UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended April 30, 2021

OR

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

For the transition period from                    to                     

Commission File Number 001-00123

BROWN-FORMAN CORPORATION

(Exact name of registrant as specified in its charter) 

Delaware		61-0143150
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
850 Dixie Highway
Louisville,	Kentucky	40210
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (502) 585-1100

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes  ☑     No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes  ☐     No  ☑

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  ☑     No  ☐

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  ☑     No  ☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐     No  ☑

The aggregate market value, as of the last business day of the most recently completed second fiscal quarter, of the voting and nonvoting equity held by nonaffiliates of the registrant was approximately $23,400,000,000.

The number of shares outstanding for each of the registrant’s classes of Common Stock on May 31, 2021, was:

Class A Common Stock (voting), $0.15 par value	169,109,992
Class B Common Stock (nonvoting), $0.15 par value	309,648,089

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of Registrant for use in connection with the Annual Meeting of Stockholders to be held July 22, 2021, are incorporated by reference into Part III of this report.

	Table of Contents
		Page
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	27
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	28
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 8.	Financial Statements and Supplementary Data	52
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	89
Item 9A.	Controls and Procedures	89
Item 9B.	Other Information	89
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	89
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	89
Item 11.	Executive Compensation	89
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	89
Item 13.	Certain Relationships and Related Transactions, and Director Independence	90
Item 14.	Principal Accounting Fees and Services	90
PART IV
Item 15.	Exhibits and Financial Statements Schedules	90
Item 16.	Form 10-K Summary	93
SIGNATURES		94
SCHEDULE II – Valuation and Qualifying Accounts		97

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Forward-Looking Statement Information. Certain matters discussed in this report, including the information presented in Part II under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain 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, those described in Part I under “Item 1A. Risk Factors” and those described from time to time in our future reports filed with the Securities and Exchange Commission, including:

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

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

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

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

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

•Production facility, aging warehouse, or supply chain disruption

•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

4

Use of Non-GAAP Financial Information. Certain matters discussed in this report, including the information presented in Part II under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,” include measures that are not measures of financial performance under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and also may be inconsistent with similarly titled measures presented by other companies. In Part II under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,” we present the reasons we use these measures under the heading “Non-GAAP Financial Measures,” and we reconcile these measures to the most closely comparable GAAP measures under the heading “Results of Operations – Year-Over-Year Comparisons.”

PART I

Item 1. Business

Overview

Brown-Forman Corporation (the “Company,” “Brown-Forman,” “we,” “us,” or “our” below) was incorporated under the laws of the State of Delaware in 1933, successor to a business founded in 1870 as a partnership and later incorporated under the laws of the Commonwealth of Kentucky in 1901. We primarily manufacture, distill, bottle, import, export, market, and sell a wide variety of beverage alcohol products under recognized brands. We employ approximately 4,700 people (excluding individuals that work on a part-time or temporary basis) on six continents, including approximately 2,600 people in the United States (approximately 14% of which are represented by a union) and 1,200 people in Louisville, Kentucky, USA, home of our world headquarters. According to International Wine & Spirit Research (IWSR), we are the largest American-owned spirits and wine company with global reach. We are a “controlled company” under New York Stock Exchange rules because the Brown family owns more than 50% of our voting stock. Taking into account ownership of shares of our non-voting stock, the Brown family also controls more than 50% of the economic ownership in Brown-Forman.

For a discussion of recent developments, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary.”

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Brands

Beginning in 1870 with Old Forester Kentucky Straight Bourbon Whisky – our founding brand – and spanning the generations since, we have built a portfolio of more than 40 spirit, ready-to-drink (RTD) cocktail, and wine brands that includes some of the best-known and most loved trademarks in our industry. The most important brand in our portfolio is Jack Daniel's Tennessee Whiskey, which was ranked in the 2020 Interbrand “Best Global Brands” as the most valuable global spirits brand in the world and the third most valuable beverage alcohol brand. Jack Daniel's Tennessee Whiskey is the largest American whiskey brand in the world and the fourth-largest premium spirits brand of any kind, according to Impact Databank's “Top 100 Premium Spirits Brands Worldwide”1 list. Our other leading global brands on the Worldwide Impact list are Finlandia, which is the twelfth-largest-selling vodka; Jack Daniel's Tennessee Honey, which is the second-largest-selling flavored whiskey; and el Jimador, which is the seventh-largest-selling tequila. Woodford Reserve and Old Forester were once again selected for the Impact “Hot Brands”1 list, marking eight and three consecutive years on the list, respectively. Gentleman Jack, Herradura, and Jack Daniel's Tennessee Apple were also named to the “Hot Brands”1 list.

Principal Brands
Jack Daniel's Tennessee Whiskey	Korbel California Champagnes5
Jack Daniel's RTD2	Korbel California Brandy5
Jack Daniel's Tennessee Honey	Herradura Tequilas6
Gentleman Jack Rare Tennessee Whiskey	Finlandia Vodkas
Jack Daniel's Tennessee Fire	Sonoma-Cutrer California Wines
Jack Daniel's Tennessee Apple	Old Forester Kentucky Straight Bourbon Whisky
Jack Daniel's Single Barrel Collection3	Old Forester Whiskey Row Series
Jack Daniel's Tennessee Rye	Old Forester Kentucky Straight Rye Whisky
Jack Daniel's Winter Jack	GlenDronach Single Malt Scotch Whisky
Jack Daniel's No. 27 Gold Tennessee Whiskey	Benriach Single Malt Scotch Whisky
Jack Daniel's Sinatra Select	Glenglassaugh Single Malt Scotch Whisky
Jack Daniel's Bottled-in-Bond	Chambord Liqueur
Woodford Reserve Kentucky Bourbon	Pepe Lopez Tequila
Woodford Reserve Double Oaked	Antiguo Tequila
Woodford Reserve Kentucky Rye Whiskey	Slane Irish Whiskey
Woodford Reserve Kentucky Straight Malt Whiskey	Fords Gin
Woodford Reserve Kentucky Straight Wheat Whiskey	Coopers' Craft Kentucky Bourbon
el Jimador Tequilas4	Part Time Rangers RTDs7
el Jimador New Mix RTDs

1Impact Databank, March 2021.

2Jack Daniel's RTD includes 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, and Jack Daniel's Whiskey & Seltzer.

3The Jack Daniel's Single Barrel Collection includes Jack Daniel's Single Barrel Select, Jack Daniel's Single Barrel Barrel Proof, Jack Daniel's Single Barrel Rye, and Jack Daniel's Single Barrel 100 Proof.

4el Jimador Tequilas comprise all full-strength expressions of el Jimador.

5Korbel is not an owned brand. We sell Korbel products under contract in the United States and other select markets.

6Herradura Tequilas comprise all expressions of Herradura.

7Acquired in fiscal 2021.

See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal 2021 Brand Highlights” for brand performance details.

Our vision in marketing is to be the best brand-builder in the industry. We build our brands by investing in platforms that we believe create enduring connections with our consumers. These platforms cover a wide spectrum of activities, including media advertising (TV, radio, print, outdoor, digital, and social), consumer and trade promotions, sponsorships, and visitors' center programs at our distilleries and our winery. We expect to grow our sales and profits by consistently delivering creative, responsible marketing programs that drive brand recognition, brand trial, brand loyalty, and ultimately, consumer demand around the world.

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Markets

We sell our products in over 170 countries around the world. The United States, our most important market, accounted for 50% of our net sales in fiscal 2021 and the other 50% were outside of the United States. The table below shows the percentage of total net sales for our largest markets in our three most recent fiscal years:

Percentage of Total Net Sales by Geographic Area
	Year ended April 30
	2019		2020		2021
United States	47	%	50	%	50	%
Australia	5	%	5	%	6	%
Germany	5	%	5	%	6	%
United Kingdom	6	%	5	%	6	%
Mexico	5	%	5	%	4	%
Other	32	%	30	%	28	%
TOTAL	100	%	100	%	100	%
Note: Totals may differ due to rounding

For details about net sales in our largest markets, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal 2021 Market Highlights.” For details about our reportable segment and for additional geographic information about net sales and long-lived assets, see Note 17 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.” For details on risks related to our global operations, see “Item 1A. Risk Factors.”

Distribution Network and Customers

Our distribution network, or our “route to consumer” (RTC), varies depending on (a) the laws and regulatory framework for trade in beverage alcohol by market, (b) our assessment of a market's long-term attractiveness and competitive dynamics, (c) the relative profitability of distribution options available to us, (d) the structure of the retail and wholesale trade in a market, and (e) our portfolio's development stage in a market. As these factors change, we evaluate our RTC strategy and, from time to time, adapt our model.

In the United States, which generally prohibits spirits and wine manufacturers from selling their products directly to consumers, we sell our brands either to distributors or to state governments (in states that directly control alcohol sales) that then sell to retail customers and consumers.

Outside the United States, we use a variety of RTC models, which can be grouped into three categories: owned distribution, partner, and government-controlled markets. We own and operate distribution companies in Australia, Brazil, Czechia, France, Germany, Korea, Mexico, Poland, Spain, Thailand, Turkey, and the United Kingdom. In these owned-distribution markets, and in a large portion of the Travel Retail channel, we sell our products directly to retailers or wholesalers. In many other markets, including Italy, Japan, Russia, and South Africa, we rely on third parties to distribute our brands, generally under fixed-term distribution contracts. In Canada, we sell our products to provincial governments. We recently announced our plans to move Belgium and Taiwan to owned distribution in fiscal 2022 and Russia in fiscal 2023.

We believe that our customer relationships are good and our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations and our thorough evaluation of each customer. In fiscal 2021, our two largest customers were Republic National Distributing Company and Breakthru Beverage Group, which accounted for approximately 19% and 13% of consolidated net sales, respectively. Collectively, these two customers distribute our brands across most of the United States. Although the loss of any large customer for an extended period would reduce our net sales and operating income, we do not anticipate this happening due to consumer demand for our products and our relationships with our customers. No other customer accounted for 10% or more of our consolidated net sales in fiscal 2021.

Seasonality

Holiday buying makes the fourth calendar quarter the peak season for our business. Approximately 30% of our net sales for fiscal 2019, fiscal 2020, and fiscal 2021 were in the fourth calendar quarter of each year.

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Competition

Trade information indicates that we are one of the largest global suppliers of premium spirits. According to IWSR, for calendar year 2020, the ten largest global spirits companies controlled approximately 20% of the total spirits volume sold around the world. While we believe that the overall market environment offers considerable growth opportunities for us, our industry is, and will remain, highly competitive. We compete against many global, regional, and local brands in a variety of categories of beverage alcohol, but our brands compete primarily in the industry's premium-and-above price points. Our competitors include major global spirits and wine companies, such as Bacardi Limited, Beam Suntory Inc., Becle S.A.B. de C.V., Davide Campari-Milano N.V., Diageo PLC, LVMH Moët Hennessy Louis Vuitton SE, Pernod Ricard SA, and Rémy Cointreau. In addition, particularly in the United States, we compete with national companies and craft spirit brands, many of which entered the market in the last few years.

Brand recognition, brand provenance, quality of product and packaging, availability, flavor profile, and price affect consumers' choices among competing brands in our industry. Other factors also influence consumers, including advertising, promotions, merchandising at the point of sale, expert or celebrity endorsement, social media and word of mouth, and the timing and relevance of new product introductions. Although some competitors have substantially greater resources than we do, we believe that our competitive position is strong, particularly as it relates to brand awareness, quality, availability, and relevance of new product introductions.

Ingredients and Other Supplies

The principal raw materials used in manufacturing and packaging our distilled spirits, liqueurs, RTD products, and wines are shown in the table below.

Principal Raw Materials
Distilled Spirits	Liqueurs	RTD Products	Wines	Packaging
Agave	Flavorings	Flavorings	Grapes	Aluminum cans
Barley	Neutral spirits	Malt	Wood	Cartons
Corn	Sugar	Neutral spirits		Closures
Malted barley	Water	Sugar		Glass bottles
Rye	Whiskey	Tequila		Labels
Sugar	Wine	Water		PET1 bottles
Water		Whiskey
Wood

1Polyethylene terephthalate (PET) is a polymer used in non-glass containers.

Currently, we are managing through the impact of some global supply chain disruptions and are deploying a number of risk mitigation strategies to address the various constraints on our business. While we are experiencing some supply shortages at this time, we do not view them as significant or to have a material impact on our financial results. From time to time, our agricultural ingredients (agave, barley, corn, grapes, malted barley, rye, and wood) could be adversely affected by weather and other forces out of our control that might constrain supply or reduce our inventory below desired levels for optimum production.

Whiskeys and certain tequilas and other distilled spirits must be aged. Because we must schedule production years in advance to meet projected future demand, our inventories of these products may be larger in relation to sales and total assets than in many other businesses.

For details on risks related to the unavailability of raw materials and the inherent uncertainty in forecasting supply and demand, see “Item 1A. Risk Factors.”

Intellectual Property

Our intellectual property includes trademarks, copyrights, proprietary packaging and trade dress, proprietary manufacturing technologies, know-how, and patents. Our intellectual property, especially our trademarks, is essential to our business. We register our trademarks broadly around the world, focusing primarily on where we sell or expect to sell our products. We protect our intellectual property rights vigorously but fairly. We have licensed some of our trademarks to third parties for use with services or on products other than alcoholic beverages, which enhances the awareness and protection of our brands. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained. We also have various licenses and distribution agreements for the production, sale, and marketing of our products, and products of others. These licenses and distribution agreements have varying terms and durations.

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For details on risks related to the protection of our intellectual property, see “Item 1A. Risk Factors.” For details on our most important brands, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal 2021 Brand Highlights.”

Regulatory Environment

Federal, state, local, and foreign authorities regulate how we produce, store, transport, distribute, market, and sell our products. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part.

In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, advertising, sales, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in most non-U.S. jurisdictions where we sell our products. In addition, beverage alcohol products are subject to customs duties, excise taxes, and/or sales taxes in many countries, including taxation at the federal, state, and local level in the United States.

Many countries set their own distilling and maturation requirements; for example, under U.S. federal and state regulations, bourbon and Tennessee whiskeys must be aged in new, charred oak barrels; we typically age our whiskeys at least three years. Mexican authorities regulate the production and bottling of tequilas; they mandate minimum aging periods for extra anejo (three years), anejo (one year), and reposado (two months). Irish whiskey must be matured at least three years in a wood cask, such as oak, on the island of Ireland. Scotch whisky must be matured in oak casks for at least three years in Scotland. We comply with all of the above laws and regulations.

Our operations are subject to various environmental protection statutes and regulations, and our policy is to comply with them.

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Integrated Strategy and Performance

For more than 150 years, Brown-Forman and the Brown family have been committed to driving sustainable growth and preserving Brown-Forman as a thriving, family-controlled, independent company. The image on the left illustrates our core purpose, “Enriching Life,” and our highest ambition, “Nothing Better in the Market,” surrounded by the values that have guided us for decades: integrity, respect, trust, teamwork, and excellence. In addition to these guiding principles, our success is dependent on several strategic priorities, as illustrated in the image on the right: the quality of our brands within our portfolio, our geographic diversification, the caliber of our people, and the return on our investments. Moreover, taking an integrated approach means that many aspects of our company contribute to this value creation and are fundamental to our strategy, including our commitment to environmental sustainability; alcohol and marketing responsibility; diversity, equity and inclusion; and to building communities in which we live and work.

As we celebrated our 150th anniversary, we faced many unforgettable challenges, including a global pandemic and heightened social and racial unrest. Our employees' unique mix of agility, resilience, energy, and compassion enabled us to succeed despite these challenges, and will continue to strengthen us over time. Our values drove decisions throughout this year, and our core purpose of “Enriching Life” and our highest ambition of “Nothing Better in the Market” continue to guide us as we move forward to a reimagined future with a renewed sense of opportunity for what lies ahead. The way we work has changed, and our business has been affected. We continue to prioritize the health, safety, and well-being of our employees and communities while we advance the growth of our brands and business.

This Integrated Annual Report presents not only our financial performance but also our environmental, social, and governance strategies, commitments, and results. It provides a more holistic view of Brown-Forman, our culture, our strategic approach to our business, and how we achieve results.

