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 ~~October~~January 31, ~~2021~~2022


☐			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: ~~November 30, 2021~~February 28, 2022


Class A Common Stock (voting), $0.15 par value			~~169,136,738~~169,175,352
Class B Common Stock (nonvoting), $0.15 par value			~~309,742,854~~309,795,475


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	1819

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3335

Item 4.	Controls and Procedures	3335

PART II - OTHER INFORMATION		3536

Item 1.	Legal Proceedings	3536

Item 1A.	Risk Factors	3536

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3536

Item 3.	Defaults Upon Senior Securities	3536

Item 4.	Mine Safety Disclosures	3536

Item 5.	Other Information	3536

Item 6.	Exhibits	3536

SIGNATURES		3637

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				Six Months Ended					Three Months Ended				Nine Months Ended
		October 31,				October 31,					January 31,				January 31,
		2020		2021		2020		2021			2021		2022		2021		2022
Sales	Sales	$	1,272	$	1,283	$	2,259	$	2,466	Sales	$	1,222	$	1,365	$	3,481	$	3,831
Excise taxes	Excise taxes	287		289		521		566		Excise taxes	311		328		832		894
Net sales	Net sales	985		994		1,738		1,900		Net sales	911		1,037		2,649		2,937
Cost of sales	Cost of sales	404		404		692		757		Cost of sales	361		415		1,053		1,172
Gross profit	Gross profit	581		590		1,046		1,143		Gross profit	550		622		1,596		1,765
Advertising expenses	Advertising expenses	95		104		157		194		Advertising expenses	121		117		278		311
Selling, general, and administrative expenses	Selling, general, and administrative expenses	155		165		303		333		Selling, general, and administrative expenses	157		162		460		495

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	1		(1)		(4)		5		Other expense (income), net	(9)		(4)		(13)		1
Operating income	Operating income	330		322		717		611		Operating income	281		347		998		958
Non-operating postretirement expense	Non-operating postretirement expense	2		2		3		2		Non-operating postretirement expense	1		—		4		2
Interest income	Interest income	(1)		(1)		(1)		(2)		Interest income	—		(1)		(1)		(3)
Interest expense	Interest expense	20		20		40		41		Interest expense	21		20		61		61
Income before income taxes	Income before income taxes	309		301		675		570		Income before income taxes	259		328		934		898
Income taxes	Income taxes	69		65		111		142		Income taxes	40		69		151		211
Net income	Net income	$	240	$	236	$	564	$	428	Net income	$	219	$	259	$	783	$	687
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.50	$	0.49	$	1.18	$	0.89	Basic	$	0.46	$	0.54	$	1.64	$	1.43
Diluted	Diluted	$	0.50	$	0.49	$	1.17	$	0.89	Diluted	$	0.45	$	0.54	$	1.63	$	1.43

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				Six Months Ended					Three Months Ended				Nine Months Ended
		October 31,				October 31,					January 31,				January 31,
		2020		2021		2020		2021			2021		2022		2021		2022
Net income	Net income	$	240	$	236	$	564	$	428	Net income	$	219	$	259	$	783	$	687
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	4		(12)		66		(22)		Currency translation adjustments	47		(27)		113		(49)
Cash flow hedge adjustments	Cash flow hedge adjustments	6		10		(39)		24		Cash flow hedge adjustments	(33)		16		(72)		40
Postretirement benefits adjustments	Postretirement benefits adjustments	5		4		12		8		Postretirement benefits adjustments	5		5		17		13
Net other comprehensive income (loss)	Net other comprehensive income (loss)	15		2		39		10		Net other comprehensive income (loss)	19		(6)		58		4
Comprehensive income	Comprehensive income	$	255	$	238	$	603	$	438	Comprehensive income	$	238	$	253	$	841	$	691

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions)


		April 30, 2021		October 31, 2021			April 30, 2021		January 31, 2022
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,150	$	1,073	Cash and cash equivalents	$	1,150	$	812
Accounts receivable, less allowance for doubtful accounts of $7 at April 30 and $6 at October 31		753		933
Accounts receivable, less allowance for doubtful accounts of $7 at April 30 and $6 at January 31						Accounts receivable, less allowance for doubtful accounts of $7 at April 30 and $6 at January 31	753		796
Inventories:	Inventories:					Inventories:
Barreled whiskey	Barreled whiskey	1,101		1,097		Barreled whiskey	1,101		1,126
Finished goods	Finished goods	323		338		Finished goods	323		302
Work in process	Work in process	199		221		Work in process	199		220
Raw materials and supplies	Raw materials and supplies	128		137		Raw materials and supplies	128		121
Total inventories	Total inventories	1,751		1,793		Total inventories	1,751		1,769

Other current assets	Other current assets	263		233		Other current assets	263		276
Total current assets	Total current assets	3,917		4,032		Total current assets	3,917		3,653
Property, plant and equipment, net	Property, plant and equipment, net	832		813		Property, plant and equipment, net	832		818
Goodwill	Goodwill	779		776		Goodwill	779		771
Other intangible assets	Other intangible assets	676		663		Other intangible assets	676		652
Deferred tax assets	Deferred tax assets	70		68		Deferred tax assets	70		67
Other assets	Other assets	248		264		Other assets	248		265
Total assets	Total assets	$	6,522	$	6,616	Total assets	$	6,522	$	6,226
Liabilities	Liabilities					Liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	679	$	708	Accounts payable and accrued expenses	$	679	$	629

Dividends payable						Dividends payable	—		90
Accrued income taxes	Accrued income taxes	34		56		Accrued income taxes	34		64
Short-term borrowings	Short-term borrowings	205		19		Short-term borrowings	205		16

Current portion of long-term debt						Current portion of long-term debt	—		250
Total current liabilities	Total current liabilities	918		783		Total current liabilities	918		1,049
Long-term debt	Long-term debt	2,354		2,331		Long-term debt	2,354		2,061
Deferred tax liabilities	Deferred tax liabilities	169		164		Deferred tax liabilities	169		190
Accrued pension and other postretirement benefits	Accrued pension and other postretirement benefits	219		218		Accrued pension and other postretirement benefits	219		216
Other liabilities	Other liabilities	206		197		Other liabilities	206		191
Total liabilities	Total liabilities	3,866		3,693		Total liabilities	3,866		3,707
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	—		3		Additional paid-in capital	—		3
Retained earnings	Retained earnings	3,243		3,491		Retained earnings	3,243		3,091
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax	(422)		(412)		Accumulated other comprehensive income (loss), net of tax	(422)		(418)
Treasury stock, at cost (5,803,000 and 5,667,000 shares at April 30 and October 31, respectively)		(237)		(231)
Treasury stock, at cost (5,803,000 and 5,613,000 shares at April 30 and January 31, respectively)						Treasury stock, at cost (5,803,000 and 5,613,000 shares at April 30 and January 31, respectively)	(237)		(229)
Total stockholders’ equity	Total stockholders’ equity	2,656		2,923		Total stockholders’ equity	2,656		2,519
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	6,522	$	6,616	Total liabilities and stockholders’ equity	$	6,522	$	6,226

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)


		Six Months Ended					Nine Months Ended
		October 31,					January 31,
		2020		2021			2021		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	564	$	428	Net income	$	783	$	687
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	—		9		Non-cash asset write-downs	—		9
Depreciation and amortization	Depreciation and amortization	39		40		Depreciation and amortization	58		60
Stock-based compensation expense	Stock-based compensation expense	6		7		Stock-based compensation expense	9		11
Deferred income tax provision (benefit)	Deferred income tax provision (benefit)	(59)		(23)		Deferred income tax provision (benefit)	(56)		(3)

Other, net	Other, net	(6)		8		Other, net	(15)		15
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	(295)		(186)		Accounts receivable	(219)		(59)
Inventories	Inventories	(29)		(51)		Inventories	(14)		(33)
Other current assets	Other current assets	52		31		Other current assets	30		—
Accounts payable and accrued expenses	Accounts payable and accrued expenses	85		43		Accounts payable and accrued expenses	68		(32)
Accrued income taxes	Accrued income taxes	35		22		Accrued income taxes	16		30
Other operating assets and liabilities	Other operating assets and liabilities	18		7		Other operating assets and liabilities	39		(2)
Cash provided by operating activities	Cash provided by operating activities	283		335		Cash provided by operating activities	572		683
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		—

Proceeds from sale of property, plant, and equipment						Proceeds from sale of property, plant, and equipment	—		2
Acquisition of business, net of cash acquired						Acquisition of business, net of cash acquired	(14)		—
Additions to property, plant, and equipment	Additions to property, plant, and equipment	(29)		(33)		Additions to property, plant, and equipment	(41)		(62)

