Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with both our unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 (2022 Form 10-K). Note that the results of operations for the six months ended October 31, 2022, are not necessarily indicative of future or annual results. In this Item, “we,” “us,” “our,” “Brown-Forman,” and the “Company” refer to Brown-Forman Corporation and its consolidated subsidiaries, collectively.

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.

“Organic 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 “organic” basis. We use “organic change” for the following measures: (a) organic net sales; (b) organic cost of sales; (c) organic gross profit; (d) organic advertising expenses; (e) organic selling, general, and administrative (SG&A) expenses; (f) organic other expense (income) net; (g) organic operating expenses1; and (h) organic operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, and (3) impairment charges. 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.

During fiscal 2021, we sold our Early Times, Canadian Mist, and Collingwood brands and related assets, and entered into a related transition services agreement (TSA) for these brands. This adjustment removes the net sales and operating expenses recognized pursuant to the TSA for the non-comparable period, which is activity during the first quarter of fiscal 2022. We believe this adjustment allows for us to better understand our organic 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 organic 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.

• “Impairment charges.” This adjustment removes the impact of impairment charges from our results of operations. During the first half of fiscal 2022, we recognized non-cash impairment charges of $9 million for certain fixed assets. We believe that this adjustment allows for us to better understand our organic results on a comparable basis.

We use the non-GAAP measure “organic change,” along with other metrics, 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 “organic change” in certain line items of the statements of operations to their nearest GAAP measures in the tables under “Results of Operations - Fiscal 2023 Year-to-Date Highlights” and “Results of Operations - Year-Over-Year Period Comparisons.” We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure. We believe these non-GAAP measures are useful to readers and investors because they enhance the understanding of our historical financial performance and comparability between periods.

As of the third quarter ended January 31, 2022, we changed certain non-GAAP financial measures that we have historically used. We no longer report “underlying changes” in certain measures of the statements of operations; instead, we now report “organic change” for certain measures of the statements of operations. “Organic change” includes all of the non-GAAP

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

adjustments that we have historically made in adjusting GAAP to “underlying change” results, except that “organic change” does not include an adjustment for “estimated net change in distributor inventories,” which reflected the estimated net effect of changes in distributor inventories on changes in certain line items of the statements of operations. This change to our non-GAAP financial measures was in response to comments from and discussions with the Staff of the Securities and Exchange Commission.

Although we no longer provide non-GAAP financial measures that adjust for “estimated net change in distributor inventories,” we still believe that our results are affected by changes in distributor inventories, particularly in our largest market, the United States, where the spirits industry is subject to regulations that essentially mandate a so-called “three-tier system,” with a value chain that includes suppliers, distributors and retailers. Accordingly, we continue to provide information concerning fluctuations in distributor inventories. We believe such information is useful in understanding our performance and trends as it provides relevant information regarding customers’ demand for our products.

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 2023 Year-to-Date Highlights,” we provide supplemental information for our largest markets ranked by percentage of total fiscal 2022 reported net sales. Due to our decision to suspend commercial operations in Russia, it is no longer considered one of our largest markets. In addition to markets that are 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 Germany, Australia, the United Kingdom, France, and Canada. This aggregation represents our net sales of branded products in these markets.

• “Emerging” markets are “emerging and developing economies” as defined by the IMF. Our largest emerging markets are Mexico, Poland, Brazil, and Chile. This aggregation represents our net sales of branded products in 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, contract bottling, and bulk whiskey and wine, regardless of customer location.

Brand Aggregations.

In “Results of Operations - Fiscal 2023 Year-to-Date Highlights,” we provide supplemental information for our largest brands ranked by percentage of total fiscal 2022 reported net sales. In addition to brands that are listed by name, we include the following aggregations outlined below.

Beginning in fiscal 2023, we began presenting “Ready-to-Drink” products as a separate aggregation due to its more significant contribution to our growth in recent years and industry-wide category growth trends. “Whiskey” no longer contains Jack Daniel’s ready-to-drink (RTD) and ready-to-pour (RTP), and “Tequila” no longer includes New Mix. These brands are now included in the “Ready-to-Drink” brand aggregation.

•**“Whiskey” includes 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 defined below), 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.

