2
0
2
3
I
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T
E
G
R
A
T
E
D
A
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N
U
A
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R
E
P
O
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THESE THREE WORDS
CAPTURE THE ESSENCE OF
OUR BUSINESS AND CULTURE.
1
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN BOLDER.
BETTER.
TOGETHER.
What It Means to Us
In 1870, George Garvin Brown made a bold move by putting his
whiskey in a sealed bottle. His creative spirit still motivates us
today, as we make bold moves to expand our premium portfolio
through partnerships, innovation, and global opportunities.
From the beginning, the words “Nothing Better in the Market”
have been included on the bottles of Old Forester. These words
serve as an inspiration for our ongoing commitment to
improving our business growth, the communities in which
we work, and the environment on which we depend.
This message from our founder has shaped
Brown-Forman over its history, and deeply
instilled values of integrity, respect, trust,
teamwork, and excellence into our company
culture. These values propel us to work
together to bring out the best in each
other and, in turn, our brands.
This unique and special blend, where we
commit to being bolder and better,
together, has guided our company for more
than 15 decades. It fuels our consistent
growth and top-tier returns to
shareholders—a proud legacy we plan to
deliver well into the future.
2
Portfolio
Building premium, iconic brands
through innovation, acquisitions, and
meaningful partnerships.
Environmental
Sustainability
Doing our part to address
climate change and care
for the resources we share
with our communities.
Alcohol
Responsibility
Marketing our brands
responsibly to consumers of
legal drinking age (LDA) and
empowering mindful choices
around beverage alcohol.
A
3
PORTFOLIO
Y
L
A
T
VIRON M E N
TAIN A BIL I T
N
E
S
U
S
R
E
S
P
L
C
O
O
N
H
S
I
O
B
L
I
L
I
T
Y
Investment
Optimizing our capital
allocation to deliver
top-tier shareholder
returns over the long
term by fully investing
behind our business,
paying increasing
regular dividends,
opportunistically
looking for acquisitions,
and returning cash
to shareholders.
INVESTMENT
GEOGRAPHY
C
O
R
M
E
L
M
U
A
N
IT
T
I
O
Y
N
S
N
D I V E R SITY
& I N C L USIO
Geography
Fostering growth not
only in the U.S., our
largest market, but
also around the globe,
through integrated
marketing and
improved distribution
routes to consumers.
Community
Relations
Being a good neighbor
and supporting our
employees’ community
engagement in the many
places we call home.
PEOPLE
People
Empowering our people to
lead beyond their roles, rapidly
develop new capabilities, and
live by our timeless values.
Diversity &
Inclusion (D&I)
Creating an environment
where leveraging diversity
and inclusion occurs
naturally, giving us a
marketplace advantage.
Our Integrated Strategy
As we strive to achieve our highest ambition of “Nothing Better in the Market,” our integrated strategy focuses on four key
pillars: our portfolio, our geographies, our people, and our investments.
In addition, we have long prioritized environmental, social, and governance (ESG) topics like environmental sustainability,
diversity and inclusion, community relations, and alcohol responsibility, and they are embedded into our corporate
strategy to elevate their visibility and impacts. We call these efforts Living a Spirit of Commitment. To learn more about our
commitments, progress, and performance, visit https://www.brown-forman.com/our-commitments.
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN BOLDER
Growth
BETTER
Performance
Indeed this year was one of bold moves and significant
investments in our business. To grow Brown-Forman for
the next generation, we know it will require strong organic
growth of our existing brands, innovative and compelling line
extensions, and new additions to our portfolio. We achieved
each of these in fiscal 2023.
With an increase of nearly $125 million in advertising expenses
over fiscal 2020 levels, we made considerable investments
behind brands such as Jack Daniel’s, Woodford Reserve,
and Herradura. We were honored with the prestigious “2022
Whiskey of the Year” award from Whisky Advocate for our
new Jack Daniel’s Bonded Tennessee Whiskey, and realized
significant consumer demand for Jack Daniel’s 10-Year-Old
and 12-Year-Old Tennessee Whiskey. We welcomed Gin Mare
and Diplomático to our portfolio while introducing the world
to the new Jack Daniel’s & Coca-Cola Ready-to-Drink (RTD)
through a global relationship with The Coca-Cola Company.
We were bolder.
We saw the benefit of these bold investments—and those we
made in the previous years—in the form of strong business
results. In fiscal 2023, Brown-Forman delivered reported net
sales growth of 8%, or 10% on an organic1 basis. Importantly,
this growth follows our reported net sales growth of 14% (17%
organic) in fiscal 2022. Equally important, fiscal 2023 sales
growth was driven by gains across all geographic clusters
and our global travel retail channel, as well as among our most
significant brands. Jack Daniel’s Tennessee Whiskey grew
reported net sales by 3% (8% organic), Woodford Reserve
continued its impressive growth trajectory with reported net
sales growth of 26% (27% organic), and our RTD portfolio saw
reported net sales growth of 18% (20% organic).
Delivering Double-Digit Returns for
Shareholders Over the Past Decade
10%
10%
10%
12%
s
e
l
p
a
t
S
r
e
m
u
s
n
o
C
t
e
S
e
v
i
t
i
t
e
p
m
o
C
B
F
B
0
0
5
P
&
S
Source: Capital IQ, 10-year CAGR through April 30, 2023, in local currency,
assuming dividends reinvested. Note — Competitive Set is a weighted
average based upon each competitor’s last 12 months’ sales.
Despite the significant headwinds of the last several years—
in the form of inflationary pressures, pandemic impacts, and
supply chain disruptions—Brown-Forman thrived. Our people
remained agile, and our business remained resilient. And in
response, our fiscal 2022 and fiscal 2023 growth rates were
well above our historical trends.
We performed better.
If I think about what gives our organization the ability
to generate these impressive results, generation after
generation for more than 150 years, the answer is always the
same. Our people. We have a Board of Directors, an
Executive Leadership Team, and 5,600 colleagues around
the world who believe there is “Nothing Better in the Market”
than Brown-Forman and they work tirelessly to uphold this
founding ambition. We are guided by our core values of
integrity, respect, trust, teamwork, and excellence, and
inspired by our spirit of commitment to environmental
sustainability, diversity and inclusion, alcohol responsibility,
and the communities where we live and work.
In fiscal 2023, we demonstrated this commitment by
progressing our sustainability goals, empowering mindful
choices around alcohol consumption, contributing to our
communities through resource investment, and reinforcing
our belief that diverse perspectives lead to better decisions,
more creative solutions, and a marketplace advantage.
5
We know we must build on our strengths and continue our
journey for generations to come. That’s why we launched a
new internal ambition in June 2022 to “Make it a Double,” or
double our operating income in the next ten years. Since the
launch of the campaign, I have been energized and inspired by
our people, who have adopted this rallying cry as motivation
to dream bigger, think bolder, and build better. They are
committed to doing the work, and I am immensely thankful,
every day, for their dedication to our great company.
We are building Brown-Forman, together.
In the end, the strength of Brown-Forman is really a story
about the strength of our people—our shareholders, our
employees, our partners, and our communities. As I look back
on the success of this year and look forward to the promising
future we are creating, I am confident we have the best brands
and people in the market. As you read the pages of this report, I
am certain you will agree.
With my deepest gratitude for your continued support,
Lawson E. Whiting
President and Chief Executive Officer
Dear Shareholders,
If you’ve been a friend of Brown-Forman for any period of
time—as a shareholder, an employee, a valued business
partner, or a community neighbor—you know we take
tremendous pride in our ability to deliver consistent and
reliable growth, year after year, decade after decade. To do
so, we are purposeful and deliberate in the way we build our
brands, develop our people, and cultivate our culture. At the
same time, we are courageous and bold in our aspirations; we
constantly strive to become better in all we do; and we work
together everyday to live our values and grow our business.
For these reasons and more, I cannot think of a more
appropriate theme for this year’s integrated annual report
than the words portrayed on the front cover:
Bolder. Better. Together.
1 In this report, we present both reported (GAAP) and organic (non-GAAP)
changes in certain measures, or line items, of the statements of operations.
We use these measures as supplements to (not substitutes for) our results
of operations and other measures reported under GAAP. To calculate these
measures, we adjust, as applicable for (a) acquisitions and divestitures, (b)
foreign exchange, and (c) impairment charges. Please refer to the section
labeled “Non-GAAP Financial Measures” in Form 10-K of the enclosed report for
additional information.
4
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN
TOGETHER for the Long Term
Dear Shareholders,
As we mark the passage of our company’s 153rd year, I’d like
to recognize the hard work and exceptional results delivered
by our people and partners around the world. Once again,
these dedicated individuals delivered strong performance
and broad-based growth, executed on new ideas and exciting
partnerships, and made investments that will serve our
company and our shareholders for years to come. It is as true
today as it has been throughout Brown-Forman’s history: we
are at our best when we embrace the bold, embody better,
and excel together.
this fine brand. This experience reinforced for the Board
the boldness of our growth ambitions, our confidence in the
talents of our people, and our belief that together, we can
continue to deliver premium brands to millions of satisfied
consumers around the world. And while our travels took us
to the homeplace of Jack Daniel’s Tennessee Whiskey, this
same sentiment and conviction would also be clearly seen
and deeply felt at Woodford Reserve, Old Forester, Casa
Herradura, The GlenDronach, Slane, Sonoma-Cutrer, and the
homeplaces of our other fine brands.
I witnessed countless examples of what it means to be
bolder and better when the Board and I traveled to the Jack
Daniel Distillery earlier this year. Together, we experienced
firsthand the promise made by Jack himself: “Every day
we make it, we’ll make it the best we can.” This promise
is still kept by the women and men who make this iconic
whiskey, from the moment a barrel is raised to when a
filled bottle leaves a warehouse in Lynchburg, Tennessee.
Their pride in Jack Daniel, the person, and their passion
for Jack Daniel’s, the whiskey, permeates the entire
production process and energizes all who market and sell
79
years
quarterly cash
dividends
S&P
500
Dividend
Aristocrats Index
39
years
consecutive
dividend
increases
$378M
cash
returned to
shareholders
through the regular
quarterly dividend
in fiscal 2023
Bold Moves, Better Partnerships, and Bigger
Investments Yield Results
Our continued focus on growing a premium portfolio across
dynamic categories and with excellent partnerships is
delivering quality and innovation that meets the wide-ranging
palates of our expanding consumer base. Over the past
year, we enriched the spirit of life by boldly releasing new
expressions of Jack Daniel’s, adding Diplomático and Gin
Mare to our portfolio, and bringing together two iconic brands
with the launch of Jack Daniel’s & Coca-Cola RTD. We built
bolder brand relevance by partnering with McLaren Racing
to bring Jack Daniel’s Tennessee Whiskey to Formula 1 and
reach diverse consumers who are increasingly interested
in the world’s fastest-growing sport. We also reinvested
significant capital into the Woodford Reserve Distillery, the
Brown-Forman Distillery, and The GlenDronach Distillery to
increase capacity and drive future growth.
Our ambition to be better and bolder is also present in
the strength of our financial management and returns to
shareholders. Our healthy balance sheet has allowed us to
unlock growth opportunities and make investments that not
only meet the moment and market of today, but also position
and prepare us for the consumers and opportunities of
tomorrow. Brown-Forman delivered our second consecutive
fiscal year of strong, broad-based growth from both a brand
and geographic perspective enabling us to add another
year of growth in Brown-Forman’s history of delivering
sustainable and consistent long-term performance.
6
Our Ongoing Excellence in Governance,
Leadership, and Stewardship
We lean into a governance model that brings together
the long-term vantage point of the Brown family with the
diversity of expertise and perspectives of our independent
directors. This year we welcomed two new independent
directors to the Board - Mark Clouse, President and CEO of
Campbell Soup Company, and Liz Smith, former Executive
Chair and CEO of Bloomin Brands, Inc. Mark and Liz blend
depth and breadth of leadership experience with humility
and curiosity, and their proven track records will help us
reach our full potential and win convincingly.
I would also like to thank John Cook, who for the last
15 years served this Board in almost every capacity and
who will not be standing for reelection. As both Lead
Independent Director and Chair of our Corporate
Governance and Nominating Committee, John helped to
guide our evolving and award-winning governance process.
John provided valuable contributions to our strategy,
portfolio evolution, and capital deployment through the
years. He played a key role in assembling a board of directors
who are purpose driven, engaged, collaborative, and who
consistently demonstrate their commitment to our people,
brands, and shareholders.
I want to thank Augusta Brown Holland who is also not
standing for reelection after eight years of remarkable
service. The Board and our long-term shareholders share
my appreciation for Augusta’s thoughtful perspectives
and strong advocacy for this company’s culture, people,
and provenance. I am certain her late father, our former
Chairman and CEO, Owsley Brown II, would be extremely
proud of all that she has contributed and accomplished.
As we look toward the next generation of family members
coming together, I’m particularly pleased that our Family
Shareholders Committee recently approved the Next
Generation Subcommittee designed to foster understanding
and collaboration around our shared values. This
engagement continues Brown-Forman’s multi-generational
partnership with its long-term shareholders, one that has
enabled the company to thrive and endure.
Brown-Forman leaders today, standing on the shoulders of
those who have come before them, sustain a culture that is
reflective of the past and poised for the future. It is a culture
7
that is performance-driven and values-laden. Lawson Whiting,
who is in his fifth year as Chief Executive Officer, exemplifies
these characteristics in both his words and his actions. He is
the last person who would single himself out, so it’s why I am
doing it here. On behalf of the Board, the Brown family, and our
shareholders, I am grateful for all that Lawson gives of himself
and his many talents to make Brown-Forman better.
Bolder. Better. Together.
These three words are more than a theme of an annual report.
They are what we strive to be, who we are, and where we are
heading. They inspire and motivate Brown-Forman’s employees,
its Executive Leadership Team, and our Board. They are our
call to action as we grow ourselves and our brands, and invest
in our business and the communities we call home. To our
shareholders, I want to say thank you for your belief in our
company and your continued confidence that, as expressed
by our founder George Garvin Brown, there is indeed “Nothing
Better in the Market.”
Campbell P. Brown
Chair of the Board
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN Since 1870, a spirit of togetherness—both as a family and as a
business—has set Brown-Forman apart.
We are an independent, publicly listed, family-controlled
company and enjoy a strong relationship with our founding
family shareholders, the descendants of our company’s
founder, George Garvin Brown. The Brown family
shareholders bring a long-term ownership perspective
that is essential to our growth and independence. In
addition, their perspective is well aligned with our
strategic priorities and commitments.
The family engages regularly with company leadership
through active participation on our Board of Directors and
various family shareholder committees. Today, we are
pleased to have four members of the Brown family serve
on our Board of Directors alongside our independent and
management directors. The Brown-Forman/Brown Family
Shareholders Committee, which was established in 2007
and is co-chaired by Lawson Whiting, President and CEO,
and Campbell Brown, Chair of the Board, provides an ongoing
opportunity for communications between the family and the
company. Most recently, the committee expanded to include a
Next Generation Subcommittee focused on engaging and
empowering the sixth generation of family shareholders.
This long-term focus extends well beyond the Brown family to the
many shareholders, partners, and employees who help bring our
brands to markets and consumers worldwide, including our
Board of Directors and Executive Leadership Team. Their
perspectives, and the quality of these relationships, have
enabled the company to deliver industry-leading returns on
invested capital and has made Brown-Forman a reliable source
of growth for all our shareholders.
Our deep roots give us the confidence to be bold—and the
inspiration we need to continually get better.
BROWN-FORMAN/BROWN FAMILY Shareholders Committee
Pictured L-R: Samuel
Scales, Tammy Godwin,
Owsley Brown III, Cary
Brown, Martin Brown Jr.,
McCauley Adams, Robinson
Brown IV, Dace Polk Brown,
Lawson Whiting, Sandra
Frazier, Campbell Brown,
and Clay Kannapell. Not
Pictured: Garvin Deters, Jim
Joy, and Elaine Musselman.
9
LEADING
TOGETHER
BROWN-FORMAN Board of Directors
BROWN-FORMAN Executive Leadership Team
Campbell P. Brown
Chair of the Board,
Brown-Forman
Corporation (1, 5,*, #)
Stuart R. Brown
Managing Partner,
Typha Partners, LLC (#)
Mark A. Clouse
President and Chief
Executive Officer,
Campbell Soup
Company (4)
John D. Cook
Director Emeritus,
McKinsey & Company
(1, 2,4,5)
Marshall B. Farrer
EVP, Chief Strategic
Growth Officer and
President, Europe,
Brown-Forman
Corporation (#)
Augusta Brown Holland
Founding Partner,
Haystack Partners
LLC (#)
Michael J. Roney
Retired Chief Executive
Officer, Bunzl plc (4, 5)
Jan E. Singer
Former Chief Executive
Officer, J.Crew (3)
Tracy L. Skeans
Chief Operating Officer
and Chief People Officer,
Yum! Brands, Inc. (3, 5)
Elizabeth A. Smith
Retired Chief Executive
Officer, Bloomin’ Brands
(3)
Michael A. Todman
Retired Vice Chairman,
Whirlpool Corporation
(3, 5)
Lawson E. Whiting
President and Chief
Executive Officer,
Brown-Forman
Corporation (1, *)
(1) Member of Executive Committee of the Board of Directors,
(2) Lead Independent Director, (3) Member of Audit Committee,
(4) Member of Compensation Committee, (5) Member of Corporate
Governance and Nominating Committee, (*) Member of
Brown-Forman/Brown Family Shareholders Committee,
(#) Member of the Brown Family
8
Lawson Whiting
President and Chief
Executive Officer
Thomas Hinrichs
EVP, President,
Emerging International
Tim Nall
EVP, Chief Global Supply
Chain and Technology
Officer
Crystal Peterson
EVP, Chief Inclusion
and Global Community
Relations Officer
Jeremy Shepherd
EVP, President, USA
and Canada
Matias Bentel
EVP, Chief Brands
Officer
Leanne Cunningham
EVP, Chief Financial
Officer
Marshall Farrer
EVP, Chief Strategic
Growth Officer
and President, Europe
Matthew Hamel
EVP, General Counsel
Kirsten Hawley
EVP, Chief People,
Places, and
Communications Officer
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN 11
With the disruption of a global pandemic largely behind us,
consumers are reuniting to enjoy each other’s company—and a
drink. People are gathering with friends; returning to bars, pubs,
and restaurants; reviving cherished traditions and celebrations;
and traveling once again.
As they do so, many continue to trade up to more premium brands, while others are seeking
flavor and convenience. With the bold investments we made in our portfolio, our partnerships,
and our people, Brown-Forman’s products are ready to meet the tastes of today’s consumers.
We’ve remained focused on the long-term health and growth of our portfolio of brands and our
people. As we continue to evolve our portfolio, we added two new super-premium brands and
launched a major global relationship with The Coca-Cola Company. We optimized our route to
consumers in Belgium, strengthened our integrated marketing communications capabilities,
and expanded our Emerging Brands teams in Europe. To meet the increased consumer
demand, and as our supply chain constraints eased, we expanded our bottling capacity. While
we are proud of our bold moves in the present, our perspective is oriented toward the future.
Jack Daniel’s Bonded
2022 WHISKEY OF THE YEAR
ACCORDING TO WHISKY ADVOCATE
10
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN A BRAND in Your Hand
Ready-to-drink (RTD) products—premixed, single-serving
beverages available in both cans and bottles—are one of the
most exciting segments in our business today.
The category is a $40 billion USD global market and is
projected to grow in the mid single digits over the next five
years, according to IWSR 2022. While the U.S. market is
now recognizing the convenience and quality offered in an
RTD, Brown-Forman has long believed in their potential.
Over 30 years ago, Jack Daniel’s introduced Jack Daniel’s
Country Cocktails in the U.S., and Jack & Cola in Australia.
RTD cocktails address a distinct consumer occasion,
meeting demand among consumers looking for flavor
and convenience. With visible trademarks on every can,
RTDs can help increase brand awareness for full-strength
brands. With more cans in hands, we believe that our
Jack Daniel’s RTD products positively impact our Jack
Daniel’s family of brands, as we have experienced growth
in markets that have both full-strength and RTD products.
We also have the opportunity to build these brands in
international markets where some of our spirits have
historically been less attainable or available.
To elevate and expand Jack Daniel’s presence in the
category and create a more appealing RTD, this year we
announced a new global relationship with The Coca-Cola
Company to create the Jack Daniel’s & Coca-Cola RTD.
The product launched in Mexico in November 2022 and
expanded to nine key markets worldwide in fiscal 2023
including the U.S., Japan, the Philippines, and the U.K.
We believe this relationship will meaningfully expand the
availability and growth of this product, especially with the
global reach of Coca-Cola’s bottling network. A new global
advertising campaign, “Born Ready,” shows the two iconic
brands, Jack Daniel’s and Coca-Cola, officially coming
together in a can so the world-famous bar call can now
boldly go anywhere in the world.
13
OUR RTD BRANDS AT A GLANCE
25M
9L cases
Brown-Forman’s
RTD business
18%
Net Sales
reported growth
in fiscal 2023
3rd
4th
Largest
contributor to
Brown-Forman’s
reported net sales growth
(Jack Daniel’s RTDs)
Fastest-Growing
flavored malt beverage
in the U.S. (Jack Daniel’s
Country Cocktails)
Source: Nielsen
Jack Daniel’s Can Cocktails
These spirits-based cocktails,
including Jack & Cola, Jack Honey
& Lemonade, and Jack & Berry,
are the #1 whiskey-based RTDs
globally with over 11M 9L cases
sold in fiscal 2023.
Jack Daniel’s & Coca-Cola RTD
This new product, combining two
legendary brands in one can,
launched in fiscal 2023.
New Mix
This el Jimador tequila-based
RTD sold nearly 10 million 9L
cases in fiscal 2023.
Jack Daniel’s Country Cocktails
Launched in the U.S. in 1992, our
first RTD offers single-serve malt
beverages combining citrus,
berry, and other flavors with a
hint of Jack Daniel’s Tennessee
Whiskey flavor.
Part-Time Rangers
This New Zealand-based brand,
which joined our portfolio in fiscal
2021, provides low-calorie,
spirits- based RTD
products with all-natural
fruit flavoring.
LIVING BOLDLY
and Enjoying the Ride
As one of the most valuable and iconic spirits brands in the
world, Jack Daniel’s Tennessee Whiskey needs no
introduction. The brand continued its strong growth
trajectory in fiscal 2023 and remains the largest premium
spirits brand in the world by volume.2
Over 15 million 9-liter (9L) cases of Jack Daniel’s
Tennessee Whiskey were sold in over 170 countries
around the world in fiscal 2023. The brand was one
of the largest contributors to reported net sales
growth in fiscal 2023, and we believe it still has
significant opportunity for growth.
and Jack Daniel’s Triple Mash Whiskey. These new
products, as well as our new Jack Daniel’s &
Coca-Cola RTD, give both long-term friends as well
as new consumers the opportunity to explore and
discover within the Jack Daniel’s family of brands.
We continue to premiumize the Jack Daniel’s family
of brands and strengthen our whiskey credentials
with specialty launches, such as Jack Daniel’s
Single Barrel Special Release Heritage Barrel and
Jack Daniel’s 10-Year-Old Tennessee Whiskey. In
May 2022, we introduced the first permanent Jack
Daniel’s super-premium line extensions in over 25
years with Jack Daniel’s Bonded Tennessee Whiskey
2 International Wine and Spirits Record (IWSR) 2022.
In fiscal 2023, Jack Daniel’s became an official
global sponsor of McLaren Racing, a Formula 1
racing team. Counting more than one billion fans
worldwide, viewership of Formula 1 racing is
growing at the fastest rate of any major global sport.
With races on most continents, this relationship
provides Jack Daniel’s with a powerful opportunity
to engage a truly global fan base and promote
responsible consumption.
12
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN “ Brown-Forman owns
one of the top five brands
globally in four strong
growth categories: super-
premium American
whiskey, super-premium
tequila, ultra-premium gin,
and ultra-premium rum.”
- Lawson Whiting, President and CEO
A TOP-SHELF
Portfolio
Over the past two decades, Brown-Forman
has raised the bar for our portfolio by
focusing on premium and super-premium
brands through acquisitions, divestitures,
and new strategic relationships.
As a result, we now own one of the top five brands globally
in four strong growth categories: super-premium American
whiskey, super-premium tequila, ultra-premium gin, and
ultra-premium rum. Given consumer trends in favor of more
premium products, we believe the evolution of our portfolio
positions us for strong long-term growth.
14
15
Woodford Reserve
Tequila
Gin
Rum
Woodford Reserve has grown volume at
a strong double-digit compound annual
growth rate since its founding more than
a quarter-century ago, and saw a 26%
increase in reported net sales in fiscal
2023. Today, it is the number-one super-
premium American whiskey brand in the
world by volume and value, based on IWSR
2022. While still primarily sold in the U.S.,
the brand continues to take hold in our
developed European markets. In January
2023, Woodford Reserve renewed its
sponsorship with Churchill Downs as the
presenting sponsor of the Kentucky Derby
through 2027, maintaining the prominent
position on the global stage during the
“greatest two minutes in sports.”
Tequila is the most attractive and fastest-
growing category in full-strength total
distilled spirits, with consumers
increasingly shifting toward more
premium products. To meet this
increasing demand, we are expanding our
tequila distilling capacity. Furthermore,
leveraging our barrel aging expertise, we
launched Herradura Legend, a premium
tequila aged in white oak barrels, creating
a bold and unique product in this category.
After experiencing significant supply
chain disruption in early fiscal 2023, glass
supply for Tequila Herradura is nearing
pre-pandemic levels, and consumer
demand for our tequila brands has
remained strong, particularly in the U.S.
In fiscal 2023, we completed the
acquisition of Gin Mare, a fast-growing
ultra-premium gin brand. The brand
is particularly well-known throughout
Europe, providing us an opportunity to
accelerate the growth of our emerging
brands portfolio in the region while
simultaneously introducing Gin Mare to
U.S. consumers. With its distinctive taste
and brand positioning, Gin Mare serves
as a nice complement to Fords Gin, which
grew volume over 50% in fiscal 2023.
We entered the rum category in fiscal
2023 with the acquisition of the
Diplomático Rum brand. Based on IWSR
2022 data, the super-premium-plus rum
category has grown at a compound
annual rate of 16% over the past five
years and Diplomático Rum is the
number-one super- and ultra-premium
rum. Diplomático has a strong brand
heritage, significant scale in attractive
geographies, and is growing quickly.
Similar to Gin Mare, the brand has a
strong presence in Europe and a long
runway for growth in the United States.
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN BOLDER. BETTER. TOGETHER.
Around the World
Brown-Forman was founded in Louisville, Kentucky, more
than 150 years ago. Today, our brands and production
facilities connect us to people around the world.
Announced £30+ million
investment to increase
distillery production in
Aberdeenshire, Scotland,
to meet surging demand for
The GlenDronach scotch
Returned Global Travel Retail
business to pre-COVID levels
with strong double-digit
reported and organic net sales
growth in fiscal year 2023
17
Transitioned Belgium
to owned distribution
in calendar 2022
Earned gold medals for
Herradura at the San Francisco
World Spirits and The Spirit’s
Business’ Tequila and Mezcal
Masters competitions
Grew U.S. reported net sales 3%
in fiscal 2023 driven by Woodford
Reserve, higher prices across
the portfolio, and launch of Jack
Daniel’s & Coca-Cola RTD
Focus on Revenue
Growth Management
Lem Motlow, Jack Daniel’s nephew who ran the distillery
for more than 30 years, marked whiskey crocks and jugs
with the slogan: “All Goods Worth Price Charged.” We’re
fortunate consumers worldwide continue to recognize
the quality and value of not only Jack Daniel’s, but also our
entire portfolio of brands, as evidenced by the strategic
price increases over the past year.
The focus on pricing is one element of a comprehensive
revenue growth management (RGM) strategy to unlock
revenue and profit growth. RGM helps us determine the right
balance between volume and pricing growth, using detailed
analytics to inform decision making around channel
strategy, customer occasions, product mix, promotions,
and trade terms. RGM is the responsibility of everyone at
Brown-Forman, and we will continue to develop capabilities
in this area to further translate data into insights.
16
Delivered mid-single-digit
reported and double-digit
organic net sales growth in
Developed International markets
collectively, led by Germany,
Japan, Italy, and Belgium
Delivered double-digit
reported and organic net
sales in fiscal 2023 in
Emerging International
markets led by Jack
Daniel’s Tennessee
Whiskey in the UAE and
Brazil, as well as New Mix
in Mexico.
Achieved 12 Great Place To
Work certifications including
Brown-Forman France for
eight consecutive years
Great Place To Work and Other Workplace Recognition
Company-Owned Production Facilities
Markets with Owned Distribution
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN 19
Every product in our portfolio is intertwined
with natural resources, whether water, grains,
grapes, agave, botanicals, or the trees to make
our barrels.
Jack Daniel’s Tennessee Whiskey depends upon clean, mineral-filtered
water from Lynchburg’s Cave Spring Hollow. Sonoma-Cutrer wines rely upon
Russian River Valley’s precise balance of sunshine, rain, and soil to grow
delicious grapes. The distinct flavor of Fords Gin comes from nine
botanicals from around the world.
Given the strong connection between natural resources and our products,
Brown-Forman is moving boldly and swiftly to address the challenges of
climate change and resource sustainability. This work is fundamental to the
future of our business and it is our responsibility to ensure the work done
today can continue for generations to come.
18
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN Dendrifund: Growing Connections
for Greater Sustainability
A forester, farmer, and distiller might not cross paths in the normal course of their work, but they have much
in common. Dendrifund, a nonprofit seed fund created by Brown-Forman and the Brown family in 2012, helps
create connections and common ground for common solutions to promote a more sustainable whiskey
industry. We do this in three ways:
Convene
Seed
Incubate
Bring stakeholders together to fuel
joint action
Establish early-stage initiatives
for innovative solutions
Support local ownership of
programs with resources and
shared learning
21
Dendrifund’s work focuses on the three natural resources most important for the distillation and aging of whiskeys:
WOOD (LANDS) GRAIN (FIELDS) WATER (SHEDS)
White oak is the primary
material used in making whiskey
barrels, imparting the spirits’
characteristic color and flavor.
When forests are managed for
white oak, the full ecosystem is
improved, from slowing erosion
to protecting biodiversity.
Dendrifund is a co-founder of
the White Oak Initiative and
continues to put its primary
support behind this program.
Corn, rye, wheat, and barley
are the dominant grains used
in whiskey. These crops grow
at different times of year and
planting them in rotation can
improve soil and water quality.
Rye was once grown widely in
Kentucky, and Dendrifund is
working to make it a viable and
beneficial crop in the state once
again. Growing rye in Kentucky
will enhance soil quality, improve
sustainability of other grains,
and supply a key ingredient for
rye whiskeys.
Limestone-filtered water is
a signature ingredient in our
whiskeys, so it’s critical that we
have access to high-quality water
sources near our distilleries.
In addition to water-specific
efforts, Dendrifund’s work on
building regenerative forests and
field practices also contribute to
improving water quality.
NURTURING
What Sustains Us
We continue to make progress against each of our
environmental targets, leveraging the interconnected
nature of these goals to accelerate impact.
In fiscal 2023, we took a multifaceted approach to meet our targets. To
reduce our greenhouse gas (GHG) emissions, we prioritized renewable energy
use, reduced the weight of our packaging, continued to source recycled glass
for our bottles, and supported regenerative agriculture practices. These
practices also limit GHG emissions and support water stewardship in the
fields from which we source.
To guide our initiatives around environmental stewardship, social
responsibility, and governance, Brown-Forman recently formed an ESG
Council comprised of our President and Chief Executive Officer, EVP Chief
Global Supply Chain and Technology Officer, EVP Chief Inclusion and Global
Community Relations Officer, and EVP General Counsel. The Council oversees
each of our ESG commitments and shares information with the rest of our
Executive Leadership Team and Board of Directors as needed.
