Item 8. Financial Statements and Supplementary Data

Table of Contents
	Page
Reports of Management	48
Report of Independent Registered Public Accounting Firm	49
Consolidated Statements of Operations	51
Consolidated Statements of Comprehensive Income	52
Consolidated Balance Sheets	53
Consolidated Statements of Cash Flows	54
Consolidated Statements of Stockholders’ Equity	55
Notes to Consolidated Financial Statements	56
Quarterly Financial Information (Unaudited)	81

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 PricewaterhouseCoopers LLP (PwC); with our internal auditors; and with representatives of management to review accounting, internal control structure, and financial reporting matters. Our internal auditors and PwC 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.

Management’s Report on Internal Control over Financial Reporting

Management is also responsible for establishing and maintaining effective internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

As of the end of our fiscal year, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of April 30, 2020. PwC, which audited and reported on the Company’s consolidated financial statements, has audited the effectiveness of our internal control over financial reporting as of April 30, 2020, as stated in their report.

Dated:	June 19, 2020
		By:	/s/ Lawson E. Whiting
			Lawson E. Whiting
			President and Chief Executive Officer
		By:	/s/ Jane C. Morreau
			Jane C. Morreau
			Executive Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of Brown-Forman Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Brown-Forman Corporation and its subsidiaries (the “Company”) as of April 30, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended April 30, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) for each of the three years in the period ended April 30, 2020 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of April 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on May 1, 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Quantitative Impairment Assessment of Brand Names Intangible Assets

As described in Notes 1 and 5 to the consolidated financial statements, the other intangible assets balance as of April 30, 2020 was $635 million. The balance consists of brand names and trademarks, with a significant portion relating to brand names, all of which are considered to have indefinite useful lives. The Company assesses its brand names for impairment at least annually, or more frequently if circumstances indicate the carrying amount may be impaired. The Company has the option, before quantifying the fair value of brand names, to evaluate qualitative factors to assess whether it is more likely than not that the brand names are impaired. If determined that is not the case, there is no requirement to quantify fair value. Where a quantitative assessment is performed, a brand name is impaired when its carrying amount exceeds its estimated fair value, in which case management writes down the brand name to its estimated fair value. The fair value of a brand name is typically estimated using either the “relief from royalty” or “excess earnings” method. Management also considers market values for similar assets when available. As described in Note 1, considerable judgment is necessary to estimate fair value, including the selection of assumptions about future cash flows, discount rates, and royalty rates. During the fourth quarter of fiscal 2020, the Company recognized a non-cash impairment charge of $13 million for its Chambord brand name. The Company determined Chambord’s fair value based on the relief from royalty method, using current assumptions.

The principal considerations for our determination that performing procedures relating to the quantitative impairment assessment of brand names intangible assets is a critical audit matter are (i) there was significant judgment by management when developing the fair value measurements of the brand names, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures to evaluate management’s fair value measurements and (ii) there was significant audit effort in performing procedures and evaluating the significant assumptions, including future cash flows, discount rates, and royalty rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s annual quantitative impairment analyses and periodic triggering event assessments for brand names, including controls over management’s determination of future cash flows, discount rates, and royalty rates. These procedures also included, among others, evaluating the appropriateness of the relief from royalty or excess earnings method and the reasonableness of significant assumptions used by management in developing the fair value measurements, including future cash flows, discount rates, and royalty rates. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the valuation methodologies employed, as well as the reasonableness of the discount rates and royalty rates. Evaluating management’s assumptions related to the future cash flows involved evaluating whether the assumptions used were reasonable considering (i) the past performance of the brand names, (ii) the consistency with external industry and market data, and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Louisville, Kentucky

June 19, 2020

We have served as the Company’s auditor since 1933.

Brown-Forman Corporation and Subsidiaries

Consolidated Statements of Operations

(Dollars in millions, except per share amounts)

Year Ended April 30,	2018				2019				2020
Sales	$	4,201			$	4,276			$	4,306
Excise taxes	953				952				943
Net sales	3,248				3,324				3,363
Cost of sales	1,046				1,158				1,236
Gross profit	2,202				2,166				2,127
Advertising expenses	405				396				383
Selling, general, and administrative expenses	765				641				642
Other expense (income), net	(16		)		(15		)		11
Operating income	1,048				1,144				1,091
Non-operating postretirement expense	9				22				5
Interest income	(6		)		(8		)		(5		)
Interest expense	68				88				82
Income before income taxes	977				1,042				1,009
Income taxes	260				207				182
Net income	$	717			$	835			$	827
Earnings per share:
Basic	$	1.49			$	1.74			$	1.73
Diluted	$	1.48			$	1.73			$	1.72

The accompanying notes are an integral part of the consolidated financial statements.

Brown-Forman Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in millions)

Year Ended April 30,	2018				2019				2020
Net income	$	717			$	835			$	827
Other comprehensive income (loss), net of tax:
Currency translation adjustments	24				(27		)		(94		)
Cash flow hedge adjustments	(28		)		48				30
Postretirement benefits adjustments	16				(6		)		(77		)
Net other comprehensive income (loss)	12				15				(141		)
Comprehensive income	$	729			$	850			$	686

The accompanying notes are an integral part of the consolidated financial statements.

Brown-Forman Corporation and Subsidiaries

Consolidated Balance Sheets

(Dollars in millions)

April 30,	2019				2020
Assets
Cash and cash equivalents	$	307			$	675
Accounts receivable, net	609				570
Inventories:
Barreled whiskey	1,004				1,092
Finished goods	279				320
Work in process	152				172
Raw materials and supplies	85				101
Total inventories	1,520				1,685
Other current assets	283				335
Total current assets	2,719				3,265
Property, plant, and equipment, net	816				848
Goodwill	753				756
Other intangible assets	645				635
Deferred tax assets	16				15
Other assets	190				247
Total assets	$	5,139			$	5,766
Liabilities
Accounts payable and accrued expenses	$	544			$	517
Accrued income taxes	9				30
Short-term borrowings	150				333
Total current liabilities	703				880
Long-term debt	2,290				2,269
Deferred tax liabilities	145				177
Accrued pension and other postretirement benefits	197				297
Other liabilities	157				168
Total liabilities	3,492				3,791
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
Retained earnings	2,238				2,708
Accumulated other comprehensive income (loss), net of tax	(363		)		(547		)
Treasury stock, at cost (7,360,000 and 6,323,000 shares in 2019 and 2020, respectively)	(300		)		(258		)
Total stockholders’ equity	1,647				1,975
Total liabilities and stockholders’ equity	$	5,139			$	5,766

The accompanying notes are an integral part of the consolidated financial statements.

Brown-Forman Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in millions)

Year Ended April 30,	2018				2019				2020
Cash flows from operating activities:
Net income	$	717			$	835			$	827
Adjustments to reconcile net income to net cash provided by operations:
Non-cash intangible asset write-down	—				—				13
Depreciation and amortization	64				72				74
Stock-based compensation expense	19				14				11
Deferred income tax provision (benefit)	(69		)		38				39
U.S. Tax Act repatriation tax provision (benefit)	91				(4		)		—
Other, net	(8		)		8				15
Changes in assets and liabilities, excluding the effects of acquisition of business:
Accounts receivable	(70		)		23				12
Inventories	(102		)		(162		)		(203		)
Other current assets	29				30				(27		)
Accounts payable and accrued expenses	58				(43		)		(30		)
Accrued income taxes	8				(16		)		18
Other operating assets and liabilities	(84		)		5				(25		)
Cash provided by operating activities	653				800				724
Cash flows from investing activities:
Acquisition of business, net of cash acquired	—				—				(22		)
Additions to property, plant, and equipment	(127		)		(119		)		(113		)
Payments for corporate-owned life insurance	(21		)		(2		)		—
Proceeds from corporate-owned life insurance	—				4				—
Computer software expenditures	(1		)		(2		)		(6		)
Cash used for investing activities	(149		)		(119		)		(141		)
Cash flows from financing activities:
Net change in short-term borrowings	(3		)		(71		)		178
Repayment of long-term debt	(250		)		—				—
Proceeds from long-term debt	595				—				—
Debt issuance costs	(6		)		—				—
Payments of withholding taxes related to stock-based awards	(28		)		(11		)		(43		)
Acquisition of treasury stock	(1		)		(207		)		(1		)
Dividends paid	(773		)		(310		)		(325		)
Cash used for financing activities	(466		)		(599		)		(191		)
Effect of exchange rate changes on cash and cash equivalents	19				(14		)		(24		)
Net increase in cash and cash equivalents	57				68				368
Cash and cash equivalents, beginning of period	182				239				307
Cash and cash equivalents, end of period	$	239			$	307			$	675
Supplemental disclosure of cash paid for:
Interest	$	65			$	90			$	83
Income taxes	$	200			$	201			$	143

The accompanying notes are an integral part of the consolidated financial statements.

