What changed in this filing

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Item 1. Financial Statements

2021-10-05 compared with 2021-04-02 · 104 added, 292 removed, 486 unchanged (45% of the section changed)

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(In millions, except per share data)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Revenues $ 12,248 $ 10,594

17 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Net income $ 1,874 $ 1,518

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(In millions)

36 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 28, 2021 FEBRUARY 29, 2020

Cash provided (used) by operations:

39 unchanged sentences

(In millions, except per share data) SHARES AMOUNT SHARES AMOUNT

Balance at November 30, 2020 305 $ — 1,270 $ 3 $ 9,336 $ ( 429 ) $ 1,730 $ 10,640

Stock options exercised 4 187 187

Dividends on common stock ($ 0.275 per share)

( 436 ) ( 436 )

Issuance of shares to employees, net of shares withheld for employee taxes ( 20 ) ( 14 ) ( 34 )

Stock-based compensation 142 142

Net income 1,449 1,449

Other comprehensive income (loss) ( 17 ) ( 17 )

Balance at February 28, 2021 305 $ — 1,274 $ 3 $ 9,645 $ ( 446 ) $ 2,729 $ 11,931

COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS (DEFICIT) TOTAL

CLASS A CLASS B

(In millions, except per share data) SHARES AMOUNT SHARES AMOUNT

Balance at November 30, 2019 315 $ — 1,244 $ 3 $ 7,719 $ 52 $ 1,577 $ 9,351

Stock options exercised 6 199 199

Repurchase of Class B Common Stock ( 10 ) ( 48 ) ( 909 ) ( 957 )

Dividends on common stock ($ 0.245 per share)

( 383 ) ( 383 )

Issuance of shares to employees, net of shares withheld for employee taxes ( 12 ) ( 4 ) ( 16 )

Stock-based compensation 113 113

Net income 847 847

Other comprehensive income (loss) ( 109 ) ( 109 )

Balance at February 29, 2020 315 $ — 1,240 $ 3 $ 7,971 $ ( 57 ) $ 1,128 $ 9,045

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.

COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS (DEFICIT) TOTAL

CLASS A CLASS B

(In millions, except per share data)

SHARES AMOUNT SHARES AMOUNT

Balance at May 31, 2021 305 $ — 1,273 $ 3 $ 9,965 $ ( 380 ) $ 3,179 $ 12,767

Stock options exercised 10 469 469

Conversion to Class B Common Stock ( 10 ) 10 —

Repurchase of Class B common stock ( 5 ) ( 29 ) ( 713 ) ( 742 )

Dividends on common stock ($ 0.275 per share) and preferred stock ($ 0.10 per share)

4 unchanged sentences

Other comprehensive income (loss) 313 313

Balance at February 28, 2021 305 $ — 1,274 $ 3 $ 9,645 $ ( 446 ) $ 2,729 $ 11,931

Balance at August 31, 2021 305 $ — 1,278 $ 3 $ 10,521 $ ( 67 ) $ 3,886 $ 14,343

COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS (DEFICIT) TOTAL

3 unchanged sentences

Stock options exercised 7 291 291

Repurchase of Class B Common Stock ( 32 ) ( 150 ) ( 2,724 ) ( 2,874 )

Dividends on common stock ($ 0.245 per share) and preferred stock ($ 0.10 per share)

4 unchanged sentences

Other comprehensive income (loss) ( 345 ) ( 345 )

Adoption of ASC Topic 842 ( 1 ) ( 1 )

Balance at February 29, 2020 315 $ — 1,240 $ 3 $ 7,971 $ ( 57 ) $ 1,128 $ 9,045

Balance at August 31, 2020 315 $ — 1,250 $ 3 $ 8,695 $ ( 401 ) $ 927 $ 9,224

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.

4 unchanged sentences

Note 4 Fair Value Measurements

Note 5 Short-Term Borrowings and Credit Lines

Note 5 Income Taxes

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The year-end Condensed Consolidated Balance Sheet data as of May 31, 2021, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.

The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K.

The results of operations for the three and nine months ended February 28, 2021 are not necessarily indicative of results to be expected for the entire fiscal year.

The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

The results of operations for the three months ended August 31, 2021, are not necessarily indicative of results to be expected for the entire fiscal year.

The extent to which the evolving COVID-19 pandemic impacts the Company's financial statements will depend on a number of factors, including the magnitude and duration of the pandemic.

There remains risk that COVID-19 could have material adverse impacts on future revenue growth as well as overall profitability and may lead to higher than normal inventory levels in various markets, adverse impacts to the global supply chain, revised payment terms with certain wholesale customers, higher sales-related reserves and a volatile effective tax rate driven by changes in the mix of earnings across the Company's jurisdictions.

There may be developments outside our control that require us to adjust our operating plan, such as our assumption on the pace of reopening and return to full production of factories in Vietnam and the planned shift of production capacity to other countries following factory closures in Vietnam and Indonesia.

