net sales increased 16%, while underlying net sales also grew 16% after adjusting for an estimated net increase in distributor inventories and the effect of acquisitions and divestitures. The net increase in distributor inventories is duewere flat compared to ~~(a) cycling against reductions during~~ the same period last ~~year reflecting COVID-19 related uncertainty, and (b) buy-in ahead of upcoming price increases. Underlying net sales gains~~year.

Positive growth contributions were ~~driven~~led by (a) JDTW, fueled by higher volumes and a favorable channel mix shift to the ~~on-premise~~on- premise channel; (b) our premium ~~bourbons, led by Woodford Reserve and Old Forester;~~bourbons; and (c) our tequilas, due to higher volumes of Herradura and el Jimador. ~~This~~

These growth ~~was partially~~contributions were offset by an estimated net decrease in distributor inventories, the effect of acquisitions and divestitures, and lower volumes in the off-premise channel due to difficult comparisons to the same period last year. Supply chain disruptions had an adverse effect on year-to-date results.

Developed International

•~~Developed International.~~Australia. Reported net sales increased ~~17%, while underlying net sales grew 12% after adjusting for an estimated net increase in distributor inventories,~~6% driven by favorable price/mix and the positive effect of foreign exchange, ~~and the effect of acquisitions and divestitures. Broad-based underlying net sales growth was led by Germany, France, Korea, Spain, Australia, and Czechia.~~

◦~~Australia’s underlying net sales growth was driven by favorable price/mix,~~ partially offset by lower volumes of JD RTDs due to difficult comparisons to the same period last year.

◦•~~Germany’s underlying~~Germany. Reported net sales ~~growth was~~increased 18% fueled by ~~the~~ volumetric gains of JDTW and JD RTDs.

◦

•United ~~Kingdom’s underlying~~Kingdom. Reported net sales ~~growth was~~increased 10% driven primarily by higher volumes of JDTW, Chambord, and JD RTDs. These gains were partially offset by the negative effect of foreign exchange. Supply chain disruptions had an adverse effect on year-to-date results.

•France. Reported net sales increased 4% driven by higher volumes of ~~JDTW, partially offset by lower volumes of JDTA due to the cycling of the brand’s launch during the same period last year.~~

◦~~France’s underlying net sales growth was driven by higher volumes of~~JDTH and JDTW.

◦~~Underlying net sales growth in the Rest of Developed International was driven by (a) higher JDTW volumes, led by Spain and Korea; and (b) volumetric growth of JDTH, led by Korea and Czechia.~~ Supply chain disruptions had an adverse effect on year-to-date results.

•~~Emerging.~~Rest of Developed International. Reported net sales increased ~~40%, while underlying net sales grew 34% after adjusting for~~36% driven by broad-based growth led by Korea and Spain, fueled by higher JDTW volumes, along with an estimated net increase in distributor ~~inventories and~~inventories.

Emerging

•Mexico. Reported net sales increased 9% driven primarily by the positive effect of foreign ~~exchange. Broad-based underlying net sales~~exchange and the growth ~~was led by Chile, Brazil, and Turkey.~~

◦~~Mexico’s underlying net sales growth was led by~~of Herradura, partially offset by lower volumes of New Mix reflecting difficult comparisons as a result of the temporary supply disruption of the beer industry in Mexico during the first quarter of fiscal 2021 due to COVID-19 related ~~to COVID-19.~~shutdowns. Supply chain disruptions had an adverse effect on year-to-date results.

◦•~~Poland’s underlying~~Poland. Reported net sales ~~growth was~~increased 3% driven primarily by ~~higher volumes and~~ favorable price/mix of Finlandia, largely offset by lower volumes of JDTW. Supply chain disruptions had an adverse effect on year-to-date results.

◦•~~Brazil’s underlying~~Brazil. Reported net sales ~~growth was~~increased 31% fueled by the launch of JDTA, higher volumes of JDTW, ~~the launch of JDTA,~~ and volumetric growth of ~~JDTH.~~JDTH, partially offset by an estimated net decrease in distributor inventories. Supply chain disruptions had an adverse effect on year-to-date results.

◦•~~Underlying~~Russia. Reported net sales ~~growth~~increased 26% driven by higher Finlandia and JDTW volumes along with the positive effect of foreign exchange, partially offset by an estimated net decrease in ~~the~~ distributor inventories.