20
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN OUR ENVIRONMENTAL
Goals & Progress
GOAL: Halve GHG emissions by 2030
PROGRESS: 14.8% reduction
◆ Developed a strategic roadmap of key initiatives to
achieve this goal
◆ Conducted detailed energy efficiency assessments of our
production sites
◆ Launched a program with suppliers to better understand
and reduce carbon footprint
GOAL: Use 100% renewable electricity by 2030
PROGRESS: 88% renewable
◆ Offset more than 95% of our U.S. electricity usage
through the East Fork Wind Project
◆ Installed a new rooftop solar array at Slane Distillery,
which will provide 5% of their electricity annually
◆ Approved a solar project at our Scotland bottling facility
◆ Explored solar projects in Mexico
22
GOAL: Achieve water balance for key
watersheds by 2030
PROGRESS: Water risk measurement
systems in place
◆ Partnered with Waterplan to monitor water risk at our
Casa Herradura and Sonoma-Cutrer facilities
◆ Saved 1.8 million gallons of water between July 2021 and
July 2022 through water efficiency projects, including
new water recycling systems for barrels at Sonoma-
Cutrer Vineyards; use of fan-based systems, rather
than water, to prevent frost; and employee-led water-
saving programs
◆ Developed a plan at Casa Herradura for expanding
reuse of treated water to offset groundwater use
◆ Partnered with other food and beverage companies
on the Charco Bendito project to restore a critical
watershed and natural area in Jalisco, Mexico,
connecting nearly 700 people to clean drinking water
ENVIRONMENTAL
RECOGNITION
In fiscal year 2023, the Old Forester Tree
Nursery was presented with the Environmental
Pacesetter Award by the Kentucky Department
of Environmental Protection for our
innovative efforts to protect the environment.
In addition, Sonoma-Cutrer was named
Sustainable Producer of the Year by Sonoma
County Winegrowers for preservation and
enhancement of farming in Sonoma County,
including use of cover cropping and natural
management of weeds and pests.
23
GOAL: Integrate circular economy
principles by 2030
GOAL: Engage with 100% of our direct farmers
on regenerative agricultural practices by 2025
PROGRESS: New partnerships to drive
reuse of glass and grain
◆ Began construction on a new anaerobic digester to
convert spent grains from the Jack Daniel Distillery into
renewable natural gas to help power the distillery and
low-carbon fertilizer to help local farmers reduce their
carbon footprint
◆ Launched “Bring Back Jack,” a campaign with the New
Hampshire Liquor Commission encouraging consumers
to bring empty glass spirits bottles back to state-controlled
liquor stores in exchange for a coupon
PROGRESS: 72% of farmers engaged
◆ Engaged grain farmers to document their regenerative
agriculture practices and encouraged grape farmers to
achieve sustainability certification
◆ Co-hosted a Dendrifund gathering of nearly 100
stakeholders across the Ohio Valley to discuss how we
strengthen connections in small grain value chains and
find solutions for growing rye varietals that meet
distillers’ specifications
◆ Developed a roadmap to engage with 100% of direct
agave farmers
GOAL: Offer 100% recyclable/reusable
primary packaging by 2030
GOAL: Source white oak logs from sustainably
managed forests
PROGRESS: New initiatives to expand the use
of recyclable and reusable materials
PROGRESS: Working group in place to
create new forestry commitments
◆ Worked to remove or replace materials that are
not recyclable, such as single-use plastics from
gift packaging
◆ Introduced a 50 mL bottle of Jack Daniel’s Tennessee
Whiskey made with 15% post-consumer recycled plastic
◆ Joined Dendrifund in match funding to improve 2,000
acres of Tennessee woodlands, including 1,000 acres
of white oak forest, in partnership with the Tennessee
Forestry Association
◆ Planted five acres of white oak at the Old Forester Tree
Nursery to study white oak sustainability and provide
improved acorns for future white oak forest restoration
◆ Supported the White Oak Initiative as a founding member
and major donor since its launch in 2017
◆ Celebrated a 25-year partnership with University of
Tennessee’s Tree Improvement Program and another 30
acres donated at Jack Daniel Distillery Seed Orchards
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN 25
Based on our values of integrity, respect,
trust, teamwork, and excellence, we’re
inspired by what’s possible when we bring
people together.
Throughout our long history, we’ve learned that we’re better when we
foster a workplace and culture where people of all backgrounds and
beliefs feel they belong and can bring their best selves to the table.
We’re better when consumers of legal drinking age are encouraged
to enjoy our products responsibly. And we’re better when we use our
resources to be a good neighbor, knowing that we are only as strong as
the communities we call home. Working together leads to better
outcomes for our teams, consumers, and shareholders.
24
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN U.S. Workforce Demographics*
FEMALE
MALE
WHITE
BLACK
LATINO
ASIAN
OTHER
BOARD
EXECUTIVE LEADER
BUSINESS LEADER
LEADER
PROFESSIONAL
PRODUCTION
TEMPORARY/SEASONAL
33 %
42 %
43 %
50 %
63 %
20 %
59 %
67 %
58 %
57 %
50 %
37 %
80 %
41 %
92 %
83 %
78 %
81 %
76 %
76 %
76 %
8 %
8 %
10 %
7 %
10 %
16 %
16 %
—
6 %
8 %
6 %
7 %
6 %
6 %
—
3 %
4 %
2 %
3 %
—
—
—
—
—
3 %
3 %
2 %
2 %
* Diversity data of all employees working in the U.S. as of April 30, 2023. Ethnicity data is based on self-disclosed employee information. Board data includes all Directors (U.S. and
international). Numbers may not add to 100% due to rounding. Other includes 2+ races, Native American, Alaskan Indian, or categories left blank.
27
A Way to Belong
Better Together
Since first launching four Employee Resource Groups
(ERGs) in 2009, ERGs have become an important part
of our culture. We currently have nine ERGs, and many
have regional or country chapters around the globe. Our
ERGs create spaces for colleagues to learn, explore, build
cultural awareness, and broaden perspectives.
9
Employee
Resource Groups
100% score
12 consecutive years
Human Rights Campaign
Corporate Equality Index
Best Place
to Work
for Disability Inclusion
Disability Inclusion Index
Best Place
to Work
for Executive Women
Seramount
Our work to build a more inclusive company and industry
begins within our workforce—and extends outward to our
marketing, procurement, and philanthropic activities. For
example, the Nearest & Jack Advancement Initiative is the
first-of-its-kind incubator for increasing diversity in the
spirits industry. The initiative offers a Leadership
Acceleration Program, designed to fast-track the
development of Black, Indigenous, and People of Color
(BIPOC) into leadership positions in the American whiskey
industry. The program’s first two participants, Tracie
Franklin and Byron Copeland, graduated from the program
in 2022.
The Nearest & Jack Advancement Initiative is also working
to help create the Nearest Green School of Distilling and
has established a Business Incubation Program. This year,
the Initiative expanded its reach and impact with an
inaugural Spirits on the Rise summit for 250 BIPOC
entrepreneurs in the spirits industry. The summit included
sessions to educate, assist, and provide meaningful tools as
the participants enter in and navigate through the industry.
Our inclusion efforts extend to our procurement
processes, as we aspire to have 16% of our suppliers
represent women- or minority-owned businesses by 2030.
Today, the number stands at 13%.
Being better together also means striving for equity in
the communities where we live and work. Brown-Forman
aspires to direct 10% of our U.S. charitable contributions
to organizations that benefit diverse groups. For the past
several years, including fiscal 2023, we have significantly
exceeded this goal, directing 50% of our spending to
these groups.
A GLOBAL
Community
Our work on diversity and inclusion dates back nearly two decades,
when Brown-Forman created our first diversity task force.
Since that time, our work has grown considerably, and
today we are guided by a comprehensive D&I strategy,
Many Spirits, One Brown-Forman. The strategy
formalized our strategic position and, most importantly,
our strategic ambitions, as we work to create a more
diverse workforce and a more inclusive culture.
We are proud of the progress we are making against our
2030 ambitions. We have achieved, ahead of schedule,
representation of women in senior-leadership positions
globally, and are on track with our ambitions for people of
color in the U.S. In 2022, we added a new ambition to
increase the representation of employees who identify
as LGBTQ+ in the U.S.
In addition to building diverse representation across our
workforce, we are also committed to an inclusive culture
where we can all bring our best selves to work. We
continue to expand our Lead Better: Inclusive
Leadership @ B-F program to ensure all leaders
understand and embrace their role in cultivating an
inclusive culture.
2030 AMBITION
PROGRESS THROUGH 2023
50% women in professional- and leader-level positions globally
40% women in senior-leadership positions globally
25% people of color in U.S. workforce
6% individuals who self-identify as LGBTQ+ among salaried U.S. employees
49%
43%
20%
3%
26
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN Human Rights
As a signatory to the United Nations Global Compact,
Brown-Forman is committed to operating in ways that are
consistent with fundamental responsibilities regarding
human rights. Our Human Rights Steering Committee, chaired
by our Chief Risk, Ethics, and Compliance Officer, continues
to make progress on our three-year human rights strategy.
Building on last year’s progress, we reviewed and improved
existing company commitments, policies, processes, and
practices. In fiscal 2023, our agave field operations were
a focus of our program. We also piloted a human rights
questionnaire and implemented training globally.
contractors, and visitors by creating and maintaining a
safe work environment by establishing programs and
teams in place that mitigate risk.
With catastrophes and natural disasters globally on the
rise, one of our fiscal 2023 projects focused on crisis
management and emergency response plan training at
all Brown-Forman locations. This initiative is generating
greater consistency in programming and preparations
for perils that can harm our people, product, or property
and reduce loss through crisis escalation, emergency
plan implementation, and testing.
29
Health and Safety
Whether our employees are hand-raising barrels in our
cooperages, crafting spirits in our distilleries, leading
homeplace tours, conducting sales, or in an office, their
safety is our priority. We monitor injury performance through
frequently updated trends and dashboards that include near
misses, first care, and recordable cases. Recordable injuries
in the graph below include any work-related accident
involving global production and Louisville corporate campus
employees. We have experienced no work-related fatalities
globally over the calendar year.
We utilize this data to establish injury reduction programs
through targeted loss control initiatives and continuous
improvement. Per our Health and Safety Policy,
Brown-Forman is committed to safeguard our employees,
Information Security
Brown-Forman relies on information technology (IT)
systems, networks, and services to manage all aspects
of our business. Our information security team works
vigilantly to protect the company against increasingly
sophisticated cybercrimes and attacks. As the company
moves toward a more mobile and hybrid workforce, the
team has focused on building a zero trust architecture
to improve our security posture. Zero trust is a security
framework based on a philosophy of “never trust, always
verify.” It requires that all users, irrespective of whether
they are in or outside an organization’s network,
continuously validate their identities to gain access to
applications and data. This new framework, and its
related security improvements, make Brown-Forman’s
systems, network, and data more secure.
Total Recordable Injury Rate (TRIR):
Per 100 Full-Time Employees
TRIR
Fatalities
2.74
2.83
2.27
2.25
2.61
0
0
0
0
0
2018
2019
2020
2021
2022
Recordable injuries, including any work-related accident involving global
production and Louisville corporate employees, have decreased over the past four
years as a result of capital investments and continuous improvement to address
specific injuries and illnesses. We have experienced no work-related fatalities
globally over this time.
Ethics and Compliance
In 2023, Brown-Forman was once again recognized as one of the
World’s Most Ethical Companies by Ethisphere, a global leader in
defining and advancing the standards of ethical business practices.
We believe this recognition was made possible, in large part, by our
compliance program, a global initiative that is underpinned by the
following elements:
◆ Assessing risk against an evolving range of compliance criteria,
including trade sanctions, anti-corruption, environmental,
human rights, cybersecurity, and data privacy
◆ Education through annual training and monthly
compliance communications
◆ Code of Conduct Committee chaired by the company’s
Chief Risk, Ethics, and Compliance Officer
◆ Reporting channels for employees and non-employees via
email or a toll-free hotline accessible from 44 countries
◆ A Code of Conduct, updated annually, that connects our
core values to the work we do in 20 risk areas
◆ Internal and external surveys that help us assess our
compliance-related risks, benchmarking, and targeted
risk assessments
◆ Communication of expectations to our business partners via
the Brown-Forman Supplier Code of Conduct and training
28
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN Coming Together for Communities
The Brown-Forman Foundation was established in 2018 to expand our legacy
of strategic, charitable missions and philanthropic endeavors. Our long history
and deep roots in Louisville make our hometown city the focus of our efforts.
Beyond the Foundation’s contributions, Brown-Forman makes corporate
charitable contributions, enables 35 regional offices and production facilities
worldwide to identify investments specific to their local communities, and
encourages employees to give back through volunteerism and nonprofit
board service. We invest in organizations that support our vision to create
transformative community impact in three focus areas:
◆ Ensure Essential Living Standards—Partnering with organizations that
provide educational opportunities for lifelong success and supporting
social services that improve well-being and strengthen communities
31
◆ Enhance Arts & Cultural Living—Increasing access to vibrant, diverse,
and impactful arts and cultural experiences
2023 Giving by Focus Area
(Brown-Forman Foundation and Corporate)
◆ Empower Responsible & Sustainable Living—Investing in initiatives that
encourage moderation, reduce alcohol-related harm, and protect the
environment and vital natural resources
Responsible
and Sustainable
Living
Arts and
Cultural
Living
Brown-Forman and the Brown-Forman Foundation aspire to have a
transformative impact in the community we’ve called home for more than 150
years: Louisville, Kentucky. In 2022, the Brown-Forman Foundation made the
largest investment in its history, a 10-year, $50 million commitment to five
organizations in West Louisville. These organizations are working to advance
educational opportunities from early childhood through adult learning. We
believe that quality education, from cradle to career, is critical to lifelong
success and these programs have made a commitment to support students
throughout their educational journey. Our five partner organizations are:
◆ AMPED—Works with community partners aiming to provide support
for youth, including social-emotional programming that centers on
mentorship and music
◆ Louisville Central Community Center—Creates better access to quality
early education services, helping children start school with the necessary
social, emotional, and academic skills to be successful
◆ Louisville Urban League—Addresses the achievement gap that adversely
affects Black and Brown students through critical programming that
focuses on increasing access and removing barriers
◆ Simmons College of Kentucky—Develops a teacher education program
that prepares licensed secondary school teachers and addresses the
racial inequities in the local and regional public schools
◆ West End School—Offers boys an academically rigorous school, complete
with wraparound counseling, enrichment, extracurricular activities, and
invaluable mentorship. Brown-Forman, the Brown-Forman Foundation,
the Brown family, and other Louisville leaders have also come together to
create equitable opportunities at a new school for girls
12%
16%
72%
Essential Living
Standards
COMMUNITY
IMPACT REPORT
In fiscal 2023, the Brown-Forman Foundation
published its first Community Impact
Report, describing the Foundation’s mission,
focus areas, and recent examples of impact
in action. Visit the Foundation’s website for
more information about how the Foundation
and its partners came together to make a
difference over the past year.
Empowering Responsible Decisions
Our products are best enjoyed in the company of others.
They have the power to bring people together to connect,
celebrate, and make lasting memories. With this potential
comes the responsibility to ensure our brands are consumed
safely and responsibly. Brown-Forman’s mission for alcohol
responsibility is to empower mindful choices around
beverage alcohol and do our part to cultivate a respectful
drinking culture. In calendar 2022, a cross-functional team
of employees developed and launched a 2030 Alcohol
Responsibility strategy with the following priorities:
◆ Prevent drunk driving
◆ Prevent underage access and consumption
◆ Empower bystander intervention
◆ Promote responsible drinking and decisions
We execute this work through our Pause Campaign, which
inspires action among colleagues, business partners,
and consumers. Other ways we help promote responsible
choices—within our business and among consumers—include:
◆ Providing bartenders and servers with tools and skills to
mitigate personal and interpersonal violence within bars,
restaurants, and other venues, reaching over 4,000 trade
members in the United States
◆ Leveraging our SPIRIT ERG to empower mindful choices
and promote inclusion of all employees, regardless of their
choice to drink alcohol
◆ Participating in the International Alliance for Responsible
Drinking, which actively supports international goals to
reduce harmful consumption
◆ Complying with all relevant beverage alcohol advertising
codes, including the DISCUS Code where at least 71.6% of
the viewers of each media placement is Legal Drinking Age
(LDA). Our buys on these compliant platforms generate
cumulative total impressions of LDA viewers above 80% in
each category
◆ Partnering with local and national organizations that
offer hope and recovery for those experiencing addiction,
including Volunteers of America, The Healing Place, and
Ben’s Friends
30
2023 INTEGRATED ANNUAL REPORT BROWN-FORMAN SELECTED
Financial Data
For Year ended April 30:
(Dollars in millions, except per share amounts)
SALES
EXCISE TAXES
NET SALES
GROSS PROFIT
OPERATING INCOME
NET INCOME
2019
2020
20211
2022
2023
$ 4,276
$ 4,306
$ 4,526
$ 5,081
$ 5,372
$
952
$
943
$ 1,065
$
1,148
$ 1,144
$ 3,324
$ 3,363
$ 3,461
$ 3,933
$ 4,228
$ 2,166
$ 2,127
$ 2,094
$ 2,391
$ 2,494
$
1,144
$
1,091
$
1,166
$ 1,204
$ 1,127
$
835
$
827
$
903
$
838
$
783
WEIGHTED AVERAGE SHARES (IN MILLIONS) USED TO
CALCULATE EARNINGS PER SHARE
— Basic
— Diluted
479.0
477.8
478.5
478.9
479.2
482.1
480.4
480.7
480.6
480.5
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
— Basic
— Diluted
GROSS MARGIN
OPERATING MARGIN
EFFECTIVE TAX RATE
$
$
1.74
1.73
$
$
1.73
1.72
$
$
1.89
1.88
$
$
1.75
1.74
$
$
1.63
1.63
65.2%
34.4%
19.8%
63.2%
32.4%
18.0%
60.5%
33.7%
16.5%
60.8%
30.6%
24.7%
59.0%
26.7%
23.0%
AVERAGE INVESTED CAPITAL2
$ 3,971
$ 4,301
$ 4,969
$ 5,104
$ 5,551
RETURN ON AVERAGE INVESTED CAPITAL2
22.8%
20.8%
19.5%
17.6%
15.3%
CASH PROVIDED BY OPERATIONS
$
800
$
724
$
817
$
936
$ 640
CASH DIVIDENDS DECLARED PER COMMON SHARE3
$ 0.6480
$ 0.6806
$ 0.7076
$ 1.7360
$ 0.7880
DIVIDEND PAYOUT RATIO3,4
37.2%
39.3%
37.5%
99.2%
48.3%
as of April 30:
TOTAL ASSETS
LONG-TERM DEBT
TOTAL DEBT
$ 5,139
$ 5,766
$ 6,522
$ 6,373
$ 7,777
$ 2,290
$ 2,269
$ 2,354
$ 2,019
$ 2,678
$ 2,440
$ 2,602
$ 2,559
$ 2,269
$ 2,913
1 Results for fiscal 2021 include a pre-tax gain on sale of $127 million from the divestiture of Early Times, Canadian Mist, and Collingwood and related assets.
2 See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Presentation Basis—Non-GAAP Financial Measures” for details on our use of “return on
average invested capital,” including how we calculate this measure and why we think this information is useful to readers.
3 Cash dividends declared per common share and the dividend payout ratio include special cash dividends of $1.00 in fiscal 2022.
4 We define dividend payout ratio as cash dividends divided by net income.
To learn more about our ESG commitments and data, visit our website at
www.brown-forman.com/commitments.
32
CORPORATE
Information
CORPORATE HEADQUARTERS
850 Dixie Highway / Louisville, Kentucky 40210 / (502) 585-1100
www.brown-forman.com / brown-forman@b-f.com
LISTED
New York Stock Exchange -- BFA/BFB
STOCKHOLDERS
As of April 30, 2023, there were 2,385 holders of record of Class A
Common Stock and 4,583 holders of record of Class B Common Stock.
Stockholders reside in 49 states and in 16 foreign countries.
REGISTRAR, TRANSFER AGENT,
AND DIVIDEND DISBURSING AGENT
Computershare
web.queries@computershare.com
(866) 622-1917 (U.S., Canada, Puerto Rico)
(781) 575-4735 (International)
Correspondence: P.O. Box 43006 / Providence, RI 02940-3006
Overnight Correspondence: 150 Royall St Suite 101,
Canton, MA 02021
EMPLOYEES
As of April 30, 2023, Brown-Forman employed approximately
5,600 employees, excluding those employed on a part-time or
temporary basis. Brown-Forman Corporation is committed to
equality of opportunity in all aspects of employment. It has been,
and will continue to be, the policy of Brown-Forman to provide full
and equal employment opportunities to all employees and potential
employees without regard to race, color, religion, national or ethnic
origin, veteran status, age, gender, gender identity or expression,
sexual orientation, genetic information, physical or mental disability,
or any other legally protected status. It is also the policy of
Brown-Forman to take affirmative action to employ and to advance
in employment all persons regardless of race, color, religion, national
or ethnic origin, veteran status, age, gender, gender identity or
expression, sexual orientation, genetic information, physical or
mental disability, or any other legally protected status, and to base
all employment decisions only on valid job requirements. This policy
applies to all terms, conditions, and privileges of employment,
such as those pertaining to selection, training, transfer, promotion,
compensation, and educational assistance programs.
FORM 10-K
Our 2023 Form 10-K is included with this 2023 Integrated Annual
Report in its entirety, except for exhibits. Interested stockholders may
obtain without charge a copy of our 2023 Form 10-K, or a copy of any
exhibit, upon written request to: Investor Relations, Brown-Forman
Corporation, 850 Dixie Highway, Louisville, Kentucky 40210. The
2023 Form 10-K can also be downloaded from the company’s website
at www.brown-forman.com. Click on the “Investors” section of the
website and then on Financial Reports & Filings to view the 2023 Form
10-K and other important documents.
FORWARD-LOOKING STATEMENTS
The 2023 Integrated Annual Report and the embedded electronic
content referenced herein contain “forward-looking statements” as
defined under U.S. federal securities laws. 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. 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. For a
description of these risks and uncertainties, please see “Forward-
Looking Statement Information,” which precedes Part I, Item 1,
Business, as well as Item 1A, Risk Factors, of the 2023 Form 10-K
included with this 2023 Integrated Annual Report.
USE OF NON-GAAP FINANCIAL INFORMATION
Certain matters discussed in this 2023 Integrated Annual Report
include measures not derived in accordance with generally accepted
accounting principles (“GAAP”), including “return on average invested
capital” and organic changes in income statement line items.
Reconciliations of these measures to the most closely comparable
GAAP measures, and reasons for the company’s use of these measures,
are presented in Part II, Item 7, around “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” under the
heading “Non-GAAP Financial Measures” of the Form 10-K included with
this 2023 Integrated Annual Report.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
STOCK PERFORMANCE GRAPH
This graph compares the cumulative total shareholder return of our
Class B Common Stock against the Standard & Poor’s (S&P) 500 Index,
the Dow Jones U.S. Consumer Goods Index, the Dow Jones U.S. Food
& Beverage Index, and the S&P 500 Consumer Staples (Sector) Index.
The graph assumes $100 was invested on April 30, 2018, and that all
dividends were reinvested. The cumulative returns shown on the graph
represent the value that these investments would have had on April 30
in the years since 2018.
Indexed Total Shareholder Return
as of April 30, 2023, dividends reinvested
$200
$150
$100
$50
2018
2019
2020
2021
2022
2023
Brown-Forman
Corporation
S&P 500 Total
Return Index
Dow Jones U.S.
Consumer Goods Index
Dow Jones U.S. Food
and Beverage Index
S&P 500 Consumer
Staples (Sector) Index
2018
2019
2020
2021
2022
2023
$ 100
$ 96
$ 114
$ 141
$ 127
$ 124
$ 100
$ 113
$ 114
$ 167
$ 167
$ 172
$ 100
$ 111
$ 111
$ 173
$ 179
$ 166
$ 100
$ 114
$ 113
$ 141
$ 160
$ 171
$ 100
$ 118
$ 123
$ 151
$ 175
$ 179
ENVIRONMENTAL STEWARDSHIP
As a responsible corporate citizen, Brown-Forman is committed to
environmental sustainability. Our efforts focus primarily on climate
action, water stewardship, circular economy,
and supply chain. This 2023 Integrated Annual
Report is printed on FSC®-certified paper.
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K(Mark One) ☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended April 30, 2023OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-00123BROWN-FORMAN CORPORATION(Exact name of registrant as specified in its charter) Delaware61-0143150(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)850 Dixie HighwayLouisville,Kentucky40210(Address of principal executive offices)(Zip Code)Registrant’s telephone number, including area code (502) 585-1100Securities registered pursuant to Section 12(b) of the Act:Title of each classTradingSymbol(s)Name of each exchange on which registeredClass A Common Stock (voting), $0.15 par valueBFANew York Stock ExchangeClass B Common Stock (nonvoting), $0.15 par valueBFBNew York Stock Exchange1.200% Notes due 2026BF26New York Stock Exchange2.600% Notes due 2028BF28New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See thedefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer☑Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☑If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error topreviously issued financial statements. ☐Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executiveofficers during the relevant recovery period pursuant to §240.10D-1(b). ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑The aggregate market value, as of the last business day of the most recently completed second fiscal quarter, of the voting and nonvoting equity held by nonaffiliates of the registrant wasapproximately $23,400,000,000. The number of shares outstanding for each of the registrant’s classes of Common Stock on June 12, 2023, was:
Class A Common Stock (voting), $0.15 par value
Class B Common Stock (nonvoting), $0.15 par value
169,254,084
310,110,423
Portions of Registrant’s Proxy Statement for use in connection with the Annual Meeting of Stockholders to be held July 27, 2023, are incorporated by reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
SCHEDULE II – Valuation and Qualifying Accounts
Exhibits and Financial Statements Schedules
Form 10-K Summary
Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
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Forward-Looking Statement Information. Certain matters discussed in this report, including the information presented in Part II under “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain 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,” “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, those described in Part I under “Item 1A. Risk
Factors” and those described from time to time in our future reports filed with the Securities and Exchange Commission, including:
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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; 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
Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs,
or impairment in recorded value
Impact of health epidemics and pandemics, and the risk of the resulting negative economic impacts and related governmental actions
Unfavorable global or regional economic conditions 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 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 additional 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, kidnapping, extortion, or other types of violence; 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 affecting 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
3
Use of Non-GAAP Financial Information. Certain matters discussed in this report, including the information presented in Part II under “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations,” include measures that are not measures of financial performance
under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures should not be considered in isolation or as a substitute for any
measure derived in accordance with GAAP, and also may be inconsistent with similarly titled measures presented by other companies. In Part II under “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations,” we present the reasons we use these measures under the heading
“Non-GAAP Financial Measures,” and we reconcile these measures to the most closely comparable GAAP measures under the heading “Results of
Operations.”
Item 1. Business
Overview
PART I
Brown-Forman Corporation (the “Company,” “Brown-Forman,” “we,” “us,” or “our” below) was incorporated under the laws of the State of Delaware in
1933, successor to a business founded in 1870 as a partnership and later incorporated under the laws of the Commonwealth of Kentucky in 1901. We primarily
manufacture, distill, bottle, import, export, market, and sell a wide variety of beverage alcohol products under recognized brands. We employ approximately
5,600 people (excluding individuals who work on a part-time or temporary basis) on six continents, including approximately 2,700 people in the United States
(approximately 14% of whom are represented by a union) and 1,200 people in Louisville, Kentucky, USA, home of our world headquarters. According to
International Wine & Spirit Research (IWSR), we are the largest American-owned spirits and wine company with global reach. We are a “controlled company”
under New York Stock Exchange rules because the Brown family owns more than 50% of our voting stock. Taking into account ownership of shares of our
non-voting stock, the Brown family also controls more than 50% of the economic ownership in Brown-Forman.
For a discussion of recent developments, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations –
Executive Summary.”
Brands
Beginning in 1870 with Old Forester Kentucky Straight Bourbon Whisky – our founding brand – and spanning the generations since, we have built a
portfolio of more than 40 spirit, ready-to-drink (RTD) cocktail, and wine brands that includes some of the best-known and most loved trademarks in our
industry. The most important and iconic brand in our portfolio is Jack Daniel’s Tennessee Whiskey, the #1 selling American whiskey in the world. Jack
Daniel’s Tennessee Whiskey was recently named the most valuable spirits brand in the world in the 2022 Interbrand “Best Global Brands” rankings, and the
newly released Jack Daniel's Bonded Tennessee Whiskey was named the "2022 Whisky of the Year" by Whisky Advocate. Our premium bourbons, Woodford
Reserve and Old Forester, were once again selected for the Impact “Hot Brands” list, marking ten and five consecutive years on the list, respectively, as were
Jack Daniel's RTDs. Our super premium tequila, Herradura, received two Gold medals at the San Francisco World Spirits competition in 2023, one for
Reposado and the one for Legend, as well as three Gold medals for the brand's core expressions at the Tequila and Mezcal Masters competition from The
Spirits Business.
2
1
4
3
Jack Daniel's Tennessee Whiskey
Jack Daniel's RTD
Jack Daniel's Tennessee Honey
Gentleman Jack Rare Tennessee Whiskey
Jack Daniel's Tennessee Fire
Jack Daniel's Tennessee Apple
Jack Daniel's Single Barrel Collection
4
Principal Brands
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6
el Jimador Tequilas
el Jimador New Mix RTD
Herradura Tequilas
Korbel California Champagnes
Korbel California Brandy
Finlandia Vodkas
Sonoma-Cutrer California Wines
7
7
Jack Daniel's Bonded Tennessee Whiskey
Jack Daniel's Sinatra Select
Jack Daniel's Tennessee Rye
Jack Daniel’s Winter Jack
Jack Daniel's Bottled-in-Bond
Jack Daniel's Triple Mash Blended Straight Whiskey
Jack Daniel's No. 27 Gold Tennessee Whiskey
Jack Daniel’s 10 Year Old
Jack Daniel’s 12 Year Old
Woodford Reserve Kentucky Bourbon
Woodford Reserve Double Oaked
Woodford Reserve Kentucky Rye Whiskey
Woodford Reserve Kentucky Straight Wheat Whiskey
Woodford Reserve Kentucky Straight Malt Whiskey
1
2
IWSR, 2023.
Impact Databank, March 2023.
Old Forester Whiskey Row Series
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Old Forester Kentucky Straight Bourbon Whisky
Old Forester Kentucky Straight Rye Whisky
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GlenDronach Single Malt Scotch Whiskies
Benriach Single Malt Scotch Whiskies
Glenglassaugh Single Malt Scotch Whiskies
Chambord Liqueur
Gin Mare
Gin Mare Capri
Diplomático Rums
Fords Gin
Slane Irish Whiskey
Coopers' Craft Kentucky Bourbon
Part Time Rangers RTDs
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Jack Daniel's RTD includes Jack Daniel's & Cola, Jack Daniel's Country Cocktails, Jack Daniel's Double Jack, Jack Daniel’s & Coca-
Cola RTD, and other malt- and spirit-based Jack Daniel’s RTDs.
4
The Jack Daniel's Single Barrel Collection includes Jack Daniel's Single Barrel Select, Jack Daniel's Single Barrel Barrel Proof, Jack
Daniel's Single Barrel Rye, Jack Daniel's Single Barrel 100 Proof, and other Jack Daniel’s Single Barrel special-release expressions.
5
el Jimador Tequilas comprise all full-strength expressions of el Jimador.
Herradura Tequilas comprise all expressions of Herradura.
Korbel is not an owned brand. We sell Korbel products under contract in the United States and other select markets.
GlenDronach Single Malt Scotch Whiskies comprise all expressions of GlenDronach.
Benriach Single Malt Scotch Whiskies comprise all expressions of Benriach.
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Glenglassaugh Single Malt Scotch Whiskies comprise all expressions of Glenglassaugh.
Diplomático Rums comprise all expressions of Diplomático.
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See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal 2023 Brand
Highlights” for brand performance details.
Our vision in marketing is to be the best brand-builder in the industry. We build our brands by investing in platforms that we believe create enduring
connections with our consumers. These platforms cover a wide spectrum of activities, including media advertising (TV, radio, print, outdoor, digital, and
social), consumer and trade promotions, sponsorships, and visitors' center programs at our distilleries and our winery. We expect to grow our sales and profits
by consistently delivering creative, responsible marketing programs that drive brand recognition, brand trial, brand loyalty, and ultimately, consumer demand
around the world.
5
Markets
We sell our products in over 170 countries around the world. The United States, our most important market, accounted for 47% of our net sales in fiscal
2023 and the other 53% were outside of the United States. The table below shows the percentage of total net sales for our top markets in our three most recent
fiscal years:
Percentage of Total Net Sales by Geographic Area
United States
Mexico
Germany
Australia
United Kingdom
Other
TOTAL
Note: Totals may differ due to rounding
2021
Year ended April 30
2022
2023
50 %
4 %
6 %
6 %
6 %
28 %
100 %
49 %
5 %
6 %
6 %
6 %
28 %
100 %
47 %
6 %
6 %
5 %
5 %
31 %
100 %
For details about net sales in our top markets, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations –
Results of Operations – Fiscal 2023 Market Highlights.” For details about our reportable segment and for additional geographic information about net sales and
long-lived assets, see Note 17 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.” For details on risks related
to our global operations, see “Item 1A. Risk Factors.”