Portfolio and Responsibility

We seek to build brands and create shareholder value responsibly by delivering strong and sustainable growth, solid margins, and high returns on invested capital. We focus on building brands that can be meaningful for our company and our consumers over the longer term. We aim to grow our premium spirits portfolio both organically and through innovation. Opportunistically and thoughtfully, we also consider acquisitions and partnerships that will enhance our capacity to deliver meaningful growth, improve margins, and increase shareholder returns.

We strive to grow our brands and enhance consumers' experience with them. Even as we do so, we remain committed to marketing our brands responsibly and promoting responsible drinking. Regulation of our industry is not new, and external interest from the World Health Organization and other health bodies has grown over time. We uphold high standards of self-regulation by adhering to industry guidelines on responsible marketing and advertising. We work both independently and with industry organizations to promote alcohol responsibility, such as the International Alliance for Responsible Drinking, the Foundation for Advancing Alcohol Responsibility (responsibility.org) in the United States, The Portman Group in the United Kingdom, DrinkWise in Australia, and FISAC in Mexico.

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The Jack Daniel's family of brands, led by Jack Daniel's Tennessee Whiskey (JDTW), is our most valuable asset – the engine of our overall financial performance and the foundation of our leadership position in the American whiskey category.1 We strive to strengthen the brand's leadership, and will always work to keep JDTW relevant to consumers worldwide, while pursuing the opportunities to grow the Jack Daniel's family of brands across markets, premium-and-above price points, channels, and consumer groups. Product innovation continues to contribute meaningfully to our performance. Different Jack Daniel's expressions have brought new consumers to the franchise, including Honey (2011), Fire (2015), Rye (2017), and our most recent launch, Jack Daniel's Tennessee Apple (2019), which individually and collectively add great value to the company and to our consumers the world over.

In addition to the leadership of our Jack Daniel's family of brands, we expect strong worldwide growth from our other whiskey brands, particularly Woodford Reserve and Old Forester. Woodford Reserve is the leading super-premium American whiskey globally1, growing volumes at a strong double-digit compound annual growth rate since the brand was introduced 24 years ago, and is approaching 1.3 million nine-liter cases of annual volume as of April 30, 2021. We believe the brand is poised for continued growth as the bourbon category continues to grow around the world. Old Forester has continued its return to prominence in the United States and in select international markets through its unparalleled taste and quality. Innovation has played an important role in the premiumization of both of these brands, including the success of high-end expressions such as Woodford Double Oaked and the Old Forester Whiskey Row Series.

Outside of our American whiskey brands, we believe our portfolio remains well positioned in other high-growth categories with meaningful premium brands and a focus on accelerating our super-premium portfolio. Our tequila portfolio is led by two brands steeped in Mexican heritage, Herradura and el Jimador. Despite the cyclical cost pressures resulting from the unprecedented cost of agave, we remain pleased with the growth of our tequila business in the United States and the long-term growth prospects of this business globally. We believe that our Scotch whiskies GlenDronach, Benriach, and Glenglassaugh, and our Irish whiskey Slane, are well-positioned in their respective categories. We expect them all to become meaningful contributors over the longer term. Lastly, we believe our acquisition in the summer of 2019, Fords Gin, provides access to the premium gin category, particularly in the United States, and we look to grow this brand in key gin markets globally.

Fiscal 2021 was a year of significant growth for our RTD portfolio. Jack Daniel's RTDs sold over 12 million nine-liter cases globally, and in Mexico, our el Jimador tequila-based RTD, New Mix, crossed the 8 million nine-liter case milestone. In calendar 2020 we introduced Jack Daniel's Can Cocktails in the United States and also announced a new partnership with Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel's Country Cocktails in this important market. In December 2020, we acquired Part Time Rangers, a line of low-calorie, spirit-based RTDs with natural fruit flavorings. Part Time Rangers is based in New Zealand, and we believe it will help us grow our RTD portfolio in that country, Australia, and potentially beyond.

Part of building all of our brands and engaging our employees is through education, including resources and training on alcohol responsibility – what it means, how to be a good host/hostess, respecting the choice not to drink, preventing drunk/drink driving, and providing support for those in recovery. Pause, our internal campaign launched in the summer of 2019, seeks to elevate responsibility, raise awareness, and empower mindful choices from our employees. Through a partnership with Alteristic, we have taken an additional step to offer training to bartenders and employees on bystander intervention to help prevent sexual assault.

Geography

The United States remains our largest market, and continued growth there is important to our long-term success. We expect to foster this growth by emphasizing fast-growing spirits categories, continued product and packaging innovation, and brand building within growing consumer segments. This includes increasing emphasis on inclusive, digital, and integrated marketing and the growth of our e-commerce capabilities to better connect and engage with consumers where they are.

Outside the United States, we continue to increase our competitiveness through improved routes to consumer. In May 2020, we established our owned-distribution organization in our fourth-largest market, the United Kingdom. In addition, we set up owned distribution in Thailand in 2020, and recently announced our plans to move Belgium and Taiwan to owned distribution in fiscal 2022 and Russia in fiscal 2023. More direct connection with customers and consumers enabled through owned distribution is an important part of our strategic growth.

1IWSR, 2020.

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The COVID-19 pandemic has impacted our global markets differently. While recovery will also be varied, we expect increasing contributions to our long-term future growth from emerging markets, including Brazil, China, India, Mexico, Poland, Russia, and Southeast Asia.

People, Diversity & Inclusion, and Ethics & Compliance

As we work to increase our brands' relevance and appeal to diverse consumer groups around the world, we believe a diversity of experiences and mindsets within our own workforce is essential. In the summer of 2019, we unveiled Many Spirits, One Brown-Forman: Gender and Race Edition, our 2030 Diversity & Inclusion Strategy aimed at creating a foundation from which to build a more diverse workforce and inclusive culture. In the summer of 2020, we developed and published commitments to be better and do better1 – to live our value of respect, educate ourselves more fully on what it means to be anti-racist, identify and eliminate barriers to inclusion, create an environment where all employees can bring their best selves to work, and extend our commitment more deeply in our communities, especially our hometown of Louisville, Kentucky. We believe these actions will help us continue to build an equitable, inclusive culture at Brown-Forman. In recognition of our need to be better and do better as neighbors and as corporate citizens, the Brown-Forman Foundation focused more deeply on advancing educational opportunities in west Louisville. Support included donations to organizations focused on child development, college and career preparation, teacher education, technology training for students and parents, social services, and success coaching.

Our vision is to create an environment where leveraging diversity and inclusion occurs naturally, giving us a sustainable marketplace advantage. We have set race and gender ambitions to have at least 50% women in professional- and leader-level roles globally, 40% women in senior leadership positions globally, and 25% people of color in our United States workforce by 2030. We have also set a goal to reach 16% of our supplier spend in locations such as the United States, the United Kingdom, and Australia, with businesses that are woman- or minority-owned by 2030. For more than a decade, we have earned a perfect score in the Corporate Equality Index2, a national benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality administered by the Human Rights Campaign Foundation.

One of the main drivers of an inclusive culture is the continued growth and leadership of our ten Employee Resource Groups (ERGs). We believe ERGs are instrumental in enriching our company's culture, and our employees experience this by supporting development and engagement of our diverse workforce, driving cultural awareness and competency across the organization, and enabling authentic engagement with our consumers. Our ERGs also create safe spaces for our employees and their allies to connect with, support, and advocate for one another.

We know that this strong employee culture and our commitment to the communities where we live and work also helps foster a sense of engagement among our employees. During the COVID-19 pandemic, we conducted an employee survey to evaluate the company's response and better understand employee experiences navigating the challenging environment. The results highlighted our resilience and confirmed that together, we took many of the right steps in responding to this situation – communicating frequently and openly and supporting each other by caring and collaborating. This reaffirms that our values will always guide us along the right path, including the shift from crisis management into a new phase of recovery and reimagining the future.

Our core values of integrity, respect, trust, teamwork, and excellence form the foundation of our ethics and compliance program. “Values Drive Decisions” is the key theme of this program and we use it to teach our employees to rely on our values when faced with a difficult decision and to “speak up” if they believe they, a colleague, or a business partner may have violated the law, our Code of Conduct, or company policy. We offer a third-party service, accessible from an external website, to employees and others who wish to “speak up” anonymously.

We convey our compliance expectations to employees via our Code of Conduct, and all employees certify annually that they will comply with the Code of Conduct and report a potential violation. The Code of Conduct is a toolkit for employees, as it details expectations for 18 different risks, includes links to Q&A, policies, training and the ability to contact a subject-matter expert. Our Code of Conduct and certification is refreshed annually and translated into 12 languages.

1Brown-Forman Be Better, Do Better at www.brown-forman.com/be_better_do_better

2Human Rights Campaign 2021 Corporate Equality Index at www.hrc.org/cei

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Investment and Sustainability

One thing we have learned over more than a century and a half is that long-term success requires investment and a mindset of sustainability. We understand the need to invest in our brands, production facilities, homeplace and visitor centers, and aging inventory. For example, this past year, our Board of Directors approved a $125 million capital investment to expand our bourbon-making capacity in Kentucky to meet anticipated future consumer demand. We also understand the importance of investing in our people, communities, and the environment. We recognize that climate change is a business issue with risks and opportunities. As such, we are committed to actions that will ensure the long-term health of the planet and our business. In fiscal 2021, we established a new 2030 Sustainability Strategy that is intended to align our efforts with industry best practices and the most current climate science. Our new goals broaden our focus beyond business operations to include our supply chain, where the majority of our environmental footprint resides. With this new strategy, we have a roadmap for continued progress over the next quarter-century.

Our recent investments in renewable energy and resource stewardship underscore our long-term focus:

•    Wind: Our wind power project, which became operational in April 2020, provides a renewable energy source that offsets more than 90% of our electricity usage in the United States.

•    Solar: Jack Daniel's recently announced a partnership to provide our Lynchburg distillery with 20 megawatts of solar energy. The agreement will provide nearly three-quarters of the distillery's electricity needs, and makes Jack Daniel's the first distillery to participate in Tennessee Valley Authority's Green Invest Program.

•    Watersheds: To manage water risk, we have completed watershed risk assessments to evaluate watersheds we operate in that are considered at-risk or business critical. Following the assessments, we have begun to develop multi-year mitigation plans to address risk.

•    Waste: In 2020, we were pleased to achieve our zero-waste-to-landfill (defined as sending less than 1% to landfill) goal across our production facilities. Our next priority is to integrate circular economy principles into our business that will allow us to go beyond zero-waste to a regenerative approach where resources are continually reused.

We believe we are better positioned than ever to deliver exceptional high-quality products to our consumers around the world. We have a highly capable and engaged workforce. We have developed brand-building capabilities by equipping our teams with the training and tools necessary for an increasingly data-driven digital global marketplace. Among other trends, the expansion of the digital economy accelerated significantly as consumers, businesses, and communities adapted to the challenges brought on by the COVID-19 pandemic. To continue our success in how we market and sell our brands, we announced in fiscal 2021 an investment in a new Integrated Marketing Communications organization that we believe will further enhance our ability to win in the digital economy.

Community

In addition to the investments we make in our employees, we believe it is vital that we give back to the communities that support both our employees and our company by thoughtfully deploying our time, talent, and resources. We have been a proud corporate citizen of our hometown of Louisville, Kentucky, since we were founded. Being a good neighbor is something we strive for wherever we operate, and our expanded focus and commitment to the neighborhood around our corporate campus

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meets this call to be the best neighbor we can be in an area that has experienced the effects of underinvestment and systemic racism.

We also continue to expand our civic engagement into Brown-Forman global office locations, allowing those employees closest to the needs of their communities to decide how to invest their charitable-giving resources. We leverage our key community relations partners to stay informed of collaborative opportunities in the communities where we work and live, and to shape our charitable-giving strategy to meet the essential needs of the communities that sustain us. We provide charitable donations and our employees volunteer throughout our communities, including 115 serving on 201 nonprofit boards in the United States. The Brown-Forman Foundation (the Foundation) was created in fiscal 2018 with the goal of helping fund our ongoing philanthropic endeavors. The Foundation's earnings provide a consistent source of revenue for charitable giving independent of our annual earnings. We work to partner with organizations that support our key focus areas: empowering responsible and sustainable living, ensuring essential living standards, and enhancing arts and cultural living. In fiscal 2021, we committed to a $20 million investment in the Foundation, which will allow us to further support community-building in our hometown of Louisville, Kentucky.

We believe that having a long-term-focused, committed, and engaged shareholder base, anchored by the Brown Family, gives us a distinct strategic advantage, particularly in a business with multi-generational brands and products that must be aged. We are committed to continually improving our environmental, social, and governance performance and acting upon our deeply held values. Recognizing the strong cash-generating capacity and the capital efficiency of our business, we will continue to pursue top-tier shareholder return through shareholder-friendly capital allocation and socially and environmentally conscious investments to fuel long-term growth.

Human Capital Resources

Overview: Culture of Care

We put our values at the forefront of all our decisions and actions, ensuring our employees feel respected, safe, and supported so they can make, market, and sell our products with the finest craftsmanship, quality, and care. What enables our success are the 4,700 people (excluding individuals that work on a part-time or temporary basis) we employ in 43 countries around the world. This includes approximately 3,100 salaried employees and 1,600 hourly employees, with the largest percentage of our employees residing within the United States, Mexico, and the United Kingdom. We believe our employee relations are good and our turnover rate is low.

COVID-19 Response

Shortly after the global pandemic began, we shifted nearly all global salaried employees to a virtual working environment and safely maintained our essential production operations. In the first 90 days of this new way of working, we surveyed our salaried employees to ensure their virtual working conditions were enabling productivity and that they were receiving the appropriate amount of support during this challenging time. We also tracked the well-being of our essential workers, those who remained on-site to make, bottle, and ship our products. Site supervisors collected weekly qualitative data from their respective production teams from mid-March through June. This enabled production leaders to more quickly surface, address, monitor, and track any issues related to morale and the health and safety of our front-line employees.

Additionally, as the effects of the pandemic lingered, we hosted numerous Mental Health Huddles, sessions designed to encourage our employees to attend to their mental well-being with the same intentionality as their physical health. We also invested in, and expanded access to, mental well-being resources globally. Our commitment to providing mental health resources will continue in our post-pandemic workplace.

Diversity & Inclusion

In the summer of 2019, we launched Many Spirits, One Brown-Forman: Gender and Race Edition, our 2030 Diversity and Inclusion Strategy. This strategy highlights the critical importance of a diverse, inclusive workforce and provides a framework for us to build initiatives and programs that will support our gender and race ambitions. In fiscal 2021, we added several new policies to support a diverse workforce, including changes to our global talent acquisition and executive compensation processes. For example, in the United States, we will strive to have more diverse interview slates.

Additionally, in fiscal 2021, we introduced a new component in our short-term incentive compensation for our Executive Leadership Team whereby 10% of their short-term incentive compensation is based on progress towards achieving our diversity and inclusion priorities.

We have set gender and race ambitions to have at least 50% women in professional- and leader-level roles globally, 40% women in senior leadership positions globally, and 25% people of color in our United States salaried workforce by 2030.

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Learning & Development

The professional growth and development of our people is critically important to our success. During fiscal 2021, most of our employees worked from home, limiting our ability to offer the in-person learning and development programs we relied on in the past.

To meet the development needs of our workforce, we introduced a range of virtual learning options. This included a new virtual learning catalog with more than 3,000 titles covering a range of business topics and weekly offerings about our brands, business, and values.

During the year, we launched “Getting Started @ B-F” as our new digital onboarding solution to guide new hires through the initial learning they need to succeed at Brown-Forman. This onboarding experience includes “Grain to Glass” – our virtual immersive orientation solution where employees learn more about our business strategy, portfolio, routes-to-market, and heritage.

Over the last several years, we have developed extensive leadership training programs covering all levels of management, including executives. During fiscal 2021, we converted our key leadership training programs, including our Business Leader Program, People Leader Program, and Leader Transition Experience, to virtual learning, continuing the momentum we established before the pandemic.

For our executives, we developed and launched a new program called the Inclusive Leadership Program, designed to inspire and equip leaders to support our commitment to build a more inclusive company and culture. This is a six-month blended learning program with a mix of e-learning, live virtual sessions, and small group discussions.

Engagement & Enablement

We regularly survey our employees regarding engagement and enablement. Our most recent survey, conducted in October 2019, indicated that our employees are highly engaged and enabled when compared to benchmark used by our third-party administrator. Throughout the year, we analyzed this data by functions, leaders, geographies, and demographics. We continually mine this survey, looking for opportunities for growth and improvement. In addition to this internal affirmation, we received numerous external workplace accolades in Brazil, France, Germany, India, Mexico, Spain, the United Kingdom, and the United States.