•Rest of ~~Emerging was~~Emerging. Reported net sales increased 50% driven primarily by (a) ~~higher~~ JDTW ~~volumes,~~gains, led by ~~Chile~~Turkey, sub-Saharan Africa, and ~~Turkey;~~Chile; (b) volumetric growth of JDTH, led by Chile; and (c) an estimated net increase in distributor inventories. This growth was partially offset by the ~~launch~~negative effect of ~~JDTA in Chile.~~foreign exchange.

Travel Retail

•Travel Retail. Reported net sales increased 61%, while underlying net sales grew 74% after adjusting for an estimated net decrease in distributor inventories, the positive effect of foreign exchange, and the effect of acquisitions and divestitures. Underlying net sales growth was38% driven primarily by higher volumes across much of our portfolio, ~~as we cycled against significant declines during the same period last year.~~partially offset by unfavorable price/mix and an estimated net decrease in distributor inventories.

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Brand Highlights

The following table provides supplemental information for our largest brands. We discuss results of the brands most affecting our performance below the table. Unless otherwise indicated, all related commentary is for the ~~three~~six months ended ~~July~~October 31, 2021, compared to the same period last year.


Major Brands	Major Brands													Major Brands
Three months ended July 31, 2021		Volumes		Net Sales % Change vs 2021
Six months ended October 31, 2021														Six months ended October 31, 2021	Volumes		Net Sales % Change vs 2021
Product category / brand family / brand1	Product category / brand family / brand1	9L Depletions1, 3		Reported		Acquisitions and Divestitures		Foreign Exchange		Est. Net Chg in Distributor Inventories		Underlying2		Product category / brand family / brand1	9L Depletions1, 3		Reported		Acquisitions and Divestitures		Foreign Exchange		Est. Net Chg in Distributor Inventories		Underlying2
Whiskey	Whiskey	11	%	19	%	3	%	—	%	(3	%)	18	%	Whiskey	9	%	8	%	2	%	—	%	2	%	12	%
Jack Daniel’s family of brands	Jack Daniel’s family of brands	10	%	20	%	—	%	—	%	(3	%)	16	%	Jack Daniel’s family of brands	8	%	9	%	—	%	—	%	2	%	11	%
JDTW	JDTW	17	%	28	%	—	%	1	%	(7	%)	21	%	JDTW	12	%	14	%	—	%	—	%	—	%	15	%
JD RTD/RTP	JD RTD/RTP	1	%	6	%	—	%	(3	%)	—	%	3	%	JD RTD/RTP	5	%	4	%	—	%	(2	%)	4	%	6	%
JDTH	JDTH	11	%	(3	%)	—	%	(1	%)	14	%	10	%	JDTH	6	%	(4	%)	—	%	—	%	10	%	6	%
Gentleman Jack	Gentleman Jack	3	%	(2	%)	—	%	—	%	4	%	2	%	Gentleman Jack	(4	%)	(10	%)	—	%	—	%	7	%	(3	%)
JDTF	JDTF	5	%	2	%	—	%	(1	%)	3	%	4	%	JDTF	(4	%)	(5	%)	—	%	—	%	1	%	(4	%)
JDTA	JDTA	44	%	68	%	—	%	4	%	(37	%)	35	%	JDTA	39	%	55	%	—	%	2	%	(26	%)	30	%
Other Jack Daniel’s whiskey brands	Other Jack Daniel’s whiskey brands	12	%	31	%	—	%	(1	%)	(5	%)	24	%	Other Jack Daniel’s whiskey brands	3	%	7	%	—	%	(1	%)	3	%	10	%
Woodford Reserve	Woodford Reserve	30	%	31	%	—	%	—	%	4	%	35	%	Woodford Reserve	18	%	10	%	—	%	—	%	7	%	17	%
Tequila	Tequila	(28	%)	32	%	—	%	(5	%)	(4	%)	23	%	Tequila	(16	%)	16	%	—	%	(4	%)	4	%	16	%
Herradura	Herradura	76	%	94	%	—	%	(4	%)	(9	%)	81	%	Herradura	43	%	41	%	—	%	(3	%)	8	%	46	%
el Jimador	el Jimador	14	%	34	%	—	%	(2	%)	(7	%)	25	%	el Jimador	15	%	15	%	—	%	(2	%)	6	%	19	%
Wine	Wine	9	%	30	%	—	%	—	%	(22	%)	8	%	Wine	3	%	9	%	—	%	—	%	(7	%)	2	%
Vodka (Finlandia)	Vodka (Finlandia)	7	%	34	%	—	%	(4	%)	(14	%)	17	%	Vodka (Finlandia)	14	%	26	%	—	%	(3	%)	(2	%)	21	%
Rest of Portfolio	Rest of Portfolio	18	%	(1	%)	(3	%)	22	%	7	%	24	%	Rest of Portfolio	14	%	22	%	(4	%)	9	%	(7	%)	20	%
Non-branded and bulk	Non-branded and bulk	NA		5	%	(5	%)	—	%	—	%	—	%	Non-branded and bulk	NA		18	%	1	%	—	%	—	%	18	%
Note: Results may differ due to rounding	Note: Results may differ due to rounding													Note: Results may differ due to rounding

1See “Definitions” above for definitions of brand aggregations and volume measures presented here.