Computer software expenditures	Computer software expenditures	(1)		(2)		Computer software expenditures	(2)		(3)
Cash provided by (used for) investing activities	Cash provided by (used for) investing activities	147		(35)		Cash provided by (used for) investing activities	120		(63)
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	324		—		Proceeds from short-term borrowings, maturities greater than 90 days	344		—
Repayments of short-term borrowings, maturities greater than 90 days	Repayments of short-term borrowings, maturities greater than 90 days	(230)		—		Repayments of short-term borrowings, maturities greater than 90 days	(342)		—
Net change in short-term borrowings, maturities of 90 days or less	Net change in short-term borrowings, maturities of 90 days or less	(68)		(184)		Net change in short-term borrowings, maturities of 90 days or less	(25)		(181)

Payments of withholding taxes related to stock-based awards	Payments of withholding taxes related to stock-based awards	(14)		(6)		Payments of withholding taxes related to stock-based awards	(18)		(8)

Dividends paid	Dividends paid	(167)		(172)		Dividends paid	(253)		(741)

Cash used for financing activities	Cash used for financing activities	(155)		(362)		Cash used for financing activities	(294)		(930)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	14		(15)		Effect of exchange rate changes on cash and cash equivalents	33		(28)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	289		(77)		Net increase (decrease) in cash and cash equivalents	431		(338)
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	$	964	$	1,073	Cash and cash equivalents, end of period	$	1,106	$	812

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				Six Months Ended					Three Months Ended				Nine Months Ended
		October 31,				October 31,					January 31,				January 31,
(Dollars in millions, except per share amounts)	(Dollars in millions, except per share amounts)	2020		2021		2020		2021		(Dollars in millions, except per share amounts)	2021		2022		2021		2022

Net income available to common stockholders	Net income available to common stockholders	$	240	$	236	$	564	$	428	Net income available to common stockholders	$	219	$	259	$	783	$	687

Share data (in thousands):	Share data (in thousands):									Share data (in thousands):
Basic average common shares outstanding	Basic average common shares outstanding	478,506		478,857		478,413		478,822		Basic average common shares outstanding	478,599		478,887		478,471		478,844
Dilutive effect of stock-based awards	Dilutive effect of stock-based awards	2,242		1,661		2,172		1,793		Dilutive effect of stock-based awards	2,237		1,680		2,194		1,755
Diluted average common shares outstanding	Diluted average common shares outstanding	480,748		480,518		480,585		480,615		Diluted average common shares outstanding	480,836		480,567		480,665		480,599

Basic earnings per share	Basic earnings per share	$	0.50	$	0.49	$	1.18	$	0.89	Basic earnings per share	$	0.46	$	0.54	$	1.64	$	1.43
Diluted earnings per share	Diluted earnings per share	$	0.50	$	0.49	$	1.17	$	0.89	Diluted earnings per share	$	0.45	$	0.54	$	1.63	$	1.43

We excluded common stock-based awards for approximately ~~301,000~~298,000 shares and ~~743,000~~789,000 shares from the calculation of diluted earnings per share for the three months ended ~~October~~January 31, ~~2020~~2021 and ~~2021,~~2022, respectively. We excluded common stock-based awards for approximately ~~168,000~~211,000 shares and ~~540,000~~623,000 shares from the calculation of diluted earnings per share for the ~~six~~nine months ended ~~October~~January 31, ~~2020~~2021 and ~~2021,~~2022, respectively. We excluded those awards because they were not dilutive for those periods under the treasury stock method.

3. Inventories

We value some of our consolidated inventories, including most of our U.S. inventories, at the lower of cost, using the last-in, first-out (LIFO) method 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 ~~$374~~$388 million higher than reported as of ~~October~~January 31, ~~2021.~~2022. 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 ~~six~~nine months ended ~~October~~January 31, ~~2021:~~2022:


(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	(3)		(13)		Foreign currency translation adjustment	(8)		(24)
Balance at October 31, 2021		$	776	$	663
Balance at January 31, 2022						Balance at January 31, 2022	$	771	$	652

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 ~~October~~January 31, ~~2021.~~2022.

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 ~~$12~~$11 million (subject to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant. As of ~~October~~January 31, ~~2021,~~2022, our actual exposure under the guaranty of the importer’s obligation was approximately $8$4 million. We also have accounts receivable from that importer of approximately ~~$14~~$9 million at ~~October~~January 31, ~~2021,~~2022, 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 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 the decision was rendered December 8, 2021. The decision confirmed that Bacardi was not entitled to compensation as a commercial agent but was awarded an immaterial amount for its work in winding up the business. In December 2021, Bacardi remitted £47 million related to this matter.

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		October 31, 2021		(Principal and carrying amounts in millions)	April 30, 2021		January 31, 2022

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		345		1.200% senior notes, €300 principal amount, due July 7, 2026	362		333
2.600% senior notes, £300 principal amount, due July 7, 2028	2.600% senior notes, £300 principal amount, due July 7, 2028	415		407		2.600% senior notes, £300 principal amount, due July 7, 2028	415		399
4.000% senior notes, $300 principal amount, due April 15, 2038	4.000% senior notes, $300 principal amount, due April 15, 2038	294		295		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	$	2,331		2,354		2,311
Less current portion						Less current portion	—		250
							$	2,354	$	2,061

Our short-term borrowings of $205 million as of April 30, 2021 included of $195 million of borrowings under our commercial paper program. There were no borrowings under that program as of ~~October~~January 31, ~~2021~~2022.


(Dollars in millions)	(Dollars in millions)	April 30, 2021	October 31, 2021	(Dollars in millions)	April 30, 2021	January 31, 2022
Commercial paper	Commercial paper	$195	$—	Commercial paper	$195	$—
Average interest rate	Average interest rate	0.16%	—%	Average interest rate	0.16%	—%
Average remaining days to maturity	Average remaining days to maturity	24	0	Average remaining days to maturity	24	0

7. Stockholders’ Equity

The following table shows the changes in stockholders’ equity by quarter during the ~~six~~nine months ended ~~October~~January 31, ~~2020:~~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, 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 income							240						240
Net other comprehensive income (loss)	Net other comprehensive income (loss)									15				15		Net other comprehensive income (loss)									15				15

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											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					(3)		(7)						(10)		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	Balance at October 31, 2020	25		47		—		3,082		(508)		(243)		2,403
Net income																Net income							219						219
Net other comprehensive income (loss)																Net other comprehensive income (loss)									19				19
Declaration of cash dividends																Declaration of cash dividends							(172)						(172)

Stock-based compensation expense																Stock-based compensation expense					3								3
Stock issued under compensation plans																Stock issued under compensation plans											3		3
Loss on issuance of treasury stock issued under compensation plans																Loss on issuance of treasury stock issued under compensation plans					(3)		(4)						(7)

Balance at January 31, 2021																Balance at January 31, 2021	$	25	$	47	$	—	$	3,125	$	(489)	$	(240)	$	2,468

910

The following table shows the changes in stockholders’ equity by quarter during the ~~six~~nine months ended ~~October~~January 31, ~~2021:~~2022:


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

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											1		1		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)		Loss on issuance of treasury stock issued under compensation plans					(2)		0						(2)

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

Net income																Net income							259						259
Net other comprehensive income (loss)																Net other comprehensive income (loss)									(6)				(6)
Declaration of cash dividends																Declaration of cash dividends							(659)						(659)

Stock-based compensation expense																Stock-based compensation expense					4								4
Stock issued under compensation plans																Stock issued under compensation plans											2		2
Loss on issuance of treasury stock issued under compensation plans																Loss on issuance of treasury stock issued under compensation plans					(4)		0						(4)

Balance at January 31, 2022																Balance at January 31, 2022	$	25	$	47	$	3	$	3,091	$	(418)	$	(229)	$	2,519

The following table shows the change in each component of accumulated other comprehensive income (AOCI), net of tax, during the ~~six~~nine months ended ~~October~~January 31, ~~2021:~~2022:


(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)	(22)		24		8		10		Net other comprehensive income (loss)	(49)		40		13		4
Balance at October 31, 2021		$	(201)	$	8	$	(219)	$	(412)
Balance at January 31, 2022										Balance at January 31, 2022	$	(228)	$	24	$	(214)	$	(418)

The following table shows the cash dividends declared per share on our Class A and Class B common stock during the ~~six~~nine months ended ~~October~~January 31, ~~2021:~~2022:

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

November 18, 2021

December 3, 2021

December 28, 2021

$0.1885

November 18, 2021

December 9, 2021

December 29, 2021

$1.0000

January 25, 2022

March 8, 2022

April 1, 2022

$0.1885

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.

