Item 8. Financial Statements and Supplementary Data

Table of Contents
	Page
Reports of Management	47
Report of Independent Registered Public Accounting Firm	48
Consolidated Statements of Operations	49
Consolidated Statements of Comprehensive Income	50
Consolidated Balance Sheets	51
Consolidated Statements of Cash Flows	52
Consolidated Statements of Stockholders’ Equity	53
Notes to Consolidated Financial Statements	54
Quarterly Financial Information (Unaudited)	74

REPORTS OF MANAGEMENT

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Our management is responsible for the preparation, presentation, and 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 Compliance Guidelines, we are firmly committed to adhering to the highest standards of moral and ethical behaviors 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 Rule 13a-15(f) under the Securities Exchange Act of 1934. 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, 2016. PwC has audited the effectiveness of our internal control over financial reporting as of April 30, 2016, as stated in their report.

Dated:	June 15, 2016
		By:	/s/ Paul C. Varga
			Paul C. Varga
			Chief Executive Officer and Chairman of the Company
		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:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’ equity present fairly, in all material respects, the financial position of Brown-Forman Corporation and its subsidiaries (the “Company”) at April 30, 2016, and April 30, 2015, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2016, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, 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 these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in 2016.

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.

/s/ PricewaterhouseCoopers LLP

Louisville, KY

June 15, 2016

BROWN-FORMAN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

Year Ended April 30,	2014				2015				2016
Net sales	$	3,946			$	4,096			$	4,011
Excise taxes	955				962				922
Cost of sales	913				951				945
Gross profit	2,078				2,183				2,144
Advertising expenses	436				437				417
Selling, general, and administrative expenses	686				697				688
Gain on sale of business	—				—				(485		)
Other expense (income), net	(15		)		22				(9		)
Operating income	971				1,027				1,533
Interest income	2				2				2
Interest expense	26				27				46
Income before income taxes	947				1,002				1,489
Income taxes	288				318				422
Net income	$	659			$	684			$	1,067
Earnings per share:
Basic	$	3.08			$	3.23			$	5.26
Diluted	$	3.06			$	3.21			$	5.22

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

BROWN-FORMAN CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

Year Ended April 30,	2014				2015				2016
Net income	$	659			$	684			$	1,067
Other comprehensive income (loss), net of tax:
Currency translation adjustments	(4		)		(114		)		(23		)
Cash flow hedge adjustments	(4		)		32				(17		)
Postretirement benefits adjustments	31				(30		)		(10		)
Net other comprehensive income (loss)	23				(112		)		(50		)
Comprehensive income	$	682			$	572			$	1,017

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

BROWN-FORMAN CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

April 30,	2015				2016
ASSETS
Cash and cash equivalents	$	370			$	263
Accounts receivable, less allowance for doubtful accounts of $10 in 2015 and $9 in 2016	583				559
Inventories:
Barreled whiskey	571				666
Finished goods	200				187
Work in process	121				116
Raw materials and supplies	61				85
Total inventories	953				1,054
Current deferred tax assets	16				—
Other current assets	332				357
Total current assets	2,254				2,233
Property, plant, and equipment, net	586				629
Goodwill	607				590
Other intangible assets	611				595
Deferred tax assets	18				17
Other assets	112				119
Total assets	$	4,188			$	4,183
LIABILITIES
Accounts payable and accrued expenses	$	497			$	501
Accrued income taxes	12				19
Current deferred tax liabilities	9				—
Short-term borrowings	190				271
Current portion of long-term debt	250				—
Total current liabilities	958				791
Long-term debt	743				1,230
Deferred tax liabilities	107				101
Accrued pension and other postretirement benefits	311				353
Other liabilities	164				146
Total liabilities	2,283				2,621
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock:
Class A, voting, $0.15 par value (85,000,000 shares authorized; 85,000,000 shares issued)	13				13
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 142,313,000 shares issued)	21				21
Additional paid-in capital	99				114
Retained earnings	3,300				4,065
Accumulated other comprehensive income (loss), net of tax	(300		)		(350		)
Treasury stock, at cost (18,613,000 and 29,571,000 shares in 2015 and 2016, respectively)	(1,228		)		(2,301		)
Total stockholders’ equity	1,905				1,562
Total liabilities and stockholders’ equity	$	4,188			$	4,183

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

BROWN-FORMAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

Year Ended April 30,	2014				2015				2016
Cash flows from operating activities:
Net income	$	659			$	684			$	1,067
Adjustments to reconcile net income to net cash provided by operations:
Gain on sale of business	—				—				(485		)
Depreciation and amortization	50				51				56
Stock-based compensation expense	13				15				15
Deferred income taxes	(5		)		6				10
Other, net	1				9				2
Changes in assets and liabilities, excluding the effects of sale of business:
Accounts receivable	(34		)		(50		)		8
Inventories	(67		)		(102		)		(127		)
Other current assets	(43		)		(30		)		(57		)
Accounts payable and accrued expenses	31				64				29
Accrued income taxes	60				(58		)		7
Noncurrent assets and liabilities	(16		)		19				(1		)
Cash provided by operating activities	649				608				524
Cash flows from investing activities:
Proceeds from sale of business	—				—				543
Additions to property, plant, and equipment	(126		)		(120		)		(108		)
Proceeds from sale of property, plant, and equipment	2				—				—
Acquisition of brand names and trademarks	(1		)		(4		)		—
Computer software expenditures	(2		)		(1		)		(2		)
Cash provided by (used for) investing activities	(127		)		(125		)		433
Cash flows from financing activities:
Net change in short-term borrowings	5				183				80
Repayment of long-term debt	(2		)		—				(250		)
Proceeds from long-term debt	—				—				490
Debt issuance costs	—				—				(5		)
Net payments related to exercise of stock-based awards	(19		)		(14		)		(17		)
Excess tax benefits from stock-based awards	10				18				15
Acquisition of treasury stock	(49		)		(462		)		(1,107		)
Dividends paid	(233		)		(256		)		(266		)
Cash used for financing activities	(288		)		(531		)		(1,060		)
Effect of exchange rate changes on cash and cash equivalents	(1		)		(19		)		(4		)
Net increase (decrease) in cash and cash equivalents	233				(67		)		(107		)
Cash and cash equivalents, beginning of period	204				437				370
Cash and cash equivalents, end of period	$	437			$	370			$	263
Supplemental disclosure of cash paid for:
Interest	$	28			$	27			$	41
Income taxes	$	281			$	375			$	430