2See “Non-GAAP Financial Measures” above for details on our use of “underlying change” in net sales, including how we calculate this measure and why we believe this information is useful to readers.

3 Effective April 1, 2021, we entered into a partnership with Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel’s Country Cocktails in the United States. Consequently, our fiscal 2022 results include net sales, but do not include 9L depletions for this brand. To share results on a comparable basis for fiscal 2022, we excluded fiscal 2021 9L depletions for Jack Daniel’s Cocktails in the United States.

Net sales growth for some of the brands discussed below was positively impacted by comparisons against COVID-19 related declines during the same period last year. See “Overview” above for more information.

Whiskey

•~~Whiskey~~ brands’ reported net sales increased 19%, while underlying net sales grew 18% after adjusting for an estimated net increase in distributor inventories and the effect of acquisitions and divestitures. Underlying net sales growth was driven by (a) the growth of JDTW; (b) our premium bourbons, led by Woodford Reserve and Old Forester; and (c) volumetric growth of JDTH and JDTA.

◦~~The~~ Jack Daniel’s family of ~~brands~~brands. ~~grew underlying~~Reported net sales ~~driven~~increased 9% fueled by JDTW, higher volumes of JD RTDs and JDTH, and the continued international launch of JDTA. These gains were partially offset by an estimated net decrease in distributor inventories. Supply chain disruptions had an adverse effect on year-to-date results.

▪•~~The broad-based underlying~~JDTW. Reported net sales ~~growth for~~ ~~JDTW~~ ~~was~~increased 14% driven primarily by ~~higher volumes and favorable channel mix~~(a) broad-based volume growth in the United States, ~~and volumetric growth in our~~ emerging markets, and developed international ~~markets.~~markets; and (b) a favorable channel mix shift to the on-premise channel, primarily in the United States. Supply chain disruptions had an adverse effect on year-to-date results.

▪•~~JDTH~~JD RTD/RTP. ~~underlying~~Reported net sales ~~growth was fueled~~increased 4% driven primarily by ~~broad-based volumetric gains~~higher volumes in ~~emerging markets, led by Chile~~Germany and ~~Brazil. This growth was~~the United Kingdom along with the positive effect of foreign exchange, partially offset by an estimated net decrease in distributor inventories.

•JDTH. Reported net sales decreased 4% driven by an estimated net decrease in distributor inventories and declines in the United States due to difficult comparisons to the same period last year. These declines were partially offset by

2528

broad-based volumetric gains in our international markets, led by Chile, Korea, and Brazil. Supply chain disruptions had an adverse effect on year-to-date results.

▪•~~The underlying~~JDTA. Reported net sales ~~growth of~~ ~~JDTA~~ ~~was~~increased 55% fueled by the brand’s continued international launch ~~most notably~~ in Brazil and ~~Chile. This growth was partially offset by declines~~Chile along with an estimated net increase in ~~the United Kingdom due to the cycling of the brand’s launch during the same period last year.~~distributor inventories.

◦•Woodford ~~Reserve’s~~Reserve. ~~underlying~~Reported net sales ~~growth was~~increased 10% driven by volumetric growth in the United ~~States.~~States and Travel Retail, partially offset by an estimated net decrease in distributor inventories. Supply chain disruptions had an adverse effect on year-to-date results.

Tequila

•~~Tequila~~Herradura. ~~brands grew reported~~Reported net sales ~~32%, while underlying net sales grew 23% after adjusting for~~increased 41% driven by increased volumes in the United States and Mexico and the positive effect of foreign exchange, ~~and~~partially offset by an estimated net ~~increase~~decrease in distributor inventories. ~~Underlying~~

•el Jimador. Reported net sales increased 15% due to broad-based volume growth ~~was driven~~led by ~~Herradura~~the United States and ~~el Jimador,~~the United Kingdom and the positive effect of foreign exchange, partially offset by an estimated net decrease in distributor inventories.

