# BROWN FORMAN CORP (BF-B) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BROWN FORMAN CORP's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/14693/000001469324000086/bfb-20240430.htm
Accession: 0000014693-24-000086
Filing date: 2024-06-14
Report date: 2024-04-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BF-B/
All MD&A years: /company/BF-B/mda/
Previous year: /company/BF-B/mda/fy2023/ (FY 2023)
Next year: /company/BF-B/mda/fy2025/ (FY 2025)

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).

Our MD&A is organized as follows:

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Presentation Basis

Non-GAAP Financial Measures

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

“Organic change” in measures of statements of operations. We present changes in certain measures, or line items, of the statements of operations that are adjusted to an “organic” basis. We use “organic change” for the following measures 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 expenses1; and (h) organic operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) impairment charges, (3) other items, and (4) foreign exchange. We explain these adjustments below.

•“Acquisitions and divestitures.” This adjustment removes (a) the gain or loss recognized on sale of divested brands, (b) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction, transition, and integration costs 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 the third quarter of fiscal 2023, we acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U., which owned the Gin Mare brand (Gin Mare). This adjustment removes (a) the transaction, transition, and integration costs related to the acquisition, (b) operating activity for the non-comparable periods, which is activity in the first and second quarters of fiscal 2024, and (c) fair value adjustments to Gin Mare’s earn-out contingent consideration liability that is payable in cash no earlier than July 2024 and no later than July 2027.

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). This adjustment removes (a) the transaction, transition, and integration costs related to the acquisition, and (b) operating activity for the non-comparable periods, which is primarily activity in the first three quarters of fiscal 2024.

During the third quarter of fiscal 2024, we sold the Finlandia vodka business, which resulted in a pre-tax gain of $92 million, and entered into a related transition services agreement (TSA) for this business. This adjustment removes the (a) transaction costs related to the divestiture, (b) the gain on sale of the Finlandia vodka business, (c) operating activity for the

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

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non-comparable period, which is activity in the third and fourth quarters of fiscal 2023, and (d) net sales, cost of sales, and operating expenses recognized pursuant to the TSA related to distribution services in certain markets.

During the fourth quarter of fiscal 2024, we sold the Sonoma-Cutrer wine business in exchange for an ownership percentage of 21.4% in The Duckhorn Portfolio Inc. (Duckhorn) along with $50 million cash and entered into a related TSA for this business. This transaction resulted in a pre-tax gain of $175 million. This adjustment removes the transaction costs related to the divestiture and the gain on sale of the Sonoma-Cutrer wine business.

During the second quarter of fiscal 2024, we recognized a gain of $7 million on the sale of certain fixed assets. This adjustment removes the gain from our other expense (income), net and operating income.

We believe that these adjustments allow for us to better understand our organic results on a comparable basis.

See Notes 13 and 14 to the Consolidated Financial Statements for more information.

•“Impairment Charges.” This adjustment removes the impact of impairment charges from our results of operations.

During the third quarter of fiscal 2023, we recognized a non-cash impairment charge of $96 million for the Finlandia brand name. During the fourth quarter of fiscal 2024, we recognized a non-cash impairment charge of $7 million for an immaterial discontinued brand name. We believe that these adjustments allow for us to understand our organic results on a comparable basis.

•“Other Items.” Other Items include the additional items outlined below.

“Foundation.” During the fourth quarter of fiscal 2024, we committed $23 million to the Brown-Forman Foundation and Dendrifund (the Foundation and Dendrifund) to support the communities where our employees live and work. This adjustment removes the commitment to the Foundation from our organic SG&A expenses and organic operating income to present our organic results on a comparable basis.

“Jack Daniel’s Country Cocktails business model change (JDCC).” In fiscal 2021, we entered into a partnership with the Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel's Country Cocktails in the United States while Brown-Forman continued to produce certain products. During fiscal 2024, this production fully transitioned to Pabst Brewing Company for the Jack Daniel’s Country Cocktails products. This adjustment removes the non-comparable operating activity related to the sales of Brown-Forman-produced Jack Daniel’s Country Cocktails products during the fourth quarter of fiscal 2023 and fiscal 2024.

•“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.

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 2024 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 and comparability between periods. 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.

“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.

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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 result 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 2024 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 Spain. This aggregation represents our net sales of branded products to these markets.

•“Spain” includes Spain and certain other surrounding territories.

•“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.

•“Brazil” includes Brazil, Uruguay, Paraguay, and certain other surrounding territories.

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

•“Non-branded and bulk” includes 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 2024 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 aggregations outlined below.

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

•“Whiskey” includes all whiskey spirits and whiskey-based flavored liqueurs. The brands included in this category are the Jack Daniel’s family of brands (excluding the “Ready-to-Drink” products defined below), the Woodford Reserve family of brands (Woodford Reserve), the Old Forester family of brands (Old Forester), The Glendronach, Glenglassaugh, Benriach, 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.