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

BROWN-FORMAN CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in millions, except per share amounts)

Year Ended April 30,	2014				2015				2016
Class A common stock:
Balance at beginning and end of year	$	13			$	13			$	13
Class B common stock:
Balance at beginning and end of year	21				21				21
Additional paid-in capital:
Balance at beginning of year	71				81				99
Stock-based compensation expense	13				15				15
Loss on issuance of treasury stock issued under compensation plans	(13		)		(15		)		(15		)
Excess tax benefits from stock-based awards	10				18				15
Balance at end of year	81				99				114
Retained earnings:
Balance at beginning of year	2,500				2,894				3,300
Net income	659				684				1,067
Cash dividends ($1.09, $1.21, and $1.31 per share in 2014, 2015, and 2016, respectively)	(233		)		(256		)		(266		)
Loss on issuance of treasury stock issued under compensation plans	(32		)		(22		)		(36		)
Balance at end of year	2,894				3,300				4,065
Accumulated other comprehensive income (loss), net of tax:
Balance at beginning of year	(211		)		(188		)		(300		)
Net other comprehensive income (loss)	23				(112		)		(50		)
Balance at end of year	(188		)		(300		)		(350		)
Treasury stock, at cost:
Balance at beginning of year	(766		)		(789		)		(1,228		)
Acquisition of treasury stock	(49		)		(462		)		(1,107		)
Stock issued under compensation plans	26				23				34
Balance at end of year	(789		)		(1,228		)		(2,301		)
Total stockholders’ equity	$	2,032			$	1,905			$	1,562
Class A common shares outstanding (in thousands):
Balance at beginning of year	84,446				84,462				84,463
Acquisition of treasury stock	(46		)		(85		)		(57		)
Stock issued under compensation plans	62				86				124
Balance at end of year	84,462				84,463				84,530
Class B common shares outstanding (in thousands):
Balance at beginning of year	129,261				128,993				124,237
Acquisition of treasury stock	(661		)		(5,034		)		(11,357		)
Stock issued under compensation plans	393				278				332
Balance at end of year	128,993				124,237				113,212
Total common shares outstanding (in thousands)	213,455				208,700				197,742

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars 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 (and probably will) 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.

Inventories. Inventories are valued at the lower of cost or market value. Approximately 59% 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 $234 and $248 higher than reported at April 30, 2015 and 2016, respectively.

Because we age most of our whiskeys in barrels for three to six 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. If an asset’s fair value is less than its book value, we write it down to its estimated fair value. For goodwill, if the book value of the reporting unit exceeds its estimated fair value, we measure for potential impairment by comparing the implied fair value of the reporting unit’s goodwill, determined in the same manner as in a business combination, to the goodwill’s book value. We estimate the reporting unit’s fair value using discounted estimated future cash flows or market information. We typically estimate the fair value of a brand name using the “relief from royalty” 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.

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 translate income and expenses. We record the resulting translation adjustments in other comprehensive income (loss).

Revenue recognition. We recognize revenue when title and risk of loss pass to the customer, typically when the product is shipped. Some sales contracts contain customer acceptance provisions that grant a right of return on the basis of either subjective or objective criteria. We record revenue net of estimated sales returns, allowances, and discounts.

Excise taxes. Our sales are often subject to excise taxes that we collect from our customers and remit to governmental authorities. We present these taxes on a gross basis (included in net sales and costs before gross profit) in the consolidated statement of operations.

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

Shipping and handling fees and costs. We report the amounts we bill to our customers for shipping and handling as net sales, and we report the costs we incur for shipping and handling as cost of sales.

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.

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 using a two-step process. 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.

Recent accounting pronouncements. In May 2014, the Financial Accounting Standards Board (FASB) issued new guidance on the recognition of revenue from contracts with customers. As issued, the new guidance would have become effective for us beginning fiscal 2018. However, the FASB has since deferred the effective date until our fiscal 2019, though permitting voluntary adoption as of the original effective date. The FASB has also issued various amendments and proposed further amendments to the new guidance. We are currently evaluating the potential impact of the new guidance (as amended) and the proposed amendments on our financial statements.

In April 2015, FASB issued new guidance for the presentation of debt issuance costs, which we adopted during the first quarter of fiscal 2016. Under the new guidance, debt issuance costs are presented as a direct deduction from the debt liability rather than as an asset. In adopting the new guidance, we retrospectively adjusted our balance sheet as of April 30, 2015. As a result, the carrying amounts of other assets (noncurrent) and long-term debt have decreased by $5 million from the amounts previously reported as of that date.