•**“American whiskey” includes the Jack Daniel’s family of brands (excluding the “Ready-to-Drink” products defined below) and premium bourbons (defined below).

• “Premium bourbons” includes Woodford Reserve, Old Forester, and Coopers’ Craft.

•**“Super-premium American whiskey” includes Woodford Reserve, Gentleman Jack, and other super-premium Jack Daniel's expressions.

•**“Ready-to-Drink” includes all ready-to-drink (RTD) and ready-to-pour (RTP) products. The brands included in this category are Jack Daniel’s RTD and RTP products (JD RTD/RTP), New Mix, and other RTD/RTP products.

•**“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 Double Jack, and other malt- and spirit-based Jack Daniel’s RTDs along with Jack Daniel’s Winter Jack RTP.

•**“Tequila” includes the Herradura family of brands (Herradura), el Jimador, and other tequilas.

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

• “Vodka” includes Finlandia.

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

• “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 Sinatra Select, Jack Daniel’s Bonded, Jack Daniel’s No. 27 Gold Tennessee Whiskey, Jack Daniel’s Bottled-in-Bond, Jack Daniel’s 10 Years Old, and Jack Daniel’s Triple Mash.

Other Metrics.

•**“Shipments.” We generally record revenues when we ship or deliver our products to our customers. In this document, unless otherwise specified, we refer to shipments when discussing volume.

•**“Depletions.” This 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.

• “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.

• “Estimated net change in distributor inventories.” We generally recognize revenue when our products are shipped or delivered to customers. In the United States and certain other markets, our customers are distributors that sell downstream to retailers and consumers. We believe that our distributors’ downstream sales more closely reflect actual consumer demand than do our shipments to distributors. Our shipments increase distributors’ inventories, while distributors’ depletions (as described above) reduce their inventories. Therefore, it is possible that our shipments do not coincide with distributors’ downstream depletions and merely reflect changes in distributors’ inventories. Because changes in distributors’ inventories could affect our trends, we believe it is useful for investors to understand those changes in the context of our operating results.

We perform the following calculation to determine the “estimated net change in distributor inventories”:

• For both the current-year period and the comparable prior-year period, we calculate a “depletion-based” amount by (a) dividing the organic dollar amount (e.g. organic net sales) by the corresponding shipment volumes to arrive at a shipment per case amount, and (b) multiplying the resulting shipment per case amount by the corresponding depletion volumes. We subtract the year-over-year percentage change of the “depletion-based” amount from the year-over-year percentage change of the organic amount to calculate the “estimated net change in distributor inventories.”

• A positive difference is interpreted as a net increase in distributors’ inventories, which implies that organic trends could decrease as distributors’ reduce inventories; whereas, a negative difference is interpreted as a net decrease in distributors’ inventories, which implies that organic trends could increase as distributors rebuild inventories.

Important Information on Forward-Looking Statements:

This report contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “aim,” “anticipate,” “aspire,” “believe,” “can,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” “would,” and similar words indicate forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and uncertainties include, but are not limited to:

• Our substantial dependence upon the continued growth of the Jack Daniel’s family of brands

• Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks

• Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs

• Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers

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

• Production facility, aging warehouse, or supply chain disruption

• Imprecision in supply/demand forecasting

• Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor

• Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the risk of the resulting negative economic impacts and related governmental actions

• Unfavorable global or regional economic conditions, particularly related to the COVID-19 pandemic, and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations

• Product recalls or other product liability claims, product tampering, contamination, or quality issues

• Negative publicity related to our company, products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, business performance, or prospects

• Failure to attract or retain key executive or employee talent

• Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value

• Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including new retaliatory tariffs on American whiskeys and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and distributors; compliance with local trade practices and other regulations; terrorism; and health pandemics

• Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations

• Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar

• Changes in laws, regulatory measures, or governmental policies – especially those that affect the production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products

• Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur

• Decline in the social acceptability of beverage alcohol in significant markets

• Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products

• Counterfeiting and inadequate protection of our intellectual property rights

• Significant legal disputes and proceedings, or government investigations

• Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws

• Our status as a family “controlled company” under New York Stock Exchange rules, and our dual-class share structure

For further information on these and other risks, please see the risks and uncertainties described in Part I, Item 1A. Risk Factors of our 2022 Form 10-K and those described from time to time in our future reports filed with the Securities and Exchange Commission (SEC).

