Brown-Forman (BF-B) 10-K risk factor changes: FY2018 vs FY2017

Unfavorable economic conditions such as these can cause governments to increase taxes on beverage alcohol to attempt to raise revenue, [removed: reduce] [added: reducing] consumers’ willingness to make discretionary purchases of beverage alcohol [removed: products,] [added: products] or pay for premium brands such as ours.

This could lead to distributor or retailer destocking, [added: disruption in raw material supply,] increase our bad debt expense, or cause us to increase the levels of unsecured credit that we provide to customers.

For details on the effects of changes in the value of our benefit plan obligations and assets on our financial results, see Note [removed: 9] [added: 8] to the Consolidated Financial Statements in “Item 8.

Our products are sold in more than [removed: 165] [added: 170] countries; accordingly, we are subject to risks associated with doing business globally, including commercial, political, and financial risks.

[removed: Emerging regions,] [added: In the long term, we continue to expect our growth rates in emerging markets,] such as eastern Europe, Latin America, Asia, and Africa, [removed: as well as] [added: to surpass our growth rates in the United States and] more developed markets, such as the United Kingdom, France, Germany, and [removed: Australia, provide growth opportunities for us.][added: Australia.]

For instance, in June 2016, the United Kingdom voted by referendum to leave the European Union (Brexit), and, until the United Kingdom’s exit from the European Union is finalized, there may be a period of economic and political uncertainty related to the negotiation of any successor trading arrangement with other countries as well as volatility in exchange rates, risk to supply chains across the European Union, restrictions on the mobility of employees and consumers, or changes to customs duties, [removed: tariffs] [added: tariffs,] or industry specific requirements and regulations.

We may, from time to time, attempt to hedge a portion of our foreign currency exposure through the use of foreign currency derivatives or other means; however, even in those cases, we may not [removed: be successful] [added: succeed] in fully eliminating our foreign currency exposure.

While we are committed to doing business in accordance with applicable anti-corruption and other laws, our Code of Conduct, Code of Ethics for Senior Financial Officers, and [added: our] other [removed: Company] policies, we remain subject to the risk that an employee will violate our policies, or that any of our many affiliates or agents, such as importers, wholesalers, distributors, or other business partners, may take action determined to be in violation of international trade, money laundering, anti-corruption, or other laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, or equivalent local laws.

Our business operations are also subject to numerous duties or taxes that are not based on income, sometimes referred to as “indirect [removed: taxes,” which] [added: taxes.” These indirect taxes] include excise taxes, sales or value-added taxes, property taxes, [removed: and] payroll [removed: taxes.][added: taxes, import and export duties, and tariffs.]

[added: Increases in or the] imposition of new indirect taxes on our operations or products would increase the cost of our products or, to the extent levied directly on consumers, make our products less affordable, which could negatively affect our financial results by reducing purchases of our products and encouraging consumers to switch to lower-priced or lower-taxed product categories.

As governmental entities look for increased sources of revenue, [removed: it is possible that] they may increase taxes on beverage alcohol products.

For example, [added: in 2017,] the United Kingdom [removed: recently] increased its tax on beer, cider, wine, and spirits by [removed: 3.9% with additional increases] [added: 3.9%, providing a potential source of revenue] to [removed: come.][added: fund its post-Brexit obligations.]

New tax rules, accounting standards, or pronouncements, and changes in interpretation of existing [removed: ones,] [added: rules, standards, or pronouncements] could also have a significant adverse effect on our business and financial results.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal [removed: 2017] [added: 2018] Brand Highlights.”

We are a branded consumer products company in a highly competitive market, and our success depends [added: substantially] on our continued ability to offer consumers appealing, high-quality products.

Consumer preferences and purchases may [removed: shift] [added: shift, often in unpredictable ways,] due to a host of factors, [removed: many of which are difficult to predict,] including changes in economic conditions, [removed: demographic] [added: demographic,] and social trends; public health policies and initiatives; changes in government regulation of beverage alcohol products; [removed: the potential] [added: concerns or regulations related to product safety;] legalization of marijuana use on a more widespread basis within the United [removed: States] [added: States, Canada,] or elsewhere; and changes in travel, leisure, dining, gifting, entertaining, and beverage consumption trends.

Consumers may begin to shift their consumption and purchases of our premium and super-premium products, more commonly found in on-premise establishments, in favor of off-premise [removed: purchases.][added: purchases or away from alcoholic beverages entirely.]

This includes consumption at home as a result of various factors, including shifts in social trends, proliferation of smoking bans, and stricter laws relating to driving while under the influence of [removed: alcohol.][added: alcohol, as well as shifts to purchases of our products to e-commerce retailers.]

Shifts in consumption [added: and purchasing] channels such as these could adversely impact our profitability.

Demographic forecasts in the United States for [removed: several] [added: the next couple of] years after [removed: 2017] [added: 2018] indicate a slight decrease in the population segment aged 21 to 24; fewer potential consumers in this age bracket could have a negative effect on industry growth rates and [added: on] our business.

In particular, we plan to continue to grow Jack Daniel’s Tennessee Honey sales globally and to further expand our launch of Jack Daniel’s Tennessee [removed: Fire] [added: Rye] in additional international markets [added: such as the United Kingdom, France, Germany, and Canada] in fiscal [removed: 2018.][added: 2019.]

If these plans [removed: are unsuccessful,] [added: do not succeed,] or if we otherwise fail to develop or implement effective business, portfolio, and brand strategies, our growth, stock price, or financial results could suffer.

[added: More broadly, if consumers shift away from spirits] (particularly brown spirits such as American whiskey and bourbon), our premium-priced brands, or our RTD products, our financial results could be adversely affected.

Product innovation, such as our [removed: recently announced U.S.] launch of Jack Daniel’s Tennessee Rye, is a significant element of our growth strategy; however, there can be no assurance that we will continue to develop and implement successful line extensions, packaging, formulation or flavor changes, or new products.

A catastrophic event causing physical damage, disruption, or failure at [added: any] one of our major distillation or bottling [added: facilities, including] facilities [added: that support the production of our premium brands such as Woodford Reserve and Old Forester,] could adversely affect our business.

A consequence of any of these or other supply or supply chain disruptions could [removed: result in our inability to meet] [added: prevent us from meeting] consumer demand for the affected products for a period of time.

[removed: For example, in addition to our whiskeys and some tequilas, which are aged for various periods, our recent acquisitions of The GlenDronach, BenRiach, and] Glenglassaugh Scotch whisky brands and distilleries introduce a new category of inventory, which require [removed: long term] [added: long-term] maturation of [removed: up to] 30 years or more, making forecasts of demand for such products in future periods subject to significant uncertainty.

Any forecasting error could lead to our inability to meet the objectives of our business strategy, [added: failure to meet] future demand, or lead to a future surplus of inventory and consequent [removed: write down] [added: write-down] in value of maturing stocks.

If we are unable to accurately forecast demand for our products or efficiently manage [removed: its] inventory, this may have a material adverse effect on our business and financial results.

Similarly, when energy costs rise, our transportation, freight, and other operating costs, such as distilling and bottling [added: expenses, also may increase.]

Our financial results may be adversely affected if we are not able to pass along energy [added: and freight] cost increases through higher prices to our customers without reducing demand or sales.

Weather, the effects of climate change, [added: fires,] diseases, and other agricultural uncertainties that affect the mortality, health, yield, quality, or price of the various raw materials used in our products also present risks for our business, including in some cases potential impairment in the recorded value of our inventory.

For example, weaker demand from blended Scotch industry buyers, lower prices, and increased supply of used barrels may make it [removed: increasingly] difficult to sell our used barrels at sustainable prices [added: and quantities] which could negatively affect our financial results.

[removed: While most people who drink enjoy alcoholic beverages in moderation, it is commonly known and well reported that] excessive levels or inappropriate patterns of drinking can lead to increased risk of a range of health conditions and, for certain people, can result in alcohol dependence.

If future [removed: high-quality] scientific research indicated more widespread serious health risks associated with alcohol consumption – particularly with moderate consumption – or if for any reason the social acceptability of beverage alcohol were to decline significantly, sales of our products could decrease.

If additional or more severe requirements of this type [removed: become applicable to] [added: are imposed on] one or more of our major products under current or future health, environmental, or other laws or regulations, they could inhibit sales of such products.

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

In the United States, we sell our products either to distributors for resale to retail outlets [removed: or,] [added: or e-commerce retailers,] in those states that control alcohol sales, to state governments who then sell them to retail customers and consumers.

Consolidation among spirits producers, distributors, wholesalers, suppliers, or retailers [added: and the increased growth and popularity of the e-commerce retail environment across the consumer product goods market] could create a more challenging competitive landscape for our products.

[added: Further, while we believe we have sufficient scale to succeed relative to our] major competitors, we nevertheless face a risk that continuing consolidation of large beverage alcohol companies could put us at a competitive disadvantage.

However, we still expect our international developed markets to provide growth opportunities for us.

For example, Russia has enacted legislation that empowers its president to implement a partial or total ban on the importation of goods and products from and produced by companies under the jurisdiction of the United States and other “unfriendly” foreign countries.

If such legislation were to be implemented, the sale of our products in Russia, especially Jack Daniel’s Tennessee Whiskey, could be significantly and adversely affected.

For example, the United States recently imposed tariffs on steel and aluminum.

In response, Mexico has imposed retaliatory tariffs on U.S. imports, including our American whiskey products.

The European Union and several other countries have threatened to follow suit.

If implemented, these tariffs could increase the price of our products in these countries and could prompt consumers to seek alternative products.

In addition, any new trade barriers, sanctions, tariffs, or any retaliatory measures in response to the foregoing could materially and adversely affect our operations.

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 revises the U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system.

Shortly after the Tax Act was enacted, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) to address the application of GAAP.

SAB 118 directs taxpayers to consider the impact of the Tax Act as provisional when a company does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for the change in tax law.

In accordance with SAB 118, we have recognized the provisional tax impacts related to the repatriation tax and the re-measurement of deferred tax assets and liabilities.

However, many aspects of the Tax Act are still unclear and may not be clarified for some time.

Ultimately, the actual impact of the Tax Act may differ from our provisional estimates, possibly materially, due to, among other things, the significant complexity of the Tax Act, anticipated additional regulatory guidance, or related interpretations that may be issued by the Internal Revenue Service, changes in accounting standards, legislative actions, future actions by states within the U.S. and changes in estimates, analyses, interpretations, and assumptions we have made.

In 2018, we have observed excise tax increases in Australia, France, and Turkey.

In addition to indirect taxes, our global business can also be negatively affected by trade barriers and other governmental protectionist measures, any of which can be imposed suddenly and unpredictably.

Recently, retaliatory tariffs have been imposed by Mexico and threatened by the European Union, Canada, Russia, China, and several other countries following the imposition of tariffs on steel and aluminum by the United States.

Mexico’s new tariffs on bourbon, and tariffs typically, take the form of value-added levies on U.S.-sourced products.

As an example, a tariff on American whiskey would result in either reduced margins or increased consumer prices, either of which could adversely impact our financial results and demand for our products.

For example, in addition to our American, Canadian, and Irish whiskeys and some tequilas, which are aged for various periods, our acquisition of The GlenDronach, BenRiach, and

Factors that affect our ability to forecast accurately include changes in business strategy, market demand, consumer preferences, macroeconomic conditions, introductions of competing products, and other changes in market conditions.

Our freight cost and the timely delivery of our products could be adversely impacted by a number of factors which could reduce the profitability of our operations, including driver shortages, higher fuel costs, weather conditions, traffic congestion, increased government regulation, and other matters.

International or domestic geopolitical or other events, including the imposition of any tariffs or quotas by governmental authorities on any raw materials that we use in the production of our products, could adversely impact the supply and cost of these raw materials to us.

If we cannot offset higher raw material costs with higher selling prices, increased sales volume, or reductions in other costs, our profitability could be adversely affected.

While most people who drink enjoy alcoholic beverages in moderation, it is commonly known and well reported that

Furthermore, health and wellness trends over the past several years may result in a shift in consumer preferences away from alcoholic beverages.

Further, we cannot predict whether our products will become subject to increased rules and regulations which, if enacted, could increase our costs or adversely impact sales.

For example, studies have been conducted in Australia and the United Kingdom to consider the impact of requiring the sale of alcohol in plain packaging with more comprehensive health warnings in an effort to change drinking habits in those countries.

These studies could result in additional governmental regulations concerning the production, marketing, labeling, or availability of our products, any of which could damage our reputation, making our premium brands unrecognizable, or reduce demand of our products, which could adversely affect our profitability.

Furthermore, consolidation of distributors may lead to the erosion of margins as newly consolidated distributors take down prices.

Changes in distributors’ strategies, including a reduction in the number of brands they carry, the allocation of shelf space for our competitors’ brands, or private label products, may adversely affect our sales, margin, outlook, and market share.

For example, we are facing an increasingly competitive pricing environment, and our competitors may have more flexibility to adjust to such challenges.

While these

Given the changing demographics and increased demand for talent globally, we, as an American multinational company, may not be able to find the right people, at the right time, and in the right location, to achieve our business objectives.

Additionally, companies like ours face increased labor costs as a result of aggressive hiring and/or inflated levels of compensation offered by other employers, especially in emerging markets – notably, India and Asia.

We have two classes of common stock.

Our Class A common stock is entitled to full voting powers, including in the elections of directors, while our Class B common stock may not vote except as provided by the laws of Delaware.