Brown-Forman Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Dollars in millions, except per share amounts)

	Class A Common Stock				Class B Common Stock				Additional Paid-in Capital				Retained Earnings				AOCI				Treasury Stock				Total
Balance at April 30, 2017	$	25			$	43			$	65			$	4,470			$	(390	)		$	(2,843	)		$	1,370
Retirement of treasury stock1					(10		)		(8		)		(2,684		)						2,702				—
Stock split2					14				(14		)														—
Net income													717												717
Net other comprehensive income (loss)																	12								12
Cash dividends ($1.6080 per share)													(773		)										(773		)
Acquisition of treasury stock																					(1		)		(1		)
Stock-based compensation expense									19																19
Stock issued under compensation plans																					30				30
Loss on issuance of treasury stock issued under compensation plans									(58		)														(58		)
Balance at April 30, 2018	25				47				4				1,730				(378		)		(112		)		1,316
Net income													835												835
Net other comprehensive income (loss)																	15								15
Cash dividends ($0.6480 per share)													(310		)										(310		)
Acquisition of treasury stock																					(207		)		(207		)
Stock-based compensation expense									14																14
Stock issued under compensation plans																					19				19
Loss on issuance of treasury stock issued under compensation plans									(18		)		(12		)										(30		)
Other													(5		)										(5		)
Balance at April 30, 2019	25				47				—				2,238				(363		)		(300		)		1,647
Adoption of ASU 2018-02 (Note 1)													43				(43		)						—
Net income													827												827
Net other comprehensive income (loss)																	(141		)						(141		)
Cash dividends ($0.6806 per share)													(325		)										(325		)
Acquisition of treasury stock																					(1		)		(1		)
Stock-based compensation expense									11																11
Stock issued under compensation plans																					43				43
Loss on issuance of treasury stock issued under compensation plans									(11		)		(75		)										(86		)
Balance at April 30, 2020	$	25			$	47			$	—			$	2,708			$	(547	)		$	(258	)		$	1,975

1Retirement of 67 million shares of Class B common stock previously held as treasury shares.

2Stock split effected in the form of a stock dividend of one share of Class B common stock for every four shares of either Class A or Class B common stock.

The accompanying notes are an integral part of the consolidated financial statements.

Brown-Forman Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and other currency amounts in millions, except per share data)

1. Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP). We also apply the following accounting policies when preparing our consolidated financial statements:

Principles of consolidation. Our consolidated financial statements include the accounts of all subsidiaries in which we have a controlling financial interest. We eliminate all intercompany transactions.

Estimates. To prepare financial statements that conform with GAAP, our management must make informed estimates that affect how we report revenues, expenses, assets, and liabilities, including contingent assets and liabilities. Actual results could differ from these estimates.

Cash equivalents. Cash equivalents include bank demand deposits and all highly liquid investments with original maturities of three months or less.

Allowance for doubtful accounts. We evaluate the collectability of accounts receivable based on a combination of factors. When we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific allowance to reduce the net recognized receivable to the amount we believe will be collected. We write off the uncollectable amount against the allowance when we have exhausted our collection efforts. The allowance for doubtful accounts was $7 and $11 at April 30, 2019 and 2020, respectively.

Inventories. Inventories are valued at the lower of cost or net realizable value. Approximately 51% of our consolidated inventories are valued using the last-in, first-out (LIFO) cost method, which we use for the majority of our U.S. inventories. We value the remainder of our inventories primarily using the first-in, first-out (FIFO) cost method. FIFO cost approximates current replacement cost. If we had used the FIFO method for all inventories, they would have been $303 and $311 higher than reported at April 30, 2019 and 2020, respectively.

Because we age most of our whiskeys in barrels for 3 to 6 years, we bottle and sell only a portion of our whiskey inventory each year. Following industry practice, we classify all barreled whiskey as a current asset. We include warehousing, insurance, ad valorem taxes, and other carrying charges applicable to barreled whiskey in inventory costs.

We classify bulk wine, agave inventories, tequila, and liquid in bottling tanks as work in process.

Property, plant, and equipment. We state property, plant, and equipment at cost less accumulated depreciation. We calculate depreciation on a straight-line basis using our estimates of useful life, which are 20–40 years for buildings and improvements; 3–10 years for machinery, equipment, vehicles, furniture, and fixtures; and 3–7 years for capitalized software.

We assess our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. When we do not expect to recover the carrying value of an asset (or asset group) through undiscounted future cash flows, we write it down to its estimated fair value. We determine fair value using discounted estimated future cash flows, considering market values for similar assets when available.

When we retire or dispose of property, plant, and equipment, we remove its cost and accumulated depreciation from our balance sheet and reflect any gain or loss in operating income. We expense the costs of repairing and maintaining our property, plant, and equipment as we incur them.

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 the selection of assumptions about future cash flows, 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.

Revenue recognition. Our net sales predominantly reflect global sales of beverage alcohol consumer products. We sell these products under contracts with different types of customers, depending on the market. The customer is most often a distributor, wholesaler, or retailer.

Each contract typically includes a single performance obligation to transfer control of the products to the customer. Depending on the contract, control is transferred when the products are either shipped or delivered to the customer, at which point we recognize the transaction price for those products as net sales. The transaction price recognized at that point reflects our estimate of the consideration to be received in exchange for the products. The actual amount may ultimately differ due to the effect of various customer incentives and trade promotion activities. In making our estimates, we consider our historical experience and current expectations, as applicable. Subsequent adjustments recognized for changes in estimated transaction prices are typically not material.

Net sales exclude taxes we collect from customers that are imposed by various governments on our sales, and are reduced by payments to customers unless made in exchange for distinct goods or services with fair values approximating the payments. Net sales include any amounts we bill customers for shipping and handling activities related to the products. We recognize the cost of those activities in cost of sales during the same period in which we recognize the related net sales. Sales returns, which are permitted only in limited situations, are not material. Customer payment terms generally range from 30 to 90 days. There are no significant amounts of contract assets or liabilities.

Cost of sales. Cost of sales includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods sold during the period.

Advertising costs. We expense the costs of advertising during the year when the advertisements first take place.

Selling, general, and administrative expenses. Selling, general, and administrative expenses include the costs associated with our sales force, administrative staff and facilities, and other expenses related to our non-manufacturing functions.

Stock-based compensation. We use stock-based awards as part of our incentive compensation for eligible employees and directors. We recognize the grant-date fair value of an award as compensation expense on a straight-line basis over the requisite service period, which typically corresponds to the vesting period for the award. Upon forfeiture of an award prior to vesting, we reverse any previously-recognized compensation expense related to that award. We classify stock-based compensation expense within selling, general, and administrative expenses.

As we recognize compensation expense for a stock-based award, we concurrently recognize a related deferred tax asset. The subsequent vesting or exercise of the award will generally result in an actual tax benefit that differs from the deferred tax asset that had been recorded. The excess (deficiency) of the actual tax benefit over (under) the previously-recorded tax asset is recognized as income tax benefit (expense) on the date of vesting or exercise.

Income taxes. We base our annual provision for income taxes on the pre-tax income reflected in our consolidated statement of operations. We establish deferred tax liabilities or assets for temporary differences between GAAP and tax reporting bases and later adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance as necessary to reduce a deferred tax asset to the amount that we believe is more likely than not to be realized. We do not provide deferred income taxes on undistributed earnings of foreign subsidiaries that we expect to permanently reinvest. We record a deferred tax charge in prepaid taxes for the difference between GAAP and tax reporting bases with respect to the elimination of intercompany profit in ending inventory.