Overview

For the six months ended October 31, 2022, we experienced strong, broad-based reported net sales growth driven by gains across all geographic clusters and the Travel Retail channel reflecting the strength of our portfolio of brands, strong consumer demand, and the continued rebuilding of distributor inventories. The rebuilding of distributor inventories reflects the easing of supply chain constraints during the first half of fiscal 2023 compared to last year. Foreign exchange fluctuations negatively affected our results reflecting the strengthening of the dollar primarily against the euro, Turkish lira, and pound sterling.

Supply chain disruptions continued to affect our business during the first half of fiscal 2023. Our glass supply position improved while overall supply chain logistics and transportation challenges constrained product movement and increased transportation costs. We further discuss the effect of supply chain disruptions on our results where relevant below.

The removal of the European Union and United Kingdom tariffs on American whiskey positively affected our results during the first half of fiscal 2023. Tariffs include the combined effect of tariff-related costs, whether arising as a reduction of reported net sales or as an increase in reported cost of sales. We estimate that lower costs associated with tariffs (a) increased reported net sales growth by approximately half a percentage point, (b) reduced our reported cost of sales growth by approximately four percentage points, and (c) increased gross margin by approximately one and a half percentage points. We further discuss the estimated effect of the removal of the European Union and United Kingdom tariffs on American whiskey on our results where relevant below.

Due to Russia’s invasion of Ukraine in February 2022, reported net sales were negatively affected by the suspension of our commercial operations in Russia and our diminished ability to conduct business in Ukraine. We further discuss the effect of Russia’s invasion of Ukraine where relevant below.

Fiscal 2023 Year-to-Date Highlights

• We delivered reported net sales of $2.1 billion, for the six months ended October 31, 2022, an increase of 11% compared to the same period last year. The increase was driven by higher volumes and favorable price/mix, partially offset by the negative effect of foreign exchange. An estimated net increase in distributor inventories positively impacted reported net sales.

*◦*From a brand perspective, reported net sales growth was driven by JDTW, premium bourbons, and Ready-to-Drinks.

◦From a geographic perspective, the United States, emerging markets, the Travel Retail channel, and developed international markets all contributed significantly to reported net sales growth.

• We delivered reported operating income of $656 million for the six months ended October 31, 2022, an increase of 8% compared to the same period last year. We delivered diluted earnings per share of $0.99, an increase of 11% from the $0.89 reported for the same period last year, driven by the increase in reported operating income and the benefit of a lower effective tax rate.

Summary of Operating Performance
			Three Months Ended October 31,																											Six Months Ended October 31,
(Dollars in millions)			2021						2022									Reported Change						Organic Change****1									2021						2022									Reported Change						Organic Change****1
Net sales			$	994					$	1,094								10		%				16		%							$	1,900					$	2,101								11		%				17		%
Cost of sales			404						481									19		%				21		%							757						866									14		%				17		%
Gross profit			590						613									4		%				13		%							1,143						1,235									8		%				17		%
Advertising			104						121									16		%				22		%							194						231									19		%				25		%
SG&A			165						180									9		%				15		%							333						355									7		%				11		%
Other expense (income), net			(1)						(1)									nm						nm									5						(7)									nm						nm
Operating income			322						313									(2		%)				8		%							611						656									8		%				19		%
Total operating expenses**2			$	268					$	300								12		%				18		%							$	532					$	579								9		%				13		%
As a percentage of net sales**3
Gross profit			59.3		%				56.0		%							(3.3)		pp													60.1		%				58.8		%							(1.3)		pp
Operating income			32.3		%				28.7		%							(3.6)		pp													32.1		%				31.2		%							(0.9)		pp
Interest expense, net			$	19					$	15								(18		%)													$	39					$	32								(18		%)
Effective tax rate			21.6		%				23.7		%							2.1		pp													24.9		%				23.7		%							(1.2)		pp
Diluted earnings per share			$	0.49					$	0.47								(4		%)													$	0.89					$	0.99								11		%
Note: Totals may differ due to rounding

1See “Non-GAAP Financial Measures” above for details on our use of “organic change,” including how we calculate these measures and why we believe 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).

