What changed in this filing

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Item 1. Financial Statements

2022-01-06 compared with 2021-10-05 · 213 added, 76 removed, 514 unchanged (36% of the section changed)

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(In millions, except per share data)

2021 2020 2021 2020

Revenues $ 11,357 $ 11,243 $ 23,605 $ 21,837

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2021 2020 2021 2020

Net income $ 1,337 $ 1,251 $ 3,211 $ 2,769

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(In millions)

36 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED AUGUST 31,

SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

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CLASS A CLASS B

(In millions, except per share data)

SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 3 256 256

Repurchase of Class B common stock ( 6 ) ( 40 ) ( 928 ) ( 968 )

Dividends on common stock ($ 0.305 per share)

( 483 ) ( 483 )

Issuance of shares to employees, net of shares withheld for employee taxes 3 83 ( 26 ) 57

Stock-based compensation 170 170

Net income 1,337 1,337

Other comprehensive income (loss) 212 212

Balance at November 30, 2021 305 $ — 1,278 $ 3 $ 10,990 $ 145 $ 3,786 $ 14,924

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

Stock options exercised 8 366 366

Conversion to Class B Common Stock ( 10 ) 10 —

Dividends on common stock ($ 0.275 per share)

( 437 ) ( 437 )

Issuance of shares to employees, net of shares withheld for employee taxes 2 86 ( 11 ) 75

Stock-based compensation 189 189

Net income 1,251 1,251

Other comprehensive income (loss) ( 28 ) ( 28 )

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

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

8 unchanged sentences

Other comprehensive income (loss) 525 525

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

Balance at November 30, 2021 305 $ — 1,278 $ 3 $ 10,990 $ 145 $ 3,786 $ 14,924

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

3 unchanged sentences

Stock options exercised 15 657 657

Conversion to Class B Common Stock ( 10 ) 10 —

Dividends on common stock ($ 0.520 per share) and preferred stock ($ 0.10 per share)

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Other comprehensive income (loss) ( 373 ) ( 373 )

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

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

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

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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 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.

The results of operations for the three and six months ended November 30, 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 depends on a number of factors, including the magnitude and duration of the pandemic.

There have been and may continue to be developments outside of the Company's control, including new COVID-19 variants, that require the Company to make adjustments to its operating plan, such as store operating hours and the timeline to return to normal production volumes in factories impacted by COVID-19.

Such developments and other potential 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 its wholesale customers, higher sales-related reserves, factory cancellation costs and a volatile effective tax rate driven by changes in the mix of earnings across its jurisdictions, among other factors, could have material adverse impacts on the Company's revenue growth as well as its overall profitability in future periods.

As a result of these circumstances, COVID-19 related disruptions are making it more challenging to compare the Company's performance, including its revenue growth and overall profitability, across quarters and fiscal years, and the Company expects the operating environment will remain volatile as COVID-19 variants continue to cause disruption to operations.

NOTE 2 — INVENTORIES

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

Inventory balances of $ 6,506 million and $ 6,854 million at November 30, 2021 and May 31, 2021, respectively, were substantially all finished goods.

NOTE 3 — ACCRUED LIABILITIES

Accrued liabilities included the following:

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(Dollars in millions) 2021 2021

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Sales-related reserves 903 1,077

Taxes other than income taxes payable 505 468

Import and logistics costs 491 393

Dividends payable 482 436

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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 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

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of November 30, 2021 and May 31, 2021, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

NOVEMBER 30, 2021

(Dollars in millions)

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

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.

As of November 30, 2021, the Company held $ 3,622 million of available-for-sale debt securities with maturity dates within one year and $ 730 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 $ 17 million and $ 7 million for the three months ended August 31, 2021 and 2020, respectively.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 18 million and $ 6 million for the three months ended November 30, 2021 and 2020, respectively, and $ 35 million and $ 13 million for the six months ended November 30, 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:

AUGUST 31, 2021

NOVEMBER 30, 2021

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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TOTAL $ 547 $ 445 $ 102 $ 79 $ 75 $ 4

(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 $ 116 million as of August 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 received $ 141 million of cash collateral from various counterparties related to the foreign exchange derivative instruments.

No amount of collateral was posted on the derivative liability balance as of November 30, 2021.