Such developments and other impacts of COVID-19, such as new or prolonged factory closures, higher inventory levels or inventory shortages in various markets, other adverse impacts on the global supply chain, revised payment terms with certain of our wholesale customers, higher sales-related reserves, factory cancellation costs and a volatile effective tax rate driven by changes in the mix of earnings across our jurisdictions, among other factors, could have material adverse impacts on our revenue growth as well as our overall profitability in future periods.

NOTE 2 — INVENTORIES

Inventory balances of $ 6,693 million and $ 7,367 million at February 28, 2021 and May 31, 2020, respectively, were substantially all finished goods.

Inventory balances of $ 6,699 million and $ 6,854 million at August 31, 2021 and May 31, 2021, respectively, were substantially all finished goods.

NOTE 3 — ACCRUED LIABILITIES

Accrued liabilities included the following:

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions) 2021 2021

1 unchanged sentence

Sales-related reserves 1,029 1,077

Fair value of derivatives 463 190

Taxes other than income taxes payable 505 468

Import and logistics costs 491 393

Dividends payable 437 436

Allowance for expected loss on sale (1)

5 unchanged sentences

For additional information about the Company's fair value policies, refer to Note 1 — Summary of Significant Accounting Policies of the Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of February 28, 2021 and May 31, 2020, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

FEBRUARY 28, 2021

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of August 31, 2021 and May 31, 2021, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

AUGUST 31, 2021

(Dollars in millions)

5 unchanged sentences

Time deposits 1,167 1,164 3

Agency securities 6 — 6

Total Level 2 10,048 9,360 688

10 unchanged sentences

TOTAL $ 13,476 $ 9,889 $ 3,587

As of February 28, 2021, the Company held $ 3,443 million of available-for-sale debt securities with maturity dates within one year and $ 569 million with maturity dates over one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.

As of August 31, 2021, the Company held $ 2,308 million of available-for-sale debt securities with maturity dates within one year and $ 667 million with maturity dates over one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.

The fair value of the Company's available-for-sale debt securities approximates their amortized cost.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 8 million and $ 16 million for the three months ended February 28, 2021 and February 29, 2020, respectively, and $ 21 million and $ 51 million for the nine months ended February 28, 2021 and February 29, 2020, respectively.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 17 million and $ 7 million for the three months ended August 31, 2021 and 2020, respectively.

The following tables present information about the Company's derivative assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

FEBRUARY 28, 2021

AUGUST 31, 2021

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

5 unchanged sentences

TOTAL $ 247 $ 178 $ 69 $ 131 $ 131 $ —

(1) If the foreign exchange derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 80 million as of February 28, 2021.

As of that date, the Company had posted $ 183 million of cash collateral to various counterparties related to foreign exchange derivative instruments.

No amount of collateral was received on the Company's derivative asset balance as of February 28, 2021.

As of that date, no amount of cash collateral had been received or posted on the derivative asset and liability balances related to these foreign exchange derivative instruments.

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

6 unchanged sentences

(1) If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 93 million as of May 31, 2021.

As of that date, no amount of cash collateral had been received or posted on the derivative asset and liability balances related to these foreign exchange derivative instruments.

As of that date, the Company had posted $ 39 million of cash collateral to various counterparties related to foreign exchange derivative instruments.

No amount of collateral was received on the Company's derivative asset balance as of May 31, 2021.

For additional information related to the Company's derivative financial instruments and credit risk, refer to Note 8 — Risk Management and Derivatives.

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FINANCIAL ASSETS AND LIABILITIES NOT RECORDED AT FAIR VALUE

Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs.

The Company's Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs.

The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2).

The fair value of the Company’s Long-term debt, including the current portion, was approximately $ 10,320 million at February 28, 2021 and $ 10,645 million at May 31, 2020.

For fair value information regarding Notes payable, refer to Note 5 — Short-Term Borrowings and Credit Lines.

NOTE 5 — SHORT-TERM BORROWINGS AND CREDIT LINES

The fair value of the Company's Long-term debt, including the current portion, was approximately $ 10,575 million at August 31, 2021 and $ 10,275 million at May 31, 2021.

The carrying amounts reflected on the Unaudited Condensed Consolidated Balance Sheets for Notes payable approximate fair value.

As of February 28, 2021, the Company had no borrowings outstanding under its $ 4 billion commercial paper program.

As of May 31, 2020, the Company had $ 248 million of borrowings outstanding at a weighted average interest rate of 1.65 % under its $ 4 billion commercial paper program.

Commercial paper repayments with original maturities greater than three months are included in Repayment of borrowings on the Unaudited Condensed Consolidated Statements of Cash Flows.

On March 15, 2021, subsequent to the end of the third quarter of fiscal 2021, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $ 1 billion of borrowings, with the option to increase borrowings up to $ 1.5 billion in total upon lender approval.