1011

8. Net Sales

The following table shows our net sales by geography:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		October 31,				October 31,					January 31,				January 31,
(Dollars in millions)	(Dollars in millions)	2020		2021		2020		2021		(Dollars in millions)	2021		2022		2021		2022
United States	United States	$	522	$	462	$	909	$	912	United States	$	425	$	488	$	1,334	$	1,400
Developed International1	Developed International1	266		297		497		566		Developed International1	292		318		789		884
Emerging2	Emerging2	160		187		267		337		Emerging2	171		196		438		533
Travel Retail3	Travel Retail3	22		28		35		49		Travel Retail3	12		25		47		74
Non-branded and bulk4		15		20		30		36
Non-branded & bulk4										Non-branded & bulk4	11		10		41		46
Total	Total	$	985	$	994	$	1,738	$	1,900	Total	$	911	$	1,037	$	2,649	$	2,937

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				Six Months Ended					Three Months Ended				Nine Months Ended
		October 31,				October 31,					January 31,				January 31,
(Dollars in millions)	(Dollars in millions)	2020		2021		2020		2021		(Dollars in millions)	2021		2022		2021		2022
Whiskey1	Whiskey1	$	775	$	767	$	1,370	$	1,474	Whiskey1	$	731	$	835	$	2,101	$	2,309
Tequila2	Tequila2	84		86		152		176		Tequila2	72		90		224		266
Wine3	Wine3	71		69		112		122		Wine3	50		54		162		176
Vodka4	Vodka4	26		32		45		57		Vodka4	26		29		71		86
Non-branded and bulk5	Non-branded and bulk5	15		20		30		36		Non-branded and bulk5	11		10		41		46
Rest of portfolio	Rest of portfolio	14		20		29		35		Rest of portfolio	21		19		50		54
Total	Total	$	985	$	994	$	1,738	$	1,900	Total	$	911	$	1,037	$	2,649	$	2,937

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, 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.

1112

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				Six Months Ended					Three Months Ended				Nine Months Ended
		October 31,				October 31,					January 31,				January 31,
(Dollars in millions)	(Dollars in millions)	2020		2021		2020		2021		(Dollars in millions)	2021		2022		2021		2022
Pension Benefits:	Pension Benefits:									Pension Benefits:
Service cost	Service cost	$	6	$	6	$	13	$	13	Service cost	$	7	$	7	$	20	$	20
Interest cost	Interest cost	6		6		12		11		Interest cost	6		5		19		16
Expected return on plan assets	Expected return on plan assets	(11)		(11)		(23)		(23)		Expected return on plan assets	(12)		(11)		(35)		(34)
Amortization of:	Amortization of:									Amortization of:
Prior service cost (credit)	Prior service cost (credit)	—		—		1		1		Prior service cost (credit)	—		—		1		1
Net actuarial loss	Net actuarial loss	7		6		13		12		Net actuarial loss	7		6		20		18
Settlement charge	Settlement charge	—		1		—		1		Settlement charge	—		—		—		1
Net cost	Net cost	$	8	$	8	$	16	$	15	Net cost	$	8	$	7	$	25	$	22

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

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

Amortization of prior service cost (credit)	Amortization of prior service cost (credit)	(1)		—		(1)		(1)		Amortization of prior service cost (credit)	(1)		—		(2)		(1)

Net cost	Net cost	$	—	$	—	$	—	$	—	Net cost	$	—	$	—	$	—	$	1

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 ~~23.1%~~22.7%, which is greater than the U.S. federal statutory rate of 21.0%, due to (a) state income taxes, (b) the effects of foreign operations, ~~and~~(c) the tax ~~expense on~~effects of prior intercompany sales of inventory that isare recognized at tax rates higher than current statutory tax ~~rates.~~rates and (d) the impact of intercompany profit elimination on the foreign derived intangible income deduction.

The effective tax rate of ~~24.9%~~23.4% for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, is higher than the expected tax rate of ~~23.1%~~22.7% on ordinary income for the full fiscal year, primarily due to the true-up of ~~prior year~~prior-year deferred tax liabilities and the impact of tax rate changes enacted in certain foreign jurisdictions, ~~which is~~ partially offset by the excess tax benefits related to stock-based compensation. The ~~24.9%~~23.4% effective tax rate for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, is higher than the effective tax rate of ~~16.4%~~16.2% for the same period last year, primarily due to (a) the absence of a deferred tax benefit recognized in the ~~prior year~~prior-year period related to an intercompany transfer of assets, (b) the impact of prior intercompany sales taxed at rates higher than current statutory tax rates, (c) the impact of the intercompany profit eliminations on the foreign derived intangible income deduction, and (d) increased true-ups of ~~prior year~~prior-year tax ~~liabilities, and the impact of current year changes in tax laws in certain foreign and state jurisdictions.~~liabilities.

We continue to assert that the undistributed earnings of 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 previously changed our indefinite reinvestment assertion with respect to current year earnings and ~~prior year~~prior-year undistributed earnings for select foreign subsidiaries (but not for their outside basis differences). ~~No deferred~~We have accrued applicable taxes ~~have been recorded as no withholding would be due on their distribution.~~for select entities which are not currently reinvested. 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~~Some of our currency derivatives are not designated 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 ~~$992~~$860 million at ~~October~~January 31, ~~2021.~~2022. The maximum term of outstanding derivative contracts was approximately 36 months at both April 30, 2021, and ~~October~~January 31, ~~2021.~~2022.

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 ~~$694~~$676 million at ~~October~~January 31, ~~2021.~~2022.

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 be 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
			October 31,						January 31,
(Dollars in millions)	(Dollars in millions)	Classification	2020		2021		(Dollars in millions)	Classification	2021		2022

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	$	14	$	15	Net gain (loss) recognized in AOCI	n/a	$	(39)	$	23
Net gain (loss) reclassified from AOCI into earnings	Net gain (loss) reclassified from AOCI into earnings	Sales	5		2		Net gain (loss) reclassified from AOCI into earnings	Sales	4		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	$	1	$	1	Net gain (loss) recognized in earnings	Sales	$	(6)	$	5
Net gain (loss) recognized in earnings	Net gain (loss) recognized in earnings	Other income (expense), net	3		(1)		Net gain (loss) recognized in earnings	Other income (expense), net	4		(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	$	6	$	14	Net gain (loss) recognized in AOCI	n/a	$	(33)	$	17

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		$	1,272	$	1,283	Sales		$	1,222	$	1,365
Other income (expense), net	Other income (expense), net		(1)		1		Other income (expense), net		9		4

1314


			Six Months Ended						Nine Months Ended
			October 31,						January 31,
(Dollars in millions)	(Dollars in millions)	Classification	2020		2021		(Dollars in millions)	Classification	2021		2022

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	$	(35)	$	30	Net gain (loss) recognized in AOCI	n/a	$	(73)	$	53
Net gain (loss) reclassified from AOCI into earnings	Net gain (loss) reclassified from AOCI into earnings	Sales	16		(1)		Net gain (loss) reclassified from AOCI into earnings	Sales	21		1

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	$	(5)	$	3	Net gain (loss) recognized in earnings	Sales	$	(11)	$	8
Net gain (loss) recognized in earnings	Net gain (loss) recognized in earnings	Other income (expense), net	11		—		Net gain (loss) recognized in earnings	Other income (expense), net	15		(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	$	(33)	$	22	Net gain (loss) recognized in AOCI	n/a	$	(66)	$	38

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		$	2,259	$	2,466	Sales		$	3,481	$	3,831
Other income (expense), net	Other income (expense), net		4		(5)		Other income (expense), net		13		(1)

We expect to reclassify $1$15 million of deferred net gains on cash flow hedges recorded in AOCI as of ~~October~~January 31, ~~2021,~~2022, 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				October 31, 2021						April 30, 2021				January 31, 2022
(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)	$	12	$	(6)	Currency derivatives	Other current assets	$	4	$	(2)	$	21	$	(3)
Currency derivatives	Currency derivatives	Other assets	—		—		8		(3)		Currency derivatives	Other assets	—		—		13		(1)
Currency derivatives	Currency derivatives	Accrued expenses	4		(18)		1		(6)		Currency derivatives	Accrued expenses	4		(18)		—		(1)
Currency derivatives	Currency derivatives	Other liabilities	1		(18)		—		(2)		Currency derivatives	Other liabilities	1		(18)		—		—

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

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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 $7$2 million at ~~October~~January 31, ~~2021.~~2022.

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)
October 31, 2021
January 31, 2022												January 31, 2022
Derivative assets	Derivative assets	22		(11)		11		—		11		Derivative assets	34		(4)		30		—		30
Derivative liabilities	Derivative liabilities	(18)		11		(7)		—		(7)		Derivative liabilities	(6)		4		(2)		—		(2)

No cash collateral was received or pledged related to our derivative contracts as of April 30, 2021, or ~~October~~January 31, ~~2021.~~2022.

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				October 31, 2021					April 30, 2021				January 31, 2022
		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	$	1,073	$	1,073	Cash and cash equivalents	$	1,150	$	1,150	$	812	$	812
Currency derivatives	Currency derivatives	3		3		11		11		Currency derivatives	3		3		30		30

Liabilities	Liabilities									Liabilities
Currency derivatives	Currency derivatives	31		31		7		7		Currency derivatives	31		31		2		2
Short-term borrowings	Short-term borrowings	205		205		19		19		Short-term borrowings	205		205		16		16
Long-term debt (including current portion)										Long-term debt (including current portion)	2,354		2,663		2,311		2,537

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.

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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 ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, we recognized non-cash impairment charges of $9 million for certain fixed assets. The impairment charges, which were based on our measurements of the estimated fair values of those assets, 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.