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Executive Officers

Information about Our Executive Officers

The following persons served as executive officers as of June 21, 2021:

Name	Age	Principal Occupation and Business Experience
Lawson E. Whiting	52	President and Chief Executive Officer since 2019. Executive Vice President and Chief Operating Officer from 2017 to 2018. Executive Vice President and Chief Brands and Strategy Officer from 2015 to 2017. Senior Vice President and Chief Brands Officer from 2013 to 2015. Senior Vice President and Managing Director for Western Europe from 2011 to 2013. Vice President and Finance Director for Western Europe from 2010 to 2011. Vice President and Finance Director for North America from 2009 to 2010.
Jane C. Morreau	62	Executive Vice President and Chief Financial Officer since 2014. Senior Vice President, Chief Production Officer and Head of Information Technology from 2013 to 2014. Senior Vice President and Director of Financial Management, Accounting, and Technology from 2008 to 2013.
Matthew E. Hamel	61	Executive Vice President, General Counsel and Secretary since 2007.
Alejandro A. Alvarez	53	Senior Vice President, Chief Production and Sustainability Officer since 2019. Senior Vice President, Chief Production Officer from 2014 to 2019. Vice President and General Manager for Brown-Forman Tequila Mexico Operations from 2008 to 2014.
Matias Bentel	46	Senior Vice President and Chief Brands Officer since 2020. Senior Vice President and Managing Director of Jack Daniel's Family of Brands from 2018 to 2019. Vice President and General Manager of Mexico from 2016 to 2018. Vice President Latin America Marketing and Chief of Staff from 2009 to 2016.
Kelli N. Brown	51	Senior Vice President and Chief Accounting Officer since 2018. Vice President and Director Finance (North America Region) from 2015 to 2018. Director NAR Division Finance (North America Region) from 2013 to 2015. Director Business Planning and Analytics (North America Region) from 2012 to 2013.
Ralph E. de Chabert	74	Senior Vice President, Chief Diversity Inclusion and Global Community Relations Officer since 2019. Senior Vice President and Chief Diversity Officer from 2007 to 2019.
Marshall B. Farrer	50	Senior Vice President, President, Europe since 2020. Senior Vice President, Managing Director, Global Travel Retail and Developed APAC Region from 2018 to 2020. Senior Vice President, Managing Director, Global Travel Retail from 2015 to 2018. Vice President, Managing Director, Jack Daniel's Tennessee Honey from 2014 to 2015. Vice President, Managing Director, Australia/New Zealand region from 2010 to 2014. Vice President, Director, Latin America & Caribbean region from 2006 to 2009.
Kirsten M. Hawley	51	Senior Vice President, Chief People, Places, and Communications Officer since May 2021. Senior Vice President, Chief Human Resources and Corporate Communications Officer from 2019 to 2021. Senior Vice President and Chief Human Resources Officer from 2015 to 2019. Senior Vice President and Director of Human Resources Business Partnerships from 2013 to 2015. Vice President and Director of Organization and Leader Development from 2011 to 2013. Assistant Vice President and Director of Employee Engagement from 2009 to 2011.
John V. Hayes	61	Senior Vice President, President, U.S.A. and Canada since 2018. Senior Vice President, Chief Marketing Officer of Brown-Forman Brands from 2015 to 2018. Senior Vice President, Managing Director Jack Daniel's from 2011 to 2015. Senior Vice President, Managing Director Herradura from 2007 to 2011.
Thomas W. Hinrichs	59	Senior Vice President, President, Emerging International since 2020. Senior Vice President, President, International Division from 2018 to 2020. Senior Vice President and President for Europe, North Asia, and ANZSEA from 2015 to 2018. Senior Vice President and Managing Director for Europe from 2013 to 2015. Senior Vice President and Managing Director for Greater Europe and Africa from 2006 to 2013

Available Information

Our website address is www.brown-forman.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports are available free of charge on our website as soon as reasonably practicable after we electronically file those reports with the Securities and Exchange Commission (SEC). The information provided on our website, and any other website referenced herein, is not part of this report, and is therefore not incorporated by reference into this report or any other filing we make with the SEC, unless that information is otherwise specifically incorporated by reference.

On our website, we have posted our Code of Conduct that applies to all our directors and employees, and our Code of Ethics that applies specifically to our senior financial officers. If we amend or waive any of the provisions of our Code of

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Conduct or our Code of Ethics applicable to our principal executive officer, principal financial officer, or principal accounting officer that relates to any element of the definition of “code of ethics” enumerated in Item 406(b) of Regulation S-K under the Securities Exchange Act of 1934 Act, as amended, we intend to disclose these actions on our website. We have also posted on our website our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Executive Committee of our Board of Directors. Copies of these materials are also available free of charge by writing to our Secretary at 850 Dixie Highway, Louisville, Kentucky 40210 or emailing Secretary@b-f.com.

Item 1A. Risk Factors

We believe the following discussion identifies the material risks and uncertainties that could adversely affect our business. If any of the following risks were actually to occur, our business, results of operations, cash flows, or financial condition could be materially and adversely affected. Additional risks not currently known to us, or that we currently deem to be immaterial, could also materially and adversely affect our business, results of operations, cash flows, or financial condition.

Risks Related to Our Business and Operations

Our business performance is substantially dependent upon the continued health of the Jack Daniel's family of brands.

The Jack Daniel's family of brands is the primary driver of our revenue and growth. Jack Daniel's is an iconic global trademark with a loyal consumer fan base, and we invest much effort and many resources to protect and preserve the brand's reputation for authenticity, craftsmanship, and quality. A brand's reputational value is based in large part on consumer perceptions, and even an isolated incident that causes harm – particularly one resulting in widespread negative publicity – could adversely influence these perceptions and erode consumer trust and confidence in the brand. Significant damage to the brand equity of Jack Daniel's would adversely affect our business. Given the importance of Jack Daniel's to our overall success, a significant or sustained decline in volume or selling price of our Jack Daniel's products, as a result of negative publicity or otherwise, would have a negative effect on our financial results. Additionally, should we not be successful in our efforts to maintain or increase the relevance of the Jack Daniel's brand to current and future consumers, our business and operating results could suffer. For details on the importance of the Jack Daniel's family of brands to our business, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Fiscal 2021 Brand Highlights.”

We face substantial competition in our industry, including many new entrants into spirits; consolidation among beverage alcohol producers, distributors, wholesalers, suppliers, and retailers, or changes to our route-to-consumer models, could hinder the marketing, sale, or distribution of our products.

We use various business models to market and distribute our products in different countries around the world. In the United States, we sell our products either to distributors for resale to retail outlets or e-commerce retailers or, in those states that control alcohol sales, to state governments who then sell them to retail customers and consumers. In our non-U.S. markets, we use a variety of route-to-consumer models – including, in many markets, reliance on others to market and sell our products. Consolidation among spirits producers, distributors, wholesalers, suppliers, or retailers and the increased growth and popularity of the e-commerce environment across the consumer product goods market, which has accelerated during the COVID-19 pandemic and the resulting quarantines, “stay at home” orders, travel restrictions, retail store closures, social distancing requirements, and other government action, could create a more challenging competitive landscape for our products. Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio. Furthermore, consolidation of distributors may lead to the erosion of margins as newly consolidated distributors take down prices. Changes in distributors' strategies, including a reduction in the number of brands they carry, the allocation of shelf space for our competitors' brands, or private label products, may adversely affect our growth, business, financial results, and market share. Expansion into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product categories. For example, we have observed an increase in diversification by various consumer goods companies such as the entrance of both traditional beer and soft drink companies into the RTD market and the entrance of both beer and spirits companies into the cannabis market – expanding the potential for competition in the spirits market from various sectors of the consumer goods industry.

Changes to our route-to-consumer models or partners in important markets could result in temporary or longer-term sales disruption, could result in higher costs, and could negatively affect other business relationships we might have with that partner. Disruption of our distribution network or fluctuations in our product inventory levels at distributors, wholesalers, or retailers could negatively affect our results for a particular period. Further, while we believe we have sufficient scale to succeed relative to our major competitors, we nevertheless face a risk that continuing consolidation of large beverage alcohol companies could put us at a competitive disadvantage.

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Our competitors may respond to industry and economic conditions and shifts in consumer behaviors more rapidly or effectively than we do. To remain competitive, we must be agile and efficient in the adoption of digital technologies, the building of analytical capabilities, and the scaling of brand expense investment levels, particularly following the COVID-19 pandemic, which our competitors may be able to achieve with more agility and resources. Other suppliers, as well as wholesalers and retailers of our brands, offer products that compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing (including price promotions, discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other competitive behavior by other suppliers, and by wholesalers and traditional and e-commerce retailers, could adversely affect our growth, business, and financial results. While we seek to take advantage of the efficiencies and opportunities that large retail customers can offer, they often seek lower pricing and purchase volume flexibility, offer competing private label products, and represent a large number of other competing products. If the buying power of these large retail customers continues to increase, it could negatively affect our financial results.

Changes in consumer preferences and purchases, any decline in the social acceptability of our products, or governmental adoption of policies disadvantageous to beverage alcohol could negatively affect our business results.

We are a branded consumer products company in a highly competitive market, and our success depends substantially on our continued ability to offer consumers appealing, high-quality products. Consumer preferences and purchases may shift, often in unpredictable ways, or rapidly as a result of the COVID-19 pandemic or other factors, including health and wellness trends; changes in economic conditions, demographic, and social trends; public health policies and initiatives; changes in government regulation of beverage alcohol products; concerns or regulations related to product safety; legalization of cannabis and its use on a more widespread basis within the United States, Canada, or elsewhere; and changes in trends related to travel, leisure, dining, gifting, entertaining, and beverage consumption trends. Consumers may begin to shift their consumption and purchases of our premium and super-premium products, more commonly found in on-premise establishments, in favor of off-premise purchases or away from alcoholic beverages entirely. This includes consumption at home as a result of various factors, including shifts in social trends as well as shifts to purchases of our products to e-commerce retailers. These shifts in consumption and purchasing channels, which could adversely impact our profitability, have accelerated during the COVID-19 pandemic and the resulting quarantines, “stay at home” orders, travel restrictions, retail, restaurant, bar, and hotel closures, social distancing requirements, and other government action. Consumers also may begin to prefer the products of competitors or may generally reduce their demand for brands produced by larger companies. Over the past several years, the number of small, local distilleries in the United States has grown significantly. This is being driven by a trend of consumers showing increasing interest in locally produced, regionally sourced products. As more brands enter the market, increased competition could negatively affect demand for our premium and super-premium American whiskey brands, including Jack Daniel's. In addition, we could experience unfavorable business results if we fail to attract consumers from diverse backgrounds and ethnicities in all markets where we sell our products. To continue to succeed, we must anticipate or react effectively to shifts in demographics, consumer behavior, consumer preferences, drinking tastes, and drinking occasions.

Our long-term plans call for the continued growth of the Jack Daniel's family of brands. In particular, we plan to continue to expand sales of Jack Daniel's Tennessee Apple. If these plans do not succeed, or if we otherwise fail to develop or implement effective business, portfolio, and brand strategies, our growth, business, or financial results could suffer. More broadly, if consumers shift away from spirits (particularly brown spirits such as American whiskey and bourbon), our premium-priced brands, or our ready-to-drink products, our financial results could be adversely affected.

We believe that new products, line extensions, label and bottle changes, product reformulations, and similar product innovations by both our competitors and us will compete increasingly for consumer drinking occasions. Product innovation, particularly for our core brands, is a significant element of our growth strategy; however, there can be no assurance that we will continue to develop and implement successful line extensions, packaging, formulation or flavor changes, or new products.

Unsuccessful implementation or short-lived popularity of our product innovations could result in inventory write-offs and other costs, reduction in profits from one year to the next, and also could damage consumers' perception of our brand family. Our inability to attract consumers to our product innovations relative to our competitors' products – especially over time – could negatively affect our growth, business, and financial results.

Production facility disruption could adversely affect our business.

Some of our largest brands, including Jack Daniel's and our tequilas, are distilled at single locations. A catastrophic event causing physical damage, disruption, or failure at any one of our major distillation or bottling facilities, including facilities that support the production of our premium brands such as Woodford Reserve and Old Forester, could adversely affect our business. Further, because whiskeys and some tequilas are aged for various periods, we maintain a substantial inventory of aged and maturing products in warehouses at a number of different sites. The loss of a substantial amount of aged inventory – through fire, other natural or man-made disaster, contamination, or otherwise – could significantly reduce the supply of the affected

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product or products. A consequence of any of these or other supply or supply chain disruptions, including the temporary inability to produce our products due to the closure or lower production levels at one or more of our major distillation or bottling facilities, or at our suppliers as a result of COVID-19, could prevent us from meeting consumer demand for the affected products for a period of time in the near-term as well as in the long-term due to the nature of our aged products. Disaster recovery plans may not prevent business disruption, and reconstruction of any damaged facilities could require a significant amount of time.

The inherent uncertainty in supply/demand forecasting could adversely affect our business, particularly with respect to our aged products.

There is an inherent risk of forecasting imprecision in determining the quantity of aged and maturing products to produce and hold in inventory in a given year for future sale. The forecasting strategies we use to balance product supply with fluctuations in consumer demand may not be effective for particular years or products. For example, in addition to our American and Irish whiskeys and some tequilas, which are aged for various periods, our Scotch whisky brands, including GlenDronach, Benriach, and Glenglassaugh, require long-term maturation – on average of 12 years with limited releases of 30 years or more – making forecasts of demand for such products in future periods subject to significant uncertainty. Our tequila supply is also dependent on the growth cycle of our agave plants which take approximately seven years to reach maturity, requiring us to make forecasts of demand for our tequilas over a long-time horizon to determine in advance how much agave to plant. Factors that affect our ability to forecast accurately include changes in business strategy, market demand, consumer preferences, macroeconomic conditions, introductions of competing products, and other changes in market conditions. Any forecasting error could lead to our inability to meet the objectives of our business strategy, failure to meet future demand, or a future surplus of inventory and consequent write-down in value of raw materials. If we are unable to accurately forecast demand for our products or efficiently manage inventory, this may have a material adverse effect on our business and financial results. Further, we cannot be certain that we will be successful in using various levers, such as pricing changes, to create the desired balance of available supply and consumer demand for particular years or products. As a consequence, we may be unable to meet consumer demand for the affected products for a period of time. Furthermore, not having our products in the market on a consistent basis may adversely affect our brand equity and future sales.

Higher costs or unavailability of water, raw materials, product ingredients, or labor could adversely affect our financial results.

Our products use materials and ingredients that we purchase from suppliers. Our ability to make and sell our products depends upon the availability of the raw materials, product ingredients, finished products, wood, glass and PET bottles, cans, bottle closures, packaging, and other materials used to produce and package them. Without sufficient quantities of one or more key materials, our business and financial results could suffer. For instance, only a few glass producers make bottles on a scale sufficient for our requirements, and a single producer supplies most of our glass requirements. In addition, if we were to experience a disruption in the supply of American white oak logs or steel to produce the new charred oak barrels in which we age our whiskeys, our production capabilities would be compromised. If any of our key suppliers were no longer able to meet our timing, quality, or capacity requirements, ceased doing business with us, or significantly raised prices, and we could not promptly develop alternative cost-effective sources of supply or production, our operations and financial results could suffer. For example, in connection with the COVID-19 pandemic, we experienced disruptions in our manufacturing operations and supply chain related to raw material delays with respect to our neutral spirits supplier in France. We have also experienced supply chain disruptions in connection with the availability of both glass and timely modes of transportation to ship our products globally. The COVID-19 pandemic could continue to adversely affect our ability to manufacture our products, including due to illness, quarantines, “stay at home” orders, social distancing requirements, and other government actions.

Higher costs or insufficient availability of suitable grain, agave, water, grapes, wood, glass, closures, and other input materials, or higher associated labor costs or insufficient availability of labor, may adversely affect our financial results. Similarly, when energy costs rise, our transportation, freight, and other operating costs, such as distilling and bottling expenses, also may increase. Our freight cost and the timely delivery of our products could be adversely affected by a number of factors that could reduce the profitability of our operations, including driver or equipment shortages, higher fuel costs, weather conditions, traffic congestion, shipment container availability, rail shut down, increased government regulation, and other matters. Our financial results may be adversely affected if we are not able to pass along energy and freight cost increases through higher prices to our customers without reducing demand or sales.