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•“Jack Daniel’s RTD/RTP” products include all RTD line extensions of Jack Daniel’s, such as Jack Daniel’s & Cola, Jack Daniel’s & Coca-Cola RTD, Jack Daniel’s Country Cocktails, Jack Daniel’s Double Jack, and other malt- and spirit-based Jack Daniel’s RTDs, along with Jack Daniel’s Winter Jack RTP.

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

•“Wine” includes Korbel California Champagnes and Sonoma-Cutrer wines (which was divested on April 30, 2024). See Note 14 to the Condensed Consolidated Financial Statements for details.

•“Vodka” includes Finlandia, which was divested on November 1, 2023. See Note 14 to the Condensed Consolidated Financial Statements for details.

•“Rest of Portfolio” includes Diplomático, Chambord, Gin Mare, Korbel Brandy, 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 Apple (JDTA), Jack Daniel’s Tennessee Fire (JDTF), 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 Triple Mash Blended Straight Whiskey, Jack Daniel’s Bottled-in-Bond, Jack Daniel’s American Single Malt, Jack Daniel’s 12 Year Old, Jack Daniel’s 10 Year Old, and other Jack Daniel’s expressions.

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 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.”

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•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.

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Significant Developments

Below, we discuss the significant developments in our business during fiscal 2023 and fiscal 2024. These developments relate to acquisitions and divestitures, Finlandia brand name impairment, tariffs, supply chain disruptions, innovation, and capital deployment.

Acquisitions and Divestitures

During the third quarter of fiscal 2023, we acquired the Gin Mare brand and the Diplomático brand and related assets for a combined purchase price of $1.2 billion. In fiscal 2023, these brands positively contributed to our reported net sales growth and negatively impacted our reported operating income growth. The negative effect on fiscal 2023 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). In fiscal 2024, these brands positively contributed to our reported net sales growth and reported operating income.

During the third quarter of fiscal 2024, we sold the Finlandia vodka business for $196 million cash and entered into a related TSA for this business. This transaction resulted in a pre-tax gain of $92 million. The TSA negatively impacted our reported gross margin during fiscal 2024.

During the fourth quarter of fiscal 2024, we sold the Sonoma-Cutrer wine business in exchange for an ownership percentage of 21.4% in Duckhorn along with $50 million cash and entered into a related TSA for this business. This transaction resulted in a pre-tax gain of $175 million.

Finlandia Impairment

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.

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. For fiscal 2023, we estimated 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.

Supply Chain Disruptions

Supply chain disruptions negatively impacted our business during fiscal 2023 due to global logistics and transportation challenges that 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 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 the continued product launch on our fiscal 2024 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.

◦In fiscal 2023 and fiscal 2024, we continued the international launch of Jack Daniel’s Tennessee Apple, expanding to certain developed international and emerging markets.

◦In fiscal 2024, we launched Jack Daniel’s Bonded Rye and Jack Daniel’s Single Barrel Rye Barrel Proof in the United States.

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◦In fiscal 2024, we launched Jack Daniel’s American Single Malt in Travel Retail.

◦In fiscal 2024, we introduced the Glenglassaugh old and rare cask program.

Capital Deployment

We have focused our capital deployment initiatives on (a) investing fully in our existing business, (b) continuing our acquisitions and divestitures strategy, and (c) returning cash to our stockholders.

•Investments. During fiscal 2023 and fiscal 2024, our capital expenditures totaled $411 million and focused on enabling the growth of our premium whiskey, tequila, and rum brands:

◦During fiscal 2021, our Board of Directors approved a $125 million capital investment to expand our bourbon-making capacity in Kentucky. We completed this project in fiscal 2024. We also built two additional barrel warehouses at our Woodford Reserve distillery during fiscal 2024 to support the continued growth of Woodford Reserve.

◦During fiscal 2022, our Board of Directors approved a $50 million capital investment to expand our scotch-making capacity in Scotland. We expect to complete this project in fiscal 2026. We also built an additional barrel warehouse at our The Glendronach distillery during fiscal 2023 and two additional barrel warehouses at our Glenglassaugh distillery during fiscal 2024 to support the continued growth of those brands.

◦During fiscal 2023, our Board of Directors approved an $85 million capital investment to expand our JDTW capacity in Tennessee. We also built four additional barrel warehouses at our Jack Daniel’s distillery during fiscal 2023 and fiscal 2024 to support the continued growth of JDTW.

◦During fiscal 2023, our Board of Directors approved a $200 million capital investment to expand our tequila-making capacity in Mexico.

◦During fiscal 2024, we built an additional barrel warehouse in Panamá to support the continued growth of Diplomático rum.

•Acquisitions and divestitures. During fiscal 2023, we acquired the Gin Mare brand and the Diplomático brand and related assets. During fiscal 2024, we sold the Finlandia vodka business and Sonoma-Cutrer wine business. See Notes 13 and 14 to the Consolidated Financial Statements for more information.