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13. Other Comprehensive Income

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


		Three Months Ended						Three Months Ended							Three Months Ended						Three Months Ended
		October 31, 2020						October 31, 2021							January 31, 2021						January 31, 2022
(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	$	5	$	(1)	$	4	$	(9)	$	(3)	$	(12)	Net gain (loss) on currency translation	$	39	$	8	$	47	$	(23)	$	(4)	$	(27)
Reclassification to earnings	Reclassification to earnings	—		—		—		—		—		—		Reclassification to earnings	—		—		—		—		—		—
Other comprehensive income (loss), net	Other comprehensive income (loss), net	5		(1)		4		(9)		(3)		(12)		Other comprehensive income (loss), net	39		8		47		(23)		(4)		(27)
Cash flow hedge adjustments:	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		Net gain (loss) on hedging instruments	(39)		9		(30)		23		(5)		18
Reclassification to earnings1	Reclassification to earnings1	(5)		1		(4)		(2)		1		(1)		Reclassification to earnings1	(4)		1		(3)		(2)		—		(2)
Other comprehensive income (loss), net	Other comprehensive income (loss), net	9		(3)		6		13		(3)		10		Other comprehensive income (loss), net	(43)		10		(33)		21		(5)		16
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	—		—		—		(1)		—		(1)		Net actuarial gain (loss) and prior service cost	—		—		—		—		—		—
Reclassification to earnings2	Reclassification to earnings2	7		(2)		5		7		(2)		5		Reclassification to earnings2	6		(1)		5		6		(1)		5
Other comprehensive income (loss), net	Other comprehensive income (loss), net	7		(2)		5		6		(2)		4		Other comprehensive income (loss), net	6		(1)		5		6		(1)		5

Total other comprehensive income (loss), net	Total other comprehensive income (loss), net	$	21	$	(6)	$	15	$	10	$	(8)	$	2	Total other comprehensive income (loss), net	$	2	$	17	$	19	$	4	$	(10)	$	(6)

		Six Months Ended						Six Months Ended							Nine Months Ended						Nine Months Ended
		October 31, 2020						October 31, 2021							January 31, 2021						January 31, 2022
(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	$	58	$	8	$	66	$	(17)	$	(5)	$	(22)	Net gain (loss) on currency translation	$	97	$	16	$	113	$	(40)	$	(9)	$	(49)
Reclassification to earnings	Reclassification to earnings	—		—		—		—		—		—		Reclassification to earnings	—		—		—		—		—		—
Other comprehensive income (loss), net	Other comprehensive income (loss), net	58		8		66		(17)		(5)		(22)		Other comprehensive income (loss), net	97		16		113		(40)		(9)		(49)
Cash flow hedge adjustments:	Cash flow hedge adjustments:													Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	Net gain (loss) on hedging instruments	(35)		8		(27)		30		(7)		23		Net gain (loss) on hedging instruments	(73)		17		(56)		53		(12)		41
Reclassification to earnings1	Reclassification to earnings1	(16)		4		(12)		1		—		1		Reclassification to earnings1	(21)		5		(16)		(1)		—		(1)
Other comprehensive income (loss), net	Other comprehensive income (loss), net	(51)		12		(39)		31		(7)		24		Other comprehensive income (loss), net	(94)		22		(72)		52		(12)		40
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	—		—		—		(1)		—		(1)		Net actuarial gain (loss) and prior service cost	—		—		—		(1)		—		(1)
Reclassification to earnings2	Reclassification to earnings2	17		(5)		12		13		(4)		9		Reclassification to earnings2	23		(6)		17		19		(5)		14
Other comprehensive income (loss), net	Other comprehensive income (loss), net	17		(5)		12		12		(4)		8		Other comprehensive income (loss), net	23		(6)		17		18		(5)		13

Total other comprehensive income (loss), net	Total other comprehensive income (loss), net	$	24	$	15	$	39	$	26	$	(16)	$	10	Total other comprehensive income (loss), net	$	26	$	32	$	58	$	30	$	(26)	$	4

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

2For the ~~six~~nine months ended ~~October~~January 31, ~~2020,~~2021, $4 of the pre-tax amount of ~~$17~~$23 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 Form 10-K). Note that the results of operations for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, 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~~Organic 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”~~“organic” basis. We use ~~“underlying~~“organic change” for the following measures of the statements of operations: (a) ~~underlying~~organic net sales; (b) ~~underlying~~organic cost of sales; (c) ~~underlying~~organic gross profit; (d) ~~underlying~~organic advertising expenses; (e) ~~underlying~~organic selling, general, and administrative (SG&A) expenses; (f) ~~underlying~~organic other expense (income) net; (g) ~~underlying~~organic operating expenses1; and (h) ~~underlying~~organic 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)~~(3) 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 the sale of Early Times, Canadian Mist, and Collingwood brands 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 primarily activity in the first two quarters of fiscal ~~2021.~~2022. We believe that these adjustments allow for us to better understand our ~~underlying~~organic 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~~organic 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.

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

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

We use the non-GAAP ~~measures “underlying~~measure “organic change”, along with other metrics, 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~~“organic change” in certain line items of

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

the statements of operations to their nearest GAAP measures in the tables under “Results of Operations - Fiscal 2022 Year-to-Date Highlights” and “Results of Operations - Year-Over-Year Period Comparisons.” We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure. We believe these non-GAAP measures are useful to readers and investors because they enhance the understanding of our historical financial performance and comparability between periods.

As of the third quarter ended January 31, 2022, we changed certain non-GAAP financial measures that we have historically used. We will no longer report “underlying changes” in certain measures of the statements of operations; instead, we will now report “organic change” in certain measures of the statements of operations. “Organic change” includes all of the non-GAAP adjustments that we have historically made in adjusting GAAP to “underlying change” results, except that “organic change” does not include an adjustment for “estimated net change in distributor inventories,” which reflected the estimated net effect of changes in distributor inventories on changes in certain line items of the statements of operations. This change to our non-GAAP financial measures is in response to comments from and discussions with the Staff of the Securities and Exchange Commission.

Although we will no longer provide non-GAAP financial measures that adjust for “estimated net change in distributor inventories,” we still believe that our results are affected by changes in distributor inventories, particularly in our largest market, the United States, where the spirits industry is subject to regulations that essentially mandate a so-called “three-tier system,” with a value chain that includes suppliers, distributors and retailers. Accordingly, we will continue to provide information concerning fluctuations in distributor inventories. We believe such information is useful in understanding our performance and trends as it provides relevant information regarding customers’ demand for our products.

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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.

2021

•“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.~~Shipments.” We generally record revenues when we ship or deliver our products to our customers. ~~“Depletions”~~In this document, unless otherwise specified, we refer to shipments when discussing volume.

•“Depletions.” This 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.

•“Estimated net change in distributor inventories.” We generally recognize revenue when our products are shipped or delivered to customers. In the United States and certain other markets, our customers are distributors that sell downstream to retailers and consumers. We believe that our distributors’ downstream sales more closely reflect actual consumer demand than do our shipments to distributors. Our shipments increase distributors’ inventories, while distributors’ depletions (as described above) reduce their inventories. Therefore, it is possible that our shipments do not coincide with distributors’ downstream depletions and merely reflect changes in distributors’ inventories. Because changes in distributors’ inventories could affect our trends, we believe it is useful for investors to understand those changes in the context of our operating results.

We perform the following calculation to determine the “estimated net change in distributor inventories”:

•For both the current-year period and the comparable prior-year period, we calculate a “depletion-based” amount by (a) dividing the organic dollar amount (e.g. organic net sales) by the corresponding shipment volumes to arrive at a shipment per case amount, and (b) multiplying the resulting shipment per case amount by the corresponding depletion volumes. We subtract the year-over-year percentage change of the “depletion-based” amount from the year-over-year percentage change of the organic amount to calculate the “estimated net change in distributor inventories.”

•A positive difference is interpreted as a net increase in distributors’ inventories, which implies that organic trends could decrease as distributors’ reduce inventories; whereas, a negative difference is interpreted as a net decrease in distributors’ inventories, which implies that organic trends could increase as distributors rebuild inventories.

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 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 (SEC).

2223

Overview

~~During~~For the ~~first half of fiscal~~nine months ended January 31, 2022, we experienced strong, broad-based reported net sales growth across ~~most~~all 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~~For the nine months ended January 31, 2022, our results ~~during the 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, and negatively affected our reported net sales and input costs. We further discuss the effect of supply chain disruptions on our results where relevant below.

As of the third quarter ended January 31, 2022, we changed certain non-GAAP financial measures that we have historically used. We will no longer report “underlying changes” in certain measures of the statements of operations; instead, we will now report “organic change” in certain measures of the statements of operations. As more fully described in “Non-GAAP Financial Measures” above, “organic change” includes all of the non-GAAP adjustments that we have historically made in adjusting GAAP to “underlying change” results, except that “organic change” does not include an adjustment for “estimated net change in distributor inventories.” This change to our non-GAAP financial measures is in response to comments from and discussions with the Staff of the Securities and Exchange Commission.