In November 2015, the FASB issued new guidance that requires all deferred tax assets and deferred tax liabilities to be presented as noncurrent on our balance sheet. We adopted this new guidance prospectively as of April 30, 2016. Accordingly, prior period balances have not been adjusted.

In February 2016, the FASB issued new guidance on accounting for leases. The new guidance will become effective for us beginning fiscal 2020, although voluntary adoption during an earlier period will be permitted. We are currently evaluating the potential impact of the new guidance on our financial statements.

In March 2016, the FASB issued new guidance related to certain aspects of the accounting for stock-based compensation, including the income tax consequences. Under the new guidance, all excess tax benefits and tax deficiencies will be recognized as income tax expense or benefit in our consolidated statement of operations, and excess tax benefits will be classified along with other income tax cash flows as an operating activity in our consolidated statement of cash flows. The new guidance will become effective for us beginning fiscal 2018, although early adoption is permitted. We currently expect to adopt the new guidance during fiscal 2017.

2. BALANCE SHEET INFORMATION

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

April 30,	2015				2016
Other current assets:
Prepaid taxes	$	181			$	208
Other	151				149
	$	332			$	357
Property, plant, and equipment:
Land	$	72			$	76
Buildings	419				468
Equipment	561				619
Construction in process	88				54
	1,140				1,217
Less accumulated depreciation	554				588
	$	586			$	629
Accounts payable and accrued expenses:
Accounts payable, trade	$	123			$	121
Accrued expenses:
Advertising and promotion	128				133
Compensation and commissions	110				105
Excise and other non-income taxes	59				58
Other	77				84
	374				380
	$	497			$	501
Other liabilities:
Deferred benefit – tax (Note 11)	$	75			$	59
Other	89				87
	$	164			$	146

3. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows the changes in the amounts recorded as goodwill (which include no accumulated impairment losses) over the past two years:

Balance as of April 30, 2014	$	620
Foreign currency translation adjustment	(13		)
Balance as of April 30, 2015	607
Sale of business (Note 15)	(16		)
Foreign currency translation adjustment	(1		)
Balance as of April 30, 2016	$	590

As of April 30, 2015 and 2016, our other intangible assets consisted of trademarks and brand names, all with indefinite useful lives.

4. COMMITMENTS AND CONTINGENCIES

Commitments. We made rental payments for real estate, vehicles, and office, computer, and manufacturing equipment under operating leases of $24, $23, and $23 during 2014, 2015, and 2016, respectively. We have commitments related to minimum lease payments of $18 in 2017, $10 in 2018, $8 in 2019, $5 in 2020, $2 in 2021, and $3 after 2021.

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 $10 in 2017, $4 in 2018, $3 in 2019, $1 in 2020, $1 in 2021, and $1 after 2021.

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, 2016, based on current market prices, obligations under these contracts total $2.

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 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, 2016.

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 $22 (subject to changes in foreign currency exchange rates). Both the fair value and carrying amount of the guaranty are insignificant.

As of April 30, 2016, our actual exposure under the guaranty of the importer’s obligation is approximately $17. We also have accounts receivable from that importer of approximately $9 at that date, 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.

5. DEBT AND CREDIT FACILITIES

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

April 30,	2015				2016
2.50% senior notes, $250 principal amount, due in fiscal 2016	$	250			$	—
1.00% senior notes, $250 principal amount, due in fiscal 2018	248				249
2.25% senior notes, $250 principal amount, due in fiscal 2023	247				248
3.75% senior notes, $250 principal amount, due in fiscal 2043	248				248
4.50% senior notes, $500 principal amount, due in fiscal 2046	—				485
	993				1,230
Less current portion	250				—
	$	743			$	1,230

Debt payments required over the next five fiscal years consist of $0 in 2017, $250 in 2018, $0 in 2019, $0 in 2020, $0 in 2021, and $1,000 after 2021.

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.

We issued senior, unsecured notes with an aggregate principal amount of $500 in June 2015. Interest on the notes will accrue at a rate of 4.50% and be paid semi-annually. As of April 30, 2016, the carrying amount of the notes was $485 ($500 principal, less unamortized discounts of $10 and issuance costs of $5). The notes are due on July 15, 2045.

We repaid our $250 of 2.50% notes on their maturity date of January 15, 2016.

As of April 30, 2015, our short-term borrowings of $190 included $183 of commercial paper, with an average interest rate of 0.17%, and an average remaining maturity of 13 days. As of April 30, 2016, our short-term borrowings of $271 included $269 of commercial paper, with an average interest rate of 0.53%, and an average remaining maturity of 26 days.

We have a committed revolving credit agreement with various U.S. and international banks for $800 that expires in November 2018. Its most restrictive quantitative covenant requires that the ratio of our consolidated EBITDA (as defined in the agreement) to consolidated interest expense not be less than 3 to 1. At April 30, 2016, with a ratio of 24 to 1, we were well within this covenant’s parameters and had no borrowing outstanding under this facility. We recently entered into a $400 364-day credit facility agreement that matures on May 5, 2017, for additional liquidity. This credit facility has no quantitative covenants.

6. FAIR VALUE MEASUREMENTS

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 upon 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.