•Rest of Tequila. Reported net sales decreased 10% due to lower volumes of New Mix ~~compared to the same period last year~~ reflecting difficult comparisons as a result of the temporary supply disruption of the beer industry during the first quarter of fiscal 2021 related to COVID-19. These declines were partially offset by favorable price/mix and the positive effect of foreign exchange.

◦~~Herradura’s~~ ~~underlying net sales was driven by growth in the United States and Mexico. The growth in Mexico was due in part to easy comparisons to the same period last year.~~

◦~~The underlying net sales growth of~~ ~~el Jimador~~ ~~was led by higher volumes in the United States.~~Wine

•Wine.Reported net sales ~~for our~~ ~~Wine~~ business, which is focused primarily in the United States, grew 30%, while underlying net sales grew 8% after adjusting for an estimated net increase in distributor inventories. The increase in underlying net sales wasincreased 9% driven by ~~higher volumes of Korbel Champagne and Sonoma-Cutrer.~~

•~~Reported net sales for~~ ~~Finlandia~~ ~~increased 34%, while underlying net sales grew 17% after adjusting for~~an estimated net increase in distributor inventories and ~~the positive effect~~higher volumes of ~~foreign exchange. The increase in underlying~~Sonoma-Cutrer.

Vodka

•Finlandia. Reported net sales ~~was led~~increased 26% driven by ~~higher volumes~~broad-based volume growth, primarily in emerging markets and Travel ~~Retail.~~Retail, and favorable price/mix.

Rest of Portfolio

•Rest of Portfolio. Reported net sales increased 22% driven by higher volumes of Chambord, and an estimated net increase in distributor inventories, partially offset by the negative effect of foreign exchange.

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Year-Over-Year Period Comparisons

Net sales growth for certain markets and brands was positively impacted by comparisons against COVID-19 related declines during the same period last year. See “Overview” above for more information.


~~Net Sales~~
~~Percentage change versus the prior year period ended July 31~~	~~3 Months~~
~~Change in reported net sales~~	20	%
~~Acquisitions and divestitures~~	2	%


~~Estimated net change in distributor inventories~~	(4	%)
~~Change in underlying net sales~~	18	%

~~Change in underlying net sales attributed to:~~
~~Volume~~	(1	%)
~~Price/mix~~	19	%
~~Note: Results may differ due to rounding~~


Net Sales
Percentage change versus the prior year period ended October 31	3 Months		6 Months
Change in reported net sales	1	%	9	%
Acquisitions and divestitures	2	%	2	%

Foreign exchange	(1	%)	(1	%)
Estimated net change in distributor inventories	5	%	2	%
Change in underlying net sales	7	%	12	%




Note: Results may differ due to rounding

For the three months ended ~~July~~October 31, 2021, reported net sales were ~~$0.9 billion,~~$994 million, an increase of ~~$153~~$9 million, or ~~20%~~1%, compared to the same period last year. ~~After adjusting reported net sales for~~This growth was driven primarily by (a) JDTW; (b) Herradura and el Jimador; (c) JD RTDs; and (d) Finlandia. These gains were largely offset by an estimated net ~~increase~~decrease in distributor inventories ~~primarily in the United States,~~ and the effect of acquisitions and ~~divestitures, underlying~~divestitures. Supply chain disruptions had an adverse effect on quarter-to-date results.

For the six months ended October 31, 2021, reported net sales ~~grew 18%~~were $1.9 billion, an increase of $162 million, or 9%, compared to the same period last year. ~~The increase in underlying net sales~~This growth was driven primarily by ~~favorable price/mix,~~(a) JDTW; (b) Herradura and el Jimador; (c) Woodford Reserve; (d) JD RTDs; (e) the continued international launch of JDTA; and (f) Finlandia. These gains were partially offset by the effect of acquisitions and divestitures, an estimated net decrease in distributor inventories, and lower ~~volumes. Favorable price/mix was driven by faster growth from our higher-priced brands, led by JDTW, and a favorable channel mix shift to the on-premise channel in the United States. Lower~~ volumes ~~were driven by~~of New ~~Mix, partially offset by volumetric growth across our portfolio led by the Jack Daniel’s family of brands, our tequilas (excluding New Mix), and premium bourbons.~~Mix. Supply chain disruptions had an adverse effect on year-to-date results. See “Results of Operations - Fiscal 2022 Year-to-Date Highlights” above for further details on ~~underlying~~ net sales for the ~~three~~six months ended ~~July~~October 31, 2021.