International or domestic geopolitical or other events, including the imposition of any tariffs or quotas by governmental authorities on any raw materials that we use in the production of our products, could adversely affect the supply and cost of these raw materials to us. If we cannot offset higher raw material costs with higher selling prices, increased sales volume, or reductions in other costs, our profitability could be adversely affected.

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Weather, the effects of climate change, fires, diseases, and other agricultural uncertainties that affect the mortality, health, yield, quality, or price of the various raw materials used in our products also present risks for our business, including in some cases potential impairment in the recorded value of our inventory. Climate change could also affect the maturation and yield of our aged inventory over time. Changes in weather patterns or intensity can disrupt our supply chain as well, which may affect production operations, insurance costs and coverage, and the timely delivery of our products.

Water is an essential component of our products, so the quality and quantity of available water is important to our ability to operate our business. If extended droughts become more common or severe, or if our water supply were interrupted for other reasons, high-quality water could become scarce in some key production regions for our products, including Tennessee, Kentucky, California, Finland, Mexico, Scotland, and Ireland, which in turn could adversely affect our business and financial results.

Our business faces various risks related to health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, that could materially and adversely affect our business, our operations, our cash flows, and our financial results.

Our business, operations, cash flows, and financial results have been impacted and will likely continue to be impacted by health epidemics, pandemics, and similar outbreaks, such as the COVID-19 pandemic. The COVID-19 pandemic has had and could continue to have negative impacts, such as (a) a global or U.S. recession or other economic crisis; (b) credit and capital markets volatility (and access to these markets, including by our suppliers and customers); (c) volatility in demand for our products; (d) changes in accessibility to our products due to illness, quarantines, “stay at home” orders, travel restrictions, retail, restaurant, bar, and hotel closures, social distancing requirements, and other government action; (e) changes in consumer behavior and preferences; and (f) disruptions in raw material supply, our manufacturing operations, or in our distribution and supply chain. Furthermore, during the COVID-19 pandemic, we were affected in markets where, in connection with other government actions taken to slow the spread of the COVID-19 pandemic, liquor sales were temporarily restricted or banned outright such as in the Commonwealth of Pennsylvania in the United States, and in South Africa, India, and other Asian countries. In addition, we may incur increased costs and otherwise be negatively affected if a significant portion of our workforce (or the workforces within our distribution or supply chain) is unable to work or work effectively, including because of illness, quarantines, “stay at home” orders, social distancing requirements, other government action, facility closures, or other restrictions.

The full impact of the COVID-19 pandemic (and any related variations) depends on factors beyond our knowledge or control, including the duration, severity, and potential resurgence of the outbreak and actions taken to contain its spread and mitigate the public health effects, including vaccine efficacy, and its short- and long-term impacts on the economy, unemployment, consumer confidence, and the financial health of our suppliers, distributors, customers, and retailers. At this time, we cannot predict with certainty the full impact of the COVID-19 pandemic on our business or our future financial or operational results. For further discussion on the impact of the COVID-19 pandemic on our business and financial results, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Significant Developments - COVID-19.”

Unfavorable economic conditions could negatively affect our operations and results.

Unfavorable global or regional economic conditions could adversely affect our business and financial results. In particular, a significant deterioration in economic conditions, including economic slowdowns or recessions, increased unemployment levels, inflationary pressures or disruptions to credit and capital markets, could lead to decreased consumer confidence in certain countries and consumer spending more generally, thus reducing consumer demand for our products. Unfavorable economic conditions could also cause governments to increase taxes on beverage alcohol to attempt to raise revenue, reducing consumers' willingness to make discretionary purchases of beverage alcohol products or pay for premium brands such as ours.

Unfavorable economic conditions could also adversely affect our suppliers, distributors, customers, and retailers, who in turn could experience cash flow challenges, more costly or unavailable financing, credit defaults, and other financial hardships. For example, due to the COVID-19 pandemic and its resulting economic impact, we received requests for credit extensions from some of our distributors. Such financial hardships could lead to distributor or retailer destocking, disruption in raw material supply, increase in bad debt expense, or increased levels of unsecured credit that we may need to provide to customers. Other potential negative consequences to our business from unfavorable economic conditions include higher interest rates, an increase in the rate of inflation, deflation, exchange rate fluctuations, credit or capital market instability, or lower returns on pension assets or lower discount rates for pension obligations (possibly requiring higher contributions to our pension plans). For additional details on the effects of COVID-19 on our operations and financial results, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Significant Developments - COVID-19.” For details on the

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effects of changes in the value of our benefit plan obligations and assets on our financial results, see Note 9 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

Product recalls or other product liability claims could materially and adversely affect our sales.

The success of our brands depends upon the positive image that consumers have of them. We could decide to or be required to recall products due to suspected or confirmed product contamination, product tampering, spoilage, or other quality issues. Any of these events could adversely affect our financial results. Actual contamination, whether deliberate or accidental, could lead to inferior product quality and even illness, injury, or death to consumers, potential liability claims, and material loss. Should a product recall become necessary, or we voluntarily recall a product in the event of contamination, damage, or other quality issue, sales of the affected product or our broader portfolio of brands could be adversely affected. A significant product liability judgment or widespread product recall may negatively impact sales and our business and financial results. Even if a product liability claim is unsuccessful or is not fully pursued, resulting negative publicity could adversely affect our reputation with existing and potential customers and our corporate and brand image.

Negative publicity could affect our business performance.

Unfavorable publicity, whether accurate or not, related to our industry or to us or our products, brands, marketing, executive leadership, employees, board of directors, family stockholders, operations, current or anticipated business performance, or environmental or social efforts could negatively affect our corporate reputation, stock price, ability to attract and retain high-quality talent, or the performance of our business. Adverse publicity or negative commentary on social media outlets, whether valid or not, particularly any that go “viral,” could cause consumers or other stakeholders to react by disparaging or avoiding our brands or company, which could materially negatively affect our financial results. Additionally, investor advocacy groups, institutional investors, other market participants, stockholders, employees, consumers, and customers have focused increasingly on the environmental, social, and governance (“ESG”) or “sustainability” practices of companies. These stakeholders have placed increased importance on ESG practices and their effect on companies as an investment or employer. If our ESG practices do not meet investor or other stakeholder expectations and standards, which continue to evolve, our brand, reputation, and employee retention may be negatively affected.

Our failure to attract or retain key talent could adversely affect our business.

Our success depends upon the efforts and abilities of our senior management team, other key employees, and our high-quality employee base, as well as our ability to attract, motivate, reward, and retain them. Difficulties in hiring or retaining key executive or other employee talent, or the unexpected loss of experienced employees resulting in the depletion of our institutional knowledge base, could have an adverse impact on our business performance, reputation, financial condition, or results of operations. Given changing demographics, changes in immigration laws and policies, the increasing normalization of remote working, and demand for talent globally, we may not be able to find the right people with the right skills, at the right time, and in the right location, to achieve our business objectives.

We might not succeed in our strategies for acquisitions and dispositions.

From time to time, we acquire or invest in additional brands or businesses. We expect to continue to seek acquisition and investment opportunities that we believe will increase long-term shareholder value, but we may not be able to find and purchase brands or businesses at acceptable prices and terms. Acquisitions involve risks and uncertainties, including potential difficulties integrating acquired brands and personnel; the possible loss of key customers or employees most knowledgeable about the acquired business; implementing and maintaining consistent U.S. public company standards, controls, procedures, policies, and information systems; exposure to unknown liabilities; business disruption; and management distraction or departure. Acquisitions, investments, or joint ventures could also lead us to incur additional debt and related interest expenses or issue additional shares, and result in a reduction in our earnings per share and a decrease on our return on invested capital. We could incur future restructuring charges or record impairment losses on the value of goodwill or other intangible assets resulting from previous acquisitions, which may also negatively affect our financial results.

We also evaluate from time to time the potential disposition of assets or businesses that may no longer meet our financial or strategic objectives. In selling assets or businesses, we may not get prices or terms as favorable as we anticipated. We could also encounter difficulty in finding buyers on acceptable terms in a timely manner, which could delay our accomplishment of strategic objectives. Expected cost savings from reduced overhead relating to the sold assets may not materialize, and the overhead reductions could temporarily disrupt our other business operations. Any of these outcomes could negatively affect our financial results.

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Risks Related to Our Global Operations

Our global business is subject to commercial, political, and financial risks.

Our products are sold in more than 170 countries; accordingly, we are subject to risks associated with doing business globally, including commercial, political, and financial risks. In addition, we are subject to potential business disruption caused by military conflicts; potentially unstable governments or legal systems; social, racial, civil, or political upheaval or unrest; local labor policies and conditions; possible expropriation, nationalization, or confiscation of assets; problems with repatriation of foreign earnings; economic or trade sanctions; closure of markets to imports; anti-American sentiment; terrorism, kidnapping, extortion, or other types of violence in or outside the United States; and health pandemics (such as COVID-19). If shipments of our products – particularly Jack Daniel's Tennessee Whiskey – to our global markets were to experience significant disruption due to these risks or for other reasons, it could have a material adverse effect on our financial results.

For example, in 2018, the United States imposed tariffs on steel and aluminum. In response, a number of countries imposed retaliatory tariffs on U.S. imports, including on our American whiskey products. Such retaliatory tariffs, which remain in place, have negatively affected our results of operations through lower net sales and higher cost of sales. While the European Union's original plan to double its current retaliatory tariffs on June 1, 2021, has been postponed, if such tariffs were to double, our financial results would be further adversely affected. Any additional increases in tariffs, custom duties, or other restrictions or barriers on imports and exports, or the further deterioration of economic relations between the United States and other countries could result in an increase in the price of our products and to the extent that we absorb the costs of tariffs, result in higher cost of goods sold and lower gross profit and margins. Additionally, it could limit the availability of our products and prompt consumers to seek alternative products. Our success will depend, in part, on our ability to overcome the challenges we encounter with respect to these risks and other factors affecting U.S. export companies with a global business.

A failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations may have a material adverse effect on our business and financial results.

As a global company, some of the countries where we do business have a higher risk of corruption than others. While we are committed to doing business in accordance with all applicable laws, including anti-corruption laws and global trade restrictions, we remain subject to the risk that an employee, or one of our many direct or indirect business partners, may take action determined to be in violation of international trade, money laundering, anti-corruption, or other laws, sanctions, or regulations, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, or equivalent local laws. Because the COVID-19 pandemic has negatively impacted numerous local economies, government intervention in local economies and businesses has increased, which has elevated risk and opportunity for corruption. Any determination that our operations or activities are not in compliance with applicable laws or regulations, particularly those related to anti-corruption and international trade, could result in investigations, interruption of business, loss of business partner relationships, suspension or termination of licenses and permits (our own or those of our partners), imposition of fines, legal or equitable sanctions, negative publicity, and management distraction or departure. Further, our continued compliance with applicable anti-corruption or other laws or regulations, our Code of Conduct, Code of Ethics for Senior Financial Officers, and our other policies could result in higher operating costs, delays, or even competitive disadvantages.

Fluctuations in foreign currency exchange rates relative to the U.S. dollar could have a material adverse effect on our financial results.

The global scope of our business means that foreign currency rate fluctuations relative to the U.S. dollar influence our financial results. In many markets outside the United States, we sell our products and pay for some goods, services, and talent primarily in local currencies. Because our foreign currency revenues exceed our foreign currency expense, we have a net exposure to changes in the value of the U.S. dollar relative to those currencies. Over time, our reported financial results will be hurt by a stronger U.S. dollar and will be benefited by a weaker one. We do not attempt to hedge all of our foreign currency exposure. We attempt to hedge a portion of our foreign currency exposure through the use of foreign currency derivatives or other means; however, even in those cases, we do not fully eliminate our foreign currency exposure. For details on how foreign exchange affects our business, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk - Foreign currency exchange rate risk.”

Legal and Regulatory Risks

National and local governments may adopt regulations or undertake investigations that could limit our business activities or increase our costs.

Our business is subject to extensive regulatory requirements regarding production, exportation, importation, marketing and promotion, labeling, distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or

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governmental policies, or the manner in which current ones are interpreted, could cause us to incur material additional costs or liabilities, and jeopardize the growth of our business in the affected market. Specifically, governments may prohibit, impose, or increase limitations on advertising and promotional activities, or times or locations where beverage alcohol may be sold or consumed, or adopt other measures that could limit our opportunities to reach consumers or sell our products. Certain countries historically have banned all television, newspaper, magazine, and digital commerce/advertising for beverage alcohol products. Increases in regulation of this nature could substantially reduce consumer awareness of our products in the affected markets and make the introduction of new products more challenging.

Additional regulation in the United States and other countries addressing climate change, use of water, and other environmental issues could increase our operating costs. Increasing regulation of fuel emissions could increase the cost of energy, including fuel, required to operate our facilities or transport and distribute our products, thereby substantially increasing the production, distribution, and supply chain costs associated with our products.

Tax increases and changes in tax rules could adversely affect our financial results.

Our business is sensitive to changes in both direct and indirect taxes. As a multinational company based in the United States, we are more exposed to the impact of U.S. tax changes than most of our major competitors, especially those that affect the effective corporate income tax rate.

New tax rules, accounting standards, or pronouncements, and changes in interpretation of existing rules, standards, or pronouncements could also have a material adverse effect on our business and financial results. This includes potential changes in tax rules or the interpretation of tax rules arising out of the Base Erosion & Profit Shifting project initiated by the Organization for Economic Co-operation and Development, as well as changes in the interpretation of tax rules arising out of the European Union State Aid investigations. Additionally, President Biden has proposed, among other changes to the tax code, an increase in the U.S. corporate income tax rate from 21% to 28%, an increase of the U.S. tax rate on foreign income from 10% to 21%, eliminating the Foreign Derived Intangible Income deduction, and imposing an alternative minimum tax (AMT) on book income. And recently, the U.S. Treasury department proposed the adoption of a global minimum corporate tax rate of at least 15%. While we are unable to predict whether any of these changes will ultimately be enacted, if these or similar proposals are enacted into law, they could negatively impact our effective tax rate.

Our business operations are also subject to numerous duties or taxes that are not based on income, sometimes referred to as “indirect taxes.” These indirect taxes include excise taxes, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs. Increases in or the imposition of new indirect taxes on our operations or products would increase the cost of our products or materials used to produce our products or, to the extent levied directly on consumers, make our products less affordable, which could negatively affect our financial results by reducing purchases of our products and encouraging consumers to switch to lower-priced or lower-taxed product categories. As governmental entities look for increased sources of revenue, they may increase taxes on beverage alcohol products. In fiscal 2021, we have observed excise tax increases in Turkey, France, Finland, Romania, the Mexican state of Michoacan, and the annual Australian increase tied to the consumer price index. Additionally, during fiscal 2021, several countries including Australia, Poland, and Brazil began to seriously consider changes to their overall beverage alcohol tax policies.

Our ability to market and sell our products depends heavily on societal attitudes toward drinking and governmental policies that both flow from and affect those attitudes.

Increased social and political attention has been directed at the beverage alcohol industry. For example, there remains continued attention focused largely on public health concerns related to alcohol abuse, including drunk driving, underage drinking, and the negative health impacts of the abuse and misuse of beverage alcohol. While most people who drink enjoy alcoholic beverages in moderation, it is commonly known and well reported that excessive levels or inappropriate patterns of drinking can lead to increased risk of a range of health conditions and, for certain people, can result in alcohol dependence. Some academics, public health officials, and critics of the alcohol industry in the United States, Europe, and other parts of the world continue to seek governmental measures to make beverage alcohol more expensive, less available, or more difficult to advertise and promote. If future scientific research indicates more widespread serious health risks associated with alcohol consumption – particularly with moderate consumption – or if for any reason the social acceptability of beverage alcohol declines significantly, sales of our products could be adversely affected.

Significant additional labeling or warning requirements or limitations on the availability of our products could inhibit sales of affected products.