Distribution Network and Customers
Our distribution network, or our “route to consumer” (RTC), varies depending on (a) the laws and regulatory framework for trade in beverage alcohol by
market, (b) our assessment of a market's long-term attractiveness and competitive dynamics, (c) the relative profitability of distribution options available to us,
(d) the structure of the retail and wholesale trade in a market, and (e) our portfolio's development stage in a market. As these factors change, we evaluate our
RTC strategy and, from time to time, adapt our model.
In the United States, which generally prohibits spirits and wine manufacturers from selling their products directly to consumers, we sell our brands either
to distributors or to state governments (in states that directly control alcohol sales) that then sell to retail customers and consumers.
Outside the United States, we use a variety of RTC models, which can be grouped into three categories: owned distribution, partner, and government-
controlled markets. We own and operate distribution companies for Australia, Belgium and Luxembourg, Brazil, Czechia, France, Germany, Korea, Mexico,
Poland, Spain, Taiwan, Thailand, Türkiye, and the United Kingdom. In these owned-distribution markets, and in a large portion of the Travel Retail channel,
we sell our products directly to retailers or wholesalers. In many other markets, including Italy and South Africa, we rely on third parties to distribute our
brands, generally under fixed-term distribution contracts. In Canada, we sell our products to provincial governments.
We believe that our customer relationships are good and that our exposure to concentrations of credit risk is limited due to the diverse geographic areas
covered by our operations and our thorough evaluation of each customer. In fiscal 2023, our two largest customers accounted for approximately 14% and 12%
of consolidated net sales, respectively. No other customer accounted for 10% or more of our consolidated net sales in fiscal 2023.
Seasonality
Holiday buying makes the fourth calendar quarter the peak season for our business. Approximately 31%, 29%, and 27% of our reported net sales for
fiscal 2021, fiscal 2022, and fiscal 2023, respectively, were in the fourth calendar quarter.
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Competition
Trade information indicates that we are one of the largest global suppliers of premium spirits. According to IWSR, for calendar year 2022, the ten largest
global spirits companies controlled over 20% of the total spirits volume sold around the world. While we believe that the overall market environment offers
considerable growth opportunities for us, our industry is, and will remain, highly competitive. We compete against many global, regional, and local brands in a
variety of categories of beverage alcohol, but our brands compete primarily in the industry's premium-and-above price points. Our competitors include major
global spirits and wine companies, such as Bacardi Limited, Beam Suntory Inc., Becle S.A.B. de C.V., Davide Campari-Milano N.V., Diageo PLC, LVMH
Moët Hennessy Louis Vuitton SE, Pernod Ricard SA, and Rémy Cointreau. In addition, particularly in the United States, we compete with national companies
and craft spirit brands, many of which entered the market in the last few years.
Brand recognition, brand provenance, quality of product and packaging, availability, flavor profile, and price affect consumers' choices among competing
brands in our industry. Other factors also influence consumers, including advertising, promotions, merchandising at the point of sale, expert or celebrity
endorsement, social media and word of mouth, and the timing and relevance of new product introductions. Although some competitors have substantially
greater resources than we do, we believe that our competitive position is strong, particularly as it relates to brand awareness, quality, availability, and relevance
of new product introductions.
Ingredients and Other Supplies
The principal raw materials used in manufacturing and packaging our distilled spirits, liqueurs, RTD products, and wines are shown in the table below.
Principal Raw Materials
RTD Products
Distilled Spirits
Packaging
Liqueurs
Wines
Agave
Barley
Corn
Malted barley
Molasses
Rye
Sugar
Water
Wood
Flavorings
Neutral spirits
Sugar
Water
Whiskey
Wine
Carbon dioxide
Flavorings
Malt
Neutral spirits
Sugar
Tequila
Water
Whiskey
Grapes
Wood
Aluminum cans
Cartons
Closures
Glass bottles
Labels
1
PET bottles
1
Polyethylene terephthalate (PET) is a polymer used in non-glass containers.
None of these raw materials are in short supply, but shortages could occur in the future. From time to time, our agricultural ingredients (agave, barley,
corn, grapes, malted barley, molasses, rye, sugar, and wood) could be adversely affected by weather and other forces out of our control that might constrain
supply or reduce our inventory below desired levels for optimum production.
Whiskeys and certain tequilas and other distilled spirits must be aged. Because we must produce these distilled spirits years in advance to meet projected
future demand, our inventories of these products may be larger in relation to sales and total assets than in many other businesses.
For details on risks related to the unavailability of raw materials and the inherent uncertainty in forecasting supply and demand, see “Item 1A. Risk
Factors.”
Intellectual Property
Our intellectual property includes trademarks, copyrights, proprietary packaging and trade dress, proprietary manufacturing technologies, know-how, and
patents. Our intellectual property, especially our trademarks, is essential to our business. We register our trademarks broadly around the world, focusing
primarily on where we sell or expect to sell our products. We protect our intellectual property rights vigorously but fairly. We have licensed some of our
trademarks to third parties for use with services or on products other than alcoholic beverages, which enhances the awareness and protection of our brands.
Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained. We also have various licenses
and distribution agreements for the production, sale, and marketing of our products, and for the sale and marketing of products of others. These licenses and
distribution agreements have varying terms and durations.
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For details on risks related to the protection of our intellectual property, see “Item 1A. Risk Factors.” For details on our most important brands, see “Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Fiscal 2023 Brand Highlights.”
Regulatory Environment
Federal, state, local, and foreign authorities regulate how we produce, store, transport, distribute, market, and sell our products. Some countries and local
jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part.
In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and
wine industry with respect to the production, blending, bottling, labeling, advertising, sales, and transportation of beverage alcohol. Similar regulatory regimes
exist at the state level and in most non-U.S. jurisdictions where we sell our products. In addition, beverage alcohol products are subject to customs duties,
excise taxes, and/or sales taxes in many countries, including taxation at the federal, state, and local level in the United States.
Many countries set their own distilling and maturation requirements. For example, under U.S. federal and state regulations, bourbon and Tennessee
whiskeys must be aged in new, charred oak barrels; we typically age our whiskeys at least three years. Mexican authorities regulate the production and bottling
of tequilas; they mandate minimum aging periods for extra añejo (three years), añejo (one year), and reposado (two months). Irish whiskey must be matured at
least three years in a wood cask, such as oak, on the island of Ireland. Scotch whisky must be matured in oak casks for at least three years in Scotland. We
comply with all of the applicable laws and regulations.
Our operations are also subject to various environmental protection statutes and regulations, and our policy is to comply with them. Complying with these
statutes and regulations has not materially impacted our capital expenditures, earnings or competitive position, and is not expected to have a material impact
during fiscal 2024.
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Integrated Strategy and Performance
For more than 150 years, Brown-Forman and the Brown family have been committed to driving sustainable growth and preserving Brown-Forman as a
thriving, family-controlled, independent company. The image on the left illustrates our core purpose, “Enriching Life,” and our highest ambition, “Nothing
Better in the Market,” surrounded by the values that have guided us for decades: integrity, respect, trust, teamwork, and excellence. In addition to these guiding
principles, our success depends on several strategic priorities, as illustrated in the image on the right: the quality of our brands within our portfolio, our
geographic reach, the talent and diversity of our people, and the return on our investments. Moreover, taking an integrated approach means that many aspects
of our company contribute to this value creation and are fundamental to our strategy, including our commitment to environmental sustainability, alcohol and
marketing responsibility, diversity and inclusion, and to building communities in which we live and work.
Over the past three fiscal years, we faced a challenging, volatile environment, including supply chain disruptions and a global pandemic. Our employees'
unique mix of agility, resilience, energy, and collaboration enabled us to succeed despite these challenges. Our values drive decisions, and our core purpose and
our highest ambition continue to guide us as we move forward to a reimagined future with a renewed sense of opportunity for what lies ahead. We believe we
are well positioned to navigate the ever-changing landscape. We will make bold moves with a commitment to improve continuously as we work together to
deliver sustained long-term growth.
This Integrated Annual Report on Form 10-K for the fiscal year ended April 30, 2023, presents not only our financial performance but also our
environmental, social, and governance (“ESG”) strategies, commitments, and results. It provides a more holistic view of Brown-Forman, our culture, our
strategic approach to our business, and how we achieve results.
Portfolio and Responsibility
We seek to build brands and create stockholder value responsibly by delivering strong, sustainable growth, solid margins, and high returns on invested
capital. We focus on building brands that can be meaningful for our company and our consumers over the longer term. We aim to grow our premium spirits
portfolio both organically and through innovation. Opportunistically and thoughtfully, we also consider acquisitions and partnerships that will enhance our
capacity to deliver meaningful growth, improve margins, and increase stockholder returns.
We strive to grow our brands and enhance consumers' experience with them. Even as we do so, we remain committed to marketing our brands
responsibly and promoting responsible drinking. Regulation of our industry is not new, and external interest from the World Health Organization and other
health bodies has grown over time. We uphold high standards of self-regulation by adhering to industry guidelines on responsible marketing and advertising.
We promote alcohol responsibility both independently and with industry organizations, such as the International Alliance for Responsible Drinking, the
Foundation for Advancing Alcohol Responsibility (responsibility.org) in the United States, The Portman Group in the United Kingdom, DrinkWise in Australia,
and FISAC in Mexico.
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The Jack Daniel's family of brands, led by Jack Daniel's Tennessee Whiskey (JDTW), is our most valuable asset – the engine of our overall financial
performance and the foundation of our leadership position in the American whiskey category. We strive to strengthen the brand's leadership position
continually, and will work steadfastly to keep JDTW relevant to consumers worldwide. We will also pursue opportunities to grow the Jack Daniel's family of
brands across markets, premium-and-above price points, channels, and consumer groups. Product innovation continues to contribute meaningfully to our
performance. Different Jack Daniel's expressions have brought new consumers to the franchise, including Jack Daniel's Tennessee Honey (2011), Jack Daniel's
Tennessee Fire (2015), Jack Daniel's Tennessee Rye (2017), Jack Daniel's Tennessee Apple (2019), and our most recent launches, Jack Daniel's Bonded
Tennessee Whiskey and Triple Mash Blended Straight Whiskey (2022), which individually and collectively add great value to the company and to our
consumers the world over.
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In addition to the leadership of our Jack Daniel's family of brands, we expect strong worldwide growth from our other whiskey brands, particularly
Woodford Reserve and Old Forester. Woodford Reserve is the leading super-premium American whiskey globally, growing volumes at a strong double-digit
compound annual growth rate since the brand was introduced over 25 years ago. Woodford Reserve surpassed 1.7 million nine-liter cases of annual volume as
of April 30, 2023. We believe the brand is poised for continued growth as the bourbon category continues to grow around the world. Old Forester has continued
its return to prominence in the United States and in select international markets. Innovation has played an important role in the premiumization of both of these
brands, including the success of high-end expressions such as Woodford Reserve Double Oaked, and the Old Forester Whiskey Row Series.
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Outside of our American whiskey brands, we believe our portfolio remains well positioned in other high-growth categories, with meaningful premium
brands and a focus on accelerating our super-premium portfolio. Our tequila portfolio is led by two brands steeped in Mexican heritage, Herradura and el
Jimador. Despite the cyclical cost pressures resulting from the unprecedented cost of agave, we remain committed to the growth of our tequila business in the
United States and the long-term growth prospects of this business globally. We believe that our Scotch whiskies GlenDronach, Benriach, and Glenglassaugh,
and our Irish whiskey Slane, are well-positioned in their respective categories. We expect them all to become meaningful contributors over the longer term.
Lastly, the recent acquisitions of Gin Mare (2022) and Diplomático (2023) provide us with leadership positions in the super-premium-and-above gin and rum
categories, respectively, and we look to grow these brands globally.
Fiscal 2023 was another year of growth for our ready-to-drink (RTD) portfolio. Jack Daniel's RTDs are now more than 14 million nine-liter cases
globally. In Mexico, our el Jimador tequila-based RTD, New Mix, grew to nearly 10 million nine-liter cases. In June 2022, we jointly announced a global
relationship with The Coca-Cola Company to introduce the iconic Jack & Coke cocktail as a branded, ready-to-drink pre-mixed cocktail. Since the
announcement, we have launched the product in Mexico, the United States, Japan, the Philippines, the United Kingdom, Poland, Hungary, the Netherlands, and
Ireland with more markets to follow. Jack Daniel's Country Cocktails in the United States continues to be sold and distributed under our relationship with the
Pabst Brewing Company.
We appreciate the power of our brands to enrich the experience of life, and we believe it is our duty to ensure that our products are marketed with deep
respect for our consumers. Our mission for alcohol responsibility is to empower mindful choices around beverage alcohol. We launched the Pause campaign in
2019. Pause is Brown-Forman’s driving effort to encourage mindful choices. In 2022, we launched our 2030 Alcohol Responsibility strategy to prioritize
strategic programs and partnerships, in-market tools and resources, and to continue empowering our employees and business partners. We execute our 2030
Alcohol Responsibility strategy through the lens of our Pause campaign to showcase the importance of alcohol responsibility and inspire action among our
consumers, colleagues, and business partners.
Geography
The United States remains our largest market, and continued growth there is important to our long-term success. We expect to foster this growth by
emphasizing fast-growing spirits categories, continued product and packaging innovation, and brand building within growing consumer segments. This
includes increasing emphasis on inclusive, digital, and integrated marketing and the growth of our e-commerce capabilities to better connect and engage with
consumers where they are.
Outside the United States, we continue to increase our competitiveness through improved routes to consumers. In fiscal 2022, we established our owned-
distribution organizations for Belgium and Luxembourg and Taiwan. More direct connection with customers and consumers enabled through owned
distribution is an important part of our strategic growth.
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IWSR, 2023
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People, Diversity & Inclusion, and Ethics & Compliance
As we work to increase our brands' relevance and appeal to diverse consumer groups around the world, we believe a diversity of experiences and
mindsets within our own workforce is essential. In the summer of 2019, we unveiled Many Spirits, One Brown-Forman: Gender and Race Edition, our 2030
Diversity & Inclusion Strategy aimed at creating a foundation for building a more diverse workforce and inclusive culture. In the summer of 2020, we
developed and published commitments to be better and do better – commitments that amplified our initiatives in the areas of representation, development, and
accountability. We also extended our commitment more deeply in our communities, especially our hometown of Louisville, Kentucky. We believe these actions
will help us continue to build an inclusive culture at Brown-Forman.
Our vision is to create an environment where leveraging diversity and inclusion occurs naturally, giving us a sustainable marketplace advantage. We have
set race and gender ambitions to have at least 50% women in professional- and leader-level roles globally, 40% women in senior leadership positions globally,
and 25% people of color in our United States workforce by 2030. In June 2022, we published the Many Spirits, One Brown-Forman LGBTQ+ edition and set a
2030 ambition of 6% self-identified LGBTQ+ employees in our United States workforce. We have also set a goal to reach 16% of our supplier spend in
locations such as the United States, the United Kingdom, and Australia, with businesses that are woman- or minority-owned by 2030. For more than a decade,
we have earned a perfect score in the Corporate Equality Index, a national benchmarking survey and report on corporate policies and practices related to
LGBTQ+ workplace equality administered by the Human Rights Campaign Foundation.
One of the main drivers of our inclusive culture is the continued growth and leadership of our nine Employee Resource Groups (ERGs). We believe
ERGs are instrumental in enriching our company's culture, and our employees experience this by supporting development and engagement of our diverse
workforce, driving cultural awareness and competency across the organization, and enabling authentic engagement with our consumers. Our ERGs also create
spaces for our employees and their allies to connect with, support, and advocate for one another.
Our core values of integrity, respect, trust, teamwork, and excellence form the foundation of our ethics and compliance program. “Values Drive
Decisions” is the key theme of this program, and we use it to teach our employees to rely on our values when faced with a difficult decision and to “speak up”
if they believe they, a colleague, or a business partner may have violated the law, our Code of Conduct, or company policy. In 45 countries, we offer a third-
party service to employees and others who choose to “speak up” anonymously. We deliver training to managers reinforcing our commitment to non-retaliation
and maintaining a “speak up” culture.
We convey our compliance expectations to employees via our Code of Conduct, and our employees certify annually that they will comply with the Code
of Conduct and report potential violations. The Code of Conduct is a toolkit for employees, as it details expectations for 20 different risks, includes links to
Q&A, policies, training, and the ability to contact a subject-matter expert. We refresh our Code of Conduct and certification annually and make them available
in 13 languages.
Investment and Sustainability
For over a century and a half, we have learned that long-term success requires investment and a mindset of sustainability. We understand the need to
invest in our brands, global supply chain facilities, homeplace and visitor centers, and aging inventory. For example, in May 2023, we announced a $200
million capital investment to expand our Casa Herradura tequila distillery to meet future consumer demand. Additionally, during fiscal 2023, we announced a
£30 million expansion of our GlenDronach distillery to meet strong demand. We also understand the importance of investing in our people, communities, and
the environment. We recognize that climate change is a business issue with risks and opportunities. As such, we are committed to actions that will ensure the
long-term health of the planet and our business. In fiscal 2021, we established a new 2030 Sustainability Strategy to align our efforts with industry best
practices and the most current climate science. Our goals broaden our focus beyond business operations to include our supply chain, where the majority of our
environmental footprint resides. With this evolving strategy, we have a roadmap for continued progress over the next quarter-century.
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Our continued investments in renewable energy and resource stewardship underscore our long-term focus:
•
•
Renewable Electricity: In fiscal 2023, we installed a rooftop solar system at our Slane Castle distillery, and in fiscal 2024 we plan to install a rooftop
solar system at our Newbridge bottling plant in Edinburgh, Scotland.
Byproducts to Energy: Jack Daniel's announced a project to develop an anaerobic digester that will convert a portion of the distillery byproducts,
also known as stillage, to renewable energy and fertilizer. The project broke ground in fiscal 2023.
• Water Stewardship: In fiscal 2023, we partnered with Waterplan to improve the measurement of water related risk at two of our facilities and to
identify opportunities for water reuse at our Casa Herradura facility. We will expand this partnership in fiscal 2024 to further enhance our water
stewardship program.
•
Sustainable Forestry: In April 2023, we completed the third planting at the Old Forester Tree Nursery, a 15-year white oak genetic improvement
project in partnership with the University of Kentucky. In June 2023, our Jack Daniel Seed Orchard will celebrate its 25th anniversary and our
continued partnership with the University of Tennessee.
We believe we are well positioned to deliver exceptional, high-quality products to our consumers around the world. We have a highly capable and
engaged workforce. We have developed brand-building capabilities by equipping our teams with the training and tools necessary for an increasingly data-
driven digital global marketplace. Among other trends, the expansion of the digital economy accelerated significantly as consumers, businesses, and
communities adapted to the challenges brought on by the COVID-19 pandemic. To continue our success in how we market and sell our brands, we announced
in fiscal 2021 an investment in a new Integrated Marketing Communications organization that we believe is further enhancing our ability to win in the digital
economy.
Community
We are a responsible and caring corporate citizen and invest in the communities where employees live and work. We encourage employees to participate
in philanthropic outreach efforts by giving their time and talents to support those non-profit organizations most meaningful to them. This civic engagement, as
well as our corporate contributions, further promotes Brown-Forman’s caring culture and supports our purpose to enrich life.
We also continue to expand our civic engagement into Brown-Forman global office locations, allowing those employees closest to the needs of their
communities to decide how to invest their charitable-giving resources. We leverage our key community relations partners to stay informed of collaborative
opportunities in the communities where we work and live, and to shape our charitable-giving strategy to meet the essential needs of the communities that
sustain us. We provide charitable donations and our employees volunteer throughout our communities, including approximately 120 serving on 200 nonprofit
boards in the United States. We created the Brown-Forman Foundation (the Foundation) in fiscal 2018 to help fund our ongoing philanthropic endeavors. The
Foundation's earnings provide a consistent source of revenue for charitable giving independent of our annual earnings. We work to partner with organizations
that support our key focus areas: empowering responsible and sustainable living, ensuring essential living standards, and enhancing arts and cultural living. As
part of our commitment to be better and do better as neighbors and as corporate citizens, the Brown-Forman Foundation made a 10-year, $50 million
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commitment to five organizations in west Louisville in 2022, which is the largest investment in its history. Our partner organizations include AMPED, the
Louisville Central Community Center, the Louisville Urban League, Simmons College of Kentucky, and the West End School. Together, these organizations
will advance educational opportunities in west Louisville, from early childhood through adult learning.
We believe that having a long-term-focused, committed, and engaged stockholder base, anchored by the Brown Family, gives us a distinct strategic
advantage, particularly in a business with multi-generational brands and products that must be aged. We are committed to continually improving our
environmental, social, and governance performance and acting upon our deeply held values. Recognizing the strong cash-generating capacity and the capital
efficiency of our business, we will continue to pursue top-tier stockholder return through stockholder-friendly capital allocation and socially and
environmentally conscious investments to fuel long-term growth.
Human Capital Resources
Overview
We put our values at the forefront of all our decisions and actions, in an effort to make our employees feel respected, safe, and supported so they can
make, market, and sell our products with the finest craftsmanship, quality, and care. What enables our success are the approximately 5,600 people (excluding
individuals that work on a part-time or temporary basis) we employ in 47 countries around the world. This includes approximately 3,500 salaried employees
and 2,100 hourly employees, with the largest percentage of our employees residing within the United States, Mexico, and the United Kingdom. We believe our
employee relations are good and our turnover rate is low.
Total Rewards
It is our intent to pay our employees fairly and competitively. Over the last fiscal year, we completed a process to review the compensation for every
salaried role both internally and externally, ensuring that every employee is paid fairly compared to each other and competitively against the market. All roles
are priced based on compensation survey data for the market where the employee resides. We will continue to refresh our data and monitor pay equity annually.
Talent Development
We continually seek opportunities to develop our employees to ensure that we have the capabilities to grow our business. We do this through a
combination of succession planning, planned learning, short-term assignments, international opportunities, and thoughtful talent management. Given our low
turnover, we are particularly thoughtful about rotating employees through new roles, ensuring that everyone has the opportunity to grow and develop. We
recently began tracking all internal movement and are comfortable that we are providing an appropriate level of growth and development for our employees.
Diversity & Inclusion
We are continuing to pursue our 2030 Diversity & Inclusion strategy, as outlined in Many Spirits, One Brown-Forman: Gender and Race Edition. This
year, we continued to increase the number of women in senior leadership globally and people of color in the United States through both internal promotions
and external hiring. We have also added an ambition to increase the number of LGBTQ+ salaried employees in the United States to 6% by 2030.
We track promotion and lateral movement by gender (globally) and ethnicity (in the United States) and, based on that data, we can confirm that our
growth opportunities for women and people of color are proportional to our salaried employee population.
To support our culture of inclusion, all business leaders participated in our six-month Inclusive Leadership Program. This group completed the program at
the end of the calendar year, and we have recently begun cascading it down to our front-line managers.
Workforce Stability
We must remain focused on winning the war for talent in a marketplace where opportunities abound and highly skilled knowledge workers can work from
anywhere. While we have historically enjoyed low turnover among our salaried population, we have continued to track our departures carefully over the last
fiscal year, given the acceleration of the job market over the last two years. We have analyzed our data quarterly by gender, ethnicity, function, location, age,
management level, etc. in addition to qualitative exit interview data. Turnover related to retirements increased in fiscal 2023, which we believe was related to
the impact of interest rate movement on some of our defined benefit pension plans. Excluding retirements, our
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voluntary turnover among salaried employees remains consistent with our pre-pandemic levels. We will continue to monitor our data carefully.
Executive Officers
Information about Our Executive Officers
The following persons served as executive officers as of June 16, 2023:
Name
Lawson E. Whiting
Matias Bentel
Leanne D. Cunningham
Marshall B. Farrer
Matthew E. Hamel
Kirsten M. Hawley
Thomas W. Hinrichs
Timothy M. Nall
Crystal L. Peterson
Age
54 President and Chief Executive Officer since 2019. Executive Vice President and Chief Operating Officer from October 2017
to December 2018. Executive Vice President and Chief Brands and Strategy Officer from 2015 to 2017. Senior Vice President
and Chief Brands Officer from 2013 to 2015.
Principal Occupation and Business Experience
48 Executive Vice President and Chief Brands Officer since March 2023. Senior Vice President and Chief Brands Officer from
January 2020 to March 2023. Senior Vice President and Managing Director of Jack Daniel’s Family of Brands from August
2018 to January 2020. Vice President and General Manager of Mexico from January 2016 to August 2018. Vice President
Latin America Marketing and Chief of Staff from October 2009 to January 2016.
53 Executive Vice President and Chief Financial Officer since March 2023. Senior Vice President and Chief Financial Officer
from July 2021 to March 2023. Senior Vice President, Shareholder Relations Officer, Global Commercial Finance, and
Financial Planning and Analysis from August 2020 to July 2021. Senior Vice President, Shareholder Relations Officer from
August 2019 to July 2020. Senior Vice President, and General Manager - Brown-Forman Brands from May 2015 to July
2019. Vice President, Director of Finance Global Production from October 2013 to April 2015.
52 Executive Vice President, Chief Strategic Growth Officer and President Europe since January 2023. Senior Vice President,
President Europe from August 2020 to January 2023. Senior Vice President, Managing Director, Global Travel Retail and
Developed APAC Region from August 2018 to July 2020. Senior Vice President, Managing Director, Global Travel Retail
from July 2018 to May 2015. Vice President, Managing Director, Jack Daniel’s Tennessee Honey from January 2014 to April
2015.
63 Executive Vice President and General Counsel since 2021. Executive Vice President, General Counsel and Secretary from
2007 to 2021.
53 Executive Vice President, Chief People, Places, and Communications Officer since March 2023. Senior Vice President, Chief
People, Places, and Communications Officer from May 2021 to March 2023. Senior Vice President, Chief Human Resources
and Corporate Communications Officer from March 2019 to April 2021. Senior Vice President and Chief Human Resources
Officer from February 2015 to February 2019. Senior Vice President and Director of Human Resources Business Partnerships
from 2013 to 2015.
61 Executive Vice President, President Emerging International since March 2023. Senior Vice President, President Emerging
International from August 2020 to March 2023. Senior Vice President, President, International Division from June 2018 to
July 2020. Senior Vice President and President for Europe, North Asia, and ANZSEA from February 2015 to June 2018.
Senior Vice President and Managing Director for Europe from 2013 to 2015.
52 Executive Vice President, Chief Global Supply Chain and Technology Officer since March 2023. Senior Vice President, Chief
Global Supply Chain and Technology Officer from March 2022 to March 2023. Senior Vice President, Chief Information and
Advanced Analytics Officer from January 2015 to February 2022. Vice President Director Technical Services from May 2013
to December 2014.
52 Executive Vice President, Chief Inclusion and Global Community Relations Officer since March 2023. Senior Vice President,
Chief Inclusion and Global Community Relations Officer from June 2022 to March 2023. Vice President and Chief Diversity
Officer from February 2022 to June 2022. Vice President and Human Resources Director - Global Production, Diversity and
Inclusion from March 2021 to January 2022. Vice President and Human Resources Director - Global Production from August
2017 to February 2021. Vice President and Human Resources Director - North America Region from May 2015 to July 2017.
Human Resources Director - North America Region and Latin America Region from May 2013 to April 2015.
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Name
Jeremy J. Shepherd
Kelli N. Brown
Age
48 Executive Vice President, President USA & Canada since March 2023. Senior Vice President, President USA & Canada from
July 2022 to March 2023. Vice President, General Manager for the United Kingdom & Ireland from January 2018 to July
2022. Vice President Director Midwest Division from May 2015 to December 2017. Portfolio Integration Director from
September 2014 to May 2015.
Principal Occupation and Business Experience
53 Senior Vice President and Chief Accounting Officer since August 2018. Vice President and Director Finance (North America
Region) from 2015 to August 2018. Director NAR Division Finance (North America Region) from 2013 to 2015.
Available Information
Our website address is www.brown-forman.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
any amendments to these reports are available free of charge on our website as soon as reasonably practicable after we electronically file those reports with the
Securities and Exchange Commission (SEC). The information provided on our website, and any other website referenced herein, is not part of this report, and
is therefore not incorporated by reference into this report or any other filing we make with the SEC, unless that information is otherwise specifically
incorporated by reference.
On our website, we have posted our Code of Conduct that applies to all our directors and employees, and our Code of Ethics that applies specifically to
our senior financial officers. If we amend or waive any of the provisions of our Code of Conduct or our Code of Ethics applicable to our principal executive
officer, principal financial officer, or principal accounting officer that relates to any element of the definition of “code of ethics” enumerated in Item 406(b) of
Regulation S-K under the Securities Exchange Act of 1934 Act, as amended, we intend to disclose these actions on our website. We have also posted on our
website our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee, Corporate Governance and Nominating
Committee, and Executive Committee of our Board of Directors. Copies of these materials are also available free of charge by writing to our Secretary at 850
Dixie Highway, Louisville, Kentucky 40210 or emailing Secretary@b-f.com.
Item 1A. Risk Factors
We believe the following discussion identifies the material risks and uncertainties that could adversely affect our business. If any of the following risks
were actually to occur, our business, results of operations, cash flows, or financial condition could be materially and adversely affected. Additional risks not
currently known to us, or that we currently deem to be immaterial, could also materially and adversely affect our business, results of operations, cash flows, or
financial condition.
Risks Related to Our Business and Operations
Our business performance depends substantially on the continued health of the Jack Daniel's family of brands.
The Jack Daniel's family of brands is the primary driver of our revenue and growth. Jack Daniel's is an iconic global trademark with a loyal consumer fan
base, and we invest much effort and many resources to protect and preserve the brand's reputation for authenticity, craftsmanship, and quality. A brand's
reputational value is based in large part on consumer perceptions, and even an isolated incident that causes harm – particularly one resulting in widespread
negative publicity – could adversely influence these perceptions and erode consumer trust and confidence in the brand. Significant damage to the brand equity
of the Jack Daniel's family of brands would adversely affect our business. Given the importance of Jack Daniel's to our overall success, a significant or
sustained decline in volume or selling price of our Jack Daniel's products, as a result of negative publicity or otherwise, would have a negative effect on our
financial results. Additionally, if we are not successful in our efforts to maintain or increase the relevance of the Jack Daniel's brand to current and future
consumers, our business and operating results could suffer. For details on the importance of the Jack Daniel's family of brands to our business, see “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Fiscal 2023 Brand Highlights.”
Changes to our route-to-consumer models and consolidation among beverage alcohol producers, distributors, wholesalers, suppliers, and retailers, could
hinder the marketing, sale, or distribution of our products.
We use various business models to market and distribute our products in different countries around the world. In the United States, we sell our products
either to distributors for resale to retail outlets or e-commerce retailers or, in those states that control alcohol sales, to state governments who then sell them to
retail customers and consumers. In our non-U.S. markets, we use a variety of route-to-consumer models – including, in many markets, reliance on third parties
to distribute, market, and sell our products. We own and operate distribution companies for 14 international markets. Transitioning from a third-party
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distribution model to an owned distribution model involves a significant undertaking, and subjects us to risks associated with that geographic region. If we are
unsuccessful in our route-to-consumer strategies, including any transition to owned distribution, the sale and marketing of our products could be disrupted.
Changes to any of our route-to-consumer models or partners in important markets could result in temporary or longer-term sales disruption, higher costs,
and harm to other business relationships we might have with that partner. Disruption of our distribution network or fluctuations in our product inventory levels
at distributors, wholesalers, or retailers could negatively affect our results for a particular period. Moreover, other suppliers, as well as wholesalers and retailers
of our brands, offer products that compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing (including price
promotions, discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other competitive
behavior by other suppliers, and by wholesalers and traditional and e-commerce retailers, could adversely affect our growth, business, and financial results.
While we seek to take advantage of the efficiencies and opportunities that large retail customers can offer, they often seek lower pricing and increased purchase
volume flexibility, offer competing private label products, and represent a large number of other competing products. If the buying power of these large retail
customers continues to increase, it could negatively affect our financial results. Further, while we believe we have sufficient scale to succeed relative to our
major competitors, we nevertheless face a risk that continuing consolidation of large beverage alcohol companies could put us at a competitive disadvantage.
Consolidation, whether domestically or internationally, among spirits producers, distributors, wholesalers, suppliers, or retailers and the increased growth
of the e-commerce environment across the consumer product goods market has created and could continue in the future to create a more challenging
competitive landscape for our products. Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and
resources allocated to our brands both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio.
Furthermore, consolidation of distributors may lead to the erosion of margins. Changes in distributors' strategies, including a reduction in the number of brands
they carry, the allocation of shelf space for our competitors' brands, or private label products, may adversely affect our growth, business, financial results, and
market share. Furthermore, e-commerce distribution grew dramatically during the COVID-19 pandemic and is likely to continue growing in the future. Our
competitors may respond to industry and economic conditions and shifts in consumer behaviors more rapidly or effectively than we do. To remain competitive,
we must be agile and efficient in adopting digital technologies and building analytical capabilities, which our competitors may be able to achieve with more
agility and resources.