Results of Operations – Fiscal 2022 Year-to-Date Highlights

Market Highlights

The following table provides supplemental information for our largest markets. We discuss results of the markets most affecting our performance below the table. Unless otherwise indicated, all related commentary is for the six months ended October 31, 2022 compared to the same period last year.

Top Markets****1
Six months ended October 31, 2022			Net Sales % Change vs. 2022
Geographic area****2			Reported			Acquisitions and Divestitures						Foreign Exchange						Organic****3
United States			11		%	—		%				—		%				11		%
Developed International			3		%	—		%				11		%				14		%
Germany			1		%	—		%				13		%				14		%
Australia			3		%	—		%				6		%				9		%
United Kingdom			(8		%)	—		%				10		%				2		%
France			(18		%)	—		%				10		%				(8		%)
Canada			33		%	—		%				6		%				39		%
Rest of Developed International			20		%	—		%				17		%				37		%
Emerging			14		%	—		%				13		%				27		%
Mexico			23		%	—		%				(2		%)				21		%
Poland			7		%	—		%				20		%				27		%
Brazil			44		%	—		%				2		%				45		%
Chile			(17		%)	—		%				—		%				(17		%)
Rest of Emerging			8		%	—		%				23		%				30		%
Travel Retail			60		%	—		%				7		%				67		%
Non-branded and bulk			16		%	11		%				3		%				30		%
Total			11		%	—		%				6		%				17		%
Note: Results may differ due to rounding

1“Top Markets” are ranked based on percentage of total fiscal 2022 reported net sales (see 2022 Form 10-K “Results of Operations - Fiscal 2022 Market Highlights” and Note 8 to the Condensed Consolidated Financial Statements). Due to our decision to suspend commercial operations in Russia, it is no longer considered a “Top Market.” Russia’s year-to-date results are included in our “Emerging” and “Total” results.

2See “Definitions” above for definitions of market aggregations presented here.

3See “Non-GAAP Financial Measures” above for details on our use of “organic change” in net sales, including how we calculate this measure and why we believe this information is useful to readers.

The United States grew reported net sales 11% driven by higher volumes and favorable mix, reflecting an estimated net increase in distributor inventories, and higher prices across our portfolio. Volume growth was driven by Woodford Reserve and JDTW, partially offset by declines for Korbel California Champagne.

Developed International

• Germany’s** reported net sales increased 1% led by volumetric gains of JDTW and JD RTDs, largely offset by the negative effect of foreign exchange.

• Australia’s** reported net sales increased 3% driven by higher volumes and prices of JD RTDs, partially offset by the negative effect of foreign exchange.

• United Kingdom’s** reported net sales declined 8% driven by the negative effect of foreign exchange, partially offset by higher prices for JDTW.

• France’s** reported net sales declined 18% due to the negative effect of foreign exchange along with lower volumes of JDTW and JDTH, reflecting whiskey category declines and a reduction of promotions.

*•*Canada’s reported net sales increased 33% led by higher JDTW volumes. An estimated net increase in distributor inventories positively impacted reported net sales.

*•*Reported net sales in the Rest of Developed International increased 20% fueled by JDTW gains, led by Spain and Korea, partially offset by the negative effect of foreign exchange. An estimated net increase in distributor inventories positively impacted reported net sales.

Emerging

• Mexico’s reported net sales increased 23% driven by higher volumes and prices of New Mix, which gained market share in the RTD category.

• Poland’s** reported net sales increased 7% led by higher volumes of JDTW, partially offset by the negative effect of foreign exchange.

*•*Brazil’s reported net sales increased 44% fueled by higher volumes of JDTW, partially due to an estimated net increase in distributor inventories.

• Chile’s reported net sales declined 17% largely reflecting a net decrease in distributor inventories for the Jack Daniel’s family of brands.

