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

Introduction

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

Our MD&A is organized as follows:

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

Presentation Basis

Non-GAAP Financial Measures

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

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

• “Acquisitions and divestitures.” This adjustment removes (a) the gain or loss recognized on sale of divested brands, (b) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction, transition, and integration costs), and (c) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). Excluding non-comparable periods allows us to include the effects of acquired and divested brands only to the extent that results are comparable year over year.

In fiscal 2020, we acquired The 86 Company, which owns Fords Gin. During fiscal 2021, we sold our Early Times, Canadian Mist, and Collingwood brands and related assets, which resulted in a pre-tax gain of $127 million, and entered into a related transition services agreement (TSA) for these brands.

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

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

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

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

• “Estimated net change in distributor inventories.” This adjustment refers to the estimated net effect of changes in distributor inventories on changes in certain line items of the statements of operations. For each period compared, we use volume information from our distributors to estimate the effect of distributor inventory changes in certain line items of the statements of operations. We believe that this adjustment reduces the effect of varying levels of distributor inventories on changes in certain line items of the statements of operations and allows us to understand better our underlying results and trends.

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

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

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

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

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

Definitions

Aggregations.

From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the International Monetary Fund (IMF), and we aggregate brands by beverage alcohol category. Below, we define the geographic and brand aggregations used in this report.

Geographic Aggregations.

In “Results of Operations - Fiscal 2021 Market Highlights,” we provide supplemental information for our largest markets ranked by percentage of total fiscal 2021 net sales. In addition to markets listed by country name, we include the following aggregations:

•**“Developed International” markets are “advanced economies” as defined by the IMF, excluding the United States. Our largest developed international markets are Australia, Germany, the United Kingdom, France, and Canada. This aggregation represents our net sales of branded products to these markets.

• “Emerging” markets are “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico, Poland, Brazil, and Russia. This aggregation represents our net sales of branded products to these markets.

•**“Travel Retail” represents our net sales of branded products to global duty-free customers, other travel retail customers, and the U.S. military, regardless of customer location.

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

Brand Aggregations.

In “Results of Operations - Fiscal 2021 Brand Highlights,” we provide supplemental information for our largest brands ranked by percentage of total fiscal 2021 net sales. In addition to brands listed by name, we include the following aggregations:

•**“Whiskey” includes all whiskey spirits and whiskey-based flavored liqueurs, ready-to-drink (RTD), and ready-to-pour products (RTP). The brands included in this category are the Jack Daniel's family of brands, the Woodford Reserve family of brands (Woodford Reserve), the Old Forester family of brands (Old Forester), GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and Coopers' Craft. Also includes the Early Times, Canadian Mist, and Collingwood brands, which we divested during the first quarter of fiscal 2021. See Note 12 to the Condensed Consolidated Financial Statements for details.

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

▪“Jack Daniel's family of brands” includes Jack Daniel's Tennessee Whiskey (JDTW), Jack Daniel's RTD and RTP products (JD RTD/RTP), Jack Daniel's Tennessee Honey (JDTH), Gentleman Jack, Jack Daniel's Tennessee Fire (JDTF), Jack Daniel's Tennessee Apple (JDTA), Jack Daniel's Single Barrel Collection (JDSB), Jack Daniel's Tennessee Rye Whiskey (JDTR), Jack Daniel's No. 27 Gold Tennessee Whiskey, Jack Daniel's Sinatra Select, and Jack Daniel's Bottled-in-Bond.

• “Jack Daniel's RTD and RTP” products include all RTD line extensions of Jack Daniel's, such as Jack Daniel's & Cola, Jack Daniel's Country Cocktails, Jack Daniel's & Diet Cola, Jack & Ginger, Jack Daniel's Double Jack, Gentleman Jack & Cola, Jack Daniel's American Serve, Jack Daniel's Tennessee Honey RTD, Jack Daniel's Berry, Jack Daniel's Lynchburg Lemonade, Jack Daniel's Whiskey & Seltzer, and the seasonal Jack Daniel's Winter Jack RTP.