We assess our uncertain income tax positions in two steps. First, we evaluate whether the tax position will more likely than not, based on its technical merits, be sustained upon examination, including resolution of any related appeals or litigation. For a tax position that does not meet this first criterion, we recognize no tax benefit. For a tax position that does meet the first criterion, we recognize a tax benefit in an amount equal to the largest amount of benefit that we believe has more than a 50% likelihood of being realized upon ultimate resolution. We record interest and penalties on uncertain tax positions as income tax expense.

Foreign currency transactions and translation. We report all gains and losses from foreign currency transactions (those denominated in a currency other than the entity’s functional currency) in current income. The U.S. dollar is the functional currency for most of our consolidated entities. The local currency is the functional currency for some of our consolidated foreign entities. We translate the financial statements of those foreign entities into U.S. dollars, using the exchange rate in effect at the balance sheet date to translate assets and liabilities, and using the average exchange rate for the reporting period to translate income and expenses. We record the resulting translation adjustments in other comprehensive income (loss).

Adoption of updated accounting standards. Effective May 1, 2019, we adopted the following Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board:

• ASU 2016-02: Leases. This update, codified along with various amendments as Accounting Standards Codification Topic 842 (ASC 842), replaces previous lease accounting guidance. Under ASC 842, a lessee should recognize on its balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. We adopted ASC 842 using a modified retrospective transition approach for leases existing at the date of adoption. For the transition, we elected to use the package of practical expedients to not reassess (a) whether existing contracts are or contain leases, (b) the classification of existing leases, and (c) initial direct costs for existing leases. Upon adoption, we recorded lease liabilities and right-of-use assets of $54. The adoption did not have a material impact on our results of operations, stockholders’ equity, or cash flows. See Note 15 for additional information about our leases.

• ASU 2018-02: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI). This new guidance allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted by the U.S. government in December 2017. We elected to make the reclassification, which increased retained earnings and decreased AOCI as of May 1, 2019, by $43.

There are no new accounting standards or updates to be adopted that we currently believe might have a significant impact on our consolidated financial statements.

2. Balance Sheet Information

Supplemental information on our year-end balance sheets is as follows:

April 30,	2019				2020
Other current assets:
Prepaid taxes	$	191			$	195
Other	92				140
	$	283			$	335
Property, plant, and equipment:
Land	$	82			$	82
Buildings	617				652
Equipment	769				814
Construction in process	57				41
	1,525				1,589
Less accumulated depreciation	709				741
	$	816			$	848
Accounts payable and accrued expenses:
Accounts payable, trade	$	150			$	131
Accrued expenses:
Advertising and promotion	160				135
Compensation and commissions	84				71
Excise and other non-income taxes	63				80
Other	87				100
	394				386
	$	544			$	517
Accumulated other comprehensive income (loss), net of tax:
Currency translation adjustments	$	(207	)		$	(302	)
Cash flow hedge adjustments	31				60
Postretirement benefits adjustments	(187		)		(305		)
	$	(363	)		$	(547	)

3. 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:

	2018				2019				2020
Net income available to common stockholders	$	717			$	835			$	827
Share data (in thousands):
Basic average common shares outstanding	480,319				478,956				477,765
Dilutive effect of stock-based awards	3,929				3,111				2,644
Diluted average common shares outstanding	484,248				482,067				480,409
Basic earnings per share	$	1.49			$	1.74			$	1.73
Diluted earnings per share	$	1.48			$	1.73			$	1.72

We excluded common stock-based awards for approximately 805,000 shares, 447,000 shares, and 301,000 shares from the calculation of diluted earnings per share for 2018, 2019, and 2020, respectively, because they were not dilutive for those periods under the treasury stock method.

4. Goodwill and Other Intangible Assets

The following table shows the changes in goodwill (which include no accumulated impairment losses) and other intangible assets over the past two years:

	Goodwill				Other Intangible Assets
Balance as of April 30, 2018	$	763			$	670
Foreign currency translation adjustment	(10		)		(25		)
Balance as of April 30, 2019	753				645
Acquisition of business (Note 12)	11				12
Foreign currency translation adjustment	(8		)		(9		)
Impairment	—				(13		)
Balance as of April 30, 2020	$	756			$	635

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

During the fourth quarter of fiscal 2020, we recognized a non-cash impairment charge for our Chambord brand name. The impairment reflects a decline in our long-term outlook for Chambord, which has a significant on-premise presence and is expected to be considerably affected by the closures and restrictions in this channel in response to the COVID-19 pandemic. The impairment charge of $13 is included in “other expense (income), net” in the accompanying consolidated statement of operations. As of April 30, 2020, the remaining carrying amount of the Chambord brand name was $104.

5. Commitments and Contingencies

Commitments. We have contracted with various growers and wineries to supply some of our future grape and bulk wine requirements. Many of these contracts call for prices to be adjusted annually up or down, according to market conditions. Some contracts set a fixed purchase price that might be higher or lower than prevailing market prices. We have total purchase obligations related to both types of contracts of $11 in 2021, $6 in 2022, and $3 in 2023.

We also have contracts for the purchase of agave, which is used to produce tequila. These contracts provide for prices to be determined based on market conditions at the time of harvest, which, although not specified, is expected to occur over the next 10 years. As of April 30, 2020, based on current market prices, obligations under these contracts total $29.

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 are recorded as of April 30, 2020.

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

Following delivery of our notice and upon expiration of the Agreement, Bacardi alleged that it was entitled to approximately £49 under the principle of commercial agency in the U.K. For the first two monthly settlements following expiration of the Agreement, Bacardi withheld over £34 owed to us, effectively bypassing the dispute resolution process under the Agreement. Additionally, Bacardi informed us that it will continue to withhold amounts owed to us under future monthly settlements to conclude activity under the Agreement until its stated claim for £49 is satisfied.

Since it was raised, we have disputed Bacardi’s claim of commercial agency compensation and issued a demand that Bacardi adhere to the dispute resolution process mandated by the Agreement and return the £34 that Bacardi wrongfully withheld from amounts owed to us. If the dispute resolution with Bacardi is unsuccessful then arbitration is required under the terms of the

Agreement. We cannot estimate the range of reasonably possible loss because Bacardi has not initiated arbitration and fully pleaded the basis of its claim.

Guaranty. We have guaranteed the repayment by a third-party importer of its obligation under a bank credit facility that it uses in connection with its importation of our products in Russia. If the importer were to default on that obligation, which we believe is unlikely, our maximum possible exposure under the existing terms of the guaranty would be approximately $9 (subject to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant.

As of April 30, 2020, our actual exposure under the guaranty of the importer’s obligation is approximately $5. We also have accounts receivable from that importer of approximately $8 at April 30, 2020, which we expect to collect in full.

Based on the financial support we provide to the importer, we believe it meets the definition of a variable interest entity. However, because we do not control this entity, it is not included in our consolidated financial statements.

6. Debt and Credit Facilities

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

April 30,	2019				2020
2.25% senior notes, $250 principal amount, due January 15, 2023	$	249			$	249
3.50% senior notes, $300 principal amount, due April 15, 2025	297				297
1.20% senior notes, €300 principal amount, due July 7, 2026	333				324
2.60% senior notes, £300 principal amount, due July 7, 2028	383				369
4.00% senior notes, $300 principal amount, due April 15, 2038	293				294
3.75% senior notes, $250 principal amount, due January 15, 2043	248				248
4.50% senior notes, $500 principal amount, due July 15, 2045	487				488
	$	2,290			$	2,269

Debt payments required over the next five fiscal years consist of $0 in 2021, $0 in 2022, $250 in 2023, $0 in 2024, $300 in 2025, and $1,749 after 2025.

The senior notes contain terms and covenants customary of these types of unsecured securities, including limitations on the amount of secured debt we can issue.

Details of our short-term borrowings at April 30, 2019 and 2020, are presented below:

April 30,	2019		2020
Commercial paper	$150		$333
Average interest rate	2.60%		1.29%
Average remaining days to maturity	18		73

We have a committed revolving credit agreement with various U.S. and international banks for $800 that expires in November 2023. At April 30, 2020, there were no borrowings outstanding under this facility.

