United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended January 31, 2023

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 No. 001-00123

Brown-Forman Corporation

(Exact name of Registrant as specified in its Charter)

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

(502) 585-1100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ   No o

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

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

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Yes  ☐   No  ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 28, 2023

Class A Common Stock (voting), $0.15 par value	169,240,059
Class B Common Stock (nonvoting), $0.15 par value	310,000,633

BROWN-FORMAN CORPORATION
Index to Quarterly Report Form 10-Q
		Page
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	36
PART II - OTHER INFORMATION		37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
SIGNATURES		39

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in millions, except per share amounts)

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
	2022		2023		2022		2023
Sales	$	1,365	$	1,406	$	3,831	$	4,078
Excise taxes	328		325		894		896
Net sales	1,037		1,081		2,937		3,182
Cost of sales	415		457		1,172		1,323
Gross profit	622		624		1,765		1,859
Advertising expenses	117		141		311		372
Selling, general, and administrative expenses	162		186		495		541
Other expense (income), net	(4)		124		1		117
Operating income	347		173		958		829
Non-operating postretirement expense	—		27		2		27
Interest income	(1)		(2)		(3)		(7)
Interest expense	20		24		61		61
Income before income taxes	328		124		898		748
Income taxes	69		24		211		172
Net income	$	259	$	100	$	687	$	576
Earnings per share:
Basic	$	0.54	$	0.21	$	1.43	$	1.20
Diluted	$	0.54	$	0.21	$	1.43	$	1.20

See notes to the condensed consolidated financial statements.

3

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in millions)

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
	2022		2023		2022		2023
Net income	$	259	$	100	$	687	$	576
Other comprehensive income (loss), net of tax:
Currency translation adjustments	(27)		119		(49)		108
Cash flow hedge adjustments	16		(34)		40		(24)
Postretirement benefits adjustments	5		6		13		10
Net other comprehensive income (loss)	(6)		91		4		94
Comprehensive income	$	253	$	191	$	691	$	670

See notes to the condensed consolidated financial statements.

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BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions, except per share amounts)

	April 30, 2022		January 31, 2023
Assets
Cash and cash equivalents	$	868	$	428
Accounts receivable, less allowance for doubtful accounts of $13 at April 30 and $5 at January 31	813		944
Inventories:
Barreled whiskey	1,155		1,204
Finished goods	312		469
Work in process	225		316
Raw materials and supplies	126		171
Total inventories	1,818		2,160
Other current assets	277		311
Total current assets	3,776		3,843
Property, plant and equipment, net	875		955
Goodwill	761		1,455
Other intangible assets	586		1,145
Deferred tax assets	74		87
Other assets	301		269
Total assets	$	6,373	$	7,754
Liabilities
Accounts payable and accrued expenses	$	703	$	787
Dividends payable	—		98
Accrued income taxes	81		44
Short-term borrowings	—		1,004
Current portion of long-term debt	250		—
Total current liabilities	1,034		1,933
Long-term debt	2,019		2,024
Deferred tax liabilities	219		341
Accrued pension and other postretirement benefits	183		171
Other liabilities	181		247
Total liabilities	3,636		4,716
Commitments and contingencies
Stockholders’ Equity
Common stock:
Class A, voting, $0.15 par value (170,000,000 shares authorized; 170,000,000 shares issued)	25		25
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 314,532,000 shares issued)	47		47
Additional paid-in capital	—		6
Retained earnings	3,242		3,437
Accumulated other comprehensive income (loss), net of tax	(352)		(258)
Treasury stock, at cost (5,511,000 and 5,370,000 shares at April 30 and January 31, respectively)	(225)		(219)
Total stockholders’ equity	2,737		3,038
Total liabilities and stockholders’ equity	$	6,373	$	7,754

 See notes to the condensed consolidated financial statements.