•Cash returned to stockholders. During fiscal 2023 and fiscal 2024, we returned a total of $1.2 billion to our stockholders through $782 million in regular dividends and $400 million in share repurchases.

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Executive Summary

Fiscal 2024 Highlights

•We delivered reported net sales of $4.2 billion, a decrease of 1% compared to fiscal 2023. The decline in reported net sales was driven by lower volumes, largely offset by favorable price/mix and the positive effect of acquisitions and divestitures. An estimated net decrease in distributor inventories negatively impacted reported net sales.

◦From a brand perspective, the decline in reported net sales was driven by JDTW, partially offset by growth from our recently acquired brands, Diplomático and Gin Mare.

◦From a geographic perspective, the decline in reported net sales was driven by the United States and Japan, partially offset by growth in Mexico and Germany.

•We delivered reported gross profit of $2.5 billion, an increase of 1% compared to fiscal 2023. Gross margin increased to 60.5% in fiscal 2024, up 1.5 percentage points from 59.0% in fiscal 2023. The increase in gross margin was primarily driven by favorable price/mix and lower supply chain disruption related costs, partially offset by higher input costs and the negative effect of foreign exchange.

•We delivered reported operating income of $1.4 billion, an increase of 25% compared to fiscal 2023, driven primarily by the positive effect of acquisitions and divestitures (the gains on sale of the Finlandia vodka business and the Sonoma-Cutrer wine business), favorable price/mix, the absence of the prior year period Finlandia non-cash impairment, and lower supply chain disruption related costs, partially offset by operating expense growth, the negative effect of foreign exchange, and the $23 million commitment to the Foundation and Dendrifund.

•We delivered diluted earnings per share of $2.14, an increase of 32% compared to fiscal 2023, driven primarily by the increase in reported operating income.

•Our return on average invested capital increased to 17.3% in fiscal 2024, compared to 15.3% in fiscal 2023. This increase was driven by higher reported operating income and the benefit of a lower effective tax rate, partially offset by higher invested capital.

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Summary of Operating Performance Fiscal 2023 and Fiscal 2024

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[["","","","","","","","","","","","2023 vs. 2024"],["Fiscal year ended April 30","","","2023","","2024","","","","","","Reported Change","","","","Organic Change1"],["Net sales","","","$","4,228","","","$","4,178","","","","","","","(1","%)","","","","(1","%)"],["Cost of sales","","","$","1,734","","","$","1,652","","","","","","","(5","%)","","","","(7","%)"],["Gross profit","","","$","2,494","","","$","2,526","","","","","","","1","%","","","","2","%"],["Advertising","","","$","506","","","$","529","","","","","","","4","%","","","","2","%"],["SG&A","","","$","742","","","$","826","","","","","","","11","%","","","","7","%"],["Gain on business divestitures","","","$","\u2014","","","$","(267)","","","","","","","nm4","","","","nm4"],["Other expense (income), net","","","$","119","","","$","24","","","","","","","nm4","","","","nm4"],["Operating income","","","$","1,127","","","$","1,414","","","","","","","25","%","","","","(2","%)"],["Total operating expenses2","","","$","1,367","","","$","1,379","","","","","","","1","%","","","","7","%"],["As a percentage of net sales3"],["Gross profit","","","59.0","%","","60.5","%","","","","","","1.5","pp"],["Operating income","","","26.7","%","","33.8","%","","","","","","7.2","pp"],["Interest expense, net","","","$","81","","","$","113","","","","","","","40","%"],["Effective tax rate","","","23.0","%","","21.2","%","","","","","","(1.8","pp)"],["Diluted earnings per share","","","$","1.63","","","$","2.14","","","","","","","32","%"],["Return on average invested capital1","","","15.3","%","","17.3","%","","","","","","2.0","pp"],["Note: Results may differ due to rounding"]]
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1See “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.

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

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

4Percentage change is not meaningful.

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Results of Operations

Fiscal 2024 Market Highlights

The following table shows net sales results for our top markets, summarized by geographic area, for fiscal 2024 compared to fiscal 2023. We discuss results of the markets most affecting our performance below the table.