• Reported net sales in the Rest of Emerging increased 8% led by JDTW growth in Turkey, Sub-Saharan Africa, the United Arab Emirates, and India, largely offset by declines in Russia and the negative effect of foreign exchange (reflecting the strengthening of the dollar primarily against the Turkish lira). An estimated net increase in distributor inventories positively impacted reported net sales.

Travel Retail’s reported net sales increased 60% driven primarily by higher volumes across much of our portfolio as travel continued to rebound from the COVID-19-related travel restrictions. An estimated net increase in distributor inventories positively impacted reported net sales.

Non-branded and bulk reported net sales increased 16% driven by higher prices for used barrels.

Brand Highlights

The following table provides supplemental information for our largest brands. We discuss results of the brands most affecting our performance below the table. Unless otherwise indicated, all related commentary is for the six months ended October 31, 2022 compared to the same period last year.

Major Brands
Six months ended October 31, 2022									Net Sales % Change vs 2022
Product category / brand family / brand****1									Reported			Acquisitions and Divestitures			Foreign Exchange						Organic****2
Whiskey									13		%	—		%	7		%				20		%
JDTW									9		%	—		%	8		%				18		%
JDTH									6		%	—		%	6		%				12		%
Gentleman Jack									14		%	—		%	7		%				21		%
JDTF									23		%	—		%	5		%				28		%
JDTA									(16		%)	—		%	6		%				(10		%)
Woodford Reserve									39		%	—		%	1		%				40		%
Old Forester									39		%	—		%	—		%				39		%
Rest of Whiskey									19		%	1		%	8		%				27		%
Ready-to-Drink									14		%	—		%	6		%				20		%
JD RTD/RTP									9		%	—		%	7		%				15		%
New Mix									48		%	—		%	(2		%)				46		%
Tequila									10		%	—		%	1		%				11		%
Herradura									9		%	—		%	—		%				9		%
el Jimador									16		%	—		%	2		%				18		%
Wine									(9		%)	—		%	—		%				(9		%)
Vodka (Finlandia)									(17		%)	—		%	12		%				(4		%)
Rest of Portfolio									1		%	—		%	6		%				8		%
Non-branded and bulk									16		%	11		%	3		%				30		%
Note: Results may differ due to rounding

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

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

Whiskey

• Reported net sales for JDTW increased 9% driven by growth across all geographic clusters and the Travel Retail channel reflecting (a) higher volumes, due in part to an estimated net increase in distributor inventories; and (b) higher prices. This growth was partially offset by the negative effect of foreign exchange.

• Reported net sales for JDTH increased 6% driven by volumetric growth in the United States reflecting an estimated net increase in distributor inventories, partially offset by the negative effect of foreign exchange.

• Reported net sales for Gentleman Jack increased 14% led by higher volumes in the United States and the Travel Retail channel, reflecting an estimated net increase in distributor inventories, partially offset by the negative effect of foreign exchange.

• JDTF grew reported net sales 23% driven by higher volumes in the United States, partially due to an estimated net increase in distributor inventories. This growth was partially offset by the negative effect of foreign exchange.

• JDTA reported net sales declined 16% due to (a) lower volumes in the United States, partially driven by an estimated net decrease in distributor inventories; (b) the negative effect of foreign exchange; and (c) lower volumes in the United Kingdom.

• Woodford Reserve reported net sales increased 39% driven by higher volumes, partially due to an estimated net increase in distributor inventories, and higher prices in the United States.

• Old Forester reported net sales increased 39% driven by higher volumes in the United States, largely due to an estimated net increase in distributor inventories.

• Reported net sales for Rest of Whiskey increased 19% led by the launch of Jack Daniel’s Bonded and Jack Daniel’s Triple Mash in the United States.

Ready-to-Drink

• The JD RTD/RTP brands reported net sales grew 9% led by growth in Australia and Germany, partially offset by the negative effect of foreign exchange.

• New Mix** grew reported net sales 48% fueled by higher volumes and prices in Mexico with market share gains.

Tequila

• Herradura reported net sales increased 9% driven by volumetric growth in the United States. An estimated net increase in distributor inventories positively impacted reported net sales.

• el Jimador** reported net sales increased 16% led by higher volumes in the United States.