5

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)

	Nine Months Ended
	January 31,
	2022		2023
Cash flows from operating activities:
Net income	$	687	$	576
Adjustments to reconcile net income to net cash provided by operations:
Asset impairment charges	9		96
Depreciation and amortization	60		59
Stock-based compensation expense	11		13
Deferred income tax benefit	(3)		(6)
Other, net	15		17
Changes in assets and liabilities, excluding the effects of business acquisitions:
Accounts receivable	(59)		(106)
Inventories	(33)		(288)
Other current assets	—		(19)
Accounts payable and accrued expenses	(32)		66
Accrued income taxes	30		(36)
Other operating assets and liabilities	(2)		38
Cash provided by operating activities	683		410
Cash flows from investing activities:
Business acquisitions, net of cash acquired	—		(1,195)
Additions to property, plant, and equipment	(62)		(116)
Proceeds from sale of property, plant, and equipment	2		12
Computer software expenditures	(3)		(1)
Cash used for investing activities	(63)		(1,300)
Cash flows from financing activities:
Proceeds from short-term borrowings, maturities greater than 90 days	—		600
Net change in other short-term borrowings	(181)		402
Repayment of long-term debt	—		(250)
Payments of withholding taxes related to stock-based awards	(8)		(5)
Dividends paid	(741)		(279)
Cash provided by (used for) financing activities	(930)		468
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(28)		(15)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(338)		(437)
Cash, cash equivalents, and restricted cash at beginning of period	1,150		874
Cash, cash equivalents, and restricted cash at end of period	812		437
Less: Restricted cash (included in other current assets) at end of period	—		(9)
Cash and cash equivalents at end of period	$	812	$	428

See notes to the condensed consolidated financial statements.

6

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1.    Condensed Consolidated Financial Statements 

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

We suggest that you read these condensed financial statements together with the financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 (2022 Form 10-K). We prepared the accompanying financial statements on a basis that is substantially consistent with the accounting principles applied in our 2022 Form 10-K.

2.    Earnings Per Share 

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

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

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
(Dollars in millions, except per share amounts)	2022		2023		2022		2023
Net income available to common stockholders	$	259	$	100	$	687	$	576
Share data (in thousands):
Basic average common shares outstanding	478,887		479,152		478,844		479,121
Dilutive effect of stock-based awards	1,680		1,308		1,755		1,361
Diluted average common shares outstanding	480,567		480,460		480,599		480,482
Basic earnings per share	$	0.54	$	0.21	$	1.43	$	1.20
Diluted earnings per share	$	0.54	$	0.21	$	1.43	$	1.20

We excluded common stock-based awards for approximately 789,000 shares and 1,257,000 shares from the calculation of diluted earnings per share for the three months ended January 31, 2022 and 2023, respectively. We excluded common stock-based awards for approximately 623,000 shares and 1,059,000 shares from the calculation of diluted earnings per share for the nine months ended January 31, 2022 and 2023, respectively. We excluded those awards because they were not dilutive for those periods under the treasury stock method.

3.    Inventories

We value some of our consolidated inventories, including most of our U.S. inventories, at the lower of cost, using the last-in, first-out (LIFO) method or market value. If the LIFO method had not been used, inventories at current cost would have been $385 million higher than reported as of April 30, 2022, and $429 million higher than reported as of January 31, 2023. Changes in the LIFO valuation reserve for interim periods are based on an allocation of the projected change for the entire fiscal year, recognized proportionately over the remainder of the fiscal year.

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4.    Goodwill and Other Intangible Assets

The following table shows the changes in goodwill (which includes no accumulated impairment losses) and other intangible assets during the nine months ended January 31, 2023:

(Dollars in millions)	Goodwill		Other Intangible Assets
Balance at April 30, 2022	$	761	$	586
Acquisitions (Note 14)	653		620
Foreign currency translation adjustment	41		35
Impairment	—		(96)
Balance at January 31, 2023	$	1,455	$	1,145

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

During the third quarter of fiscal 2023, in connection with the preparation of the condensed consolidated financial statements for the three and nine months ended January 31, 2023, we determined that it was more likely than not that the Finlandia brand name had become impaired due to macroeconomic conditions, including rising interest rates. Accordingly, we performed an interim impairment assessment for the Finlandia brand name. Based on that assessment, we recognized a non-cash impairment charge of $96 million during the third quarter of fiscal 2023. The impairment largely reflects the effects of higher discount rates and input costs. The impairment charge is included in “other expense (income), net” in the accompanying consolidated statement of operations.