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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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 $ 10,575 million at August 31, 2021 and $ 10,275 million at May 31, 2021.

The fair value of the Company's Long-term debt, including the current portion, was approximately $ 10,438 million at November 30, 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.

NOTE 5 — INCOME TAXES

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

The effective tax rate was 11.0 % and 12.7 % for the six months ended November 30, 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 decrease in the Company's effective tax rate was partially offset by a change in the Company's earnings mix.

As of November 30, 2021, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 926 million, $ 651 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 $ 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 liability for payment of interest and penalties increased by $ 23 million during the six months ended November 30, 2021.

As of November 30, 2021 and May 31, 2021, accrued interest and penalties related to uncertain tax positions were $ 226 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.

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The Company believes the investigation is without merit.

If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to current and prior periods, and the Company's Netherlands income taxes in the future could increase.

If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to prior periods, and the Company's income taxes related to prior periods in the Netherlands could increase.

NOTE 6 — STOCK-BASED COMPENSATION

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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 AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2021 2020 2021 2020

Stock options (1)

$ 81 $ 107 $ 146 $ 177

ESPPs 14 17 29 35

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

75 65 131 113

TOTAL STOCK-BASED COMPENSATION EXPENSE $ 170 $ 189 $ 306 $ 325

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

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.

Accelerated stock option 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 13 — Restructuring.

(2) Includes expense for performance-based restricted stock units granted during the six months ended November 30, 2021.

The income tax benefit related to stock-based compensation expense was $ 87 million and $ 108 million for the three months ended November 30, 2021 and 2020, respectively, and $ 273 million and $ 189 million for the six months ended November 30, 2021 and 2020, respectively.

STOCK OPTIONS

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 fair value per share of the options granted during the six months ended November 30, 2021 and 2020, computed as of the grant date using the Black-Scholes pricing model, was $ 37.53 and $ 26.75 , respectively.

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

THREE MONTHS ENDED AUGUST 31,

SIX MONTHS ENDED NOVEMBER 30,

Dividend yield 0.8 % 0.9 %

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Risk-free interest rate 0.9 % 0.4 %

Expected volatilities are based on the historical volatility of the Company's common stock, the implied volatility in market-traded options on the Company's common stock with a term greater than one year , as well as other factors.

Expected volatilities are based on an analysis of the historical volatility of the Company's common stock, the implied volatility in market-traded options on the Company's common stock with a term greater than one year , as well as other factors.

The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns.

1 unchanged sentence

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 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.

As of November 30, 2021, the Company had $ 570 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 2.7 years.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

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 weighted average fair value per share of restricted stock and restricted stock units granted for the six months ended November 30, 2021 and 2020, computed as of the grant date, was $ 163.27 and $ 109.36 , respectively.

During the six months ended November 30, 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.

The weighted average fair value per share of PSUs granted for the six months ended November 30, 2021, computed as of the grant date, was $ 250.52 .

The impact of granting PSUs during the six months ended November 30, 2021, was not material to the Company's Unaudited Condensed Consolidated Financial Statements.

As of November 30, 2021, the Company had $ 624 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 2.7 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, 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,

The computations of diluted earnings per common share excluded restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an additional 9.2 million and 12.6 million shares of common stock outstanding for the three months ended November 30, 2021 and 2020, respectively, and 9.1 million and 13.5 million shares of common stock outstanding for the six months ended November 30, 2021 and 2020, respectively, because the awards were anti-dilutive.

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(In millions, except per share data)

2021 2020 2021 2020

Net income available to common stockholders $ 1,337 $ 1,251 $ 3,211 $ 2,769

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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 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.

As of and for the six months ended November 30, 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 August 31, 2021, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

The majority of derivatives outstanding as of November 30, 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 AUGUST 31, MAY 31,

BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,

(Dollars in millions)

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DERIVATIVE LIABILITIES

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,

(Dollars in millions)

8 unchanged sentences

TOTAL DERIVATIVE LIABILITIES $ 79 $ 457

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,

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 NOVEMBER 30,

(Dollars in millions)

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Interest expense (income), net 55 ( 1 ) 70 ( 1 )

SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY

Revenues $ 23,605 $ ( 41 ) $ 21,837 $ 40

Cost of sales 12,696 ( 96 ) 12,249 145

Demand creation expense 1,935 1 1,406 1

Other (income) expense, net ( 141 ) 11 40 ( 5 )

Interest expense (income), net 112 ( 3 ) 135 ( 3 )

The following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income:

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INCOME (LOSS) INTO INCOME (1)

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

THREE MONTHS ENDED NOVEMBER 30, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED AUGUST 31,

(LOSS) INTO INCOME THREE MONTHS ENDED NOVEMBER 30,

2021 2020 2021 2020

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TOTAL DESIGNATED CASH FLOW HEDGES $ 363 $ ( 60 ) $ ( 31 ) $ 43

(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.