The facility matures on March 14, 2022, with a 364 -day extension option up to 30 days prior to the existing termination date, provided that in no event shall it extend beyond March 13, 2023.

This facility replaces the prior $ 2 billion credit facility agreement entered into on April 6, 2020, which would have matured on April 5, 2021.

Based on the Company's current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing London Interbank Offered Rate (LIBOR) plus 0.50 %.

The facility fee is 0.03 % of the total undrawn commitment.

Additionally, the Company decreased its $ 4 billion commercial paper program to $ 3 billion in connection with the new credit facility agreement.

As of April 2, 2021, no amounts were outstanding under this committed credit facility and there were no borrowings under the commercial paper program.

There have been no other changes to the credit lines reported in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2020.

NOTE 5 — INCOME TAXES

The effective tax rate was 12.3 % and 9.8 % for the nine months ended February 28, 2021 and February 29, 2020, respectively.

The increase in the Company's effective tax rate was due to a shift in the proportion of earnings taxed in the U.S., in part due to the impact of the COVID-19 pandemic and less favorable impacts from discrete items, such as a modification of the treatment of certain research and development expenditures recognized in the prior year.

Additionally, the increase was due to the recognition of a reserve in the first quarter of fiscal 2021 related to Altera Corp.

Commissioner, where the taxpayer was denied a hearing before the U.S.

Supreme Court on June 22, 2020, thereby ratifying the Ninth Circuit Court's decision and requiring the inclusion of stock-based compensation in intercompany cost-sharing arrangements.

As of February 28, 2021, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 877 million, $ 622 million of which would affect the Company's effective tax rate if recognized in future periods.

During the nine months ended February 28, 2021, the Company recognized $ 74 million of gross unrecognized tax benefits related to Altera Corp.

Commissioner discussed above, of which $ 69 million impacted the effective tax rate.

The effective tax rate was 11.0 % and 11.5 % for the three months ended August 31, 2021 and 2020, respectively.

The decrease in the Company's effective tax rate was primarily due to a more favorable impact from stock-based compensation and discrete items such as the recognition of a reserve in the first quarter of fiscal 2021 related to Altera Corp.

Commissioner.

The decrease in the Company's effective tax rate was partially offset by a change in the proportion of earnings taxed in the U.S.

As of August 31, 2021, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 906 million, $ 627 million of which would affect the Company's effective tax rate if recognized in future periods.

The majority of the total gross unrecognized tax benefits are long-term in nature and included within Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

As of May 31, 2021, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 896 million.

The liability for payment of interest and penalties increased by $ 41 million during the nine months ended February 28, 2021.

As of February 28, 2021 and May 31, 2020, accrued interest and penalties related to uncertain tax positions were $ 199 million and $ 158 million, respectively (excluding federal benefit).

The liability for payment of interest and penalties increased by $ 9 million during the three months ended August 31, 2021.

As of August 31, 2021 and May 31, 2021, accrued interest and penalties related to uncertain tax positions were $ 212 million and $ 203 million, respectively (excluding federal benefit).

The Company is subject to taxation in the United States, as well as various state and foreign jurisdictions.

16 unchanged sentences

The following table summarizes the Company's total stock-based compensation expense recognized in Cost of sales or Operating overhead expense, as applicable:

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Stock options (1)

$ 73 $ 64 $ 250 $ 170

ESPPs 15 11 50 35

Restricted stock (1)

Restricted stock and restricted stock units (1)(2)

TOTAL STOCK-BASED COMPENSATION EXPENSE $ 136 $ 136

(1) Expense for stock options includes the expense associated with stock appreciation rights.

Accelerated stock option and restricted stock expense is primarily recorded for employees meeting certain retirement eligibility requirements and certain employees impacted by the Company's organizational realignment.

For more information see Note 14 — Restructuring.

The income tax benefit related to stock-based compensation expense was $ 67 million for both the three months ended February 28, 2021 and February 29, 2020 and $ 256 million and $ 181 million for the nine months ended February 28, 2021 and February 29, 2020, respectively.

Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibility requirements.

(2) Includes expense for performance-based restricted stock units granted during the three months ended August 31, 2021.

The income tax benefit related to stock-based compensation expense was $ 186 million and $ 81 million for the three months ended August 31, 2021 and 2020, respectively.

STOCK OPTIONS

The weighted average fair value per share of the options granted during the nine months ended February 28, 2021 and February 29, 2020, computed as of the grant date using the Black-Scholes pricing model, was $ 26.75 and $ 18.71 , respectively.

The weighted average fair value per share of the options granted during the three months ended August 31, 2021 and 2020, computed as of the grant date using the Black-Scholes pricing model, was $ 38.64 and $ 22.55 , respectively.

The weighted average assumptions used to estimate these fair values were as follows:

NINE MONTHS ENDED

FEBRUARY 28, 2021 FEBRUARY 29, 2020

THREE MONTHS ENDED AUGUST 31,

Dividend yield 0.7 % 1.0 %

6 unchanged sentences

Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.