Fiscal 2022 Year-to-Date Highlights

•We delivered reported net sales of ~~$1.9~~$2.9 billion, for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, an increase of 9%11% compared to the same period last year. ~~This growth~~The increase was driven ~~primarily~~ by ~~(a) JDTW; (b) Herradura~~favorable price/mix and ~~el Jimador; (c) Woodford Reserve; (d) JD RTDs; (e) the continued international launch of JDTA; and (f) Finlandia. These gains were~~higher volumes, partially offset by the negative effect of foreign exchange and the effect of acquisitions and ~~divestitures, an~~divestitures. An estimated net ~~decrease~~increase in distributor inventories positively impacted reported net sales.

◦From a brand perspective, reported net sales growth was driven by JDTW, our tequilas, premium bourbons, and ~~lower volumes of New Mix. Supply chain disruptions had an adverse effect on year-to-date results.~~ JDTA.

◦From a geographic perspective, emerging markets, developed international markets, the U.S., and the Travel Retail channel all contributed significantly to reported net sales growth.

Supply chain disruptions continued to have an adverse effect on our results.

•Reported advertising expense increased ~~24%~~12% for the ~~six~~nine months ended ~~October~~January 31, ~~2021, driven primarily by~~2022, as we continued to invest behind our brands while cycling last year’s COVID-19 related phasing of spend towards the ~~cycling~~second half of ~~a substantial reduction in promotional activity during~~ the ~~same period last year due to COVID-19.~~year.

•Reported SG&A expense increased ~~10%~~8% for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, driven primarily by (a) ~~timing of~~higher compensation related expenses, (b) ~~accruals for non-income-based tax contingencies, and (c) the cycling of~~comparison to lower discretionary spend due to COVID-19 during the same period last year, ~~due to COVID-19.~~and (c) accruals for non-income-based tax contingencies.

•We delivered reported operating income of ~~$611~~$958 million, for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, a decrease of ~~15%~~4% compared to the same period last year.

•We delivered diluted earnings per share of ~~$0.89~~$1.43, for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, a decrease of ~~24%~~12% from the ~~$1.17~~ $1.63reported for the same period last year, which included an estimated $0.19 per share benefit from the gain on the sale of the Early Times, Canadian Mist, and Collingwood ~~brands.~~

brands and related assets.

2324

																											Summary of Operating Performance
		Three Months Ended October 31,										Six Months Ended October 31,										Three Months Ended January 31,											Nine Months Ended January 31,
(Dollars in millions)	(Dollars in millions)	2020			2021			Reported Change		Underlying Change1			2020			2021			Reported Change		Underlying Change1		(Dollars in millions)	2021				2022			Reported Change		Organic Change1		2021			2022			Reported Change		Organic Change1
Net sales	Net sales	$	985		$	994		1	%	7	%		$	1,738		$	1,900		9	%	12	%	Net sales	$	911			$	1,037		14	%	22	%	$	2,649		$	2,937		11	%	14	%
Cost of sales	Cost of sales	404			404			—	%	6	%		692			757			9	%	12	%	Cost of sales	361				415			15	%	23	%	1,053			1,172			11	%	16	%
Gross profit	Gross profit	581			590			2	%	8	%		1,046			1,143			9	%	12	%	Gross profit	550				622			13	%	22	%	1,596			1,765			11	%	14	%
Advertising	Advertising	95			104			10	%	9	%		157			194			24	%	23	%	Advertising	121				117			(4	%)	(2	%)	278			311			12	%	12	%
SG&A	SG&A	155			165			6	%	6	%		303			333			10	%	8	%	SG&A	157				162			4	%	6	%	460			495			8	%	8	%
Gain on sale of business	Gain on sale of business												(127)			—			nm		n/a		Gain on sale of business												(127)			—			nm		n/a
Other expense (income), net	Other expense (income), net	1			(1)			nm		nm			(4)			5			nm		nm		Other expense (income), net	(9)				(4)			nm		nm		(13)			1			nm		nm
Operating income	Operating income	330			322			(2	%)	10	%		717			611			(15	%)	13	%	Operating income	281				347			24	%	43	%	998			958			(4	%)	19	%

Total operating expenses2	Total operating expenses2	$	251		$	268		7	%	5	%		$	456		$	532		17	%	12	%	Total operating expenses2	$	269			$	275		2	%	2	%	$	725		$	807		11	%	8	%

As a percentage of net sales3	As a percentage of net sales3																						As a percentage of net sales3
Gross profit	Gross profit	59.0		%	59.3		%	0.3	pp				60.2		%	60.1		%	(0.1)	pp			Gross profit	60.4		%		60.0		%	(0.4)	pp			60.3		%	60.1		%	(0.2)	pp

Operating income	Operating income	33.5		%	32.3		%	(1.2)	pp				41.2		%	32.1		%	(9.1)	pp			Operating income	30.9		%		33.5		%	2.6	pp			37.7		%	32.6		%	(5.1)	pp
Non-operating postretirement expense	Non-operating postretirement expense	$	2		$	2		(13	%)				$	3		$	2		(40	%)			Non-operating postretirement expense	$	1			$	—		(60	%)			$	4		$	2		(47	%)
Interest expense, net	Interest expense, net	$	19		$	19		(2	%)				$	39		$	39		(1	%)			Interest expense, net	$	21			$	19		(6	%)			$	60		$	58		(3	%)
Effective tax rate	Effective tax rate	22.1		%	21.6		%	(0.5)	pp				16.4		%	24.9		%	8.5	pp			Effective tax rate	15.7		%		21.0		%	5.3	pp			16.2		%	23.4		%	7.2	pp
Diluted earnings per share	Diluted earnings per share	$	0.50		$	0.49		(2	%)				$	1.17		$	0.89		(24	%)			Diluted earnings per share	$	0.45			$	0.54		19	%			$	1.63		$	1.43		(12	%)
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~~“organic 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~~The fiscal 2022 outlook included in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~first~~second quarter 2022 Form ~~10-Q.~~ 10-Q was presented on an “underlying” basis. The current outlook is presented on an “organic” basis and is not directly comparable to previous “underlying” guidance due to the exclusion of the impact of estimated net changes in distributor inventories in our “underlying” guidance.

The revised fiscal 2022 outlook is as follows:

•Organic net sales outlook of 11% to 13% growth

•Reported gross margin is expected to be flat or slightly down compared to fiscal 2021

•Organic operating expenses are expected to grow 7% to 9%

•Organic operating income outlook of 12% to 16% growth

•Effective tax rate outlook continues to be in the range of approximately 22% to 23%

When we provide guidance for ~~underlying~~organic change ~~for~~in 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~~such as foreign exchange, ~~each of~~ which could have a significant impact to our GAAP income

statement measures.

•

Additional considerations related to our fiscal 2022 outlook:

~~Underlying~~Estimated net ~~sales.~~change in distributor inventories. ~~While volatility and uncertainty persists~~For the nine months ended January 31, 2022, an estimated net increase in ~~the operating environment due to COVID-19 and supply chain disruptions, we remain confident in our growth momentum and have revised our full year underlying~~distributor inventories positively impacted organic net sales and organic operating income results. In the outlook ~~from mid-single digit growth to high-single digit growth.~~

~~Currently,~~provided above we ~~are managing through the~~assumed this year-to-date positive 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 supply chain disruptions to persist throughout the fiscal year, we believe the impact will become less significant in the second half of the year.

•~~Reported gross margin.~~ ~~We continue to expect reported gross margin to be flat or slightly down~~persists for the ~~full year compared~~remainder of fiscal 2022. If this trend does not persist, we would expect actual results to ~~fiscal 2021, reflecting~~differ. See “Important Information on Forward-Looking Statements” for details about the 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.

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

•~~Underlying operating income.~~ ~~As a result of the above factors, we now expect high-single digit underlying operating income growth for the full year.~~risks,

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•~~Effective tax rate.~~ ~~Our effective tax rate outlook continues~~uncertainties, and other factors that could cause actual results to ~~be in the range of approximately 22-23%.~~

~~We continue to anticipate that~~differ materially from 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.~~

historical experience or from our current expectations or projections.

2526

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 ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, compared to the same period last year.