(1) For the three months ended November 30, 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.

(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)

SIX MONTHS ENDED NOVEMBER 30, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME SIX MONTHS ENDED NOVEMBER 30,

2021 2020 2021 2020

Derivatives designated as

cash flow hedges:

Foreign exchange forwards

$ ( 37 ) $ 6 Revenues $ ( 41 ) $ 40

Foreign exchange forwards

518 ( 440 ) Cost of sales ( 96 ) 145

Foreign exchange forwards

( 3 ) 3 Demand creation expense 1 1

Foreign exchange forwards

273 ( 159 ) Other (income) expense, net 11 ( 5 )

Interest rate swaps (2)

— — Interest expense (income), net ( 3 ) ( 3 )

TOTAL DESIGNATED CASH FLOW HEDGES $ 751 $ ( 590 ) $ ( 128 ) $ 178

(1) For the six months ended November 30, 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

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ON DERIVATIVES

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2021 2020 2021 2020

Derivatives not designated as hedging instruments:

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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.

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.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 13.1 billion as of November 30, 2021.

Approximately $ 296 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of November 30, 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 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.

As of November 30, 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

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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.

The total notional amount of outstanding undesignated derivative instruments was $ 3.3 billion as of November 30, 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 August 31, 2021, the total notional amount of embedded derivatives outstanding was approximately $ 502 million.

As of November 30, 2021, the total notional amount of embedded derivatives outstanding was approximately $ 634 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 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.

As of November 30, 2021, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net asset position of approximately $ 471 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.

Further, $ 141 million of collateral was received on the Company's derivative asset balance as of November 30, 2021.

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

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CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

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

Other comprehensive income (loss):

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Total other comprehensive income (loss) ( 155 ) 366 — 1 212

Balance at November 30, 2021 $ ( 281 ) $ 369 $ 115 $ ( 58 ) $ 145

(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 , $( 27 ) million, $ 0 million , $( 2 ) million and $( 29 ) million, respectively.

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

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

79 ( 64 ) — ( 2 ) 13

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

( 1 ) ( 39 ) — ( 1 ) ( 41 )

Total other comprehensive income (loss) 78 ( 103 ) — ( 3 ) ( 28 )

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

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Total other comprehensive income (loss) ( 283 ) 804 — 4 525

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

Balance at November 30, 2021 $ ( 281 ) $ 369 $ 115 $ ( 58 ) $ 145

1 unchanged sentence

(3) Net of tax (benefit) expense of $ 0 million, $( 9 ) million, $ 0 million, $ 4 million and $( 5 ) million, respectively.

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at May 31, 2020 $ ( 494 ) $ 390 $ 115 $ ( 67 ) $ ( 56 )

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

397 ( 590 ) — ( 15 ) ( 208 )

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

( 1 ) ( 171 ) — 7 ( 165 )

Total other comprehensive income (loss) 396 ( 761 ) — ( 8 ) ( 373 )

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

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

(3) Net of tax (benefit) expense of $ 0 million, $ 7 million, $ 0 million, $ 0 million and $ 7 million, respectively.

The following table summarizes the reclassifications from Accumulated other comprehensive income (loss) to the Unaudited Condensed Consolidated Statements of Income:

3 unchanged sentences

(LOSS) INTO INCOME

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2021 2020 2021 2020

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

Total before tax — 1 — 1

Tax (expense) benefit — — — —

Gain (loss) net of tax — 1 — 1

Gains (losses) on cash flow hedges:

15 unchanged sentences

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

THREE MONTHS ENDED NOVEMBER 30, 2021

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 4,477 $ 3,142 $ 1,844 $ 1,347 $ 6 $ 10,816 $ 557 $ ( 16 ) $ 11,357

THREE MONTHS ENDED AUGUST 31, 2020

THREE MONTHS ENDED NOVEMBER 30, 2020

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 4,006 $ 2,958 $ 2,298 $ 1,471 $ 8 $ 10,741 $ 476 $ 26 $ 11,243

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.