As of February 28, 2021, the Company had $ 492 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.6 years.

As of August 31, 2021, the Company had $ 382 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.4 years.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

The weighted average fair value per share of restricted stock and restricted stock units granted for the nine months ended February 28, 2021 and February 29, 2020, computed as of the grant date, was $ 112.44 and $ 88.28 , respectively.

As of February 28, 2021, the Company had $ 485 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.7 years.

The weighted average fair value per share of restricted stock and restricted stock units granted for the three months ended August 31, 2021 and 2020, computed as of the grant date, was $ 161.46 and $ 98.47 , respectively.

During the three months ended August 31, 2021, under the Stock Incentive Plan, the Company granted performance-based restricted stock units (PSUs), which were historically in the form of cash-based long-term incentive awards under the Company's Long-Term Incentive Plan.

The Company estimates the fair value of these PSUs as of the grant date using a Monte Carlo simulation.

The weighted average fair value per share of PSUs granted for the three months ended August 31, 2021, computed as of the grant date, was $ 247.06 .

The impact of granting PSUs during the period was not material to the Company's Unaudited Condensed Consolidated Financial Statements.

As of August 31, 2021, the Company had $ 527 million of unrecognized compensation costs from restricted stock, restricted stock units and PSUs, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.5 years.

NOTE 7 — EARNINGS PER SHARE

The following is a reconciliation from basic earnings per common share to diluted earnings per common share.

The computations of diluted earnings per common share excluded restricted stock and options, including shares under ESPPs, to purchase an additional 15.8 million shares of common stock outstanding for the three months ended February 29, 2020 because the awards were anti-dilutive.

The amount of anti-dilutive awards for the three months ended February 28, 2021 was insignificant.

For the nine months ended February 28, 2021 and February 29, 2020 the computations of diluted earnings per common share excluded 11.6 million and 31.1 million shares of common stock outstanding because the awards were anti-dilutive.

THREE MONTHS ENDED NINE MONTHS ENDED

The computations of diluted earnings per common share excluded restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an additional 1.1 million and 2.1 million shares of common stock outstanding for the three months ended August 31, 2021 and 2020, respectively, because the awards were anti-dilutive.

THREE MONTHS ENDED AUGUST 31,

(In millions, except per share data)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Net income available to common stockholders $ 1,874 $ 1,518

8 unchanged sentences

The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business.

As of and for the nine months ended February 28, 2021, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K.

As of and for the three months ended August 31, 2021, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K.

For additional information about the Company's derivatives and hedging policies refer to Note 1 — Summary of Significant Accounting Policies and Note 14 — Risk Management and Derivatives of the Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

The majority of derivatives outstanding as of February 28, 2021 are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

The majority of derivatives outstanding as of August 31, 2021, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

Dollar, British Pound/Euro, Chinese Yuan/U.S.

4 unchanged sentences

DERIVATIVE ASSETS

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

(Dollars in millions)

6 unchanged sentences

Embedded derivatives Prepaid expenses and other current assets — —

Foreign exchange forwards and options Deferred income taxes and other assets — 2

Total derivatives not designated as hedging instruments 27 34

1 unchanged sentence

DERIVATIVE LIABILITIES

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

(Dollars in millions)

8 unchanged sentences

TOTAL DERIVATIVE LIABILITIES $ 131 $ 457

The following tables present the amounts in the Unaudited Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items:

THREE MONTHS ENDED

FEBRUARY 28, 2021 FEBRUARY 29, 2020

(Dollars in millions)

TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY

Revenues $ 10,357 $ 16 $ 10,104 $ ( 21 )

Cost of sales 5,638 ( 35 ) 5,631 110

Demand creation expense 711 1 870 —

Other (income) expense, net ( 22 ) ( 26 ) 297 44

Interest expense (income), net 64 ( 2 ) 12 ( 2 )

NINE MONTHS ENDED

FEBRUARY 28, 2021 FEBRUARY 29, 2020

The following table presents the amounts in the Unaudited Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items:

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

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INCOME (LOSS) INTO INCOME (1)

THREE MONTHS ENDED LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Derivatives designated as

cash flow hedges:

Foreign exchange forwards

$ ( 38 ) $ 17 Revenues $ 16 $ ( 21 )

Foreign exchange forwards

( 99 ) 39 Cost of sales ( 35 ) 110

Foreign exchange forwards

1 1 Demand creation expense 1 —

Foreign exchange forwards

( 24 ) 7 Other (income) expense, net ( 26 ) 44

Interest rate swaps (2)

— — Interest expense (income), net ( 2 ) ( 2 )

Total designated cash

flow hedges $ ( 160 ) $ 64 $ ( 46 ) $ 131

(1) For the three months ended February 28, 2021 and February 29, 2020, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(2) Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt.