Top Markets1	Top Markets1											Top Markets1
Six months ended October 31, 2021		Net Sales % Change vs. 2021
Nine months ended January 31, 2022													Nine months ended January 31, 2022	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		Organic3
United States	United States	—	%	3	%	—	%	3	%	6	%		United States	5	%	3	%	—	%	8	%
Developed International	Developed International	14	%	—	%	—	%	(2	%)	12	%		Developed International	12	%	—	%	3	%	15	%
Australia	Australia	6	%	—	%	(1	%)	—	%	4	%		Australia	4	%	—	%	1	%	5	%
Germany	Germany	18	%	—	%	—	%	—	%	18	%		Germany	16	%	—	%	2	%	18	%
United Kingdom	United Kingdom	10	%	—	%	3	%	(1	%)	13	%		United Kingdom	5	%	—	%	7	%	12	%
France	France	4	%	—	%	(1	%)	—	%	4	%		France	5	%	—	%	2	%	7	%
Canada	Canada	(14	%)	1	%	(5	%)	21	%	3	%		Canada	(10	%)	1	%	(4	%)	(13	%)
Rest of Developed International	Rest of Developed International	36	%	2	%	(2	%)	(14	%)	22	%		Rest of Developed International	33	%	3	%	2	%	39	%
Emerging	Emerging	26	%	—	%	(2	%)	—	%	25	%		Emerging	22	%	—	%	5	%	27	%
Mexico	Mexico	9	%	—	%	(9	%)	—	%	1	%		Mexico	13	%	—	%	(5	%)	9	%
Poland	Poland	3	%	—	%	(1	%)	—	%	2	%		Poland	7	%	—	%	3	%	10	%
Brazil	Brazil	31	%	—	%	(1	%)	13	%	43	%		Brazil	14	%	—	%	2	%	16	%
Russia	Russia	26	%	—	%	(11	%)	7	%	22	%		Russia	26	%	1	%	6	%	32	%
Rest of Emerging	Rest of Emerging	50	%	—	%	4	%	(5	%)	49	%		Rest of Emerging	37	%	—	%	15	%	52	%
Travel Retail	Travel Retail	38	%	3	%	(2	%)	26	%	64	%		Travel Retail	57	%	2	%	(1	%)	58	%
Non-branded and bulk	Non-branded and bulk	18	%	1	%	—	%	—	%	18	%		Non-branded and bulk	11	%	7	%	1	%	18	%
Total	Total	9	%	2	%	(1	%)	2	%	12	%		Total	11	%	2	%	2	%	14	%
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 reported 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~~“organic change” in net sales, including how we calculate this measure and why we believe this information is useful to readers.

~~Net~~Reported net sales ~~growth~~ 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 ~~were flat~~increased 5% compared to the same period last year.

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

~~These growth contributions were offset by an~~(d) Sonoma-Cutrer. An estimated net ~~decrease~~increase in distributor inventories positively impacted reported net sales. This growth was partially offset by the effect of acquisitions and divestitures ~~and~~along with lower volumes ~~in the off-premise channel due to difficult comparisons to the same period last year.~~of JDTH and Gentleman Jack. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

Developed International

•~~Australia.~~Australia’s ~~Reported~~reported net sales increased 6%4% driven primarily by ~~favorable price/mix and the positive effect of foreign exchange, partially offset by lower volumes of~~ JD ~~RTDs due to difficult comparisons to the same period last year.~~RTDs.

•~~Germany.~~Germany’s ~~Reported~~reported net sales increased ~~18%~~16% fueled by volumetric gains of JDTW and JD RTDs.

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•United ~~Kingdom.~~Kingdom’s ~~Reported~~reported net sales increased ~~10% driven primarily~~5% as growth across much of our portfolio, led by ~~higher volumes of~~ JDTW, ~~Chambord, and JD RTDs. These gains were~~was only partially offset by the negative effect of foreign exchange. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

•~~France.~~France’s ~~Reported~~reported net sales increased 4%5% driven by higher volumes of JDTW and JDTH, ~~and JDTW.~~partially offset by the negative effect of foreign exchange. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

•Reported net sales in the Rest of Developed ~~International.~~International ~~Reported net sales~~ increased ~~36%~~33% driven by ~~broad-based~~(a) JDTW growth led by Spain, Korea, and ~~Spain, fueled~~Japan; and (b) JDTH growth led by ~~higher JDTW volumes, along with an~~Korea. An estimated net increase in distributor ~~inventories.~~inventories positively impacted reported net sales.

Emerging

•~~Mexico.~~Mexico’s ~~Reported~~reported net sales increased 9%13% driven primarily by the growth of Herradura along with the positive effect of foreign exchange and the growth 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 shutdowns. exchange. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

•~~Poland.~~Poland’s ~~Reported~~reported net sales increased ~~3% driven primarily~~7% as growth across much of our portfolio, led by ~~favorable price/mix of~~ Finlandia ~~largely~~and JDTW, was only partially offset by ~~lower volumes~~the negative effect of ~~JDTW.~~foreign exchange. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

•~~Brazil.~~Brazil’s ~~Reported~~reported net sales increased ~~31%~~14% fueled by the launch of JDTA and higher volumes ~~of JDTW, and volumetric growth~~ of JDTH, partially offset by ~~an estimated net decrease in distributor inventories.~~ lower volumes of JDTW. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

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

•~~Rest of Emerging.~~Reported net sales in the Rest of Emergingincreased ~~50%~~37% driven primarily by ~~(a)~~ JDTW gains, led by Turkey, ~~sub-Saharan Africa,~~Chile, and ~~Chile; (b) volumetric growth of JDTH, led by Chile; and (c) an estimated net increase in distributor inventories.~~Romania. This growth was partially offset by the negative effect of foreign exchange. An estimated net increase in distributor inventories positively impacted reported net sales.

~~Travel Retail~~

•Travel ~~Retail.~~Retail’s ~~Reported~~reported net sales increased ~~38%~~57% 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~~mix.

Non-branded and ~~an estimated~~bulk reported net ~~decrease in distributor inventories.~~sales increased 11% driven by higher volumes for used barrels.

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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 ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, compared to the same period last year.


Major Brands	Major Brands													Major Brands
Six months ended October 31, 2021		Volumes		Net Sales % Change vs 2021
Nine months ended January 31, 2022														Nine months ended January 31, 2022	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	Reported		Acquisitions and Divestitures		Foreign Exchange		Organic2
Whiskey	Whiskey	9	%	8	%	2	%	—	%	2	%	12	%	Whiskey	10	%	2	%	2	%	14	%
Jack Daniel’s family of brands	Jack Daniel’s family of brands	8	%	9	%	—	%	—	%	2	%	11	%	Jack Daniel’s family of brands	12	%	—	%	2	%	14	%
JDTW	JDTW	12	%	14	%	—	%	—	%	—	%	15	%	JDTW	17	%	—	%	3	%	20	%
JD RTD/RTP	JD RTD/RTP	5	%	4	%	—	%	(2	%)	4	%	6	%	JD RTD/RTP	6	%	—	%	—	%	6	%
JDTH	JDTH	6	%	(4	%)	—	%	—	%	10	%	6	%	JDTH	(1	%)	—	%	2	%	1	%
Gentleman Jack	Gentleman Jack	(4	%)	(10	%)	—	%	—	%	7	%	(3	%)	Gentleman Jack	(9	%)	—	%	2	%	(7	%)
JDTF	JDTF	(4	%)	(5	%)	—	%	—	%	1	%	(4	%)	JDTF	9	%	—	%	1	%	11	%
JDTA	JDTA	39	%	55	%	—	%	2	%	(26	%)	30	%	JDTA	41	%	—	%	4	%	45	%
Other Jack Daniel’s whiskey brands	Other Jack Daniel’s whiskey brands	3	%	7	%	—	%	(1	%)	3	%	10	%	Other Jack Daniel’s whiskey brands	5	%	—	%	1	%	7	%
Woodford Reserve	Woodford Reserve	18	%	10	%	—	%	—	%	7	%	17	%	Woodford Reserve	9	%	—	%	—	%	9	%
Tequila	Tequila	(16	%)	16	%	—	%	(4	%)	4	%	16	%	Tequila	19	%	—	%	(2	%)	17	%
Herradura	Herradura	43	%	41	%	—	%	(3	%)	8	%	46	%	Herradura	31	%	—	%	(2	%)	29	%
el Jimador	el Jimador	15	%	15	%	—	%	(2	%)	6	%	19	%	el Jimador	21	%	—	%	(1	%)	20	%
Wine	Wine	3	%	9	%	—	%	—	%	(7	%)	2	%	Wine	8	%	—	%	—	%	8	%
Vodka (Finlandia)	Vodka (Finlandia)	14	%	26	%	—	%	(3	%)	(2	%)	21	%	Vodka (Finlandia)	21	%	—	%	2	%	23	%
Rest of Portfolio	Rest of Portfolio	14	%	22	%	(4	%)	9	%	(7	%)	20	%	Rest of Portfolio	9	%	(3	%)	18	%	23	%
Non-branded and bulk	Non-branded and bulk	NA		18	%	1	%	—	%	—	%	18	%	Non-branded and bulk	11	%	7	%	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~~“organic 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~~Reported 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

•TheJack Daniel’s family of ~~brands.~~brands ~~Reported~~grew reported net sales ~~increased 9%~~12% fueled primarily by ~~JDTW, higher volumes~~the broad-based growth 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.JDTW.

•~~JDTW.~~Reported net sales for JDTWincreased ~~14% driven primarily~~17% compared to the same period last year. Gains were led by (a) broad-based volume growth in the United States, ~~emerging~~developed international markets, and ~~developed international~~emerging markets; and (b) a favorable channel mix shift to the on-premise ~~channel,~~channel. An estimated net increase in distributor inventories positively impacted reported net sales. This growth was partially offset by the negative effect of foreign exchange. Supply chain disruptions had an adverse effect on results.