7. Common Stock

The following table shows the change in outstanding common shares (split-adjusted) during each of the last three years:

(Shares in thousands)	Class A			Class B			Total
Balance at April 30, 2017	169,051			311,055			480,106
Acquisition of treasury stock	(25	)		(6	)		(31	)
Stock issued under compensation plans	36			890			926
Balance at April 30, 2018	169,062			311,939			481,001
Acquisition of treasury stock	(145	)		(4,212	)		(4,357	)
Stock issued under compensation plans	82			446			528
Balance at April 30, 2019	168,999			308,173			477,172
Acquisition of treasury stock	(13	)		(3	)		(16	)
Stock issued under compensation plans	54			999			1,053
Balance at April 30, 2020	169,040			309,169			478,209

8. Net Sales

The following table shows our net sales by geography:

	2018				2019				2020
United States	$	1,529			$	1,563			$	1,690
Developed International1	908				917				901
Emerging2	575				597				572
Travel Retail3	139				140				125
Non-branded and bulk4	97				107				75
	$	3,248			$	3,324			$	3,363

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 the United Kingdom, Germany, Australia, France, Japan, 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, and Russia.

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

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

The following table shows our net sales by product category:

	2018				2019				2020
Whiskey1	$	2,533			$	2,595			$	2,671
Tequila2	247				263				275
Wine3	187				187				186
Vodka4	130				126				109
Rest of portfolio	54				46				47
Non-branded and bulk5	97				107				75
	$	3,248			$	3,324			$	3,363

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

2Includes el Jimador, Herradura, New Mix, Pepe Lopez, and Antiguo.

3Includes Korbel Champagne and Sonoma-Cutrer wines.

4Includes Finlandia.

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

9. Pension and Other Postretirement Benefits

We sponsor various defined benefit pension plans as well as postretirement plans providing retiree health care and retiree life insurance benefits. Below, we discuss our obligations related to these plans, the assets dedicated to meeting the obligations, and the amounts we recognized in our financial statements as a result of sponsoring these plans.

Obligations. We provide eligible employees with pension and other postretirement benefits based on factors such as years of service and compensation level during employment. The pension obligation shown below (“projected benefit obligation”) consists of: (a) benefits earned by employees to date based on current salary levels (“accumulated benefit obligation”); and (b) benefits to be received by employees as a result of expected future salary increases. (The obligation for medical and life insurance benefits is not affected by future salary increases.) The following table shows how the present value of our projected benefit obligations changed during each of the last two years.

	Pension Benefits								Medical and Life Insurance Benefits
	2019				2020				2019				2020
Obligation at beginning of year	$	903			$	908			$	50			$	50
Service cost	24				24				1				1
Interest cost	34				31				2				1
Net actuarial loss (gain)	28				108				—				2
Retiree contributions	—				—				1				1
Benefits paid	(81		)		(66		)		(4		)		(4		)
Obligation at end of year	$	908			$	1,005			$	50			$	51

Service cost represents the present value of the benefits attributed to service rendered by employees during the year. Interest cost is the increase in the present value of the obligation due to the passage of time. Net actuarial loss (gain) is the change in value of the obligation resulting from experience different from that assumed or from a change in an actuarial assumption. (We discuss actuarial assumptions used at the end of this note.) Plan amendments may also change the value of the obligation.

As shown in the previous table, the change in the value of our pension and other postretirement benefit obligations also includes the effect of benefit payments and retiree contributions. Expected benefit payments (net of retiree contributions) over the next 10 years are as follows:

	Pension Benefits				Medical and Life Insurance Benefits
2021	$	62			$	3
2022	62				3
2023	62				3
2024	63				3
2025	63				3
2026 – 2030	425				16

Assets. We invest in specific assets to fund our pension benefit obligations. Our investment goal is to earn a total return that, over time, will grow assets sufficiently to fund our plans’ liabilities, after providing appropriate levels of contributions and accepting prudent levels of investment risk. To achieve this goal, plan assets are invested primarily in funds or portfolios of funds managed by outside managers. Investment risk is managed by company policies that require diversification of asset classes, manager styles, and individual holdings. We measure and monitor investment risk through quarterly and annual performance reviews, and through periodic asset/liability studies.

Asset allocation is the most important method for achieving our investment goals and is based on our assessment of the plans’ long-term return objectives and the appropriate balances needed for liquidity, stability, and diversification. As of April 30, 2020, our target asset allocation is a mix of 40% public equity investments, 47% fixed income investments, and 13% alternative investments.

The following table shows the fair value of pension plan assets by category as of the end of the last two years. (Fair value levels are defined in Note 14.)

	Level 1				Level 2				Level 3				Total
April 30, 2019
Equity securities	$	79			$	—			$	—			$	79
Cash and temporary investments	29				—				—				29
Limited partnership interest1	—				—				3				3
	$	108			$	—			$	3			111
Investments measured at net asset value:
Commingled trust funds2:
Equity funds													157
Fixed income funds													370
Real estate funds													66
Short-term investments													23
Limited partnership interests3													27
Total													$	754
April 30, 2020
Equity securities	$	80			$	—			$	—			$	80
Cash and temporary investments	—				—				—				—
Limited partnership interest1	—				—				2				2
	$	80			$	—			$	2			82
Investments measured at net asset value:
Commingled trust funds2:
Equity funds													193
Fixed income funds													370
Real estate funds													68
Short-term investments													4
Limited partnership interests3													32
Total													$	749

1 This limited partnership interest was initially valued at cost and has been adjusted to fair value as determined in good faith by management of the partnership using various factors, and does not meet the requirements for reporting at the net asset value (NAV). The valuation requires significant judgment due to the absence of quoted market prices and the inherent lack of liquidity. This limited partnership has a term expiring in September 2020, although this period may be extended.

2 Commingled trust fund valuations are based on the NAV of the funds as determined by the fund administrators and reviewed by us. NAV represents the underlying assets owned by the fund, minus liabilities and divided by the number of shares or units outstanding. Generally, for commingled trust funds other than real estate, redemptions are permitted daily with no notice period. The real estate fund is redeemable quarterly with 110 days’ notice.

3 These limited partnership interests were initially valued at cost and have been adjusted using NAV per audited financial statements. Investments are generally not eligible for immediate redemption and have original terms averaging 10 to 13 years, although those periods may be extended.

The following table shows how the fair value of the Level 3 assets changed during each of the last two years. There were no transfers of assets between Level 3 and either of the other two levels.

	Level 3
Balance as of April 30, 2018	$	4
Sales and settlements	(1		)
Balance as of April 30, 2019	3
Sales and settlements	(1		)
Balance as of April 30, 2020	$	2

The following table shows how the total fair value of all pension plan assets changed during each of the last two years. (We do not have assets set aside for postretirement medical or life insurance benefits.)

	Pension Benefits								Medical and Life Insurance Benefits
	2019				2020				2019				2020
Assets at beginning of year	$	780			$	754			$	—			$	—
Actual return on assets	34				39				—				—
Retiree contributions	—				—				1				1
Company contributions	21				22				3				3
Benefits paid	(81		)		(66		)		(4		)		(4		)
Assets at end of year	$	754			$	749			$	—			$	—

We currently expect to contribute $22 to our pension plans and $3 to our postretirement medical and life insurance benefit plans during 2021.

Funded status. The funded status of a plan refers to the difference between its assets and its obligations. The following table shows the funded status of our plans.

	Pension Benefits								Medical and Life Insurance Benefits
April 30,	2019				2020				2019				2020
Assets	$	754			$	749			$	—			$	—
Obligations	(908		)		(1,005		)		(50		)		(51		)
Funded status	$	(154	)		$	(256	)		$	(50	)		$	(51	)

The funded status is recorded on the accompanying consolidated balance sheets as follows:

		Pension Benefits								Medical and Life Insurance Benefits
April 30,		2019				2020				2019				2020
Other assets		$	2			$	—			$	—			$	—
Accounts payable and accrued expenses		(6		)		(7		)		(3		)		(3		)
Accrued postretirement benefits		(150		)		(249		)		(47		)		(48		)
Net liability		$	(154	)		$	(256	)		$	(50	)		$	(51	)
Accumulated other comprehensive income (loss), before tax:
Net actuarial gain (loss)		$	(298	)		$	(394	)		$	(10	)		$	(11	)
Prior service credit (cost)		(8		)		(6		)		10				7
		$	(306	)		$	(400	)		$	—			$	(4	)

The following table compares our pension plans whose assets exceed their accumulated benefit obligations with those whose obligations exceed their assets. (As noted above, we have no assets set aside for postretirement medical or life insurance benefits.)