Various jurisdictions have adopted or may seek to adopt significant additional product labeling or warning requirements or limitations on the availability of our products relating to the content or perceived adverse health consequences of some of our products. Several such labeling regulations or laws require warnings on any product with substances that the jurisdiction lists as

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potentially associated with cancer or birth defects. Our products already raise health and safety concerns for some regulators, and heightened requirements could be imposed. For example, in February 2021, the European Union published its Europe Beating Cancer Plan. As part of the plan, by the end of 2023, the European Union will issue a proposal for mandatory health warnings on beverage alcohol product labels. If additional or more severe requirements of this type are imposed on one or more of our major products under current or future health, environmental, or other laws or regulations, they could inhibit sales of such products. Further, we cannot predict whether our products will become subject to increased rules and regulations, which, if enacted, could increase our costs or adversely impact sales. For example, in 2020 in Australia and New Zealand, after concerted campaigning from advocacy groups, the government legislated mandatory pregnancy warning labels to be applied to alcohol beverages with a transition period of three years. Such campaigns could result in additional governmental regulations concerning the production, marketing, labeling, or availability of our products, any of which could damage our reputation, make our premium brands unrecognizable, or reduce demand for our products, which could adversely affect our profitability.

Counterfeiting or inadequate protection of our intellectual property rights could adversely affect our business prospects.

Our brand names, trademarks, and related intellectual property rights are critical assets, and our business depends on protecting them online and in the countries where we do business. We may not succeed in protecting our intellectual property rights in a given market or in challenging those who infringe our rights or imitate or counterfeit our products. Although we believe that our intellectual property rights are legally protected in the markets where we do business, the ability to register and enforce intellectual property rights varies from country to country. In some countries, for example, it may be more difficult to successfully stop counterfeiting or look-alike products, either because the law is inadequate or, even though satisfactory legal options may exist, it may be difficult to obtain and enforce sanctions against counterfeiters. We may not be able to register our trademarks in every country where we want to sell a particular product, and we may not obtain favorable decisions by courts or trademark offices.

Many global spirits brands, including some of our brands, experience problems with product counterfeiting and other forms of trademark infringement. We combat counterfeiting by working with other companies in the spirits industry through our membership in the Alliance Against Counterfeit Spirits (AACS) and with brand owners in other industries via our membership in React, an anti-counterfeiting network organization. While we believe AACS and React are effective organizations, they are not active in every market, and their efforts are subject to obtaining the cooperation of local authorities and courts in the markets where they are active. Despite the efforts of AACS, React, and our own teams, lower-quality and counterfeit products that could be harmful to consumers could reach the market and adversely affect our intellectual property rights, brand equity, corporate reputation, and financial results. In addition, the industry as a whole could suffer negative effects related to the manufacture, sale, and consumption of illegally produced beverage alcohol. In connection with the COVID-19 pandemic and its resulting economic impacts, government actions and interventions in local economies and businesses may create an elevated risk of, and opportunity for, counterfeiting.

Litigation and legal disputes could expose our business to financial and reputational risk.

Major private or governmental litigation challenging the production, marketing, promotion, distribution, or sale of beverage alcohol or specific brands could affect our ability to sell our products. Because litigation and other legal proceedings can be costly to defend, even actions that are ultimately decided in our favor could have a negative impact on our business reputation or financial results. Lawsuits have been brought against beverage alcohol companies alleging problems related to alcohol abuse, negative health consequences from drinking, problems from alleged marketing or sales practices, and underage drinking. While these lawsuits have been largely unsuccessful in the past, others may succeed in the future. We could also experience employment-related or cybersecurity-related class actions, environmental claims, commercial disputes, product liability actions stemming from a beverage or container production defect, a whistleblower suit, or other major litigation that could adversely affect our business results, particularly if there is negative publicity.

Governmental actions around the world to enforce trade practice, anti-money-laundering, anti-corruption, competition, tax, environmental, and other laws are also a continuing compliance risk for global companies such as ours. In addition, as a U.S. public company, we are exposed to the risk of securities-related class action suits, particularly following a precipitous drop in the share price of our stock. Adverse developments in major lawsuits concerning these or other matters could result in management distraction and have a material adverse effect on our business.

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Risks Related to Cybersecurity and Data Privacy

A cyber breach, a failure or corruption of one or more of our key information technology systems, networks, processes, associated sites, or service providers, or a failure to comply with personal data protection laws could have a material adverse impact on our business.

We rely on information technology (IT) systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software, and technical applications and platforms, some of which are managed, hosted, provided, or used by third parties or their vendors, to help us manage our business. The various uses of these IT systems, networks, and services include: hosting our internal network and communication systems; ordering and managing materials from suppliers; billing and collecting cash from our customers; supply/demand planning; inventory planning; production; shipping products to customers; paying our employees; hosting corporate strategic plans and employee data; hosting our branded websites and marketing products to consumers; collecting and storing data on suppliers, customers, consumers, stockholders, employees, former employees, and beneficiaries of employees or former employees; processing transactions; summarizing and reporting results of operations; hosting, processing, and sharing confidential and proprietary research, business plans, and financial reporting and information; complying with regulatory, legal, or tax requirements; providing data security; and handling other processes necessary to manage our business.

Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking, and other types of attacks, pose a risk to the security and availability of our IT systems, networks, and services, including those that are managed, hosted, provided, or used by third parties, as well as the confidentiality, availability, and integrity of our data and the data of our customers, partners, consumers, employees, stockholders, suppliers, and others. For example, in July 2020, we discovered a data breach incident involving malware and related behaviors that resulted in unauthorized access to our IT networks. We do not believe this incident had or will have any material impacts on our business operations, financial results, systems and processes, or the effectiveness of our internal control environment; however, any failure of our IT systems, networks, or service providers to function properly or the loss or disclosure of our business strategy or other sensitive information, due to any number of causes, ranging from catastrophic events to power outages to security breaches to usage errors by employees and other security issues, could cause us to suffer interruptions in our ability to manage operations and reputational, competitive, or business harm, which may adversely affect our business operations or financial results. In addition, such IT disruptions could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, customers, consumers, employees or former employees and their beneficiaries, stockholders, suppliers, or others. As a result of any cyber breach or IT disruption, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach, including to repair or replace networks and IT systems, which could require a significant amount of time, or to respond to claims from employees, former employees, stockholders, suppliers, customers, consumers, or others or pay significant fines to regulatory agencies. As a result of the COVID-19 pandemic, a greater number of our employees are working remotely and accessing our technology infrastructure remotely, which may further increase our vulnerability to the cyber risks described above. Furthermore, a cyber breach at any one of our suppliers, customers, or other direct or indirect business partners could have a material adverse effect on our business.

In the ordinary course of our business, we receive, process, transmit, and store information relating to identifiable individuals (personal data), primarily employees and former employees, but also relating to beneficiaries of employees or former employees, customers, and consumers. As a result, we are subject to various U.S. federal and state and foreign laws and regulations relating to personal data. These laws have been subject to frequent changes, and new legislation in this area may be enacted in other jurisdictions at any time. Such laws and regulations, including the California Consumer Protection Act, which became effective on January 1, 2020, the California Privacy Rights Act, which will take effect on January 1, 2023, the Virginia Consumer Data Protection Act, which will take effect on January 1, 2023, and the General Data Protection Registration (GDPR), which became effective in May 2018 for all European Union member states and has extraterritorial effect, have subjected and may continue to subject us to, among other things, additional costs and expenses and have required and may in the future require costly changes to our business practices and security systems, policies, procedures, and practices. Improper disclosure of personal data in violation of personal data protection laws, including the GDPR, could harm our reputation, cause loss of consumer confidence, subject us to government enforcement actions (including fines), or result in private litigation against us, which could result in loss of revenue, increased costs, liability for monetary damages, fines, or criminal prosecution, all of which could negatively affect our business and operating results.

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Risks Related to Our Ownership and Corporate Governance Structure

The Brown family has the ability to control the outcome of matters submitted for stockholder approval.

We are a “controlled company” under New York Stock Exchange rules. Controlled companies are exempt from New York Stock Exchange listing standards that require a board composed of a majority of independent directors, a fully independent nominating/corporate governance committee, and a fully independent compensation committee. We avail ourselves of the exemptions from having a board composed of a majority of independent directors and a fully independent nominating/corporate governance committee. Notwithstanding the available exemption, our Compensation Committee is composed exclusively of independent directors. As a result of our use of some “controlled company” exemptions, our corporate governance practices differ from those of non-controlled companies, which are subject to all of the New York Stock Exchange corporate governance requirements.

We have two classes of common stock. Our Class A common stock is entitled to full voting powers, including in the elections of directors, while our Class B common stock may not vote except as provided by the laws of Delaware. We have had two classes of common stock since 1959, when our stockholders approved the issuance of two shares of Class B non-voting common stock to every holder of our voting common stock. Such dual-class share structures have increasingly come under the scrutiny of major indices, institutional investors, and proxy advisory firms, with some calling for the reclassification of non-voting common stock.

A majority of our voting stock is controlled by members of the Brown family, and, collectively, they have the ability to control the outcome of stockholder votes, including the election of all of our directors and the approval or rejection of any merger, change of control, or other significant corporate transactions. We believe that having a long-term-focused, committed, and engaged stockholder base provides us with a distinct strategic advantage, particularly in a business with aged products and multi-generational brands. This advantage could be eroded or lost, however, should Brown family members cease, collectively, to be controlling stockholders of the Company.

We believe that it is in the interests of all stockholders that we remain independent and family-controlled, and we believe the Brown family stockholders share these interests. Thus, our common stock dual-class share structure, as it has existed since 1959, is perpetual, and we do not have a sunset provision in our Restated Certificate of Incorporation or By-laws that provides for the eventual reclassification of the non-voting common stock to voting common stock. However, the Brown family's interests may not always be aligned with other stockholders' interests. By exercising their control, the Brown family could cause the Company to take actions that are at odds with the investment goals or interests of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock price. Further, because the Brown family controls the majority of our voting stock, Brown-Forman might be a less attractive takeover target, which could adversely affect the market price of both our voting and our non-voting common stock. And the difference in voting rights for our common stock could also adversely and disproportionately affect the value of our Class B non-voting common stock to the extent that investors view, or any potential future purchaser of our Company views, the superior voting rights and control represented by the Class A common stock to have value.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Our company-owned production facilities include distilleries, a winery, bottling plants, an RTD canning plant, warehousing operations, sawmills, cooperages, visitors' centers, and retail shops. We also have agreements with other parties for contract production in Australia, Belgium, China, Finland, Ireland, Latvia, Mexico, the Netherlands, New Zealand, South Africa, the United Kingdom, and the United States.

In addition to our company-owned production locations and our corporate offices in Louisville, Kentucky, we lease office space for use in our sales, marketing, and administrative operations in the United States and in over 50 other cities around the globe. The lease terms expire at various dates and are generally renewable. We believe that our facilities are in good condition and are adequate for our business.

Principal Properties
Location	Principal Activities	Notes
United States:
Louisville, Kentucky	Corporate offices	Includes several renovated historic structures
	Distilling, bottling, warehousing	Home of Old Forester
	Visitors' center
	Cooperage	Brown-Forman Cooperage
Lynchburg, Tennessee	Distilling, bottling, warehousing	Home of Jack Daniel's
	Visitors' center
Woodford County, Kentucky	Distilling, bottling, warehousing	Home of Woodford Reserve
	Visitors' center
Windsor, California	Vineyards, winery, bottling, warehousing	Home of Sonoma-Cutrer
	Visitors' center
Trinity, Alabama	Cooperage	Jack Daniel Cooperage
Clifton, Tennessee	Stave and heading mill
Stevenson, Alabama	Stave and heading mill
Spencer, Indiana	Stave and heading mill
Jackson, Ohio	Stave and heading mill	Land is leased from a third party
International:
Cour-Cheverny, France	Distilling, bottling, warehousing	Home of Chambord
Amatitán, Mexico	Distilling, bottling, warehousing, RTD canning	Home of Herradura and el Jimador
	Visitors' center
Slane, Ireland	Distilling	Home of Slane Irish Whiskey
	Visitors' center
Aberdeenshire, Scotland	Distilling, warehousing	Home of Glendronach
	Visitors' center
Morayshire, Scotland	Distilling, warehousing	Home of Benriach
	Visitors' center
Newbridge, Scotland	Bottling
Portsoy, Scotland	Distilling, warehousing	Home of Glenglassaugh
	Visitors' center

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Item 3. 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 suits will have, individually or in the aggregate, a material adverse effect on our financial position, results of operations, or liquidity.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our Class A and Class B common stock is traded on the New York Stock Exchange under the symbols “BFA” and “BFB,” respectively. As of May 31, 2021, there were 2,490 holders of record of Class A common stock and 4,940 holders of record of Class B common stock. Because of overlapping ownership between classes, as of May 31, 2021, we had only 5,130 distinct common stockholders of record.

Stock Performance Graph

The graph below compares the cumulative total shareholder return of our Class B common stock for the last five fiscal years with the Standard & Poor's (S&P) 500 Index, the Dow Jones U.S. Consumer Goods Index, and the Dow Jones U.S. Food & Beverage Index. The information presented assumes an initial investment of $100 on April 30, 2016, and that all dividends were reinvested. The graph shows the value that each of these investments would have had on April 30 in the years since 2016.

	2016	2017	2018	2019	2020	2021
Brown-Forman Corporation	$100	$100	$152	$147	$173	$214
S&P 500 Total Return Index	$100	$118	$134	$152	$153	$223
Dow Jones U.S. Consumer Goods Index	$100	$109	$107	$120	$119	$185
Dow Jones U.S Food & Beverage Index	$100	$107	$104	$119	$118	$148

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Item 6. Selected Financial Data

This selected financial data should be read in conjunction with “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the accompanying Notes contained in “Item 8. Financial Statements and Supplementary Data.”

	(Dollars in millions, except per share amounts)
	2017			2018			2019			2020			2021
For Year Ended April 30:
Sales	$	3,857		$	4,201		$	4,276		$	4,306		$	4,526
Excise taxes	$	863		$	953		$	952		$	943		$	1,065
Net sales	$	2,994		$	3,248		$	3,324		$	3,363		$	3,461
Gross profit	$	2,021		$	2,202		$	2,166		$	2,127		$	2,094
Operating income	$	1,010		$	1,048		$	1,144		$	1,091		$	1,166
Net income	$	669		$	717		$	835		$	827		$	903
Weighted average shares (in millions) used to calculate earnings per share
– Basic	484.6			480.3			479.0			477.8			478.5
– Diluted	488.1			484.2			482.1			480.4			480.7
Earnings per share from continuing operations
– Basic	$	1.38		$	1.49		$	1.74		$	1.73		$	1.89
– Diluted	$	1.37		$	1.48		$	1.73		$	1.72		$	1.88
Gross margin	67.5		%	67.8		%	65.2		%	63.2		%	60.5		%
Operating margin	33.8		%	32.3		%	34.4		%	32.4		%	33.7		%
Effective tax rate	28.3		%	26.6		%	19.8		%	18.0		%	16.5		%
Average invested capital	$	3,591		$	3,832		$	4,125		$	4,387		$	4,966
Return on average invested capital	19.8		%	20.0		%	22.0		%	20.4		%	19.6		%
Cash provided by operations	$	656		$	653		$	800		$	724		$	817
Cash dividends declared per common share	$	0.5640		$	1.6080		$	0.6480		$	0.6806		$	0.7076
Dividend payout ratio	40.9		%	107.8		%	37.2		%	39.3		%	37.5		%
As of April 30:
Total assets	$	4,625		$	4,976		$	5,139		$	5,766		$	6,522
Long-term debt	$	1,689		$	2,341		$	2,290		$	2,269		$	2,354
Total debt	$	2,149		$	2,556		$	2,440		$	2,602		$	2,559

Notes:

1.	Results for fiscal 2021 include a pre-tax gain on sale of $127 million from the divestiture of Early Times, Canadian Mist, and Collingwood and related assets.
2.	Weighted average shares, earnings per share, and cash dividends declared per common share have been adjusted for a 2-for-1 stock split in August 2016 and a 5-for-4 stock split in February 2018.
3.	See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Presentation Basis – Non-GAAP Financial Measures” for details on our use of “return on average invested capital,” including how we calculate this measure and why we think this information is useful to readers.
4.	Cash dividends declared per common share and the dividend payout ratio include a special cash dividend of $1.00 in fiscal 2018.
5.	We define dividend payout ratio as cash dividends divided by net income.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader better understand Brown-Forman, our operations, our financial results, and our current business environment. Please read this MD&A in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in “Item 8. Financial Statements and Supplementary Data” (the Consolidated Financial Statements).