▪“Premium bourbons” includes Woodford Reserve, Old Forester, and Coopers' Craft.

▪“Super-premium American whiskey” includes Woodford Reserve, Gentleman Jack, JDSB, JDTR, Jack Daniel's No. 27 Gold Tennessee Whiskey, and Jack Daniel's Sinatra Select.

•**“Tequila” includes the Herradura family of brands (Herradura), el Jimador, New Mix, Pepe Lopez, and Antiguo.

•**“Wine” includes Korbel Champagnes and Sonoma-Cutrer wines.

• “Vodka” includes Finlandia.

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

Other Metrics.

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

either (a) our shipments directly to retail or wholesale customers for owned distribution markets or (b) shipments from our distributor customers to retailers and wholesalers in other markets. We believe that depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do. In this document, unless otherwise specified, we refer to depletions when discussing volume.

• “Consumer takeaway.” When discussing trends in the market, we refer to consumer takeaway, a term commonly used in the beverage alcohol industry that refers to the purchase of product by consumers from retail outlets, including products purchased through e-premise channels, as measured by volume or retail sales value. This information is provided by third parties, such as Nielsen and the National Alcohol Beverage Control Association (NABCA). Our estimates of market share or changes in market share are derived from consumer takeaway data using the retail sales value metric. We believe consumer takeaway is a leading indicator of how consumer demand is trending.

Significant Developments

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

COVID-19

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

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

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

Innovation

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

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

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

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

◦We introduced Woodford Reserve Straight Wheat in fiscal 2020.

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

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

Acquisitions and Divestitures

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

Capital Deployment

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

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

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

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

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

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

Executive Summary

Fiscal 2021 Highlights

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

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

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

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

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

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

Summary of Operating Performance Fiscal 2020 and Fiscal 2021

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

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

2Operating expenses include advertising expense, SG&A expense, and other expense (income), net.

3Year-over-year changes in percentages are reported in percentage points (pp).

Fiscal 2022 Outlook

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

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

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

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

Outlook for Key Measures:

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

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

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

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

Results of Operations

Fiscal 2021 Market Highlights

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fiscal 2021 Brand Highlights

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

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

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

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

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

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

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

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

1IWSR, 2020.
2Based on industry statistics published by Impact Databank, a well-known U.S. trade publication, in March 2021

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

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

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

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

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

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

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

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

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

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

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

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

1Impact Databank published the Impact's “Hot Brands - Spirits” list in March 2021.
2IWSR, 2020.

Year-Over-Year Comparisons

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

Sources of Liquidity

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

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

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

expect to reinvest indefinitely outside of the United States. We continue to evaluate our future cash deployment and may decide to repatriate additional cash held by our foreign subsidiaries, which may require us to provide for and pay additional taxes.

We have an $800 million commercial paper program that we regularly use to fund our short-term operational needs. Please see Note 6 to the Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2020 and April 30, 2021. The average balances, interest rates, and original maturities during the periods ended April 30, 2020 and 2021, are presented below.

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

Our commercial paper program is supported by available commitments under our undrawn $800 million bank credit facility that expires in November 2023. Although unlikely, under extreme market conditions, one or more participating banks may not be able to fund its commitments under our credit facility. To manage this counterparty credit risk, we partner with banks that have investment grade credit ratings, limit the amount of exposure we have with each bank, and monitor the financial conditions of each bank.

While we expect to meet our short-term liquidity needs largely through cash generated from operations and borrowings under our commercial paper program, a sustained market deterioration resulting in declines in net sales and profit could require us to evaluate alternative sources of liquidity. Should we have additional liquidity needs, we believe that we could access long-term financing in the debt capital markets.

We believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our ample debt capacity enabled by our strong short-term and long-term credit ratings, will be sufficient to meet all of our future financial commitments.

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

Off-Balance Sheet Arrangements

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

Long-Term Obligations

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

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

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

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

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

Critical Accounting Policies and Estimates

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

Goodwill and Other Intangible Assets

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

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

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

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

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

Pension and Other Postretirement Benefits

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

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

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

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

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

Income Taxes

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

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