[[GREPCENT_TABLE]]
[["Top Markets"],["","","","","Net Sales % Change vs. 2023"],["Geographic area1","","% of Fiscal 2024 Net Sales","","Reported","Acquisitions and Divestitures","JDCC2","Foreign Exchange","","","Organic3"],["United States","","45","%","","(4","%)","\u2014","%","\u2014","%","\u2014","%","","","(4","%)"],["Developed International","","28","%","","(2","%)","(2","%)","\u2014","%","\u2014","%","","","(5","%)"],["Germany","","6","%","","10","%","(1","%)","\u2014","%","(2","%)","","","7","%"],["Australia","","5","%","","(8","%)","\u2014","%","\u2014","%","2","%","","","(6","%)"],["United Kingdom","","4","%","","(11","%)","(1","%)","\u2014","%","(2","%)","","","(14","%)"],["France","","3","%","","\u2014","%","(2","%)","\u2014","%","(1","%)","","","(3","%)"],["Canada","","1","%","","2","%","(1","%)","\u2014","%","1","%","","","2","%"],["Spain","","1","%","","2","%","(1","%)","\u2014","%","(2","%)","","","(1","%)"],["Rest of Developed International","","7","%","","(4","%)","(6","%)","\u2014","%","\u2014","%","","","(9","%)"],["Emerging","","21","%","","5","%","1","%","\u2014","%","2","%","","","8","%"],["Mexico","","7","%","","19","%","\u2014","%","\u2014","%","(13","%)","","","6","%"],["Poland","","3","%","","15","%","3","%","\u2014","%","(6","%)","","","11","%"],["Brazil","","2","%","","5","%","\u2014","%","\u2014","%","(2","%)","","","3","%"],["Rest of Emerging","","9","%","","(6","%)","2","%","\u2014","%","14","%","","","10","%"],["Travel Retail","","4","%","","8","%","(1","%)","\u2014","%","\u2014","%","","","6","%"],["Non-branded and bulk","","2","%","","(2","%)","\u2014","%","\u2014","%","\u2014","%","","","(2","%)"],["Total","","100","%","","(1","%)","(1","%)","\u2014","%","\u2014","%","","","(1","%)"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

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

2"JDCC” is included in the Other Items Non-GAAP Financial Measure. See Presentation Basis above for additional details.

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

The United States’ reported net sales declined 4%, driven by lower volumes largely reflecting an estimated net decrease in distributor inventories. The decline was partially offset by higher prices across our portfolio, led by el Jimador and Woodford Reserve, and the growth of our super-premium Jack Daniel’s expressions.

Developed International

•Germany’s reported net sales increased 10%, led by the launch of the Jack Daniel’s & Coca-Cola RTD, the positive effect of foreign exchange, and the acquisitions of Diplomático and Gin Mare, partially offset by lower volumes of Jack Daniel’s & Cola.

•Australia’s reported net sales declined 8%, led by lower volumes of JD RTDs and the negative effect of foreign exchange, partially offset by higher prices for JD RTDs.

•The United Kingdom’s reported net sales declined 11%, driven by lower volumes of Jack Daniel’s & Cola, which we previously distributed, due to the introduction of the Jack Daniel’s & Coca-Cola RTD that we do not distribute in this market, as well as lower JDTW volumes. The decline was partially offset by the positive effect of foreign exchange.

•France’s reported net sales were flat due to JDTW declines, offset by the acquisition of Diplomático and the positive effect of foreign exchange.

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•Reported net sales in the Rest of Developed International declined 4%, primarily driven by lower volumes across our portfolio in Japan due to an estimated net decrease in distributor inventories in preparation for the transition to owned distribution beginning April 1, 2024. This decline was partially offset by the acquisitions of Gin Mare and Diplomático.

Emerging

•Mexico’s reported net sales increased 19%, driven by the positive effect of foreign exchange and higher prices of New Mix.

•Poland’s reported net sales increased 15%, led by favorable price/mix and higher volumes of JDTW, as well as the positive effect of foreign exchange.

•Brazil’s reported net sales increased 5%, driven by higher volumes of JDTA along with the positive effect of foreign exchange. These gains were partially offset by lower volumes of JDTW, reflecting an estimated net decrease in distributor inventories, and JD RTD declines.

•Reported net sales in the Rest of Emerging declined 6%, driven by the negative effect of foreign exchange, reflecting the strengthening of the dollar primarily against the Turkish lira, and lower JDTW volumes in the United Arab Emirates due to a net decrease in distributor inventories. These declines were partially offset by JDTW growth in Türkiye.

Travel Retail’s reported net sales increased 8%, driven by growth of our super-premium American whiskey portfolio and the acquisitions of Gin Mare and Diplomático. An estimated net increase in distributor inventories positively impacted reported net sales.

39

Fiscal 2024 Brand Highlights

The following table highlights the global results of our top brands for fiscal 2024 compared to fiscal 2023. We discuss results of the brands most affecting our performance below the table.