~~Cost of Sales~~
~~Percentage change versus the prior year period ended July 31~~	~~3 Months~~
~~Change in reported cost of sales~~	23	%
~~Acquisitions and divestitures~~	3	%

~~Foreign exchange~~	(2	%)
~~Estimated net change in distributor inventories~~	(5	%)
~~Change in underlying cost of sales~~	19	%

~~Change in underlying cost of sales attributed to:~~
~~Volume~~	(1	%)
~~Cost/mix~~	20	%
~~Note: Results may differ due to rounding~~


Cost of Sales
Percentage change versus the prior year period ended October 31	3 Months		6 Months
Change in reported cost of sales	—	%	9	%
Acquisitions and divestitures	3	%	3	%


Estimated net change in distributor inventories	3	%	—	%
Change in underlying cost of sales	6	%	12	%




Note: Results may differ due to rounding

~~Cost of sales of $0.4 billion for~~For the three months ended ~~July~~October 31, 2021, ~~increased~~reported cost of sales were flat compared to the same period last year as higher volumes of JDTW, JD RTDs, and Finlandia were offset by an estimated net decrease in distributor inventories and the effect of acquisitions and divestitures.

For the six months ended October 31, 2021, reported cost of sales were $0.8 billion, an increase of $65 million, or ~~23%~~9%, ~~when~~ compared to the same period last year. Underlying cost of sales increased 19% after adjusting for an estimated net increase in distributor inventories, the effect of acquisitions and divestitures, and the negative effect of foreign exchange. The increase in underlying cost of salesThis growth was driven by unfavorable cost/mix ~~partially offset by lower volumes. Unfavorable cost/mix was driven by~~which reflects a shift in portfolio mix toward our higher-cost brands ~~and~~along with higher input costs related to agave and the impact of supply chain ~~constraints. Lower volumes were driven by New Mix,~~disruptions, partially offset by ~~volumetric growth across our portfolio led by~~ the ~~Jack Daniel’s family~~effect of ~~brands, our tequilas (excluding New Mix),~~acquisitions and ~~premium bourbons.~~divestitures.


Gross Profit
Percentage change versus the prior year period ended October 31	3 Months		6 Months
Change in reported gross profit	2	%	9	%
Acquisitions and divestitures	1	%	1	%

Foreign exchange	(1	%)	(1	%)
Estimated net change in distributor inventories	7	%	3	%
Change in underlying gross profit	8	%	12	%
Note: Results may differ due to rounding

2730


~~Gross Profit~~
~~Percentage change versus the prior year period ended July 31~~	~~3 Months~~
~~Change in reported gross profit~~	19	%
~~Acquisitions and divestitures~~	1	%


~~Estimated net change in distributor inventories~~	(4	%)
~~Change in underlying gross profit~~	17	%
~~Note: Results may differ due to rounding~~


Gross Margin
For the period ended October 31	3 months		6 Months
Prior year gross margin	59.0	%	60.2	%
Price/mix	(0.9)	%	(0.1)	%
Cost/mix	0.4	%	(0.4)	%
Acquisitions and divestitures	0.5	%	0.4	%

Foreign exchange	0.3	%	—	%
Change in gross margin	0.3	%	(0.1	%)
Current year gross margin	59.3	%	60.1	%
Note: Results may differ due to rounding	—		—


~~Gross Margin~~
For ~~the period ended July 31~~	~~3 Months~~
~~Prior year gross margin~~	~~61.7~~	%
~~Price/mix~~	~~0.9~~	%
~~Cost/mix~~	~~(1.5)~~	%
~~Acquisitions and divestitures~~	~~0.3~~	%

~~Foreign exchange~~	~~(0.4~~	%)
~~Change in gross margin~~	~~(0.7~~	%)
~~Current year gross margin~~	~~61.0~~	%
~~Note: Results may differ due to rounding~~	—

~~Gross profit of $0.6 billion increased $88 million, or 19%, for~~ the three months ended ~~July~~October 31, 2021, reported gross profit of $590 million increased $9 million, or 2%, compared to the same period last year. ~~Underlying~~For the three months ended October 31, 2021, gross ~~profit~~margin increased ~~17% after adjusting for an estimated net~~0.3 percentage points percent to 59.3% from 59.0% in the same period last year. The increase in ~~distributor inventories and~~gross margin was driven by the effect of acquisitions and ~~divestitures.~~ divestitures, favorable cost/mix, and the positive effect of foreign exchange, partially offset by unfavorable price/mix.