•The JD RTD/RTP brand’s reported net sales grew 6% driven primarily by higher volumes in Germany. An estimated net decrease in distributor inventories negatively impacted reported net sales.

•Reported net sales for JDTH decreased 1% driven by declines in the United States and the negative effect of foreign exchange. These declines were partially offset by broad-based gains in our international markets. Supply chain disruptions had an adverse effect on results.

•Reported net salesfor Gentleman Jack decreased 9% driven primarily by lower volumes in the United States. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

•~~JD RTD/RTP.~~ Reported net sales increased 4% driven primarily by higher volumes in Germany and 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

2829

•JDTF grew reported net sales 9% driven primarily by broad-based ~~volumetric gains in our international markets,~~growth led by ~~Chile, Korea, and Brazil.~~emerging markets. An estimated net increase in distributor inventories positively impacted reported net sales. Supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

•~~JDTA.~~JDTA ~~Reported~~grew reported net sales ~~increased 55%~~41% fueled by the ~~brand’s~~ continued international launch in our emerging markets, led by Brazil and Chile, along with ~~an estimated net increase~~volumetric gains in ~~distributor inventories.~~the United States.

•Woodford ~~Reserve.~~Reserve’s ~~Reported~~reported net sales increased ~~10%~~9% driven primarily by ~~volumetric~~ growth in the United States, ~~and~~ Travel Retail, ~~partially offset by an~~and the United Kingdom. An estimated net decrease in distributor ~~inventories. Supply~~inventories negatively impacted reported net sales as supply chain disruptions had an adverse effect on ~~year-to-date~~ results.

Tequila

•~~Herradura.~~Herradura’s ~~Reported~~reported net sales increased ~~41%~~31% driven by ~~increased~~higher volumes in the United States and ~~Mexico and the positive effect of foreign exchange, partially offset by an estimated net decrease in distributor inventories.~~Mexico.

•el ~~Jimador.~~Jimador’s ~~Reported~~reported net sales increased ~~15%~~21% due to broad-based volume growth led by the United States, Colombia, and the United ~~Kingdom and the positive effect of foreign exchange, partially offset by an estimated net decrease in distributor inventories.~~Kingdom.

•Wine reported net sales increased 8% driven primarily by higher volumes of Sonoma-Cutrer.

Vodka (Finlandia) reported net sales increased 21% driven by broad-based growth led by emerging markets.

Rest of ~~Tequila.~~Portfolio Reported net sales decreased 10% due to lower volumes of New Mix 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.

~~Wine~~

•~~Wine.~~ ~~Reported~~reported net sales increased 9% driven by ~~an estimated net increase in distributor inventories and higher volumes of Sonoma-Cutrer.~~

~~Vodka~~

•~~Finlandia.~~ ~~Reported net sales increased 26% driven by broad-based volume growth, primarily in emerging markets and Travel 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.

See discussion for Non-branded and bulk aggregation in “Market Highlights - Top Markets” above.

Year-Over-Year Period Comparisons

~~Net~~Reported 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 October 31		3 Months		6 Months
Percentage change versus the prior year period ended January 31						Percentage change versus the prior year period ended January 31	3 Months		9 Months
Change in reported net sales	Change in reported net sales	1	%	9	%	Change in reported net sales	14	%	11	%
Acquisitions and divestitures	Acquisitions and divestitures	2	%	2	%	Acquisitions and divestitures	2	%	2	%

Foreign exchange	Foreign exchange	(1	%)	(1	%)	Foreign exchange	6	%	2	%
Estimated net change in distributor inventories		5	%	2	%
Change in underlying net sales		7	%	12	%

Change in organic net sales						Change in organic net sales	22	%	14	%
Note: Results may differ due to rounding	Note: Results may differ due to rounding					Note: Results may differ due to rounding

For the three months ended ~~October~~January 31, ~~2021,~~2022, reported net sales were ~~$994 million,~~$1.0 billion, an increase of $9$126 million, or 1%14%, compared to the same period last year. ~~This growth~~The increase was driven primarily by ~~(a) JDTW; (b) Herradura and el Jimador; (c) JD RTDs; and (d) Finlandia. These gains were largely~~higher volumes, partially offset by ~~an estimated net decrease in distributor inventories~~the negative effect of foreign exchange and the effect of acquisitions and divestitures. An estimated net increase in distributor inventories positively impacted reported net sales. Volume growth was led by JDTW, New Mix, and JD RTDs. Supply chain disruptions had an adverse effect ~~on quarter-to-date results.~~in the quarter.

For the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, reported net sales were ~~$1.9~~$2.9 billion, an increase of ~~$162~~$288 million, or 9%11%, compared to the same period last year. ~~This growth~~The increase was driven ~~primarily~~ by ~~(a) JDTW; (b) Herradura~~favorable price/mix and ~~el Jimador; (c) Woodford Reserve; (d) JD RTDs; (e) the continued international launch of JDTA; and (f) Finlandia. These gains were~~higher volumes, partially offset by the negative effect of foreign exchange and the effect of acquisitions and ~~divestitures, an~~divestitures. An estimated net ~~decrease~~increase in distributor inventories positively impacted reported net sales. Favorable price/mix was driven by faster growth from our higher-priced brands, led by JDTW, and a favorable channel mix shift due to the continued re-opening of the on-premise channel. Volume growth was led by JDTW and JD RTDs, partially offset by lower volumes of New 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 net sales for the ~~six~~nine months ended ~~October~~January 31, ~~2021.~~2022.

											Cost of Sales
Percentage change versus the prior year period ended October 31		3 Months		6 Months
Percentage change versus the prior year period ended January 31						Percentage change versus the prior year period ended January 31	3 Months		9 Months
Change in reported cost of sales	Change in reported cost of sales	—	%	9	%	Change in reported cost of sales	15	%	11	%
Acquisitions and divestitures	Acquisitions and divestitures	3	%	3	%	Acquisitions and divestitures	5	%	3	%

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

Foreign exchange						Foreign exchange	3	%	1	%
Change in organic cost of sales						Change in organic cost of sales	23	%	16	%
Note: Results may differ due to rounding	Note: Results may differ due to rounding					Note: Results may differ due to rounding

For the three months ended ~~October~~January 31, ~~2021,~~2022, 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,~~$415 million, an increase of ~~$65~~$54 million, or 9%15%, compared to the same period last year. ~~This growth~~The increase was driven by higher volumes and unfavorable cost/mix, ~~which~~partially offset by the effect of acquisitions and divestitures and the positive effect of foreign exchange. An estimated net increase in distributor inventories negatively impacted reported cost of sales. Volume growth was led by JDTW, New Mix, and JD RTDs. Unfavorable cost/mix reflects (a) a shift in portfolio mix toward our higher-cost brands, ~~along with~~(b) higher costs related to supply chain disruptions, and (c) higher input costs related to ~~agave~~grain and agave.

For the ~~impact~~nine months ended January 31, 2022, reported cost of ~~supply chain disruptions,~~sales were $1.2 billion, an increase of $119 million, or 11%, compared to the same period last year. The increase was driven by unfavorable cost/mix and higher volumes partially offset by the effect of acquisitions and 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
Unfavorable cost/mix reflects (a) a shift in portfolio mix toward our higher-cost brands, (b) higher costs related to supply chain disruptions, and (c) higher input costs related to agave and grain. Volume growth was led by JDTW and JD RTDs, partially offset by lower volumes of New Mix.

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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 Profit
Percentage change versus the prior year period ended January 31	3 Months		9 Months
Change in reported gross profit	13	%	11	%
Acquisitions and divestitures	1	%	1	%

Foreign exchange	8	%	2	%
Change in organic gross profit	22	%	14	%
Note: Results may differ due to rounding


Gross Margin
For the period ended January 31	3 months		9 Months
Prior year gross margin	60.4	%	60.3	%
Price/mix	1.5	%	0.7	%
Cost/mix	(1.8)	%	(1.1)	%
Acquisitions and divestitures	0.8	%	0.5	%

Foreign exchange	(0.9	%)	(0.3	%)
Change in gross margin	(0.4	%)	(0.2	%)
Current year gross margin	60.0	%	60.1	%
Note: Results may differ due to rounding	—		—

For the three months ended ~~October~~January 31, ~~2021,~~2022, reported gross profit of ~~$590~~$622 million increased $9$72 million, or 2%13%, compared to the same period last year. For the three months ended October 31, 2021, gross margin increased 0.3 percentage points percent to 59.3% from 59.0% in the same period last year. The increase in gross margin was driven by the effect of acquisitions and 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 six months ended October 31, 2021,~~ decreased ~~0.1~~0.4 percentage points to ~~60.1%~~60.0% from ~~60.2%~~60.4% in the same period last year. The decrease in gross margin was driven ~~primarily~~ by unfavorable cost/mix and the negative effect of foreign exchange, largely offset by favorable price/mix and the effect of acquisitions and divestitures.