	Plan Assets								Accumulated Benefit Obligation								Projected Benefit Obligation
April 30,	2019				2020				2019				2020				2019				2020
Plans with assets in excess of accumulated benefit obligation	$	754			$	625			$	668			$	613			$	752			$	698
Plans with accumulated benefit obligation in excess of assets	—				124				136				277				156				307
Total	$	754			$	749			$	804			$	890			$	908			$	1,005

Pension cost. The following table shows the components of the pension cost recognized during each of the last three years. The amount for each year includes amortization of the prior service cost/credit and net actuarial loss/gain included in accumulated other comprehensive loss as of the beginning of the year.

	Pension Benefits
	2018				2019				2020
Service cost	$	24			$	24			$	24
Interest cost	29				34				31
Expected return on assets	(41		)		(47		)		(46		)
Amortization of:
Prior service cost (credit)	1				1				1
Net actuarial loss (gain)	21				19				19
Settlement charge	—				15				1
Net cost	$	34			$	46			$	30

The prior service cost/credit, which represents the effect of plan amendments on benefit obligations, is amortized on a straight-line basis over the average remaining service period of the employees expected to receive the benefits. The net actuarial loss/gain results from experience different from that assumed or from a change in actuarial assumptions (including the difference between actual and expected return on plan assets), and is amortized over at least that same period. The estimated amount of prior service cost and net actuarial loss that will be amortized from accumulated other comprehensive loss into pension cost in 2021 is $1 and $27, respectively.

Other postretirement benefits cost. The following table shows the components of the postretirement medical and life insurance benefits cost that we recognized during each of the last three years.

	Medical and Life Insurance Benefits
	2018				2019				2020
Service cost	$	1			$	1			$	1
Interest cost	1				2				1
Amortization of:
Prior service cost (credit)	(3		)		(3		)		(3		)
Net actuarial loss (gain)	1				1				1
Net cost	$	—			$	1			$	—

The estimated amount of prior service credit and net actuarial loss that will be amortized from accumulated other comprehensive loss into postretirement medical and life insurance benefits cost in 2021 is $3 and $1, respectively.

Other comprehensive income (loss). Prior service cost/credit and net actuarial loss/gain are recognized in other comprehensive income or loss (OCI) during the period in which they arise. These amounts are later amortized from accumulated OCI into pension and other postretirement benefit cost over future periods as described above. The following table shows the pre-tax effect of these amounts on OCI during each of the last three years.

	Pension Benefits												Medical and Life Insurance Benefits
	2018				2019				2020				2018				2019				2020
Prior service credit (cost)	$	(6	)		$	—			$	—			$	—			$	—			$	—
Net actuarial gain (loss)	10				(41		)		(115		)		1				—				(2		)
Amortization reclassified to earnings:
Prior service cost (credit)	1				1				1				(3		)		(3		)		(3		)
Net actuarial loss (gain)	21				34				20				1				1				1
Net amount recognized in OCI	$	26			$	(6	)		$	(94	)		$	(1	)		$	(2	)		$	(4	)

Assumptions and sensitivity. We use various assumptions to determine the obligations and cost related to our pension and other postretirement benefit plans. The weighted-average assumptions used in computing benefit plan obligations as of the end of the last two years were as follows:

	Pension Benefits						Medical and Life Insurance Benefits
	2019			2020			2019			2020
Discount rate	4.04	%		3.28	%		3.98	%		3.17	%
Rate of salary increase	4.00	%		4.00	%		n/a			n/a

The weighted-average assumptions used in computing benefit plan cost during each of the last three years were as follows:

	Pension Benefits									Medical and Life Insurance Benefits
	2018			2019			2020			2018			2019			2020
Discount rate for service cost	4.29	%		4.30	%		4.17	%		4.39	%		4.34	%		4.24	%
Discount rate for interest cost	3.40	%		3.93	%		3.57	%		3.35	%		3.90	%		3.53	%
Rate of salary increase	4.00	%		4.00	%		4.00	%		n/a			n/a			n/a
Expected return on plan assets	6.75	%		6.50	%		6.50	%		n/a			n/a			n/a

The assumed discount rates are determined 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 the yield curve used to measure the benefit obligation at the beginning of the period.

The assumed rate of salary increase reflects the expected average annual increase in salaries as a result of inflation, merit increases, and promotions over the service period of the plan participants.

The expected return on plan assets represents the long-term rate of return that we assume will be earned over the life of the pension assets. The assumption reflects expected capital market returns for each asset class, which are based on historical returns, adjusted for the expected effects of diversification and active management (net of fees).

The assumed health care cost trend rates as of the end of the last two years were as follows:

	Medical and Life Insurance Benefits
	2019			2020
Health care cost trend rate assumed for next year	7.30	%		6.90	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate	2025			2025

A one percentage point change in the assumed health care cost trend rate would not have significantly changed the accumulated postretirement benefit obligation as of April 30, 2020, or the aggregate service and interest costs for 2020.

Savings plans. We also sponsor various defined contribution benefit plans that together cover substantially all U.S. employees. Employees can make voluntary contributions in accordance with their respective plans, which include a 401(k) tax deferral option. We match a percentage of each employee’s contributions in accordance with plan terms. We expensed $12, $12, and $12 for matching contributions during 2018, 2019, and 2020, respectively.

International plans. The information presented above for defined benefit plans and defined contribution benefit plans reflects amounts for U.S. plans only. Information about similar international plans is not presented due to immateriality.

10. Stock-Based Compensation

The Brown-Forman 2013 Omnibus Compensation Plan is our incentive compensation plan, designed to reward participants (including eligible officers, employees, and non-employee directors) for company performance. Under the Plan, we can grant stock-based incentive awards for up to 20,750,000 shares of common stock to eligible participants until July 28, 2023. As of April 30, 2020, awards for approximately 13,514,000 shares remain available for issuance under the Plan. We try to limit the source of shares delivered to participants under the Plan to treasury shares that we purchase from time to time on the open market (in connection with a publicly announced share repurchase program), in private transactions, or otherwise.

Awards granted under the Plan include stock-settled stock appreciation rights (SSARs), restricted stock units (RSUs), and deferred stock units (DSUs).

SSARs. We grant SSARs at an exercise price equal to the closing market price of the underlying stock on the grant date. SSARs become exercisable after three years from the first day of the fiscal year of grant and generally are exercisable for seven years after that date. The following table presents information about SSARs outstanding as of April 30, 2020, and for the year then ended.

	Number of SSARs (in thousands)			Weighted- Average Exercise Price per SSAR				Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at April 30, 2019	6,852			$	33.25
Granted	522			54.64
Exercised	(2,434	)		27.77
Forfeited or expired	(10	)		49.70
Outstanding at April 30, 2020	4,930			$	38.19			5.1		$	118
Exercisable at April 30, 2020	2,932			$	31.86			3.7		$	89

We use the Black-Scholes pricing model to calculate the grant-date fair value of a SSAR. The weighted-average grant-date fair values and related valuation assumptions for the SSARS granted during each of the last three years were as follows:

	2018				2019				2020
Grant-date fair value	$	6.79			$	11.06			$	11.13
Valuation assumptions:
Expected term (years)	7.00				7.00				7.00
Risk-free interest rate	2.2		%		2.9		%		1.9		%
Expected volatility	15.6		%		17.1		%		19.3		%
Expected dividend yield	1.5		%		1.4		%		1.2		%

The expected term is based on past exercise experience for similar awards. The risk-free interest rate is based on zero-coupon U.S. Treasury rates as of the date of grant. Expected volatility and dividend yield are based on historical data, with consideration of other factors when applicable.

