Item 1. Financial Statements (Unaudited)

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in millions, except per share amounts)

									Three Months Ended
									July 31,
															2021						2022
Sales															$	1,183					$	1,288
Excise taxes															277						281
Net sales															906						1,007
Cost of sales															353						385
Gross profit															553						622
Advertising expenses															90						110
Selling, general, and administrative expenses															168						175
Other expense (income), net															6						(6)
Operating income															289						343
Interest income															(1)						(2)
Interest expense															21						19
Income before income taxes															269						326
Income taxes															77						77
Net income															$	192					$	249
Earnings per share:
Basic															$	0.40					$	0.52
Diluted															$	0.40					$	0.52

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in millions)

									Three Months Ended
									July 31,
															2021						2022
Net income															$	192					$	249
Other comprehensive income (loss), net of tax:
Currency translation adjustments															(10)						(5)
Cash flow hedge adjustments															14						4
Postretirement benefits adjustments															4						2
Net other comprehensive income (loss)															8						1
Comprehensive income															$	200					$	250

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions, except per share amounts)

			April 30, 2022						July 31, 2022
Assets
Cash and cash equivalents			$	868					$	899
Accounts receivable, less allowance for doubtful accounts of $13 at April 30 and $5 at July 31			813						841
Inventories:
Barreled whiskey			1,155						1,175
Finished goods			312						351
Work in process			225						226
Raw materials and supplies			126						160
Total inventories			1,818						1,912
Other current assets			277						271
Total current assets			3,776						3,923
Property, plant and equipment, net			875						880
Goodwill			761						756
Other intangible assets			586						578
Deferred tax assets			74						81
Other assets			301						303
Total assets			$	6,373					$	6,521
Liabilities
Accounts payable and accrued expenses			$	703					$	644
Dividends payable			—						90
Accrued income taxes			81						126
Current portion of long-term debt			250						250
Total current liabilities			1,034						1,110
Long-term debt			2,019						1,998
Deferred tax liabilities			219						236
Accrued pension and other postretirement benefits			183						183
Other liabilities			181						187
Total liabilities			3,636						3,714
Commitments and contingencies
Stockholders’ Equity
Common stock:
Class A, voting, $0.15 par value (170,000,000 shares authorized; 170,000,000 shares issued)			25						25
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 314,532,000 shares issued)			47						47
Retained earnings			3,242						3,307
Accumulated other comprehensive income (loss), net of tax			(352)						(351)
Treasury stock, at cost (5,511,000 and 5,410,000 shares at April 30 and July 31, respectively)			(225)						(221)
Total stockholders’ equity			2,737						2,807
Total liabilities and stockholders’ equity			$	6,373					$	6,521

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)

			Three Months Ended
			July 31,
			2021						2022
Cash flows from operating activities:
Net income			$	192					$	249
Adjustments to reconcile net income to net cash provided by operations:
Asset impairment charges			6						—
Depreciation and amortization			19						20
Stock-based compensation expense			4						4
Deferred income tax provision			13						3
Other, net			4						11
Changes in assets and liabilities:
Accounts receivable			(55)						(31)
Inventories			(25)						(101)
Other current assets			16						10
Accounts payable and accrued expenses			(36)						(49)
Accrued income taxes			37						45
Other operating assets and liabilities			10						12
Cash provided by operating activities			185						173
Cash flows from investing activities:
Additions to property, plant, and equipment			(14)						(33)
Computer software expenditures			(1)						(1)
Cash used for investing activities			(15)						(34)
Cash flows from financing activities:
Net change in short-term borrowings, maturities of 90 days or less			(50)						—
Payments of withholding taxes related to stock-based awards			(5)						(4)
Dividends paid			(86)						(90)
Cash used for financing activities			(141)						(94)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			(7)						(14)
Net increase in cash, cash equivalents, and restricted cash			22						31
Cash, cash equivalents, and restricted cash at beginning of period			1,150						874
Cash, cash equivalents, and restricted cash at end of period			1,172						905
Less: Restricted cash (included in other current assets) at end of period			—						(6)
Cash and cash equivalents at end of period			$	1,172					$	899

See notes to the condensed consolidated financial statements.