[[GREPCENT_TABLE]]
[["Top Brands"],["","","","Net Sales % Change vs. 2023"],["Product category / brand family / brand1","","","","","","","Reported","Acquisitions & Divestitures","JDCC2","Foreign Exchange","","","Organic3"],["Whiskey","","","","","","","(3","%)","\u2014","%","\u2014","%","1","%","","","(2","%)"],["JDTW","","","","","","","(6","%)","\u2014","%","\u2014","%","2","%","","","(5","%)"],["JDTH","","","","","","","(8","%)","\u2014","%","\u2014","%","\u2014","%","","","(8","%)"],["Gentleman Jack","","","","","","","(10","%)","\u2014","%","\u2014","%","2","%","","","(9","%)"],["JDTA","","","","","","","32","%","\u2014","%","\u2014","%","1","%","","","33","%"],["JDTF","","","","","","","(11","%)","\u2014","%","\u2014","%","\u2014","%","","","(11","%)"],["Woodford Reserve","","","","","","","2","%","\u2014","%","\u2014","%","\u2014","%","","","3","%"],["Old Forester","","","","","","","11","%","\u2014","%","\u2014","%","\u2014","%","","","11","%"],["Rest of Whiskey","","","","","","","15","%","\u2014","%","\u2014","%","1","%","","","16","%"],["Ready-to-Drink","","","","","","","2","%","\u2014","%","1","%","(4","%)","","","\u2014","%"],["JD RTD/RTP","","","","","","","(6","%)","\u2014","%","1","%","\u2014","%","","","(5","%)"],["New Mix","","","","","","","32","%","\u2014","%","\u2014","%","(15","%)","","","17","%"],["Tequila","","","","","","","(4","%)","\u2014","%","\u2014","%","(3","%)","","","(7","%)"],["el Jimador","","","","","","","\u2014","%","\u2014","%","\u2014","%","(1","%)","","","(1","%)"],["Herradura","","","","","","","(10","%)","\u2014","%","\u2014","%","(3","%)","","","(13","%)"],["Wine","","","","","","","\u2014","%","\u2014","%","\u2014","%","\u2014","%","","","\u2014","%"],["Vodka (Finlandia)","","","","","","","(16","%)","19","%","\u2014","%","1","%","","","3","%"],["Rest of Portfolio","","","","","","","61","%","(49","%)","\u2014","%","3","%","","","15","%"],["Non-branded and bulk","","","","","","","(2","%)","\u2014","%","\u2014","%","\u2014","%","","","(2","%)"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

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

2"JDCC” is included in the Other Items Non-GAAP Financial Measure. See Presentation Basis above for additional details.

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

Whiskey

•Reported net sales for JDTW decreased 6%, led by declines in Japan, the United States, the United Arab Emirates, and Sub-Saharan Africa, along with the negative effect of foreign exchange, primarily reflecting the strengthening of the dollar against the Turkish lira. These declines were partially offset by higher prices and volumes in Türkiye. An estimated net decrease in distributor inventories negatively impacted reported net sales.

•Reported net sales for JDTH declined 8%, driven by lower volumes in the United States largely reflecting an estimated net decrease in distributor inventories.

•Reported net sales for Gentleman Jack declined 10%, driven by lower volumes in the United States, largely due to an estimated net decrease in distributor inventories, and the negative effect of foreign exchange. The decline was partially offset by higher prices in Türkiye.

•Reported net sales for JDTA increased 32%, led by higher volumes in Brazil and the continued product launch in South Korea.

•Reported net sales for JDTF declined 11%, driven by lower volumes in the United States largely reflecting an estimated net decrease in distributor inventories.

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•Woodford Reserve reported net sales increased 2%, driven by favorable price/mix, partially offset by lower volumes in the United States reflecting an estimated net decrease in distributor inventories.

•Old Forester reported net sales increased 11%, driven by favorable price/mix and higher volumes in the United States.    An estimated net decrease in distributor inventories negatively impacted reported net sales.

•Reported net sales for Rest of Whiskey increased 15%, led by the growth of our other super-premium Jack Daniel's expressions and Glenglassaugh old and rare cask sales.

Ready-to-Drink

•The JD RTD/RTP brands reported net sales declined 6%, led by lower volumes of Jack Daniel’s & Cola RTD, partially offset by the continued launch of the Jack Daniel’s & Coca-Cola RTD. An estimated net decrease in distributor inventories in the United States negatively impacted reported net sales.

•New Mix grew reported net sales 32%, driven by the positive effect of foreign exchange and higher prices in Mexico.

Tequila

•el Jimador’s reported net sales were flat, driven by lower volumes in Mexico and the United States, offset by higher prices led by the United States and the positive effect of foreign exchange.

•Herradura reported net sales declined 10%, driven by lower volumes in the United States and Mexico, partially offset by the positive effect of foreign exchange. An estimated net decrease in distributor inventories negatively impacted reported net sales.

Wine reported net sales were flat as Korbel California Champagne declines in the United States were offset by higher volumes of Sonoma-Cutrer. An estimated net increase in distributor inventories positively impacted reported net sales. During the fourth quarter of fiscal 2024, we sold our Sonoma-Cutrer wine business. See Note 14 to the Condensed Consolidated Financial Statements and Non-GAAP Financial Measures above for details.

Vodka (Finlandia) reported net sales declined 16%, due to lower volumes. During the third quarter of fiscal 2024, we sold our Finlandia vodka business. See Note 14 to the Condensed Consolidated Financial Statements and Non-GAAP Financial Measures above for details.

Rest of Portfolio reported net sales increased 61%, largely driven by the acquisitions of Diplomático and Gin Mare.

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Year-Over-Year Comparisons

Commentary below compares fiscal 2024 to fiscal 2023 results. A comparison of fiscal 2023 to fiscal 2022 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, 2023 (2023 Form 10-K).