For the six months ended October 31, 2021, reported gross profit of $1.1 billion increased $97 million, or 9%, compared to the same period last year.Gross margin for the ~~three~~six months ended ~~July~~October 31, 2021, decreased ~~0.7~~0.1 percentage points to ~~61.0%~~60.1% from ~~61.7%~~60.2% in the same period last year. The decrease in gross margin was driven primarily by ~~higher input costs related to agave and the impact of supply chain constraints, partially~~unfavorable cost/mix, largely offset by ~~a favorable shift in portfolio mix toward our higher-margin brands~~the effect of acquisitions and ~~channels.~~divestitures.

																						Operating Expenses
Percentage change versus the prior year period ended July 31
Percentage change versus the prior year period ended October 31													Percentage change versus the prior year period ended October 31

3 Months	3 Months	Reported		Acquisitions and Divestitures		Impairment Charges		Foreign Exchange			Underlying		3 Months	Reported		Impairment Charges		Foreign Exchange		Underlying
Advertising													Advertising	10	%	—	%	(1	%)	9	%
SG&A													SG&A	6	%	—	%	—	%	6	%

Total operating expenses1													Total operating expenses1	7	%	(1	%)	—	%	5	%

6 Months													6 Months
Advertising	Advertising	46	%	1	%	—	%	(2	%)		44	%	Advertising	24	%	—	%	(1	%)	23	%
SG&A	SG&A	14	%	—	%	—	%	(3	%)		11	%	SG&A	10	%	—	%	(2	%)	8	%

Total operating expenses1	Total operating expenses1	29	%	—	%	(3	%)	(6	%)		20	%	Total operating expenses1	17	%	(2	%)	(3	%)	12	%
Note: Results may differ due to rounding	Note: Results may differ due to rounding												Note: Results may differ due to rounding
1Total operating expenses include advertising expense, SG&A expense, and other expense (income), net.	1Total operating expenses include advertising expense, SG&A expense, and other expense (income), net.									1Total operating expenses include advertising expense, SG&A expense, and other expense (income), net.

~~Operating~~For the three months ended October 31, 2021, reported operating expenses totaled ~~$264~~$268 million, an increase of ~~$59~~$17 million, or ~~29%~~7%, ~~for the three months ended July 31, 2021,~~ compared to the same period last year. ~~Underlying operating expenses grew 20% compared to the same period last year after adjusting for the negative effect of foreign exchange and the effect of impairment charges.~~

•Reported advertising expense increased ~~46%~~10% for the three months ended ~~July~~October 31, 2021. Underlying advertising expense increased 44% after adjusting for the negative effect of foreign exchange and the effect of acquisitions and divestitures. The increase in underlying advertising expense was2021 driven primarily by the cycling of a substantial reduction in promotional activity during the same period last year due to COVID-19.

•Reported SG&A expense increased ~~14%~~6% for the three months ended ~~July~~October 31, ~~2021. Underlying~~2021 driven primarily by the cycling of lower discretionary spend during the same period last year due to COVID-19 and the timing of compensation related expenses.

For the six months ended October 31, 2021, reported operating expenses totaled $532 million, an increase of $76 million, or 17%, compared to the same period last year.

•Reported advertising expense increased 24% for the six months ended October 31, 2021 driven primarily by the cycling of a substantial reduction in promotional activity during the same period last year due to COVID-19.

•Reported SG&A expense increased ~~11% after adjusting~~10% for the ~~negative effect of foreign exchange. The increase in underlying SG&A expense was~~six months ended October 31, 2021 driven primarily by (a) ~~the~~ timing of compensation related expenses, (b) accruals for non-income-based tax contingencies, and (c) the cycling of lower discretionary spend during the same period last year due to COVID-19.

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~~Operating Income~~
~~Percentage change versus the prior year period ended July 31~~	~~3 Months~~
~~Change in reported operating income~~	~~(25~~	%)
~~Acquisitions and divestitures~~	39	%
~~Impairment charges~~	2	%
~~Foreign exchange~~	6	%
~~Estimated net change in distributor inventories~~	(6	%)
~~Change in underlying operating income~~	15	%
~~Note: Results may differ due to rounding~~


Operating Income
Percentage change versus the prior year period ended October 31	3 Months		6 Months
Change in reported operating income	(2	%)	(15	%)
Acquisitions and divestitures	1	%	20	%
Impairment charges	1	%	1	%
Foreign exchange	(2	%)	1	%
Estimated net change in distributor inventories	12	%	5	%
Change in underlying operating income	10	%	13	%
Note: Results may differ due to rounding

~~Operating income of $289 million decreased $98 million, or 25%, for~~For the three months ended ~~July~~October 31, 2021, reported operating income totaled $322 million, a decrease of $8 million, or 2%, compared to the same period last year. Underlying operating income grew 15% after adjusting for (a) the effect of acquisitions and divestitures, (b) an estimated net increase in distributor inventories, (c) the negative effect of foreign exchange, and (d) the effect of impairment charges. Operating margin decreased ~~19.5~~1.2 percentage points percent to 32.3%, from 33.5% in the same period last year.