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

	Level 1				Level 2				Level 3				Total
April 30, 2015:
Assets:
Currency derivatives	$	—			$	59			$	—			$	59
Liabilities:
Currency derivatives	—				18				—				18
Short-term borrowings	—				190				—				190
Current portion of long-term debt	—				253				—				253
Long-term debt	—				735				—				735
April 30, 2016:
Assets:
Currency derivatives	—				19				—				19
Liabilities:
Currency derivatives	—				10				—				10
Short-term borrowings	—				271				—				271
Long-term debt	—				1,293				—				1,293

We determine the fair values of our currency derivatives (forwards 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 exchange rates, forward rates, and discount rates. The discount rates are based on the historical U.S. Treasury rates.

The fair value of short-term borrowings approximates their carrying value. We determine the fair value of long-term debt primarily based on the prices at which similar debt has recently traded in the market and also considering the overall market conditions on the date of valuation.

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). No material nonrecurring fair value measurements were required during the periods presented in these financial statements.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of cash, cash equivalents, and short-term borrowings approximate the carrying amounts due to the short maturities of these instruments. We determine the fair values of currency derivatives and long-term debt as discussed in Note 6.

Below is a comparison of the fair values and carrying amounts of these instruments:

	2015								2016
April 30,	Carrying Amount				Fair Value				Carrying Amount				Fair Value
Assets:
Cash and cash equivalents	$	370			$	370			$	263			$	263
Currency derivatives	59				59				19				19
Liabilities:
Currency derivatives	18				18				10				10
Short-term borrowings	190				190				271				271
Current portion of long-term debt	250				253				—				—
Long-term debt	743				735				1,230				1,293

8. DERIVATIVE FINANCIAL INSTRUMENTS

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 (except any ineffective portion) in accumulated other comprehensive income (AOCI) until the underlying hedged transaction occurs, at which time we reclassify that amount into earnings. We assess the effectiveness of these hedges based on changes in forward exchange rates. The ineffective portion of the changes in fair value of our hedges (recognized immediately in earnings) during the periods presented in this report was not material.

We do not designate some of our currency derivatives as hedges because we use them to at least partially offset the immediate earnings impact of changes in foreign 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 totaling $1,212 and $1,265 at April 30, 2015 and 2016, respectively.

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 derivative instruments.

From time to time, we manage our interest rate risk with swap contracts. However, no such swaps were outstanding at April 30, 2015 or 2016.

During May 2015, we entered into interest rate derivative contracts (U.S. Treasury lock agreements) to manage the interest rate risk related to the anticipated issuance of fixed-rate senior, unsecured notes. We designated the contracts as cash flow hedges of the future interest payments associated with the anticipated notes. Upon issuance of the notes in June 2015 (see Note 5), we settled the contracts for a gain of $8. The entire gain was recorded to AOCI and will be amortized as a reduction of interest expense over the life of the notes.

The following table presents the pre-tax impact that changes in the fair value of our derivative instruments had on AOCI and earnings in 2015 and 2016:

	Classification in Statement of Operations		2015				2016
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	n/a		$	96			$	22
Net gain (loss) reclassified from AOCI into earnings	Net sales		41				60
Interest rate derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI	n/a		—				8
Derivatives not designated as hedging instruments:
Currency derivatives – net gain (loss) recognized in earnings	Net sales		26				1
Currency derivatives – net gain (loss) recognized in earnings	Other income		4				(5		)

We expect to reclassify $13 of deferred net gains recorded in AOCI as of April 30, 2016, to earnings during fiscal 2017. 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 maximum term of outstanding derivative contracts was 36 months and 36 months at April 30, 2015 and 2016, respectively.

The following table presents the fair values of our derivative instruments as of April 30, 2015 and 2016:

	Balance Sheet Classification		Fair Value of Derivatives in a Gain Position				Fair Value of Derivatives in a Loss Position
April 30, 2015:
Designated as cash flow hedges:
Currency derivatives	Other current assets		$	42			$	(2	)
Currency derivatives	Other assets		20				(3		)
Currency derivatives	Accrued expenses		—				(6		)
Currency derivatives	Other liabilities		—				(6		)
Not designated as hedges:
Currency derivatives	Other current assets		3				(1		)
Currency derivatives	Accrued expenses		1				(7		)
April 30, 2016:
Designated as cash flow hedges:
Currency derivatives	Other current assets		23				(2		)
Currency derivatives	Other assets		3				(2		)
Currency derivatives	Accrued expenses		4				(8		)
Currency derivatives	Other liabilities		3				(9		)
Not designated as hedges:
Currency derivatives	Other current assets		1				(4		)

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 the accompanying consolidated balance sheets.

In our statement 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 are regularly monitored and that provide for reports to senior management according to prescribed guidelines, 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 $18 and $8 at April 30, 2015 and 2016, 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 the balance sheet. Similarly, we present the fair values of noncurrent derivatives with the same counterparty on a net basis. Current derivatives are not netted with noncurrent derivatives in the balance sheet. 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, 2015:
Derivative assets	$	65			$	(6	)		$	59			$	—			$	59
Derivative liabilities	(24		)		6				(18		)		—				(18		)
April 30, 2016:
Derivative assets	34				(15		)		19				(6		)		13
Derivative liabilities	(25		)		15				(10		)		6				(4		)

No cash collateral was received or pledged related to our derivative contracts as of April 30, 2015 or 2016.

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 obligation changed during each of the last two years.