[[GREPCENT_TABLE]]
[["Net Sales"],["","","","2024"],["Percentage change versus the prior fiscal year ended April 30","","","Volume","Price/mix","Total"],["Change in reported net sales","","","(9","%)","8","%","(1","%)"],["Acquisitions and divestitures","","","\u2014","%","(1","%)","(1","%)"],["JDCC1","","","1","%","(1","%)","\u2014","%"],["Foreign exchange","","","\u2014","%","\u2014","%","\u2014","%"],["Change in organic net sales","","","(8","%)","6","%","(1","%)"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

1“JDCC” is included in the Other Items Non-GAAP Financial Measure. See Presentation Basis above for additional details.

Reported net sales of $4.2 billion decreased 1%, or $50 million, in fiscal 2024 compared to fiscal 2023, driven by lower volumes, largely offset by favorable price/mix and the positive effect of acquisitions and divestitures. Lower volumes were led by Jack Daniel’s & Cola, due to the introduction of the Jack Daniel’s & Coca-Cola RTD, and JDTW, reflecting an estimated net decrease in distributor inventories. Price/mix largely reflects higher prices across much of our portfolio, led by JDTW, most notably in Türkiye in response to high inflation and currency devaluation. See “Results of Operations - Fiscal 2024 Market Highlights” and “Results of Operations - Fiscal 2024 Brand Highlights” above for details on the factors contributing to the change in reported net sales for fiscal 2024.

[[GREPCENT_TABLE]]
[["Cost of Sales"],["","","","2024"],["Percentage change versus the prior fiscal year ended April 30","","","Volume","Cost/mix","Total"],["Change in reported cost of sales","","","(9","%)","4","%","(5","%)"],["Acquisitions and divestitures","","","\u2014","%","(1","%)","(1","%)"],["JDCC1","","","1","%","\u2014","%","\u2014","%"],["Foreign exchange","","","\u2014","%","(2","%)","(2","%)"],["Change in organic cost of sales","","","(8","%)","1","%","(7","%)"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

1“JDCC” is included in the Other Items Non-GAAP Financial Measure. See Presentation Basis above for additional details.

Reported cost of sales of $1.7 billion decreased $82 million, or 5%, in fiscal 2024 compared to fiscal 2023, driven by lower volumes partially offset by cost/mix. Lower volumes were led by Jack Daniel’s & Cola, due to the introduction of the Jack Daniel’s & Coca-Cola RTD, and JDTW, reflecting an estimated net decrease in distributor inventories. Cost/mix reflects (a) higher input costs, (b) the negative effect of foreign exchange, and (c) the negative effect of acquisitions and divestitures, partially offset by the absence of the significant prior year supply chain disruption related costs.

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[[GREPCENT_TABLE]]
[["Gross Profit"],["Percentage change versus the prior fiscal year ended April 30","","","2024"],["Change in reported gross profit","","","1","%"],["Acquisitions and divestitures","","","\u2014","%"],["JDCC1","","","\u2014","%"],["Foreign exchange","","","2","%"],["Change in organic gross profit","","","2","%"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

1“JDCC” is included in the Other Items Non-GAAP Financial Measure. See Presentation Basis above for additional details.

[[GREPCENT_TABLE]]
[["Gross Margin"],["Fiscal year ended April 30","","","2024"],["Prior year gross margin","","","59.0","%"],["Price/mix","","","2.8","%"],["Cost (excluding tariffs)","","","(0.5","%)"],["Foreign exchange","","","(0.8","%)"],["Other1","","","0.1","%"],["Change in gross margin","","","1.5","%"],["Current year gross margin","","","60.5","%"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

1“Other” comprises the impact of acquisitions and divestitures, tariffs, and JDCC, which is included in the Other Items Non-GAAP Financial Measure (see Presentation Basis above for additional details).

Reported gross profit of $2.5 billion increased $32 million, or 1%, in fiscal 2024 compared to fiscal 2023. Gross margin increased to 60.5% in fiscal 2024, up 1.5 percentage points from 59.0% in fiscal 2023. The increase in gross margin was primarily driven by favorable price/mix and lower supply chain disruption related costs, partially offset by higher input costs and the negative effect of foreign exchange.

[[GREPCENT_TABLE]]
[["Operating Expenses"],["Percentage change versus the prior fiscal year ended April 30"],["2024","Reported","Acquisitions & Divestitures","Impairment","Foundation1","Foreign Exchange","","Organic"],["Advertising","4","%","(2","%)","\u2014","%","\u2014","%","(1","%)","","2","%"],["SG&A","11","%","\u2014","%","\u2014","%","(3","%)","(1","%)","","7","%"],["Total operating expenses2","1","%","2","%","8","%","(2","%)","(1","%)","","7","%"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

1“Foundation” is included in the Other Items Non-GAAP Financial Measure. See Presentation Basis above for additional details.