We have had two classes of common stock since 1959, when our stockholders approved the issuance of two shares of Class B non-voting common stock to every holder of our voting common stock.

Such dual class share structures have increasingly come under the scrutiny of major indices, institutional investors, and proxy advisory firms, with some calling for the reclassification of non-voting common stock.

In the long term, we continue to expect our growth rates in non-U.S. markets to surpass our growth rates in the United States.

For example, Europe is a key commercial and production region for some of our products, and further outbreaks of violence there could disrupt our operations.

In addition, any new trade barriers, sanctions, or tariffs could materially adversely affect our operations abroad, such as those proposed during the course of the 2016 U.S. presidential campaign by the current U.S. President regarding Mexico.

For instance, profits from our overseas businesses for fiscal 2017 were adversely affected by the recent strengthening of the U.S. dollar against currencies in our major markets, including the euro, British pound, and Mexican peso.

For instance, in fiscal 2017, Australia announced the launch of container deposit/recycling schemes, which, when implemented, may impair affordability and convenience at retail.

In Europe, for example, legislation is pending in a number of countries that would result in significant limitations on the marketing and sale of beverage alcohol.

Comments made during the course of the 2016 U.S. presidential campaign and since the election indicate that the U.S. federal government may propose changes to international trade agreements, tariffs, taxes, and other government rules and regulations.

The current U.S. administration has indicated that tax reform is among its top priorities, and the U.S. Congress is reviewing and may, in the future, propose new tax legislation.

Certain tax changes that have been or are currently proposed by the U.S. Congress or the President exemplify this risk, including a repatriation or “transition” tax on foreign earnings; decreasing or eliminating the U.S. manufacturing deduction; changing the rules related to interest deductibility; changing the rules relating to the depreciation of capital expenditures; the imposition of a “border adjustment” tax; or repealing LIFO (last-in, first-out accounting treatment of inventory) for tax purposes.

While we cannot predict what changes will actually occur, such changes could affect our business and results of operations.

Increases in or the

For example, certain countries have increased and may continue to increase excise taxes on beverage alcohol products, which could increase the cost of our products to consumers and could reduce consumer demand in those countries.

Our global business can also be negatively affected by import and export duties, tariff barriers, and related local governmental protectionist measures, and the suddenness and unpredictability with which these can occur.

The United Kingdom’s need to find additional sources of revenue to fund its post-Brexit obligations and, the European Union’s complementary need to find additional sources of revenue to make up for the loss of the United Kingdom’s expected contributions to the European Union’s budget and excise taxes may result in future increased taxes on beverage alcohol products and continued uncertainty as to the impact on taxes and tariffs arising from the decision by the United Kingdom to leave the European Union.

More broadly, if consumers shift away from spirits

There is an inherent risk of forecasting error in determining the quantity of maturing stock to lay down in a given year for future consumption as a result of changes in business strategy, market demand and preferences, macroeconomic conditions, introductions of competing products, and other changes in market conditions.

expenses, also may increase.

Further, while we believe we have sufficient scale to succeed relative to our

the affected product or our broader portfolio of brands could be adversely affected.

Please read [removed: the] [added: this] MD&A in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in “Item 8.

[removed: Financial Statements and Supplementary Data.”] All [added: share and] per share amounts have been adjusted for [removed: the 2-for-1] [added: a 5-for-4] stock split [removed: that occurred] in [removed: August 2016.][added: February 2018 (see Note 10 to the Consolidated Financial Statements for additional information).]

See Note [removed: 11] [added: 16] to the [removed: accompanying financial statements] [added: Consolidated Financial Statements] for [removed: details.][added: additional information.]

| Presentation basis. This MD&A reflects the basis of presentation described in Note 1 “Accounting [removed: Policies”.] [added: Policies” to the Consolidated Financial Statements.] In addition, we define statistical and non-GAAP financial measures that we believe help readers understand our results of operations and the trends affecting our business. | [removed: [25](#scecdde0754f54547931178a6665c49c4)] [added: [26](#s5CFC4B29FBB659F08BFD5240CD0CCA0E)] |

| Significant developments. We discuss developments during the most recent three fiscal years. Please read this section in conjunction with “Item 1. [removed: Business”,] [added: Business,”] which provides a general description of our business and strategy. | [removed: [26](#sbbf96fef0c6b4261aef9b44fc14ac6d2)] [added: [29](#sCBA619ADC86F54CF9AED023FEC0B2181)] |

| Executive summary. We discuss (a) fiscal [removed: 2017] [added: 2018] highlights and (b) our outlook for fiscal [removed: 2018,] [added: 2019,] including the trends, developments, and uncertainties that we expect to affect our business. | [removed: [28](#sDA63196D5F735BB1B6256390E2AC4C3B)] [added: [30](#s533ABC9C1FC15F8693D46EF8D5F17151)] |

| Results of operations. We discuss (a) fiscal [removed: 2017] [added: 2018] results for our largest markets, (b) fiscal [removed: 2017] [added: 2018] results for our largest brands, and (c) the causes of year-over-year changes in our income statement line items, including transactions and other items that affect the comparability of our results, for fiscal years [removed: 2016] [added: 2017] and [removed: 2017.] [added: 2018.] | [removed: [31](#sC9DF74A1AEEA5F97BEF8F550F375FB8D)] [added: [32](#sB3C21ACDD0E45ECCBFD0506657A49E7A)] |

| Liquidity and [removed: Capital Resources.] [added: capital resources.] We discuss (a) the causes of year-over-year changes in cash flows from operating activities, investing activities, and financing activities; (b) recent and expected future capital expenditures; (c) dividends and share repurchases; and (d) our liquidity position, including capital resources available to us. | [removed: [41](#s383B11874F5A5D7F91FE84DA117F1BAE)] [added: [42](#sEFFEC87483FA56B191B9993D018FB184)] |

| [removed: Off-Balance Sheet Arrangements] [added: Off-balance sheet arrangements] and [removed: Long-term Obligations.] [added: long-term obligations.] | [removed: [43](#sFB59B2E1458A51FD89E4BB56ACB7A09D)] [added: [44](#sF13F757CAB4D59ECA605EAAB39A154E1)] |

| Critical accounting policies and estimates. We discuss the critical accounting policies and estimates that require significant management judgment. | [removed: [44](#s40219D134BC350889954AC2C5D89336C)] [added: [45](#s4440024F4C355F4BBFAFB6CF7CC813B3)] |

[added: | • | “Drinks-equivalent.” Volume is discussed on a nine-liter equivalent unit basis (nine-liter cases) unless otherwise specified.] At times, we use a “drinks-equivalent” measure for volume when comparing single-serve ready-to-drink (RTD) or ready-to-pour (RTP) brands to a parent spirits brand. [added: “Drinks-equivalent” depletions are RTD and RTP nine-liter cases converted to nine-liter cases of a parent brand on the basis of the number of drinks in one nine-liter case of the parent brand. To convert RTD volumes from a nine-liter case basis to a drinks-equivalent nine-liter case basis, RTD nine-liter case volumes are divided by 10, while RTP nine-liter case volumes are divided by 5. |]

We use [removed: certain] [added: some] financial measures in this report that are not measures of financial performance under [removed: GAAP.][added: U.S. generally accepted accounting principles (GAAP).]

[removed: The non-GAAP measures we use in this report] [added: Other companies] may not [removed: be defined and calculated by other companies] [added: define or calculate these non-GAAP measures] in the same [removed: manner.][added: way.]

We use “underlying change” for the following income statement measures: (a) underlying net [removed: sales,] [added: sales;] (b) underlying cost of [removed: sales,] [added: sales;] (c) underlying gross [removed: profit,] [added: profit;] (d) underlying advertising [removed: expenses,] [added: expenses;] (e) underlying selling, general, and administrative (SG&A) [removed: expenses, and] [added: expenses;] (f) underlying [added: other expense (income); (g) underlying] operating [added: expenses;1 and (h) underlying operating] income.

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

| • | “Estimated net change in distributor inventories.” This adjustment refers to the estimated net effect of changes in distributor inventories on changes in our income statement line items. For each period compared, we use [removed: depletion] [added: volume] information [removed: provided by] [added: from] our distributors to estimate the effect of distributor inventory changes on our income statement line items. [removed: We believe that adjusting for the effect of varying levels of distributor inventories on changes in our income statement line items allows us to understand better underlying results and trends.] |

We use the non-GAAP measures “underlying [removed: change” for the following reasons:] [added: change”:] (a) to understand our performance from period to period on a consistent [removed: basis and] [added: basis; (b)] to compare our performance to that of our competitors; [removed: (b)] [added: (c)] in connection with management incentive compensation calculations; [removed: (c)] [added: (d)] in our planning and forecasting processes; and [removed: (d)] [added: (e)] in communications concerning our financial performance with the board of directors, stockholders, and investment analysts.

We [removed: provide reconciliations of] [added: reconcile] the “underlying changes in income statement measures” to their nearest GAAP measures in the tables below under “Results of Operations - Year-Over-Year Comparisons.” We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure.

With respect to [removed: the comparison] [added: comparisons] of fiscal 2017 to fiscal 2016, the non-comparable period comprised all [removed: months] [added: months; with respect to comparisons] of [removed: both years.][added: fiscal 2018 to fiscal 2017, the non-comparable period is the month of May.]

We reconcile each of these measures to their nearest GAAP measures in the [removed: table] [added: tables] below under “Item 7.

Below we discuss the significant developments in our business during fiscal [removed: 2015, fiscal] 2016, [added: fiscal 2017,] and fiscal [removed: 2017.][added: 2018.]

| • | Other American whiskeys. We continue to capitalize on consumers’ interest in [removed: high-quality,] super- and ultra-premium whiskey with our range of [removed: brands] [added: brands,] including Woodford Reserve and Old Forester. |

| ◦ | In fiscal [removed: 2015, we launched Woodford Reserve Rye Whiskey. In fiscal] 2017, we unveiled new packaging for Woodford Reserve Double Oaked, the most successful line extension from Woodford Reserve to date (first introduced in 2012). The [removed: Rye and] Double Oaked [removed: variants] [added: variant] of Woodford Reserve continued to contribute meaningfully to the brand’s growth and [removed: collectively surpassed 50 thousand] [added: reached nearly 50,000] nine-liter cases in fiscal [removed: 2017.] [added: 2018.] |

| • | Tequila brands. We experienced another record year for our tequila brands in fiscal [removed: 2017,] [added: 2018,] as Herradura, el Jimador, and New Mix contributed significantly to our overall net sales growth. In fiscal 2015, we released Herradura Ultra to participate in the fast-growing market for ultra-premium “cristalino” tequilas in [removed: Mexico. Herradura Ultra reached nearly 50 thousand nine-liter cases in fiscal 2017] [added: Mexico,] and [added: it] has been a [added: significant] driver of our tequila growth during the last [removed: three] [added: four] fiscal [removed: years.] [added: years, surpassing 70,000 nine-liter cases in fiscal 2018.] |

| • | In June 2015, we purchased all of the shares of Slane Castle Irish Whiskey [removed: Limited and announced plans to introduce new Irish whiskeys using high-quality whiskey purchased from other Irish distillers and triple-cask finished to Slane’s specifications while the whiskey made at the new Slane Distillery matures.] [added: Limited.] In April 2017, we unveiled the first product from our Slane Irish Whiskey brand in Travel Retail in Ireland, and we [removed: expect to introduce] [added: introduced] the brand [added: selectively] in the United States, the United Kingdom, and Australia [removed: during] [added: in] the summer of 2017. [added: In fiscal 2019, we plan to expand Slane nationally in the United States.] |

| • | In March 2016, we sold our Southern Comfort and Tuaca brands and related assets to Sazerac Company, Inc. for $543 million in cash, which resulted in a gain of $485 million in the fourth quarter of fiscal 2016. We substantially completed all activities related to this transition of ownership in fiscal 2017. See ‘‘Executive Summary’’ below and Note [removed: 16] [added: 15] to the [removed: accompanying financial statements] [added: Consolidated Financial Statements] for [removed: details] [added: additional information] about the financial impact of the sale of Southern Comfort and Tuaca. |

| • | On June 1, 2016, we acquired The BenRiach Distillery Company Limited (BenRiach) for aggregate consideration of $407 million, consisting of a purchase price of $341 million and $66 million in assumed debt and transaction-related obligations that we have since paid. The acquisition, which brought three single malt Scotch whisky brands into our portfolio, included brand trademarks, inventories, three [added: homeplaces, three] malt distilleries, a bottling plant, and BenRiach’s headquarters in Edinburgh, Scotland. We believe that these super-premium brands will provide us an opportunity to participate in the growing single malt Scotch category and strengthen our portfolio’s long-term growth prospects in the United States, the United [removed: Kingdom, Taiwan, Germany, and Travel Retail. See Note 17 to the accompanying financial statements for details.] |

[added: | • |] Beyond the acquisition and divestiture activities described above, [added: we have focused] our capital deployment initiatives [removed: have been focused] on [removed: (1)] [added: (a)] enabling the expected future growth of our existing businesses through investments in our production capacity, barrel whiskey inventory, and brand-building [removed: efforts for our existing portfolio;] [added: efforts;] and [removed: (2)] [added: (b)] returning cash to our shareholders. [added: |]

[added: | • | Investments.] From fiscal [removed: 2015] [added: 2016] through fiscal [removed: 2017,] [added: 2018,] our capital expenditures totaled [removed: $340] [added: approximately $350] million and [removed: were] focused on enabling the growth of our premium whiskey [removed: brands as further detailed below.][added: brands: |]

| [removed: ◦] [added: •] | [removed: Jack Daniel’s. We expanded our distilling] [added: Significant] capacity [removed: and constructed three new warehouses, and we continued work on] [added: expansion projects included (a)] the expansion of our shipping warehouse [removed: facility.] [added: facility and an additional warehouse for Jack Daniel's, (b) an expanded bottling facility and four new warehouses for Woodford Reserve, and (c) a new wood mill.] |

| ◦ | Woodford Reserve. We expanded our bottling facility and [removed: constructed five] [added: built four] new warehouses. [removed: We also continued construction of an additional warehouse.] |

| ◦ | Old Forester. We continued construction of the Old Forester Distillery and visitors’ center on Main Street in Louisville, Kentucky, which [removed: is expected] [added: we expect] to open in [removed: the spring of] [added: June] 2018. |

| ◦ | Slane Irish Whiskey. We [removed: continued building] [added: opened] a [removed: new distillery and] consumer experience on the historic Slane Castle [removed: Estate,] [added: Estate in the fall of 2017. We also continued building a new distillery,] which [removed: is expected] [added: we expect] to open in the summer of [removed: 2017.] [added: 2018.] |

Fiscal [removed: 2017] [added: 2018] Highlights

[removed: | • | We delivered net sales of $3.0 billion, a decrease of 3% compared to fiscal 2016. Excluding] [added: Underlying operating income growth was 7% after adjusting for (a)] the [removed: impact] [added: net effect] of acquisitions and divestitures, [removed: net sales were flat. After additionally adjusting for] [added: (b)] the negative effect of foreign [removed: exchange] [added: exchange,] and [added: (c)] the estimated net decrease in distributor inventories, [removed: we grew underlying net sales 3%. |][added: driven primarily by the United States and Russia.]

| • | We delivered operating income of $1.0 billion, [removed: a decrease] [added: an increase] of [removed: 35%] [added: 5%] compared to fiscal [removed: 2016.] [added: 2017.] Excluding the impact of [removed: acquisitions and divestitures, operating income was flat. After additionally adjusting for] [added: (a)] the [removed: negative] [added: $70 million contribution to establish the Foundation, (b) the positive] effect of foreign [removed: exchange] [added: exchange,] and [removed: the] [added: (c) an] estimated net [removed: decrease] [added: increase] in distributor inventories, [removed: we grew] underlying operating income [removed: 7%.] [added: grew 8%.] |

[added: | ◦ |] From a geographic perspective, the United States and [removed: our developed international] [added: emerging] markets led the [removed: growth; emerging markets] growth [added: in underlying net sales, while developed international markets also] accelerated [added: underlying net sales growth] compared to fiscal [removed: 2016; and our business in Travel Retail returned to growth in fiscal 2017 following declines in fiscal 2016.][added: 2017. |]

| Summary of Operating Performance Fiscal [removed: 2015] [added: 2016] - [removed: 2017] [added: 2018] | | | | | | | | | | | | | | | | | | | | | | | |

| Fiscal year ended April 30 | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | | | 2016 vs. [removed: 2015] [added: 2017] | | | 2017 vs. [removed: 2016] [added: 2018] | | | 2016 vs. [removed: 2015] [added: 2017] | | | 2017 vs. [removed: 2016] [added: 2018] | |

| Net sales | $ | [removed: 3,134] [added: 3,089] | | | $ | [removed: 3,089] [added: 2,994] | | | $ | [removed: 2,994] [added: 3,248] | | | [removed: (1] [added: (3] | %) | | [removed: (3] [added: 8] | [removed: %)] [added: %] | | [removed: 5] [added: 3] | % | | [removed: 3] [added: 6] | % |

Financial Statements and Supplementary Data” (the Consolidated Financial Statements).

To calculate these measures, we adjust, as applicable, for (a) acquisitions and divestitures, (b) foreign exchange, (c) estimated net changes in distributor inventories, and (d) the establishment of our charitable foundation.

| • | “Acquisitions and divestitures.” This adjustment removes (a) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction gains or losses, transaction costs, and integration costs), and (b) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). By excluding non-comparable periods, we therefore include the effects of acquired and divested brands only to the extent that results are comparable year over year. |

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

In fiscal 2016, we sold our Southern Comfort and Tuaca brands and related assets to Sazerac Company, Inc. and entered into a related transition services agreement (TSA).

During fiscal 2017, we completed our obligations under the TSA.

This adjustment removes the net sales, cost of sales, and operating expenses recognized in fiscal 2017 pursuant to the TSA related to contract bottling services and distribution services in certain markets.

On June 1, 2016, we acquired The BenRiach Distillery Company Limited (BenRiach).

This adjustment removes (a) transaction and integration costs related to the acquisition and (b) operating activity for the acquired business for the non-comparable period.

| • | “Foundation.” In the fourth quarter of fiscal 2018, we established the Brown-Forman Foundation (the Foundation) with an initial $70 million contribution to support the company’s charitable giving program in the communities where our employees live and work. This adjustment removes the initial $70 million contribution to the Foundation from our underlying SG&A expenses and underlying operating income to present our underlying results on a comparable basis. |

Definitions

Aggregations.

From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the International Monetary Fund (IMF) and we aggregate brands by spirits category.

Below, we define the aggregations used in this report.

Geographic Aggregations.

| • | “Developed” markets are “advanced economies” as defined by the IMF. Our largest developed markets are the United States, the United Kingdom, and Australia. Developed international markets are developed markets excluding the United States. |

| • | “Emerging” markets are “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico and Poland. |

In “Results of Operations - Fiscal 2018 Market Highlights,” we provide supplemental information for our largest markets ranked by percentage of total fiscal 2018 net sales.

In addition to markets listed by country name, we include the following aggregations:

| • | “Rest of Europe” includes all markets in Europe and the Commonwealth of Independent States other than those specifically listed. |

Brand Aggregations.

| • | “Premium bourbon” products include Woodford Reserve, Old Forester, and Coopers’ Craft. |

| • | “American whiskey” products include the Jack Daniel’s family of brands, premium bourbons, and Early Times. |

| • | “Tequila” products include el Jimador, Herradura, New Mix, Pepe Lopez, and Antiguo. |

In “Results of Operations - Fiscal 2018 Brand Highlights,” we provide supplemental information for our largest brands ranked by percentage of total fiscal 2018 net sales.

In addition to brands listed by name, we include the following aggregations:

Other Metrics.

| • | “Depletions.” We generally record revenues when we ship our products to our customers. Depending on our route-to-consumer (RTC), we ship products to either (a) retail or wholesale customers in owned distribution markets or (b) our distributor customers in other markets. “Depletions” is a term commonly used in the beverage alcohol industry to describe volume. Depending on the context, “depletions” means either (a) our shipments directly to retail or wholesale customers for owned distribution markets or (b) shipments from our distributor customers to retailers and wholesalers in other markets. We believe that depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do. In this document, unless otherwise specified, we refer to “depletions” when discussing volume. |

| • | “Consumer takeaway.” When discussing trends in the market, we refer to “consumer takeaway,” a term commonly used in the beverage alcohol industry. “Consumer takeaway” refers to the purchase of product by the consumer from a retail outlet as measured by volume or retail sales value. This information is provided by third parties, such as Nielsen and the National Alcohol Beverage Control Association (NABCA). Our estimates of market share or changes in market share are derived from consumer takeaway data using the retail sales value metric. |

| • | Jack Daniel’s family of brands. Innovation within the Jack Daniel’s family of brands has driven growth over the last three years: |

| ◦ | We introduced our second Jack Daniel’s flavored whiskey product, JDTF, starting with the United States in late fiscal 2015. In fiscal 2016, we completed the U.S. launch and continued the global rollout of JDTF. In fiscal 2017, we expanded JDTF to markets including France, Germany, and Travel Retail. In fiscal 2018, we expanded JDTF to Brazil and Chile. |

| ◦ | In fiscal 2018, we introduced several new Jack Daniel’s RTD products, including Jack Daniel’s Southern Peach Country Cocktails in the United States, Jack Daniel’s Cider in the United Kingdom, and Jack Daniel’s Lynchburg Lemonade in Germany. These introductions all contributed to our Jack Daniel’s RTD growth in those markets. |

| ◦ | In fiscal 2018, we introduced JDTR, the first full-strength whiskey from the Jack Daniel’s family of brands in over two decades, in the United States and certain international markets. With this successful launch, our total Rye whiskey portfolio, including Woodford Reserve Rye Whiskey and Jack Daniel’s Single Barrel Rye, surpassed 100,000 nine-liter cases in fiscal 2018. |

| ◦ | From fiscal 2015 to fiscal 2017, we introduced three Old Forester craft expressions in our Old Forester Whiskey Row Series. In fiscal 2018, we added Old Forester Statesman, which won a double gold medal at the 2018 San Francisco World Spirits Competition. In addition, we launched new packaging for our core Old Forester bourbons in February 2017. Our founding brand grew net sales by more than 35% per year from fiscal 2015 through fiscal 2018. |

Kingdom, Taiwan, Germany, and Travel Retail.

| ◦ | Jack Daniel’s. We continued to expand our shipping warehouse facility and built an additional warehouse. |

| • | Debt and equity transactions. From fiscal 2016 through fiscal 2018, we returned $3.0 billion to our shareholders through $0.8 billion in regular quarterly dividends, $0.5 billion in special dividends, and $1.7 billion in share repurchases. We financed our dividends and repurchases with cash on hand and proceeds from the issuance of long-term debt totaling $1.8 billion (net). |

| • | We delivered net sales of $3.2 billion, an increase of 8% compared to fiscal 2017. Excluding (a) the positive effect of foreign exchange driven by the strengthening of the euro, Polish zloty, and Mexican peso and (b) an estimated net increase in distributor inventories in the United States, we grew underlying net sales 6%. |

| ◦ | From a brand perspective, our underlying net sales growth was driven by the Jack Daniel’s family of brands, our premium bourbon brands, and our tequila brands. |

| • | We delivered diluted earnings per share of $1.48, an increase of 8% compared to fiscal 2017 due to an increase in reported operating income and a reduction in our effective tax rate. |

Volume and Depletions

When discussing volume, unless otherwise specified, we refer to “depletions,” a term commonly used in the beverage alcohol industry.

Depending on the context, “depletions” means either (a) our shipments directly to retailers or wholesalers, or (b) shipments from our distributor customers to retailers and wholesalers.

We generally record revenues when we ship our products to our customers, so our reported sales for a period do not necessarily reflect actual consumer purchases during that period.

We believe that our depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do.

Volume is discussed on a nine-liter equivalent unit basis (nine-liter cases) unless otherwise specified.

“Drinks-equivalent” depletions are RTD and RTP nine-liter cases converted to nine-liter cases of a parent brand on the basis of the number of drinks in one nine-liter case of the parent brand.

To convert RTD volumes from a nine-liter case basis to a drinks-equivalent nine-liter case basis, RTD nine-liter case volumes are divided by 10, while RTP nine-liter case volumes are divided by 5.

To calculate these measures, we adjust, as

applicable, for (a) acquisition and divestiture activity, (b) foreign exchange, and (c) estimated net changes in distributor inventories.

| • | “Acquisitions and divestitures.” In fiscal 2016, we sold our Southern Comfort and Tuaca brands and related assets to Sazerac Company, Inc. In fiscal 2017, we acquired The BenRiach Distillery Company Limited (BenRiach). See discussion below and Notes 16 and 17 in the accompanying financial statements for details. This adjustment removes (a) transaction-related costs for the acquisition and divestiture, (b) the gain on the sale of Southern Comfort and Tuaca, and (c) operating activity for the acquisition and divestiture for the non-comparable periods. With respect to comparisons of fiscal 2016 to fiscal 2015, the non-comparable period comprised March and April; with respect to comparisons of fiscal 2017 to fiscal 2016, the non-comparable period comprised all months. We believe that these adjustments allow us to understand better our underlying results on a comparable basis. |

“Adjusted” measures for (a) operating income, (b) operating margin, (c) effective tax rate, (d) diluted earnings per share, and (e) return on average invested capital.

These measures remove the effects of (a) the gain on the sale of Southern Comfort and Tuaca, (b) those transaction-related costs not included in the gain on sale of Southern Comfort and Tuaca, (c) financing-related costs for the acquisition of BenRiach, and (d) operating activity for the acquired and divested businesses in the non-comparable periods.

Tax effects on relevant adjustments are calculated consistent with the nature of the underlying transaction.

We provide these adjusted measures to identify the effect of the sale of Southern Comfort and Tuaca and the acquisition of BenRiach on reported income from operations and other key measures derived therefrom; adjusting for these effects allows us to analyze results and trends on a comparable basis.

| • | Jack Daniel’s family of brands. Following the successful launch and subsequent global rollout of Jack Daniel’s Tennessee Honey (JDTH) starting in fiscal 2011, we introduced a second flavored whiskey product, Jack Daniel’s Tennessee Fire (JDTF), |

starting with the United States in late fiscal 2015.

In fiscal 2016, we completed the U.S. launch and continued the global rollout of JDTF.

In fiscal 2017, we expanded JDTF to markets including France, Germany, and Travel Retail.

The chart below shows the volume development of JDTF from fiscal 2015 through fiscal 2017.


| ◦ | In February 2017, we launched new packaging for our oldest brand, Old Forester. We continued to invest in the renaissance of our founding brand, which grew net sales by more than 39% on a compound annual growth rate from fiscal 2014 through fiscal 2017. |

Investments.

| • | Debt and equity transactions. From fiscal 2015 through fiscal 2017, we returned $2.9 billion to our shareholders through $0.8 billion in regular quarterly dividends and $2.1 billion in share repurchases. We issued long-term debt totaling $1.2 billion (net), including (a) the $500 million 4.5% 30-year notes in June 2015 and (b) two foreign currency denominated bonds, the €300 million 1.2% 10-year notes and the £300 million 2.6% 12-year notes, in June 2016. |

Key highlights of our operating results in fiscal 2017 include:

| • | We delivered diluted earnings per share of $1.71, a decrease of 34% compared to fiscal 2016. Excluding the impact of acquisitions and divestitures, we delivered adjusted diluted earnings per share growth of 5%. |

| • | Our return on average invested capital declined to 19.3% in fiscal 2017, compared to 34.1% in fiscal 2016. Excluding the impact of acquisitions and divestitures, adjusted average return on invested capital declined to 21.3% in fiscal 2017 from 22.1% in fiscal 2016. |

Our underlying operating results were primarily driven by the performance of the Jack Daniel's family of brands, our tequila brands, and Woodford Reserve, partially offset by declines in used barrel sales.

In addition, our underlying operating results benefited from the reduction of underlying SG&A expenses.

Foreign exchange negatively affected our reported operating results, driven by the dollar’s strengthening against a number of currencies, including, the Mexican peso, euro, and British pound.

An estimated net reduction in distributor inventories due primarily to the United States and Russia also negatively affected our reported results.

| Operating margin | 32.8 | | % | | 49.6 | | % | | 33.0 | | % | | 16.8pp | | | (16.6pp | ) | | | | | | |

| Return on average invested capital2 | 22.0 | | % | | 34.1 | | % | | 19.3 | | % | | 12.1pp | | | (14.8pp | ) | | | | | | |

| Adjusted Measures for Acquired and Divested Brands1 | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | |

| | Operating income | | | | Operating margin | | | Effective tax rate | | | Diluted earnings per share | | | | Return on average invested capital2 | |

| Reported | $ | 1,533 | | | 49.6 | % | | 28.3 | % | | $ | 2.61 | | | 34.1 | % |

| Sale of Southern Comfort and Tuaca | $ | (486 | ) | | (15.7 | %) | | 1.1 | % | | $ | (0.88 | ) | | (11.1 | %) |

| Effect of acquired and divested brands | $ | (57 | ) | | (0.4 | %) | | — | % | | $ | (0.10 | ) | | (0.9 | %) |

Our enterprise risk management process is intended to ensure that we take risks knowingly and thoughtfully and that we balance potential risks and [removed: rewards appropriately.][added: rewards.]

| • | Our Risk Management function identifies and assesses potential operational hazards and safety and security risks, and facilitates ongoing communication about those risks with the Enterprise Risk Management Committee and our executive leaders. [added: Within Risk Management, our crisis management team facilitates simulations with the appropriate function and executive leaders to increase awareness and preparedness.] |

| • | The Chief Ethics and Compliance Officer [removed: in our legal department] helps ensure that all of our employees’ actions globally comply with all [added: applicable laws, our Code of Conduct, and our] internal [removed: policies] [added: policies. The Chief Ethics] and [removed: applicable laws.] [added: Compliance Officer reports the status of our compliance efforts four times a year to the Audit Committee.] |

See Notes 6 and [removed: 8] [added: 7] to [removed: our] [added: the] Consolidated Financial Statements [removed: for details.][added: in “Item 8.]

See Note 4 to [removed: our] [added: the] Consolidated Financial Statements for details on our grape and agave purchase obligations, which are exposed to commodity price risk, and “Critical Accounting [added: Policies and] Estimates” in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our pension and other postretirement plans’ exposure to interest [added: rate risks.]

We estimate that our foreign currency revenue [removed: for our largest exposures] will exceed our foreign currency expenses by [removed: approximately $655] [added: $807] million in fiscal [removed: 2018.][added: 2019.]

We [removed: routinely] use foreign currency forward [removed: and option] contracts to hedge a portion of our transactional foreign exchange risk and, in some circumstances, our net asset exposure.

At April 30, [removed: 2017,] [added: 2018,] our total foreign currency hedges had a notional value of [removed: $1,188] [added: $1,098] million, with a maximum term outstanding of 36 months, and were recorded as a net [removed: asset] [added: liability] at their fair value of [removed: $15] [added: $38] million.

As of April 30, [removed: 2017,] [added: 2018,] we hedged [removed: approximately 77%] [added: 64%] of [removed: our total] [added: the estimated fiscal 2019] transactional exposure [removed: to foreign exchange fluctuations in fiscal 2018] for [removed: our major] [added: hedged] currencies by entering into foreign currency forward contracts.

[removed: Considering these hedges, we] [added: We] estimate that a 10% increase/decrease in the average value of the dollar in fiscal [removed: 2018] [added: 2019] relative to [removed: fiscal 2017’s effective exchange] [added: spot] rates [removed: for our significant currency exposures] [added: as of April 30, 2018] would decrease/increase our fiscal [removed: 2018] [added: 2019] operating income by approximately [removed: $18] [added: $35] million.

[removed: Our] [added: As of April 30, 2018, our] cash and cash equivalents [removed: ($182 million as of April 30, 2017)] [added: ($239 million)] and variable-rate debt [removed: ($211 million as of April 30, 2017)] [added: ($215 million)] are exposed to the risk of interest rate changes.

Based on the net balance of these [removed: items as of April 30, 2017,] [added: items,] a 1% increase in interest rates would result in a negligible [removed: increase] [added: decrease] in net interest expense.

Financial Statements and Supplementary Data” (the Consolidated Financial Statements) for additional information.

We hedge those currencies considered to be significant exposures based on value at risk; the estimated transactional exposure for the hedged currencies is $734 million.

Considering these hedges and spot rates as of April 30, 2018 compared to fiscal 2018’s effective exchange rates, we expect a modest negative effect to our fiscal 2019 operating income.

| | |

| --- | --- |

| • | Our management Ethics, Compliance and Risk Team, comprising a number of senior executives and subject matter experts, meets throughout the year to address issues related to risk, ethics, and compliance; to coordinate the work of those areas; and to oversee the formulation and promulgation of company policies and the training of employees in compliance with them. |

rate risks.

We employ over [removed: 4,700] [added: 4,800] people on six continents, including approximately 1,300 people in Louisville, Kentucky, USA, home of our world headquarters.

We are a “controlled company” under New York Stock Exchange rules [removed: as] [added: because] the Brown family owns more than 50% of our voting stock.

Additionally, taking into account ownership of shares of our non-voting stock, the Brown family controls more than 50% of the economic ownership in [removed: Brown‑Forman.][added: Brown-Forman.]

Beginning in 1870 with Old Forester [added: Kentucky Straight] Bourbon Whisky – our founding brand – and spanning the generations since, we have built a portfolio of more than 40 spirit, [removed: wine, and] ready-to-drink [removed: cocktail] (RTD) [added: cocktail, and wine] brands that includes some of the best-known and most-loved trademarks in our industry.

Among the top five premium spirits brands on the list, Jack Daniel’s Tennessee Whiskey was the only one to grow [removed: by] volume in [removed: 2016.][added: each of the past five years.]

In its [removed: fourth] [added: fifth] year on the Worldwide Impact list, Jack Daniel’s Tennessee Honey [added: was recognized as a top 15 growth brand and] remains the second-largest-selling flavored whiskey.

Our other leading global brands on the Worldwide Impact list are Finlandia, [added: which is] the tenth-largest-selling vodka; Canadian Mist, [added: which is] the fourth-largest-selling Canadian whisky; and el Jimador, which is the [removed: fourth-largest-selling] [added: fifth-largest-selling] tequila and designated as an Impact “Hot Brand.” Additionally, Woodford Reserve was once again selected as an Impact “Hot Brand.”1

| Jack Daniel’s Single Barrel Collection2 | | GlenDronach Single Malt Scotch [removed: Whisky5] [added: Whisky] |

| Jack Daniel’s [removed: Winter Jack] [added: Tennessee Rye3] | | BenRiach Single Malt Scotch [removed: Whisky5] [added: Whisky] |

| Jack Daniel’s Sinatra Select | | Glenglassaugh Single Malt Scotch [removed: Whisky5] [added: Whisky] |

| Jack Daniel’s [removed: No. 27 Gold Tennessee Whiskey] [added: Winter Jack] | | Chambord Liqueur |

| [removed: Jack Daniel’s Tennessee Rye3] [added: Woodford Reserve Double Oaked] | | Early Times Kentucky Whisky and Bourbon |

| Korbel California [removed: Champagnes4] [added: Brandy4] | | [removed: Old Forester] [added: Coopers’ Craft] Kentucky Bourbon |

| Woodford Reserve Kentucky [removed: Bourbon] [added: Rye Whiskey] | | [removed: Antiguo] [added: Pepe Lopez] Tequila |

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal [removed: 2017] [added: 2018] Brand Highlights” for brand performance details.

[removed: Our vision in marketing is to “be the best brand builders in the industry.”] We build our brands by investing in programs that we believe create enduring connections with our consumers.

These programs cover a wide spectrum of activities, including media (TV, radio, print, outdoor, and, increasingly, digital and [removed: social media),] [added: social),] consumer and trade promotions, sponsorships, and [removed: visitor center] [added: homeplace] programs at our distilleries and our winery.

We sell our products in [removed: more than 165] [added: over 170] countries around the world.

The United States, our [removed: largest,] most important market, accounted for [removed: 48%] [added: 47%] of our net sales in fiscal [removed: 2017.][added: 2018.]

Our largest international markets include the United Kingdom, Australia, Mexico, Germany, France, Poland, [removed: Japan, Canada,] [added: Russia, Brazil,] and [removed: Russia.][added: Canada.]

In fiscal [removed: 2017,] [added: 2018,] we generated [removed: 52%] [added: 53%] of our net sales outside the United States compared to [removed: 51% ten years ago.][added: 56% in fiscal 2014.]

The [removed: U.S.] [added: United States] proportion of net sales grew from fiscal [removed: 2015] [added: 2014] to fiscal 2016 then stayed constant in fiscal 2017, mainly due to the negative effect of foreign exchange on our international business.

We present the percentage of total net sales by geographic area for our most recent [removed: three] [added: five] fiscal years [removed: and, to provide historical context, fiscal 2008,] below:

| Percentage of Total Net Sales by Geographic Area | | | | | | | | | | [added: |]

| | Year ended April 30 | | | | | | | | | [added: |]

| [removed: 2008 |] [added: 2014] | [removed: ...] | 2015 | | 2016 | | 2017 | | [added: 2018] | [added: | |]

| United States | [removed: 49] [added: 44] | % | [removed: ... |] 46 | % | 48 | % | 48 | % | [added: 47 | % |]

| International: | | | [removed: ...] | | | | | | | [added: |]

| Europe | [removed: |] [added: 28] | [removed: ...] [added: %] | 27 | % | 27 | % | 26 | % | [added: 27 | % |]

| Australia | [removed: |] [added: 6] | [removed: ...] [added: %] | 6 | % | 5 | % | 5 | % | [added: 5 | % |]

| Other | [removed: |] [added: 22] | [removed: ...] [added: %] | 21 | % | 20 | % | 21 | % | [added: 21 | % |]

| Total International | [removed: 51] [added: 56] | % | [removed: ... |] 54 | % | 52 | % | 52 | % | [added: 53 | % |]

| TOTAL | 100 | % | [added: 100] | [added: % |] 100 | % | 100 | % | 100 | % |

| Note: Totals may differ due to rounding | | | | | | | | | | [added: |]

For details about net sales in our largest markets, [removed: refer to] [added: see] “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Fiscal [removed: 2017] [added: 2018] Market Highlights.” For details about our reportable segment and for additional geographic information about net sales and long-lived assets, [removed: refer to] [added: see] Note [removed: 15] [added: 14] to the Consolidated Financial Statements in “Item 8.

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

Outside the United States, we use a variety of RTC models, which can be grouped into three categories: owned distribution, partner, and [removed: government controlled] [added: government-controlled] markets.

We own and operate distribution companies in [removed: 13] [added: 14] markets: Australia, Brazil, Canada, China, [removed: the Czech Republic,] [added: Czechia,] France, Germany, Hong Kong, [removed: South] Korea, Mexico, Poland, [added: Spain,] Thailand, and Turkey.

| 2018 [removed: (planned)] | | Spain |

| Jack Daniel’s No. 27 Gold Tennessee Whiskey | | Old Forester Kentucky Straight Bourbon Whisky |

| Woodford Reserve Kentucky Bourbon | | Old Forester Whiskey Row Series |

| Finlandia Vodkas | | Antiguo Tequila |

| Korbel California Champagnes4 | | Slane Irish Whiskey |

| 1Impact Databank, March 2018. | |

| 3New brand launched in September 2017. | |

Our vision in marketing is to be the best brand builders in the industry.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | |

The Jack Daniel’s family of brands, led by Jack Daniel’s Tennessee Whiskey (JDTW), remains our most valuable asset and the engine that drives our global leadership of the American whiskey category1 and our overall financial performance.

New Jack Daniel’s expressions – Honey (2011), Fire (2015), and Rye (2017) – have led innovation in the American whiskey category.

We are the global leader in American whiskey, and see significant opportunities to continue promoting the mixability, versatility, accessibility, and premiumization of our American whiskey brands around the world.

We will focus first on the global growth of our most important expression, JDTW, though with a heightened focus on the super-premium expressions within the trademark – namely, Gentleman Jack, Jack Daniel’s Single Barrel Collection, and Jack Daniel’s Tennessee Rye.

We believe Woodford Reserve is the leading super-premium American whiskey globally.

Old Forester is regaining its prominence in the United States and in select international markets through its unparalleled taste, quality, and the success of its high-end expressions, such as the Old Forester Whiskey Row Series and Old Forester Statesman.

The distillery and homeplace were completed this past year, and we are very encouraged by the brand’s early performance and the accolades the brand, whiskey, and package have received.

| 1IWSR, 2017 data. | |

Following the integration of the acquired business, we have continued to evolve the portfolio and geographic strategy to ensure our single malt portfolio is positioned to become a meaningful contributor and a significant competitor in the fast growing single malt category over the longer term.

Here again, we are very encouraged by the trade and consumer reception to the brands and the whisky.

We remain pleased with the development of our tequila business in both Mexico and the United States, the brands’ two primary markets.

In addition to the success of the brand’s core expressions, Herradura Ultra – an ultra-premium cristalino – continues to accelerate and surpassed 70,000 nine-liter cases in fiscal 2018.

Outside Mexico, we have nearly quadrupled el Jimador’s volumes since fiscal 2008.

We remain confident in el Jimador’s potential to improve its position among the world’s leading tequila brands as the category continues to develop rapidly in the United States and to expand (though more gradually) internationally.

Fiscal 2018 saw a return to this trend after a few years of suppressed international growth driven by the negative effect of foreign exchange.

Values-Driven Organization.

The foundation of our culture is our core values: Integrity, Trust, Respect, Teamwork, and Excellence.

Our employee engagement survey responses demonstrate that we not only state these words as our values, but we live them, too.

Our values are reflected in our Code of Business Conduct that employees acknowledge and pledge to comply with.

Additionally, in the spirit of teamwork, we use our values as one set of criteria when evaluating business partners.

| 1Impact Databank, March 2018. | |

| 2IWSR, 2017 data. | |

In the past year, we have added information from contributors on a variety of alcohol-related subjects, including addiction and pregnancy, moderate consumption, and alcohol and aggression.

In Poland we partnered with Carrefour, a large retailer chain, to deliver key responsibility messages to consumers across 90 of their stores.

For the fourth consecutive year, the New Hampshire (NH) Liquor Commission and Jack Daniel’s teamed up for the award-winning Live Free & Host Responsibly campaign.

Since its launch in 2015, the campaign has reached thousands of NH Liquor & Wine Outlet customers, promoting responsible service and consumption of alcohol.

This first-of-its-kind collaboration between a control state and a beverage alcohol company has become a model for the industry, gaining widespread attention and industry praise.

We also engage with our customers through our trade associations.

For example, we worked with Avec Modération in France to engage convenience stores on underage drinking prevention.

Since then, we have added three additional markets and languages to the site, with plans to add four more in the coming year.

In addition, through our corporate charitable contributions, we support organizations that offer treatment and recovery for those struggling with alcoholism and addiction.

| Korbel California Brandy4 | | Pepe Lopez Tequila |

| Woodford Reserve Double Oaked | | Coopers’ Craft Kentucky Bourbon6 |

| Woodford Reserve Kentucky Rye Whiskey | | Collingwood Canadian Whisky |

| Finlandia Vodkas | | Slane Irish Whiskey6 |

| 1All references in this paragraph are derived from Impact Databank, a well-known U.S. trade publication, who published these industry statistics in March 2017. | |

| 3New brand to be launched in fiscal year 2018. | |

| 5Single Malt Scotch whisky brands acquired in June 2016. | |

| 6New brands launched in limited markets during fiscal year 2017. | |

Over the last decade, we have continued to expand our international footprint.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

Our grape supply comes from a combination of our California vineyards and contracts with independent growers.

We believe that our relationships with our growers are good.

The Jack Daniel’s family of brands, including Jack Daniel’s Tennessee Whiskey, is our most valuable asset.

We will continue to evaluate opportunities to grow the Jack Daniel’s family of brands through thoughtful new product introductions, including the recently announced U.S. launch of Jack Daniel’s Tennessee Rye in the fall of 2017, and the continued expansion of Jack Daniel’s Tennessee Fire in markets outside of the United States.

We are the global leader in American whiskey1, and we will continue to pursue growth in the broader global, premium whiskey category.

We will focus first on the global growth of our most important whiskey, Jack Daniel’s.

In 2016, we launched Coopers’ Craft, our first new bourbon trademark in more than 20 years, in select markets in the United States.

We believe that super- and ultra-premium whiskeys are attractive long-term businesses for us, and we will continue to pursue global growth in these categories.

Outside Mexico, we have nearly quadrupled el Jimador’s volumes since fiscal 2008, and we remain confident in el Jimador’s potential to improve its position among the world’s leading tequila brands.

| 1 IWSR, 2016 data. | |

| 2Impact Databank, March 2017. | |

In fiscal 2016, as part of our evolving portfolio strategy and our efforts to focus resources on our highest strategic priorities, we sold our Southern Comfort and Tuaca brands.

This decision reflects our continuing efforts to reshape our portfolio by developing, divesting, and acquiring brands to create value and improve growth.

Although the past three years have been an exception to this trend, we expect the longer-term trend to resume.

In the fourth year of our five year plan, we tailored our work to address key concerns in individual markets with programs that leveraged the strengths of local- and country-level partnerships.

We also innovated strategies to promote responsible drinking and develop approaches that can help build programs and interventions to reduce harmful drinking.

In the United States, we support The Ad Council’s “Buzzed Driving is Drunk Driving” campaigns and safe ride services.

We also engage consumers where they are through innovative programs such as the Cascadia Challenge, a partnership with U.S. Major League Soccer to get fans to pledge to be designated drivers at games in the Pacific Northwest.

Our individual brand websites will be linked to this content later this year.

Our team in Finland and the Association of Finnish Alcoholic Beverage Suppliers created a website in 2016 to help parents educate their teens on how to say no to alcohol.

Our environmental sustainability strategy aims to protect and conserve resources that we depend on.

In 2016, Newsweek magazine named Brown-Forman the third “greenest” U.S. beverage company, and number 52 among the 500 largest publicly traded companies in the United States.

Rankings were based on eight measures of corporate sustainability and environmental performance.

In 2017, we once again earned a perfect score of 100% in the Corporate Equality Index by the Human Rights Campaign, a civil rights organization promoting equality for lesbian, gay, bisexual, and transgender (LGBT) Americans.

Our civic engagement supports non-profit organizations that improve the lives of individuals and the vitality of our communities.

Through our contributions, we work to create communities that ensure basic living standards, support healthy and sustainable living, and enhance intellectual and cultural living.

Our Corporate Responsibility reports are available at www.brown-forman.com/responsibility.

| Paul C. Varga | 53 | Company Chairman and Chief Executive Officer since 2007. Chief Executive Officer since 2005. |

| Jill Ackerman Jones | 51 | Executive Vice President and President for North America, CCSA, IMEA, and Global Travel Retail since February 2015. Executive Vice President and President for North America and Latin America Regions from 2013 to 2015. Executive Vice President and Chief Production Officer from 2007 to 2012. |

We do not anticipate that any [removed: currently] pending suits will have, individually or in the aggregate, a material adverse effect on our financial position, results of operations, or liquidity.

| | For the fiscal year ended April 30, [removed: 2017] [added: 2018] |

The aggregate market value, as of the last business day of the most recently completed second fiscal quarter, of the voting and nonvoting equity held by nonaffiliates of the registrant was approximately [removed: $12,600,000,000.][added: $14,900,000,000.]

The number of shares outstanding for each of the registrant’s classes of Common Stock on May 31, [removed: 2017,] [added: 2018,] was:

| Class A Common Stock (voting) | [removed: 169,027,456] [added: 169,048,402] | |

| Class B Common Stock (nonvoting) | [removed: 215,178,607] [added: 312,063,220] | |

Portions of the Proxy Statement of Registrant for use in connection with the Annual Meeting of Stockholders to be held July [removed: 27, 2017,] [added: 26, 2018,] are incorporated by reference into Part III of this report.

| Item 1. | [removed: [Business](#s54C75031B71B5F998FF0D6BC3A466D3F)] [added: [Business](#s4C9063FE9B5E5A63BB814294BE8B806B)] | [removed: [4](#s54C75031B71B5F998FF0D6BC3A466D3F)] [added: [4](#s4C9063FE9B5E5A63BB814294BE8B806B)] |

| Item 1A. | [Risk [removed: Factors](#s0961EAFA36515F0A967C8003CC9FF34C)] [added: Factors](#sECF315B362905092857D5B89A5CE0698)] | [removed: [12](#s0961EAFA36515F0A967C8003CC9FF34C)] [added: [12](#sECF315B362905092857D5B89A5CE0698)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#sD33EBEA06C0950EBBC755082160F5D9A)] [added: Comments](#s89D37225AE6F5543A7751E6715A2AF9A)] | [removed: [19](#sD33EBEA06C0950EBBC755082160F5D9A)] [added: [20](#s89D37225AE6F5543A7751E6715A2AF9A)] |

| Item 2. | [removed: [Properties](#s65E70FF4A76A59C387A2046F42A46C68)] [added: [Properties](#s594CEB04C4D15D19997E231891D37495)] | [removed: [20](#s65E70FF4A76A59C387A2046F42A46C68)] [added: [21](#s594CEB04C4D15D19997E231891D37495)] |

| Item 3. | [Legal [removed: Proceedings](#sC16BFC42E17E564DBF0C53A1718DE3BC)] [added: Proceedings](#s804B07C5E51E5C189466B5FCF6E10922)] | [removed: [21](#sC16BFC42E17E564DBF0C53A1718DE3BC)] [added: [22](#s804B07C5E51E5C189466B5FCF6E10922)] |

| Item 4. | [Mine Safety [removed: Disclosures](#sADA0D6D2ADAF5193A23E1D4E2481C1D3)] [added: Disclosures](#sE0E65CDED8375C24AEC6D6C43F1CE6DB)] | [removed: [21](#sADA0D6D2ADAF5193A23E1D4E2481C1D3)] [added: [22](#sE0E65CDED8375C24AEC6D6C43F1CE6DB)] |

| Item 5. | [Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#sA8E23720C3CA56A0A30E796004FA8012)] [added: Securities](#s8B7B1D4140135C95BADD7087EDA157EB)] | [removed: [22](#sA8E23720C3CA56A0A30E796004FA8012)] [added: [23](#s8B7B1D4140135C95BADD7087EDA157EB)] |

| Item 6. | [Selected Financial [removed: Data](#s13537CD9F3E05D01939CBE193610474F)] [added: Data](#s78A69D5F78AF52549D3E50E34F07BE7C)] | [removed: [24](#s13537CD9F3E05D01939CBE193610474F)] [added: [25](#s78A69D5F78AF52549D3E50E34F07BE7C)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s52DBFA9039445C04A88E23D949547C1F)] [added: Operations](#s5B49C995824C54A2A9A73F40316EFD9A)] | [removed: [25](#s52DBFA9039445C04A88E23D949547C1F)] [added: [26](#s5B49C995824C54A2A9A73F40316EFD9A)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#s43E48387AD075F9FAFBA1456A2DA2C94)] [added: Risk](#sBF6F5A67B92A5054AA53F05E06344E0D)] | [removed: [45](#s43E48387AD075F9FAFBA1456A2DA2C94)] [added: [47](#sBF6F5A67B92A5054AA53F05E06344E0D)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s81FD58DD170859DFBCB520A793984985)] [added: Data](#s1E998AC9553B57BC98972D3C65227CE9)] | [removed: [47](#s81FD58DD170859DFBCB520A793984985)] [added: [48](#s1E998AC9553B57BC98972D3C65227CE9)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s115C10EC681C597889F736A93766465B)] [added: Disclosure](#s86A28EE8C9A05F35B38182BB87928E5A)] | [removed: [78](#s115C10EC681C597889F736A93766465B)] [added: [82](#s86A28EE8C9A05F35B38182BB87928E5A)] |

| Item 9A. | [Controls and [removed: Procedures](#s75591CF06AC55A02855E04DB5FACE950)] [added: Procedures](#sA8C999CC33005F2799921F9C8A4B2CAE)] | [removed: [78](#s75591CF06AC55A02855E04DB5FACE950)] [added: [82](#sA8C999CC33005F2799921F9C8A4B2CAE)] |

| Item 9B. | [Other [removed: Information](#s5B2DE7AC801E5A099EF0ED10A3EA5202)] [added: Information](#sF11360AFF0455E819D85968C69AE27EF)] | [removed: [78](#s5B2DE7AC801E5A099EF0ED10A3EA5202)] [added: [82](#sF11360AFF0455E819D85968C69AE27EF)] |

| Item 10. | [Directors, Executive Officers, and Corporate [removed: Governance](#sA1D6A67A9D635BF5AEA0625C843724B7)] [added: Governance](#sB2E94F39765353A89A5DB485FBE7058F)] | [removed: [78](#sA1D6A67A9D635BF5AEA0625C843724B7)] [added: [82](#sB2E94F39765353A89A5DB485FBE7058F)] |

| Item 11. | [Executive [removed: Compensation](#s2806AAE4C3E554EDA09EDB56E15F9F7A)] [added: Compensation](#s4792FFDD3DE956DF9780115569BC1687)] | [removed: [78](#s2806AAE4C3E554EDA09EDB56E15F9F7A)] [added: [82](#s4792FFDD3DE956DF9780115569BC1687)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s08EE75F566AB5C1BB83A6129E6C94053)] [added: Matters](#s66D2BD693F1C5B0B9F5FDC9EEFC732B4)] | [removed: [78](#s08EE75F566AB5C1BB83A6129E6C94053)] [added: [82](#s66D2BD693F1C5B0B9F5FDC9EEFC732B4)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sB9B1F782ECA35A469B976BFE8B1AA5A1)] [added: Independence](#s35478A25BF5A5C35BA7A55C1DBC86B91)] | [removed: [79](#sB9B1F782ECA35A469B976BFE8B1AA5A1)] [added: [82](#s35478A25BF5A5C35BA7A55C1DBC86B91)] |

| Item 14. | [Principal Accounting Fees and [removed: Services](#s04720526EF8A5F19B41201664098A054)] [added: Services](#sB470FBB5A1C8549FB51447372C84E6F0)] | [removed: [79](#s04720526EF8A5F19B41201664098A054)] [added: [83](#sB470FBB5A1C8549FB51447372C84E6F0)] |

| Item 15. | [Exhibits and Financial Statements [removed: Schedules](#s3392F0A89A1C5CF79FB0696C68856514)] [added: Schedules](#s26CF90F193705C2BAA1D557454743433)] | [removed: [79](#s3392F0A89A1C5CF79FB0696C68856514)] [added: [83](#s26CF90F193705C2BAA1D557454743433)] |

| Item 16. | [Form 10-K [removed: Summary](#sd61d18fc6ee44758933b44fdd7ae7dfd)] [added: Summary](#s64CE93BE8C2850BB9D9C3C19AA6F800A)] | [removed: [82](#sd61d18fc6ee44758933b44fdd7ae7dfd)] [added: [86](#s64CE93BE8C2850BB9D9C3C19AA6F800A)] |

| [SCHEDULE II – Valuation and Qualifying [removed: Accounts](#sFF1C136DF7C75AF4B24A9F60E0640770)] [added: Accounts](#sCF01EE385292577087373E85B1353A00)] | | [removed: [85](#sFF1C136DF7C75AF4B24A9F60E0640770)] [added: [89](#sCF01EE385292577087373E85B1353A00)] |

| • | Risks associated with being a U.S.-based company with global operations, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade [removed: policies] [added: policies,] or economic or trade [removed: sanctions;] [added: sanctions, including potential retaliatory tariffs on American spirits;] compliance with local trade practices and other regulations, including anti-corruption laws; terrorism; and health pandemics |

| • | Tax rate changes (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, [added: or] capital gains) or changes in related reserves, changes in tax rules [removed: (for example, LIFO, foreign income deferral, U.S. manufacturing, and other deductions)] or accounting standards, and the unpredictability and suddenness with which they can occur |

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

| • | Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher [removed: implementation-related or] fixed costs |

| • | Competitors’ [added: and retailers’] consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks |

| • | Our status as a family “controlled company” under New York Stock Exchange [removed: rules] [added: rules, and our dual class share structure] |

[removed: Management’s Discussion] and Analysis of Financial Condition and Results of Operations,” we present the reasons we use these measures under the heading, “Non-GAAP Financial Measures,” and we reconcile these measures to the most closely comparable GAAP measures under the heading “Results of Operations – Year-Over-Year Comparisons.”

10-K 1 bfb-2018430x10kapril.htm 10-K

| 1.200% Notes due 2026 | | New York Stock Exchange |

| 2.600% Notes due 2028 | | New York Stock Exchange |

| [SIGNATURES](#sB834A36D501555E793B5CFAE7FB2AC50) | | [86](#sB834A36D501555E793B5CFAE7FB2AC50) |

| • | The impact of the recently enacted U.S. tax reform legislation, including as a result of future regulations and guidance interpreting the statute |

| | |

| --- | --- |

Management’s Discussion

10-K 1 bfb-2017430x10k.htm 10-K

| [SIGNATURES](#s9F5D1BA576F35B87A56AA4F2091AAA35) | | [82](#s9F5D1BA576F35B87A56AA4F2091AAA35) |

In addition to our company-owned [added: production locations and our] corporate offices in Louisville, Kentucky, we lease office space for use in our sales, marketing, and administrative operations in the United States and in over 40 other cities around the globe.

Our most significant [added: leased] office locations outside Louisville are:

| • | United States: [removed: Irvine, California;] Irving, Texas; [removed: Atlanta, Georgia;] [added: Irvine, California;] Baltimore, Maryland; [added: Atlanta, Georgia; San Rafael, California;] and Washington, D.C. |

| • | International: Guadalajara, Mexico; Hamburg, Germany; [removed: Sydney, Australia; London, United Kingdom;] [added: Moscow, Russia;] Warsaw, Poland; [removed: Paris, France; Prague, Czech Republic;] [added: Sydney, Australia;] São Paulo, Brazil; [added: Paris, France; Prague, Czechia; Amsterdam, Netherlands; London, United Kingdom; Barcelona, Spain;] Mexico City, Mexico; [removed: Barcelona, Spain; Moscow, Russia; Istanbul, Turkey; Tokyo, Japan; Amsterdam, Netherlands;] Seoul, South Korea; [added: Gurgaon, India; Istanbul, Turkey;] Shanghai, China; Hong Kong; [removed: Gurgaon, India;] Cape Town, South Africa; [removed: and] Dubai, United Arab [removed: Emirates.] [added: Emirates; Kiev, Ukraine; and Tokyo, Japan.] |

| | Distilling, bottling, warehousing | [added: Home of Old Forester] |

| Slane, Ireland | Distilling | [removed: Future home] [added: Home] of Slane Irish Whiskey |

| | Visitors’ center | |

| | Visitors’ center | |

| | Visitors’ center | Future home of Old Forester |

As of May 31, [removed: 2017,] [added: 2018,] there were [removed: 2,673] [added: 2,639] holders of record of Class A common stock and [removed: 4,880] [added: 5,486] holders of record of Class B common stock.

Because of overlapping ownership between classes, as of May 31, [removed: 2017,] [added: 2018,] we had only [removed: 5,529] [added: 5,431] distinct common stockholders of record.

| | | Fiscal [removed: 2016] [added: 2017] | | | | | | | | | | | | | | | | | | | | Fiscal [removed: 2017] [added: 2018] | | | | | | | | | | | | | | | | | | |

[removed: Note:] Amounts have been adjusted for a [removed: 2-for-1] [added: 5-for-4] stock split that occurred in [removed: August 2016.][added: February 2018.]

The following table summarizes information as of April 30, [removed: 2017,] [added: 2018,] about our equity compensation plans under which we have made grants of stock options, stock appreciation rights, restricted stock, market value units, performance units, or other equity awards.

| Equity compensation plans approved by Class A common stockholders | | | [removed: 2,393,482] [added: 3,365,537] | | [removed: $32.17] [added: $29.67] | | [removed: 12,710,672] [added: 14,790,843] |

1Includes [removed: 2,186,226] [added: 2,971,180] Class B common shares to be issued upon exercise of stock-settled stock appreciation rights (SSARs); [removed: 79,080] [added: 199,973] Class B common restricted stock units (RSUs); [removed: 86,549] [added: 114,703] Class A common deferred stock units (DSUs); and [removed: 41,627] [added: 79,681] Class B common DSUs issued under the Brown-Forman 2004 or 2013 Omnibus Compensation Plans.

The fair market value of our common stock at fiscal year-end has been used for the purposes of reporting the number of shares to be issued upon exercise of the [removed: 6,615,257] [added: 7,215,010] SSARs outstanding at fiscal year-end.

The graph below compares the cumulative total shareholder return of our Class B common stock for the last five years with the Standard & Poor’s 500 [removed: Stock] Index, the Dow Jones U.S. Consumer Goods Index, and the Dow Jones U.S. Food & Beverage Index.

The information presented assumes an initial investment of $100 on April 30, [removed: 2012,] [added: 2013,] and that all dividends were reinvested.

The cumulative returns shown represent the value that [added: each of] these investments would have had on April 30 in the years since [removed: 2012.][added: 2013.]

[removed: ][added: ]

| Class A high | | $ | 43.42 | | | $ | 43.56 | | | $ | 39.46 | | | $ | 40.04 | | | $ | 43.56 | | | $ | 42.75 | | | $ | 42.62 | | | $ | 51.30 | | | $ | 55.67 | | | $ | 55.67 | |

| Class A low | | 40.62 | | | | 37.60 | | | | 36.50 | | | | 37.09 | | | | 36.50 | | | | 35.50 | | | | 37.79 | | | | 41.14 | | | | 46.61 | | | | 35.50 | | |

| Class B high | | 40.32 | | | | 40.85 | | | | 37.63 | | | | 39.16 | | | | 40.85 | | | | 45.54 | | | | 45.62 | | | | 55.66 | | | | 56.52 | | | | 56.52 | | |

| Class B low | | 37.56 | | | | 35.73 | | | | 35.17 | | | | 36.01 | | | | 35.17 | | | | 37.82 | | | | 38.43 | | | | 44.08 | | | | 50.66 | | | | 37.82 | | |

| Declared | | 0.272 | | | | — | | | | 0.292 | | | | — | | | | 0.564 | | | | 0.292 | | | | — | | | | 1.316 | | | | — | | | | 1.608 | | |

| Paid | | 0.136 | | | | 0.136 | | | | 0.146 | | | | 0.146 | | | | 0.564 | | | | 0.146 | | | | 0.146 | | | | 0.158 | | | | 1.158 | | | | 1.608 | | |

Notes:

1.

2.

Cash dividends for fiscal 2018 include a special dividend of $1.00 per share.

| Class A high | | $ | 59.75 | | | $ | 61.15 | | | $ | 58.77 | | | $ | 56.12 | | | $ | 61.15 | | | $ | 54.28 | | | $ | 54.45 | | | $ | 49.32 | | | $ | 50.05 | | | $ | 54.45 | |

| Class A low | | 46.55 | | | | 52.94 | | | | 49.75 | | | | 50.20 | | | | 46.55 | | | | 50.78 | | | | 47.00 | | | | 45.62 | | | | 46.36 | | | | 45.62 | | |

| Class B high | | 54.21 | | | | 55.41 | | | | 53.44 | | | | 51.70 | | | | 55.41 | | | | 50.40 | | | | 51.06 | | | | 47.04 | | | | 48.95 | | | | 51.06 | | |

| Class B low | | 45.33 | | | | 47.61 | | | | 45.30 | | | | 46.63 | | | | 45.30 | | | | 46.95 | | | | 44.66 | | | | 43.96 | | | | 45.01 | | | | 43.96 | | |

| Declared | | 0.3150 | | | | — | | | | 0.3400 | | | | — | | | | 0.6550 | | | | 0.3400 | | | | — | | | | 0.3650 | | | | — | | | | 0.7050 | | |

| Paid | | 0.1575 | | | | 0.1575 | | | | 0.1700 | | | | 0.1700 | | | | 0.6550 | | | | 0.1700 | | | | 0.1700 | | | | 0.1825 | | | | 0.1825 | | | | 0.7050 | | |

| | (Dollars in millions, except per share amounts) | | | | | | | | | | | | | | | [removed: | | | | | |]

| For Year Ended April 30: | | | | | | | | | | | | | | | | [removed: | | | | | |]

| Net sales | $ | [removed: 2,582 | | 2,481 | | 2,469 | | 2,586] [added: 2,991] | | [removed: 2,723] [added: $] | [added: 3,134] | [removed: 2,849] | [added: $] | [removed: 2,991] [added: 3,089] | | [removed: 3,134] [added: $] | [added: 2,994] | [removed: 3,089] | [added: $] | [removed: 2,994] [added: 3,248] | |

| Gross profit | $ | [removed: 1,695 | | 1,577 | | 1,611 | | 1,724] [added: 2,078] | | [removed: 1,795] [added: $] | [added: 2,183] | [removed: 1,955] | [added: $] | [removed: 2,078] [added: 2,144] | | [removed: 2,183] [added: $] | [added: 2,021] | [removed: 2,144] | [added: $] | [removed: 2,021] [added: 2,202] | |

| Operating income | $ | [removed: 685 | | 661 | | 710 | | 855] [added: 971] | | [removed: 788] [added: $] | [added: 1,027] | [removed: 898] | [added: $] | [removed: 971] [added: 1,533] | | [removed: 1,027] [added: $] | [added: 989] | [removed: 1,533] | [added: $] | [removed: 989] [added: 1,039] | |

| Net income | $ | [removed: 440 | | 435 | | 449 | | 572] [added: 659] | | [removed: 513] [added: $] | [added: 684] | [removed: 591] | [added: $] | [removed: 659] [added: 1,067] | | [removed: 684] [added: $] | [added: 669] | [removed: 1,067] | [added: $] | [removed: 669] [added: 717] | |

| Weighted average shares used to calculate earnings per share | | | | | | | | | | | | | | | | [removed: | | | | | |]

| Earnings per share from continuing operations | | | | | | | | | | | | | | | | [removed: | | | | | |]

| Gross margin | [removed: 65.6 | | %] [added: 69.5] | [removed: 63.5] | % | [removed: 65.3 | %] [added: 69.7] | [removed: 66.7] | % | [removed: 65.9 | %] [added: 69.4] | [removed: 68.6] | % | [removed: 69.5 | %] [added: 67.5] | [removed: 69.7] | % | [removed: 69.4 | %] [added: 67.8] | [removed: 67.5] | % |

| Operating margin | [removed: 26.5 | | %] [added: 32.5] | [removed: 26.6] | % | [removed: 28.8 | %] [added: 32.8] | [removed: 33.1] | % | [removed: 29.0 | %] [added: 49.6] | [removed: 31.5] | % | [removed: 32.5 | %] [added: 33.0] | [removed: 32.8] | % | [removed: 49.6 | %] [added: 32.0] | [removed: 33.0] | % |

| Effective tax rate | [removed: 31.7 | | %] [added: 30.5] | [removed: 31.1] | % | [removed: 34.1 | %] [added: 31.7] | [removed: 31.0] | % | [removed: 32.5 | %] [added: 28.3] | [removed: 31.7] | % | [removed: 30.5 | %] [added: 28.3] | [removed: 31.7] | % | [removed: 28.3 | %] [added: 26.6] | [removed: 28.3] | % |

| Average invested capital | $ | [removed: 2,747 | | 2,893 | | 2,825 | | 2,711] [added: 3,131] | | [removed: 2,803] [added: $] | [added: 3,196] | [removed: 2,834] | [added: $] | [removed: 3,131] [added: 3,221] | | [removed: 3,196] [added: $] | [added: 3,591] | [removed: 3,221] | [added: $] | [removed: 3,680] [added: 3,832] | |

| Return on average invested capital | [removed: 17.2 | | %] [added: 21.6] | [removed: 15.9] | % | [removed: 16.6 | %] [added: 22.0] | [removed: 21.8] | % | [removed: 19.1 | %] [added: 34.1] | [removed: 21.7] | % | [removed: 21.6 | %] [added: 19.8] | [removed: 22.0] | % | [removed: 34.1 | %] [added: 20.0] | [removed: 19.3] | % |

| Cash flow from operations | $ | [removed: 534 | | 491 | | 545 | | 527] [added: 649] | | [removed: 516] [added: $] | [added: 608] | [removed: 537] | [added: $] | [removed: 649] [added: 524] | | [removed: 608] [added: $] | [added: 639] | [removed: 524] | [added: $] | [removed: 639] [added: 632] | |

| Dividend payout ratio | [removed: 35.8 | | %] [added: 35.3] | [removed: 38.9] | % | [removed: 38.7 | %] [added: 37.5] | [removed: 57.0] | % | [removed: 37.4 | %] [added: 25.0] | [removed: 179.8] | % | [removed: 35.3 | %] [added: 40.9] | [removed: 37.5] | % | [removed: 25.0 | %] [added: 107.8] | [removed: 40.9] | % |

| As of April 30: | | | | | | | | | | | | | | | | [removed: | | | | | |]

| Total assets | $ | [removed: 3,405 | | 3,475 | | 3,383 | | 3,712] [added: 4,103] | | [removed: 3,477] [added: $] | [added: 4,188] | [removed: 3,626] | [added: $] | [removed: 4,103] [added: 4,183] | | [removed: 4,188] [added: $] | [added: 4,625] | [removed: 4,183] | [added: $] | [removed: 4,625] [added: 4,976] | |

| Long-term debt | $ | [removed: 417 | | 509 | | 508 | | 504] [added: 997] | | [removed: 503] [added: $] | [added: 743] | [removed: 997] | [added: $] | [removed: 997] [added: 1,230] | | [removed: 743] [added: $] | [added: 1,689] | [removed: 1,230] | [added: $] | [removed: 1,689] [added: 2,341] | |

| Total debt | $ | [removed: 1,006 | | 999 | | 699 | | 759] [added: 1,005] | | [removed: 510] [added: $] | [added: 1,183] | [removed: 1,002] | [added: $] | [removed: 1,005] [added: 1,501] | | [removed: 1,183] [added: $] | [added: 2,149] | [removed: 1,501] | [added: $] | [removed: 2,149] [added: 2,556] | |

| 1. | Includes the results of [removed: our Hopland-based wine brands, which were sold in April 2011 but retained in our portfolio as agency brands through December 2011. Includes the results of] Southern Comfort and Tuaca, both of which were sold in March [removed: 2016.] [added: 2016 at a gain of $485 million (pre-tax).] Includes the results of BenRiach since its acquisition in June 2016. |

| 2. | Weighted average shares, earnings per share, and cash dividends declared per common share have been adjusted for a [removed: 5-for-4 stock split in October 2008, a 3-for-2] [added: 2-for-1] stock split in August [removed: 2012,] [added: 2016] and a [removed: 2-for-1] [added: 5-for-4] stock split [removed: that occurred] in [removed: August 2016.] [added: February 2018.] |

| 4. | Cash dividends declared per common share include [added: a] special cash [removed: dividends] [added: dividend] of [removed: $0.333 per share in fiscal 2011 and $2.00 per share] [added: $1.00] in fiscal [removed: 2013.] [added: 2018.] |

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | |

| | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | |

| – Basic | 533.6 | | | 529.0 | | | 507.4 | | | 484.6 | | | 480.3 | | |

| – Diluted | 537.7 | | | 532.7 | | | 510.7 | | | 488.1 | | | 484.2 | | |

| – Basic | $ | 1.23 | | $ | 1.29 | | $ | 2.10 | | $ | 1.38 | | $ | 1.49 | |

| – Diluted | $ | 1.22 | | $ | 1.28 | | $ | 2.09 | | $ | 1.37 | | $ | 1.48 | |

| Cash dividends declared per common share | $ | 0.436 | | $ | 0.484 | | $ | 0.524 | | $ | 0.564 | | $ | 1.608 | |

| | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 2008 | | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |

| Sales | $ | 3,282 | | 3,192 | | 3,226 | | 3,404 | | 3,614 | | 3,784 | | 3,946 | | 4,096 | | 4,011 | | 3,857 | |

| Excise taxes | $ | 700 | | 711 | | 757 | | 818 | | 891 | | 935 | | 955 | | 962 | | 922 | | 863 | |

| – Basic | 459.2 | | | 451.4 | | 443.5 | | 436.8 | | 429.1 | | 426.7 | | 426.9 | | 423.2 | | 406.0 | | 387.7 | |

| – Diluted | 463.2 | | | 454.1 | | 445.7 | | 439.5 | | 432.2 | | 430.0 | | 430.2 | | 426.2 | | 408.6 | | 390.5 | |

| – Basic | $ | 0.96 | | 0.96 | | 1.01 | | 1.31 | | 1.20 | | 1.38 | | 1.54 | | 1.62 | | 2.63 | | 1.72 | |

| – Diluted | $ | 0.95 | | 0.96 | | 1.01 | | 1.30 | | 1.19 | | 1.37 | | 1.53 | | 1.60 | | 2.61 | | 1.71 | |

| Cash dividends declared per common share | $ | 0.343 | | 0.373 | | 0.392 | | 0.747 | | 0.447 | | 2.488 | | 0.545 | | 0.605 | | 0.655 | | 0.705 | |

| 6. | Results for fiscal 2016 include a gain of $485 million on the sale of Southern Comfort and Tuaca. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about the impact of that sale on our operating results for fiscal 2016. |

| [Reports of [removed: Management](#sCD967AD0B69B5D97AEDDE1B2F14446B9)] [added: Management](#s27AA0FEBFA8753208228DF110A203F98)] | [removed: [48](#sCD967AD0B69B5D97AEDDE1B2F14446B9)] [added: [49](#s27AA0FEBFA8753208228DF110A203F98)] |

| [Report of Independent Registered Public Accounting [removed: Firm](#s82D5ECDFA2B25253915522D6038E9898)] [added: Firm](#s9DF2C948674C57B3ACDB3C10318119F1)] | [removed: [49](#s82D5ECDFA2B25253915522D6038E9898)] [added: [50](#s9DF2C948674C57B3ACDB3C10318119F1)] |

| [Consolidated Statements of [removed: Operations](#sA5BA23A7841A5A8EB9C06763CA478E10)] [added: Operations](#s45717C2FDB8A52F9912009621B898551)] | [removed: [50](#sA5BA23A7841A5A8EB9C06763CA478E10)] [added: [52](#s45717C2FDB8A52F9912009621B898551)] |

| [Consolidated Statements of Comprehensive [removed: Income](#s023453E0B0285A74B3FF2CE93A46AC70)] [added: Income](#s048705BAA865557AAD2F7DA791A97F02)] | [removed: [51](#s023453E0B0285A74B3FF2CE93A46AC70)] [added: [53](#s048705BAA865557AAD2F7DA791A97F02)] |

| [Consolidated Balance [removed: Sheets](#s73D1219C9A1953A58C1241B4DC13335D)] [added: Sheets](#sCAF87665B81B5D59BE42873F354E5E52)] | [removed: [52](#s73D1219C9A1953A58C1241B4DC13335D)] [added: [54](#sCAF87665B81B5D59BE42873F354E5E52)] |

| [Consolidated Statements of Cash [removed: Flows](#s6048A34BA917500895137D8B0656220E)] [added: Flows](#s1BB35713784A569A881BB8062BEE62EB)] | [removed: [53](#s6048A34BA917500895137D8B0656220E)] [added: [55](#s1BB35713784A569A881BB8062BEE62EB)] |

| [Consolidated Statements of Stockholders’ [removed: Equity](#sEAAD63763D98506F91DC1EFC86BAC78D)] [added: Equity](#sB22EBE79B2F55EE280FB1178B24D44C9)] | [removed: [54](#sefc27b71735542f9bb4611eb14b23882)] [added: [56](#sE887311F57CF5D0796C1F73D52DB6036)] |

| [Notes to Consolidated Financial [removed: Statements](#s9603751A90215597B3A462DCB8B2E9A2)] [added: Statements](#sD29B2F422C6E533F9BDBDC86CE87CAA3)] | [removed: [55](#s9603751A90215597B3A462DCB8B2E9A2)] [added: [57](#sD29B2F422C6E533F9BDBDC86CE87CAA3)] |

| [Quarterly Financial Information [removed: (Unaudited)](#s1E0083F953B35D6BA117860B97A7DB0D)] [added: (Unaudited)](#sCBE8EDF5A87E54C683CFCEA55AD4754E)] | [removed: [77](#s1E0083F953B35D6BA117860B97A7DB0D)] [added: [81](#sCBE8EDF5A87E54C683CFCEA55AD4754E)] |

As set forth in our Code of Conduct and [removed: Compliance] [added: Corporate Governance] Guidelines, we are firmly committed to adhering to the highest standards of moral and ethical behavior in our business activities.

Based on this assessment, management concluded that our internal control over financial reporting was effective as of April 30, [removed: 2017.][added: 2018.]

PwC has audited the effectiveness of our internal control over financial reporting as of April 30, [removed: 2017,] [added: 2018,] as stated in their report.

| Dated: | June [removed: 14, 2017] [added: 13, 2018] | | |

of Brown-Forman [removed: Corporation:][added: Corporation]

In our opinion, the consolidated financial statements [removed: listed in the index appearing under Item 15(a)(1)] [added: referred to above] present fairly, in all material respects, the financial position of [removed: Brown- Forman Corporation and its subsidiaries at] [added: the Company as of] April 30, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the results of their operations and their cash flows for each of the three years in the period ended April 30, [removed: 2017] [added: 2018] 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, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control [removed: -] [added: –] Integrated Framework (2013) issued by the [removed: Committee of Sponsoring Organizations of the Treadway Commission (COSO).][added: COSO.]

The Company's management is responsible for these [removed: financial statements and] [added: consolidated] financial [removed: statement schedule,] [added: statements,] for maintaining effective internal control over financial [removed: reporting] [added: 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 [removed: these financial statements, on] the [added: Company's consolidated] financial [removed: statement schedule,] [added: statements] and on the [removed: Company's] [added: Company’s] internal control over financial reporting based on our [removed: integrated] audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

Louisville, [removed: KY][added: Kentucky]

| Year Ended April 30, | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | |

| Sales | $ | [removed: 4,096] [added: 4,011] | | | $ | [removed: 4,011] [added: 3,857] | | | $ | [removed: 3,857] [added: 4,201] | |

| Excise taxes | [removed: 962] [added: 922] | | | | [removed: 922] [added: 863] | | | | [removed: 863] [added: 953] | | |

| Net sales | [removed: 3,134] [added: 3,089] | | | | [removed: 3,089] [added: 2,994] | | | | [removed: 2,994] [added: 3,248] | | |

| Cost of sales | [removed: 951] [added: 945] | | | | [removed: 945] [added: 973] | | | | [removed: 973] [added: 1,046] | | |

| Gross profit | [removed: 2,183] [added: 2,144] | | | | [removed: 2,144] [added: 2,021] | | | | [removed: 2,021] [added: 2,202] | | |

| Advertising expenses | [removed: 437] [added: 417] | | | | [removed: 417] [added: 383] | | | | [removed: 383] [added: 414] | | |

| Selling, general, and administrative expenses | [removed: 697] [added: 688] | | | | [removed: 688] [added: 667] | | | | [removed: 667] [added: 765] | | |

| Gain on sale of business | [removed: —] [added: (485] | | [added: )] | | [removed: (485] [added: —] | | [removed: )] | | — | | |

| Other expense (income), net | [removed: 22] [added: (9] | | [added: )] | | [removed: (9] [added: (18] | | ) | | [removed: (18] [added: (16] | | ) |

| Operating income | [removed: 1,027] [added: 1,533] | | | | [removed: 1,533] [added: 989] | | | | [removed: 989] [added: 1,039] | | |

| Interest income | 2 | | | | [removed: 2] [added: 3] | | | | [removed: 3] [added: 6] | | |

| Interest expense | [removed: 27] [added: 46] | | | | [removed: 46] [added: 59] | | | | [removed: 59] [added: 68] | | |

| Income before income taxes | [removed: 1,002] [added: 1,489] | | | | [removed: 1,489] [added: 933] | | | | [removed: 933] [added: 977] | | |

| Income taxes | [removed: 318] [added: 422] | | | | [removed: 422] [added: 264] | | | | [removed: 264] [added: 260] | | |

| Net income | $ | [removed: 684] [added: 1,067] | | | $ | [removed: 1,067] [added: 669] | | | $ | [removed: 669] [added: 717] | |

| Currency translation adjustments | [removed: (114] [added: (23] | | ) | | [removed: (23] [added: (73] | | ) | | [removed: (73] [added: 24] | | [removed: )] |

| Cash flow hedge adjustments | [removed: 32] [added: (17] | | [added: )] | | [removed: (17] [added: —] | | [removed: )] | | [removed: —] [added: (28] | | [added: )] |

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 as of April 30, 2018 and 2017, 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, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended April 30, 2018 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of April 30, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Basis for Opinions

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.

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.

Definition and Limitations of Internal Control over Financial Reporting

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

| Basic | $ | 2.10 | | | $ | 1.38 | | | $ | 1.49 | |

| Diluted | $ | 2.09 | | | $ | 1.37 | | | $ | 1.48 | |

| Net income | $ | 1,067 | | | $ | 669 | | | $ | 717 | |

| Accounts receivable, net | 557 | | | | 639 | | |

| Net income | $ | 1,067 | | | $ | 669 | | | $ | 717 | |

| Retirement of treasury stock (Note 10) | | | | | (10 | | ) | | (8 | | ) | | (2,684 | | ) | | | | | | 2,702 | | | | — | | |

| Stock split (Note 10) | | | | | 14 | | | | (14 | | ) | | | | | | | | | | | | | | — | | |

| Balance at April 30, 2018 | $ | 25 | | | $ | 47 | | | $ | 4 | | | $ | 1,730 | | | $ | (378 | ) | | $ | (112 | ) | | $ | 1,316 | |

The allowance for doubtful accounts was $7 as of both April 30, 2017 and 2018.

We adopted the following Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) as of May 1, 2016:

| • | ASU 2016-09: Improvements to Employee Share-Based Payment Accounting. This new guidance amends certain aspects of the accounting for stock-based compensation, including the income tax consequences. Under the new guidance, we recognize all tax benefits related to stock-based compensation as an income tax benefit in our statement of operations, and include all income tax cash flows within operating activities in our statement of cash flows. Under the previous accounting guidance, we recognized some of those tax benefits (excess tax benefits) as additional paid-in capital and classified that amount as a financing activity in our statement of cash flows. We adopted these provisions of the new guidance on a prospective basis as of May 1, 2016. As a result, our net income and operating cash flows include excess tax benefits of $9 for fiscal 2017 and $18 for fiscal 2018. Prior period financial statements have not been adjusted. |

We will adopt the following ASUs as of May 1, 2018:

We have substantially completed our comprehensive assessment of the impact of the new guidance, and have concluded that adoption will not have a material impact on our financial statements.

However, under the new standard, we will estimate and recognize the cost of certain customer incentives earlier than previously recognized.

Although we expect this change in timing to shift the recognition of these costs among fiscal quarters, we do not expect the full-year impact to be significant.

Additionally, some payments to customers that were previously classified as advertising or selling, general, and administrative expenses will be classified as reductions of sales under the new standard.

We anticipate the impact of this change in classification to be insignificant as well.

We anticipate the adjustment, reflecting the accelerated recognition of the cost of certain customer incentives, to decrease retained earnings by approximately $30 (net of tax).

We are in the process of finalizing the calculation of the adjustment, which will be completed during the first quarter of fiscal 2019.

| • | ASU 2016-15: Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific issues related to the classification of certain cash receipts and cash payments on the statement of cash flows. We expect the impact of the new guidance to be limited to a change in classification of cash payments for premiums on corporate-owned life insurance policies, which we currently reflect in operating activities. Under the new guidance, we plan to reflect those payments as investing activities. Upon adopting this new guidance, we will retrospectively adjust prior year cash flow statements to conform to the new classification. As a result, we expect to reclassify payments (from operating activities to investing activities) of approximately $17 and $21 for fiscal 2017 and 2018, respectively. |

In addition, the FASB has issued the ASUs described below that we are not required to adopt until May 1, 2019 (although early adoption is permitted).

| • | ASU 2017-12: Targeted Improvements to Accounting for Hedging Activities. This new guidance is intended to better align hedge accounting with an entity’s risk management activities and improve disclosures about hedges. The guidance expands hedge accounting for financial and nonfinancial risk components, eliminates the requirement to separately measure and report hedge ineffectiveness, simplifies the way assessments of hedge effectiveness may be performed, and amends some presentation and disclosure requirements for hedges. It is to be applied using a modified retrospective transition approach for cash flow and net investment hedges existing at the date of adoption. The amended presentation and disclosure guidance is required only prospectively. We have not yet determined our plans for adoption, but are considering the possibility of adopting this new guidance before the required adoption date. |

| • | ASU 2018-02: Reclassification of Certain Effects from Accumulated Other Comprehensive Income. This new guidance would allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted by the U.S. government in December 2017. It is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We have not yet determined our plans for adoption, but are considering the possibility of adopting this new guidance before the required adoption date. |

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

| | $ | 342 | | | $ | 298 | |

| | 1,333 | | | | 1,436 | | |

| | $ | 713 | | | $ | 780 | |

| | 364 | | | | 427 | | |

| Impairment | — | | | | (2 | | ) |

| Balance as of April 30, 2018 | $ | 763 | | | $ | 670 | |

During fiscal 2018, we recorded a $2 impairment charge related to the write-off of the carrying amount of an immaterial discontinued brand name.

The Company acquired The BenRiach Distillery Company Limited (BenRiach) in a purchase business combination during fiscal 2017.

Based on SEC staff interpretive guidance for newly-acquired businesses, management excluded BenRiach from its assessment of our internal control over financial reporting as of April 30, 2017.

BenRiach is a wholly-owned subsidiary whose total assets and total net sales represented approximately 4% and 1% respectively, of the related consolidated financial statement amounts as of and for the year ended April 30, 2017.

In addition, in our opinion, the financial statement schedule listed in the index appearing under 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.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it presents excise taxes in fiscal year 2017.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded The BenRiach Distillery Company Limited (“BenRiach”) from its assessment of internal control over financial reporting as of April 30, 2017 because BenRiach was acquired by the Company in a purchase business combination during fiscal year 2017.

We have also excluded BenRiach from our audit of internal control over financial reporting.

BenRiach is a wholly-owned subsidiary whose total assets and total net sales represent 4% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended April 30, 2017.

June 14, 2017

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Basic | $ | 1.62 | | | $ | 2.63 | | | $ | 1.72 | |

| Diluted | $ | 1.60 | | | $ | 2.61 | | | $ | 1.71 | |

| Accounts receivable, less allowance for doubtful accounts of $9 in 2016 and $7 in 2017 | 559 | | | | 557 | | |

| Acquisition of brand names and trademarks | (4 | | ) | | — | | | | — | | |

| Balance at April 30, 2014 | $ | 13 | | | $ | 21 | | | $ | 81 | | | $ | 2,894 | | | $ | (188 | ) | | $ | (789 | ) | | $ | 2,032 | |

Some sales contracts contain customer acceptance provisions that grant a right of return on the basis of either subjective or objective criteria.

Excise taxes.

Effective beginning May 1, 2016, we changed our presentation of excise taxes from the gross method (included in sales and costs) to the net method (excluded from sales).

As a result, the amounts presented as “net sales” in our financial statements now exclude excise taxes.

We believe the change in presentation to the net method is preferable because it is more representative of the internal financial information reviewed by management in assessing our performance and more consistent with the presentation used by our major competitors in their external financial statements.

Prior period financial statements have been recast to conform to the new presentation.

During fiscal 2017, we adopted new guidance related to certain aspects of the accounting for stock-based compensation, including the income tax consequences.

Under the new guidance, we recognize all tax benefits related to stock-based compensation as an income tax benefit in our statement of operations, and include all income tax cash flows within operating activities in our statement of cash flows.

Under the previous accounting guidance, we recognized some of those tax benefits (excess tax benefits) as additional paid-in capital and classified that amount as a financing activity in our statement of cash flows.

We adopted these provisions of the new guidance on a prospective basis as of May 1, 2016.

As a result, our net income and operating cash flows for fiscal 2017 include excess tax benefits of $9.

Prior period financial statements have not been adjusted.

During fiscal 2017, we also adopted revised disclosure guidance related to investments measured at net asset value.

In May 2014, the Financial Accounting Standards Board (FASB) issued a new revenue recognition standard that, along with various amendments issued in 2015 and 2016, will replace substantially all existing revenue recognition guidance in U.S. GAAP.

The new standard also requires significantly more financial statement disclosures than existing revenue standards do.

The new standard can be adopted using either of two transition options: a full retrospective transition method or a modified retrospective method.

Under the full retrospective method, the guidance would be applied to each prior reporting period presented.

Under the modified retrospective method, the cumulative effect of initially applying the new guidance would be recorded as an adjustment to the opening balance of retained earnings for the annual reporting period that includes the date of initial application.

Based on our assessment to date, we currently expect our accounting for certain customer incentives to be the area most likely affected by the new recognition requirements.

We also expect to disclose additional information about revenues under the new standard.

As we progress in our assessment, we are also identifying and preparing to make any changes to our accounting policies and practices, systems, processes, and controls that may be required to implement the new standard.

We are also currently evaluating the potential impact on our financial statements of the additional new accounting pronouncements described below:

| • | In August 2016, the FASB issued new guidance on the classification of certain cash receipts and cash payments on the statement of cash flows. The new guidance, which addresses eight specific cash flow classification issues, is intended to reduce diversity in practice. It will become effective for us beginning fiscal 2019 and is to be applied retrospectively. |

Early application of any of the new accounting pronouncements described above is permitted.

Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) (our principal executive and principal financial officers), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of fiscal [removed: 2017.][added: 2018.]

Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures: (a) are effective to ensure that information required to be disclosed by the company in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; [removed: (b)] and [added: (b)] include controls and procedures designed to ensure that information required to be disclosed by the company in such reports is accumulated and communicated to the company’s management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the quarter ended April 30, [removed: 2017,] [added: 2018,] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s report on our internal control over financial reporting as of April 30, [removed: 2017,] [added: 2018,] and our independent registered public accounting firm’s report on our internal control over financial reporting are set forth in “Item 8.

The Company acquired The BenRiach Distillery Company Limited (BenRiach) in a purchase business combination during fiscal 2017.

Based on SEC staff interpretive guidance for newly-acquired businesses, management excluded BenRiach from its assessment of our internal control over financial reporting as of April 30, 2017.

BenRiach is a wholly-owned subsidiary whose total assets and total net sales represented approximately 4% and 1% respectively, of the related consolidated financial statement amounts as of and for the year ended April 30, 2017.

For the other information required by this item, see the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July [removed: 27, 2017,] [added: 26, 2018,] which information is incorporated into this report by reference: (a) “Election of Directors” (for biographical information on directors and family relationships); (b) “Code of Conduct” (for information on our Code of Ethics); (c) “Section 16(a) Beneficial Ownership Reporting Compliance” (for information on compliance with Section 16 of the Exchange Act); (d) [removed: “Corporate Governance and Nominating Committee”] [added: “Selection of Directors”] (for information on the procedures by which security holders may recommend nominees to the Company’s Board of Directors); and (e) “Corporate Governance” (for information on our Audit Committee).

For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July [removed: 27, 2017,] [added: 26, 2018,] which information is incorporated into this report by reference: (a) “Compensation Discussion and Analysis”; (b) “Compensation Tables”; (c) “Director Compensation”; [removed: and] (d) “Compensation Committee Interlocks and Insider [removed: Participation.”][added: Participation”; (e) “Compensation Committee Report”; and (f) “Pay Ratio Disclosure.”]

Market for the Registrant’s Common Equity, Related Stockholder [removed: Matters] [added: Matters,] and Issuer Purchases of Equity Securities.” For the other information required by this item, refer to the section entitled “Stock Ownership” of our definitive proxy statement for the Annual Meeting of Stockholders to be held July [removed: 27, 2017,] [added: 26, 2018,] which information is incorporated into this report by reference.

For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July [removed: 27, 2017,] [added: 26, 2018,] which information is incorporated into this report by reference: (a) “Certain Relationships and Related Transactions”; and (b) “Our Independent Directors.”

For the information required by this item, refer to the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July [removed: 27, 2017,] [added: 26, 2018,] which information is incorporated into this report by reference: (a) “Fees Paid to Independent Registered Public Accounting Firm”; and (b) “Audit Committee Pre-Approval Policies and Procedures.”

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