(Dollars in millions)

AMOUNT OF GAIN (LOSS)

RECOGNIZED IN OTHER

COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES (1)

AMOUNT OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE

INCOME (LOSS) INTO INCOME (1)

NINE MONTHS ENDED LOCATION OF GAIN (LOSS)

THREE MONTHS ENDED AUGUST 31, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME NINE MONTHS ENDED

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

(LOSS) INTO INCOME THREE MONTHS ENDED AUGUST 31,

2021 2020 2021 2020

Derivatives designated as

10 unchanged sentences

— — Interest expense (income), net ( 2 ) ( 2 )

Total designated cash

flow hedges $ ( 750 ) $ 208 $ 132 $ 388

(1) For the nine months ended February 28, 2021 and February 29, 2020, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

TOTAL DESIGNATED CASH FLOW HEDGES $ 388 $ ( 530 ) $ ( 97 ) $ 135

(1) For the three months ended August 31, 2021 and 2020, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

AMOUNT OF GAIN (LOSS) RECOGNIZED

IN INCOME ON DERIVATIVES

LOCATION OF GAIN (LOSS)

IN INCOME ON DERIVATIVES LOCATION OF GAIN (LOSS)

RECOGNIZED IN INCOME

ON DERIVATIVES

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Derivatives not designated as hedging instruments:

2 unchanged sentences

CASH FLOW HEDGES

All changes in fair value of derivatives designated as cash flow hedges are recorded in Accumulated other comprehensive income (loss) until Net income is affected by the variability of cash flows of the hedged transaction.

All changes in fair value of derivatives designated as cash flow hedge instruments are recorded in Accumulated other comprehensive income (loss) until Net income is affected by the variability of cash flows of the hedged transaction.

Effective hedge results are classified in the Unaudited Condensed Consolidated Statements of Income in the same manner as the underlying exposure.

Derivative instruments designated as cash flow hedges must be discontinued when it is no longer probable the forecasted hedged transaction will occur in the initially identified time period.

The gains and losses associated with discontinued derivative instruments in Accumulated other comprehensive income (loss) will be recognized immediately in Other (income) expense, net, if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-month period thereafter.

When it is no longer probable the forecasted hedged transaction will occur in the initially identified time period, hedge accounting is discontinued and the Company accounts for the associated derivative as an undesignated instrument as discussed below.

Additionally, the gains and losses associated with derivatives no longer designated as cash flow hedge instruments in Accumulated other comprehensive income (loss) are recognized immediately in Other (income) expense, net, if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-month period thereafter.

In rare circumstances, the additional period of time may exceed two months due to extenuating circumstances related to the nature of the forecasted transaction that are outside the control or influence of the Company.

In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company accounts for the derivative as an undesignated instrument as discussed below.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 16.5 billion as of February 28, 2021.

Approximately $ 375 million of deferred net losses (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 28, 2021, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 15.2 billion as of August 31, 2021.

Approximately $ 10 million of deferred net losses (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of August 31, 2021, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income.

Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature.

As of February 28, 2021, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 24 months.

As of August 31, 2021, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 24 months.

UNDESIGNATED DERIVATIVE INSTRUMENTS

The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Unaudited Condensed Consolidated Balance Sheets and/or the embedded derivative contracts.

These undesignated instruments are recorded at fair value as a derivative asset or liability on the Unaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, together with the re-measurement gain or loss from the hedged balance sheet position and/or embedded derivative contract.

The total notional amount of outstanding undesignated derivative instruments was $ 4.5 billion as of February 28, 2021.

These undesignated instruments are recorded at fair value as a derivative asset or liability on the Unaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, together with the remeasurement gain or loss from the hedged balance sheet position and/or embedded derivative contract.

The total notional amount of outstanding undesignated derivative instruments was $ 4.4 billion as of August 31, 2021.

EMBEDDED DERIVATIVES

Embedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related contract and recorded at fair value as a derivative asset or liability on the Unaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, through the date the foreign currency fluctuations cease to exist.

As of February 28, 2021, the total notional amount of embedded derivatives outstanding was approximately $ 429 million.

As of August 31, 2021, the total notional amount of embedded derivatives outstanding was approximately $ 502 million.

The Company's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $ 50 million should the fair value of outstanding derivatives per counterparty be greater than $ 50 million.

Additionally, a certain level of decline in credit rating of either the Company or the counterparty could also trigger collateral requirements.

As of February 28, 2021, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net liability position of approximately $ 464 million.

Accordingly, the Company was required to post $ 183 million of cash collateral as a result of these contingent features.

Further, no amount of collateral was received on the Company's derivative asset balance as of February 28, 2021.

Additionally, a certain level of decline in credit rating of either the Company or the counterparty could trigger collateral requirements.

As of August 31, 2021, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net liability position of approximately $ 11 million.

Accordingly, the Company was not required to post cash collateral as a result of these contingent features.