5.    Commitments and Contingencies

We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs seek substantial damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a reasonable estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not believe it is reasonably possible that these existing loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations, or liquidity. No material accrued loss contingencies were recorded as of January 31, 2023.

6.    Debt

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

(Principal and carrying amounts in millions)	April 30, 2022		January 31, 2023
2.250% senior notes, $250 principal amount, due January 15, 2023	$	250	$	—
3.500% senior notes, $300 principal amount, due April 15, 2025	298		299
1.200% senior notes, €300 principal amount, due July 7, 2026	315		325
2.600% senior notes, £300 principal amount, due July 7, 2028	374		368
4.000% senior notes, $300 principal amount, due April 15, 2038	295		295
3.750% senior notes, $250 principal amount, due January 15, 2043	248		248
4.500% senior notes, $500 principal amount, due July 15, 2045	489		489
	2,269		2,024
Less current portion	250		—
	$	2,019	$	2,024

We repaid the $250 million principal amount of 2.25% notes on their maturity date of January 15, 2023.

8

Our short-term borrowings of $1,004 million as of January 31, 2023, included $404 million of borrowings under our commercial paper program. There were no borrowings under that program as of April 30, 2022.

(Dollars in millions)	April 30, 2022	January 31, 2023
Commercial paper	$—	$404
Average interest rate	—%	4.71%
Average remaining days to maturity	0	18

Our short-term borrowings as of January 31, 2023, also included $600 million of borrowings under a $600 million senior unsecured 364-day term loan credit agreement entered into with various U.S. and international banks on January 3, 2023. Borrowings under the credit agreement bear interest at variable rate reflecting the Secured Overnight Financing Rate applicable to the term of particular borrowing plus a margin based on our credit ratings. As of January 31, 2023, the weighted-average interest rate on these borrowings was 5.21%.

7.    Stockholders’ Equity

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

(Dollars in millions)	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total
Balance at April 30, 2021	$	25	$	47	$	—	$	3,243	$	(422)	$	(237)	$	2,656
Net income							192						192
Net other comprehensive income (loss)									8				8
Declaration of cash dividends							(172)						(172)
Stock-based compensation expense					4								4
Stock issued under compensation plans											5		5
Loss on issuance of treasury stock issued under compensation plans					(2)		(8)						(10)
Balance at July 31, 2021	25		47		2		3,255		(414)		(232)		2,683
Net income							236						236
Net other comprehensive income (loss)									2				2
Stock-based compensation expense					3								3
Stock issued under compensation plans											1		1
Loss on issuance of treasury stock issued under compensation plans					(2)								(2)
Balance at October 31, 2021	25		47		3		3,491		(412)		(231)		2,923
Net income							259						259
Net other comprehensive income (loss)									(6)				(6)
Declaration of cash dividends							(659)						(659)
Stock-based compensation expense					4								4
Stock issued under compensation plans											2		2
Loss on issuance of treasury stock issued under compensation plans					(4)								(4)
Balance at January 31, 2022	$	25	$	47	$	3	$	3,091	$	(418)	$	(229)	$	2,519

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The following table shows the changes in stockholders’ equity by quarter during the nine months ended January 31, 2023:

(Dollars in millions)	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total
Balance at April 30, 2022	$	25	$	47	$	—	$	3,242	$	(352)	$	(225)	$	2,737
Net income							249						249
Net other comprehensive income (loss)									1				1
Declaration of cash dividends							(180)						(180)
Stock-based compensation expense					4								4
Stock issued under compensation plans											4		4
Loss on issuance of treasury stock issued under compensation plans					(4)		(4)						(8)
Balance at July 31, 2022	25		47		—		3,307		(351)		(221)		2,807
Net income							227						227
Net other comprehensive income (loss)									2				2
Stock-based compensation expense					5								5
Stock issued under compensation plans											1		1
Loss on issuance of treasury stock issued under compensation plans					(2)								(2)
Balance at October 31, 2022	25		47		3		3,534		(349)		(220)		3,040
Net income							100						100
Net other comprehensive income (loss)									91				91
Declaration of cash dividends							(197)						(197)
Stock-based compensation expense					4								4
Stock issued under compensation plans											1		1
Loss on issuance of treasury stock issued under compensation plans					(1)								(1)
Balance at January 31, 2023	$	25	$	47	$	6	$	3,437	$	(258)	$	(219)	$	3,038