Changes in consumer preferences and purchases, any decline in the social acceptability of our products, or governmental adoption of policies
disadvantageous to beverage alcohol could negatively affect our business results.
We are a branded consumer products company in a highly competitive market, and our success depends substantially on our continued ability to offer
consumers appealing, high-quality products. Consumer preferences and purchases may shift, often in unpredictable ways, as a result of a variety of factors,
including health and wellness trends; changes in economic conditions, demographic, and social trends; public health policies and initiatives; changes in
government regulation of beverage alcohol products; concerns or regulations related to product safety; legalization of cannabis and its use on a more
widespread basis within the United States, Canada, or elsewhere; and changes in trends related to travel, leisure, dining, gifting, entertaining, and beverage
consumption trends. As a result, consumers may begin to shift their consumption and purchases from our premium and super-premium products, or away from
alcoholic beverages entirely. This shift includes consumption at home as a result of various factors, including shifts in social trends, and shifts in the channels
for the purchases of our products. These shifts in consumption and purchasing channels could adversely impact our profitability. Consumers also may begin to
prefer the products of competitors or may generally reduce their demand for brands produced by larger companies. Over the past several decades, the number
of small, local distilleries in the United States has grown significantly. This growth is being driven by a trend of consumers showing increasing interest in
locally produced, regionally sourced products. As more brands enter the market, increased competition could negatively affect demand for our premium and
super-premium American whiskey brands, including Jack Daniel’s. In addition, we could experience unfavorable business results if we fail to attract consumers
from diverse backgrounds and ethnicities in all markets where we sell our products.
Expansion into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product
categories. For example, we have observed an increase in diversification by various consumer goods companies such as the entrance of both traditional beer
and soft drink companies into the ready-to-drink market and the entrance of both beer and spirits companies into the cannabis market – expanding the potential
for competition in the spirits market from various sectors of the consumer goods industry. Increased competition may, among other things, negatively impact
our ability to maintain or gain market share; increase pricing pressure, which inhibits our ability to adequately respond to inflationary changes in commodities
used in making our products; require increases in marketing and promotional activities; and negatively impact the market for our premium and super-premium
products. To continue to succeed, we must anticipate or
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react effectively to shifts in demographics, our competition, consumer behavior, consumer preferences, drinking tastes, and drinking occasions.
Our long-term plans call for the continued growth of the Jack Daniel's family of brands. If these plans do not succeed, or if we otherwise fail to develop
or implement effective business, portfolio, and brand strategies, our growth, business, or financial results could suffer. More broadly, if consumers shift away
from spirits (particularly brown spirits such as American whiskey and bourbon), our premium-priced brands, or our ready-to-drink products, our financial
results could be adversely affected.
We believe that new products, line extensions, label and bottle changes, product reformulations, and similar product innovations by both our competitors
and us will increase competition in our industry. Product innovation, particularly for our core brands, is a significant element of our growth strategy; however,
there can be no assurance that we will continue to develop and implement successful line extensions, packaging, formulation or flavor changes, or new
products.
Unsuccessful implementation or short-lived popularity of our product innovations could result in inventory write-offs and other costs, could reduce
profits from one year to the next, and could also damage consumers' perception of our brands. Our inability to attract consumers to our product innovations
relative to our competitors' products – especially over time – could negatively affect our growth, business, and financial results.
Production facility disruption could adversely affect our business.
Some of our largest brands, including Jack Daniel's and our tequilas, are distilled at single locations. A catastrophic event causing physical damage,
disruption, or failure at any one of our major distillation or bottling facilities, including facilities that support the production of our premium brands such as
Woodford Reserve and Old Forester, could adversely affect our business. Further, because whiskeys, rums and some tequilas are aged for various periods, we
maintain a substantial inventory of aged and maturing products in warehouses at a number of different sites. The loss of a substantial amount of aged inventory
– through fire, other natural or man-made disaster, contamination, or otherwise – could significantly reduce the supply of the affected product or products.
These and other supply (or supply chain) disruptions could prevent us from meeting consumer demand for the affected products in the short and medium term.
In addition to catastrophic events identified above, supply disruptions could include the temporary inability to make our products at normal levels or at all. We
could also experience disruptions if our suppliers are unable to deliver supplies. Our business continuity plans may not prevent business disruption, and
reconstruction of any damaged facilities could require a significant amount of time and resources.
The inherent uncertainty in supply/demand forecasting could adversely affect our business, particularly with respect to our aged products.
There is an inherent risk of forecasting imprecision in determining the quantity of aged and maturing products to produce and hold in inventory in a given
year for future sale. The forecasting strategies we use to balance product supply with fluctuations in consumer demand may not be effective for particular years
or products. For example, in addition to our American and Irish whiskeys, rums, and some tequilas, which are aged for various periods, our Scotch whisky
brands require long-term maturation – an average of 12 years with limited releases of 30 years or more – making forecasts of demand for such products in
future periods subject to significant uncertainty. Our tequila supply also depends on the growth cycle of agave plants, which take approximately seven years to
reach full maturity, requiring us to make forecasts of demand for our tequilas over a long-time horizon to determine in advance how much agave to plant or
otherwise source. Factors that affect our ability to forecast accurately include changes in business strategy, market demand, consumer preferences,
macroeconomic conditions, introductions of competing products, and other changes in market conditions. Additionally, our supply of aged products can deviate
from expectations due to changes in forecasted maturation loss. Such forecasting errors could lead to our inability to meet the objectives of our business
strategy, failure to meet future demand, or a future surplus of inventory and consequent write-down in value of such inventory. A failure to accurately forecast
demand for our products or efficiently manage inventory, could have a material adverse effect on our business and financial results. Further, we cannot be
certain that we will be successful in using various levers, such as pricing changes, to create the desired balance of available supply and consumer demand for
particular years or products. As a consequence, we may be unable to meet consumer demand for the affected products for a period of time. Furthermore, not
having our products in the market consistently may adversely affect our brand equity and future sales.
Higher costs or unavailability of water, raw materials, product ingredients, or labor could adversely affect our financial results.
Our products use materials and ingredients that we purchase from suppliers. Our ability to make and sell our products depends on the availability of the
raw materials, product ingredients, finished products, wood, glass and PET bottles, cans, bottle closures, packaging, and other materials used to produce and
package them. Without sufficient quantities of one or more
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key materials, our business and financial results could suffer. For instance, only a few glass producers make bottles on a scale sufficient for our requirements,
and a single producer supplied most of our glass requirements. During the COVID-19 pandemic, as a result of global supply chain challenges, our primary
glass provider could not produce sufficient quantities to meet our needs, which increased our cost to produce and supply some of our products and adversely
affected our financial results. In response to these events, we took action to diversify suppliers of our raw materials, including glass. While our glass supply has
stabilized and we continue to see improvements in supply chain logistics and transportation, our route-to-market costs and lead times continue to be impacted.
We project that some logistics and transport constraints may persist through the remainder of calendar 2023. Similar new supply chain challenges may occur in
the future, making it difficult and more expensive to produce and deliver our products. For example, if we were to experience a disruption in the supply of
American white oak logs or steel to produce the new charred oak barrels in which we age our whiskeys, our production capabilities could be compromised. If
any of our key suppliers were no longer able to meet our timing, quality, or capacity requirements, ceased doing business with us, or significantly raised prices,
and we could not promptly develop alternative cost-effective sources of supply or production, our operations and financial results could suffer.
Higher costs or insufficient availability of suitable grain, agave, water, grapes, molasses (for rum production), wood, glass, closures, and other input
materials, or higher associated labor costs or insufficient availability of labor, may adversely affect our financial results. Similarly, when energy costs rise, our
transportation, freight, and other operating costs, such as distilling and bottling expenses, also may increase. Our freight cost and the timely delivery of our
products could be adversely affected by a number of factors, including driver or equipment shortages, higher fuel costs, weather conditions, traffic congestion,
shipment container availability, rail shut down, increased government regulation, and other matters that could reduce the profitability of our operations. Our
financial results may be adversely affected if we cannot pass along energy, freight, or other input cost increases through higher prices to our customers without
reducing demand or sales. For example, during the recent COVID-19 pandemic and subsequent economic recovery, we experienced supply chain disruptions in
connection with the availability of timely modes of transportation to ship our products globally, which resulted in higher costs and delays in supplying some of
our products.
International or domestic geopolitical or other events, including the imposition of any tariffs or quotas by governmental authorities on any raw materials
that we use in the production of our products, could adversely affect the supply and cost of these raw materials to us. For example, the global economy has
been negatively impacted by Russia’s invasion of Ukraine. Global grain and energy markets have become increasingly volatile as sanctions have been imposed
on Russia by other countries, including the United States and the European Union, in response to the invasion. We suspended our operations in Russia, and it is
not clear if, or when, we will resume doing business in Russia. While we do not currently expect our production operations to be directly impacted by the
conflict, changes in global grain and commodity pricing and availability may impact the markets in which we operate. If we cannot offset higher raw material
costs with higher selling prices, increased sales volume, or reductions in other costs, our profitability could be adversely affected.
Weather, the effects of climate change, fires, diseases, and other agricultural uncertainties that affect the health, yield, quality, or price of the various raw
materials used in our products also present risks for our business, including in some cases potential impairment in the recorded value of our inventory. Climate
change could also affect the maturation and yield of our aged inventory over time. Changes in weather patterns or intensity can disrupt our supply chain as
well, which may affect production operations, insurance costs and coverage, and the timely delivery of our products.
Water is an essential component of our products, so the quality and quantity of available water is important to our ability to operate our business. If
extended droughts become more common or severe, or if our water supply were interrupted for other reasons, high-quality water could become scarce in some
key production regions for our products,which in turn could adversely affect our business and financial results.
We might not succeed in our strategies for investments, acquisitions, dispositions, and other strategic transactions.
From time to time, we acquire or invest in additional brands or businesses. We expect to continue to seek acquisition and investment opportunities that we
believe will increase long-term stockholder value, but we may not be able to find investment opportunities, or purchase brands or businesses, at acceptable
prices and terms. Acquisitions and investments involve risks and uncertainties, including paying more than a brand or business is ultimately determined to be
worth; potential difficulties integrating acquired brands and personnel; the possible loss of key customers or employees most knowledgeable about the acquired
business; implementing and maintaining consistent U.S. public company standards, controls, procedures, policies, and information systems; exposure to
unknown liabilities; business disruption; and management distraction or departure. We could incur future restructuring charges or record impairment losses on
the value of goodwill or other intangible assets resulting from previous acquisitions, which may also negatively affect our financial results.
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From time to time, we also consider disposing of assets or businesses that may no longer meet our financial or strategic objectives. In selling assets or
businesses, we may not get prices or terms as favorable as we anticipated. We could also encounter difficulty in finding buyers on acceptable terms in a timely
manner, which could delay our accomplishment of strategic objectives. Expected cost savings from reduced overhead, relating to the sold assets, may not
materialize. The overhead reductions could temporarily disrupt our other business operations. Any of these outcomes could negatively affect our financial
results.
Our business faces various risks related to health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, that could
materially and adversely affect our business, our operations, our cash flows, and our financial results.
Our business, operations, cash flows, and financial results have been impacted and could be impacted in the future by health epidemics, pandemics, and
similar outbreaks, such as the COVID-19 pandemic. Any future epidemic, pandemic, or other outbreak could cause negative impacts, such as (a) a global or
U.S. recession or other economic crisis; (b) credit and capital markets volatility (and access to these markets, including by our suppliers and customers); (c)
volatility in demand for our products; (d) changes in accessibility to our products due to illness, quarantines, “stay at home” orders, travel restrictions, retail,
restaurant, bar, and hotel closures, social distancing requirements, and other government action; (e) changes in consumer behavior and preferences; and (f)
disruptions in raw material supply, our manufacturing operations, or in our distribution and supply chain. In addition, we may incur increased costs and
otherwise be negatively affected if a significant portion of our workforce (or the workforces within our distribution or supply chain) cannot work or work
effectively, including because of illness, quarantines, “stay at home” orders, social distancing requirements, other government action, facility closures, or other
restrictions. Accordingly, a future widespread health epidemic or pandemic could materially and adversely affect our business, our operations, our cash flows,
and our financial results.
Unfavorable economic conditions could negatively affect our operations and results.
Unfavorable global or regional economic conditions may be triggered by numerous developments beyond our control, including geopolitical events,
health crises, and other events that trigger economic volatility on a global or regional basis. Those types of unfavorable economic conditions could adversely
affect our business and financial results. In particular, a significant deterioration in economic conditions, including economic slowdowns or recessions,
increased unemployment levels, inflationary pressures or disruptions to credit and capital markets, could lead to decreased consumer confidence in certain
countries and consumer spending more generally, thus reducing consumer demand for our products. For example, since 2021, the United States and European
Union have experienced a rapid increase in inflation levels. Such heightened inflationary levels may negatively impact consumer disposable income and
discretionary spending and, in turn, reduce consumer demand for our premium products and increase our costs. Unfavorable economic conditions could also
cause governments to increase taxes on beverage alcohol to attempt to raise revenue, reducing consumers' willingness to make discretionary purchases of
beverage alcohol products or pay for premium brands such as ours.
Unfavorable economic conditions could also adversely affect our suppliers, distributors, customers, and retailers, who in turn could experience cash flow
challenges, more costly or unavailable financing, credit defaults, and other financial hardships. Such financial hardships could lead to distributor or retailer
destocking, disruption in raw material supply, increase in bad debt expense, or increased levels of unsecured credit that we may need to provide to customers.
Other potential negative consequences to our business from unfavorable economic conditions include higher interest rates, an increase in the rate of inflation,
deflation, exchange rate fluctuations, credit or capital market instability, or lower returns on pension assets or lower discount rates for pension obligations
(possibly requiring higher contributions to our pension plans).
Product recalls or other product liability claims could materially and adversely affect our sales.
The success of our brands depends on the positive image that consumers have of them. We could decide to or be required to recall products due to
suspected or confirmed product contamination, product tampering, spoilage, regulatory non-compliance, food safety issues, or other quality issues. Any of
these events could adversely affect our financial results. Actual contamination, whether deliberate or accidental, could lead to inferior product quality and even
illness, injury, or death of consumers, potential liability claims, and material loss. Should a product recall become necessary, or we voluntarily recall a product
in the event of contamination, damage, or other quality issue, sales of the affected product or our broader portfolio of brands could be adversely affected. A
significant product liability judgment or widespread product recall may negatively impact sales and our business and financial results. Even if a product
liability claim is unsuccessful or is not fully pursued, resulting negative publicity could adversely affect our reputation with existing and potential customers
and our corporate and brand image.
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Negative publicity could affect our business performance.
Unfavorable publicity, whether accurate or not, related to our industry or to us or our products, brands, marketing, executive leadership, employees,
Board of Directors, family stockholders, operations, current or anticipated business performance, or environmental or social efforts could negatively affect our
corporate reputation, stock price, ability to attract and retain high-quality talent, or the performance of our brands and business. Adverse publicity or negative
commentary on social media, whether accurate or not, particularly any that go “viral,” could cause consumers or other stakeholders to react by disparaging or
avoiding our brands or company, which could materially negatively affect our financial results. Additionally, investor advocacy groups, institutional investors,
other market participants, stockholders, employees, consumers, customers, influencers, and policymakers have focused increasingly on the environmental,
social, and governance (“ESG”) or “sustainability” positions and practices of companies. If our ESG positions or practices do not meet investor or other
stakeholder expectations and standards, which continue to evolve, our corporate reputation, stock price, ability to attract and retain high-quality talent, and the
performance of our brands and business may be negatively affected. Stakeholders and others who disagree with our company's actions, positions, or statements
may speak negatively or advocate against the company, with the potential to harm our reputation or business through negative publicity, adverse government
treatment, or other means.
Our failure to attract or retain key talent could adversely affect our business.
Our success depends on the efforts and abilities of our senior management team, other key employees, and our high-quality employee base, as well as our
ability to attract, motivate, reward, develop, and retain them. Difficulties in hiring or retaining key executive or other employee talent, or the unexpected loss of
experienced employees resulting in the depletion of our institutional knowledge base, could have an adverse impact on our business performance, reputation,
financial condition, or results of operations. Given changing demographics, immigration laws and policies, remote working trends, and demand for talent
globally, we may not be able to find the people with the right skills, at the right time, and in the right location, to achieve our business objectives.
Risks Related to Our Global Operations
Our global business is subject to commercial, political, and financial risks.
Our products are sold in more than 170 countries; accordingly, we are subject to risks associated with doing business globally, including commercial,
political, and financial risks. In addition, we are subject to potential business disruption caused by military conflicts; potentially unstable governments or legal
systems; social, racial, civil, or political upheaval or unrest; local labor policies and conditions; possible expropriation, nationalization, or confiscation of
assets; problems with repatriation of foreign earnings; economic or trade sanctions; closure of markets to imports; anti-American sentiment; terrorism,
kidnapping, extortion, or other types of violence in or outside the United States; and health crises. Violent crime is increasing in markets around the globe,
including the United States. If a violent event should occur at one of our sites, it could disrupt business operations, impair brand reputation, increase insurance
and security expenses, and adversely affect the price of our stock.
Additionally, we may be subject to tariffs imposed on our products by other countries, such as the tariffs imposed in 2018 following the United States
tariffs on steel and aluminum. In response to these U.S. tariffs, a number of countries imposed retaliatory tariffs on U.S. imports, including on American
whiskey products, which negatively affected our business until they were removed in late fiscal 2022 and early fiscal 2023. The imposition of tariffs, custom
duties, or other restrictions or barriers on imports and exports, or the deterioration of economic relations between the United States and other countries could
increase the cost of our products and, to the extent that we absorb the costs of tariffs, result in higher cost of goods sold and lower gross profit and margins.
They could also limit the availability of our products and prompt consumers to seek alternative products. Our success will depend, in part, on our ability to
overcome the challenges we encounter with respect to these risks and other factors affecting U.S. export companies with a global business.
A failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations may have a material adverse effect on our
business and financial results.
Some of the countries where we do business have a higher risk of corruption than others. While we are committed to doing business in accordance with
all applicable laws, including anti-corruption laws and global trade restrictions, we remain subject to the risk that an employee, or one of our many direct or
indirect business partners, may take action determined to be in violation of international trade, money laundering, anti-corruption, or other laws, sanctions, or
regulations, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, or equivalent local laws. Any determination that our
operations or activities are not in compliance with applicable laws or regulations, particularly those related to anti-corruption and international economic or
trade sanctions, could result in investigations, interruption of business, loss of business partner relationships, suspension or termination of credit agreements,
licenses, and permits (our own or those of our partners),
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imposition of fines, legal or equitable sanctions, negative publicity, and management distraction or departure. Further, our obligation to comply with applicable
anti-corruption, economic and trade sanctions, or other laws or regulations, our Code of Conduct, Code of Ethics for Senior Financial Officers, and our other
policies could result in higher operating costs, delays, or even competitive disadvantages as compared to competitors based in different parts of the world.
Fluctuations in foreign currency exchange rates relative to the U.S. dollar could have a material adverse effect on our financial results.
The global scope of our business means that foreign currency exchange rate fluctuations relative to the U.S. dollar influence our financial results. In many
markets outside the United States, we sell our products and pay for some goods, services, and labor costs primarily in local currencies. Because our foreign
currency revenues exceed our foreign currency expense, we have a net exposure to changes in the value of the U.S. dollar relative to those currencies. Over
time, our reported financial results will be hurt by a stronger U.S. dollar and will be benefited by a weaker one. We attempt to hedge some of our foreign
currency exposure through the use of foreign currency derivatives or other means. However, even in those cases, we do not fully eliminate our foreign currency
exposure. For details on how foreign exchange affects our business, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk - Foreign
currency exchange rate risk.”
Legal and Regulatory Risks
National and local governments may adopt regulations or undertake investigations that could limit our business activities or increase our costs.
Our business is subject to extensive regulatory requirements regarding production, exportation, importation, marketing and promotion, labeling,
distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or governmental policies, or the manner in which current ones
are interpreted, could subject us to governmental investigations, cause us to incur material additional costs or liabilities, and jeopardize the growth of our
business in the affected market. Specifically, governments could prohibit, impose, or increase limitations on advertising and promotional activities, or times or
locations where beverage alcohol may be sold or consumed, or adopt other measures that could limit our opportunities to reach consumers or sell our products.
Certain countries historically have banned all television, newspaper, magazine, and digital commerce/advertising for beverage alcohol products. Additional
regulation of this nature could substantially reduce consumer awareness of our products in the affected markets and make the introduction of new products
more challenging.
Additional regulation in the United States and other countries addressing climate change, use of water, and other environmental issues could increase our
operating costs. Increasing regulation of CO2 emissions could increase the cost of energy, including fuel, required to operate our facilities or transport and
distribute our products, thereby substantially increasing the production, distribution, and supply chain costs associated with our products.
Tax increases and changes in tax rules could adversely affect our financial results.
Our business is sensitive to changes in both direct and indirect taxes. New tax rules, accounting standards or pronouncements, and changes in
interpretation of existing rules, standards, or pronouncements could have a material adverse effect on our business and financial results. As a multinational
company based in the United States, we are more exposed to the impact of changes in U.S. tax legislation and regulations than most of our major competitors,
especially changes that affect the effective corporate income tax rate. In August 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which,
among other provisions, implemented a 15% minimum tax on book income of certain large corporations. We continue to evaluate the various provisions of the
IRA and currently anticipate that its impact, if any, will not be material to our operating results or cash flows. Additional tax proposals sponsored by the current
U.S. presidential administration could lead to U.S. tax changes, including significant increases to the U.S. corporate income tax rate and the minimum tax rate
on certain earnings of foreign subsidiaries. While we are unable to predict whether any of these changes will ultimately be enacted, if these or similar proposals
are enacted into law, they could negatively impact our effective tax rate and reduce net earnings.
At the global level, potential changes in tax rules or the interpretation of tax rules arising out of the Base Erosion and Profit Shifting project initiated by
the Organization for Economic Co-operation and Development (OECD) include increased residual profit allocations to market jurisdictions and the
implementation of a global minimum tax rate. On October 8, 2021, the OECD announced an accord endorsing and providing an implementation plan for the
two-pillar plan agreed upon by 136 nations. On December 15, 2022, the European Council formally adopted a European Union directive on the implementation
of the plan by January 1, 2024. We are evaluating the potential impact of the developments on our consolidated financial statements and related disclosures.
The adoption of these or other proposals could have a material adverse impact on our net income and cash flows. Furthermore, changes in the earnings mix or
applicable foreign tax laws could also negatively impact our net income and tax flows.
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Our business operations are also subject to numerous duties or taxes not based on income, sometimes referred to as “indirect taxes.” These indirect taxes
include excise taxes, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs. Increases in or the imposition of new
indirect taxes on our operations or products would increase the cost of our products or materials used to produce our products or, to the extent levied directly on
consumers, make our products less affordable, which could negatively affect our financial results by reducing purchases of our products and encouraging
consumers to switch to lower-priced or lower-taxed product categories. As governmental entities look for increased sources of revenue, they may increase taxes
on beverage alcohol products. In fiscal 2023, we have observed excise tax increases in Türkiye and Romania, and annual increases in France and Australia tied
to the consumer price index. Additionally, during fiscal 2023, Australia is considering proposals to change the country’s overall beverage alcohol tax policies.
Our ability to market and sell our products depends heavily on societal attitudes toward drinking and governmental policies that both flow from and affect
those attitudes.
Increased social and political attention has been directed at the beverage alcohol industry. For example, there remains continued attention focused largely
on public health concerns related to alcohol abuse, including drunk driving, underage drinking, and the negative health impacts of the abuse and misuse of
beverage alcohol. While most people who drink alcoholic beverages do so in moderation, it is commonly known and well reported that excessive levels or
inappropriate patterns of drinking can lead to increased risk of a range of health conditions and, for certain people, can result in alcohol dependence. Some
academics, public health officials, and critics of the alcohol industry in the United States, Europe, and other parts of the world continue to seek governmental
measures to make beverage alcohol more expensive, less available, or more difficult to advertise and promote. If future scientific research indicates more
widespread serious health risks associated with alcohol consumption – particularly with moderate consumption – or if for any reason the social acceptability of
beverage alcohol declines significantly, sales of our products could be adversely affected.
Significant additional labeling or warning requirements or limitations on the availability of our products could inhibit sales of affected products.
Various jurisdictions have adopted or may seek to adopt significant additional product labeling or warning requirements or impose limitations on the
availability of our products relating to the content or perceived adverse health consequences of some of our products. Several such labeling regulations or laws
require warnings on any product with substances that the jurisdiction lists as potentially associated with cancer or birth defects. Our products already raise
health and safety concerns for some regulators, and heightened requirements could be imposed. For example, in February 2021, the European Union published
its Europe Beating Cancer Plan. As part of the plan, by the end of 2023, the European Union will issue a proposal for mandatory health warnings on beverage
alcohol product labels. Such campaigns could result in additional governmental regulations concerning the production, marketing, labeling, or availability of
our products, any of which could damage our reputation, make our premium brands unrecognizable, or reduce demand for our products, which could adversely
affect our profitability. If additional or more severe requirements of this type are imposed on one or more of our major products under current or future health,
environmental, or other laws or regulations, they could inhibit sales of such products. Further, we cannot predict whether our products will become subject to
increased rules and regulations, which, if enacted, could increase our costs or adversely impact sales.
Counterfeiting or inadequate protection of our intellectual property rights could adversely affect our business prospects.
Our brand names, trademarks, and related intellectual property rights are critical assets, and our business depends on protecting them online and in the
countries where we do business. We may not succeed in protecting our intellectual property rights in a given market or in challenging those who infringe our
rights or imitate or counterfeit our products. Although we believe that our intellectual property rights are legally protected in the markets where we do business,
the ability to register and enforce intellectual property rights varies from country to country. In some countries, for example, it may be more difficult to
successfully stop counterfeiting or look-alike products, either because the law is inadequate or, even though satisfactory legal options may exist, it may be
difficult to obtain and enforce sanctions against counterfeiters. We may not be able to register our trademarks in every country where we want to sell a
particular product, and we may not obtain favorable decisions by courts or trademark offices.
Many global spirits brands, including some of our brands, experience problems with product counterfeiting and other forms of trademark infringement.
We combat counterfeiting by working with other companies in the spirits industry through our membership in the Alliance Against Counterfeit Spirits (AACS)
and with brand owners in other industries via our membership in React, an anti-counterfeiting network organization. While we believe AACS and React are
effective organizations, they are not active in every market, and their efforts are subject to obtaining the cooperation of local authorities and courts in the
markets where they are active. Despite the efforts of AACS, React, and our own teams, lower-quality and counterfeit products that could be harmful to
consumers could reach the market and adversely affect our intellectual property
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rights, brand equity, corporate reputation, and financial results. In addition, the industry as a whole could suffer negative effects related to the manufacture,
sale, and consumption of illegally produced beverage alcohol.
Litigation and legal disputes could expose our business to financial and reputational risk.
Major private or governmental litigation challenging the production, marketing, promotion, distribution, or sale of beverage alcohol or specific brands
could affect our ability to sell our products. Because litigation and other legal proceedings can be costly to defend, even actions that are ultimately decided in
our favor could have a negative impact on our business reputation or financial results. Lawsuits have been brought against beverage alcohol companies alleging
problems related to alcohol abuse, negative health consequences from drinking, problems from alleged marketing or sales practices, and underage drinking.
While these lawsuits have been largely unsuccessful in the past, others may succeed in the future. We could also experience employment-related or
cybersecurity-related class actions, environmental claims, commercial disputes, product liability actions stemming from a beverage or container production
defect, a whistleblower suit, or other major litigation that could adversely affect our business results, particularly if there is negative publicity.
As discussed throughout these risk factors, governmental actions around the world are a continuing compliance risk for global companies such as ours. In
addition, as a U.S. public company, we are exposed to the risk of securities-related class action suits, particularly following a precipitous drop in the share price
of our stock. Adverse developments in major lawsuits concerning these or other matters could result in management distraction and have a material adverse
effect on our business.
Risks Related to Cybersecurity and Data Privacy
A cyber breach, a failure or corruption of one or more of our key information technology systems, networks, processes, associated sites, or service
providers, or a failure to comply with personal data protection laws could have a material adverse impact on our business.
We rely on information technology (IT) systems, networks, and services, including internet sites, data hosting and processing facilities and tools,
hardware (including laptops and mobile devices), software, and technical applications and platforms, some of which are managed, hosted, provided, or used by
third parties or their vendors, to help us manage our business. The various uses of these IT systems, networks, and services include: hosting our internal
network and communication systems; ordering and managing materials from suppliers; billing and collecting cash from our customers; supply/demand
planning; inventory planning; production; shipping products to customers; paying our employees; hosting corporate strategic plans and employee data; hosting
our branded websites and marketing products to consumers; collecting and storing data on suppliers, customers, consumers, stockholders, employees, former
employees, and beneficiaries of employees or former employees; processing transactions; summarizing and reporting results of operations; hosting, processing,
and sharing confidential and proprietary research, business plans, and financial reporting and information; complying with regulatory, legal, or tax
requirements; providing data security; and handling other processes necessary to manage our business.
As a company with complex IT systems, we have been a target of cyberattacks and other hacking activities in the past, and we expect to continue to be a
target in the future. Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes,
ransomware, unauthorized access attempts, denial-of-service attacks, phishing, social engineering, hacking, and other types of attacks, pose a risk to the
security and availability of our IT systems, networks, and services, including those that are managed, hosted, provided, or used by third parties, as well as the
confidentiality, availability, and integrity of our data and the data of our customers, partners, consumers, employees, stockholders, suppliers, and others. As a
result of the COVID-19 pandemic, a greater number of our employees are working remotely and accessing our technology infrastructure remotely, which
further increases our attack surface.
Unauthorized access to our IT network or that of our service providers could result in failure of our IT systems, networks, or services to function properly.
This could lead to the loss or unauthorized disclosure of our business strategy or other sensitive information; interruptions in our ability to manage operations;
and reputational, competitive, or business harm, which may adversely affect our business operations or financial results. In addition, such IT disruptions could
result in unauthorized disclosure of material confidential information, resulting in financial and reputational damage because of lost or misappropriated
confidential information belonging to us or to our partners, customers, consumers, employees, or former employees and their beneficiaries, stockholders,
suppliers, or others.
As a result of any cyber breach or IT disruption, we could also be required to spend significant financial and other resources to remedy the damage. Those
expenditures could include repairing or replacing networks and IT systems, which could require a significant amount of time and financial investment;
responding to claims from employees, former employees, stockholders, suppliers, customers, consumers, or others; handling related litigation or governmental
inquiries; or paying significant fines to regulatory agencies. Furthermore, a cyber breach at any one of our suppliers, customers, or other direct or
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indirect business partners could have similar impacts. Any cyber breach or IT disruption could have a material adverse effect on our business.
In the ordinary course of our business, we receive, process, transmit, and store information relating to identifiable individuals (personal data), primarily
employees and former employees, but also relating to beneficiaries of employees or former employees, customers, and consumers. As a result, we are subject to
various U.S. federal and state and foreign laws and regulations relating to personal data. These laws change frequently, and new legislation in this area may be
enacted at any time. Such laws and regulations include the California Consumer Protection Act, the California Privacy Rights Act, which took effect on January
1, 2023, and the European Union General Data Protection Regulation (GDPR). These types of laws and regulations subject us to, among other things,
additional costs and expenses and may require costly changes to our business practices and security systems, policies, procedures, and practices. Improper
disclosure of personal data in violation of personal data protection laws, including the GDPR, could harm our reputation, cause loss of consumer confidence,
subject us to government enforcement actions (including fines), or result in private litigation against us, which could result in loss of revenue, increased costs,
liability for monetary damages, fines, or criminal prosecution, all of which could negatively affect our business and operating results.
Risks Related to Our Ownership and Corporate Governance Structure
The Brown family has the ability to control the outcome of matters submitted for stockholder approval.
We are a “controlled company” under New York Stock Exchange rules. Controlled companies are exempt from New York Stock Exchange listing
standards that require a board composed of a majority of independent directors, a fully independent nominating/corporate governance committee, and a fully
independent compensation committee. We may avail ourselves of the exemption from having a board composed of a majority of independent directors, and we
utilize the exemption from having a fully independent nominating/corporate governance committee. Notwithstanding the available exemption, our
Compensation Committee is composed exclusively of independent directors. As a result of our use of some “controlled company” exemptions, our corporate
governance practices differ from those of non-controlled companies, which are subject to all of the New York Stock Exchange corporate governance
requirements.