	Pension Benefits								Medical and Life Insurance Benefits
	2015				2016				2015				2016
Obligation at beginning of year	$	785			$	887			$	69			$	57
Service cost	22				26				1				1
Interest cost	34				35				3				2
Net actuarial loss (gain)	91				8				3				(1		)
Plan amendments	—				—				(16		)		—
Retiree contributions	—				—				1				1
Benefits paid	(45		)		(58		)		(4		)		(4		)
Obligation at end of year	$	887			$	898			$	57			$	56

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
2017	$	51			$	3
2018	52				3
2019	53				3
2020	54				3
2021	56				3
2022 – 2026	303				18

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, 2016, our target asset allocation is a mix of 47% public equity investments, 35% fixed income investments, and 18% 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 6.)

	Level 1				Level 2				Level 3				Total
April 30, 2015:
Commingled trust funds1:
Equity funds	$	—			$	248			$	—			$	248
Fixed income funds	—				185				—				185
Real estate funds	—				20				36				56
Short-term investments	—				4				—				4
Total commingled trust funds	—				457				36				493
Hedge funds2	—				—				31				31
Private equity3	—				—				26				26
Equity securities	76				—				—				76
Total	$	76			$	457			$	93			$	626
April 30, 2016:
Commingled trust funds1:
Equity funds	$	—			$	197			$	—			$	197
Fixed income funds	—				197				—				197
Real estate funds	—				—				59				59
Short-term investments	—				4				—				4
Total commingled trust funds	—				398				59				457
Hedge funds2	—				—				30				30
Private equity3	—				—				29				29
Equity securities	78				—				—				78
Total	$	78			$	398			$	118			$	594

1Commingled trust fund valuations are based on the net asset value (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.

2Hedge fund valuations are based primarily on the NAV of the funds as determined by fund administrators and reviewed by us. During our review, we determine whether it is necessary to adjust a valuation for inherent liquidity and redemption issues that may exist within a fund’s underlying assets or fund unit values.

3As of April 30, 2015 and 2016, consists only of limited partnership interests, which are valued at the percentage ownership of total partnership equity as determined by the general partner. These valuations require significant judgment due to the absence of quoted market prices, the inherent lack of liquidity, and the long-term nature of these investments.

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.

	Real Estate Funds				Hedge Funds				Private Equity				Total
Balance as of April 30, 2014	$	32			$	30			$	25			$	87
Return on assets held at end of year	4				1				1				6
Purchases and settlements	—				—				4				4
Sales and settlements	—				—				(4		)		(4		)
Balance as of April 30, 2015	36				31				26				93
Return on assets held at end of year	4				(1		)		1				4
Purchases and settlements	19				—				5				24
Sales and settlements	—				—				(3		)		(3		)
Balance as of April 30, 2016	$	59			$	30			$	29			$	118

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
	2015				2016				2015				2016
Assets at beginning of year	$	605			$	626			$	—			$	—
Actual return on assets	52				2				—				—
Retiree contributions	—				—				1				1
Company contributions	14				24				3				3
Benefits paid	(45		)		(58		)		(4		)		(4		)
Assets at end of year	$	626			$	594			$	—			$	—

We currently expect to contribute $30 to our pension plans and $3 to our postretirement medical and life insurance benefit plans during 2017.

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,	2015				2016				2015				2016
Assets	$	626			$	594			$	—			$	—
Obligations	(887		)		(898		)		(57		)		(56		)
Funded status	$	(261	)		$	(304	)		$	(57	)		$	(56	)

The funded status reflected above includes obligations attributable to our non-qualified Supplemental Executive Retirement Plan that is not funded with those plan assets presented above. However, we have set aside investments in corporate-owned life insurance policies to cover these obligations. The value of those investments, which are included in “other assets” on the accompanying balance sheets, is $48 and $64 as of April 30, 2015 and 2016, respectively.

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

		Pension Benefits								Medical and Life Insurance Benefits
April 30,		2015				2016				2015				2016
Accounts payable and accrued expenses		(4		)		(4		)		(3		)		(3		)
Accrued postretirement benefits		(257		)		(300		)		(54		)		(53		)
Net liability		$	(261	)		$	(304	)		$	(57	)		$	(56	)
Accumulated other comprehensive income (loss), before tax:
Net actuarial gain (loss)		$	(353	)		$	(372	)		$	(16	)		$	(13	)
Prior service credit (cost)		(4		)		(4		)		18				15
		$	(357	)		$	(376	)		$	2			$	2

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

	Plan Assets								Accumulated Benefit Obligation								Projected Benefit Obligation
April 30,	2015				2016				2015				2016				2015				2016
Plans with assets in excess of accumulated benefit obligation	$	53			$	—			$	50			$	—			$	52			$	—
Plans with accumulated benefit obligation in excess of assets	573				594				710				776				835				898
Total	$	626			$	594			$	760			$	776			$	887			$	898

Pension expense. The following table shows the components of the pension expense 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
	2014				2015				2016
Service cost	$	21			$	22			$	26
Interest cost	31				34				35
Expected return on assets	(40		)		(41		)		(40		)
Amortization of:
Prior service cost (credit)	1				1				1
Net actuarial loss (gain)	31				22				27
Net expense	$	44			$	38			$	49

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 expense in 2017 is $1 and $25, respectively.