RSUs. RSUs consist predominantly of performance-based RSUs that vest at the end of a three-year performance period that begins on the first day of the fiscal year of grant. Performance is measured based on the relative ranking of the total shareholder return of our Class B common stock during the three-year performance period compared to that of the companies within the Standard & Poor’s Consumer Staples Index at the end of the performance period, with specific payout levels ranging from 50% to 150%. At the end of the performance period, the RSUs are converted to common shares that are subject to an additional one-year holding requirement. The number of shares is determined by adjusting the RSUs by the performance multiplier and adjusting upward to account for dividends paid on our common stock during the second and third years of the performance period.

The following table presents information about RSUs outstanding as of April 30, 2020, and for the year then ended.

	Number of RSUs (in thousands)			Weighted- Average Fair Value at Grant Date
Outstanding at April 30, 2019	382			$	44.91
Granted	88			$	56.99
Converted to common shares	(179	)		$	38.56
Forfeited	(2	)		$	55.27
Outstanding at April 30, 2020	289			$	52.44

We calculate the grant-date fair value of a performance based RSU using a Monte Carlo simulation technique. The weighted average grant-date fair values and related valuation assumptions for these awards granted during each of the last three years were as follows:

	2018				2019				2020
Grant-date fair value	$	46.93			$	55.29			$	56.99
Valuation assumptions:
Risk-free interest rate	1.5		%		2.7		%		1.8		%
Expected volatility	18.9		%		20.8		%		21.8		%
Expected dividend yield	1.4		%		1.2		%		1.2		%
Remaining performance period (years) as of grant date	2.8				2.8				2.8

DSUs. DSUs are granted to our non-employee directors. Each DSU represents the right to receive one share of common stock based on the closing price of the shares on the date of grant. Outstanding DSUs are credited with dividend-equivalent DSUs when dividends are paid on our common stock. Each annual grant vests after one year. DSUs are paid out in shares after the completion of a director’s tenure on the board plus a six-month waiting period. The director may elect to receive the distribution either in a single lump sum or in ten equal annual installments. As of April 30, 2020, there were approximately 246,000 outstanding DSUs, of which approximately 215,000 were vested.

The grant-date fair value of a DSU is the closing market price of the underlying stock on the grant date. The weighted average grant-date fair values for these awards granted during each of the last three years were as follows:

	2018				2019				2020
Grant-date fair value	$	41.81			$	54.20			$	53.34

Additional information. The pre-tax stock-based compensation expense and related deferred income tax benefits recognized during the last three fiscal years were as follows:

	2018				2019				2020
Pre-tax compensation expense	$	19			$	14			$	11
Deferred tax benefit	6				2				2

As of April 30, 2020, there was $7 of total unrecognized compensation cost related to non-vested stock-based awards. That cost is expected to be recognized over a weighted-average period of 1.6 years. Further information related to our stock-based awards for the last three years is as follows:

	2018				2019				2020
Intrinsic value of SSARs exercised	$	73			$	31			$	89
Fair value of shares vested1	6				20				14
Excess tax benefit from exercise / vesting of awards	18				7				20

1The fair value of shares vested in fiscal 2019 includes $10 related to a one-time performance-based special grant of restricted stock issued in fiscal 2014 to our Chief Executive Officer (who retired in fiscal 2019). During the performance period, dividends accrued and the award was adjusted for all applicable stock splits during the vesting period, subject to the same performance measures as the initial grant. The resulting shares vested on June 1, 2018.

11. Income Taxes

We incur income taxes on the earnings of our U.S. and foreign operations. The following table, based on the locations of the taxable entities from which sales were derived (rather than the location of customers), presents the U.S. and foreign components of our income before income taxes:

	2018				2019				2020
United States	$	747			$	863			$	849
Foreign	230				179				160
	$	977			$	1,042			$	1,009

The income shown above was determined according to GAAP. Because those standards sometimes differ from the tax rules used to calculate taxable income, there are differences between: (a) the amount of taxable income and pretax financial income for a year and (b) the tax bases of assets or liabilities and their amounts as recorded in our financial statements. As a result, we recognize a current tax liability for the estimated income tax payable on the current tax return, and deferred tax liabilities (income tax payable on income that will be recognized on future tax returns) and deferred tax assets (income tax refunds from deductions that will be recognized on future tax returns) for the estimated effects of the differences mentioned above.

Total income tax expense for a year includes the tax associated with the current tax return (current tax expense) and the change in the net deferred tax asset or liability (deferred tax expense). Our total income tax expense for each of the last three years was as follows:

	2018				2019				2020
Current:
U.S. federal	$	265			$	107			$	95
Foreign	47				34				29
State and local	17				28				19
	329				169				143
Deferred:
U.S. federal	(48		)		37				34
Foreign	(13		)		4				7
State and local	(8		)		(3		)		(2		)
	(69		)		38				39
	$	260			$	207			$	182

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act significantly revised the future, ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. Because we have an April 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of 30.4% for our fiscal year ended April 30, 2018, and 21% for fiscal 2019 and subsequent fiscal years. For the year ended April 30, 2019, the reduction of the U.S. statutory federal rate from 35% (the pre-Tax Act rate) to 21% resulted in a tax benefit of $115.

There were also certain transitional impacts of the Tax Act. As part of the transition to the new territorial tax system, the Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, we adjusted our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These transitional impacts resulted in a provisional net charge of $43 for the year ended April 30, 2018, composed of a provisional repatriation U.S. tax charge of $91 and a provisional net deferred tax benefit of $48. In the fiscal year ended April 30, 2019, we recorded a benefit of $4 as an adjustment to the provisional repatriation tax.

The changes included in the Tax Act are broad and complex. The U.S. Securities and Exchange Commission issued rules that allowed for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of April 30, 2019, the amounts recorded for the Tax Act for the one-time repatriation tax and the adjustment to our U.S. deferred tax assets and liabilities were finalized and no longer deemed to be provisional.

The Tax Act also established new tax provisions that impact our financial statements beginning in fiscal 2019. These new provisions include (a) Global Intangible Low-Tax Income (GILTI), a new inclusion rule affecting non-routine income earned by foreign subsidiaries; (b) Base Erosion Anti-Abuse Tax (BEAT), a new minimum tax; (c) Foreign-Derived Intangible Income (FDII), a new preferential tax rate for domestic income earned from serving foreign markets; (d) repeal of the domestic production activity deduction; and (e) limitations on the deductibility of certain executive compensation. For the fiscal year ended April 30, 2019 and April 30, 2020, the net impact of these provisions was approximately $12 and $11 of additional tax, respectively.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020. It included certain provisions for additional net operating loss utilization, immediate refund for AMT Credit Carryforwards, and increased income limitation under IRC section 163(j) for 2019 and 2020. The CARES Act also retroactively clarified the immediate write-off of qualified improvement property beginning in 2018 and increased the charitable contribution deduction.

As of April 30, 2020, we had approximately $1,279 of undistributed earnings from our foreign subsidiaries. Most of these earnings have been previously subject to tax, primarily as a result of the one-time repatriation tax on foreign earnings required by the Tax Act. Historically, we have asserted that the undistributed earnings of our foreign subsidiaries are reinvested indefinitely outside the United States. During fiscal 2020, we changed our indefinite reinvestment assertion with respect to current year earnings and prior year undistributed earnings for one of our foreign subsidiaries (but not for its other outside basis differences) and repatriated $15 of cash to the United States. No incremental taxes were due on this distribution of cash beyond the repatriation tax recorded in fiscal year 2018. However, we incurred withholding tax of $1 related to the distribution. We have not changed the indefinite reinvestment assertion on the undistributed earnings or other outside basis differences of any of our other remaining foreign subsidiaries, and no deferred taxes have been provided. A determination of the unrecognized deferred tax liabilities on the other outside basis differences and earnings reinvested indefinitely at April 30, 2020, is not practicable due to the complexities in

the calculations. The other outside basis differences are primarily related to differences between U.S. GAAP and tax basis that arose through purchase accounting. These basis differences could reverse through sales of foreign subsidiaries or other transactions, none of which are considered probable as of April 30, 2020.

As of April 30, 2019, we had approximately $1,266 of undistributed earnings from our foreign subsidiaries. During fiscal 2019, we changed our indefinite reinvestment assertion with respect to current year earnings and prior year undistributed earnings for one of our foreign subsidiaries (but not for its other outside basis differences) and repatriated $120 of cash to the United States.