Wine reported net sales declined 9% due to lower volumes of Korbel California Champagne, partially offset by higher volumes of Sonoma-Cutrer and higher prices of Korbel California Champagne in the United States. An estimated net decrease in distributor inventories negatively impacted reported net sales.

Vodka (Finlandia) reported net sales declined 17% reflecting the impact of the suspension of our commercial operations in Russia and the negative effect of foreign exchange. These declines were partially offset by broad-based growth across other international markets.

Non-branded and bulk reported net sales increased 16% driven by higher prices for used barrels.

Year-Over-Year Period Comparisons

Net Sales
			3 Months															6 Months
Percentage change versus the prior year period ended October 31			Volume			Price/mix			Total									Volume			Price/mix			Total
Change in reported net sales			14		%	(4		%)	10		%							13		%	(3		%)	11		%
Acquisitions and divestitures			—		%	—		%	—		%							—		%	—		%	—		%
Foreign exchange			—		%	6		%	6		%							—		%	6		%	6		%
Change in organic net sales			14		%	2		%	16		%							13		%	3		%	17		%
Note: Results may differ due to rounding

For the three months ended October 31, 2022, reported net sales were $1.1 billion, an increase of $100 million, or 10%, compared to the same period last year largely driven by higher volumes of New Mix, JDTW, and JD RTDs. Price/mix reflects the negative effect of foreign exchange, partially offset by higher prices across much of our portfolio led by JDTW. Reported net sales were positively impacted by an estimated net increase in distributor inventories.

For the six months ended October 31, 2022, reported net sales were $2.1 billion, an increase of $201 million, or 11%, compared to the same period last year largely driven by higher volumes of New Mix, JDTW, and JD RTDs. Price/mix reflects the negative effect of foreign exchange, partially offset by higher prices across much of our portfolio led by JDTW. Reported net sales were positively impacted by an estimated net increase in distributor inventories. See “Results of Operations - Fiscal 2023 Year-to-Date Highlights” above for further details on net sales for the six months ended October 31, 2022.

Cost of Sales
			3 Months															6 Months
Percentage change versus the prior year period ended October 31			Volume			Cost/mix			Total									Volume			Cost/mix			Total
Change in reported cost of sales			14		%	5		%	19		%							13		%	1		%	14		%
Acquisitions and divestitures			—		%	—		%	—		%							—		%	1		%	1		%
Foreign exchange			—		%	2		%	2		%							—		%	2		%	2		%
Change in organic cost of sales			14		%	7		%	21		%							13		%	4		%	17		%
Note: Results may differ due to rounding

For the three months ended October 31, 2022, reported cost of sales were $481 million, an increase of $77 million, or 19%, compared to the same period last year largely driven by higher volumes of New Mix, JDTW, and JD RTDs. Cost/mix reflects higher costs related to inflation on our input costs and supply chain disruptions. These factors were partially offset by (a) the removal of the European Union and United Kingdom tariffs on American whiskey, (b) a shift in portfolio mix toward our lower-cost brands, and (c) the positive effect of foreign exchange. An estimated net increase in distributor inventories negatively impacted reported cost of sales.

For the six months ended October 31, 2022, reported cost of sales were $866 million, an increase of $109 million, or 14%, compared to the same period last year largely driven by higher volumes of New Mix, JDTW, and JD RTDs. Cost/mix reflects higher costs related to inflation on our input costs and supply chain disruptions. These factors were largely offset by (a) a shift in portfolio mix toward our lower-cost brands, (b) the removal of the European Union and United Kingdom tariffs on American whiskey and (c) the positive effect of foreign exchange. An estimated net increase in distributor inventories negatively impacted reported cost of sales.

Gross Profit
Percentage change versus the prior year period ended October 31			3 Months						6 Months
Change in reported gross profit			4		%				8		%
Acquisitions and divestitures			—		%				—		%
Foreign exchange			9		%				9		%
Change in organic gross profit			13		%				17		%
Note: Results may differ due to rounding

Gross Margin
For the period ended October 31			3 Months						6 Months
Prior year gross margin			59.3		%				60.1		%
Price/mix			2.4		%				2.4		%
Cost (excluding tariffs)			(5.6)		%				(3.8)		%
Acquisitions and divestitures			0.1		%				0.1		%
Tariffs1			1.4		%				1.4		%
Foreign exchange			(1.6		%)				(1.4		%)
Change in gross margin			(3.3		%)				(1.3		%)
Current year gross margin			56.0		%				58.8		%
Note: Results may differ due to rounding			—						—
1“Tariffs” include the combined effect of tariff-related costs, whether arising as a reduction of reported net sales or as an increase in reported cost of sales.