Further, no amount of collateral was received on the Company's derivative asset balance as of August 31, 2021.

The Company considers the impact of the risk of counterparty default to be immaterial.

5 unchanged sentences

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at November 30, 2020 $ ( 98 ) $ ( 371 ) $ 115 $ ( 75 ) $ ( 429 )

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

99 ( 163 ) — ( 6 ) ( 70 )

Reclassifications to net income of previously deferred (gains) losses (3)

( 1 ) 46 — 8 53

Total other comprehensive income (loss) 98 ( 117 ) — 2 ( 17 )

Balance at February 28, 2021 $ — $ ( 488 ) $ 115 $ ( 73 ) $ ( 446 )

(1) The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity.

(2) Net of tax benefit (expense) of $ 0 million, $( 3 ) million, $ 0 million, $ 1 million, and $( 2 ) million, respectively.

(3) Net of tax (benefit) expense of $ 0 million, $ 0 million, $ 0 million, $ 0 million and $ 0 million, respectively.

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at November 30, 2019 $ ( 407 ) $ 401 $ 115 $ ( 57 ) $ 52

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

( 43 ) 63 — 1 21

Reclassifications to net income of previously deferred (gains) losses (3)

1 ( 131 ) — — ( 130 )

Total other comprehensive income (loss) ( 42 ) ( 68 ) — 1 ( 109 )

Balance at February 29, 2020 $ ( 449 ) $ 333 $ 115 $ ( 56 ) $ ( 57 )

(2) Net of tax benefit (expense) of $ 0 million, $( 1 ) million, $ 0 million, $ 0 million and $( 1 ) million, respectively.

(3) Net of tax (benefit) expense of $ 0 million, $ 0 million, $ 0 million, $ 0 million and $ 0 million, respectively.

(Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at May 31, 2021 $ 2 $ ( 435 ) $ 115 $ ( 62 ) $ ( 380 )

5 unchanged sentences

Total other comprehensive income (loss) ( 128 ) 438 — 3 313

Balance at February 28, 2021 $ — $ ( 488 ) $ 115 $ ( 73 ) $ ( 446 )

Balance at August 31, 2021 $ ( 126 ) $ 3 $ 115 $ ( 59 ) $ ( 67 )

11 unchanged sentences

Total other comprehensive income (loss) 318 ( 658 ) — ( 5 ) ( 345 )

Balance at February 29, 2020 $ ( 449 ) $ 333 $ 115 $ ( 56 ) $ ( 57 )

Balance at August 31, 2020 $ ( 176 ) $ ( 268 ) $ 115 $ ( 72 ) $ ( 401 )

6 unchanged sentences

(LOSS) INTO INCOME

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

Gains (losses) on foreign currency translation adjustment $ 1 $ ( 1 ) $ 2 $ ( 1 ) Other expense (income), net

Total before tax 1 ( 1 ) 2 ( 1 )

Tax (expense) benefit — — — —

Gain (loss) net of tax 1 ( 1 ) 2 ( 1 )

Gains (losses) on cash flow hedges:

5 unchanged sentences

Total before tax ( 97 ) 135

Tax (expense) — — ( 7 ) ( 1 )

Tax (expense) benefit 8 ( 3 )

Gain (loss) net of tax ( 89 ) 132

1 unchanged sentence

Total before tax 6 ( 8 )

Tax (expense) — — — —

Tax (expense) benefit ( 1 ) —

Gain (loss) net of tax 5 ( 8 )

2 unchanged sentences

DISAGGREGATION OF REVENUES

The following tables present the Company's revenues disaggregated by reportable operating segment, major product line and by distribution channel:

THREE MONTHS ENDED FEBRUARY 28, 2021

(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA (1)

GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 2,382 $ 1,606 $ 1,614 $ 903 $ — $ 6,505 $ 513 $ — $ 7,018

Apparel 1,087 898 616 365 — 2,966 28 — 2,994

Equipment 95 105 49 47 — 296 6 — 302

Other — — — — 6 6 23 14 43

TOTAL REVENUES $ 3,564 $ 2,609 $ 2,279 $ 1,315 $ 6 $ 9,773 $ 570 $ 14 $ 10,357

Sales to Wholesale Customers $ 1,894 $ 1,805 $ 1,269 $ 846 $ — $ 5,814 $ 366 $ — $ 6,180

Sales through Direct to Consumer 1,670 804 1,010 469 — 3,953 181 — 4,134

Other — — — — 6 6 23 14 43

TOTAL REVENUES $ 3,564 $ 2,609 $ 2,279 $ 1,315 $ 6 $ 9,773 $ 570 $ 14 $ 10,357

(1) Refer to Note 13 — Acquisitions and Divestitures for additional information on the transition of the Company's NIKE Brand business in Brazil to a third-party distributor.