We have two classes of common stock. Our Class A common stock is entitled to full voting powers, including in the elections of directors, while our
Class B common stock may not vote except as provided by the laws of Delaware. We have had two classes of common stock since 1959, when our
stockholders approved the issuance of two shares of Class B non-voting common stock to every holder of our voting common stock. Dual-class share structures
have increasingly come under the scrutiny of major indices, institutional investors, and proxy advisory firms, with some calling for the reclassification of non-
voting common stock.
A majority of our voting stock is controlled by members of the Brown family, and, collectively, they have the ability to control the outcome of
stockholder votes, including the election of all of our directors and the approval or rejection of any merger, change of control, or other significant corporate
transactions. We believe that having a long-term-focused, committed, and engaged stockholder base provides us with a distinct strategic advantage, particularly
in a business with aged products and multi-generational brands. This advantage could be eroded or lost, however, should Brown family members cease,
collectively, to be controlling stockholders of the Company.
We believe that it is in the interests of all stockholders that we remain independent and family-controlled, and we believe the Brown family stockholders
share these interests. Thus, our common stock dual-class share structure, as it has existed since 1959, is perpetual, and we do not have a sunset provision in our
Restated Certificate of Incorporation or By-laws that provides for the eventual reclassification of the non-voting common stock to voting common stock.
However, the Brown family's interests may not always be aligned with other stockholders' interests. By exercising their control, the Brown family could cause
the Company to take actions that are at odds with the investment goals or interests of institutional, short-term, non-voting, or other non-controlling investors, or
that have a negative effect on our stock price. Further, because the Brown family controls the majority of our voting stock, Brown-Forman might be a less
attractive takeover target, which could adversely affect the market price of both our voting and our non-voting common stock. And the difference in voting
rights for our common stock could also adversely and disproportionately affect the value of our Class B non-voting common stock to the extent that investors
view, or any potential future purchaser of our Company views, the superior voting rights and control represented by the Class A common stock to have value.
Item 1B. Unresolved Staff Comments
None.
24
Item 2. Properties
Our company-owned production facilities include distilleries, a winery, bottling plants, an RTD canning plant, warehousing operations, a sawmill,
cooperages, visitors' centers, and retail shops. We also have agreements with other parties for contract production in Australia, Belgium, China, Finland,
Ireland, Latvia, Mexico, the Netherlands, New Zealand, South Africa, Spain, the United Kingdom, the United States, and Venezuela.
In addition to our company-owned production locations and our corporate offices in Louisville, Kentucky, we lease office space for use in our sales,
marketing, and administrative operations in the United States and in over 50 other cities around the world. The lease terms expire at various dates and are
generally renewable. We believe that our facilities are in good condition and are adequate for our business.
Location
United States:
Louisville, Kentucky
Lynchburg, Tennessee
Woodford County, Kentucky
Windsor, California
Trinity, Alabama
Clifton, Tennessee
International:
Cour-Cheverny, France
Amatitán, Mexico
Slane, Ireland
Aberdeenshire, Scotland
Morayshire, Scotland
Newbridge, Scotland
Portsoy, Scotland
Provincia de Panamá, Panamá
Principal Activities
Notes
Principal Properties
Corporate offices
Distilling, bottling, warehousing
Visitors' center
Cooperage
Distilling, bottling, warehousing
Visitors' center
Distilling, bottling, warehousing
Visitors' center
Vineyards, winery, bottling, warehousing
Visitors' center
Cooperage
Stave and heading mill
Includes several renovated historic structures
Home of Old Forester
Brown-Forman Cooperage
Home of Jack Daniel's
Home of Woodford Reserve
Home of Sonoma-Cutrer
Jack Daniel Cooperage
Distilling, bottling, warehousing
Distilling, bottling, warehousing, RTD canning
Visitors' center
Distilling
Visitors' center
Distilling, warehousing
Visitors' center
Distilling, warehousing
Visitors' center
Bottling
Distilling, warehousing
Visitors' center
Warehousing, bottling
Home of Chambord
Home of Herradura and el Jimador
Home of Slane Irish Whiskey
Home of Glendronach
Home of Benriach
Home of Glenglassaugh
Home of Diplomático
25
Item 3. Legal Proceedings
We operate in a litigious environment and we are sued in the normal course of business. We do not anticipate that any pending suits will have,
individually or in the aggregate, a material adverse effect on our financial position, results of operations, or liquidity.
Item 4. Mine Safety Disclosures
Not applicable.
26
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Our Class A and Class B common stock is traded on the New York Stock Exchange under the symbols “BFA” and “BFB,” respectively. As of May 31,
2023, there were 2,380 holders of record of Class A common stock and 4,566 holders of record of Class B common stock. Because of overlapping ownership
between classes, as of May 31, 2023, we had only 4,867 distinct common stockholders of record.
Stock Performance Graph
The graph below compares the cumulative total shareholder return of our Class B common stock for the last five fiscal years with the Standard & Poor's
(S&P) 500 Index, the Dow Jones U.S. Consumer Goods Index, the Dow Jones U.S. Food & Beverage Index, and the S&P 500 Consumer Staples (Sector)
Index. The information presented assumes an initial investment of $100 on April 30, 2018, and that all dividends were reinvested. The graph shows the value
that each of these investments would have had on April 30 in the years since 2018.
We began using the S&P 500 Consumer Staples (Sector) Index as a comparative index in this graph in fiscal 2023 to align with management’s use of this
index for evaluating performance and determining certain components of executive compensation The Dow Jones U.S. Consumer Goods Index and the Dow
Jones U.S. Food & Beverage Index will not be included in this graph in future filings.
Brown-Forman Corporation
S&P 500 Total Return Index
Dow Jones U.S. Consumer Goods Index
Dow Jones U.S. Food & Beverage Index
S&P 500 Consumer Staples (Sector) Index
Item 6. [Reserved]
2018
$100
$100
$100
$100
$100
2019
$96
$113
$111
$114
$118
27
2020
$114
$114
$111
$113
$123
2021
$141
$167
$173
$141
$151
2022
$127
$167
$179
$160
$175
2023
$124
$172
$166
$171
$179
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” (Consolidated Financial Statements).
Table of Contents
Our MD&A is organized as follows:
Presentation basis
Significant developments
Executive summary
Results of operations
Liquidity and capital resources
Critical accounting policies and estimates
Presentation Basis
Non-GAAP Financial Measures
Page
28
32
34
36
42
44
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 of the statements of operations: (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 expenses ; 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.
1
•
“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 or income), 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. During the third quarter of fiscal 2023, we acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U., which
own the Gin Mare brand (Gin Mare). Also, during the third quarter of fiscal 2023, we acquired (a) International Rum and Spirits Distributors Unipessoal,
Lda., (b) Diplomático Branding Unipessoal Lda., (c) International Bottling Services, S.A., (d) International Rum & Spirits Marketing Solutions, S.L., and
(e) certain assets of Destilerias Unidas Corp., which collectively own the Diplomático Rum brand and related assets (Diplomático). See Note 12 to the
Consolidated Financial Statements for more information.
This adjustment removes (a) the net sales and operating expenses recognized pursuant to the TSA related to the divestiture of Early Times, Canadian Mist,
and Collingwood brands and related assets for the non-comparable period, which is activity during the first quarter of fiscal 2022; (b) transaction,
transition, and integration costs related to the acquisitions; (c) operating activity for Gin Mare for the non-comparable period, which is activity in the third
and fourth quarters of fiscal 2023; and (d) operating activity for Diplomático for the non-comparable period, which is activity in the third and fourth
quarters of fiscal 2023. We believe that these adjustments allow for us to understand our organic results on a comparable basis.
1
Operating expenses include advertising expense, SG&A expense, and other expense (income), net.
28
•
“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 three quarters of fiscal 2022, we recognized non-cash impairment charges of $9 million for certain fixed assets. During the fourth quarter
of fiscal 2022, we recognized a non-cash impairment charge of $52 million for our Finlandia brand name. During the third quarter of fiscal 2023, we
recognized an additional non-cash impairment charge of $96 million for the Finlandia brand name. See “Critical Accounting Policies and Estimates” below
and Note 14 to the Consolidated Financial Statements for more information. We believe that these adjustments allow for us to 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
Highlights” and “Results of Operations - Year-Over-Year 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 by improving comparability across periods.
“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 five quarter-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.
In fiscal 2023, we changed the methodology used to determine average invested capital. Previously, average invested capital was computed using the average
of the most recent 13 month-end balances. Average invested capital is now calculated using the average of the most recent five quarter-end balances, which are
disclosed in the relevant quarterly reports on Form 10-Q and Annual Reports on Form 10-K. Return on average invested capital computed using the new
methodology does not materially differ from the total computed using the previous methodology for fiscal 2023. The new methodology was consistently
applied to return on average invested capital for each period presented.
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 Market Highlights,” we provide supplemental information for our top markets ranked by percentage of reported
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 top developed international
markets were Germany, Australia, the United Kingdom, France, Canada, and Japan. 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 top emerging markets were Mexico, Poland, and Brazil. 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.
29
•
“Non-branded and bulk” includes net sales of used barrels, contract bottling services, and non-branded bulk whiskey and wine, regardless of customer
location.
Brand Aggregations.
In “Results of Operations - Fiscal 2023 Brand Highlights,” we provide supplemental information for our top brands ranked by percentage of reported net
sales. In addition to brands 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 increased significance in its 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/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, Jack Daniel’s & Coca-Cola RTD, and other malt- and spirit-based Jack Daniel’s RTDs, along with Jack Daniel’s Winter
Jack RTP.
•
“Jack Daniel’s & Coca-Cola RTD” includes all Jack Daniel’s and Coca-Cola RTD products and Jack Daniel’s bulk whiskey shipments for the
production of this product.
“Tequila” includes the Herradura family of brands (Herradura), el Jimador, and other tequilas.
“Wine” includes Korbel California Champagnes and Sonoma-Cutrer wines.
“Vodka” includes Finlandia.
“Rest of Portfolio” includes Chambord, Gin Mare, Korbel Brandy, Diplomático, and Fords Gin.
“Non-branded and bulk” includes net sales of used barrels, contract bottling services, and non-branded bulk whiskey and wine.
“Jack Daniel’s family of brands” includes Jack Daniel’s Tennessee Whiskey (JDTW), 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 Bonded
Tennessee Whiskey, Jack Daniel’s Sinatra Select, Jack Daniel’s Tennessee Rye Whiskey (JDTR), Jack Daniel’s Bottled-in-Bond, Jack Daniel’s Triple Mash
Blended Straight Whiskey, Jack Daniel’s No. 27 Gold Tennessee Whiskey, Jack Daniel’s 10 Years Old, and Jack Daniel’s 12 Years Old.
Other Metrics.
•
•
“Shipments.” We generally record revenues when we ship or deliver our products to our customers. In this report, 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) where Brown-Forman is the distributor, shipments directly to retail or wholesale customers or (b) where Brown-Forman is not the distributor,
shipments from distributor customers to retailers
30
and wholesalers. 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-commerce 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 consumer demand trends.
“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.
31
Significant Developments
Below we discuss the significant developments in our business during fiscal 2022 and fiscal 2023. These developments relate to Finlandia brand name
impairments, tariffs, acquisitions, Russia’s invasion of Ukraine, supply chain disruptions, innovation, and capital deployment.
Finlandia Impairments
During the fourth quarter of fiscal 2022, we recognized a non-cash impairment charge of $52 million for the Finlandia brand name, reflecting a decline in
our long-term outlook for Finlandia due to our suspension of operations in Russia, a key market for the brand. During the third quarter of fiscal 2023, we
recognized a non-cash impairment charge of $96 million for the Finlandia brand name, largely due to macroeconomic conditions including rising interest rates
and increasing costs. See “Critical Accounting Policies and Estimates” below and Note 14 to the Consolidated Financial Statements for more information.
Tariffs
The removal of the European Union and United Kingdom tariffs on American whiskey (tariffs) positively affected our results during 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) reduced our reported cost of sales growth by approximately four percentage points, and (b) increased gross margin by
approximately one and a half percentage points.
Acquisitions
During the third quarter of fiscal 2023, we acquired the Gin Mare brand and the Diplomático brand and related assets. Operating activity for these
acquired brands increased reported net sales growth by approximately half a percentage point and decreased reported operating income growth by
approximately four percentage points during fiscal 2023. The negative effect on reported operating income was largely driven by transaction expenses of $44
million related to the termination of certain distribution contracts (certain post-closing costs and expenses).
Russia’s Invasion of Ukraine
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.
Supply Chain Disruptions
Supply chain disruptions continued to affect our business during fiscal 2023. Our glass supply position improved, while global logistics and
transportation challenges constrained product movement and increased transportation costs.
We further discuss the effects of these developments on our results where relevant below.
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 fiscal years as described
below.
◦
◦
◦
◦
◦
◦
In fiscal 2022 and fiscal 2023, we continued the international launch of Jack Daniel’s Tennessee Apple, expanding to certain developed international
and emerging markets.
In fiscal 2022, we launched Jack Daniel’s 10 Year Old in the United States.
In fiscal 2023, we announced our global relationship with The Coca-Cola Company to introduce the Jack Daniel's & Coca-Cola RTD to select markets
around the world. We discuss the impact of this product launch on our fiscal 2023 results where relevant below.
In fiscal 2023, we launched Jack Daniel’s Bonded Tennessee Whiskey and Jack Daniel’s Triple Mash Blended Straight Whiskey in the United States
and certain developed international and emerging markets.
In fiscal 2023, we launched Jack Daniel’s 12 Year Old in the United States.
In fiscal 2023, we launched Jack Daniel's Tennessee Travelers Whiskey in Travel Retail.
32
Capital Deployment
We have focused our capital deployment initiatives on (a) fully investing in our existing business, (b) continued execution of our acquisitions and
divestitures strategy, and (c) returning cash to our stockholders through regular and special dividends.
•
Investments. During fiscal 2022 and fiscal 2023, our capital expenditures totaled $321 million and focused on enabling the growth of our premium
whiskey and tequila brands:
◦
◦
◦
During fiscal 2021, our Board of Directors approved a $125 million capital investment to expand our bourbon-making capacity in Kentucky. We
expect to complete this project in fiscal 2024.
During fiscal 2022, our Board of Directors approved a $50 million capital investment to expand our scotch-making capacity in Scotland. We also built
an additional barrel warehouse at our GlenDronach distillery during fiscal 2023 to support the continued growth of GlenDronach.
During fiscal 2023, our Board of Directors approved an $85 million capital investment to expand our JDTW capacity in Tennessee. We also built three
additional barrel warehouses at our Jack Daniel’s distillery during fiscal 2022 and fiscal 2023 to support the continued growth of JDTW.
◦ We recently announced a $200 million capital investment to expand our tequila-making capacity in Mexico.
•
•
Acquisitions and divestitures. During fiscal 2023, we acquired the Gin Mare brand and the Diplomático brand and related assets. See Note 12 to the
Consolidated Financial Statements for more information.
Cash returned to stockholders. During fiscal 2022 and fiscal 2023, we returned $1.2 billion to our stockholders through regular and special dividends.
33
Executive Summary
Fiscal 2023 Highlights
• We delivered reported net sales of $4.2 billion, an increase of 8% compared to fiscal 2022. Reported net sales growth was driven by higher volumes and
favorable price/mix, partially offset by the negative effect of foreign exchange. Organic net sales increased 10% compared to fiscal 2022.
◦
◦
From a brand perspective, reported net sales growth was driven by premium bourbons, Ready-to-Drinks, our tequilas, and JDTW.
From a geographic perspective, emerging markets, the United States, developed international markets, and the Travel Retail channel all contributed
significantly to reported net sales growth.
• We delivered reported operating income of $1.1 billion, a decrease of 6% compared to fiscal 2022, reflecting lower gross margin, higher non-cash
impairment charges (largely related to the Finlandia brand name), and higher operating expenses (including certain post-closing costs and expenses in
connection with the acquisitions of Diplomático and Gin Mare). Organic operating income increased 8% compared to fiscal 2022.
• We delivered diluted earnings per share of $1.63, a decrease of 7% compared to fiscal 2022, due to the decrease in reported operating income, partially
offset by the benefit of a lower effective tax rate.
•
Our return on average invested capital decreased to 15.3% in fiscal 2023, compared to 17.6% in fiscal 2022. This decrease was driven by higher invested
capital and lower reported operating income, partially offset by the benefit of a lower effective tax rate.
34
Summary of Operating Performance Fiscal 2022 and Fiscal 2023
Fiscal year ended April 30
Net sales
Cost of sales
Gross profit
Advertising
SG&A
Other expense (income), net
Operating income
Total operating expenses
2
As a percentage of net sales
3
Gross profit
Operating income
Interest expense, net
Effective tax rate
Diluted earnings per share
Return on average invested capital
1
$
$
$
$
$
$
$
$
$
$
2022
2023
Reported Change
Organic Change
1
2022 vs. 2023
10 %
13 %
9 %
18 %
9 %
4
nm
8 %
11 %
3,933
1,542
2,391
438
690
59
1,204
1,187
60.8 %
30.6 %
77
24.8 %
1.74
17.6 %
$
$
$
$
$
$
$
$
$
$
4,228
1,734
2,494
506
742
119
1,127
1,367
59.0 %
26.7 %
81
23.0 %
1.63
15.3 %
8 %
12 %
4 %
15 %
8 %
4
nm
(6 %)
15 %
(1.8 pp)
(3.9 pp)
6 %
(1.8 pp)
(7 %)
(2.3 pp)
1
See “Non-GAAP Financial Measures” above for details on our use of “organic change” and “return on average invested capital,” including how we calculate these measures and
why we think this information is useful to readers.
2
Operating expenses include advertising expense, SG&A expense, and other expense (income), net.
Year-over-year changes in percentages are reported in percentage points (pp).
Percentage change is not meaningful.
3
4
35
Results of Operations
Fiscal 2023 Market Highlights
The following table shows net sales results for our top markets, summarized by geographic area, for fiscal 2023 compared to fiscal 2022. We discuss
results of the markets most affecting our performance below the table.
Top Markets
1
Geographic area
United States
Developed International
Germany
Australia
United Kingdom
France
Canada
Japan
Rest of Developed International
Emerging
Mexico
Poland
Brazil
Rest of Emerging
Travel Retail
Non-branded and bulk
Total
Note: Results may differ due to rounding
Net Sales % Change vs. 2022
% of Fiscal
2023 Net
Sales
Reported
Acquisitions
and
Divestitures
Foreign
Exchange
Organic
2
47 %
28 %
6 %
5 %
5 %
3 %
1 %
1 %
7 %
20 %
6 %
3 %
2 %
9 %
3 %
2 %
100 %
3 %
4 %
5 %
1 %
(5 %)
(18 %)
22 %
28 %
21 %
18 %
37 %
(1 %)
45 %
9 %
41 %
44 %
8 %
— %
(1 %)
(1 %)
— %
— %
— %
— %
— %
(5 %)
— %
— %
— %
— %
— %
(2 %)
8 %
— %
— %
7 %
8 %
5 %
7 %
6 %
5 %
18 %
10 %
6 %
(7 %)
14 %
2 %
11 %
4 %
1 %
3 %
3 %
10 %
12 %
6 %
1 %
(13 %)
27 %
45 %
26 %
24 %
30 %
13 %
48 %
20 %
43 %
53 %
10 %
1
2
See “Definitions” above for definitions of market aggregations presented here.
See “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, our most important market, grew reported net sales 3% driven by (a) higher volumes of Woodford Reserve, partially reflecting an
estimated net increase in distributor inventories; (b) higher prices across our portfolio, led by the Jack Daniel’s family of brands; and (c) growth of JD RTDs,
fueled by the launch of the Jack Daniel’s & Coca-Cola RTD. This growth was partially offset by lower volumes of JDTW and Korbel California Champagne,
largely driven by an estimated net decrease in distributor inventories.
Developed International
• Germany’s reported net sales increased 5% driven by (a) volumetric gains of JDTW and JD RTDs, and (b) Diplomático and Gin Mare, which were both
acquired during the third quarter of fiscal 2023, partially offset by the negative effect of foreign exchange.
•
•
•
Australia’s reported net sales increased 1% led by growth of JD RTDs, partially offset by the negative effect of foreign exchange.
The United Kingdom’s reported net sales declined 5% due to the negative effect of foreign exchange, partially offset by higher prices of JDTW.
France’s reported net sales declined 18% due to lower volumes of JDTW and JDTH, driven by whiskey category declines and higher promotional pricing
along with the negative effect of foreign exchange.
36
•
•
•
Canada’s reported net sales increased 22%, led by higher JDTW volumes, partially due to an estimated net increase in distributor inventories. This growth
was partially offset by the negative effect of foreign exchange.
Japan’s reported net sales increased 28%, fueled by volumetric growth of JDTW, partially reflecting an estimated net increase in distributor inventories.
This growth was partially offset by the negative effect of foreign exchange.
Reported net sales in the Rest of Developed International increased 21%, primarily driven by (a) JDTW gains, led by Belgium, Spain, and Italy, and (b)
Gin Mare and Diplomático, which were both acquired during the third quarter of fiscal 2023; 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 37%, fueled by higher volumes and prices of New Mix, which gained market share in the RTD category, along with
the positive effect of foreign exchange.
•
•
•
Poland’s reported net sales declined 1% due to the negative effect of foreign exchange, partially offset by growth across our portfolio led by JDTW.
Brazil’s reported net sales increased 45%, driven by growth of JDTW, JDTH, and JDTA. An estimated net increase in distributor inventories positively
impacted reported net sales.
Reported net sales in the Rest of Emerging increased 9%, led by JDTW growth in the United Arab Emirates, Türkiye, and Sub-Saharan Africa, 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 reported net sales increased 41%, driven primarily by higher volumes across much of our portfolio, led by JDTW, as travel continued to rebound
from the COVID-19-related travel restrictions.
Non-branded and bulk reported net sales increased 44%, driven by higher prices for used barrels.
37
Fiscal 2023 Brand Highlights
The following table highlights the global results of our top brands for fiscal 2023 compared to fiscal 2022. We discuss results of the brands most affecting
our performance below the table.
Top Brands
Product category / brand
family / brand
1
Reported
Acquisitions &
Divestitures
Foreign
Exchange
Organic
2
Net Sales % Change vs. 2022
Whiskey
JDTW
JDTH
Gentleman Jack
JDTF
JDTA
Woodford Reserve
Old Forester
Rest of Whiskey
Ready-to-Drink
JD RTD/RTP
New Mix
Tequila
Herradura
el Jimador
Wine
Vodka (Finlandia)
Rest of Portfolio
Non-branded and bulk
Note: Results may differ due to rounding
6 %
3 %
— %
10 %
— %
(7 %)
26 %
14 %
10 %
18 %
11 %
53 %
10 %
11 %
13 %
(6 %)
(9 %)
35 %
44 %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
(34 %)
8 %
4 %
5 %
3 %
4 %
6 %
6 %
1 %
— %
5 %
2 %
4 %
(8 %)
(1 %)
(1 %)
1 %
— %
9 %
6 %
1 %
10 %
8 %
3 %
14 %
7 %
(1 %)
27 %
14 %
15 %
20 %
16 %
45 %
10 %
10 %
14 %
(6 %)
— %
7 %
53 %
1
2
See “Definitions” above for definitions of brand aggregations presented here.
See “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
•
•
•
•
•
JDTW generates a significant percentage of our total net sales and is our top priority. Reported net sales increased 3%, driven by (a) higher volumes in
developed international markets and emerging markets, partially reflecting an estimated net increase in distributor inventories; and (b) higher prices. This
growth was partially offset by lower volumes in the United States, largely due to an estimated net decrease in distributor inventories, and the negative
effect of foreign exchange.
Reported net sales for JDTH were flat, as growth in the United States (reflecting an estimated net increase in distributor inventories) and Brazil was offset
by (a) the negative effect of foreign exchange and (b) lower volumes in Chile (due to an estimated net decrease in distributor inventories) and France.
Reported net sales for Gentleman Jack increased 10%, led by growth in emerging markets, partially offset by the negative effect of foreign exchange.
Reported net sales for JDTF were flat as higher volumes and prices in the United States were offset by the negative effect of foreign exchange.
Reported net sales for JDTA declined 7%, largely reflecting a net decrease in distributor inventory along with the negative effect of foreign exchange,
partially offset by higher prices.
38
• Woodford Reserve reported net sales increased 26%, driven by higher volumes in the United States, partially due to an estimated net increase in
distributor inventories.
• Old Forester reported net sales increased 14%, driven by higher volumes and prices in the United States.
•
Reported net sales for Rest of Whiskey increased 10%, led by the continued launch of Jack Daniel’s Bonded Tennessee Whiskey in the United States and
higher volumes of GlenDronach, partially offset by the negative effect of foreign exchange.
Ready-to-Drink
•
•
The JD RTD/RTP brands reported net sales grew 11%, driven by growth in the United States, Germany, and Australia, partially offset by the negative
effect of foreign exchange. The United States growth was fueled by the launch of the Jack Daniel’s & Coca-Cola RTD.
New Mix grew reported net sales 53% fueled by higher volumes and prices in Mexico with market share gains.
Tequila
• Herradura reported net sales increased 11% driven by higher prices and volumes in Mexico along with volumetric growth in the United States, partially
due to an estimated net increase in distributor inventories.
•
el Jimador’s reported net sales increased 13% driven by broad-based growth across all geographic clusters, led by the United States and emerging
markets.
Wine reported net sales declined 6% due to lower volumes of Korbel California Champagne, partially due to an estimated net decrease in distributor
inventories. These declines were partially offset by Sonoma-Cutrer gains and higher prices of Korbel California Champagne in the United States.
Vodka (Finlandia) reported net sales declined 9% 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 growth across other international markets.
Rest of Portfolio reported net sales increased 35% driven by Gin Mare and Diplomático which were both acquired during the third quarter of fiscal 2023.
Non-branded and bulk reported net sales increased 44% driven by higher prices for used barrels.
Year-Over-Year Comparisons
Commentary below compares fiscal 2023 to fiscal 2022 results. A comparison of fiscal 2022 to fiscal 2021 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, 2022 (2022 Form 10-K).
Net Sales
Percentage change versus the prior fiscal year ended April 30
Change in reported net sales
Foreign exchange
Change in organic net sales
Note: Results may differ due to rounding
Volume
2023
Price/mix
Total
8 %
— %
8 %
— %
3 %
3 %
8 %
3 %
10 %
39
Reported net sales of $4.2 billion increased 8%, or $295 million, in fiscal 2023 compared to fiscal 2022 driven by higher volumes of New Mix, JD
RTDs, and JDTW. Price/mix reflects higher prices across much of our portfolio, led by JDTW, offset by the negative effect of foreign exchange and a portfolio
mix shift toward our lower-priced brands. See “Results of Operations - Fiscal 2023 Market Highlights” and “Results of Operations - Fiscal 2023 Brand
Highlights” above for details on the factors contributing to the change in reported net sales for fiscal 2023.
Cost of Sales
Percentage change versus the prior fiscal year ended April 30
Change in reported cost of sales
Foreign exchange
Change in organic cost of sales
Note: Results may differ due to rounding
Volume
2023
Cost/mix
Total
8 %
— %
8 %
4 %
1 %
5 %
12 %
1 %
13 %
Reported cost of sales of $1.7 billion increased $192 million, or 12%, in fiscal 2023 compared to fiscal 2022 largely driven by higher volumes of New
Mix, JD RTDs, and JDTW. Cost/mix reflects inflation on input costs and supply chain disruptions. These factors were partially offset by the removal of tariffs
and a shift in portfolio mix toward our lower-cost brands.
Gross Profit
Percentage change versus the prior fiscal year ended April 30
Change in reported gross profit
Acquisitions and divestitures
Foreign exchange
Change in organic gross profit
Note: Results may differ due to rounding
Gross Margin
Fiscal year ended April 30
Prior year gross margin
1
Price/mix
Cost (excluding tariffs)
Tariffs
Foreign exchange
Change in gross margin
Current year gross margin
Note: Results may differ due to rounding
2023
2023
4 %
(1 %)
5 %
9 %
60.8 %
1.8 %
(4.1 %)
1.4 %
(1.0 %)
(1.8 %)
59.0 %
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.
Reported gross profit of $2.5 billion increased $103 million, or 4%, in fiscal 2023 compared to fiscal 2022. Gross margin decreased to 59.0% in fiscal
2023, down 1.8 percentage points from 60.8% in fiscal 2022. The decrease in gross margin was driven by (a) inflation on 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 tariffs.
40
Operating Expenses
Percentage change versus the prior fiscal year ended April 30
2023
Advertising
SG&A
Total operating expenses
Note: Results may differ due to
rounding
1
Reported
Acquisitions &
Divestitures
Impairment
Foreign
Exchange
Organic
15 %
8 %
15 %
(1 %)
(2 %)
(5 %)
— %
— %
(3 %)
4 %
3 %
3 %
18 %
9 %
11 %
1
Operating expenses include advertising expense, SG&A expense, and other expense (income), net.
Reported operating expenses totaled $1.4 billion and increased $180 million, or 15%, in fiscal 2023 compared to fiscal 2022. The increase in reported
operating expenses was driven by (a) higher reported advertising expense; (b) higher reported SG&A expense; (c) certain post-closing costs and expenses in
connection with the acquisitions of Diplomático and Gin Mare; and (d) higher non-cash impairment charges, largely related to the Finlandia brand name,
partially offset by the positive effect of foreign exchange.
•
•
Reported advertising expenses increased 15% in fiscal 2023, driven by (a) increased investment for JDTW and Herradura, primarily in the United
States; and (b) the launch of Jack Daniel’s Bonded Tennessee Whiskey and the Jack Daniel’s & Coca-Cola RTD in the United States. This increase
was partially offset by the positive effect of foreign exchange.
Reported SG&A expenses increased 8% in fiscal 2023, driven primarily by (a) higher compensation-related expenses, (b) higher discretionary spend,
and (c) costs related to the transaction, transition, and integration of the Gin Mare and Diplomático brands, which were acquired during the third
quarter of fiscal 2023, partially offset by the positive effect of foreign exchange.
Operating Income
Percentage change versus the prior fiscal year ended April 30
Change in reported operating income
Acquisitions and divestitures
Impairment charges
Foreign exchange
Change in organic operating income
Note: Results may differ due to rounding
2023
(6 %)
4 %
3 %
7 %
8 %
Reported operating income was $1.1 billion in fiscal 2023, a decrease of $77 million, or 6%, compared to fiscal 2022. Operating margin declined 3.9
percentage points to 26.7% in fiscal 2023 from 30.6% in fiscal 2022 driven by (a) unfavorable cost/mix; (b) certain post-closing costs and expenses in
connection with the acquisitions of Diplomático and Gin Mare; (c) the negative effect of foreign exchange; (d) higher investment in reported advertising
expense; and (e) higher non-cash impairment charges, largely related to the Finlandia brand name. This decline was partially offset by favorable price/mix and
the removal of tariffs.
Interest expense (net) increased $4 million, or 6%, in fiscal 2023 compared to fiscal 2022, due to a higher average short-term debt balance and a higher
interest rate on our short-term borrowings.
Our effective tax rate for fiscal 2023 was 23.0% compared to 24.8% in fiscal 2022. The decrease in our effective tax rate was driven primarily by the
reversal of valuation allowances in the current year, the beneficial impact of prior fiscal year true-ups, and increased U.S. tax benefit for foreign derived sales,
which is partially offset by increased tax on foreign operations and increased state taxes. See Note 11 to the Consolidated Financial Statements for details.
Diluted earnings per share were $1.63 in fiscal 2023, a decrease of 7% compared to fiscal 2022, due to the decrease in reported operating income,
partially offset by the benefit of a lower effective tax rate.
41
Fiscal 2024 Outlook
Below we discuss our outlook for fiscal 2024, which reflects the trends, developments, and uncertainties (including those described above) that 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, as 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 to our GAAP income statement measures.
We are optimistic about our prospects for growth of organic net sales and organic operating income in fiscal 2024. We believe trends will normalize after
two consecutive years of double-digit organic net sales growth. Accordingly, we expect the following in fiscal 2024:
•
•
Reflecting the strength of our portfolio of brands, our pricing strategy, and strong consumer demand, we expect organic net sales growth in the 5% to 7%
range.
Based on the above organic net sales growth outlook, and our expectation that continued input cost pressures will be partially offset by lower supply chain
disruption costs, we anticipate organic operating income growth in the 6% to 8% range.
• We expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23%.
•
Capital expenditures are planned to be in the range of $250 to $270 million.