Our consolidated effective tax rate usually differs from current statutory rates due to the recognition of amounts for events or transactions with no tax consequences. The following table reconciles our effective tax rate to the federal statutory tax rate in the United States:

	Percent of Income Before Taxes
	2018			2019			2020
U.S. federal statutory rate	30.4	%		21.0	%		21.0	%
State taxes, net of U.S. federal tax benefit	0.8	%		2.1	%		1.7	%
Income taxed at other than U.S. federal statutory rate	(3.4	%)		(0.1	%)		—	%
Tax benefit from foreign-derived sales	—	%		(1.7	%)		(2.0	%)
Adjustments related to prior years	(0.9	%)		(1.2	%)		(1.1	%)
Tax benefit from U.S. manufacturing	(2.5	%)		—	%		—	%
Amortization of deferred tax benefit from intercompany transactions	(1.6	%)		—	%		—	%
Excess tax benefits from stock-based awards	(1.8	%)		(0.7	%)		(2.0	%)
Impact of Tax Act	2.5	%		(0.4	%)		—	%
Other, net	3.1	%		0.8	%		0.4	%
Effective rate	26.6	%		19.8	%		18.0	%

Deferred tax assets and liabilities as of the end of each of the last two years were as follows:

April 30,	2019				2020
Deferred tax assets:
Postretirement and other benefits	$	87			$	110
Accrued liabilities and other	23				23
Inventories	34				26
Lease liabilities	—				14
Loss and credit carryforwards	55				57
Valuation allowance	(25		)		(22		)
Total deferred tax assets, net	174				208
Deferred tax liabilities:
Intangible assets	(218		)		(233		)
Property, plant, and equipment	(73		)		(90		)
Right-of-use assets	—				(13		)
Derivative instruments	(9		)		(18		)
Other	(3		)		(16		)
Total deferred tax liabilities	(303		)		(370		)
Net deferred tax liability	$	(129	)		$	(162	)

Details of the loss and credit carryforwards and related valuation allowances as of the end of each of the last two years are as follows:

		April 30, 2019												April 30, 2020
		Gross Amount				Deferred Tax Asset				Valuation Allowance				Gross Amount				Deferred Tax Asset				Valuation Allowance				Expiration (as of April 30, 2020)
Finland net operating losses		$	105			$	21			$	—			$119				$24				$	—			2024-2030
Brazil net operating losses		42				14				(14		)		31				10				(10		)		None
United Kingdom non-trading losses		27				5				(5		)		26				5				(5		)		None
Various state net operating losses and credits		68				6				—				63				9				—				Various1
Other		54				9				(6		)		50				9				(7		)		Various2
		$	296			$	55			$	(25	)		$	289			$	57			$	(22	)

1As of April 30, 2020, the net deferred tax asset amount includes credit carryforwards of $3 that do not expire and loss and credit carryforwards of $6 that expire in varying amounts from 2023 to 2040.

2As of April 30, 2020, the gross amount includes loss carryforwards of $24 that do not expire and $26 that expire in varying amounts over the next 20 years.

Although the losses in Brazil can be carried forward indefinitely, it is uncertain whether we will realize sufficient taxable income to allow us to use these losses. The non-trading losses in the United Kingdom can also be carried forward indefinitely. However, we know of no significant transactions that will let us use them.

At April 30, 2020, we had $11 of gross unrecognized tax benefits, $9 of which would reduce our effective income tax rate if recognized. A reconciliation of the beginning and ending unrecognized tax benefits follows:

	2018				2019				2020
Unrecognized tax benefits at beginning of year	$	9			$	11			$	11
Additions for tax positions provided in prior periods	5				1				2
Additions for tax positions provided in current period	1				1				—
Decreases for tax positions provided in prior years	(4		)		(2		)		(1		)
Settlements of tax positions in the current period	—				—				(1		)
Unrecognized tax benefits at end of year	$	11			$	11			$	11

We file income tax returns in the United States, including several state and local jurisdictions, as well as in several other countries in which we conduct business. The major jurisdictions and their earliest fiscal years that are currently open for tax examinations are 2014 for one state in the United States; 2018 in the United Kingdom; 2016 in Australia; 2015 in Finland, Germany, and Poland; 2014 in the Netherlands and Brazil; and 2013 in Mexico. We expect the audits of our fiscal 2018 and fiscal 2019 U.S. federal tax returns to be concluded in the first half of fiscal 2021. In addition, we are participating in the Internal Revenue Service’s Compliance Assurance Program for our fiscal 2020 tax year.

We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.

12. Acquisition of Business

On July 3, 2019, we acquired 100% of the voting interests in The 86 Company, which owns Fords Gin, for $22 in cash. The purchase price was allocated largely to the intangible assets that were acquired, including goodwill of $11 and other indefinite-lived intangibles of $12, net of deferred tax liabilities of $1. The goodwill is primarily attributable to the value of leveraging our distribution network and brand-building expertise to grow global sales of the Fords Gin brand and to the knowledge and expertise of the organized workforce employed by the acquired business. We do not expect the goodwill to be deductible for tax purposes. The 86 Company has been included in our consolidated financial statements since the acquisition date. Actual and pro forma results are not presented due to immateriality.

13. Derivative Financial Instruments and Hedging Activities

Our multinational business exposes us to global market risks, including the effect of fluctuations in 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 currency exchange 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 accumulated other comprehensive income (AOCI) until the underlying hedged transaction occurs, at which time we reclassify that amount into earnings.

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

We had outstanding currency derivatives, related primarily to our euro, British pound, and Australian dollar exposures, with notional amounts for all hedged currencies totaling $1,241 and $1,026 at April 30, 2019 and 2020, respectively. The maximum term of outstanding derivative contracts was 36 months at both April 30, 2019 and 2020.

We also use foreign currency-denominated debt to help manage our foreign currency exchange risk. The amount of foreign currency-denominated debt designated as net investment hedges was $635 and $613 as of April 30, 2019 and 2020, respectively. These net investment hedges are intended to mitigate foreign currency exchange 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.

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

We use forward purchase contracts with suppliers to protect against corn price volatility. We expect to physically take 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 during each of the last three years:

	Classification in Statement of Operations		2018				2019				2020
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	n/a		$	(54	)		$	69			$	61
Net gain (loss) reclassified from AOCI into earnings	Sales		(11		)		6				23
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings	Sales		(5		)		6				4
Net gain (loss) recognized in earnings	Other income (expense), net		9				6				(14		)
Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI	n/a		(41		)		45				22
Total amounts presented in the accompanying consolidated statements of operations for line items affected by the net gains (losses) shown above:
Sales			4,201				4,276				4,306
Other income (expense), net			16				15				(11		)

We expect to reclassify $47 of deferred net gains on cash flow hedges recorded in AOCI as of April 30, 2020, to earnings during fiscal 2021. 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 as of April 30, 2019 and 2020:

	Balance Sheet Classification		Derivative Assets				Derivative Liabilities
April 30, 2019
Designated as cash flow hedges:
Currency derivatives	Other current assets		$	21			$	(2	)
Currency derivatives	Other assets		22				(1		)
Currency derivatives	Accrued expenses		—				(5		)
Currency derivatives	Other liabilities		—				(1		)
Not designated as hedges:
Currency derivatives	Accrued expenses		—				—
April 30, 2020
Designated as cash flow hedges:
Currency derivatives	Other current assets		49				(1		)
Currency derivatives	Other assets		30				—
Currency derivatives	Accrued expenses		—				—
Currency derivatives	Other liabilities		—				—
Not designated as hedges:
Currency derivatives	Accrued expenses		—				(2		)

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

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

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

Some of our derivative instruments require us to maintain a specific level of creditworthiness, which we have maintained. If our creditworthiness were to fall below that level, then the counterparties to our derivative instruments could request immediate payment or collateralization for derivative instruments in net liability positions. The aggregate fair value of all derivatives with creditworthiness requirements that were in a net liability position was $6 and $2 at April 30, 2019 and 2020, respectively.