The following table shows the change in each component of accumulated other comprehensive income (AOCI), net of tax, during the nine months ended January 31, 2023:

(Dollars in millions)	Currency Translation Adjustments		Cash Flow Hedge Adjustments		Postretirement Benefits Adjustments		Total AOCI
Balance at April 30, 2022	$	(239)	$	37	$	(150)	$	(352)
Net other comprehensive income (loss)	108		(24)		10		94
Balance at January 31, 2023	$	(131)	$	13	$	(140)	$	(258)

The following table shows the cash dividends declared per share on our Class A and Class B common stock during the nine months ended January 31, 2023:

Declaration Date	Record Date	Payable Date	Amount per Share
May 26, 2022	June 8, 2022	July 1, 2022	$0.1885
July 28, 2022	September 6, 2022	October 3, 2022	$0.1885
November 17, 2022	December 2, 2022	January 3, 2023	$0.2055
January 24, 2023	March 8, 2023	April 3, 2023	$0.2055

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8.    Net Sales 

The following table shows our net sales by geography:

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
(Dollars in millions)	2022		2023		2022		2023
United States	$	488	$	439	$	1,400	$	1,455
Developed International1	318		345		884		927
Emerging2	196		245		533		629
Travel Retail3	25		32		74		110
Non-branded and bulk4	10		20		46		61
Total	$	1,037	$	1,081	$	2,937	$	3,182

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

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

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

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

The following table shows our net sales by product category:

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
(Dollars in millions)	2022		2023		2022		2023
Whiskey1	$	744	$	754	$	2,036	$	2,215
Ready-to-Drink2	112		121		329		369
Tequila3	69		79		212		237
Wine4	54		53		176		164
Vodka5	29		27		86		74
Non-branded and bulk6	10		20		46		61
Rest of portfolio7	19		27		52		62
Total	$	1,037	$	1,081	$	2,937	$	3,182

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

2Includes the Jack Daniel’s ready-to-drink (RTD) and ready-to-pour (RTP) products, New Mix, and other RTD/RTP products.

3Includes the Herradura family of brands, el Jimador, and other tequilas.

4Includes Korbel California Champagne and Sonoma-Cutrer wines.

5Includes Finlandia.

6Includes net sales of used barrels, contract bottling, and bulk whiskey and wine.

7Includes Chambord, Korbel Brandy, Fords Gin, Gin Mare, and Diplomático.

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9.    Pension Costs

The following table shows the components of the net cost recognized for our U.S. pension plans. Similar information for other defined benefit plans is not presented due to immateriality.

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
(Dollars in millions)	2022		2023		2022		2023
Service cost	$	7	$	5	$	20	$	16
Interest cost	5		8		16		24
Expected return on plan assets	(11)		(11)		(34)		(33)
Amortization of:
Prior service cost	—		—		1		1
Net actuarial loss	6		2		18		7
Settlement charge	—		27		1		27
Net cost	$	7	$	31	$	22	$	42

During the three months ended January 31, 2023, we recognized a pension settlement charge of $27 million, triggered by fiscal year-to-date lump-sum payments under certain pension plans surpassing total annual service and interest cost for those plans.

10.    Income Taxes

Our consolidated interim effective tax rate is based on our expected annual operating income, statutory tax rates, and income tax laws in the various jurisdictions where we operate. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the fiscal quarter in which the related event or a change in judgment occurs. The expected effective tax rate on ordinary income for the fiscal year is 24.3%, which is greater than the U.S. federal statutory rate of 21.0%, due to state taxes, effects of foreign operations and the impact of prior intercompany sales of inventory taxed at rates higher than current statutory tax rates, partially offset by the impact of the foreign-derived intangible income deduction.