For the three months ended October 31, 2022, reported gross profit of $613 million increased $23 million, or 4%, compared to the same period last year. Gross margin decreased 3.3 percentage points to 56.0% from 59.3% in the same period last year. The decrease in gross margin was driven by (a) higher costs due to the impact of inflation on our input costs, (b) higher cost related to supply chain disruptions, and (c) the negative effect of foreign exchange, partially offset by favorable price/mix and the removal of the European Union and United Kingdom tariffs on American whiskey.

For the six months ended October 31, 2022, reported gross profit of $1.2 billion increased $93 million, or 8%, compared to the same period last year. Gross margin decreased 1.3 percentage points to 58.8% from 60.1% in the same period last year. The decrease in gross margin was driven by (a) higher costs due to the impact of inflation on our input costs, (b) higher cost related to supply chain disruptions, and (c) the negative effect of foreign exchange, partially offset by favorable price/mix and the removal of the European Union and United Kingdom tariffs on American whiskey.

Operating Expenses
Percentage change versus the prior year period ended October 31
3 Months			Reported			Acquisitions and Divestitures						Impairment Charges			Foreign Exchange												Organic
Advertising			16		%	—		%				—		%	7		%										22		%
SG&A			9		%	—		%				—		%	6		%										15		%
Total operating expenses****1			12		%	1		%				1		%	5		%										18		%
6 Months
Advertising			19		%	—		%				—		%	6		%										25		%
SG&A			7		%	—		%				—		%	5		%										11		%
Total operating expenses****1			9		%	—		%				2		%	2		%										13		%
Note: Results may differ due to rounding
1Total operating expenses include advertising expense, SG&A expense, and other expense (income), net.

For the three months ended October 31, 2022, reported operating expenses totaled $300 million, an increase of $32 million, or 12%, compared to the same period last year.

• Reported advertising expense increased 16% for the three months ended October 31, 2022 driven primarily by increased investment in JDTW across all geographic clusters and the launch of Jack Daniel’s Bonded in the United States, partially offset by the positive effect of foreign exchange.

• Reported SG&A expense increased 9% for the three months ended October 31, 2022 driven primarily by higher compensation-related expenses and higher discretionary spend, partially offset by the positive effect of foreign exchange.

For the six months ended October 31, 2022, reported operating expenses totaled $579 million, an increase of $47 million, or 9%, compared to the same period last year.

• Reported advertising expense increased 19% for the six months ended October 31, 2022 driven largely by increased investment in JDTW, Herradura, the launch of Jack Daniel’s Bonded, and Woodford Reserve in the United States, partially offset by the positive effect of foreign exchange.

• Reported SG&A expense increased 7% for the six months ended October 31, 2022 driven primarily by higher compensation-related expenses and higher discretionary spend, partially offset by the positive effect of foreign exchange.

Operating Income
Percentage change versus the prior year period ended October 31			3 Months						6 Months
Change in reported operating income			(2		%)				8		%
Acquisitions and divestitures			(1		%)				—		%
Impairment charges			(1		%)				(1		%)
Foreign exchange			12		%				14		%
Change in organic operating income			8		%				19		%
Note: Results may differ due to rounding

For the three months ended October 31, 2022, reported operating income totaled $313 million, a decrease of $9 million, or 2%, compared to the same period last year. Operating margin decreased 3.6 percentage points to 28.7% from 32.3% in the same period last year.

For the six months ended October 31, 2022, reported operating income totaled $656 million, an increase of $45 million, or 8%, compared to the same period last year. Operating margin decreased 0.9 percentage points to 31.2% from 32.1% in the same period last year.