BROWN-FORMAN CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1. Condensed Consolidated Financial Statements

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

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

2. Earnings Per Share

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

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

									Three Months Ended
									July 31,
(Dollars in millions, except per share amounts)															2021						2022
Net income available to common stockholders															$	192					$	249
Share data (in thousands):
Basic average common shares outstanding															478,793						479,079
Dilutive effect of stock-based awards															1,925						1,365
Diluted average common shares outstanding															480,718						480,444
Basic earnings per share															$	0.40					$	0.52
Diluted earnings per share															$	0.40					$	0.52

We excluded common stock-based awards for approximately 337,000 shares and 913,000 shares from the calculation of diluted earnings per share for the three months ended July 31, 2021 and 2022, respectively. We excluded those awards because they were not dilutive for those periods under the treasury stock method.

3. Inventories

We value some of our consolidated inventories, including most of our U.S. inventories, at the lower of cost, using the last-in, first-out (LIFO) method or market value. If the LIFO method had not been used, inventories at current cost would have been $385 million higher than reported as of April 30, 2022, and $399 million higher than reported as of July 31, 2022. Changes in the LIFO valuation reserve for interim periods are based on an allocation of the projected change for the entire fiscal year, recognized proportionately over the remainder of the fiscal year.

4. Goodwill and Other Intangible Assets

The following table shows the changes in goodwill (which includes no accumulated impairment losses) and other intangible assets during the three months ended July 31, 2022:

(Dollars in millions)			Goodwill						Other Intangible Assets
Balance at April 30, 2022			$	761					$	586
Foreign currency translation adjustment			(5)						(8)
Balance at July 31, 2022			$	756					$	578

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

5. Commitments and Contingencies

We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs seek substantial damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a reasonable estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not believe it is reasonably possible that these existing loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations, or liquidity. No material accrued loss contingencies were recorded as of July 31, 2022.

6. Debt

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

(Principal and carrying amounts in millions)			April 30, 2022						July 31, 2022
2.250% senior notes, $250 principal amount, due January 15, 2023			$	250					$	250
3.500% senior notes, $300 principal amount, due April 15, 2025			298						299
1.200% senior notes, €300 principal amount, due July 7, 2026			315						305
2.600% senior notes, £300 principal amount, due July 7, 2028			374						362
4.000% senior notes, $300 principal amount, due April 15, 2038			295						295
3.750% senior notes, $250 principal amount, due January 15, 2043			248						248
4.500% senior notes, $500 principal amount, due July 15, 2045			489						489
			2,269						2,248
Less current portion			250						250
			$	2,019					$	1,998

7. Stockholders’ Equity

The following table shows the changes in stockholders’ equity during the three months ended July 31, 2021:

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

The following table shows the changes in stockholders’ equity during the three months ended July 31, 2022:

(Dollars in millions)			Class A Common Stock						Class B Common Stock						Additional Paid-in Capital						Retained Earnings						AOCI						Treasury Stock						Total
Balance at April 30, 2022			$	25					$	47					$	—					$	3,242					$	(352)					$	(225)					$	2,737
Net income																					249																		249
Net other comprehensive income (loss)																											1												1
Declaration of cash dividends																					(180)																		(180)
Stock-based compensation expense															4																								4
Stock issued under compensation plans																																	4						4
Loss on issuance of treasury stock issued under compensation plans															(4)						(4)																		(8)
Balance at July 31, 2022			$	25					$	47					$	—					$	3,307					$	(351)					$	(221)					$	2,807

The following table shows the change in each component of accumulated other comprehensive income (AOCI), net of tax, during the three months ended July 31, 2022:

(Dollars in millions)			Currency Translation Adjustments						Cash Flow Hedge Adjustments						Postretirement Benefits Adjustments						Total AOCI
Balance at April 30, 2022			$	(239)					$	37					$	(150)					$	(352)
Net other comprehensive income (loss)			(5)						4						2						1
Balance at July 31, 2022			$	(244)					$	41					$	(148)					$	(351)