Liquidity and Capital Resources
We generate strong cash flows from operations, which enable 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 operating cash flows are supplemented by 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 $374 million at April 30, 2023. As of April 30, 2023, approximately 52% 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. This 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 Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2022 and
April 30, 2023. The average balances, interest rates, and original maturities during 2022 and 2023 are presented below.
(Dollars in millions)
Average commercial paper
Average interest rate
Average days to maturity at issuance
2022
2023
$
59
$
158
0.16 %
32
4.69 %
41
Our commercial paper program is supported by available commitments under our undrawn $800 million bank credit facility. The credit facility was
scheduled to expire in November 2024. On May 26, 2023, we entered into an amended and restated five-year credit agreement with various U.S. and
international banks that provides for a $900 million unsecured revolving credit commitment and expires on May 26, 2028. This agreement amended and
restated our previous credit agreement. The new agreement contains no financial covenants. Although unlikely, under extreme market conditions, one or more
participating banks may not be able to fund its commitments under our new 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 each bank’s financial conditions.
On January 3, 2023, we entered into a $600 million senior unsecured 364-day term loan credit agreement with various U.S. and international banks. We
used borrowings from the term loan to repay the $250 million principal amount of 2.25% senior unsecured notes on their maturity date of January 15, 2023,
and for working capital and general corporate purposes.
42
On March 23, 2023, we issued senior unsecured notes with an aggregate principal of $650 million. Interest on these notes will accrue at a rate of 4.75%
and be paid semi-annually. These notes will mature on April 15, 2033. We used the net proceeds from the issuance to repay $600 million of outstanding
indebtedness under the unsecured 364-day term loan agreement.
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) and capital investments. Our most significant longer-term cash requirements primarily include
payments related to our long-term debt, employee benefit obligations, and deferred tax liabilities (see Notes 6, 9 and 11 to the Consolidated Financial
Statements).
While we expect to meet our planned 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. If we
have additional liquidity needs, we believe that we could access 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.
Cash Flow Summary
The following table summarizes our cash flows for each of the last fiscal two years:
(Dollars in millions)
Cash flows from operating activities
Investing activities:
Acquisition of business
Additions to property, plant, and equipment
Other
Net cash flows from investing activities
Financing activities:
Net change in short-term borrowings
Net proceeds from long-term debt
Regular dividend payments
Special dividend payment
Other
Net cash flows from financing activities
2022
2023
936 $
640
— $
(138)
11
(127) $
(196) $
—
(352)
(479)
(11)
(1,038) $
(1,195)
(183)
23
(1,355)
234
398
(378)
—
(15)
239
$
$
$
$
$
Cash provided by operations of $640 million during fiscal 2023 declined $296 million from fiscal 2022, primarily reflecting increased working capital.
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. The decline in cash from operations also reflects $55 million of transaction costs related to our acquisitions of Gin Mare
and Diplomático, and a $52 million increase in cash paid for income taxes, primarily reflecting the timing of U.S. federal estimated tax payments.
Cash used for investing activities was $1,355 million during fiscal 2023, compared to $127 million during the prior year. The $1,228 million increase
largely reflects our acquisitions of Gin Mare ($468 million) and Diplomático ($727 million) during fiscal 2023. The increase in cash used for investing
activities also includes a $45 million increase in capital expenditures, largely reflecting additional spending on projects to expand the capacity of our whiskey
and tequila production facilities.
Cash provided by financing activities was $239 million during fiscal 2023, compared to $1,038 million in cash used for financing activities during fiscal
2022. The $1,277 million change largely reflects: (a) proceeds of $648 million from the issuance of 4.75% notes in March 2023; (b) a $430 million increase in
net proceeds from short-term borrowings; and (c) a $453 million decline in dividend payments (largely reflecting the $479 million special dividend paid in
December 2021); partially offset by (d) our repayment of the $250 million principal amount of 2.25% notes that matured in January 2023.
A discussion of our cash flows for fiscal 2022 compared to fiscal 2021 may be found in “Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations,” of our 2022 Form 10-K.
43
Dividends
As announced in November 2022, our Board of Directors approved a 9% increase in the quarterly cash dividend on our Class A and Class B common
stock from $0.1885 per share to $0.2055 per share, effective with the regular quarterly dividend paid on January 3, 2023. As a result, the indicated annual cash
dividend increased from $0.7540 per share to $0.8220 per share.
As announced on May 25, 2023, our Board of Directors declared a regular quarterly cash dividend on our Class A and Class B common stock of $0.2055
per share. The dividend is payable on July 3, 2023, to stockholders of record on June 8, 2023.
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
When we acquire a business, 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.
The Gin Mare and Diplomático acquisitions during fiscal 2023 have been accounted for as business combinations under the acquisition method of
accounting. On the acquisition dates, we recognized the separately identifiable intangible assets based on the preliminary purchase price allocations. The excess
of the consideration transferred over the fair values assigned to the net identifiable assets and liabilities of the acquired businesses were recognized as goodwill.
For additional information, see Notes 12 and 14 to the Consolidated Financial Statements.
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 estimate the fair value of a brand name using the relief-from-royalty method. We also
consider market values for similar assets when available. Considerable management judgment is necessary to estimate fair value, including 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 as of April 30, 2023. The Gin Mare and Diplomático brand
names are recorded at their current estimated fair values, as discussed in Notes 12 and 14 to the Consolidated Financial Statements. The Finlandia brand name’s
carrying amount of $91 million approximates its fair value, based on the relief-from-royalty method, using current assumptions. Reasonably possible changes
in those assumptions could result in future impairment of the Finlandia brand name. For example, we estimate that, all else equal, (a) a 15% decline in
projected future net sales would result in an impairment charge of approximately $23 million or (b) a 1 percentage point increase in the discount rate would
result in an impairment charge of approximately $13 million. We estimate the fair values of goodwill and other brand names substantially exceed their carrying
amounts.
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.
44
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.
The following table compares the assumed discount rates and expected return on assets used in determining net periodic benefit cost for fiscal 2023 to
those to be used in determining that cost for fiscal 2024.
Discount rate for service cost
Discount rate for interest cost
Expected return on plan assets
Pension Benefits
Medical and Life
Insurance Benefits
2023
2024
2023
2024
4.44 %
3.97 %
6.25 %
4.98 %
4.79 %
6.50 %
4.50 %
3.96 %
n/a
5.02 %
4.78 %
n/a
Using these assumptions, we estimate our pension and other postretirement benefit cost for fiscal 2024 will be approximately $21 million, unchanged
from the amount (excluding settlement charges) for fiscal 2023. Decreasing/increasing the assumed discount rates by 50 basis points would increase/decrease
the total fiscal 2024 cost by approximately $4 million. Decreasing/increasing the assumed return on plan assets by 50 basis points would increase/decrease the
total fiscal 2024 cost by approximately $3 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.
45
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risks
Our enterprise risk management process is intended to ensure that we take risks knowingly and thoughtfully and that we balance potential risks and
rewards. Our integrated enterprise risk management framework is designed to identify, evaluate, communicate, and appropriately mitigate risks across our
operations.
We face market risks arising from changes in foreign currency exchange rates, commodity prices, and interest rates. We manage market risks through
procurement strategies as well as the use of derivative and other financial instruments. Our risk management program is governed by policies that authorize and
control the nature and scope of transactions that we use to mitigate market risks. Our policy permits the use of derivative financial instruments to mitigate
market risks but prohibits their use for speculative purposes.
Foreign currency exchange rate risk. Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency-
denominated cash flows. In general, we expect our cash flows to be negatively affected by a stronger dollar and positively affected by a weaker dollar. Our
most significant foreign currency exposures include the euro, the British pound, and the Australian dollar. We manage our foreign currency exposures through
derivative financial instruments, principally foreign currency forward contracts, and debt denominated in foreign currency. We had outstanding currency
derivatives with notional amounts totaling $801 million and $747 million at April 30, 2022 and 2023, respectively.
We estimate that a hypothetical 10% weakening of the dollar compared to exchange rates of hedged currencies as of April 30, 2023, would decrease the
fair value of our then-existing foreign currency derivative contracts by approximately $52 million. This hypothetical change in fair value does not consider the
expected inverse change in the underlying foreign currency exposures.
Commodity price risk. Commodity price changes can affect our production and supply chain costs. Our most significant commodities exposures
include wood, corn, agave, malted barley, rye, and natural gas. We manage certain exposures through forward purchase contracts.
Interest rate risk. Interest rate changes affect (a) the fair value of our fixed-rate debt, and (b) cash flows and earnings related to our variable-rate debt
and interest-bearing investments. In addition to currently outstanding debt, any potential future debt offerings would be subject to interest rate risk.
As of April 30, 2023, our cash and cash equivalents ($374 million) and short-term commercial paper borrowings ($235 million) were exposed to interest
rate changes. Based on the then-existing balances of our variable-rate debt and interest-bearing investments, a hypothetical one percentage point increase in
interest rates would result in a negligible change in net interest expense.
See Notes 13 and 14 to the Consolidated Financial Statements for details on our foreign currency exchange rate risk. See “Critical Accounting Policies
and Estimates” in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our pension and other
postretirement plans' exposure to interest rate risks. Also see “Item 1A. Risk Factors” for details on how economic conditions affecting market risks also affect
the demand for and pricing of our products and how we are affected by exchange rate fluctuations.
46
Item 8. Financial Statements and Supplementary Data
Table of Contents
Reports of Management
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
47
Page
48
49
52
53
54
55
56
57
Management’s Responsibility for Financial Statements
Reports of Management
Our management is responsible for preparing, presenting, and ensuring the integrity of the financial information presented in this report. The
consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States, including amounts based on
management’s best estimates and judgments. In management’s opinion, the consolidated financial statements fairly present the Company’s financial position,
results of operations, and cash flows.
The Audit Committee of the Board of Directors, comprising only independent directors, meets regularly with our external auditors, the independent
registered public accounting firm Ernst & Young LLP (EY); with our internal auditors; and with representatives of management to review accounting, internal
control structure, and financial reporting matters. Our internal auditors and EY have full access to the Audit Committee. As set forth in our Code of Conduct
and Corporate Governance Guidelines, we are firmly committed to adhering to the highest standards of moral and ethical behavior in our business activities.
Management’s Report on Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
As permitted by the SEC staff guidance on newly acquired businesses, management’s assessment of the effectiveness of internal control over financial
reporting did not include internal controls of Gin Mare or Diplomático (the acquired businesses). Total assets of the acquired businesses (excluding goodwill
and intangible assets) constituted approximately 2% of the Company’s consolidated total assets as of April 30, 2023. Total net sales of the acquired businesses
constituted less than 1% of the Company’s consolidated net sales for the year ended April 30, 2023.
As of the end of our fiscal year, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the
framework and criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of April 30, 2023. EY, which
audited and reported on the Company’s consolidated financial statements, has audited the effectiveness of our internal control over financial reporting as of
April 30, 2023, as stated in their report.
Dated:
June 16, 2023
By:
/s/ Lawson E. Whiting
Lawson E. Whiting
President and Chief Executive Officer
By:
/s/ Leanne D. Cunningham
Leanne D. Cunningham
Executive Vice President and Chief Financial Officer
48
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Brown-Forman Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brown-Forman Corporation and Subsidiaries (the Company) as of April 30, 2023 and
2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period
ended April 30, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
April 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2023, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of April 30, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated June 16, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Description of the
Matter
Valuation of the Finlandia Brand Name Other Intangible Asset
At April 30, 2023, the balance of the Company’s other intangible assets with indefinite lives was $1,164 million. As
discussed in Notes 1 and 4 to the consolidated financial statements, other intangible assets with indefinite lives include
intangible brand names and trademarks (“brand names”) and are assessed for impairment at least annually, or more
frequently, if circumstances indicate the carrying amount may be impaired. As described in Note 4, the Company
recognized an impairment charge of $96 million for its Finlandia brand name. The Company determined Finlandia’s
fair value based on the relief-from-royalty method.
Auditing management’s estimate of the fair value of the Finlandia brand name was complex due to the significant
judgment required to determine the fair value of the brand name. The fair value estimate was sensitive to significant
assumptions used in the valuation process, such as future net sales. The estimate also includes assumptions such as
discount rates and royalty rates.
49
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the
risks of material misstatement over the Company’s process to estimate the fair value of the Finlandia brand name,
including controls over management’s review of the selection of assumptions, described above, used in the valuation
model.
To test the estimated fair value of the Company’s Finlandia brand name, we performed audit procedures that included,
among others, assessing methodologies used in the valuation model and testing the significant assumptions discussed
above. This included comparing the significant assumptions used by management to observable market data, current
industry and economic trends, changes in the Company’s business model and customer base, historical operating
results, and other relevant factors that would affect the significant assumptions. We assessed management’s historical
estimates and performed sensitivity analyses of assumptions to evaluate the changes in the fair value of the Finlandia
brand name that would result from changes in the assumptions. We also involved valuation specialists to assist in
evaluating valuation methodologies and certain assumptions used in the model.
Description of the
Matter
Valuation of Intangible Assets for Gin Mare and Diplomático
During 2023, the Company completed its acquisition of Diplomático for consideration of $727 million in cash and its
acquisition of Gin Mare for consideration of $468 million in cash paid at the acquisition date plus contingent
consideration of $56 million, as disclosed in Note 12 to the consolidated financial statements. The transactions were
accounted for as business combinations.
How We Addressed
the Matter in Our
Audit
Auditing the Company's accounting for its acquisitions of Diplomático and Gin Mare was complex due to the
significant judgement required in the Company’s determination of the preliminary fair value of identified intangible
assets of $312 million for Diplomático and $307 million for Gin Mare, which primarily consisted of brand names and
trademarks (“acquired brand names”). The preliminary fair value estimates were sensitive to significant assumptions
used in the valuation process, such as future net sales and discount rates. The estimates also included assumptions
such as royalty rates.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the
risks of material misstatement over the Company’s process to estimate the preliminary fair value of the acquired brand
names, including controls over management’s review of the selection of assumptions, described above, used in the
valuation models.
To test the estimated preliminary fair values of the acquired brand names, we performed audit procedures that
included, among others, assessing methodologies used in the valuation models and testing the significant assumptions
discussed above. This included comparing the significant assumptions used by management to observable market
data, current industry and economic trends, historical operating results of similar brands and other relevant factors that
would affect the significant assumptions. We performed sensitivity analyses of certain assumptions to evaluate the
changes in the preliminary fair value of the acquired brand names that would result from changes in the assumptions.
We also involved valuation specialists to assist in evaluating valuation methodologies and certain assumptions used in
the models.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
Louisville, Kentucky
June 16, 2023
50
To the Stockholders and the Board of Directors of Brown-Forman Corporation
Opinion on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited Brown-Forman Corporation and Subsidiaries’ internal control over financial reporting as of April 30, 2023, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO
criteria). In our opinion, Brown-Forman Corporation and Subsidiaries (the Company) maintained, in all material respects, effective internal control over
financial reporting as of April 30, 2023, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on
the effectiveness of internal control over financial reporting did not include the internal controls of Gin Mare or Diplomático, which are included in the 2023
consolidated financial statements of the Company and constituted 2% of total assets as of April 30, 2023, excluding goodwill and intangibles, and less than 1%
of net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal
control over financial reporting of Gin Mare or Diplomático.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of April 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity
and cash flows for each of the three years in the period ended April 30, 2023, and the related notes and financial statement schedule listed in the Index at Item
15(a)(2) and our report dated June 16, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Louisville, Kentucky
June 16, 2023
51
Year Ended April 30,
Sales
Excise taxes
Net sales
Cost of sales
Gross profit
Advertising expenses
Selling, general, and administrative expenses
Gain on sale of business
Other expense (income), net
Operating income
Non-operating postretirement expense
Interest income
Interest expense
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
Brown-Forman Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
2021
2022
2023
$
$
$
$
4,526 $
1,065
3,461
1,367
2,094
399
671
(127)
(15)
1,166
6
(2)
81
1,081
178
903 $
1.89 $
1.88 $
5,081 $
1,148
3,933
1,542
2,391
438
690
—
59
1,204
13
(5)
82
1,114
276
838 $
1.75 $
1.74 $
5,372
1,144
4,228
1,734
2,494
506
742
—
119
1,127
29
(9)
90
1,017
234
783
1.63
1.63
The accompanying notes are an integral part of the consolidated financial statements.
52
Brown-Forman Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in millions)
Year Ended April 30,
Net income
Other comprehensive income (loss), net of tax:
Currency translation adjustments
Cash flow hedge adjustments
Postretirement benefits adjustments
Net other comprehensive income (loss)
Comprehensive income
2021
2022
2023
$
$
903 $
123
(76)
78
125
1,028 $
838 $
(60)
53
77
70
908 $
783
135
(27)
9
117
900
The accompanying notes are an integral part of the consolidated financial statements.
53
Brown-Forman Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
Assets
2022
2023
April 30,
Cash and cash equivalents
Accounts receivable, net
Inventories:
Barreled whiskey
Finished goods
Work in process
Raw materials and supplies
Total inventories
Other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Other intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Accounts payable and accrued expenses
Accrued income taxes
Short-term borrowings
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred tax liabilities
Accrued pension and other postretirement benefits
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ Equity
Common stock:
Class A, voting, $0.15 par value (170,000,000 shares authorized; 170,000,000 shares issued)
Class B, nonvoting, $0.15 par value (400,000,000 shares authorized; 314,532,000 shares issued)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Treasury stock, at cost (5,511,000 and 5,215,000 shares in 2022 and 2023, respectively)
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of the consolidated financial statements.
54
$
$
$
$
868 $
813
1,155
312
225
126
1,818
277
3,776
875
761
586
74
301
6,373 $
703 $
81
—
250
1,034
2,019
219
183
181
3,636
25
47
—
3,242
(352)
(225)
2,737
6,373 $
374
855
1,262
509
321
191
2,283
289
3,801
1,031
1,457
1,164
66
258
7,777
827
22
235
—
1,084
2,678
323
171
253
4,509
25
47
1
3,643
(235)
(213)
3,268
7,777
Brown-Forman Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in millions)
Year Ended April 30,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operations:
2021
2022
2023
$
903 $
838 $
783
Gain on sale of business
Asset impairment charges
Depreciation and amortization
Stock-based compensation expense
Deferred income tax provision (benefit)
Other, net
Changes in assets and liabilities, net of business acquisitions and dispositions:
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued expenses
Accrued income taxes
Other operating assets and liabilities
Cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of business
Business acquisitions, net of cash acquired
Additions to property, plant, and equipment
Other, net
Cash provided by (used for) investing activities
Cash flows from financing activities:
Proceeds from short-term borrowings, maturities greater than 90 days
Repayments of short-term borrowings, maturities greater than 90 days
Net change in other short-term borrowings
Repayment of long-term debt
Proceeds from long-term debt
Dividends paid
Other, net
Cash provided by (used for) financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Less: Restricted cash (included in other current assets) at end of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash paid for:
Interest
Income taxes
$
$
$
(127)
—
77
12
(53)
(23)
(150)
(37)
31
137
8
39
817
177
(14)
(62)
(3)
98
344
(516)
46
—
—
(338)
(21)
(485)
45
475
675
1,150
—
1,150 $
79 $
204 $
—
61
79
15
(11)
31
(77)
(93)
15
37
47
(6)
936
—
—
(138)
11
(127)
—
—
(196)
—
—
(831)
(11)
(1,038)
(47)
(276)
1,150
874
(6)
868 $
80 $
226 $
—
96
80
18
(3)
18
(21)
(403)
4
77
(57)
48
640
—
(1,195)
(183)
23
(1,355)
600
(600)
234
(250)
648
(378)
(15)
239
(14)
(490)
874
384
(10)
374
85
278
The accompanying notes are an integral part of the consolidated financial statements.
55
Brown-Forman Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in millions, except per share amounts)
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in Capital
Retained
Earnings
AOCI
Treasury Stock
Total
$
25
$
47
$
—
$
25
47
25
47
12
(12)
—
15
(15)
—
18
2,708
903
(338)
(30)
3,243
838
(831)
(8)
3,242
783
(378)
$
(547)
$
(258)
$
125
(422)
70
(352)
117
21
(237)
12
(225)
12
$
25
$
47
$
(17)
1
$
(4)
3,643
$
(235)
$
(213)
$
1,975
903
125
(338)
12
21
(42)
2,656
838
70
(831)
15
12
(23)
2,737
783
117
(378)
18
12
(21)
3,268
Balance at April 30, 2020
Net income
Net other comprehensive income (loss)
Cash dividends ($0.7076 per share)
Stock-based compensation expense
Stock issued under compensation plans
Loss on issuance of treasury stock issued under
compensation plans
Balance at April 30, 2021
Net income
Net other comprehensive income (loss)
Cash dividends ($1.7360 per share)
Stock-based compensation expense
Stock issued under compensation plans
Loss on issuance of treasury stock issued under
compensation plans
Balance at April 30, 2022
Net income
Net other comprehensive income (loss)
Cash dividends ($0.7880 per share)
Stock-based compensation expense
Stock issued under compensation plans
Loss on issuance of treasury stock issued under
compensation plans
Balance at April 30, 2023
The accompanying notes are an integral part of the consolidated financial statements.
56
Brown-Forman Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars and other currency amounts in millions, except per share data)
1. Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP). We also
apply the following accounting policies when preparing our consolidated financial statements:
Principles of consolidation. Our consolidated financial statements include the accounts of all subsidiaries in which we have a controlling financial
interest. We eliminate all intercompany transactions.
Estimates. To prepare financial statements that conform with GAAP, our management must make informed estimates that affect how we report revenues,
expenses, assets, and liabilities, including contingent assets and liabilities. Actual results could differ from these estimates.
Cash equivalents. Cash equivalents include bank demand deposits and all highly liquid investments with original maturities of three months or less.
Accounts receivable. Accounts receivable are recorded net of an allowance for expected credit losses (allowance for doubtful accounts). We determine the
allowance using information such as customer credit history and financial condition, historical loss experience, and macroeconomic factors. We write off
account balances against the allowance when we have exhausted our collection efforts. The allowance for doubtful accounts was $13 and $7 at April 30, 2022
and 2023, respectively.
Inventories. Inventories are valued at the lower of cost or net realizable value. Approximately 49% of our consolidated inventories are valued using the
last-in, first-out (LIFO) cost method, which we use for the majority of our U.S. inventories. We value the remainder of our inventories primarily using the first-
in, first-out (FIFO) cost method. FIFO cost approximates current replacement cost. If we had used the FIFO method for all inventories, they would have been
$385 and $429 higher than reported at April 30, 2022 and 2023, respectively.
Because we age most of our whiskeys in barrels for three years or more, we bottle and sell only a portion of our whiskey inventory each year. Following
industry practice, we classify all barreled whiskey as a current asset. We include warehousing, insurance, ad valorem taxes, and other carrying charges
applicable to barreled whiskey in inventory costs.
We classify agave inventories, bulk tequila, bulk wine, and liquid in bottling tanks as work in process.
Property, plant, and equipment. We state property, plant, and equipment at cost less accumulated depreciation. We calculate depreciation on a straight-line
basis using our estimates of useful life, which are 20–40 years for buildings and improvements; 3–10 years for machinery, equipment, vehicles, furniture, and
fixtures; and 3–7 years for capitalized software.
We assess our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of those assets
may not be recoverable. When we do not expect to recover the carrying value of an asset (or asset group) through undiscounted future cash flows, we write it
down to its estimated fair value. We determine fair value using discounted estimated future cash flows, considering market values for similar assets when
available.
When we retire or dispose of property, plant, and equipment, we remove its cost and accumulated depreciation from our balance sheet and reflect any
gain or loss in operating income. We expense the costs of repairing and maintaining our property, plant, and equipment as we incur them.
Goodwill and other intangible assets. When we acquire a business, 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 estimate the fair value of a brand name using the relief-from-royalty method. We also
consider market values for similar assets when available. Considerable management judgment is
57
necessary to estimate fair value, including the selection of 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.
Revenue recognition. Our net sales predominantly reflect global sales of beverage alcohol consumer products. We sell these products under contracts with
different types of customers, depending on the market. The customer is most often a distributor, wholesaler, or retailer.
Each contract typically includes a single performance obligation to transfer control of the products to the customer. Depending on the contract, control is
transferred when the products are either shipped or delivered to the customer, at which point we recognize the transaction price for those products as net sales.
The transaction price recognized at that point reflects our estimate of the consideration to be received in exchange for the products. The actual amount may
ultimately differ due to the effect of various customer incentives and trade promotion activities. In making our estimates, we consider our historical experience
and current expectations, as applicable. Subsequent adjustments recognized for changes in estimated transaction prices are typically not material.
Net sales exclude taxes we collect from customers that are imposed by various governments on our sales, and are reduced by payments to customers
unless made in exchange for distinct goods or services with fair values approximating the payments. Net sales include any amounts we bill customers for
shipping and handling activities related to the products. We recognize the cost of those activities in cost of sales during the same period in which we recognize
the related net sales. Sales returns, which are permitted only in limited situations, are not material. Customer payment terms generally range from 30 to 90
days. There are no significant amounts of contract assets or liabilities.
Cost of sales. Cost of sales includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods sold during the period.
Advertising costs. We expense the production costs of advertising when the advertisements first take place. We expense all other advertising costs during
the year in which the costs are incurred.
Selling, general, and administrative expenses. Selling, general, and administrative expenses include the costs associated with our sales force,
administrative staff and facilities, and other expenses related to our non-manufacturing functions.
Stock-based compensation. We use stock-based awards as part of our incentive compensation for eligible employees and directors. We recognize the
grant-date fair value of an award as compensation expense on a straight-line basis over the requisite service period, which typically corresponds to the vesting
period for the award. Upon forfeiture of an award prior to vesting, we reverse any previously recognized compensation expense related to that award. We
classify stock-based compensation expense within selling, general, and administrative expenses.
As we recognize compensation expense for a stock-based award, we concurrently recognize a related deferred tax asset. The subsequent vesting or
exercise of the award will generally result in an actual tax benefit that differs from the deferred tax asset that had been recorded. The excess (deficiency) of the
actual tax benefit over (under) the previously recorded tax asset is recognized as income tax benefit (expense) on the date of vesting or exercise.
Income taxes. We base our annual provision for income taxes on the pre-tax income reflected in our consolidated statement of operations. We establish
deferred tax liabilities or assets for temporary differences between GAAP and tax reporting bases and later adjust them to reflect changes in tax rates expected
to be in effect when the temporary differences reverse. We record a valuation allowance as necessary to reduce a deferred tax asset to the amount that we
believe is more likely than not to be realized. We do not provide deferred income taxes on undistributed earnings of foreign subsidiaries that we expect to
indefinitely reinvest. We record a deferred tax charge in prepaid taxes for the difference between GAAP and tax reporting bases with respect to the elimination
of intercompany profit in ending inventory.
We assess our uncertain income tax positions in two steps. First, we evaluate whether the tax position will more likely than not, based on its technical
merits, be sustained upon examination, including resolution of any related appeals or litigation. For a tax position that does not meet this first criterion, we
recognize no tax benefit. For a tax position that does meet the first criterion, we recognize a tax benefit in an amount equal to the largest amount of benefit that
we believe has more than a 50% likelihood of being realized upon ultimate resolution. We record interest and penalties on uncertain tax positions as income tax
expense.
58
Foreign currency transactions and translation. We report all gains and losses from foreign currency transactions (those denominated in a currency other
than the entity's functional currency) in current income. The U.S. dollar is the functional currency for most of our consolidated entities. The local currency is
the functional currency for some of our consolidated foreign entities. We translate the financial statements of those foreign entities into U.S. dollars, using the
exchange rate in effect at the balance sheet date to translate assets and liabilities, and using the average exchange rate for the reporting period to translate
income and expenses. We record the resulting translation adjustments in other comprehensive income (loss).
2. Balance Sheet Information
Supplemental information on our year-end balance sheets is as follows:
April 30,
Other current assets:
Prepaid taxes
Other
Property, plant, and equipment:
Land
Buildings
Equipment
Construction in process
Less accumulated depreciation
Accounts payable and accrued expenses:
Accounts payable, trade
Accrued expenses:
Advertising, promotion, and discounts
Compensation and commissions
Excise and other non-income taxes
Other
Other liabilities:
Contingent consideration (Note 12)
Other
Accumulated other comprehensive income (loss), net of tax:
Currency translation adjustments
Cash flow hedge adjustments
Postretirement benefits adjustments
59
2022
2023
$
$
$
$
$
$
$
$
$
$
155 $
122
277 $
86 $
660
849
129
1,724
849
875 $
218 $
200
99
74
112
485
703 $
— $
181
181 $
(239) $
37
(150)
(352) $
122
167
289
97
717
889
217
1,920
889
1,031
308
216
106
76
121
519
827
56
197
253
(104)
10
(141)
(235)
3. 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:
Net income available to common stockholders
Share data (in thousands):
Basic average common shares outstanding
Dilutive effect of stock-based awards
Diluted average common shares outstanding
Basic earnings per share
Diluted earnings per share
$
$
$
2021
2022
2023
903 $
838 $
478,527
2,150
480,677
478,879
1,686
480,565
1.89 $
1.88 $
1.75 $
1.74 $
783
479,155
1,310
480,465
1.63
1.63
We excluded common stock-based awards for approximately 234,000 shares, 691,000 shares, and 1,107,000 shares from the calculation of diluted
earnings per share for 2021, 2022, and 2023, respectively, because they were not dilutive for those periods under the treasury stock method.
4. Goodwill and Other Intangible Assets
The following table shows the changes in goodwill (which include no accumulated impairment losses) and other intangible assets over the past two
years:
Balance as of April 30, 2021
Foreign currency translation adjustment
Impairment
Balance as of April 30, 2022
Acquisitions (Note 12)
Foreign currency translation adjustment
Impairment
Balance as of April 30, 2023
Goodwill
Other Intangible
Assets
$
$
779 $
(18)
—
761
652
44
—
1,457 $
676
(38)
(52)
586
619
55
(96)
1,164
Our other intangible assets consist of trademarks and brand names, all with indefinite useful lives.
During fiscal 2022, we recognized a non-cash impairment charge of $52 for the Finlandia brand name. The impairment reflected a decline in our long-
term outlook for Finlandia due to our suspension of operations in Russia, a key market for the brand. During fiscal 2023, we recognized an additional non-cash
impairment charge of $96 for the Finlandia brand name, largely reflecting the effects of higher discount rates and input costs on its valuation. The impairment
charges are included in “other expense (income), net” in the accompanying consolidated statements of operations. As of April 30, 2023, the remaining carrying
amount of the Finlandia brand name was $91.
60
5. 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 are recorded as of April 30, 2023.
6. Debt and Credit Facilities
Our long-term debt (net of unamortized discounts and issuance costs) consisted of:
April 30,
2.25% senior notes, $250 principal amount, due January 15, 2023
3.50% senior notes, $300 principal amount, due April 15, 2025
1.20% senior notes, €300 principal amount, due July 7, 2026
2.60% senior notes, £300 principal amount, due July 7, 2028
4.75% senior notes, $650 principal amount, due April 15, 2033
4.00% senior notes, $300 principal amount, due April 15, 2038
3.75% senior notes, $250 principal amount, due January 15, 2043
4.50% senior notes, $500 principal amount, due July 15, 2045
Less current portion
2022
2023
$
$
250 $
298
315
374
—
295
248
489
2,269
250
2,019 $
—
299
330
375
642
295
248
489
2,678
—
2,678
On January 3, 2023, we entered into a $600 senior unsecured 364-day term loan credit agreement with various U.S. and international banks. This credit
agreement specified a variable interest rate reflecting the Secured Overnight Financing Rate applicable to the term of the particular borrowing plus a margin
based on our credit ratings. The weighted-average interest rate on the term loan borrowings was 5.36% until it was repaid in full on March 23, 2023.
On January 15, 2023, we repaid the $250 principal amount of 2.25% senior notes that matured on that date.
On March 23, 2023, we issued senior unsecured notes with an aggregate principal amount of $650. Interest on these notes will accrue at a rate of 4.75%
and be paid semi-annually. These notes will mature on April 15, 2033. The net proceeds from the issuance were used to repay $600 of outstanding indebtedness
under the unsecured 364-day term loan agreement, dated January 3, 2023.
Debt payments required over the next five fiscal years consist of $0 in 2024, $300 in 2025, $0 in 2026, $331 in 2027, $0 in 2028, and $2,077 after 2028.
The senior notes contain terms, events of default, and covenants customary of these types of unsecured securities, including limitations on the amount of
secured debt we can issue.
Our short-term borrowings were $235 as of April 30, 2023 under our commercial paper program. There were no borrowings under that program as of
April 30, 2022.