The effective tax rate for the three months ended October 31, 2022, was 23.7% compared to 21.6% for the same period last year. The increase in our effective tax rate was driven primarily by increased state taxes and deferred taxes recorded in connection with a change in indefinite reinvestment assertion, partially offset by decreased prior fiscal year true-ups and the reversal of valuation allowances in the current period.

The effective tax rate for the six months ended October 31, 2022, was 23.7% compared to 24.9% for the same period last year. The decrease in our effective tax rate was driven primarily by decreased prior fiscal year true-ups and the reversal of valuation allowances in the current period partially offset by increased state taxes and increased contingent tax liabilities.

Diluted earnings per share of $0.47 for the three months ended October 31, 2022, decreased 4% from the $0.49 reported for the same period last year, driven by the decline in operating income and a higher effective tax rate. Diluted earnings per share of $0.99 for the six months ended October 31, 2022, increased 11% from the $0.89 reported for the same period last year, driven by the increase in reported operating income and the benefit of a lower effective tax rate.

Fiscal 2023 Outlook

Below we discuss our outlook for fiscal 2023 which reflects the trends, developments, and uncertainties, including those described above, we expect to affect our business. When we provide guidance for organic change in 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, such as foreign exchange, which could have a significant impact on our GAAP income statement measures.

This updated outlook revises certain aspects of the fiscal 2023 outlook included in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K.

• Reflecting the strength of our portfolio of brands, stronger consumer demand, and the easing of supply chain constraints, we expect organic net sales growth in the high-single digit range.

• The reported gross margin decline during the first half of fiscal 2023 was driven by higher inflation, supply chain disruption costs, and the negative effect of foreign exchange. For the full year, reported gross margin is expected to be consistent with the first half of fiscal 2023.

• Based on the above expectations, we anticipate high-single digit organic operating income growth.

• We expect our fiscal 2023 effective tax rate to be in the range of approximately 22% to 23%.

• Capital expenditures are planned to be in the range of $190 to $210 million.

Liquidity and Financial Condition

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

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 $868 million at April 30, 2022, and $1,087 million at October 31, 2022. As of October 31, 2022, approximately 67% 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 use, together with our cash flow from operations, to fund our short-term operational needs. See Note 6 to the Condensed Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2022, and October 31, 2022. The average balances, interest rates, and original maturities during the periods ended October 31, 2021 and 2022, are presented below.

									Three Months Average												Six Months Average
																					October 31,												October 31,
(Dollars in millions)																					2021						2022						2021						2022
Average commercial paper																					$45						$31						$117						$15
Average interest rate																					0.17%						3.66%						0.16%						3.66%
Average days to maturity at issuance																					33						31						32						31

Our commercial paper program is supported by available commitments under our $800 million bank credit facility that expires in November 2024. At October 31, 2022, there were no borrowings outstanding under the credit facility. 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.

Our most significant short-term cash requirements relate primarily to funding our operations (such as expenditures for raw materials, production and distribution, advertising and promotion, and current taxes), repayment of our notes maturing in January 2023, dividend payments, capital investments, and funding our previously-announced acquisitions of the Gin Mare and Diplomático brands. We expect to meet our planned short-term liquidity needs through cash generated from operations, borrowings under our commercial paper program, and financing in the credit markets and the debt capital markets. Our most significant longer-term cash requirements primarily include payments related to our long-term debt, employee benefit obligations, and deferred tax liabilities.

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 expected future short- and long-term financial commitments.

Cash flows. Cash provided by operations of $316 million during the six months ended October 31, 2022, declined $19 million from the same period last year, reflecting increased working capital offset partially by improved operating results. The increase

in working capital was primarily attributable to higher levels of inventory, which were affected by significantly higher input costs and other effects of supply chain disruptions.

Cash used for investing activities was $58 million during the six months ended October 31, 2022, compared to $35 million for the same period last year. The $23 million increase largely reflects increased capital spending to expand our production capacity to meet anticipated future consumer demand.

Cash provided by financing activities was $1 million during the six months ended October 31, 2022, compared to $362 million in cash used for financing activities during the same prior-year period. The $363 million change largely reflects a $370 million increase in net proceeds from short-term borrowings.

Dividends. See Note 7 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report for information about cash dividends declared per share on our Class A and Class B common stock during fiscal 2023.