The following table shows the cash dividends declared per share on our Class A and Class B common stock during the three months ended July 31, 2022:

Declaration Date						Record Date						Payable Date						Amount per Share
May 26, 2022						June 8, 2022						July 1, 2022						$0.1885
July 28, 2022						September 6, 2022						October 3, 2022						$0.1885

8. Net Sales

The following table shows our net sales by geography:

									Three Months Ended
									July 31,
(Dollars in millions)															2021						2022
United States															$	450					$	482
Developed International1															269						294
Emerging2															150						176
Travel Retail3															21						38
Non-branded and bulk4															16						17
Total															$	906					$	1,007

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

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

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

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

The following table shows our net sales by product category:

									Three Months Ended
									July 31,
(Dollars in millions)															2021						2022
Whiskey1															$	616					$	707
Ready-to-Drink2															108						126
Tequila3															73						70
Wine4															53						46
Vodka5															25						23
Non-branded and bulk6															16						17
Rest of portfolio															15						18
Total															$	906					$	1,007

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

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

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

4Includes Korbel California Champagne and Sonoma-Cutrer wines.

5Includes Finlandia.

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

9. Pension Costs

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

									Three Months Ended
									July 31,
(Dollars in millions)															2021						2022
Service cost															$	7					$	5
Interest cost															5						8
Expected return on plan assets															(11)						(11)
Amortization of net actuarial loss															6						3
Net cost															$	7					$	5

10. Income Taxes

Our consolidated interim effective tax rate is based on our expected annual operating income, statutory tax rates, and income tax laws in the various jurisdictions where we operate. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the fiscal quarter in which the related event or a change in judgment occurs. The expected effective tax rate on ordinary income for the fiscal year is 24.2%, which is greater than the U.S. federal statutory rate of 21.0%, due to state taxes and effects of foreign operations, partially offset by the impact of the foreign-derived intangible income deduction.

The effective tax rate of 23.6% for the three months ended July 31, 2022, is lower than the expected tax rate of 24.2% on ordinary income for the full fiscal year, primarily due to (a) the reversal of a valuation allowance and (b) a prior fiscal year true-up, partially offset by the addition of a tax contingency. The effective tax rate of 23.6% for the three months ended July 31, 2022, was lower than the effective tax rate of 28.5% for the same period last year, primarily reflecting (a) a decrease in prior fiscal year true-ups, (b) decreased impact of foreign tax rate changes, and (c) the reversal of a valuation allowance in the current period.

11. Derivative Financial Instruments and Hedging Activities

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

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

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

We had outstanding currency derivatives, related primarily to our euro, British pound, and Australian dollar exposures, with notional amounts for all hedged currencies totaling $801 million at April 30, 2022, and $741 million at July 31, 2022. The maximum term of outstanding derivative contracts was 36 months at April 30, 2022 and 33 months at July 31, 2022.

We also use foreign currency-denominated debt instruments to help manage our foreign currency exchange rate risk. We designate a portion of those debt instruments as net investment hedges, which are intended to mitigate foreign currency exposure related to non-U.S. dollar net investments in certain foreign subsidiaries. Any change in value of the designated portion of the hedging instruments is recorded in AOCI, offsetting the foreign currency translation adjustment of the related net investments that is also recorded in AOCI. The amount of foreign currency-denominated debt instruments designated as net investment hedges was $636 million at April 30, 2022, and $617 million at July 31, 2022.

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

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

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

						Three Months Ended
						July 31,
(Dollars in millions)			Classification			2021						2022
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI			n/a			$	15					$	14
Net gain (loss) reclassified from AOCI into earnings			Sales			(3)						8
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings			Sales			$	2					$	5
Net gain (loss) recognized in earnings			Other income (expense), net			1						1
Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI			n/a			$	7					$	20
Total amounts presented in the accompanying condensed consolidated statements of operations for line items affected by the net gains (losses) shown above:
Sales						$	1,183					$	1,288
Other income (expense), net						(6)						6

We expect to reclassify $31 million of deferred net gains on cash flow hedges recorded in AOCI as of July 31, 2022, to earnings during the next 12 months. This reclassification would offset the anticipated earnings impact of the underlying hedged exposures. The actual amounts that we ultimately reclassify to earnings will depend on the exchange rates in effect when the underlying hedged transactions occur.