April 30,
Commercial paper
Average interest rate
Average remaining days to maturity
2022
$—
—%
0
2023
$235
5.17%
21
We had a committed revolving credit agreement with various U.S. and international banks for $800 that was scheduled to expire in November 2024. At
April 30, 2023, there were no borrowings outstanding under this facility. On May 26, 2023, we entered into an amended and restated five-year credit agreement
with various U.S. and international banks that provides for a $900 unsecured revolving credit commitment and expires on May 26, 2028. This agreement
amended and restated our previous credit facility agreement. The new agreement contains no financial covenants.
61
7. Common Stock
The following table shows the change in outstanding common shares during each of the last three years:
(Shares in thousands)
Balance at April 30, 2020
Stock issued under compensation plans
Balance at April 30, 2021
Stock issued under compensation plans
Balance at April 30, 2022
Stock issued under compensation plans
Balance at April 30, 2023
8. Net Sales
The following table shows our net sales by geography:
Class A
Class B
169,040
70
169,110
65
169,175
65
169,240
309,169
450
309,619
226
309,845
231
310,076
Total
478,209
520
478,729
291
479,020
296
479,316
United States
Developed International
Emerging
Travel Retail
Non-branded and bulk
4
2
3
1
2021
2022
2023
$
$
1,748 $
1,014
578
63
58
3,461 $
1,917 $
1,137
714
104
61
3,933 $
1,968
1,183
842
147
88
4,228
1
Represents net sales of branded products to “advanced economies” as defined by the International Monetary Fund (IMF), excluding the United States. Our top developed
international markets are Germany, Australia, the United Kingdom, France, Canada, and Japan.
2
Represents net sales of branded products to “emerging and developing economies” as defined by the IMF. Our top emerging markets are Mexico, Poland, and Brazil.
Represents net sales of branded products to global duty-free customers, other travel retail customers, and the U.S. military, regardless of customer location.
Includes net sales of used barrels, contract bottling services, and bulk whiskey and wine, regardless of customer location.
4
3
The following table shows our net sales by product category:
1
2
Whiskey
Ready-to-Drink
3
Tequila
Wine
Vodka
Non-branded and bulk
Rest of portfolio
7
5
4
6
2021
2022
2023
$
$
2,410 $
406
229
206
90
58
62
3,461 $
2,756 $
431
290
219
109
61
67
3,933 $
2,915
509
320
206
99
88
91
4,228
1
3
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 outlined below), the Woodford Reserve family of brands, the Old Forester family of brands, GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and Coopers’
Craft.
2
Includes the Jack Daniel’s ready-to-drink (RTD) and ready-to-pour (RTP) products, New Mix, and other RTD/RTP products.
Includes the Herradura family of brands, el Jimador, New Mix, and other tequilas.
Includes Korbel California Champagne and Sonoma-Cutrer wines.
Includes Finlandia.
Includes net sales of used barrels, contract bottling services, and bulk whiskey and wine.
Includes Chambord, Gin Mare, Korbel Brandy, Diplomático, and Fords Gin.
6
7
4
5
62
9. Pension and Other Postretirement Benefits
We sponsor various defined benefit pension plans as well as postretirement plans providing retiree health care and retiree life insurance benefits. Below,
we discuss our obligations related to these plans, the assets dedicated to meeting the obligations, and the amounts we recognized in our financial statements as
a result of sponsoring these plans.
Obligations. We provide eligible employees with pension and other postretirement benefits based on factors such as years of service and compensation
level during employment. The pension obligation shown below (“projected benefit obligation”) consists of: (a) benefits earned by employees to date based on
current salary levels (“accumulated benefit obligation”); and (b) benefits to be received by employees as a result of expected future salary increases. (The
obligation for medical and life insurance benefits is not affected by future salary increases.) The following table shows how the present value of our projected
benefit obligations changed during each of the last two years.
Obligation at beginning of year
Service cost
Interest cost
Net actuarial loss (gain)
Retiree contributions
Benefits paid
Obligation at end of year
1
Pension Benefits
Medical and Life
Insurance Benefits
2022
2023
2022
2023
$
$
1,012 $
26
22
(132)
—
(82)
846 $
846 $
20
32
(21)
—
(146)
731 $
49 $
1
1
(5)
1
(4)
43 $
43
1
1
(2)
2
(5)
40
1
The net actuarial loss (gain) during each year was primarily attributable to changes in discount rates.
Service cost represents the present value of the benefits attributed to service rendered by employees during the year. Interest cost is the increase in the
present value of the obligation due to the passage of time. Net actuarial loss (gain) is the change in value of the obligation resulting from experience different
from that assumed or from a change in an actuarial assumption. (We discuss actuarial assumptions used at the end of this note.) Plan amendments may also
change the value of the obligation.
As shown in the previous table, the change in the value of our pension and other postretirement benefit obligations also includes the effect of benefit
payments and retiree contributions. Expected benefit payments (net of retiree contributions) over the next 10 years are as follows:
2024
2025
2026
2027
2028
2029 – 2033
Pension Benefits
$
Medical and Life
Insurance Benefits
4
3
3
3
3
15
53 $
52
54
55
56
287
Assets. We invest in specific assets to fund our pension benefit obligations. Our investment goal is to earn a total return that, over time, will grow assets
sufficiently to fund our plans' liabilities, after providing appropriate levels of contributions and accepting prudent levels of investment risk. To achieve this
goal, plan assets are invested primarily in funds or portfolios of funds managed by outside managers. Investment risk is managed by company policies that
require diversification of asset classes, manager styles, and individual holdings. We measure and monitor investment risk through quarterly and annual
performance reviews, and through periodic asset/liability studies.
Asset allocation is the most important method for achieving our investment goals and is based on our assessment of the plans' long-term return objectives
and the appropriate balances needed for liquidity, stability, and diversification. As of April 30, 2023, our target asset allocation is a mix of 31% public equity
investments, 58% fixed income investments, and 11% alternative investments.
63
The following table shows the fair value of pension plan assets by category as of the end of the last two years. (Fair value levels are defined in Note 14.)
Level 1
Level 2
Level 3
Total
April 30, 2022
Equity securities
Limited partnership interest
1
Investments measured at net asset value:
2
Commingled trust funds :
Equity funds
Fixed income funds
Real estate fund
Short-term investments
Limited partnership interests
3
Total
April 30, 2023
Equity securities
Cash and temporary investments
Limited partnership interest
1
Investments measured at net asset value:
2
Commingled trust funds :
Equity funds
Fixed income funds
Real estate fund
Short-term investments
Limited partnership interests
3
Total
$
$
$
$
78 $
—
78 $
— $
—
— $
— $
2
2
35 $
2
—
37 $
— $
—
—
— $
$
— $
—
1
1
$
78
2
80
218
318
78
6
41
741
35
2
1
38
138
330
59
2
39
606
1
This limited partnership interest was initially valued at cost and has been adjusted to fair value as determined in good faith by management of the partnership using various
factors, and does not meet the requirements for reporting at the net asset value (NAV). The valuation requires significant judgment due to the absence of quoted market prices
and the inherent lack of liquidity. This limited partnership has a term expiring in September 2023.
2
Commingled trust fund valuations are based on the NAV of the funds as determined by the fund administrators and reviewed by us. NAV represents the underlying assets
owned by the fund, minus liabilities and divided by the number of shares or units outstanding. Generally, for commingled trust funds other than real estate, redemptions are
permitted daily with no notice period. The real estate fund is redeemable quarterly with 110 days' notice.
3
These limited partnership interests were initially valued at cost and have been adjusted using NAV per audited financial statements. Investments are generally not eligible for
immediate redemption and have original terms averaging 10 to 13 years, although those periods may be extended.
64
The following table shows how the fair value of the Level 3 assets changed during each of the last two years. There were no transfers of assets between
Balance as of April 30, 2021
Return on assets held at end of year
Balance as of April 30, 2022
Return on assets held at end of year
Balance as of April 30, 2023
Level 3
2
—
2
(1)
1
$
$
Level 3 and either of the other two levels.
The following table shows how the total fair value of all pension plan assets changed during each of the last two years. (We do not have assets set aside
for postretirement medical or life insurance benefits.)
Assets at beginning of year
Actual return on assets
Retiree contributions
Company contributions
Benefits paid
Assets at end of year
Pension Benefits
Medical and Life
Insurance Benefits
2022
2023
2022
2023
$
$
836 $
(25)
—
12
(82)
741 $
741 $
(7)
—
18
(146)
606 $
— $
—
1
3
(4)
— $
—
—
2
3
(5)
—
We currently expect to contribute $14 to our pension plans and $4 to our postretirement medical and life insurance benefit plans during 2024.
Funded status. The funded status of a plan refers to the difference between its assets and its obligations. The following table shows the funded status of
our plans.
April 30,
Assets
Obligations
Funded status
Pension Benefits
Medical and Life
Insurance Benefits
2022
2023
2022
2023
$
$
741 $
(846)
(105) $
606 $
(731)
(125) $
— $
(43)
(43) $
The funded status is recorded on the accompanying consolidated balance sheets as follows:
April 30,
Other assets
Accounts payable and accrued expenses
Accrued pension and other postretirement benefits
Net liability
Accumulated other comprehensive income (loss), before tax:
Net actuarial gain (loss)
Prior service credit (cost)
Pension Benefits
Medical and Life
Insurance Benefits
2022
2023
2022
2023
$
$
$
$
46 $
(8)
(143)
(105) $
(201) $
(4)
(205) $
17 $
(8)
(134)
(125) $
(192) $
(4)
(196) $
— $
(3)
(40)
(43) $
(3) $
2
(1) $
—
(40)
(40)
—
(3)
(37)
(40)
(1)
2
1
65
The following table compares our pension plans whose accumulated benefit obligations exceed their assets with our pension plans whose assets exceed
their accumulated benefit obligations.
April 30,
Plans with accumulated benefit obligation in excess of
assets
Plans with assets in excess of accumulated benefit
obligation
Total
$
$
Accumulated
Benefit Obligation
Plan Assets
2022
2023
2022
2023
(135) $
(131) $
— $
(623)
(758) $
(524)
(655) $
741
741 $
—
606
606
The following table compares our pension plans whose projected benefit obligations exceed their assets with our pension plans whose assets exceed their
projected benefit obligations.
April 30,
Plans with projected benefit obligation in excess of
assets
Plans with assets in excess of projected benefit
obligation
Total
$
$
Projected
Benefit Obligation
Plan Assets
2022
2023
2022
2023
(150) $
(190) $
— $
(696)
(846) $
(541)
(731) $
741
741 $
48
558
606
As noted above, we have no assets set aside for the postretirement medical or life insurance benefit plans.
Pension cost. The following table shows the components of the pension cost recognized during each of the last three years. The amount for each year
includes amortization of the prior service cost/credit and net actuarial loss/gain included in accumulated other comprehensive loss as of the beginning of the
year.
Service cost
Interest cost
Expected return on assets
Amortization of:
Prior service cost (credit)
Net actuarial loss (gain)
Settlement charge
Net cost
2021
Pension Benefits
2022
2023
$
$
26 $
25
(46)
1
27
—
33 $
26 $
22
(45)
1
23
12
39 $
20
32
(43)
1
9
29
48
We determine the expected return on plan assets by applying our long-term rate of return assumption to the market-related value of plan assets, adjusted
by earnings on contributions and benefit payments expected to be made during the year. We calculate the market-related value of plan assets by amortizing
actual versus expected returns over five years.
We amortize prior service costs and net actuarial gains or losses on straight-line basis over the average remaining service period of the employees
expected to receive benefits under the plan. However, for net actuarial gains or losses, we use a corridor approach that amortizes them only to the extent the
gain or loss exceeds 10% of the greater of the projected benefit obligation or market-related value of plan assets.
The settlement charges recognized during 2022 and 2023 were triggered by fiscal year-to-date lump-sum payments under certain pension plans
surpassing total annual service and interest cost for those plans.
66
Other postretirement benefits cost. The following table shows the components of the postretirement medical and life insurance benefits cost that we
recognized during each of the last three years.
Service cost
Interest cost
Amortization of:
Prior service cost (credit)
Net actuarial loss (gain)
Net cost
Medical and Life Insurance Benefits
2021
2022
2023
$
$
1 $
1
(3)
1
— $
1 $
1
(2)
1
1 $
1
1
—
—
2
We amortize prior service costs and net actuarial gains or losses on straight-line basis over the average remaining service period of the employees
expected to receive benefits under the plan.
Other comprehensive income (loss). Prior service cost/credit and net actuarial loss/gain are recognized in other comprehensive income or loss (OCI)
during the period in which they arise. These amounts are later amortized from accumulated OCI into pension and other postretirement benefit cost over future
periods as described above. The following table shows the pre-tax effect of these amounts on OCI during each of the last three years.
Net actuarial gain (loss)
Amortization reclassified to earnings:
Prior service cost (credit)
Net actuarial loss (gain)
Net amount recognized in OCI
Pension Benefits
Medical and Life
Insurance Benefits
2021
2022
2023
2021
2022
2023
$
$
69 $
1
27
97 $
62 $
1
35
98 $
(29) $
1
38
10 $
1 $
(3)
1
(1) $
5 $
(2)
1
4 $
2
—
—
2
Assumptions and sensitivity. We use various assumptions to determine the obligations and cost related to our pension and other postretirement benefit
plans. The weighted-average assumptions used in computing benefit plan obligations as of the end of the last two years were as follows:
Discount rate
Rate of salary increase
Interest crediting rate
Pension Benefits
Medical and Life
Insurance Benefits
2022
2023
2022
2023
4.36 %
4.00 %
3.06 %
4.91 %
4.00 %
3.69 %
4.33 %
n/a
n/a
4.86 %
n/a
n/a
The weighted-average assumptions used in computing benefit plan cost during each of the last three years were as follows:
Discount rate for service cost
Discount rate for interest cost
Rate of salary increase
Interest crediting rate
Expected return on plan assets
Pension Benefits
Medical and Life
Insurance Benefits
2021
2022
2023
2021
2022
2023
3.49 %
2.56 %
4.00 %
3.07 %
6.50 %
3.36 %
2.34 %
4.00 %
3.06 %
6.25 %
4.52 %
4.12 %
4.00 %
3.06 %
6.25 %
3.59 %
2.47 %
n/a
n/a
n/a
3.49 %
2.27 %
n/a
n/a
n/a
4.50 %
3.96 %
n/a
n/a
n/a
The assumed discount rates are determined 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 the yield
curve used to measure the benefit obligation at the beginning of the period.
67
The assumed rate of salary increase reflects the expected average annual increase in salaries as a result of inflation, merit increases, and promotions over
the service period of the plan participants.
The assumed interest crediting is based on the greater of the average yield on 30-year Treasury bonds or the minimum rate specified in the applicable
pension plan.
The expected return on plan assets represents the long-term rate of return that we assume will be earned over the life of the pension assets. The
assumption reflects expected capital market returns for each asset class, which are based on historical returns, adjusted for the expected effects of
diversification.
The assumed health care cost trend rates as of the end of the last two years were as follows:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Medical and Life
Insurance Benefits
2022
2023
6.10 %
4.50 %
2030
7.23 %
4.50 %
2032
Savings plans. We also sponsor various defined contribution benefit plans that together cover substantially all U.S. employees. Employees can make
voluntary contributions in accordance with their respective plans, which include a 401(k) tax deferral option. We match a percentage of each employee's
contributions in accordance with plan terms. We expensed $12, $13, and $14 for matching contributions during 2021, 2022, and 2023, respectively.
International plans. The information presented above for defined benefit plans and defined contribution benefit plans reflects amounts for U.S. plans
only. Information about similar international plans is not presented due to immateriality.
10. Stock-Based Compensation
The Brown-Forman 2022 Omnibus Compensation Plan (Plan) is our incentive compensation plan, designed to reward participants (including eligible
officers, employees, and non-employee directors) for company performance. Under the Plan, we can grant stock-based incentive awards for up to 12,412,433
shares of common stock to eligible participants until July 28, 2032. As of April 30, 2023, awards for approximately 11,844,000 shares remain available for
issuance under the Plan. We try to limit the source of shares delivered to participants under the Plan to treasury shares that we purchase from time to time on
the open market (in connection with a publicly announced share repurchase program), in private transactions, or otherwise.
Awards granted under the Plan include stock-settled stock appreciation rights (SSARs), performance-based restricted stock units (PBRSUs), and deferred
stock units (DSUs).
SSARs. We grant SSARs at an exercise price equal to the closing market price of the underlying stock on the grant date. SSARs become exercisable after
three years from the first day of the fiscal year of grant and generally are exercisable for seven years after that date. The following table presents information
about SSARs outstanding as of April 30, 2023, and for the year then ended.
Outstanding at April 30, 2022
Granted
Exercised
Forfeited or expired
Outstanding at April 30, 2023
Exercisable at April 30, 2023
Number of
SSARs
(in thousands)
Weighted-
Average
Exercise Price
per SSAR
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
4,232
387
(579)
(30)
4,010
2,758
$
$
$
47.54
73.61
34.58
70.63
51.76
43.23
68
4.8
3.5
$
$
60
60
We use the Black-Scholes pricing model to calculate the grant-date fair value of a SSAR. The weighted-average grant-date fair values and related
follows:
assumptions
SSARS
granted
during
years
three
were
each
last
the
the
for
as
of
valuation
Grant-date fair value
Valuation assumptions:
Expected term (years)
Risk-free interest rate
Expected volatility
Expected dividend yield
2021
2022
2023
$
14.61
$
16.61
$
20.67
7.0
0.4 %
23.3 %
1.0 %
7.0
1.0 %
24.1 %
1.0 %
7.0
2.7 %
24.8 %
1.0 %
The expected term is based on past exercise experience for similar awards. The risk-free interest rate is based on zero-coupon U.S. Treasury rates as of the
date of grant. Expected volatility and dividend yield are based on historical data, with consideration of other factors when applicable.
PBRSUs. The PBRSUs vest at the end of a three-year performance period that begins on the first day of the fiscal year of grant. Performance is measured
by comparing the three-year cumulative total shareholder return of our Class B common stock to the three-year cumulative total shareholder return of the
companies in the Standard & Poor's Consumer Staples Index, with specific payout levels ranging from 50% to 150%. At the end of the performance period, the
number of PBRSUs is adjusted for performance, and then adjusted upward to account for dividends paid during the second and third years of the performance
period. The resulting PBRSUs are then converted to common shares.
The following table presents information about PBRSUs outstanding as of April 30, 2023, and for the year then ended.
Outstanding at April 30, 2022
Granted
Adjusted for performance and dividends
Converted to common shares
Forfeited
Outstanding at April 30, 2023
Number of
PBRSUs
(in thousands)
Weighted-
Average
Fair Value at
Grant Date
270
110
(14)
(70)
(7)
289
$
$
$
$
$
$
67.02
84.75
56.98
56.98
82.42
76.33
We calculate the grant-date fair value of a PBRSU using a Monte Carlo simulation technique. The weighted average grant-date fair values and related
valuation assumptions for these awards granted during each of the last three years were as follows:
Grant-date fair value
Valuation assumptions:
Risk-free interest rate
Expected volatility
Expected dividend yield
Remaining performance period (years) as of grant
date
2021
2022
2023
$
73.68
$
70.11
$
84.75
0.1 %
29.9 %
1.1 %
2.8
0.3 %
29.1 %
1.0 %
2.8
2.8 %
29.8 %
1.0 %
2.8
DSUs. DSUs are granted to our non-employee directors. Each DSU represents the right to receive one share of common stock based on the closing price
of the shares on the date of grant. Outstanding DSUs are credited with dividend-equivalent DSUs when dividends are paid on our common stock. Each annual
grant vests after one year. DSUs are paid out in shares after the completion of a director's tenure on the board plus a six-month waiting period. The director may
elect to receive the distribution either in a single lump sum or in ten equal annual installments. As of April 30, 2023, there were approximately 185,000
outstanding DSUs, of which approximately 168,000 were vested.
69
The grant-date fair value of a DSU is the closing market price of the underlying stock on the grant date. The weighted average grant-date fair values for
these awards granted during each of the last three years were as follows:
Grant-date fair value
2021
2022
2023
$
63.01
$
67.35
$
72.10
Additional information. The pre-tax stock-based compensation expense and related deferred income tax benefits recognized during the last three fiscal
years were as follows:
Pre-tax compensation expense
Deferred tax benefit
2021
2022
2023
$
$
12
2
$
15
2
18
3
As of April 30, 2023, there was $9 of total unrecognized compensation cost related to non-vested stock-based awards. That cost is expected to be
recognized over a weighted-average period of 1.4 years. Further information related to our stock-based awards for the last three years is as follows:
Intrinsic value of SSARs exercised
Fair value of shares vested
$
Excess tax benefit from exercise / vesting of awards
2021
2022
2023
47
13
10
$
23
$
7
6
19
6
4
11. Income Taxes
We incur income taxes on the earnings of our U.S. and foreign operations. The following table, based on the locations of the taxable entities from which
sales were derived (rather than the location of customers), presents the U.S. and foreign components of our income before income taxes:
United States
Foreign
2021
2022
2023
$
$
832 $
249
1,081 $
954 $
160
1,114 $
841
176
1,017
The income shown above was determined according to GAAP. Because those standards sometimes differ from the tax rules used to calculate taxable
income, there are differences between (a) the amount of taxable income and pretax financial income for a year, and (b) the tax bases of assets or liabilities and
their amounts as recorded in our financial statements. As a result, we recognize a current tax liability for the estimated income tax payable on the current tax
return, deferred tax liabilities (tax on income that will be recognized on future tax returns), and deferred tax assets (tax from deductions that will be recognized
on future tax returns) for the estimated effects of the differences mentioned above.
Total income tax expense for a year includes the tax associated with the current tax return (current tax expense) and the change in the net deferred tax
asset or liability (deferred tax expense). Our total income tax expense for each of the last three years was as follows:
2021
2022
2023
Current:
U.S. federal
Foreign
State and local
Deferred:
U.S. federal
Foreign
State and local
146 $
50
35
231
(4)
(47)
(2)
(53)
178 $
205 $
64
18
287
1
(9)
(3)
(11)
276 $
157
46
34
237
(4)
6
(5)
(3)
234
$
$
70
Our consolidated effective tax rate usually differs from current statutory rates due to the recognition of amounts for events or transactions with no tax
consequences. The following table reconciles our effective tax rate to the federal statutory tax rate in the United States:
Percent of Income Before Taxes
2021
2022
2023
U.S. federal statutory rate
State taxes, net of U.S. federal tax benefit
Income taxed at other than U.S. federal statutory rate
Prior intercompany sales taxed at higher than current U.S. federal statutory rate
Tax benefit from foreign-derived sales
Adjustments related to prior years
Excess tax benefits from stock-based awards
Tax rate changes
Intercompany transfer of assets
Valuation allowance
Other, net
Effective rate
Deferred tax assets and liabilities as of the end of each of the last two years were as follows:
April 30,
Deferred tax assets:
Postretirement and other benefits
Accrued liabilities and other
Inventories
Lease liabilities
Loss and credit carryforwards
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Intangible assets
Property, plant, and equipment
Right-of-use assets
Derivative instruments
Other
Total deferred tax liabilities
Net deferred tax liability
71
21.0 %
2.4 %
0.3 %
0.2 %
(1.7 %)
(0.2 %)
(1.0 %)
— %
(4.0 %)
— %
(0.5 %)
16.5 %
$
$
21.0 %
1.0 %
1.3 %
2.0 %
(1.8 %)
0.7 %
(0.5 %)
0.4 %
— %
— %
0.7 %
24.8 %
2022
2023
69 $
36
40
20
69
234
(27)
207
(219)
(87)
(20)
(11)
(15)
(352)
(145) $
21.0 %
2.5 %
3.0 %
1.0 %
(3.0)%
(0.5)%
(0.3)%
— %
— %
(1.3)%
0.6 %
23.0 %
75
35
26
23
62
221
(14)
207
(323)
(98)
(23)
(3)
(17)
(464)
(257)
Details of the loss and credit carryforwards and related valuation allowances as of the end of each of the last two years are as follows:
U.S.
Foreign
Gross Amount
53
$
241
294
$
April 30, 2022
Deferred Tax
Asset
Valuation
Allowance
$
$
19
50
69
$
$
(8)
(19)
(27)
Gross Amount
111
$
216
327
$
April 30, 2023
Deferred Tax
Asset
Valuation
Allowance
$
$
1
2
20
42
62
$
$
(6)
(8)
(14)
1
2
As of April 30, 2023, the deferred tax asset amount includes credit carryforwards of $10 that do not expire and loss and credit carryforwards of $10 that expire in varying amounts from 2023 to 2039.
As of April 30, 2023, the deferred tax asset includes loss carryforwards of $19 that do not expire and $23 that expire in varying amounts over the next 10 years.
As of April 30, 2023, we had approximately $1,617 of undistributed earnings from our foreign subsidiaries ($1,446 at April 30, 2022). These earnings
have been previously subject to tax, primarily as a result of the 2017 Tax Cuts and Jobs Act. Historically, we have asserted that the undistributed earnings of
our foreign subsidiaries are reinvested indefinitely outside the United States. We continue to maintain indefinite reinvestment assertions for most undistributed
earnings of our foreign subsidiaries, and no deferred taxes have been provided on the earnings. For undistributed earnings not considered permanently
reinvested, deferred tax liabilities have been provided for any applicable income taxes and withholding taxes payable in various countries, which are not
significant. We have also asserted that other outside basis differences related to our foreign subsidiaries are reinvested indefinitely and that the determination of
any unrecognized deferred tax liabilities is not practicable due to the complexities in the calculations. The other outside basis differences relate primarily to
differences between U.S. GAAP and tax basis that arose through purchase accounting. These basis differences could reverse through sales of foreign
subsidiaries or other transactions, none of which are considered probable as of April 30, 2023.
At April 30, 2023, we had $21 of gross unrecognized tax benefits, $17 of which would reduce our effective income tax rate if recognized. A reconciliation
of the beginning and ending unrecognized tax benefits follows:
Unrecognized tax benefits at beginning of year
Additions for tax positions provided in prior periods
Additions for tax positions provided in current period
Settlements of tax positions in the current period
Lapse of statutes of limitations
Unrecognized tax benefits at end of year
2021
2022
2023
$
$
11 $
1
2
(1)
(1)
12 $
12 $
2
2
—
(2)
14 $
14
8
3
—
(4)
21
We file federal income tax returns in the United States and also file tax returns in various state, local and foreign jurisdictions. The major jurisdictions
where we are subject to examination by tax authorities include the United States, Australia, Brazil, Germany, Korea, Mexico, Netherlands, Poland and the
United Kingdom. We have tax years open for examination from 2013 and forward. Various tax examinations are currently in progress in the United States, for
both federal and states, and in certain foreign jurisdictions. In the United States, we are participating in the Internal Revenue Service's Compliance Assurance
Program for our fiscal 2023 tax year.
We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.
72
12. Acquisitions and Divestitures
Acquisitions. As discussed below, we completed two acquisitions during fiscal 2023. Each acquisition was accounted for as a business combination.
On November 3, 2022, we acquired the Gin Mare and Gin Mare Capri brands through our purchase of 100% of the equity interests of Gin Mare Brand,
S.L.U., a Spanish company, and Mareliquid Vantguard, S.L.U., a Spanish company (the “Gin Mare acquisition”). The purchase price of the Gin Mare
acquisition was $524, which consisted of $468 in cash paid at the acquisition date plus contingent consideration of $56.
We have preliminarily allocated the purchase price based on management’s estimates and independent valuations as follows:
Trademarks and brand names (indefinite-lived)
Goodwill
Total assets
Deferred tax liabilities
Net assets acquired
Initial Allocation
1
Adjustments
308 $
288
596
Updated Allocation
307
289
596
(1) $
1
—
72
—
524 $
— $
72
524
$
$
1
As reported in Note 14 to our condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2023.
The contingent consideration of $56 reflects the estimated fair value, at the acquisition date, of contingent future cash payments of up to €90 to the sellers
under an “earn-out” provision of the acquisition agreement. We determined the estimated fair value of the contingent consideration using a Monte Carlo
simulation, which requires the use of assumptions, such as projected future net sales, discount rates, and volatility rates.
Any contingent consideration earned by the sellers will be payable in cash no earlier than July 2024 and no later than July 2027, depending on when the
sellers choose to exercise the right to receive the payment. The amount payable will depend on the achievement of net sales targets for Gin Mare for the latest
fiscal year completed prior to the date of exercise by the sellers. The possible payments range from zero to €90 (approximately $89 as of the acquisition date).
At the acquisition date, we also entered into a supply agreement with the sellers for the production and supply of Gin Mare products to us, at market
terms, for an initial period of 10 years (subject to subsequent renewal periods).
On January 5, 2023, we acquired the Diplomático and Botucal rum brands through our purchase of (i) 100% of the equity interests of (a) International
Rum and Spirits Distributors Unipessoal, Lda., a Portuguese company, (b) Diplomático Branding Unipessoal Lda., a Portuguese company, (c) International
Bottling Services, S.A., a Panamanian corporation, and (d) International Rum & Spirits Marketing Solutions, S.L., a Spanish company; and (ii) certain assets of
Destilerias Unidas Corp. (the “Diplomático acquisition”). The purchase price of the Diplomático acquisition consisted of cash of $727.
73
We have preliminarily allocated the purchase price based on management’s estimates and independent valuations as follows:
Initial Allocation
1
Adjustments
Accounts receivable
Inventories
Other current assets
Property, plant, and equipment
Trademarks and brand names (indefinite-lived)
Goodwill
Other assets
Total assets
Accounts payable and accrued expenses
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets acquired
$
11 $
33
25
36
312
365
—
782
10
45
—
55
Updated Allocation
11
36
25
38
312
363
2
787
— $
3
—
2
—
(2)
2
5
3
—
2
5
13
45
2
60
$
727 $
— $
727
1
As reported in Note 14 to our condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2023.
At the acquisition date, we also entered into a supply agreement with the sellers for their production and supply of rum to us, at market terms, for an
initial period of 10 years (subject to subsequent renewal periods).
We allocated the purchase price for each acquisition based on preliminary estimates, which we may revise as asset valuations are finalized and we obtain
further information on the fair value of liabilities. The primary matters to be finalized consist of the valuation of certain tangible assets and identifiable
intangible assets, any related tax effects, and any resulting impact on residual goodwill.
The amounts preliminarily allocated to trademarks and brand names for each acquisition were estimated using the relief-from-royalty method, which
requires the use of significant assumptions, such as discount rates and projected future net sales.
Goodwill is calculated as the excess of the purchase price over the fair value of the net identifiable assets acquired. The goodwill recorded for each
acquisition is primarily attributable to the value of leveraging our distribution network and brand-building expertise to grow sales of the acquired brands. For
the Gin Mare acquisition, we expect none of the preliminary goodwill of $289 to be deductible for tax purposes. For the Diplomático acquisition, we expect
$109 of the preliminary goodwill of $363 to be deductible for tax purposes.
Results for Gin Mare and Diplomático have been included in our consolidated financial statements since their acquisition dates. Pro forma results are not
presented as the aggregate impact is not material to our consolidated statements of operations.
In connection with the acquisitions, we recognized transaction expenses of $55 during fiscal 2023. The following table shows the classification of the
transaction expenses in the accompanying consolidated statement of operations.
Selling, general, and administrative expenses
Other expense (income), net
Total transaction expenses
2023
11
44
55
$
$
The transaction expenses largely reflect payments made to terminate certain distribution contracts related to the acquired brands.
74
Divestiture. On July 31, 2020, we sold the Early Times, Canadian Mist, and Collingwood brands for $177 in cash. The sale reflects the continued
evolution of our portfolio strategy to focus on premium spirits brands. The total book value of the related business assets included in the sale was $50,
consisting largely of inventories, the Canadian Mist production assets, and intellectual property. As a result of the sale, we recognized a pre-tax gain of $127
during fiscal 2021.
13. 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 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 accumulated other comprehensive income (AOCI) until the underlying hedged transaction occurs, when we reclassify that
amount into 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 and $747 at April 30, 2022 and 2023, respectively. The maximum term of outstanding derivative contracts was 36 months and
24 months at April 30, 2022 and 2023, respectively.
We also use foreign currency-denominated debt to help manage our foreign currency exchange 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 designated as net investment hedges was $636 and $495 as of
April 30, 2022 and 2023, respectively.
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, and we assess hedge-effectiveness continually. If we determine that an instrument is no longer highly effective, we stop designating and accounting
for it 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.
In the fourth quarter of fiscal 2023, we entered into $350 of interest rate derivative contracts (U.S. Treasury lock agreements) to manage the interest rate
risk related to the anticipated issuance of fixed-rate senior unsecured notes. We designated the contracts as cash flow hedges of the future interest payments
associated with the anticipated notes. Upon issuance of the 4.75% senior notes in March 2023 (see Note 6), we settled the contracts for a $1 loss. The loss was
recorded to AOCI and will be amortized as an addition to interest expense over the life of the 4.75% senior notes.