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

Reported operating expenses totaled $1.4 billion, an increase of $12 million, or 1%, in fiscal 2024 compared to fiscal 2023. The increase in reported operating expenses was driven by elevated SG&A expense, advertising expense growth, and the negative effect of foreign exchange. The increase was largely offset by the absence of a non-cash impairment charge for the Finlandia brand name in the prior year, as well as the absence of post-closing costs and expenses in connection with the acquisitions of Diplomático and Gin Mare in the prior year.

•Reported advertising expenses increased 4% in fiscal 2024, driven by increased investment in JDTW, advertising expense for the recently acquired Gin Mare and Diplomático brands, and advertising expense associated with the launch of Jack Daniel’s & Coca-Cola RTD.

•Reported SG&A expenses increased 11% in fiscal 2024, led by higher compensation and benefit-related expenses and the commitment to the Foundation and Dendrifund.

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[[GREPCENT_TABLE]]
[["Operating Income"],["Percentage change versus the prior fiscal year ended April 30","","","2024"],["Change in reported operating income","","","25","%"],["Acquisitions and divestitures","","","(27","%)"],["Impairment charges","","","(7","%)"],["Other items1","","","2","%"],["Foreign exchange","","","4","%"],["Change in organic operating income","","","(2","%)"],["Note: Results may differ due to rounding"]]
[[/GREPCENT_TABLE]]

1Other Items include “JDCC” and “Foundation”. See “Non-GAAP Financial Measures” above for additional details.

Reported operating income was $1.4 billion in fiscal 2024, an increase of $287 million, or 25%, compared to fiscal 2023. Operating margin increased 7.2 percentage points to 33.8% in fiscal 2024 from 26.7% in fiscal 2023, driven primarily by the positive effect of acquisitions and divestitures (gains on sale of the Finlandia vodka business and the Sonoma-Cutrer wine business), favorable price/mix, the absence of the prior year period Finlandia non-cash impairment, and lower supply chain disruption related costs, partially offset by operating expense growth, the negative effect of foreign exchange, and the commitment to the Foundation and Dendrifund.

Interest expense (net) increased $32 million, or 40%, in fiscal 2024 compared to fiscal 2023, due to a higher average debt balances and higher average interest rates on borrowings..

Our effective tax rate for fiscal 2024 was 21.2% compared to 23.0% in fiscal 2023. The decrease in our effective tax rate was driven primarily by the decreased impact of foreign operations and state taxes and the beneficial impact of tax rate differences on the sale of the Finlandia vodka business, which was partially offset by the absence of the net benefit from the reversal of the valuation allowances and the impact of the prior fiscal year tax true-ups in fiscal 2024. See Note 12 to the Consolidated Financial Statements for details.

Diluted earnings per share were $2.14 in fiscal 2024, an increase of 32% compared to fiscal 2023, driven primarily by the increase in reported operating income.

Fiscal 2025 Outlook

Below we discuss our outlook for fiscal 2025, which reflects the trends, developments, and uncertainties (including those described above) that we expect to affect our business.

We anticipate a return to growth for organic net sales and organic operating income in fiscal 2025 driven by gains in international markets and the benefit of normalizing inventory trends. This outlook is tempered by our belief that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment. Accordingly, we expect the following in fiscal 2025:

•Organic net sales growth in the 2% to 4% range.

•Organic operating income growth in the 2% to 4% range.

•Our effective tax rate to be in the range of approximately 21% to 23%.

•Capital expenditures planned to be in the range of $195 to $205 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 S&P) 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 $374 million at April 30, 2023, and $446 million at April 30, 2024. As of April 30, 2024, approximately 50% of our cash and cash equivalents were held by our foreign subsidiaries whose earnings we expect to

44

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 a $900 million commercial paper program that we use, together with our cash flow from operations, to fund our short-term operational needs. See Note 7 to the Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2023 and April 30, 2024. The average balances, interest rates, and original maturities during 2023 and 2024 are presented below.

[[GREPCENT_TABLE]]
[["(Dollars in millions)","","","","","2023","","2024"],["Average commercial paper","","","","","$","158","","","$","475"],["Average interest rate","","","","","4.69","%","","5.46","%"],["Average days to maturity at issuance","","","","","41","","","32"]]
[[/GREPCENT_TABLE]]

Our commercial paper program is supported by available commitments under our undrawn $900 million bank credit facility that expires on May 26, 2028. Although unlikely, under extreme market conditions, one or more participating banks may not be able to fund its commitments under our credit facility. To manage this counterparty credit risk, we partner with banks that have investment grade credit ratings, limit the amount of exposure we have with each bank, and monitor each bank’s financial conditions.

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), dividend payments, 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 7, 10, and 12 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.