For the six months ended October 31, 2021, reported operating income totaled $611 million, a decrease of $106 million, or 15%, compared to the same period last year. For the six months ended October 31, 2021, operating margin decreased 9.1 percentage points to ~~31.9% for the three months ended July 31, 2021,~~32.1% from ~~51.4%~~41.2% in the same period last year. The effect of acquisitions and divestitures (primarily the fiscal 2021 gain on sale of Early Times, Canadian Mist, and Collingwood) contributed ~~17.0~~7.3 percentage points to this decrease.

The effective tax rate for the three months ended ~~July~~October 31, 2021, was ~~28.5%~~21.6% compared to ~~11.6%~~22.1% for the same period last year. The decrease in our effective tax rate is driven primarily by the recognition of the tax effects of intercompany profit eliminations and the tax impacts from our foreign operations.

The effective tax rate for the six months ended October 31, 2021, was 24.9% compared to 16.4% for the same period last year. The increase in our effective rate is primarily ~~reflects~~due to a deferred tax benefit recognized in the prior year related to an intercompany transfer of assets, the ~~reversal~~tax effects of ~~prepaid taxes on prior~~ intercompany ~~sales~~profit eliminations, increased true ups of ~~inventory recorded at higher than current statutory rates, a~~ prior year ~~true-up of deferred~~ tax liabilities, and the impact of current year changes in tax laws in certain foreign and state jurisdictions.

Diluted earnings per share of ~~$0.40 for~~$0.49 in the three months ended ~~July~~October 31, 2021, decreased ~~41%~~2% from the ~~$0.67~~$0.50 reported for the same period last year due to the decline in operating income. Diluted earnings per share of $0.89 for the six months ended October 31, 2021, decreased 24% from the $1.17 reported for the same period last year, which includes an estimated $0.19 per share benefit from the gain on sale of Early Times, Canadian Mist, and Collingwood.

Liquidity and Financial Condition

Cash flows. Cash and cash equivalents ~~increased $22~~decreased $77 million during the ~~three~~six months ended ~~July~~October 31, 2021. Cash provided by operations of ~~$185~~$335 million was up ~~$94~~$52 million from the same period last year, reflecting improved operating ~~results and lower working capital requirements.~~results.

The impact of investing activities on cash and cash equivalents was a decrease of ~~$15~~$35 million for the ~~three~~six months ended ~~July~~October 31, 2021, compared to an increase of ~~$162~~$147 million for the same period last year. The ~~$177~~$182 million change largely reflects the proceeds of $177 million received in the prior-year period from our divestiture of the Early Times, Canadian Mist, and Collingwood brands and related assets.

Cash used for financing activities was ~~$141~~$362 million during the ~~three~~six months ended ~~July~~October 31, 2021, compared to ~~$37~~$155 million for the same period last year. The ~~$104~~$207 million increase largely reflects a ~~$105~~$210 million increase in net repayments of short-term borrowings.

The impact on cash and cash equivalents as a result of exchange rate changes was a decrease of $7$15 million for the ~~three~~six months ended ~~July~~October 31, 2021, compared to an increase of ~~$17~~$14 million for the same period last year.

Liquidity. We generate strong cash flows from operations, which enable us to meet current obligations, fund capital expenditures, pay regular dividends, and return cash to our stockholders from time to time through share repurchases and special dividends. ~~Our~~We believe our investment-grade credit ratings (A1 by Moody’s and A- by Standard & Poor’s) provide us with financial flexibility when accessing global ~~credit~~debt capital markets and allow us to reserve adequate debt capacity for investment opportunities and unforeseen events.

Cash and cash equivalents were $1,150 million at April 30, 2021, and ~~$1,172~~$1,073 million at ~~July~~October 31, 2021. As of ~~July~~October 31, 2021, approximately ~~55%~~62% of our cash and cash equivalents were held by our foreign subsidiaries whose earnings we expect to

reinvest indefinitely outside of the United States. We continue to evaluate our future cash deployment and may decide to repatriate additional cash held by our foreign subsidiaries, which may require us to provide for and pay additional taxes.

We have an $800 million commercial paper program that we regularly use to fund our short-term operational needs. Please see Note 6 to the Condensed Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2021, and ~~July~~October 31, 2021. The average balances, interest rates, and original maturities during the periods ended ~~July~~October 31, 2020 and 2021, are presented below.