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

	Medical and Life Insurance Benefits
	2014				2015				2016
Service cost	$	2			$	1			$	1
Interest cost	3				3				2
Amortization of:
Prior service cost (credit)	—				(2		)		(2		)
Net actuarial loss (gain)	—				1				1
Net expense	$	5			$	3			$	2

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 benefit expense in 2017 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 expense 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
	2014				2015				2016				2014				2015				2016
Prior service credit (cost)	$	—			$	—			$	—			$	10			$	16			$	—
Net actuarial gain (loss)	9				(80		)		(46		)		(3		)		(3		)		1
Amortization reclassified to earnings:
Prior service cost (credit)	1				1				1				—				(2		)		(2		)
Net actuarial loss (gain)	31				22				27				—				1				1
Net amount recognized in OCI	$	41			$	(57	)		$	(18	)		$	7			$	12			$	—

Assumptions and sensitivity. We use various assumptions to determine the obligations and expense 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
	2015			2016			2015			2016
Discount rate	4.09	%		4.02	%		4.09	%		3.96	%
Rate of salary increase	4.00	%		4.00	%		n/a			n/a

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

	Pension Benefits									Medical and Life Insurance Benefits
	2014			2015			2016			2014			2015			2016
Discount rate	4.08	%		4.46	%		4.09	%		4.36	%		4.67	%		4.09	%
Rate of salary increase	4.00	%		4.00	%		4.00	%		n/a			n/a			n/a
Expected return on plan assets	7.50	%		7.50	%		7.00	%		n/a			n/a			n/a

The discount rate represents the interest rate used to discount the cash-flow stream of benefit payments to a net present value as of the calculation date. A lower assumed discount rate increases the present value of the benefit obligation. We determined the discount rate 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 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. A lower assumed rate decreases the present value of the benefit obligation.

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
	2015			2016
Health care cost trend rate assumed for next year	7.50	%		7.25	%
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	2023			2024

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, 2016, or the aggregate service and interest costs for 2016.

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 $10, $10, and $11 for matching contributions during 2014, 2015, and 2016, 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, which is designed to reward its participants (including our eligible officers, employees, and non-employee directors) for company performance. Under the Plan, we can grant stock-based incentive awards for up to 8,300,000 shares of common stock to eligible participants until July 28, 2023. As of April 30, 2016, awards for approximately 6,804,000 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(at times in connection with a publicly announced share repurchase program), in private transactions, or otherwise.

The following table presents information about stock options and stock-settled stock appreciation rights (SSARs) granted under the Plan (or its predecessor plans) as of April 30, 2016, and for the year then ended.

	Number of Underlying Shares (in thousands)			Weighted Average Exercise Price per Award				Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at April 30, 2015	3,817			$	48.46
Granted	378			102.25
Exercised	(758	)		36.88
Forfeited or expired	(11	)		87.71
Outstanding at April 30, 2016	3,426			$	56.83			5.0		$	138
Exercisable at April 30, 2016	2,293			$	41.24			3.6		$	126

The total intrinsic value of options and SSARs exercised during 2014, 2015, and 2016 was $48, $35, and $47, respectively.

We grant stock options and SSARs at an exercise price equal to the market price of the underlying stock on the grant date. Stock options and SSARs become exercisable after three years from the first day of the fiscal year of grant and expire seven years after that date. The grant-date fair values of these awards granted during 2014, 2015, and 2016 were $14.84, $19.67, and $19.06 per award, respectively. We estimated the fair values using the Black-Scholes pricing model with the following assumptions:

	2014			2015			2016
Risk-free interest rate	1.9	%		2.2	%		2.1	%
Expected volatility	22.5	%		22.3	%		19.1	%
Expected dividend yield	1.8	%		1.7	%		1.6	%
Expected term (years)	6.75			6.75			6.75

We have also granted restricted stock units (RSUs), deferred stock units (DSUs), and shares of performance-based restricted stock (PBRS) under the Plan (or its predecessor plans). Approximately 274,000 shares underlying these awards, with a weighted-average remaining vesting period of 1.6 years, were nonvested at April 30, 2016. The following table summarizes the changes in the number of shares underlying these awards during 2016.

	Number of Underlying Shares (in thousands)			Weighted Average Fair Value at Grant Date
Nonvested at April 30, 2015	319			$	72.25
Granted	55			119.37
Adjusted for dividends or performance	(1	)		68.43
Vested	(98	)		62.59
Forfeited	(1	)		79.36
Nonvested at April 30, 2016	274			$	85.22

For PBRS awards, 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%.

The total fair value of RSUs, PBRS awards, and DSUs vested during 2014, 2015, and 2016 was $11, $11, and $10, respectively.

The accompanying consolidated statements of operations reflect compensation expense related to stock-based incentive awards on a pre-tax basis of $13 in 2014, $15 in 2015, and $15 in 2016, partially offset by deferred income tax benefits of $5 in 2014, $6 in 2015, and $6 in 2016. As of April 30, 2016, there was $13 of total unrecognized compensation cost related to non-vested stock-based compensation. That cost is expected to be recognized over a weighted-average period of 1.9 years.

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:

	2014				2015				2016
United States	$	797			$	912			$	1,184
Foreign	150				90				305
	$	947			$	1,002			$	1,489

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.