SIX MONTHS ENDED NOVEMBER 30, 2021

(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 6,116 $ 3,789 $ 2,684 $ 1,909 $ — $ 14,498 $ 1,052 $ — $ 15,550

Apparel 2,910 2,361 1,040 787 — 7,098 58 — 7,156

Equipment 330 299 102 116 — 847 14 — 861

Other — — — — 13 13 62 ( 37 ) 38

TOTAL REVENUES $ 9,356 $ 6,449 $ 3,826 $ 2,812 $ 13 $ 22,456 $ 1,186 $ ( 37 ) $ 23,605

Sales to Wholesale Customers $ 5,005 $ 4,336 $ 2,010 $ 1,711 $ — $ 13,062 $ 672 $ — $ 13,734

Sales through Direct to Consumer 4,351 2,113 1,816 1,101 — 9,381 452 — 9,833

Other — — — — 13 13 62 ( 37 ) 38

TOTAL REVENUES $ 9,356 $ 6,449 $ 3,826 $ 2,812 $ 13 $ 22,456 $ 1,186 $ ( 37 ) $ 23,605

SIX MONTHS ENDED NOVEMBER 30, 2020

(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 5,469 $ 3,533 $ 2,818 $ 1,749 $ — $ 13,569 $ 929 $ — $ 14,498

Apparel 2,493 2,075 1,159 733 — 6,460 54 — 6,514

Equipment 269 260 101 88 — 718 16 — 734

Other — — — — 12 12 40 39 91

TOTAL REVENUES $ 8,231 $ 5,868 $ 4,078 $ 2,570 $ 12 $ 20,759 $ 1,039 $ 39 $ 21,837

Sales to Wholesale Customers $ 5,073 $ 3,958 $ 2,123 $ 1,633 $ — $ 12,787 $ 632 $ — $ 13,419

Sales through Direct to Consumer 3,158 1,910 1,955 937 — 7,960 367 — 8,327

Other — — — — 12 12 40 39 91

TOTAL REVENUES $ 8,231 $ 5,868 $ 4,078 $ 2,570 $ 12 $ 20,759 $ 1,039 $ 39 $ 21,837

For the three and six months ended November 30, 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 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.

As of November 30, 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 AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2021 2020 2021 2020

North America $ 4,477 $ 4,006 $ 9,356 $ 8,231

19 unchanged sentences

INCOME BEFORE INCOME TAXES $ 1,501 $ 1,456 $ 3,607 $ 3,171

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(Dollars in millions)

18 unchanged sentences

TOTAL INVENTORIES $ 6,506 $ 6,854

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(Dollars in millions)

9 unchanged sentences

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,812 $ 4,904

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

(1) Excludes assets held-for-sale as of November 30, 2021 and May 31, 2021.

See Note 12 — Acquisitions and Divestitures for additional information.

2 unchanged sentences

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 November 30, 2021, held-for-sale assets were $ 209 million, primarily consisting of $ 86 million of Accounts receivable, net and $ 61 million of Inventories;

held-for-sale liabilities were $ 76 million, primarily consisting of $ 29 million of Accrued liabilities and $ 26 million of Accounts payable.

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.

As of November 30, 2021, the Company has recognized a total expected net loss 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.

1 unchanged sentence

NOTE 13 — RESTRUCTURING

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

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

Consumer Direct Acceleration.

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.

For the three and six months ended November 30, 2021 , the Co mpany recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense.

During the three months ended November 30, 2020, the Company recognized employee termination costs of $ 107 million and $ 30 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $ 67 million.

For the six months ended November 30, 2020, the Company recognized employee termination costs of $ 145 million and $ 30 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $ 71 million.

For all periods presented these costs were classified within Corporate.

Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Cost of sales was $ 30 million and $ 4 million, respectively, for the three months ended November 30, 2020, and $ 39 million and $ 4 million, respectively, for the six months ended November 30, 2 020.

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