THREE MONTHS ENDED FEBRUARY 29, 2020

The following tables present the Company's Revenues disaggregated by reportable operating segment, major product line and distribution channel:

THREE MONTHS ENDED AUGUST 31, 2021

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 4,879 $ 3,307 $ 1,982 $ 1,465 $ 7 $ 11,640 $ 629 $ ( 21 ) $ 12,248

NINE MONTHS ENDED FEBRUARY 28, 2021

(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA (1)

GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 7,851 $ 5,139 $ 4,432 $ 2,652 $ — $ 20,074 $ 1,442 $ — $ 21,516

Apparel 3,580 2,973 1,775 1,098 — 9,426 82 — 9,508

Equipment 364 365 150 135 — 1,014 22 — 1,036

Other — — — — 18 18 63 53 134

TOTAL REVENUES $ 11,795 $ 8,477 $ 6,357 $ 3,885 $ 18 $ 30,532 $ 1,609 $ 53 $ 32,194

Sales to Wholesale Customers $ 6,967 $ 5,763 $ 3,392 $ 2,479 $ — $ 18,601 $ 998 $ — $ 19,599

Sales through Direct to Consumer 4,828 2,714 2,965 1,406 — 11,913 548 — 12,461

Other — — — — 18 18 63 53 134

TOTAL REVENUES $ 11,795 $ 8,477 $ 6,357 $ 3,885 $ 18 $ 30,532 $ 1,609 $ 53 $ 32,194

(1) Refer to Note 13 — Acquisitions and Divestitures for additional information on the transition of the Company's NIKE Brand business in Brazil to a third-party distributor.

NINE MONTHS ENDED FEBRUARY 29, 2020

THREE MONTHS ENDED AUGUST 31, 2020

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 4,225 $ 2,910 $ 1,780 $ 1,099 $ 4 $ 10,018 $ 563 $ 13 $ 10,594

For the three and nine months ended February 28, 2021 and February 29, 2020, Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

For the three months ended August 31, 2021 and 2020, Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

Converse Other revenues were primarily attributable to licensing businesses.

Corporate Other revenues primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through the Company's central foreign exchange risk management program.

As of February 28, 2021 and May 31, 2020, the Company did not have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.

Corporate revenues primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through the Company's central foreign exchange risk management program.

As of August 31, 2021 and May 31, 2021, the Company did not have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.

NOTE 11 — OPERATING SEGMENTS

24 unchanged sentences

Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and are therefore provided below.

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 28, 2021 FEBRUARY 29, 2020 FEBRUARY 28, 2021 FEBRUARY 29, 2020

North America $ 4,879 $ 4,225

19 unchanged sentences

INCOME BEFORE INCOME TAXES $ 2,106 $ 1,715

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions)

18 unchanged sentences

TOTAL INVENTORIES $ 6,699 $ 6,854

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions)

9 unchanged sentences

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,869 $ 4,904

(1) Excludes assets held-for-sale as of February 28, 2021 and May 31, 2020.

(1) Excludes assets held-for-sale as of August 31, 2021 and May 31, 2021.

See Note 12 — Acquisitions and Divestitures for additional information.

NOTE 12 — ACQUISITIONS AND DIVESTITURES

During the third quarter of fiscal 2020, as a result of the Company's decision to transition its wholesale and direct to consumer operating model in certain countries within its APLA operating segment, the Company signed definitive agreements to sell its NIKE Brand businesses in Brazil, Argentina, Chile and Uruguay to third-party distributors.

Specifically, NIKE entered into agreements to sell its operations in Argentina, Chile and Uruguay to Grupo Axo and to sell substantially all of its operations in Brazil to Grupo SBF S.A., through its wholly owned subsidiary.

The Company has maintained a small operation in Brazil focused on certain sports marketing assets, local manufacturing and Converse.

As a result of this decision, beginning in the third quarter of fiscal 2020, the related assets and liabilities of these entities were classified as held-for-sale within Prepaid expenses and other current assets and Accrued liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheets.

During the third quarter of fiscal 2021, the transaction with Grupo SBF S.A.

closed and the Company recognized a loss of $ 53 million, of which $ 47 million was recognized during the second quarter of fiscal 2021 within Other (income) expense, net, classified within Corporate, on the Unaudited Condensed Consolidated Statements of Income.

Cash proceeds received were reflected within Other investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows.

As of May 31, 2020, held-for-sale assets and liabilities consisted of the following:

• Held-for-sale assets of $ 272 million, primarily consisting of $ 142 million of Inventories and $ 101 million of Accounts receivable, net;

• Held-for-sale liabilities of $ 91 million, primarily consisting of $ 51 million of Accrued liabilities.

ARGENTINA, CHILE AND URUGUAY

During the third quarter of fiscal 2021, the Company and Grupo Axo mutually agreed to terminate the sale and purchase agreement for the transition of NIKE’s businesses in Argentina, Chile and Uruguay to a distributor partnership.