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

									April 30, 2022												July 31, 2022
(Dollars in millions)			Classification						Derivative Assets						Derivative Liabilities						Derivative Assets						Derivative Liabilities
Designated as cash flow hedges:
Currency derivatives			Other current assets						$	32					$	(3)					$	38					$	(3)
Currency derivatives			Other assets						20						(1)						22						—
Not designated as hedges:
Currency derivatives			Accrued expenses						—						(1)						—						—

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

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

Credit risk. We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of the contracts. To manage this risk, we contract only with major financial institutions that have investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association (ISDA)

agreements that allow for net settlement of the derivative contracts. Also, we have established counterparty credit guidelines that we monitor regularly, and we monetize contracts when we believe it is warranted. Because of these safeguards, we believe we have no derivative positions that warrant credit valuation adjustments.

Our derivative instruments require us to maintain a specific level of creditworthiness, which we have maintained. If our creditworthiness were to fall below that level, then the counterparties to our derivative instruments could request immediate payment or collateralization for derivative instruments in net liability positions. None of our derivatives with creditworthiness requirements were in a net liability position at April 30, 2022 and July 31, 2022.

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

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

(Dollars in millions)			Gross Amounts of Recognized Assets (Liabilities)						Gross Amounts Offset in Balance Sheet						Net Amounts Presented in Balance Sheet						Gross Amounts Not Offset in Balance Sheet						Net Amounts
April 30, 2022
Derivative assets			$	52					$	(4)					$	48					$	(1)					$	47
Derivative liabilities			(5)						4						(1)						1						—
July 31, 2022
Derivative assets			60						(3)						57						—						57
Derivative liabilities			(3)						3						—						—						—

No cash collateral was received or pledged related to our derivative contracts as of April 30, 2022, or July 31, 2022.

12. Fair Value Measurements

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

			April 30, 2022												July 31, 2022
			Carrying						Fair						Carrying						Fair
(Dollars in millions)			Amount						Value						Amount						Value
Assets
Cash and cash equivalents			$	868					$	868					$	899					$	899
Currency derivatives, net			48						48						57						57
Liabilities
Currency derivatives, net			1						1						—						—
Long-term debt (including current portion)			2,269						2,239						2,248						2,221

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

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

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

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

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

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

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

We measure some assets and liabilities at fair value on a nonrecurring basis. That is, we do not measure them at fair value on an ongoing basis, but we do adjust them to fair value in some circumstances (for example, when we determine that an asset is impaired). No material nonrecurring fair value measurements were required during the periods presented in these financial statements.

13. Other Comprehensive Income

The following table shows the components of net other comprehensive income (loss):

			Three Months Ended																		Three Months Ended
			July 31, 2021																		July 31, 2022
(Dollars in millions)			Pre-Tax						Tax						Net						Pre-Tax						Tax						Net
Currency translation adjustments:
Net gain (loss) on currency translation			$	(8)					$	(2)					$	(10)					$	(1)					$	(4)					$	(5)
Reclassification to earnings			—						—						—						—						—						—
Other comprehensive income (loss), net			(8)						(2)						(10)						(1)						(4)						(5)
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments			15						(3)						12						14						(4)						10
Reclassification to earnings1			3						(1)						2						(8)						2						(6)
Other comprehensive income (loss), net			18						(4)						14						6						(2)						4
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost			—						—						—						—						—						—
Reclassification to earnings2			6						(2)						4						3						(1)						2
Other comprehensive income (loss), net			6						(2)						4						3						(1)						2
Total other comprehensive income (loss), net			$	16					$	(8)					$	8					$	8					$	(7)					$	1

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

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