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

	2015				2016
April 30,
Deferred tax assets:
Postretirement and other benefits	$	164			$	183
Accrued liabilities and other	22				10
Inventories	12				26
Loss and credit carryforwards	46				39
Valuation allowance	(27		)		(25		)
Total deferred tax assets, net	217				233
Deferred tax liabilities:
Intangible assets	(207		)		(225		)
Property, plant, and equipment	(61		)		(83		)
Other	(31		)		(9		)
Total deferred tax liabilities	(299		)		(317		)
Net deferred tax liability	$	(82	)		$	(84	)

As of April 30, 2016, the gross amounts of loss carryforwards include a $35 net operating loss in Brazil (no expiration); a U.K. non-trading loss of $31 (no expiration); a $51 net operating loss in Finland (expires in varying amounts between 2024 and 2026); a $19 net operating loss in Mexico (expires in varying amounts in 2017 and 2018); and other foreign net operating losses of $27 ($9 that do not expire and $18 that expire in varying amounts between 2017 and 2026).

The $25 valuation allowance at April 30, 2016 ($27 at April 30, 2015), relates primarily to a $12 ($12 at April 30, 2015) net operating loss in Brazil. Although the losses in Brazil can be carried forward indefinitely, it is uncertain that we will realize sufficient taxable income to allow us to use these losses. The valuation allowance also includes $7 ($8 at April 30, 2015) related to other foreign net operating losses that expire between 2017 and 2026. The remaining valuation allowance relates to a $6 ($7 at April 30, 2015) non-trading loss carryforward in the United Kingdom that was generated during 2009. Although the non-trading losses can be carried forward indefinitely, we know of no significant transactions that will let us use them.

During 2014, we deferred a tax benefit of $95 that resulted primarily from the release of certain deferred tax liabilities in connection with an intercompany transfer of assets, composed primarily of an intangible asset. We are amortizing the deferred benefit to tax expense over approximately six years for financial reporting purposes, in accordance with Accounting Standard Codification (ASC) 740-10-25-3(e) (Income Taxes) and ASC 810-45-8 (Consolidation), resulting in a tax benefit of $5 in 2014, $15 in 2015, and $16 in 2016. The remaining balance of the deferred benefit, which is included in “other liabilities” on the accompanying balance sheet, was $59 as of April 30, 2016.

Deferred tax liabilities were not provided on undistributed earnings of foreign subsidiaries ($803 and $1,005 at April 30, 2015 and 2016, respectively) because we expect these undistributed earnings to be reinvested indefinitely outside the United States. If these amounts were not considered permanently reinvested, additional deferred tax liabilities of approximately $163 and $222 would have been provided as of April 30, 2015 and 2016, respectively.

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:

	2014				2015				2016
Current:
U.S. federal	$	243			$	259			$	347
Foreign	49				42				47
State and local	1				11				18
	293				312				412
Deferred:
U.S. federal	$	3			$	15			$	24
Foreign	(6		)		(11		)		(17		)
State and local	(2		)		2				3
	(5		)		6				10
	$	288			$	318			$	422

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
	2014			2015			2016
U.S. federal statutory rate	35.0	%		35.0	%		35.0	%
State taxes, net of U.S. federal tax benefit	0.7	%		1.0	%		1.0	%
Income taxed at other than U.S. federal statutory rate	(2.2	)%		(0.5	)%		(2.5	)%
Tax benefit from U.S. manufacturing	(2.8	)%		(2.5	)%		(2.4	)%
Tax impact of sale of business	—	%		—	%		(1.1	)%
Amortization of deferred tax benefit from intercompany transactions	(0.4	)%		(1.6	)%		(1.6	)%
Other, net	0.2	%		0.3	%		(0.1	)%
Effective rate	30.5	%		31.7	%		28.3	%

At April 30, 2016, we had $9 of gross unrecognized tax benefits, $6 of which would reduce our effective income tax rate if recognized. A reconciliation of the beginning and ending unrecognized tax benefits follows:

	2014				2015				2016
Unrecognized tax benefits at beginning of year	$	11			$	11			$	13
Additions for tax positions provided in prior periods	1				2				1
Additions for tax positions provided in current period	1				1				—
Decreases for tax positions provided in prior years	(1		)		(1		)		(4		)
Settlements of tax positions in the current period	(1		)		—				(1		)
Lapse of statutes of limitations	—				—				—
Unrecognized tax benefits at end of year	$	11			$	13			$	9

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 2011 for one state in the United States; 2013 in the United Kingdom; 2012 in Australia and Ireland; 2011 in Brazil and the Netherlands; 2010 in Poland; 2008 in Finland; and 2005 in Mexico. The audit of our fiscal 2014 U.S. federal tax return was concluded in the first quarter of fiscal 2016. In addition, we are participating in the Internal Revenue Service’s Compliance Assurance Program for our fiscal 2016 tax year.

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

12. 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:

	2014				2015				2016
Net income available to common stockholders	$	659			$	684			$	1,067
Share data (in thousands):
Basic average common shares outstanding	213,454				211,593				202,977
Dilutive effect of stock-based awards	1,628				1,490				1,303
Diluted average common shares outstanding	215,082				213,083				204,280
Basic earnings per share	$	3.08			$	3.23			$	5.26
Diluted earnings per share	$	3.06			$	3.21			$	5.22

We excluded common stock-based awards for approximately 309,000 shares, 361,000 shares, and 453,000 shares from the calculation of diluted earnings per share for 2014, 2015, and 2016, respectively, because they were not dilutive for those periods under the treasury stock method.

13. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the change in each component of AOCI, net of tax, during 2016:

	Currency Translation Adjustments				Cash Flow Hedge Adjustments				Postretirement Benefits Adjustments				Total AOCI
Balance at April 30, 2015	$	(108	)		$	28			$	(220	)		$	(300	)
Net other comprehensive income (loss)	(23		)		(17		)		(10		)		(50		)
Balance at April 30, 2016	$	(131	)		$	11			$	(230	)		$	(350	)

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, 2014
Currency translation adjustments	$	(2	)		$	(2	)		$	(4	)
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	(7		)		3				(4		)
Reclassification to earnings1	—				—				—
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	18				(7		)		11
Reclassification to earnings2	32				(12		)		20
Net other comprehensive income (loss)	$	41			$	(18	)		$	23
Year Ended April 30, 2015
Currency translation adjustments	$	(120	)		$	6			$	(114	)
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	96				(40		)		56
Reclassification to earnings1	(41		)		17				(24		)
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	(70		)		26				(44		)
Reclassification to earnings2	22				(8		)		14
Net other comprehensive income (loss)	$	(113	)		$	1			$	(112	)
Year Ended April 30, 2016
Currency translation adjustments	$	(22	)		$	(1	)		$	(23	)
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments	30				(10		)		20
Reclassification to earnings1	(60		)		23				(37		)
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost	(47		)		19				(28		)
Reclassification to earnings2	30				(12		)		18
Net other comprehensive income (loss)	$	(69	)		$	19			$	(50	)

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

2Pre-tax amount is a component of pension and other postretirement benefit expense (as shown in Note 9, except for amounts related to non-U.S. benefit plans, about which no information is presented in Note 9 due to immateriality).

14. SUPPLEMENTAL INFORMATION

The following table presents net sales by product category:

	2014				2015				2016
Net sales:
Spirits	$	3,765			$	3,903			$	3,809
Wine	181				193				202
	$	3,946			$	4,096			$	4,011

The following table presents net sales by geography:

	2014				2015				2016
Net sales:
United States	$	1,624			$	1,780			$	1,838
Europe	1,264				1,270				1,242
Australia	469				431				379
Other	589				615				552
	$	3,946			$	4,096			$	4,011

Net sales are attributed to countries based on where customers are located.

The net book value of property, plant, and equipment located in Mexico was $40 and $33 as of April 30, 2015 and 2016, respectively. Other long-lived assets located outside the United States are not significant.

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

15. GAIN ON SALE OF BUSINESS

On March 1, 2016, we sold our Southern Comfort and Tuaca brands to Sazerac Company, Inc. for $543 in cash (subject to a post-closing inventory adjustment). The total book value of the related business assets included in the sale was $49, and consisted of $11 in inventories, $16 in goodwill, and $22 in other intangible assets. As a result of the sale, we recognized a gain of $485 (net of transaction costs of $9) during the fourth quarter of fiscal 2016.

16. SUBSEQUENT EVENTS

Stock split. On May 26, 2016, our Board of Directors approved a two-for-one stock split, to be paid in the form of a stock dividend, for all outstanding shares of our Class A and Class B common stock. Implementing the stock split is subject to the approval of an increase in the number of authorized shares of Class A common stock at our annual meeting of shareholders, scheduled to be held on July 28, 2016. If approved, we expect the new shares will be distributed on or about August 18, 2016, to shareholders of record on or about August 8, 2016.

Acquisition. On June 1, 2016, we acquired 90% of the voting equity interests in The BenRiach Distillery Company Limited for approximately $307 in cash. The acquisition included our assumption of the company’s debts and transaction-related obligations totaling approximately $66, which we have since paid.

The acquisition, which brings three single malt Scotch whisky brands into our whiskey portfolio, includes brand trademarks, inventories, three malt distilleries, a bottling plant, and BenRiach’s headquarters in Edinburgh, Scotland.

The transaction includes a put and call option agreement for the remaining 10% equity shares. Under that agreement, we may choose (or be required) to purchase the remaining 10% for approximately 24 million British pounds (approximately $34 at the exchange rate on June 1, 2016) during the one-year period ending November 14, 2017.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(Expressed in millions, except per share amounts)

		Fiscal 2015																				Fiscal 2016
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year				First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Net sales		$	921			$	1,135			$	1,093			$	947			$	4,096			$	900			$	1,096			$	1,083			$	933			$	4,011
Gross profit		495				609				553				527				2,183				491				586				555				513				2,144
Net income		150				208				186				140				684				156				200				190				522				1,067
Basic EPS		0.70				0.98				0.88				0.67				3.23				0.75				0.98				0.94				2.62				5.26
Diluted EPS		0.70				0.97				0.87				0.66				3.21				0.75				0.97				0.94				2.60				5.22
Cash dividends per share:
Declared		0.580				—				0.630				—				1.210				0.630				—				0.680				—				1.310
Paid		0.290				0.290				0.315				0.315				1.210				0.315				0.315				0.340				0.340				1.310
Market price per share:
Class A high		95.29				93.09				98.00				95.23				98.00				119.49				122.30				117.53				112.24				122.30
Class A low		85.98				81.38				85.33				86.85				81.38				93.09				105.87				99.50				100.40				93.09
Class B high		97.15				93.62				97.97				93.99				97.97				108.41				110.81				106.88				103.39				110.81
Class B low		86.48				81.89				85.43				86.71				81.89				90.65				95.21				90.60				93.25				90.60

Notes:

1.	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.

2.	Results for the fourth quarter of fiscal 2016 include a gain of $485 million on the divestiture of our Southern Comfort and Tuaca brands.