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

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

	Gross Amounts of Recognized Assets (Liabilities)				Gross Amounts Offset in Balance Sheet				Net Amounts Presented in Balance Sheet				Gross Amounts Not Offset in Balance Sheet				Net Amounts
April 30, 2019
Derivative assets	$	43			$	(3	)		$	40			$	—			$	40
Derivative liabilities	(9		)		3				(6		)		—				(6		)
April 30, 2020
Derivative assets	79				(1		)		78				—				78
Derivative liabilities	(3		)		1				(2		)		—				(2		)

No cash collateral was received or pledged related to our derivative contracts as of April 30, 2019 or 2020.

14. Fair Value Measurements

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

	2019								2020
April 30,	Carrying Amount				Fair Value				Carrying Amount				Fair Value
Assets:
Cash and cash equivalents	$	307			$	307			$	675			$	675
Currency derivatives	40				40				78				78
Liabilities:
Currency derivatives	6				6				2				2
Short-term borrowings	150				150				333				333
Long-term debt	2,290				2,399				2,269				2,486

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

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

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

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

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

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

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

We measure some assets and liabilities at fair value on a nonrecurring basis. That is, we do not measure them at fair value on an ongoing basis, but we do adjust them to fair value in some circumstances (for example, when we determine that an asset is impaired). As discussed in Note 4, we recognized a non-cash impairment charge during the fourth quarter of fiscal 2020 related to our Chambord brand name. The impairment charge was based on the estimated fair value of the brand name, which we determined using the relief from royalty method, and which is categorized as Level 3 within the valuation hierarchy. No other material nonrecurring fair value measurements were required during the periods presented in these financial statements.

15. Leases

We enter into lease arrangements, which we use primarily for office space, vehicles, and land. Substantially all of our leases are operating leases. Our finance leases are not material.

Effective May 1, 2019, we updated our accounting policy for leases to reflect the adoption of ASC 842. Under ASC 842, we record lease liabilities and right-of-use (ROU) assets on our balance sheet for leases with terms exceeding 12 months. We do not record lease liabilities or ROU assets for short-term leases.

The amounts recorded for lease liabilities and ROU assets are based on the estimated present value, as of the lease commencement date, of the future payments to be made over the lease term. We calculate the present value using our incremental borrowing rate that corresponds to the term of the lease. We include the effect of an option to renew or terminate a lease in the lease term when it is reasonably certain that we will exercise the option.

Some of our leases contain non-lease components (e.g., maintenance or other services) in addition to lease components. We have elected the practical expedient not to separate the non-lease components from the lease components.

The following table shows the amounts and classification of ROU assets and lease liabilities on our balance sheet as of April 30, 2020:

	Classification	April 30, 2020
Right-of-use assets	Other assets	$	51
Lease liabilities:
Current	Accounts payable and accrued expenses	$	16
Non-current	Other liabilities	37
Total		$	53

The following table shows information about the effects of leases during 2020:

	2020
Total lease cost1	$	29
Cash paid for amounts included in the measurement of lease liabilities2	21
Right-of-use assets obtained in exchange for new lease liabilities	35

1Consists primarily of operating lease cost. Other components of lease cost were not material.

2Classified within operating activities in the accompanying consolidated statement of cash flows.

The following table includes a maturity analysis of future (undiscounted) operating lease payments and a reconciliation of those payments to the lease liabilities recorded on our balance sheet as of April 30, 2020:

	April 30, 2020
2021	$	17
2022	13
2023	9
2024	6
2025	3
Thereafter	9
Total lease payments	57
Less: Present value discount	(4		)
Lease liabilities	$	53
Weighted-average discount rate	3.0%
Weighted-average remaining term	5.2 years

Future operating lease payments, under the prior accounting standard (ASC 840), were as follows as of April 30, 2019:

	April 30, 2019
2020	$	23
2021	16
2022	10
2023	5
2024	3
Thereafter	2
Total lease payments	$	59

Rent expense for operating leases (under ASC 840) was $26 in 2018 and $28 in 2019.

16. Other Comprehensive Income

The following table presents the components of net other comprehensive income (loss) during each of the last three years:

	Pre-Tax				Tax				Net
Year Ended April 30, 2018
Currency translation adjustments:
Net gain (loss) on currency translation	$	12			$	12			$	24
Reclassification to earnings	—				—				—
Other comprehensive income (loss), net	12				12				24
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	(54		)		18				(36		)
Reclassification to earnings1	11				(3		)		8
Other comprehensive income (loss), net	(43		)		15				(28		)
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	5				(2		)		3
Reclassification to earnings2	20				(7		)		13
Other comprehensive income (loss), net	25				(9		)		16
Total other comprehensive income (loss), net	$	(6	)		$	18			$	12
Year Ended April 30, 2019
Currency translation adjustments:
Net gain (loss) on currency translation	$	(16	)		$	(11	)		$	(27	)
Reclassification to earnings	—				—				—
Other comprehensive income (loss), net	(16		)		(11		)		(27		)
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	69				(16		)		53
Reclassification to earnings1	(6		)		1				(5		)
Other comprehensive income (loss), net	63				(15		)		48
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	(41		)		10				(31		)
Reclassification to earnings2	33				(8		)		25
Other comprehensive income (loss), net	(8		)		2				(6		)
Total other comprehensive income (loss), net	$	39			$	(24	)		$	15
Year Ended April 30, 2020
Currency translation adjustments:
Net gain (loss) on currency translation	$	(88	)		$	(6	)		$	(94	)
Reclassification to earnings	—				—				—
Other comprehensive income (loss), net	(88		)		(6		)		(94		)
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	61				(14		)		47
Reclassification to earnings1	(23		)		6				(17		)
Other comprehensive income (loss), net	38				(8		)		30
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	(119		)		28				(91		)
Reclassification to earnings2	18				(4		)		14
Other comprehensive income (loss), net	(101		)		24				(77		)
Total other comprehensive income (loss), net	$	(151	)		$	10			$	(141	)

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

2Pre-tax amount is classified as non-operating postretirement expense in the accompanying consolidated statements of operations.

17. Supplemental Information

The following table presents net sales by geography:

	2018				2019				2020
Net sales:
United States	$	1,529			$	1,563			$	1,690
United Kingdom	206				199				180
Germany	146				159				171
Australia	163				164				155
Mexico	162				166				155
Other	1,042				1,073				1,012
	$	3,248			$	3,324			$	3,363

Net sales are attributed to countries based on where customers are located. See Note 8 for additional information about net sales, including net sales by product category.

Our two largest customers accounted for approximately 18% and 13% of consolidated net sales in 2020.

The net book value of property, plant, and equipment located outside the United States was $107 and $105 as of April 30, 2019 and 2020, respectively. Other long-lived assets located outside the United States are not significant.

We have concluded that our business constitutes a single operating segment.

18. Subsequent Event

On June 12, 2020, we entered into an agreement to sell assets related to the Early Times, Canadian Mist, and Collingwood brands (including intellectual property, inventories, and the Canadian Mist production assets) to Sazerac Company. The sale reflects the continued evolution of our portfolio strategy to focus on premium brands. We expect to recognize a gain on the sale at closing, which is currently expected to occur by October 31, 2020. The total carrying amount of the assets to be included in the sale is approximately 1% of our consolidated total assets.

Quarterly Financial Information (Unaudited)

(Expressed in millions, except per share amounts)

		Fiscal 2019																				Fiscal 2020
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year				First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Net sales		$	766			$	910			$	904			$	744			$	3,324			$	766			$	989			$	899			$	709			$	3,363
Gross profit		523				590				571				482				2,166				498				619				557				453				2,127
Net income		200				249				227				159				835				186				282				231				128				827
Basic EPS		0.42				0.52				0.47				0.33				1.74				0.39				0.59				0.48				0.27				1.73
Diluted EPS		0.41				0.52				0.47				0.33				1.73				0.39				0.59				0.48				0.27				1.72
Cash dividends per share:
Declared		0.3160				—				0.3320				—				0.6480				0.3320				—				0.3486				—				0.6806
Paid		0.1580				0.1580				0.1660				0.1660				0.6480				0.1660				0.1660				0.1743				0.1743				0.6806

Note: Quarterly amounts may not add to amounts for the year due to rounding. Further, quarterly earnings per share (EPS) amounts may not add to amounts for the year because quarterly and annual EPS calculations are performed separately.