75
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 during each of the last three years:
Classification in
Statement of Operations
2021
2022
2023
Currency derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI
Net gain (loss) reclassified from AOCI into earnings
Net gain (loss) reclassified from AOCI into earnings
Interest rate derivatives designated as cash flow hedges:
Net gain (loss) recognized in AOCI
Currency derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings
Net gain (loss) recognized in earnings
Foreign currency-denominated debt designated as net investment hedge:
Net gain (loss) recognized in AOCI
n/a
Sales
Other income
(expense), net
n/a
Sales
Other income
(expense), net
n/a
$
(78) $
21
76 $
5
—
—
(13)
17
(73)
2
—
12
5
78
4
37
—
(1)
(1)
16
3
Total amounts presented in the accompanying consolidated statements of operations for line items
affected by the net gains (losses) shown above:
Sales
Other income (expense), net
4,526
15
5,081
(59)
5,372
(119)
We expect to reclassify $6 of deferred net gains on cash flow hedges recorded in AOCI as of April 30, 2023, to earnings during fiscal 2024. 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 as of April 30, 2022 and 2023:
Balance Sheet Classification
Derivative Assets
Derivative Liabilities
April 30, 2022
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
April 30, 2023
Designated as cash flow hedges:
Currency derivatives
Currency derivatives
Currency derivatives
Currency derivatives
Not designated as hedges:
Currency derivatives
Other current assets
Other assets
$
Accrued expenses
Other current assets
Other assets
Accrued expenses
Other liabilities
Other current assets
32 $
20
—
20
5
—
—
3
(3)
(1)
(1)
(11)
(1)
(1)
(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.
76
Credit risk. We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of
the contracts. To manage this risk, we contract only with major financial institutions that have earned investment-grade credit ratings and with whom we have
standard International Swaps and Derivatives Association (ISDA) agreements that allow for net settlement of the derivative contracts. Also, we have
established counterparty credit guidelines that we monitor regularly. Based on our most recent assessment. we consider our counterparty credit risk to be low.
Our derivative instruments require us to maintain a specific level of creditworthiness, which we have maintained. If our creditworthiness were to fall
below that level, then the counterparties to our derivative instruments could request immediate payment or collateralization for derivative instruments in net
liability positions. The aggregate fair value of all derivatives with creditworthiness requirements that were in a net liability position was $0 and $1 at April 30,
2022 and 2023, respectively.
Offsetting. As noted above, our derivative contracts are governed by ISDA agreements that allow for net settlement of derivative contracts with the same
counterparty. It is our policy to present the fair values of current derivatives (that is, those with a remaining term of 12 months or less) with the same
counterparty on a net basis in 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:
April 30, 2022
Derivative assets
Derivative liabilities
April 30, 2023
Derivative assets
Derivative liabilities
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
$
$
52
(5)
28
(14)
$
(4)
4
(12)
12
$
48
(1)
16
(2)
$
(1)
1
(1)
1
47
—
15
(1)
No cash collateral was received or pledged related to our derivative contracts as of April 30, 2022 or 2023.
14. Fair Value Measurements
The following table summarizes the assets and liabilities measured or disclosed at fair value on a recurring basis:
April 30,
Assets:
Cash and cash equivalents
Currency derivatives
Liabilities:
Currency derivatives
Contingent consideration (Note 12)
Short-term borrowings
Long-term debt (including current portion)
2022
2023
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
868 $
48
868 $
48
374 $
16
1
—
—
2,269
1
—
—
2,239
2
56
235
2,678
374
16
2
56
235
2,556
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.
77
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, cash equivalents, and short-term borrowings 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). During fiscal 2022, we recognized non-cash
impairment charges of $9 on certain fixed assets. The impairment charges, which were based on our measurements of the estimated fair values of those assets,
are categorized as Level 2 within the valuation hierarchy. The remaining carrying amount of those fixed assets is not significant.
As discussed in Note 4, we recognized non-cash impairment charges of $52 and $96 related to the Finlandia brand name during fiscal 2022 and 2023,
respectively. The impairment charges were based on the estimated fair value of the brand name, which we determined using the relief-from-royalty method. As
discussed in Note 12, we used the relief-from-royalty method and the Monte Carlo simulation model to determine fair values in connection with our accounting
for business combinations. The fair value measurements determined using these models are categorized as Level 3 within the valuation hierarchy. No other
material nonrecurring fair value measurements were required during the periods presented in these financial statements.
15. Leases
We enter into lease arrangements, which we use primarily for office space, vehicles, and land. Substantially all of our leases are operating leases. Our
finance leases are not material.
We record lease liabilities and right-of-use (ROU) assets on our balance sheet for leases with terms exceeding 12 months. We do not record lease
liabilities or ROU assets for short-term leases. The amounts recorded for lease liabilities and ROU assets are based on the estimated present value, as of the
lease commencement date, of the future payments to be made over the lease term. We calculate the present value using our incremental borrowing rate that
corresponds to the term of the lease. We include the effect of an option to renew or terminate a lease in the lease term when it is reasonably certain that we will
exercise the option.
Some of our leases contain non-lease components (e.g., maintenance or other services) in addition to lease components. We have elected the practical
expedient not to separate the non-lease components from the lease components.
The following table shows information about our leases as of the end of the last two years:
Balance Sheet Classification
Other assets
Accounts payable and accrued expenses
Other liabilities
Right-of-use assets
Lease liabilities:
Current
Non-current
Total
Weighted-average discount rate
Weighted-average remaining term
April 30,
2022
April 30,
2023
$
$
$
74 $
21 $
54
75 $
84
22
63
85
1.8%
5.0 years
3.3%
5.1 years
78
The following table shows information about the effects of leases during each of the last three years:
1
Total lease cost
Cash paid for amounts included in the measurement of lease liabilities
Right-of-use assets obtained in exchange for new lease liabilities
2
$
41 $
26
25
38 $
25
35
38
25
29
2021
2022
2023
1
2
Consists primarily of operating lease cost. Other components of lease cost were not material.
Classified within operating activities in the accompanying consolidated statements of cash flows.
The following table includes a maturity analysis of future (undiscounted) lease payments and a reconciliation of those payments to the lease liabilities
recorded on our balance sheet as of April 30, 2023:
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: Present value discount
Lease liabilities
April 30,
2023
24
19
15
13
9
12
92
(7)
85
$
$
79
16. Other Comprehensive Income
The following table presents the components of net other comprehensive income (loss) during each of the last three years:
Pre-Tax
Tax
Net
Year Ended April 30, 2021
Currency translation adjustments:
Net gain (loss) on currency translation
Reclassification to earnings
Other comprehensive income (loss), net
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings
1
Other comprehensive income (loss), net
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings
2
Other comprehensive income (loss), net
Total other comprehensive income (loss), net
Year Ended April 30, 2022
Currency translation adjustments:
Net gain (loss) on currency translation
Reclassification to earnings
Other comprehensive income (loss), net
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings
1
Other comprehensive income (loss), net
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings
2
Other comprehensive income (loss), net
Total other comprehensive income (loss), net
Year Ended April 30, 2023
Currency translation adjustments:
Net gain (loss) on currency translation
Reclassification to earnings
Other comprehensive income (loss), net
Cash flow hedge adjustments:
Net gain (loss) on hedging instruments
Reclassification to earnings
1
Other comprehensive income (loss), net
Postretirement benefits adjustments:
Net actuarial gain (loss) and prior service cost
Reclassification to earnings
2
Other comprehensive income (loss), net
$
$
$
$
$
106 $
—
106
(78)
(21)
(99)
71
30
101
17 $
—
17
17
6
23
(16)
(7)
(23)
108 $
17 $
(42) $
—
(42)
76
(7)
69
67
34
101
(18) $
—
(18)
(17)
1
(16)
(16)
(8)
(24)
128 $
(58) $
135 $
—
135
3
(37)
(34)
(26)
38
12
— $
—
—
(1)
8
7
6
(9)
(3)
Total other comprehensive income (loss), net
$
113 $
4 $
123
—
123
(61)
(15)
(76)
55
23
78
125
(60)
—
(60)
59
(6)
53
51
26
77
70
135
—
135
2
(29)
(27)
(20)
29
9
117
1
For 2022, $(2) of the pre-tax amount of $(7) is classified in other income in the accompanying consolidated statements of operations. Otherwise, the pre-tax amount for each
year is classified as sales.
2
For 2021, $4 of the pre-tax amount of $30 is classified in gain on sale of business in the accompanying consolidated statements of operations. Otherwise, the pre-tax amount for
each year is classified as non-operating postretirement expense.
80
17. Supplemental Information
The following table presents net sales by geography:
Net sales:
United States
Mexico
Germany
Australia
United Kingdom
Other
2021
2022
2023
$
$
1,748 $
150
206
209
205
943
3,461 $
1,917 $
178
228
219
218
1,173
3,933 $
1,968
244
239
221
207
1,349
4,228
Net sales are attributed to countries based on where customers are located. See Note 8 for additional information about net sales, including net sales by
product category.
Our two largest customers accounted for 19% and 13% of consolidated net sales in 2021; 14% and 12% of consolidated net sales in 2022; and 14% and
12% of consolidated net sales in 2023.
The net book value of property, plant, and equipment located outside the United States was $116 and $204 as of April 30, 2022 and 2023, respectively.
Other long-lived assets located outside the United States are not significant.
We have concluded that our business constitutes a single operating segment.
81
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) (our principal executive and principal financial officers), has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of fiscal 2023. Based on that evaluation, our CEO
and CFO concluded that our disclosure controls and procedures: (a) are effective to ensure that information required to be disclosed by the Company in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and
forms; and (b) include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and
communicated to the Company's management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. Except as described below, there has been no change in our internal control over financial
reporting during the quarter ended April 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
We are in the process of implementing our standard control procedures in connection with our acquisitions of Gin Mare and Diplomático, and expect the
implementation to be completed during fiscal 2024. As permitted by the SEC staff guidance for newly acquired businesses, our report on internal control over
financial reporting as of April 30, 2023, excludes the acquired Gin Mare and Diplomático businesses in order for management to have sufficient time to
evaluate and implement our internal control structure over the operations of the Gin Mare and Diplomático businesses.
Management's Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm. Management's report
on our internal control over financial reporting as of April 30, 2023, and our independent registered public accounting firm's report on our internal control over
financial reporting are set forth in “Item 8. Financial Statements and Supplementary Data.”
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information on our Executive Officers is included under the caption “Information about Our Executive Officers” in Part I of this report. For the other
information required by this item, see the following sections of our definitive proxy statement for the Annual Meeting of Stockholders to be held July 27, 2023
(“2023 Proxy Statement”), which information is incorporated into this report by reference: (a) “Proposal 1: Election of Directors” (for biographical information
on directors and family relationships); (b) “Code of Conduct and Code of Ethics for Senior Financial Officers” (for information on our code of ethics);
(c) “Selection of Directors” (for information on the procedures by which security holders may recommend nominees to the Company's Board of Directors); and
(d) “Board Committees” (for information on our Audit Committee).
Item 11. Executive Compensation
For the information required by this item, refer to the following sections of our 2023 Proxy Statement, which information is incorporated into this report
by reference: (a) “Compensation Discussion and Analysis”; (b) “Compensation Tables”; (c) “Director Compensation”; (d) “Compensation Committee
Interlocks and Insider Participation”; (e) “Compensation Committee Report”; (f) “Pay Ratio Disclosure”; and (g) “Pay Versus Performance.”
82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table summarizes information as of April 30, 2023, about our equity compensation plans under which we have made grants of stock
options, stock appreciation rights, restricted stock, market value units, performance units, or other equity awards.
Plan Category
Equity compensation plans approved by Class A
common stockholders
Number of Securities to Be
Issued Upon Exercise of
Outstanding Options,
1
Warrants and Rights
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and
Rights
2
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
3
1,399,649
$51.76
11,843,605
1
Includes 925,930 Class B common shares to be issued upon exercise of stock-settled stock appreciation rights (SSARs); 144,365 Class B performance-based restricted stock
units (PBRSUs); 144,373 Class A PBRSUs; 150,648 Class A common deferred stock units (DSUs); and 34,333 Class B common DSUs issued under the Brown-Forman 2004 or
2013 Omnibus Compensation Plans. SSARs are exercisable for an amount of our common stock with a value equal to the increase in the fair market value of the common stock
from the date the SSARs were granted. The fair market value of our common stock at fiscal year-end has been used for the purposes of reporting the number of shares to be
issued upon exercise of the 4,009,616 SSARs outstanding at fiscal year-end.
2
PBRSUs and DSUs have no exercise price because their value depends on continued employment or service over time, and are to be settled for shares of Class B common
stock. Accordingly, these have been disregarded for purposes of computing the weighted-average exercise price.
3
Future equity compensation issuances will be made under the 2022 Omnibus Compensation Plan.
For the other information required by this item, refer to the section entitled “Stock Ownership” of our 2023 Proxy Statement, which information is
incorporated into this report by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For the information required by this item, refer to the following sections of our 2023 Proxy Statement, which information is incorporated into this report
by reference: (a) “Certain Relationships and Related Transactions”; and (b) “Our Independent Directors.”
Item 14. Principal Accounting Fees and Services
For the information required by this item, refer to the following sections of our 2023 Proxy Statement, which information is incorporated into this report
by reference: (a) “Fees Paid to Independent Registered Public Accounting Firm”; and (b) “Audit Committee Pre-Approval Policies and Procedures.”
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)(1)
(a)(2)
Financial Statements
The following documents are included in Item 8 of this report:
Report of Independent Registered Public Accounting Firm (PCAOB ID 42)
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts
Page
49
52
53
54
55
56
57
89
We have omitted all other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission
either because they are not required under the related instructions, because the information required is included in the consolidated financial statements and
notes thereto, or because they do not apply.
83
(a)(3) Exhibits:
The following documents are filed with this report:
Exhibit Index
21
23
31.1
31.2
32
Exhibit Index
3.1
101
104
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Subsidiaries of Brown-Forman Corporation.
Consent of Ernst & Young LLP, independent registered public accounting firm.
CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (not
considered to be filed).
The following materials from Brown-Forman Corporation's Annual Report on Form 10-K for the fiscal year ended April 30, 2023, in Inline
XBRL (eXtensible Business Reporting Language) format: (a) Consolidated Statements of Operations, (b) Consolidated Statements of
Comprehensive Income, (c) Consolidated Balance Sheets, (d) Consolidated Statements of Cash Flows, (e) Consolidated Statements of
Stockholders’ Equity, and (f) Notes to Consolidated Financial Statements.
Cover Page Interactive Data File in Inline XBRL format (included in Exhibit 101).
The following documents have been previously filed:
Restated Certificate of Incorporation of registrant, incorporated into this report by reference to Exhibit 3(i) of Brown-Forman Corporation’s Form
10-Q for the quarter ended July 31, 2012, filed on September 5, 2012 (File No. 002-26821).
Certificate of Amendment of Restated Certificate of Incorporation of registrant, incorporated into this report by reference to Exhibit 3.1 of
Brown-Forman Corporation’s Form 8-K filed on August 9, 2016 (File No. 001-00123).
By-laws of registrant, as amended and restated effective May 21, 2020, incorporated into this report by reference to Exhibit 3.1 of Brown-Forman
Corporation’s Form 8-K filed on May 27, 2020 (File No. 001-00123).
Description of Brown-Forman Corporation’s Class A Common Stock, par value $0.15 per share, and Class B Common Stock, par value $0.15 per
share, incorporated into this report by reference to Exhibit 4.1 of Brown-Forman Corporation’s Form 10-K for the fiscal year ended April 30,
2020, filed on June 19, 2020 (File No. 001-00123).
Description of Brown-Forman Corporation’s 1.200% Notes due 2026, incorporated into this report by reference to Exhibit 4.2 of Brown-Forman
Corporation’s Form 10-K for the fiscal year ended April 30, 2020, filed on June 19, 2020 (File No. 001-00123).
Description of Brown-Forman Corporation’s 2.600% Notes due 2028, incorporated into this report by reference to Exhibit 4.3 of Brown-Forman
Corporation’s Form 10-K for the fiscal year ended April 30, 2020, filed on June 19, 2020 (File No. 001-00123).
Indenture dated as of April 2, 2007, between Brown-Forman Corporation and U.S. Bank National Association, as Trustee, incorporated into this
report by reference to Exhibit 4.1 of Brown-Forman Corporation’s Form 8-K filed on April 3, 2007 (File No. 002-26821).
First Supplemental Indenture dated as of December 13, 2010, between Brown-Forman Corporation and U.S. Bank National Association, as
Trustee, incorporated into this report by reference to Exhibit 4.2 of Brown-Forman Corporation’s Form S-3ASR Registration Statement filed on
December 13, 2010 (File No. 333-171126).
Second Supplemental Indenture dated as of June 24, 2015, between Brown-Forman Corporation and U.S. Bank National Association, as Trustee,
incorporated into this report by reference to Exhibit 4.3 of Brown-Forman Corporation’s Form S-3ASR Registration Statement filed on June 24,
2015 (File No. 333-205183).
Form of 1.200% Note due 2026, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman Corporation’s Form 8-K filed on July
8, 2016 (File No. 002-26821).
Form of 2.600% Note due 2028, incorporated into this report by reference to Exhibit 4.6 of Brown-Forman Corporation’s Form 8-K filed on July
8, 2016 (File No. 002-26821).
Form of 3.500% Note due 2025, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman Corporation’s Form 8-K filed on
March 26, 2018 (File No. 001-00123).
Form of 3.75% Note due 2043, incorporated into this report by reference to Exhibit 4.6 of Brown-Forman Corporation’s Form 8-K filed on
December 12, 2012 (File No. 002-26821).
Form of 4.00% Note due 2038, incorporated into this report by reference to Exhibit 4.6 of Brown-Forman Corporation’s Form 8-K filed on March
26, 2018 (File No. 001-00123).
Form of 4.500% Notes due 2045, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman Corporation’s Form 8-K filed on
June 29, 2015 (File No. 002-26821).
84
Exhibit Index
4.13
4.14
4.15
4.16
4.17
4.18
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Form of 4.750% Note due 2033, incorporated into this report by reference to Exhibit 4.5 of Brown-Forman Corporation’s Form 8-K filed on
March 23, 2023 (File No. 001-00123).
Officer’s Certificate dated December 12, 2012, pursuant to Sections 1.01, 2.02, 3.01, and 3.03 of the Indenture dated as of April 2, 2007, as
supplemented by the First Supplemental Indenture dated as of December 13, 2010, between Brown-Forman Corporation and U.S. Bank National
Association, as Trustee, setting forth the terms of the 3.75% Notes due 2043, incorporated into this report by reference to Exhibit 4.3 of Brown-
Forman Corporation’s Form 8-K filed on December 12, 2012 (File No. 002-26821).
Officer’s Certificate dated June 29, 2015, pursuant to Sections 1.02, 2.02, 3.01 and 3.03 of the Indenture dated as of April 2, 2007, as
supplemented by the First Supplemental Indenture dated as of December 13, 2010, and the Second Supplemental Indenture dated as of June 24,
2015, between Brown-Forman Corporation and U.S. Bank National Association, as Trustee, setting forth the terms of the 4.500% Notes due 2045,
incorporated into this report by reference to Exhibit 4.4 of Brown-Forman Corporation’s Form 8-K filed on June 29, 2015 (File No. 002-26821).
Officers’ Certificate dated July 7, 2016, pursuant to Sections 1.01, 2.02, 3.01, and 3.03 of the Indenture dated as of April 2, 2007, as supplemented
by the First Supplemental Indenture dated as of December 13, 2010, and the Second Supplemental Indenture dated as of June 24, 2015, between
Brown-Forman Corporation and U.S. Bank National Association, as Trustee, setting forth the terms of the 1.200% Notes due 2026 and the
2.600% Notes due 2028, incorporated into this report by reference to Exhibit 4.4 of Brown-Forman Corporation’s Form 8-K filed on July 8, 2016
(File No. 002-26821).
Officers’ Certificate dated March 26, 2018, pursuant to Sections 1.02, 2.02, 3.01, and 3.03 of the Indenture dated April 2, 2007, as supplemented
by the First Supplemental Indenture dated as of December 13, 2010, and the Second Supplemental Indenture dated as of June 24, 2015, between
Brown-Forman Corporation and U.S. Bank National Association, as Trustee, setting forth the terms of the 3.500% Note due 2025 and the 4.000%
Note due 2038, incorporated into this report by reference to Exhibit 4.4 of Brown-Forman Corporation’s Form 8-K filed on March 26, 2018 (File
No. 001-00123).
Officers’ Certificate, dated March 23, 2023, pursuant to Sections 1.01, 2.02, 3.01, and 3.03 of the Indenture dated April 2, 2007, as supplemented
by the First Supplemental Indenture, dated as of December 13, 2010, and the Second Supplemental Indenture, dated as of June 24, 2015, between
Brown-Forman Corporation and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as
Trustee, setting forth the terms of the 4.750% Notes due 2033, incorporated into this report by reference to Exhibit 4.4 of Brown-Forman
Corporation’s Form 8-K filed on March 23, 2023 (File No. 001-00123).
A description of the Brown-Forman Savings Plan, incorporated into this report by reference to page 10 of Brown-Forman Corporation’s definitive
proxy statement filed on June 27, 1996, in connection with its 1996 Annual Meeting of Stockholders (File No. 001-00123).*
Brown-Forman Corporation Nonqualified Savings Plan, incorporated into this report by reference to Exhibit 4.1 of Brown-Forman Corporation’s
Form S-8 Registration Statement filed on September 24, 2010 (File No. 333-169564).*
Brown-Forman Corporation 2004 Omnibus Compensation Plan, as amended, incorporated into this report by reference to Exhibit A of Brown-
Forman Corporation’s definitive proxy statement filed on June 26, 2009, in connection with its 2009 Annual Meeting of Stockholders (File No.
002-26821).*
2010 Form of Non-Employee Director Stock-Settled Stock Appreciation Right Award Agreement, incorporated into this report by reference to
Exhibit 10.2 of Brown-Forman Corporation’s Form 8-K filed on July 23, 2010 (File No. 002-26821).*
Brown-Forman Corporation Amended and Restated Supplemental Executive Retirement Plan and First Amendment thereto, incorporated into this
report by reference to Exhibit 10(a) of Brown-Forman Corporation’s Form 10-K for the year ended April 30, 2010, filed on June 25, 2010 (File
No. 002-26821).*
Second Amendment to the Brown-Forman Corporation Amended and Restated Supplemental Executive Retirement Plan, incorporated into this
report by reference to Exhibit 10(a) of Brown-Forman Corporation’s Form 10-Q for the quarter ended January 31, 2011, filed on March 9, 2011
(File No. 002-26821).*
Brown-Forman Corporation Amended and Restated Non-Employee Director Deferred Stock Unit Program, incorporated into this report by
reference to Exhibit 10.2 of Brown-Forman Corporation’s Form 8-K filed on July 26, 2013 (File No. 002-26821).*
Brown-Forman Corporation 2013 Omnibus Compensation Plan, incorporated into this report by reference to Exhibit 10.1 of Brown-Forman
Corporation’s Form 8-K filed on July 26, 2013 (File No. 002-26821).*
Form of Employee Stock-Settled Stock Appreciation Right Award Agreement, incorporated into this report by reference to Exhibit 10.3 of
Brown-Forman Corporation’s Form 8-K filed on July 26, 2013 (File No. 002-26821).*
Form of Employee Stock-Settled Stock Appreciation Right Award Agreement, incorporated into this report by reference to Exhibit 10.1 of
Brown-Forman Corporation’s Form 8-K filed on August 1, 2016 (File No. 001-00123).*
Fiscal 2021 Form of Performance-Based Restricted Stock Unit Award Agreement (Class A), incorporated into this report by reference to Exhibit
10.1 of Brown-Forman Corporation’s Form 10-Q for the quarter ended July 31, 2020, filed on September 2, 2020 (File No. 001-00123).*
85
Exhibit Index
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Fiscal 2021 Form of Performance-Based Restricted Stock Unit Award Agreement (Class B), incorporated into this report by reference to Exhibit
10.2 of Brown-Forman Corporation’s Form 10-Q for the quarter ended July 31, 2020, filed on September 2, 2020 (File No. 001-00123).*
First Amendment to Brown-Forman Corporation Amended and Restated Non-Employee Director Deferred Stock Unit Program, incorporated into
this report by reference to Exhibit 10.23 of Brown-Forman Corporation’s Form 10-K for the fiscal year ended April 30, 2022, filed on June 17,
2022 (File No. 001-00123).*
Brown-Forman 2022 Omnibus Compensation Plan, incorporated by reference to Appendix B of Brown-Forman Corporation’s Definitive Proxy
Statement for the July 28, 2022 Annual Meeting of Stockholders, filed on June 24, 2022 (File No. 001-00123).
Securities and Asset Purchase Agreement among Brown-Forman Corporation, and Destillers United Group S.L., and Destilerias Unidas Corp.,
dated as of October 6, 2022, incorporated by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 10-Q for the quarter ended October
31, 2023, filed on December 7, 2022 (File No. 001-00123).
Credit Agreement, dated as of January 3, 2023, among Brown-Forman Corporation and certain lenders party thereto, U.S. Bank National
Association, as Administrative Agent, Bank of America, N.A., Citibank, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, The
Bank of Nova Scotia, as Documentation Agent, and U.S. Bank National Association, BofA Securities, Inc., Citibank N.A. and JPMorgan Chase
Bank, N.A., as Joint Lead Arrangers and Joint Bookrunners, incorporated by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K
filed on January 5, 2023 (File No. 001-00123).
Amendment No. 2 to Amended and Restated Five-Year Credit Agreement, dated as of January 3, 2023, among Brown-Forman Corporation, U.S.
Bank National Association, as Administrative Agent, and the other lenders party thereto, incorporated into this report by reference to Exhibit 10.2
of Brown-Forman Corporation’s Form 8-K filed on January 5, 2023 (File No. 001-00123).
Amendment No. 1 to Securities and Asset Purchase Agreement, dated as of January 4, 2023, by and among Brown-Forman Corporation,
Destillers United Group S.L., and Destilerias Unidas Corp, incorporated into this report by reference to Exhibit 10.3 of Brown-Forman
Corporation’s Form 8-K filed on January 5, 2023 (File No. 001-00123).
Second Amended and Restated Five-Year Credit Agreement, dated as of May 26, 2023, among Brown-Forman Corporation, any borrowing
subsidiaries as may become a party thereto, certain lenders party thereto, and U.S. Bank National Association, as Administrative Agent,
incorporated into this report by reference to Exhibit 10.1 of Brown-Forman Corporation’s Form 8-K filed on May 30, 2023 (File No. 001-00123).
* Indicates management contract, compensatory plan, or arrangement.
Item 16. Form 10-K Summary
None.
86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BROWN-FORMAN CORPORATION
(Registrant)
By:
/s/ Lawson E. Whiting
Lawson E. Whiting
President and Chief Executive Officer
Date: June 16, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities on June 16, 2023, as indicated.
Signature
/s/ Campbell P. Brown
Campbell P. Brown
/s/ Lawson E. Whiting
Lawson E. Whiting
/s/ Stuart R. Brown
Stuart R. Brown
/s/ Mark A. Clouse
Mark A. Clouse
/s/ John D. Cook
John D. Cook
/s/ Marshall B. Farrer
Marshall B. Farrer
/s/ Augusta Brown Holland
Augusta Brown Holland
/s/ Michael J. Roney
Michael J. Roney
/s/ Jan E. Singer
Jan E. Singer
Title
Director, Chair of the Board
Director, President and Chief Executive Officer of the Company
(Principal Executive Officer)
Director
Director
Director
Director
Director
Director
Director
87
Signature
/s/ Tracy L. Skeans
Tracy L. Skeans
/s/ Elizabeth A. Smith
Elizabeth A. Smith
/s/ Michael A. Todman
Michael A. Todman
/s/ Leanne D. Cunningham
Leanne D. Cunningham
/s/ Kelli N. Brown
Kelli N. Brown
Title
Director
Director
Director
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
88
Brown-Forman Corporation and Subsidiaries
Schedule II – Valuation and Qualifying Accounts
For the Years Ended April 30, 2021, 2022, and 2023
(Expressed in millions)
Col. A
Description
Col. B
Balance at
Beginning
of Period
Col. C(1)
Additions
Charged to
Costs and
Expenses
Col. C(2)
Additions
Charged to
Other
Accounts
Col. D
Deductions
Col. E
Balance
at End
of Period
2021
Allowance for doubtful accounts
Deferred tax valuation allowance
2022
Allowance for doubtful accounts
Deferred tax valuation allowance
2023
Allowance for doubtful accounts
Deferred tax valuation allowance
(1)
Doubtful accounts written off, net of recoveries.
$
$
$
$
$
$
11
22
7
20
13
27
89
$
$
$
$
$
$
—
10
7
8
—
4
$
$
$
$
$
$
—
—
—
—
—
—
$
$
$
$
$
$
(1)
4
12
(1)
1
1
(1)
6
17
$
$
$
$
$
$
7
20
13
27
7
14
SUBSIDIARIES OF BROWN-FORMAN CORPORATION
As of April 30, 2023
Name
Amercain Investments, C.V.
AMG Trading, L.L.C.
The BenRiach Distillery Company Limited
Brown-Forman Australia Pty. Ltd.
Brown-Forman Beverages Europe, Ltd.
Brown-Forman Beverages Japan, L.L.C.
Brown-Forman Beverages Worldwide, Comercio de Bebidas Ltda.
Brown-Forman Deutschland GmbH
Brown-Forman Finland Oy
Brown-Forman France
Brown-Forman Holding Mexico S.A. de C.V.
Brown-Forman Hungary 1 Kft.
Brown-Forman Korea Ltd.
Brown-Forman Netherlands, B.V.
Brown-Forman Polska Sp. z o.o.
Brown-Forman Scotland Limited
Brown-Forman Spain, S.L.
Brown-Forman Spirits (Shanghai) Co., Ltd.
Brown-Forman Spirits Trading, L.L.C.
Brown-Forman Tequila Mexico, S. de R.L. de C.V.
Diplomatico Branding Unipessoal, Lda.
International Rum & Spirits Distributors Unipessoal, S.A.
Jack Daniel Distillery, Lem Motlow, Prop., Inc.
Sonoma-Cutrer Vineyards, Inc.
Valle de Amatitan, S.A. de C.V.
Exhibit 21
State or Jurisdiction
Of Incorporation
Netherlands
Delaware
Scotland
Australia
United Kingdom
Delaware
Brazil
Germany
Finland
France
Mexico
Hungary
Korea
Netherlands
Poland
Scotland
Spain
China
Turkey
Mexico
Portugal
Portugal
Tennessee
California
Mexico
The names of certain subsidiaries are omitted from the above listing because such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a
"significant subsidiary" under Rule 1-02(w) of Regulation S-K.
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-253992) pertaining to the Brown-Forman Corporation Savings Plan for Collectively Bargained Employees
and the Brown-Forman Corporation Savings Plan,
(2) Registration Statement (Form S-8 No. 333-169564) pertaining to the Brown-Forman Corporation Nonqualified Savings Plan, and
(3) Registration Statement (Form S-8 No. 333-190122) pertaining to Brown-Forman Corporation 2013 Compensation Plan;
of our reports dated June 16, 2023, with respect to the consolidated financial statements and financial statement schedule of Brown-Forman Corporation and
Subsidiaries and the effectiveness of internal control over financial reporting of Brown-Forman Corporation and Subsidiaries included in this Annual Report
(Form 10-K) of Brown-Forman Corporation for the year ended April 30, 2023.
/s/ Ernst & Young LLP
Louisville, Kentucky
June 16, 2023
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Lawson E. Whiting, certify that:
1. I have reviewed this Annual Report on Form 10-K of Brown-Forman Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Dated:
June 16, 2023
By: /s/ Lawson E. Whiting
Lawson E. Whiting
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Leanne D. Cunningham, certify that:
1. I have reviewed this Annual Report on Form 10-K of Brown-Forman Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Dated:
June 16, 2023
By: /s/ Leanne D. Cunningham
Leanne D. Cunningham
Executive Vice President and Chief Financial
Officer
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of Brown-Forman Corporation (“the Company”) on Form 10-K for the period ended April 30, 2023, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in the capacity as an officer of the Company, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated:
June 16, 2023
By:
/s/ Lawson E. Whiting
Lawson E. Whiting
President and Chief Executive Officer
By:
/s/ Leanne D. Cunningham
Leanne D. Cunningham
Executive Vice President and Chief
Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report.
850 Dixie Highway
Louisville, Kentucky 40210
Brown-Forman.com