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Cash Flow Summary

The following table summarizes our cash flows for each of the last two fiscal years:

[[GREPCENT_TABLE]]
[["(Dollars in millions)","","","","2023","","2024"],["Cash flows from operating activities","","","","$","640","","","$","647"],["Investing activities:"],["Proceeds from business divestitures","","","","$","\u2014","","","$","246"],["Business acquisitions","","","","(1,195)","","","\u2014"],["Additions to property, plant, and equipment","","","","(183)","","","(228)"],["Other","","","","23","","","31"],["Net cash flows from investing activities","","","","$","(1,355)","","","$","49"],["Financing activities:"],["Net change in short-term borrowings","","","","$","234","","","$","192"],["Net proceeds from long-term debt","","","","398","","","\u2014"],["Acquisition of treasury stock","","","","","","(400)"],["Dividends paid","","","","(378)","","","(404)"],["Other","","","","(15)","","","(6)"],["Net cash flows from financing activities","","","","$","239","","","$","(618)"]]
[[/GREPCENT_TABLE]]

Cash provided by operations of $647 million during fiscal 2024 increased $7 million from fiscal 2023, primarily reflecting a smaller increase in cash used for working capital compared to the prior fiscal year.

Cash provided by investing activities was $49 million during fiscal 2024, compared to $1,355 million used for investing activities during fiscal 2023. The $1,404 million change largely reflects $1,195 million in cash used to acquire Gin Mare and Diplomático during fiscal 2023 and proceeds of $246 million received from the divestitures of Finlandia and Sonoma-Cutrer during fiscal 2024. The change also reflects a $45 million increase in capital expenditures, due largely to additional capital spending on projects to expand the capacity of our whiskey and tequila production facilities during fiscal 2024.

Cash used for financing activities was $618 million during fiscal 2024, compared to $239 million in cash provided by financing activities during fiscal 2023. The $857 million change largely reflects a $400 million increase in share repurchases, a $398 million decrease in net proceeds from long-term debt, a $42 million decrease in net proceeds from short-term borrowings, and a $26 million increase in dividend payments.

A discussion of our cash flows for fiscal 2023 compared to fiscal 2022 may be found in “Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our 2023 Form 10-K.

Dividends

In November 2023, our Board of Directors approved a 6% increase in the quarterly cash dividend on our Class A and Class B common stock from $0.2055 per share to $0.2178 per share, effective with the regular quarterly dividend paid on January 2, 2024. As a result, the indicated annual cash dividend increased from $0.8220 per share to $0.8712 per share.

On May 23, 2024, our Board of Directors declared a regular quarterly cash dividend on our Class A and Class B common stock of $0.2178 per share. The dividend is payable on July 1, 2024, to stockholders of record on June 7, 2024.

Share Repurchases

In October 2023, our Board of Directors authorized the repurchase of up to $400 million (excluding brokerage fees and excise taxes) of outstanding shares of Class A and Class B common stock from October 2, 2023, through October 1, 2024 (the Repurchase Program), subject to market and other conditions.

Under the Repurchase Program, we repurchased 175,632 Class A shares at an average price of $59.35 per share and 6,736,658 Class B shares at an average price of $57.83 per share, for a total cost of $400 million. The program was completed in December 2023.

46

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.

Brand Names and Trademarks

When we acquire a business, we allocate the purchase price to the assets and liabilities of the acquired business, including intangible brand names and trademarks (“brand names”), based on estimated fair value. We do not amortize our brand names, all of which we consider to have indefinite lives.

We assess our brand names for impairment at least annually, or more frequently if circumstances indicate the carrying amount may be impaired. 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 brand name, to evaluate qualitative factors to assess whether it is more likely than not that the brand name is 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 brand names are impaired as of April 30, 2024. The carrying amounts of the recently-acquired Gin Mare and Diplomático brand names approximate their fair values, based on the relief-from-royalty method, using current assumptions. Reasonably possible changes in those assumptions could result in future impairment of either of those brand names. For example, we estimate that, all else equal, a 15% decline in projected net sales would result in an impairment charge of $25 million for the Gin Mare brand name and $35 million for the Diplomático brand name. We also estimate that, all else equal, a 1 percentage point increase in the discount rate would result in an impairment charge of $29 million for the Gin Mare brand name and $44 million for the Diplomático brand name.

We estimate that the fair values of our 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.

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 2024 to those to be used in determining that cost for fiscal 2025.

[[GREPCENT_TABLE]]
[["","Pension Benefits","","Medical and Life Insurance Benefits"],["","2024","","2025","","2024","","2025"],["Discount rate for service cost","4.98","%","","5.75","%","","5.02","%","","5.77","%"],["Discount rate for interest cost","4.79","%","","5.59","%","","4.78","%","","5.58","%"],["Expected return on plan assets","6.50","%","","6.50","%","","n/a","","n/a"]]
[[/GREPCENT_TABLE]]

Using these assumptions, we estimate our pension and other postretirement benefit cost for fiscal 2025 will be approximately $18 million, compared to $21 million for fiscal 2024. Decreasing the assumed discount rates by 50 basis points would increase the total fiscal 2025 cost by approximately $4 million. Increasing the assumed discount rates by 50 basis points

47

would decrease the total fiscal 2025 cost by approximately $2 million. Decreasing/increasing the assumed return on plan assets by 50 basis points would increase/decrease the total fiscal 2025 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.

48