		Three Months Average			Three Months Average	Six Months Average
			July 31,					October 31,	October 31,
(Dollars in millions)	(Dollars in millions)		2020	2021			(Dollars in millions)		2020	2021	2020	2021
Average commercial paper	Average commercial paper		$360	$190			Average commercial paper		$357	$45	$358	$117
Average interest rate	Average interest rate		0.93%	0.16%			Average interest rate		0.41%	0.17%	0.63%	0.16%
Average days to maturity at issuance	Average days to maturity at issuance		103	32			Average days to maturity at issuance		136	33	119	32

Our commercial paper program is supported by available commitments under our undrawn $800 million bank credit facility. The credit facility, ~~that expires in~~which was extended for an additional year on November ~~2023.~~10, 2021, is now scheduled to expire on November 10, 2024. Although unlikely, under extreme market conditions, one or more participating banks may not be able to fund its commitments under our credit facility. To manage this counterparty credit risk, we partner with banks that have investment grade credit ratings, limit the amount of exposure we have with each bank, and monitor the financial conditions of each bank.

While we expect to meet our planned short-term liquidity needs largely through cash generated from operations and borrowings under our commercial paper program, a sustained market deterioration resulting in declines in net sales and profit could require us to evaluate alternative sources of liquidity. Should we have additional liquidity needs, we believe that we could access long-term financing in the debt capital markets.

We believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our ample debt capacity enabled by our strong short-term and long-term credit ratings, will be sufficient to meet all of our expected future financial commitments.

As announced on ~~July 22,~~November 18, 2021, our Board of Directors ~~declared a regular~~increased the quarterly cash dividend on our Class A and Class B common stock from $0.1795 per share to $0.1885 per share. The quarterly cash dividend is payable on December 28, 2021, to stockholders of ~~$0.1795~~record on December 3, 2021.

In addition, the Board declared a special cash dividend of $1.00 per share on our Class A and Class B common stock. ~~Stockholders~~The special cash dividend is payable on December 29, 2021, to stockholders of record on ~~September 3, 2021, will receive the dividend on October 1,~~December 9, 2021.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We face market risks arising from changes in foreign currency exchange rates, commodity prices, and interest rates. Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency-denominated cash flows. Commodity price changes can affect our production and supply chain costs. Interest rate changes affect (a) the fair value of our fixed-rate debt, and (b) cash flows and earnings related to our variable-rate debt and interest-bearing investments. We manage market risks through procurement strategies as well as the use of derivative and other financial instruments. Our risk management program is governed by policies that authorize and control the nature and scope of transactions that we use to mitigate market risks. Since April 30, 2021, there have been no material changes to the market risks faced by us or to our risk management program.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) (our principal executive and principal financial officers), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures: (a) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (b) include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We operate in a litigious environment and we are sued in the normal course of business. We do not anticipate that any pending legal proceedings will have, individually or in the aggregate, a material adverse effect on our financial position, results of operations, or liquidity.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our 2021 Form 10-K, which could materially adversely affect our business, financial condition, or future results. There have been no material changes to the risk factors disclosed in our 2021 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following documents are filed with this report:


~~31.1~~Exhibit Index
31.1	CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2		CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32		CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (not considered to be filed).
101		The following materials from Brown-Forman Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~July~~October 31, 2021, in Inline XBRL (eXtensible Business Reporting Language) format: (a) Condensed Consolidated Statements of Operations, (b) Condensed Consolidated Statements of Comprehensive Income, (c) Condensed Consolidated Balance Sheets, (d) Condensed Consolidated Statements of Cash Flows, and (e) Notes to the Condensed Consolidated Financial Statements.
104		Cover Page Interactive Data File in Inline XBRL format (included in Exhibit 101).

The following document has been previously filed:


Exhibit Index
10.1			Amendment No. 1 to Amended and Restated Five-Year Credit Agreement, dated as of November 10, 2021, among Brown-Forman Corporation, U.S. Bank National Association, as Administrative Agent, and the other lenders party thereto , incorporated by refer e nce to Exhi bit 10.1 of Brown-Forman Corporation ’s Form 8-K filed on Nov em ber 12, 2021 (File No. 001-00123).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		BROWN-FORMAN CORPORATION
		(Registrant)

Date:	~~September 1,~~December 8, 2021	By:	/s/ Leanne D. Cunningham
			Leanne D. Cunningham
			Senior Vice President and Chief Financial Officer
			(On behalf of the Registrant and as Principal Financial Officer)

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