Our MD&A is organized as follows:

Table of Contents
	Page
Presentation basis. This MD&A reflects the basis of presentation described in Note 1 “Accounting Policies” to the Consolidated Financial Statements. In addition, we define statistical and non-GAAP financial measures that we believe help readers understand our results of operations and the trends affecting our business.	31
Significant developments. We discuss developments during the most recent two fiscal years. Please read this section in conjunction with “Item 1. Business,” which provides a general description of our business and strategy.	35
Executive summary. We discuss (a) fiscal 2021 highlights and (b) our outlook for fiscal 2022, including the trends, developments, and uncertainties that we expect to affect our business.	37
Results of operations. We discuss (a) fiscal 2021 results for our largest markets, (b) fiscal 2021 results for our largest brands, and (c) the causes of year-over-year changes in our statements of operations line items, including transactions and other items that affect the comparability of our results, for fiscal years 2021 and 2020.	40
Liquidity and capital resources. We discuss (a) the causes of year-over-year changes in cash flows from operating activities, investing activities, and financing activities; (b) recent and expected future capital expenditures; (c) dividends and share repurchases; and (d) our liquidity position, including capital resources available to us.	47
Off-balance sheet arrangements.	48
Long-term obligations.	49
Critical accounting policies and estimates. We discuss the critical accounting policies and estimates that require significant management judgment.	49

Presentation Basis

Non-GAAP Financial Measures

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

“Underlying change” in measures of statements of operations. We present changes in certain measures, or line items, of the statements of operations that are adjusted to an “underlying” basis. We use “underlying change” for the following measures of the statements of operations: (a) underlying net sales; (b) underlying cost of sales; (c) underlying gross profit; (d) underlying advertising expenses; (e) underlying selling, general, and administrative (SG&A) expenses; (f) underlying other expense (income) net; (g) underlying operating expenses1; and (h) underlying operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, (3) estimated net changes in distributor inventories, (4) a non-cash write-down of the Chambord brand name, and (5) a commitment to our charitable foundation. 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.

In fiscal 2020, we acquired The 86 Company, which owns Fords Gin. 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.

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

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Also, during fiscal 2021, we acquired Part Time Rangers Limited, which owns Part Time Rangers RTDs. See Note 12 to the Condensed Consolidated Financial Statements for details.

This adjustment removes (a) transaction and integration costs related to the acquisitions and divestitures, (b) operating activity for The 86 Company for the non-comparable period, which is activity in the first quarter of fiscal 2021, (c) the gain on sale of Early Times, Canadian Mist, and Collingwood and related assets, (d) operating activity for the non-comparable period for Early Times, Canadian Mist, and Collingwood, which is activity in the second, third, and fourth quarters for both fiscal 2020 and fiscal 2021, (e) the net sales and operating expenses recognized in fiscal 2021 pursuant to the TSA related to (i) contract bottling services and (ii) distribution services in certain markets, and (f) operating activity for Part Time Rangers Holdings Limited for the non-comparable period, which is activity in the third and fourth quarters of fiscal 2021. We believe that these adjustments allow for us to better understand our underlying results on a comparable basis.

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

•“Estimated net change in distributor inventories.” This adjustment refers to the estimated net effect of changes in distributor inventories on changes in certain line items of the statements of operations. For each period compared, we use 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.

•“Chambord impairment.” During fiscal 2020, we recognized a non-cash impairment charge of $13 million for our Chambord brand name. See “Critical Accounting Policies and Estimates” below and Note 4 to the Consolidated Financial Statements for details.

•“Foundation.” In fiscal 2021, we committed $20 million to the Brown-Forman Foundation (the Foundation) to support the communities where our employees live and work. This adjustment removes the $20 million commitment to the Foundation from our underlying SG&A expenses and underlying operating income to present our underlying results on a comparable basis.

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

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

“Return on average invested capital.” This measure refers to the sum of net income and after-tax interest expense, divided by average invested capital. Average invested capital equals assets less liabilities, excluding interest-bearing debt, and is calculated using the average of the most recent 13 month-end balances. After-tax interest expense equals interest expense multiplied by one minus our effective tax rate. We use this non-GAAP measure because we consider it to be a meaningful indicator of how effectively and efficiently we invest capital in our business.

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.

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Geographic Aggregations.

In “Results of Operations - Fiscal 2021 Market Highlights,” we provide supplemental information for our largest markets ranked by percentage of total fiscal 2021 net sales. In addition to markets 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 2021 Brand Highlights,” we provide supplemental information for our largest brands ranked by percentage of total fiscal 2021 net sales. In addition to brands 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. Also includes the Early Times, Canadian Mist, and Collingwood brands, which we divested during the first quarter of fiscal 2021. See Note 12 to the Condensed Consolidated Financial Statements for details.

◦“American whiskey” includes the Jack Daniel's family of brands, premium bourbons (defined below), super-premium American whiskey (defined below), and Early Times, which we divested during the first quarter of fiscal 2021.

▪“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.

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

Other Metrics.

•“Depletions.” We generally record revenues when we ship or deliver our products to our customers. “Depletions” is a term commonly used in the beverage alcohol industry to describe volume. Depending on the context, depletions usually means

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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.

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Significant Developments

Below we discuss the significant developments in our business during fiscal 2020 and fiscal 2021. These developments relate to the COVID-19 pandemic (COVID-19), innovation, acquisitions and divestitures, and capital deployment.

COVID-19

The ongoing COVID-19 pandemic continues to impact the global economy and create economic uncertainty, even with multiple vaccines in various stages of deployment worldwide. Governments around the world imposed restrictions on travel and business operations and placed limitations on the size of public and private gatherings of their citizens. As a result of such restrictions, many businesses have either been closed or their operations have been modified. The bar, restaurant, airline, cruise, and related hospitality industries were particularly impacted as the ability to travel and gather was severely limited or restricted. However, during the fourth quarter of fiscal 2021, the operating environment in some markets began to improve, particularly as the on-premise channel began to recover and some degree of travel resumed through our Travel Retail channel.

While the financial impact of COVID-19 on our business is difficult to measure, it had an effect on our fiscal 2021 financial performance, both positive and negative. We experienced strong off-premise gains across many of our developed markets, reflecting an increase in at-home consumption and exceptional growth in the e-premise channel. Conversely, the negative impact was concentrated in (a) the on-premise (representing approximately 20% of our business globally prior to COVID-19) as a result of the restrictions in the channel, (b) our Travel Retail channel (representing approximately 4% of our business prior to COVID-19) as a result of travel bans and other restrictions, and (c) certain emerging markets where we have seen evidence of consumers trading down from premium spirit categories where our portfolio is focused. We further discuss the effect of COVID-19 on our results where relevant below.

We believe we remain in a strong financial position, and our capacity to generate solid operating cash flow remains sound. Additionally, we have no maturities of long-term debt until fiscal 2023. See “Liquidity and Capital Resources” below for details.

Innovation

•Jack Daniel's family of brands. Innovation within the Jack Daniel's family of brands has contributed to our growth in the last two years as described below.

◦In fiscal 2020, we launched Jack Daniel's Tennessee Apple in the United States and a few select international markets.

◦In fiscal 2021, we continued the international launch of Jack Daniel's Tennessee Apple, launching in certain developed international and emerging markets. We also introduced new spirit-based RTD products in the United States.

•Other American whiskeys. We continue to capitalize on consumers' interest in premium-plus whiskey with our wide range of brands, including Woodford Reserve and Old Forester.

◦We introduced Woodford Reserve Straight Wheat in fiscal 2020.

•Tequila brands. Tequila continues to be an attractive category, particularly in the United States, with both Herradura and el Jimador contributing significantly to our overall net sales growth.

◦In fiscal 2021, we introduced Herradura Legend in the United States.

Acquisitions and Divestitures

•In fiscal 2020, we acquired The 86 Company, which owns Fords Gin. During fiscal 2021, we sold our Early Times, Canadian Mist, and Collingwood brands and related assets. Also in fiscal 2021, we acquired Part Time Rangers Holdings Limited, which owns Part Time Rangers RTDs. See Note 12 to the Condensed Consolidated Financial Statements for details.

Capital Deployment

•Beyond the acquisitions described above, we have focused our capital deployment initiatives on (a) ensuring adequate liquidity and flexibility during the COVID-19 pandemic, while investing fully behind our existing business, and (b) returning cash to our stockholders through regular dividends.

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•Investments. During fiscal 2020 and fiscal 2021, our capital expenditures totaled $175 million and focused on enabling the growth of our premium whiskey brands:

◦Woodford Reserve. We built two additional new warehouses to support the brand's anticipated future growth.

◦Brown-Forman Cooperage. We modernized our cooperage operations in Louisville, Kentucky.

◦During fiscal 2021, a $125 million capital investment was approved by our Board of Directors to expand our bourbon-making capacity in Kentucky to meet anticipated future consumer demand.

•Cash returned to stockholders. During fiscal 2020 and fiscal 2021, we returned $663 million to our stockholders through regular dividends.

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Executive Summary

Fiscal 2021 Highlights

•We delivered reported net sales of $3.5 billion, an increase of 3% compared to fiscal 2020. Excluding an estimated net decrease in distributor inventories and the positive effect of foreign exchange, we grew underlying net sales 6%. Net sales for our markets and brands were affected both positively and negatively by COVID-19 throughout fiscal 2021.

◦From a brand perspective, underlying growth was driven by (a) JD RTDs; (b) our premium bourbon brands, led by Woodford Reserve and Old Forester; (c) our tequila brands; (d) the international launch of JDTA; and (e) broad-based growth of JDTH. These gains were partially offset by JDTW declines in (a) Travel Retail and certain emerging markets, largely reflecting the implementation of travel bans and other restrictions related to COVID-19, (b) lower volumes in the on-premise channel, and (c) unfavorable channel mix, most notably in the United States.

◦From a geographic perspective, the United States and developed international markets led the underlying net sales growth, with certain emerging markets also contributing. These gains were partially offset by a decline in underlying net sales in our Travel Retail channel, certain other emerging markets, and sales of used barrels.

•We delivered reported operating income of $1.2 billion, an increase of 7% compared to fiscal 2020. Underlying operating income grew 4% after adjusting for (a) the effect of acquisitions and divestitures, (b) an estimated net decrease in distributor inventories, (c) the positive effect of foreign exchange, (d) the $20 million commitment to the Foundation, and (e) the effect of the Chambord impairment. The increase in underlying operating income reflects underlying net sales growth and operating expense leverage, partially offset by higher input costs, lower fixed cost absorption, and an unfavorable shift in portfolio mix towards lower-margin brands.

•We delivered diluted earnings per share of $1.88, an increase of 9% compared to fiscal 2020, due to an increase in reported operating income and the benefit of a lower effective tax rate. This includes an estimated $0.20 per share benefit from the gain on sale of Early Times, Canadian Mist, and Collingwood and related assets.

•Our return on average invested capital decreased to 19.6% in fiscal 2021, compared to 20.4% in fiscal 2020. This decrease was driven by higher average invested capital.

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Summary of Operating Performance Fiscal 2020 and Fiscal 2021

							2020 vs. 2021
Fiscal year ended April 30	2020			2021			Reported Change		Underlying Change1
Net sales	$	3,363		$	3,461		3	%	6	%
Cost of sales	1,236			1,367			11	%	12	%
Gross profit	2,127			2,094			(2	%)	3	%
Advertising	383			399			4	%	2	%
SG&A	642			671			4	%	—	%
Gain on sale of business	$	—		$	(127)		NA		NA
Other expense (income), net	$	11		$	(15)		(248	%)	(33	%)
Operating income	$	1,091		$	1,166		7	%	4	%
Total operating expenses2	$	1,036		$	1,055		2	%	1	%
As a percentage of net sales3
Gross profit	63.2		%	60.5		%	(2.7	pp)
Operating income	32.4		%	33.7		%	1.3	pp
Interest expense, net	$	77		$	79		2	%
Effective tax rate	18.0		%	16.5		%	(1.5	pp)
Diluted earnings per share	$	1.72		$	1.88		9	%
Return on average invested capital1	20.4		%	19.6		%	(0.8	pp)

1See “Non-GAAP Financial Measures” above for details on our use of “underlying change” and “return on average invested capital,” including how we calculate these measures and why we think 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

We expect the operating environment to continue to improve, particularly as the on-premise channel recovers and some degree of travel resumes through our Travel Retail channel. The pace of recovery is unknown and will vary depending on the state of the pandemic, vaccinations, and timing of re-openings.

We remain confident in the collective strength of our developed markets as they should benefit from the re-opening of the on-premise channel and increase in tourism. Additionally, we believe our portfolio remains well positioned to capitalize on the continuing spirits premiumization trend. In aggregate, we expect strong growth in our emerging markets, as well as Travel Retail, as we cycle against significant net sales declines in fiscal 2021 and begin to stabilize and recover. Further, we do not expect our non-branded and bulk activities, mainly used barrels sales, to have a material impact on our results.

There are a number of factors that we expect will help improve our gross margin, including lower agave costs, which will reflect a higher mix of internally-sourced agave along with historically high agave costs beginning to reverse. Additionally, the effect of a portfolio mix shift toward our higher-margin brands, a positive channel mix shift as the on-premise continues to recover, and the absence of both lower-margin sales and the TSA related to the Early Times, Canadian Mist, and Collingwood brands, which we sold during fiscal 2021, will also help improve our gross margin. Conversely, factors that we expect to negatively impact our gross margins are an increase in costs related to supply chain disruptions, including transportation costs, and the impact of higher inflation on commodity prices, such as grain and fuel. The European Union tariffs imposed on American whiskey, which began in June of 2019, continue to have a negative effect on our gross margin. The removal of these tariffs would have a positive impact on our gross margin, and business as a whole, while an increase of these tariffs would have a further negative impact on our margins and business. Ultimately, our full-year gross margin will depend not only on the volumes of our business, but the mix of our business by geography, portfolio, channel, and size.

As a result of these factors coupled with unusual comparisons to last year, we expect the seasonality of our results to be volatile during the year, particularly underlying advertising expense and underlying operating income.

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Outlook for Key Measures:

•We expect both our underlying net sales and underlying operating income to grow in the mid-single digits.

•We expect our underlying operating expenses to grow in the mid-single digits as we continue to invest behind our brands to support our top-line growth and begin to activate a number of strategic initiatives.

•We expect our effective tax rate to be higher than the 16.5% registered in fiscal 2021, reflecting the absence of discrete items. We estimate the effective tax rate to more closely approximate our fiscal 2021 rate from operations of about 21-22%.

•We expect our capital expenditures to be between $130 and $150 million.

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Results of Operations

Fiscal 2021 Market Highlights

The following table shows net sales results for our largest markets, summarized by geographic area, for fiscal 2021 compared to fiscal 2020. We discuss results of the markets most affecting our performance below the table.

Top Markets
			Net Sales % Change vs. 2020
Geographic area1	% of Fiscal 2021 Net Sales		Reported		Acquisitions and Divestitures		Foreign Exchange		Estimated Net Chg in Distributor Inventories		Underlying2
United States	50	%	3	%	1	%	—	%	6	%	10	%
Developed International	29	%	13	%	—	%	(6	%)	3	%	10	%
Australia	6	%	35	%	—	%	(8	%)	—	%	27	%
Germany	6	%	21	%	—	%	(4	%)	—	%	17	%
United Kingdom	6	%	14	%	—	%	(10	%)	2	%	6	%
France	4	%	17	%	—	%	(5	%)	—	%	12	%
Canada	1	%	2	%	1	%	2	%	3	%	8	%
Rest of Developed International	6	%	(10	%)	—	%	(4	%)	8	%	(6	%)
Emerging	17	%	1	%	—	%	4	%	1	%	6	%
Mexico	4	%	(4	%)	—	%	9	%	—	%	5	%
Poland	3	%	9	%	—	%	(1	%)	—	%	7	%
Brazil	2	%	37	%	—	%	28	%	(1	%)	64	%
Russia	1	%	(11	%)	1	%	2	%	8	%	—	%
Rest of Emerging	7	%	(2	%)	—	%	1	%	(1	%)	(2	%)
Travel Retail	2	%	(50	%)	—	%	—	%	1	%	(48	%)
Non-branded and bulk	2	%	(23	%)	(6	%)	(1	%)	—	%	(31	%)
Total	100	%	3	%	—	%	(1	%)	4	%	6	%
Note: Results may differ due to rounding

1See “Definitions” above for definitions of market aggregations presented here.

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

Net sales in all of the markets discussed below were affected either positively or negatively by COVID-19 during fiscal 2021. See “Significant Developments - COVID-19” above for more information on the impact of COVID-19 on our results.

•The United States, our most important market, represented 50% of our reported net sales, which grew 3% in fiscal 2021. Underlying net sales increased 10% after adjusting for an estimated net decrease in distributor inventories and the effect of acquisitions and divestitures. The net decrease in distributor inventories reflects the give back of the fiscal 2020 year-end distributor inventory build due to uncertainty related to COVID-19 as well as distributor inventories at the end of fiscal 2021 that were lower than their pre-COVID-19 levels due to supply chain disruptions, including availability of both glass and timely modes of transportation to ship our products.

Underlying net sales growth was driven by (a) our premium bourbons, led by Woodford Reserve and Old Forester, supported by strong consumer takeaway trends; (b) JD RTDs, fueled by strong consumer demand for Jack Daniel's Country Cocktails and the launch of new spirit-based RTD products; (c) our tequilas, due to higher volumes and prices of Herradura and el Jimador; (d) higher volumes and prices of Korbel Champagne; and (e) volumetric growth of JDTH and Gentleman Jack. This growth was partially offset by lower net sales of JDTW, reflecting volume declines in the on-premise channel along with unfavorable channel mix related to COVID-19 restrictions in the channel, which was partially offset by increased volumes in the off-premise channel.

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•Developed International markets represented 29% of our reported net sales, which grew 13% in fiscal 2021. Underlying net sales increased 10% after adjusting for the positive effect of foreign exchange and an estimated net decrease in distributor inventories. Underlying net sales growth was led by Australia, Germany, France, and the United Kingdom, partially offset by declines in Spain and Czechia reflecting COVID-19 related closures in these heavy tourism and on-premise-focused markets.

◦Australia's underlying net sales growth was driven by higher volumes of JD RTDs, fueled by strong consumer demand, and volumetric growth of our American whiskey brands.

◦Germany's underlying net sales growth was fueled by the volumetric gains of JD RTDs due to strong consumer demand and the launch of JDTA.

◦France's underlying net sales growth was driven by the launch of JDTA and higher volumes of JDTH and JDTW.

◦The United Kingdom's underlying net sales growth was driven by the launch of JDTA and higher volumes of JDTH, partially offset by lower net sales of JDTW, reflecting volume declines in the on-premise channel related to COVID-19 restrictions.

◦Underlying net sales in the Rest of Developed International declined primarily due to lower volumes of JDTW in Spain and Czechia as noted above.

•Emerging markets represented 17% of our reported net sales, which grew 1% in fiscal 2021. Underlying net sales increased 6% after adjusting for the negative effect of foreign exchange and an estimated net decrease in distributor inventories. Underlying net sales growth was driven by (a) higher volumes of JDTW in Brazil, Poland, and China; (b) higher volumes of New Mix in Mexico; (c) the continued launch of JDTA, most notably in Brazil; and (d) growth of JDTH, most notably in Brazil. This growth was partially offset by (a) JDTW declines in certain markets, reflecting declines in tourism and consumers trading down to lower-priced brands, (b) lower volumes of Herradura in Mexico, and (c) broad-based declines of Finlandia led by Russia and Poland.

◦Mexico's underlying net sales growth reflects higher volumes of New Mix supported by increased demand and shelf space as a result of the temporary supply disruption of the beer industry early in fiscal 2021 due to COVID-19 production-related shutdowns and expanding consumer takeaway. This growth was partially offset by lower volumes of Herradura and JDTW largely due to consumers trading down to lower-priced brands.

◦Poland's underlying net sales growth was fueled by higher volumes of JDTW, partially offset by lower volumes of Finlandia, including the adverse effect of COVID-19.

◦Brazil's underlying net sales growth was driven by higher volumes of JDTW, the launch of JDTA, and volumetric growth of JDTH.

◦Underlying net sales in the Rest of Emerging decreased as declines of JDTW in a number of markets, primarily Southeast Asia and India, were partially offset by growth for the brand in China, Ukraine, and Turkey.

•Travel Retail represented 2% of our reported net sales and declined 50% in fiscal 2021. Underlying net sales decreased 48% after adjusting for an estimated net decrease in distributor inventories. The underlying net sales decline was driven by lower volumes across much of our portfolio due to travel bans and other restrictions related to COVID-19.

•Non-branded and bulk represented 2% of our reported net sales and declined 23% in fiscal 2021. Underlying net sales decreased 31% after adjusting for the effect of acquisitions and divestitures and the positive effect of foreign exchange. Lower prices and volumes for used barrels drove the reduction compared to the same period last year.

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Fiscal 2021 Brand Highlights

The following table highlights the global results of our largest brands for fiscal 2021 compared to fiscal 2020. We discuss results of the brands most affecting our performance below the table.

Major Brands
	Volumes		Net Sales % Change vs. 2020
Product category / brand family / brand1	9L Depletions1		Reported		Acquisitions & Divestitures		Foreign Exchange		Estimated Net Chg in Distributor Inventories		Underlying2
Whiskey	12	%	3	%	1	%	(1	%)	4	%	7	%
Jack Daniel’s family of brands	12	%	1	%	—	%	(1	%)	4	%	4%
JDTW	(4	%)	(8	%)	—	%	(1	%)	4	%	(4%)
JD RTD/RTP	32	%	39	%	—	%	(2	%)	(3	%)	34%
JDTH	10	%	14	%	—	%	(1	%)	(2	%)	11%
Gentleman Jack	15	%	11	%	—	%	(1	%)	2	%	13	%
JDTF	4	%	(3	%)	—	%	—	%	7	%	3	%
JDTA	120	%	24	%	—	%	(2	%)	76	%	98	%
Other Jack Daniel’s whiskey brands	—	%	1	%	—	%	(2	%)	6	%	6	%
Woodford Reserve	18	%	16	%	—	%	—	%	5	%	20	%
Tequila	20	%	9	%	—	%	4	%	1	%	14	%
Herradura	(2	%)	15	%	—	%	2	%	(1	%)	15	%
el Jimador	(5	%)	2	%	—	%	1	%	4	%	7	%
Wine	10	%	10	%	—	%	—	%	3	%	14	%
Vodka (Finlandia)	(14	%)	(18	%)	—	%	—	%	2	%	(16	%)
Rest of Portfolio	1	%	37	%	(4	%)	(26	%)	(1	%)	6	%
Non-branded and bulk	NA		(23	%)	(6	%)	(1	%)	—	%	(31	%)
Note: Results may differ due to rounding

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

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

Net sales for all of the brands discussed below were affected either positively or negatively by COVID-19 during fiscal 2021. See “Significant Developments - COVID-19” above for more information on the impact of COVID-19 on our results.

•Whiskey brands grew volumes 12% in fiscal 2021. Reported net sales grew 3%, while underlying net sales increased 7% after adjusting for an estimated net decrease in distributor inventories, the positive effect of foreign exchange, and the effect of acquisitions and divestitures. Underlying net sales growth was driven by (a) the growth of JD RTDs; (b) our premium bourbons, led by Woodford Reserve and Old Forester, supported by strong consumer takeaway trends; (c) the launch of JDTA in certain international developed and emerging markets; and (d) volumetric growth of JDTH and Gentleman Jack. This growth was partially offset by JDTW declines.

◦The Jack Daniel's family of brands grew underlying net sales driven by JD RTDs, the launch of JDTA in certain international developed and emerging markets, and higher volumes of JDTH and Gentleman Jack, partially offset by declines of JDTW.

•JDTW generates a significant percentage of our total net sales and is our top priority. The brand is the largest spirit brand in the world priced over $25 per 750 ml per bottle1 and the world's fourth-largest premium spirits brand measured by volume.2 The underlying net sales declines for JDTW were driven by (a) lower volumes in

1IWSR, 2020.

2Based on industry statistics published by Impact Databank, a well-known U.S. trade publication, in March 2021

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Travel Retail and certain emerging markets, largely reflecting the travel bans and other restrictions related to COVID-19; (b) lower volumes in the on-premise channel in the United States and many developed international markets; and (c) unfavorable channel mix, notably in the United States, related to COVID-19 restrictions in the on-premise channel, which was partially offset by increased volumes in the off-premise channel in those markets.

•The increase in underlying net sales growth for Jack Daniel's RTD/RTP was driven by volumetric gains in the United States (fueled by Jack Daniel's Country Cocktails, along with the launch of new spirit-based RTD products), Australia, and Germany, which was supported by strong consumer takeaway trends.

•Since its introduction in late fiscal 2011, JDTH has contributed significantly to our net sales growth. JDTH is the second-largest selling flavored whiskey1 and remains one of the top 25 largest brands in the world priced over $25 per 750 ml bottle.2 Underlying net sales growth was fueled by broad-based volumetric gains, primarily in the United States, various European markets, and Brazil, partially offset by declines in Travel Retail due to the implementation of travel bans and other restrictions related to COVID-19.

•The underlying net sales growth of Gentleman Jack, which was selected as an Impact “Hot Brand”1, was driven by broad-based growth led by increased volumes in the United States reflecting the brand's high exposure to the off-premise channel. These gains were partially offset by declines in Travel Retail reflecting travel bans and other restrictions related to COVID-19.

•The underlying net sales growth of JDTA was fueled by the brand's launch in certain international developed and emerging markets, notably in the United Kingdom, France, Germany, and Brazil.

◦Woodford Reserve is the leading super-premium American whiskey globally2, and is poised for continued growth as the bourbon category continues to grow around the world. The brand was once again selected as an Impact “Hot Brand.”1 The United States is by far the brand's most important market and was responsible for most of its growth during fiscal 2021. This growth was partially offset by declines in Travel Retail reflecting travel bans and other restrictions related to COVID-19. We plan to continue to devote substantial resources to Woodford Reserve to support its growth potential with sustained advertising, including our Kentucky Derby sponsorship, along with the fiscal 2021 approval of a $125 million capital investment to expand our bourbon-making capacity in Kentucky.

•Tequila volumes grew 20% in fiscal 2021. Reported net sales increased 9%, while underlying net sales grew 14% after adjusting for the negative effect of foreign exchange and an estimated net decrease in distributor inventories. The increase in underlying net sales was driven by (a) Herradura and el Jimador growth in the United States; and (b) higher volumes of New Mix in Mexico supported by increased demand and shelf space as a result of the temporary supply disruption of the beer industry in the first quarter due to COVID-19 related production shutdowns, and expanding consumer takeaway. This growth was partially offset by Herradura and el Jimador declines in Mexico.

◦Herradura's underlying net sales growth was driven by increased volumes and higher prices in the United States, partially offset by lower volumes in Mexico. We remain focused on developing Herradura in the important United States market (which we believe has considerable potential for growth) and strengthening our position in Mexico.

◦el Jimador remains one of the top ten largest selling tequilas measured by volume.2 Underlying net sales growth was driven by increased volumes and higher prices in the United States, partially offset by lower volumes in Mexico.

•Wine grew volumes 10% in fiscal 2021. Reported net sales also grew 10%, while underlying net sales increased 14% after adjusting for an estimated net decrease in distributor inventories. Underlying net sales growth was driven by volumetric growth and higher prices of Korbel Champagne in the United States, where this brand is focused.

•Finlandia volumes fell 14% in fiscal 2021. Reported net sales decreased 18%, while underlying net sales declined 16% after adjusting for an estimated net decrease in distributor inventories. The decrease in underlying net sales was driven by volume declines, primarily in Travel Retail and Russia.

•Non-branded and bulk. See discussion for this aggregation in “Results of Operations - Fiscal 2021 Market Highlights” above.

1Impact Databank published the Impact's “Hot Brands - Spirits” list in March 2021.

2IWSR, 2020.

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Year-Over-Year Comparisons

Commentary below compares fiscal 2021 to fiscal 2020 results. A comparison of fiscal 2020 to fiscal 2019 results may be found in “Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2020, as amended (2020 Form 10-K).

COVID-19 affected our results both positively and negatively during fiscal 2021. See “Significant Developments - COVID-19” above for more information on the impact of COVID-19 on our business.

Net Sales
Percentage change versus the prior fiscal year ended April 30	2021
Change in reported net sales	3	%
Acquisitions and divestitures	—	%
Foreign exchange	(1	%)
Estimated net change in distributor inventories	4	%
Change in underlying net sales	6	%
Change in underlying net sales attributed to:
Volume	12	%
Price/mix	(6	%)
Note: Results may differ due to rounding

Net sales of $3.5 billion increased 3%, or $98 million, in fiscal 2021 compared to fiscal 2020. After adjusting reported results for an estimated net decrease in distributor inventories and the positive effect of foreign exchange, underlying net sales grew 6%. The net decrease in distributor inventories reflects the give back of the fiscal 2020 year-end distributor inventory build due to uncertainty related to COVID-19 as well as distributor inventories at the end of fiscal 2021 that were lower than their pre-COVID-19 levels due to supply chain disruptions, including availability of both glass and timely modes of transportation to ship our products globally. The increase in underlying net sales was driven by higher volumes, partially offset by unfavorable price/mix. Volume growth was led by JD RTDs, New Mix, JDTA, and JDTH, partially offset by declines of JDTW and Finlandia. Unfavorable price/mix was driven by faster growth from our lower-priced brands (JD RTDs and New Mix) and a channel mix shift from the on-premise (primarily for JDTW in the United States) related to COVID-19 restrictions. See “Results of Operations - Fiscal 2021 Market Highlights” and “Results of Operations - Fiscal 2021 Brand Highlights” above for details on the factors contributing to the change in underlying net sales for fiscal 2021.

Cost of Sales
Percentage change versus the prior fiscal year ended April 30	2021
Change in reported cost of sales	11	%
Foreign exchange	(1	%)
Estimated net change in distributor inventories	2	%
Change in underlying cost of sales	12	%
Change in underlying cost of sales attributed to:
Volume	12	%
Cost/mix	—	%
Note: Results may differ due to rounding

Cost of sales of $1.4 billion increased $131 million, or 11%, in fiscal 2021 compared to fiscal 2020. Underlying cost of sales grew 12% after adjusting for an estimated net decrease in distributor inventories and the negative effect of foreign exchange. The increase in underlying cost of sales was driven by higher volumes. Volume growth was led by JD RTDs, New Mix, JDTA, and JDTH, partially offset by declines of JDTW and Finlandia. A shift in portfolio mix toward our lower-cost brands (New Mix and JD RTDs) was offset by higher input costs related to wood and agave along with lower fixed cost absorption for JDTW.

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Gross Profit
Percentage change versus the prior fiscal year ended April 30	2021
Change in reported gross profit	(2	%)
Acquisitions and divestitures	1	%
Foreign exchange	(1	%)
Estimated net change in distributor inventories	4	%
Change in underlying gross profit	3	%
Note: Results may differ due to rounding

Gross Margin
Fiscal year ended April 30	2021
Prior year gross margin	63.2	%
Price/mix	(0.5	%)
Cost	(2.0	%)
Acquisitions and divestitures	(0.2	%)
Change in gross margin	(2.7	%)
Current year gross margin	60.5	%
Note: Results may differ due to rounding

Gross profit of $2.1 billion decreased $33 million, or 2%, in fiscal 2021 compared to fiscal 2020. Underlying gross profit increased 3% after adjusting for (a) an estimated net decrease in distributor inventories, (b) the positive effect of foreign exchange, and (c) the effect of acquisitions and divestitures. Gross margin decreased to 60.5% in fiscal 2021, down 2.7 percentage points from 63.2% in fiscal 2020. The decrease in gross margin was driven primarily by higher input costs related to wood and agave, lower fixed cost absorption for JDTW, an unfavorable shift in portfolio mix toward our lower-margin brands (New Mix and JD RTDs), and an unfavorable channel mix shift from the on-premise (primarily for JDTW in the United States) related to COVID-19 restrictions.

Operating Expenses
Percentage change versus the prior year period ended April 30
2021	Reported		Foundation		Chambord Impairment		Foreign Exchange		Underlying
Advertising	4	%	—	%	—	%	(2	%)	2	%
SG&A	4	%	(3	%)	—	%	(1	%)	—	%
Total operating expenses1	2	%	(2	%)	1	%	—	%	1	%
Note: Results may differ due to rounding

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

Operating expenses totaled $1.1 billion and increased $19 million, or 2%, in fiscal 2021 compared to fiscal 2020. Underlying operating expenses increased 1% after adjusting for the $20 million commitment to the Foundation and the effect of the Chambord impairment.

•Reported advertising expenses increased 4% in fiscal 2021 compared to fiscal 2020, while underlying advertising expenses increased 2% after adjusting for the negative effect of foreign exchange. The increase in underlying advertising expense was driven primarily by higher spend in support of the international launch of JDTA in certain international developed and emerging markets along with increased spend for Woodford Reserve compared to the same period last year, partially due to the timing of the Kentucky Derby.

•Reported SG&A expenses increased 4% in fiscal 2021 compared to fiscal 2020, while underlying SG&A was flat after adjusting for the $20 million commitment to the Foundation and the negative effect of foreign exchange. Underlying SG&A was flat as higher compensation-related costs were offset by the tight management of discretionary spend (including hiring and travel freezes) as a result of the COVID-19 environment.

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Operating Income
Percentage change versus the prior fiscal year ended April 30	2021
Change in reported operating income	7	%
Acquisitions and divestitures	(10	%)
Foundation	2	%
Chambord impairment	(1	%)
Foreign exchange	(2	%)
Estimated net change in distributor inventories	9	%
Change in underlying operating income	4	%
Note: Results may differ due to rounding

Operating income was $1.2 billion in fiscal 2021, an increase of $75 million, or 7%, compared to fiscal 2020. Underlying operating income increased 4% after adjusting for (a) the effect of acquisitions and divestitures, (b) an estimated net decrease in distributor inventories, (c) the positive effect of foreign exchange, (d) the $20 million commitment to the Foundation, and (e) the effect of the Chambord impairment. Operating margin increased 1.3 percentage points to 33.7% in fiscal 2021 from 32.4% in fiscal 2020. The increase in operating margin was driven by the effect of acquisitions and divestitures (primarily the sale of Early Times, Canadian Mist, and Collingwood), partially offset by higher input costs (related to wood and agave along with lower fixed cost absorption for JDTW) and an unfavorable shift in portfolio mix toward our lower-margin brands (New Mix and JD RTDs).

Interest expense (net) increased $2 million, or 2%, in fiscal 2021 compared to fiscal 2020, due to lower interest income driven by lower interest rates on our interest-bearing investments.

Our effective tax rate for fiscal 2021 was 16.5% compared to 18.0% in fiscal 2020. The decrease in our effective tax rate was driven primarily by a deferred tax benefit related to an intercompany transfer of assets, partially offset by a smaller stock-based compensation deduction and a lower prior-year true-up benefit. See Note 11 to the Consolidated Financial Statements for details.

Diluted earnings per share were $1.88 in fiscal 2021, an increase of 9% from $1.72 in fiscal 2020 due to an increase in reported operating income and the benefit of a lower effective tax rate. This includes an estimated $0.20 per share benefit from the gain on sale of Early Times, Canadian Mist, and Collingwood and related assets.

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Liquidity and Capital Resources

Our ability to generate cash from operations consistently is one of our most significant financial strengths. Our strong cash flows enable us to invest in our people, invest in our brands, invest in our assets, pay regular dividends, make strategic acquisitions that we believe will enhance shareholder value, repurchase shares of common stock, and, from time to time, pay special dividends.

Cash Flow Summary
(Dollars in millions)	2020		2021
Operating activities	$	724	$	817
Investing activities:
Proceeds from sale of business	—		177
Acquisition of business	(22)		(14)
Additions to property, plant, and equipment	(113)		(62)
Computer software expenditures	(6)		(3)
	(141)		98
Financing activities:
Net change in short-term borrowings	178		(126)
Dividends paid	(325)		(338)
Other	(44)		(21)
	(191)		(485)
Foreign exchange effect on cash and cash equivalents	(24)		45
Net increase in cash and cash equivalents	$	368	$	475

Cash and cash equivalents increased $475 million in fiscal 2021, compared to an increase of $368 million in fiscal 2020. Cash provided by operations of $817 million was up $93 million from fiscal 2020, primarily reflecting lower working capital requirements.

Cash provided by investing activities was $98 million during fiscal 2021, an increase of $239 million compared to the prior year. The increase primarily reflects (a) the proceeds of $177 million from our divestiture of the Early Times, Canadian Mist, and Collingwood brands and related assets and (b) a $54 million decline in capital expenditures for fixed assets and computer software.

Cash used for financing activities was $485 million during fiscal 2021, compared to $191 million for fiscal 2020. The $294 million change was largely attributable to a $304 million increase in net repayments of short-term borrowings.

The impact on cash and cash equivalents as a result of exchange rate changes was an increase of $45 million for fiscal 2021, compared to a decrease of $24 million in the prior fiscal year.

A discussion of our cash flows for fiscal 2020 compared to fiscal 2019 may be found in “Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended April 30, 2020.

Sources of Liquidity

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

To ensure uninterrupted business operations during the ongoing COVID-19 pandemic, and to preserve adequate liquidity during these uncertain times, we have (a) managed our operating expenses closely and limited discretionary spending, (b) re-prioritized capital projects where prudent, and (c) actively managed our working capital.

Our cash flow from operations is supplemented by our cash and cash equivalent balances, as well as access to other liquidity sources. Cash and cash equivalents were $675 million at April 30, 2020, and $1,150 million at April 30, 2021. As of April 30, 2021, approximately 55% of our cash and cash equivalents were held by our foreign subsidiaries whose earnings we

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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 Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2020 and April 30, 2021. The average balances, interest rates, and original maturities during the periods ended April 30, 2020 and 2021, are presented below.

(Amounts in millions)	Three Months Average						Fiscal Year Average
	April 30,						April 30,
	2020			2021			2020			2021
Average commercial paper	$	196		$	259		$	251		$	321
Average interest rate	1.64		%	0.23		%	2.14		%	0.49		%
Average days to maturity at issuance	46			72			35			116

Our commercial paper program is supported by available commitments under our undrawn $800 million bank credit facility that expires in November 2023. 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 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 future financial commitments.

As announced on May 27, 2021, our Board of Directors declared a regular quarterly cash dividend of $0.1795 per share on our Class A and Class B common stock. Stockholders of record on June 8, 2021, will receive the dividend on July 1, 2021.

Off-Balance Sheet Arrangements

As of April 30, 2021, we were not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, results of operations, or liquidity.

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Long-Term Obligations

We have long-term obligations related to contracts, leases, borrowing arrangements, and employee benefit plans that we enter into in the normal course of business (see Notes 5, 6, 9 and 15 to the Consolidated Financial Statements). The following table summarizes the amounts of those obligations as of April 30, 2021, and the years when they are expected to be paid.1 We expect to meet these obligations with internally generated funds.

(Dollars in millions)	Total		2022		2023-2024		2025-2026		After 2026
Long-term debt	$	2,382	$	—	$	250	$	300	$	1,832
Interest on long-term debt	1,104		75		144		128		757
Tax Act repatriation tax	57		6		17		34		—
Grape purchases	17		10		7		—		—
Leases	73		21		28		12		12
Postretirement benefits2	20		20		n/a		n/a		n/a
Agave purchases3	38		n/a		n/a		n/a		n/a
Total	$	3,691	$	132	$	446	$	474	$	2,601

1Excludes liabilities for tax uncertainties, as we cannot reasonably predict their ultimate amount or timing of settlement.

2As of April 30, 2021, we have unfunded pension and other postretirement benefit obligations of $225 million. Because we cannot determine the specific periods in which those obligations will be funded, the table above reflects no amounts related to those obligations other than the $20 million of expected contributions in fiscal 2022.

3As discussed in Note 5 to the Consolidated Financial Statements, we have obligations to purchase agave, a plant whose sap forms the raw material for tequila. As of April 30, 2021, based on current market prices, obligations under these contracts totaled $38 million. Because we cannot determine the specific periods in which those obligations will be paid, the above table reflects only the total related to those obligations.

Critical Accounting Policies and Estimates

Our financial statements reflect some estimates involved in applying the following critical accounting policies that entail uncertainties and subjectivity. Using different estimates or policies could have a material effect on our operating results and financial condition.

Goodwill and Other Intangible Assets

We have obtained most of our brands by acquiring other companies. When we acquire another company, we first allocate the purchase price to identifiable assets and liabilities, including intangible brand names and trademarks (“brand names”), based on estimated fair value. We then record any remaining purchase price as goodwill. We do not amortize goodwill or other intangible assets with indefinite lives. We consider all of our brand names to have indefinite lives.

We assess our goodwill and other indefinite-lived intangible assets for impairment at least annually, or more frequently if circumstances indicate the carrying amount may be impaired. Goodwill is impaired when the carrying amount of the related reporting unit exceeds its estimated fair value, in which case we write down the goodwill by the amount of the excess (limited to the carrying amount of the goodwill). We estimate the reporting unit's fair value using discounted estimated future cash flows or market information. Similarly, a brand name is impaired when its carrying amount exceeds its estimated fair value, in which case we write down the brand name to its estimated fair value. We typically estimate the fair value of a brand name using either the “relief from royalty” or “excess earnings” method. We also consider market values for similar assets when available. Considerable management judgment is necessary to estimate fair value, including making assumptions about future cash flows, net sales, discount rates, and royalty rates.

We have the option, before quantifying the fair value of a reporting unit or brand name, to evaluate qualitative factors to assess whether it is more likely than not that our goodwill or brand names are impaired. If we determine that is not the case, then we are not required to quantify the fair value. That assessment also takes considerable management judgment.

Based on our assumptions, we believe none of our goodwill or other intangibles are impaired. Further, we estimate the fair values of goodwill and other intangible assets substantially exceed their carrying amounts, with the exception of one of our brand name intangible assets. As of April 30, 2021, the carrying amount of this brand name was $264 million. Net sales attributable to this brand name currently represents approximately 3% of our consolidated net sales. Reasonably possible changes in the assumptions used to estimate the fair value of this brand name could result in a non-cash impairment charge in the future. For example, we estimate that all else equal (a) a 15% decline in projected future cash flows would result in an

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impairment charge of approximately $3 million or (b) a 1 percentage point increase in the discount rate would result in an impairment charge of approximately $15 million.

Pension and Other Postretirement Benefits

We sponsor various defined benefit pension plans and postretirement plans providing retiree health care and retiree life insurance benefits. Benefits are based on factors such as years of service and compensation level during employment. We expense the benefits expected to be paid over employees' expected service. This requires us to make assumptions to determine the net benefit costs and obligations, such as discount rates, return on plan assets, the rate of salary increases, expected service, and health care cost trend rates. We review these assumptions annually and modify them based on current rates and trends when appropriate. The assumptions also reflect our historical experience and management's best judgment regarding future expectations. We believe the discount rates and expected return on plan assets are the most significant assumptions.

The discount rate used to measure the benefit obligations is determined at the beginning of each fiscal year using a yield curve based on the interest rates of high-quality debt securities with maturities corresponding to the expected timing of our benefit payments. The service cost and interest cost components are measured by applying the specific spot rates along that yield curve. The expected return on pension plan assets reflects expected capital market returns for each asset class that are based on historical returns, adjusted for the expected effects of diversification and active management (net of fees) of the assets.

The following table compares the assumed discount rates and expected return on assets used in determining net periodic benefit cost for fiscal 2021 to those to be used in determining that cost for fiscal 2022.

	Pension Benefits				Medical and Life Insurance Benefits
	2021		2022		2021		2022
Discount rate for service cost	3.49	%	3.36	%	3.59	%	3.49	%
Discount rate for interest cost	2.56	%	2.24	%	2.47	%	2.27	%
Expected return on plan assets	6.50	%	6.25	%	n/a		n/a

Using these assumptions, we estimate our pension and other postretirement benefit cost for fiscal 2022 will be approximately $29 million, compared to $33 million for fiscal 2021. Decreasing/increasing the assumed discount rates by 50 basis points would increase/decrease the total fiscal 2022 cost by approximately $5 million. Decreasing/increasing the assumed return on plan assets by 50 basis points would increase/decrease the total fiscal 2022 cost by approximately $4 million.

Income Taxes

Significant judgment is required in evaluating our tax positions. We establish liabilities when some positions are likely to be challenged and may not succeed, despite our belief that our tax return positions are fully supportable. We adjust these liabilities in light of changing circumstances, such as the progress of a tax audit. We believe current liabilities are appropriate for all known contingencies, but this situation could change.

Years can elapse before we can resolve a particular matter for which we may have established a tax liability. Although predicting the final outcome or the timing of resolution of any particular tax matter can be difficult, we believe our liabilities reflect the likely outcome of known tax contingencies. Unfavorable settlement of any particular issue could require use of our cash and increase our effective tax rate. Conversely, a favorable resolution could result in reduced cash tax payments, the reversal of previously established liabilities, or some combination of these results, which could reduce our effective tax rate.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risks

Our enterprise risk management process is intended to ensure that we take risks knowingly and thoughtfully and that we balance potential risks and rewards. Our integrated enterprise risk management framework is designed to identify, evaluate, communicate, and appropriately mitigate risks across our operations.

We face market risks arising from changes in foreign currency exchange rates, commodity prices, and interest rates. 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. Our policy permits the use of derivative financial instruments to mitigate market risks but prohibits their use for speculative purposes.

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Foreign currency exchange rate risk. Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency-denominated cash flows. In general, we expect our cash flows to be negatively affected by a stronger dollar and positively affected by a weaker dollar. Our most significant foreign currency exposures include the euro, the British pound, the Australian dollar, and the Polish zloty. We manage our foreign currency exposures through derivative financial instruments, principally foreign currency forward contracts, and debt denominated in foreign currency. We had outstanding currency derivatives with notional amounts totaling $1,026 million and $1,218 million at April 30, 2020 and 2021, respectively.

We estimate that a hypothetical 10% weakening of the dollar compared to exchange rates of hedged currencies as of April 30, 2021, would decrease the fair value of our then-existing foreign currency derivative contracts by approximately $81 million. This hypothetical change in fair value does not consider the expected inverse change in the underlying foreign currency exposures.

Commodity price risk. Commodity price changes can affect our production and supply chain costs. Our most significant commodities exposures include wood, corn, agave, malted barley, rye, and natural gas. We manage certain exposures through forward purchase contracts.

Interest rate risk. 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. In addition to currently outstanding debt, any potential future debt offerings are subject to interest rate risk.

As of April 30, 2021, our cash and cash equivalents ($1,150 million) and short-term commercial paper borrowings ($195 million) were exposed to interest rate changes. Based on the then-existing balances of our variable-rate debt and interest-bearing investments, a hypothetical one percentage point increase in interest rates would result in a negligible decrease in net interest expense.

See Notes 13 and 14 to the Consolidated Financial Statements for details on our foreign currency exchange rate risk. See Note 5 to the Consolidated Financial Statements for details on our grape and agave purchase obligations, which are exposed to commodity price risk, and “Critical Accounting Policies and Estimates” in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our pension and other postretirement plans' exposure to interest rate risks. Also see “Item 1A. Risk Factors” for details on how economic conditions affecting market risks also affect the demand for and pricing of our products and how we are affected by exchange rate fluctuations.

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Item 8. Financial Statements and Supplementary Data

Table of Contents
	Page
Reports of Management	53
Reports of Independent Registered Public Accounting Firms	54
Consolidated Statements of Operations	58
Consolidated Statements of Comprehensive Income	59
Consolidated Balance Sheets	60
Consolidated Statements of Cash Flows	61
Consolidated Statements of Stockholders’ Equity	62
Notes to Consolidated Financial Statements	63
Quarterly Financial Information (Unaudited)	88

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Reports of Management

Management’s Responsibility for Financial Statements

Our management is responsible for preparing, presenting, and ensuring the integrity of the financial information presented in this report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States, including amounts based on management’s best estimates and judgments. In management’s opinion, the consolidated financial statements fairly present the Company’s financial position, results of operations, and cash flows.

The Audit Committee of the Board of Directors, comprising only independent directors, meets regularly with our external auditors, the independent registered public accounting firm Ernst & Young LLP (EY); with our internal auditors; and with representatives of management to review accounting, internal control structure, and financial reporting matters. Our internal auditors and EY have full, free access to the Audit Committee. As set forth in our Code of Conduct and Corporate Governance Guidelines, we are firmly committed to adhering to the highest standards of moral and ethical behavior in our business activities.