The effective tax rate of 23.0% for the nine months ended January 31, 2023, is lower than the expected tax rate of 24.3% on ordinary income for the full fiscal year, primarily due to the reversal of valuation allowances in the current period and the beneficial impact of prior fiscal year true-ups, which is partially offset by increased contingent tax liabilities and deferred taxes recorded in connection with a change in our indefinite reinvestment assertion. The effective tax rate of 23.0% for the nine months ended January 31, 2023, was lower than the effective tax rate of 23.4% for the same period last year, primarily due to increased beneficial impact of prior year true-ups and the reversal of valuation allowances in the current period, which is partially offset by increased state taxes and increased contingent tax liabilities.

During the second quarter of fiscal 2023, we lifted our indefinite reinvestment assertion for certain additional foreign subsidiaries with respect to their current earnings and prior year undistributed earnings (but not for their other outside basis differences) and have recorded deferred taxes for any income tax impacts that would result from cash distributions, including any withholding taxes. For most of our other foreign subsidiaries, we continue to assert that their outside basis differences, including current year and prior year undistributed earnings, are indefinitely reinvested outside the United States and no income taxes have been provided on those earnings, other than the one-time repatriation tax related to the 2017 Tax Cuts and Jobs Act.

11.    Derivative Financial Instruments and Hedging Activities

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

We use currency derivative contracts to limit our exposure to the foreign currency exchange rate risk that we cannot mitigate internally by using netting strategies. We designate most of these contracts as cash flow hedges of forecasted transactions (expected to occur within three years). We record all changes in the fair value of cash flow hedges in AOCI until the underlying hedged transaction occurs, at which time we reclassify that amount to earnings.

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

We had outstanding currency derivatives, related primarily to our euro, British pound, and Australian dollar exposures, with notional amounts for all hedged currencies totaling $801 million at April 30, 2022, and $703 million at January 31, 2023. The maximum term of outstanding derivative contracts was 36 months at April 30, 2022 and 27 months at January 31, 2023.

We also use foreign currency-denominated debt instruments to help manage our foreign currency exchange rate risk. We designate a portion of those debt instruments as net investment hedges, which are intended to mitigate foreign currency exposure related to non-U.S. dollar net investments in certain foreign subsidiaries. Any change in value of the designated portion of the hedging instruments is recorded in AOCI, offsetting the foreign currency translation adjustment of the related net investments that is also recorded in AOCI. The amount of foreign currency-denominated debt instruments designated as net investment hedges was $636 million at April 30, 2022, and $487 million at January 31, 2023.

At inception, we expect each financial instrument designated as a hedge to be highly effective in offsetting the financial exposure it is designed to mitigate. We also assess their effectiveness continually. If determined to be no longer highly effective, we discontinue designating and accounting for the instrument as a hedge.

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

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

		Three Months Ended
		January 31,
(Dollars in millions)	Classification	2022		2023
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	n/a	$	23	$	(33)
Net gain (loss) reclassified from AOCI into earnings	Sales	2		11
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings	Sales	$	5	$	(11)
Net gain (loss) recognized in earnings	Other income (expense), net	(1)		2
Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI	n/a	$	17	$	(32)
Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:
Sales		$	1,365	$	1,406
Other income (expense), net		4		(124)

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		Nine Months Ended
		January 31,
(Dollars in millions)	Classification	2022		2023
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	n/a	$	53	$	3
Net gain (loss) reclassified from AOCI into earnings	Sales	1		34
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings	Sales	$	8	$	(2)
Net gain (loss) recognized in earnings	Other income (expense), net	(1)		11
Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI	n/a	$	38	$	10
Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:
Sales		$	3,831	$	4,078
Other income (expense), net		(1)		(117)

We expect to reclassify $9 million of deferred net gains on cash flow hedges recorded in AOCI as of January 31, 2023, to earnings during the next 12 months. This reclassification would offset the anticipated earnings impact of the underlying hedged exposures. The actual amounts that we ultimately reclassify to earnings will depend on the exchange rates in effect when the underlying hedged transactions occur.

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

		April 30, 2022				January 31, 2023
(Dollars in millions)	Classification	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Designated as cash flow hedges:
Currency derivatives	Other current assets	$	32	$	(3)	$	18	$	(8)
Currency derivatives	Other assets	20		(1)		6		(1)
Currency derivatives	Accrued expenses	—		—