For the nine months ended January 31, 2022, reported gross profit of $1.8 billion increased $169 million, or 11%, compared to the same period last year.Gross margin decreased 0.2 percentage points to 60.1% from 60.3% in the same period last year. The decrease in gross margin was driven by unfavorable cost/mix and the negative effect of foreign exchange, largely offset by favorable price/mix and the effect of acquisitions and divestitures.

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

3 Months	3 Months	Reported		Impairment Charges		Foreign Exchange			Underlying		3 Months	Reported		Impairment Charges		Foreign Exchange		Organic
Advertising	Advertising	10	%	—	%	(1	%)		9	%	Advertising	(4	%)	—	%	2	%	(2	%)
SG&A	SG&A	6	%	—	%	—	%		6	%	SG&A	4	%	—	%	2	%	6	%

Total operating expenses1	Total operating expenses1	7	%	(1	%)	—	%		5	%	Total operating expenses1	2	%	—	%	—	%	2	%

6 Months
9 Months											9 Months
Advertising	Advertising	24	%	—	%	(1	%)		23	%	Advertising	12	%	—	%	—	%	12	%
SG&A	SG&A	10	%	—	%	(2	%)		8	%	SG&A	8	%	—	%	—	%	8	%

Total operating expenses1	Total operating expenses1	17	%	(2	%)	(3	%)		12	%	Total operating expenses1	11	%	(1	%)	(2	%)	8	%
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.

For the three months ended ~~October~~January 31, ~~2021,~~2022, reported operating expenses totaled ~~$268~~$275 million, an increase of ~~$17~~$6 million, or 7%2% compared to the same period last year.

•Reported advertising expense decreased 4% for the three months ended January 31, 2022 driven primarily by cycling last year’s phasing of spend from the first half to the second half of the fiscal year, partially offset by the positive effect of foreign exchange.

•Reported SG&A expense increased 4% for the three months ended January 31, 2022 driven primarily by higher compensation related expenses and discretionary spend, partially offset by the positive effect of foreign exchange.

For the nine months ended January 31, 2022, reported operating expenses totaled $807 million, an increase of $82 million, or 11%, compared to the same period last year.

•Reported advertising expense increased ~~10%~~12% for the ~~three~~nine months ended ~~October~~January 31, ~~2021 driven primarily by~~2022 as we continued to invest behind our brands while cycling last year’s COVID-19 related phasing of spend towards the ~~cycling~~second half of ~~a substantial reduction in promotional activity during~~ the ~~same period last year due to COVID-19.~~year.

•Reported SG&A expense increased 6%8% for the ~~three~~nine months ended ~~October~~January 31, ~~2021~~2022 driven primarily by ~~the cycling of~~(a) higher compensation related expenses, (b) comparison to lower discretionary spend due to COVID-19 during the same period last ~~year due to COVID-19~~year; and ~~the timing of compensation related expenses.~~(c) accruals for non-income-based tax contingencies.


Operating Income
Percentage change versus the prior year period ended January 31	3 Months		9 Months
Change in reported operating income	24	%	(4	%)
Acquisitions and divestitures	2	%	16	%
Impairment charges	—	%	1	%
Foreign exchange	18	%	6	%
Change in organic operating income	43	%	19	%
Note: Results may differ due to rounding

For the ~~six~~three months ended ~~October~~January 31, ~~2021,~~2022, reported operating ~~expenses~~income totaled ~~$532~~$347 million, an increase of ~~$76~~$66 million, or ~~17%~~24%, compared to the same period last year.

•~~Reported advertising expense~~ Operating margin increased ~~24% for the six months ended October 31, 2021 driven primarily by the cycling of a substantial reduction~~2.6 percentage points to 33.5%, from 30.9% in ~~promotional activity during~~ the same period last year ~~due to COVID-19.~~

•~~Reported SG&A~~driven by operating expense ~~increased 10% for~~leverage, partially offset by the ~~six months ended October 31, 2021 driven primarily by (a) timing~~negative effect 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.~~

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
foreign exchange.

For the ~~three~~nine months ended ~~October~~January 31, ~~2021,~~2022, reported operating income totaled ~~$322~~$958 million, a decrease of $8$40 million, or 2%4%, compared to the same period last year. Operating margin decreased ~~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 9.15.1 percentage points to ~~32.1%~~32.6% from ~~41.2%~~37.7% in the same period last year. The effect of acquisitions and divestitures (primarily the fiscal 2021 gain on sale of the Early Times, Canadian Mist, and ~~Collingwood)~~Collingwood brands and related assets) contributed ~~7.3~~4.7 percentage points to this decrease.

The effective tax rate for the three months ended ~~October~~January 31, ~~2021,~~2022, was ~~21.6%~~21.0% compared to 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%~~15.7% for the same period last year. The increase in our effective tax rate iswas driven primarily ~~due to a deferred~~by (a) the impact of prior intercompany sales of inventory taxed at rates higher than current statutory tax ~~benefit recognized in~~rates, (b) the ~~prior year related to an intercompany transfer of assets, the tax effects~~impact of intercompany profit eliminations ~~increased true ups of prior year tax liabilities,~~on the foreign derived income deduction, and (c) the impact of current year changes in tax laws in certain foreign and state jurisdictions.

The effective tax rate for the nine months ended January 31, 2022, was 23.4% compared to 16.2% for the same period last year. The increase in our effective rate was primarily due to (a) the absence ofdeferred tax benefit recognized in the prior-year related to an intercompany transfer of assets, (b) the impact of prior intercompany sales of inventory taxed at rates higher than current statutory tax rates, (c) the impact of intercompany profit eliminations on the foreign derived intangible income deduction, and (d) increased true-ups of prior-year tax liabilities.

Diluted earnings per share of ~~$0.49~~ $0.54in the three months ended ~~October~~January 31, ~~2021, decreased 2%~~2022, increased 19% from the ~~$0.50~~$0.45 reported for the same period last year due to the ~~decline~~increase in reported operating ~~income.~~income, partially offset by higher income taxes. Diluted earnings per share of ~~$0.89~~$1.43 for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, decreased ~~24%~~12% from the ~~$1.17~~$1.63 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.~~Collingwood brands and related assets.

Liquidity and Financial Condition

Cash flows. Cash and cash equivalents decreased ~~$77~~$338 million during the ~~six~~nine months ended ~~October~~January 31, ~~2021.~~2022. Cash provided by operations ~~of $335~~was $683 million ~~was up $52~~during the nine months ended January 31, 2022, compared to $572 million ~~from~~for the same period last ~~year, reflecting~~year. The $111 million increase reflects improved operating ~~results.~~results and the impact of changes in working capital, which included the collection in December 2021 of approximately $62 million of accounts receivable from Bacardi that had been withheld since fiscal 2021. (See Note 5 to the accompanying condensed consolidated financial statements for details about the Bacardi matter.)

The impact of investing activities on cash and cash equivalents was a decrease of ~~$35~~$63 million for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, compared to an increase of ~~$147~~$120 million for the same period last year. The ~~$182~~$183 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 ~~$362~~$930 million during the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, compared to ~~$155~~$294 million for the same period last year. The ~~$207~~$636 million increase largely reflects a ~~$210~~special cash dividend payment of $479 million in December 2021 and $158 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 ~~$15~~$28 million for the ~~six~~nine months ended ~~October~~January 31, ~~2021,~~2022, compared to an increase of ~~$14~~$33 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. 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 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 ~~$1,073~~$812 million at ~~October~~January 31, ~~2021.~~2022. As of ~~October~~January 31, ~~2021,~~2022, approximately ~~62%~~71% 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 ~~October~~January 31, ~~2021.~~2022. The average balances, interest rates, and original maturities during the periods ended ~~October~~January 31, ~~2020~~2021 and ~~2021,~~2022, are presented below.


		Three Months Average	Six Months Average				Three Months Average		Nine Months Average
			October 31,		October 31,					January 31,			January 31,
(Dollars in millions)	(Dollars in millions)		2020	2021	2020	2021		(Dollars in millions)			2021	2022		2021	2022
Average commercial paper	Average commercial paper		$357	$45	$358	$117		Average commercial paper			$308	$—		$342	$78
Average interest rate	Average interest rate		0.41%	0.17%	0.63%	0.16%		Average interest rate			0.32%	—%		0.53%	0.16%
Average days to maturity at issuance	Average days to maturity at issuance		136	33	119	32		Average days to maturity at issuance			147	—		127	32

Our commercial paper program is supported by available commitments under our undrawn $800 million bank credit facility. The credit facility, which was extended for an additional year on November 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 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~~was paid on December 28, 2021, to stockholders of record on December 3, 2021.

~~In addition, the~~

The Board also 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~~was paid on December 29, 2021, to stockholders of record on December 9, 2021.

Additionally, as announced on January 25, 2022, our Board of Directors declared a regular quarterly cash dividend on our Class A and Class B common stock of $0.1885 per share. The quarterly cash dividend is payable on April 1, 2022, to stockholders of record on March 8, 2022.

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.

3435

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:


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 ~~October~~January 31, ~~2021,~~2022, 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 Exhibit 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:	~~December 8, 2021~~March 3, 2022	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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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	—		—