However, as the Company remains committed to selling its legal entities in all three countries and granting distribution rights to third-party distributors, the assets and liabilities of the entities have remained classified as held-for-sale on the Unaudited Condensed Consolidated Balance Sheets.

As of February 28, 2021, held-for-sale assets and liabilities consisted of the following:

• Held-for-sale assets of $ 195 million, primarily consisting of $ 83 million of Inventories and $ 70 million of Accounts receivable, net;

• Held-for-sale liabilities of $ 59 million, primarily consisting of $ 24 million of Accrued liabilities.

As of May 31, 2020, held-for-sale assets and liabilities consisted of the following:

• Held-for-sale assets of $ 234 million, primarily consisting of $ 122 million of Inventories and $ 50 million of Prepaid expenses and other current assets;

• Held-for-sale liabilities of $ 55 million, primarily consisting of $ 34 million of Accrued liabilities.

As of February 28, 2021, the Company recognized total expected net losses related to the Argentina, Chile and Uruguay transaction of $ 373 million within Other (income) expense, net, classified within Corporate, and a corresponding allowance within Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.

The expected loss, which was primarily recognized in fiscal 2020, is largely due to the anticipated release of the cumulative foreign currency translation losses.

As previously disclosed in the Annual Report on Form 10-K for the fiscal year ended May 31, 2021, the Company remains committed to selling its legal entities in Argentina, Chile and Uruguay and granting distribution rights to third-party distributors.

As such, the assets and liabilities of the entities have remained classified as held-for-sale on the Unaudited Condensed Consolidated Balance Sheets.

As of August 31, 2021, held-for-sale assets were $ 203 million, primarily consisting of $ 87 million of Accounts receivable, net and $ 66 million of Inventories;

held-for-sale liabilities were $ 89 million, primarily consisting of $ 28 million of Accounts payable and $ 28 million of Accrued liabilities.

As of May 31, 2021, held-for-sale assets were $ 175 million, primarily consisting of $ 76 million of Inventories and $ 59 million of Accounts receivable, net;

held-for-sale liabilities were $ 72 million, primarily consisting of $ 25 million of Accounts payable and $ 22 million of Accrued liabilities.

As of August 31, 2021, the Company has recognized total expected net losses related to the Argentina, Chile and Uruguay transaction of $ 344 million within Other (income) expense, net, classified within Corporate, and a corresponding allowance within Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.

The initial expected loss of $ 405 million recognized in fiscal 2020 and the subsequent adjustments for changes in fair value are largely due to the anticipated release of the cumulative foreign currency translation losses.

These losses will be reclassified from Accumulated other comprehensive income (loss) to Net income upon sale of the legal entities.

NOTE 13 — RESTRUCTURING

During the first quarter of fiscal 2021, the Company announced a new digitally empowered phase of its Consumer Direct Offense strategy:

During fiscal 2021, the Company announced a new digitally empowered phase of its Consumer Direct Offense strategy:

Consumer Direct Acceleration.

As a result, management announced a series of leadership and operating model changes to streamline and speed up strategic execution for the Company.

These changes will result in a net reduction of the Company's global workforce and the Company expects to incur pre-tax charges of approximately $ 315 million, of which $ 248 million were incurred during the first nine months of fiscal 2021, the majority of which relate to employee termination costs and, to a lesser extent, stock-based compensation expense.

These amounts reflect the continued evaluation and variability of the Company's original estimate of employee termination costs and required changes in assumptions used to calculate stock-based compensation expense.

The related cash expenditures will primarily take place throughout fiscal 2021 and all related actions are expected to be substantially complete by the end of fiscal 2021.

During the three months ended February 28, 2021, the Company recognized employee termination costs of $ 23 million and $ 6 million within Operating overhead expense and Cost of sales, respectively, on the Unaudited Condensed Consolidated Statements of Income.

During the nine months ended February 28, 2021, the Company recognized employee termination costs of $ 168 million and $ 36 million within Operating overhead expense and Cost of sales, respectively.

These costs were classified within Corporate.

The activity was recognized within Accrued liabilities as follows:

(Dollars in millions)

Balance at November 30, 2020 $ 104

Employee termination costs 29

Cash payments ( 99 )

Foreign currency translation and other 1

Balance at February 28, 2021 $ 35

(Dollars in millions)

Balance at May 31, 2020 $ —

Employee termination costs 204

Cash payments ( 170 )

Foreign currency translation and other 1

Balance at February 28, 2021 $ 35

Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Costs of sales was $ 1 million and $ 0 million, respectively, for the three months ended February 28, 2021, and $ 40 million and $ 4 million, respectively, for the nine months ended February 28, 2021 .

During fiscal 2021, the Company substantially completed a series of leadership and operating model changes to streamline and speed up strategic execution of the Consumer Direct Acceleration.

During the first quarter of fiscal 2022 and the first quarter of fiscal 2021, the Company recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements