NIKE, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME 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 Cost of sales 6,144 6,396 12,696 12,249 Gross profit 5,213 4,847 10,909 9,588 Demand creation expense 1,017 729 1,935 1,406 Operating overhead expense 2,742 2,538 5,396 4,836 Total selling and administrative expense 3,759 3,267 7,331 6,242 Interest expense (income), net 55 70 112 135 Other (income) expense, net ( 102 ) 54 ( 141 ) 40 Income before income taxes 1,501 1,456 3,607 3,171 Income tax expense 164 205 396 402 NET INCOME $ 1,337 $ 1,251 $ 3,211 $ 2,769 Earnings per common share: Basic $ 0.84 $ 0.80 $ 2.03 $ 1.77 Diluted $ 0.83 $ 0.78 $ 1.98 $ 1.73 Weighted average common shares outstanding: Basic 1,582.4 1,573.0 1,582.2 1,567.4 Diluted 1,617.4 1,609.5 1,618.5 1,601.9 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 1 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 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 Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment ( 155 ) 78 ( 283 ) 396 Change in net gains (losses) on cash flow hedges 366 ( 103 ) 804 ( 761 ) Change in net gains (losses) on other 1 ( 3 ) 4 ( 8 ) Total other comprehensive income (loss), net of tax 212 ( 28 ) 525 ( 373 ) TOTAL COMPREHENSIVE INCOME $ 1,549 $ 1,223 $ 3,736 $ 2,396 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 2 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS NOVEMBER 30, MAY 31, (In millions) 2021 2021 ASSETS Current assets: Cash and equivalents $ 10,751 $ 9,889 Short-term investments 4,352 3,587 Accounts receivable, net 3,746 4,463 Inventories 6,506 6,854 Prepaid expenses and other current assets 1,822 1,498 Total current assets 27,177 26,291 Property, plant and equipment, net 4,812 4,904 Operating lease right-of-use assets, net 3,017 3,113 Identifiable intangible assets, net 265 269 Goodwill 242 242 Deferred income taxes and other assets 3,404 2,921 TOTAL ASSETS $ 38,917 $ 37,740 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ — $ — Notes payable 9 2 Accounts payable 2,795 2,836 Current portion of operating lease liabilities 462 467 Accrued liabilities 5,431 6,063 Income taxes payable 160 306 Total current liabilities 8,857 9,674 Long-term debt 9,417 9,413 Operating lease liabilities 2,835 2,931 Deferred income taxes and other liabilities 2,884 2,955 Redeemable preferred stock — — Shareholders' equity: Common stock at stated value: Class A convertible — 305 and 305 shares outstanding — — Class B — 1,278 and 1,273 shares outstanding 3 3 Capital in excess of stated value 10,990 9,965 Accumulated other comprehensive income (loss) 145 ( 380 ) Retained earnings (deficit) 3,786 3,179 Total shareholders' equity 14,924 12,767 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 38,917 $ 37,740 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 3 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2021 2020 Cash provided (used) by operations: Net income $ 3,211 $ 2,769 Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation 358 361 Deferred income taxes ( 222 ) ( 177 ) Stock-based compensation 306 325 Amortization, impairment and other 3 103 Net foreign currency adjustments 48 ( 98 ) Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable 543 ( 921 ) (Increase) decrease in inventories 268 1,321 (Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets ( 444 ) ( 163 ) Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities ( 203 ) ( 165 ) Cash provided (used) by operations 3,868 3,355 Cash provided (used) by investing activities: Purchases of short-term investments ( 6,699 ) ( 4,505 ) Maturities of short-term investments 3,891 802 Sales of short-term investments 2,032 914 Additions to property, plant and equipment ( 362 ) ( 344 ) Other investing activities 33 256 Cash provided (used) by investing activities ( 1,105 ) ( 2,877 ) Cash provided (used) by financing activities: Increase (decrease) in notes payable 13 ( 37 ) Repayment of borrowings — ( 173 ) Proceeds from exercise of stock options and other stock issuances 846 781 Repurchase of common stock ( 1,723 ) — Dividends — common and preferred ( 873 ) ( 769 ) Other financing activities ( 109 ) ( 94 ) Cash provided (used) by financing activities ( 1,846 ) ( 292 ) Effect of exchange rate changes on cash and equivalents ( 55 ) 101 Net increase (decrease) in cash and equivalents 862 287 Cash and equivalents, beginning of period 9,889 8,348 CASH AND EQUIVALENTS, END OF PERIOD $ 10,751 $ 8,635 Supplemental disclosure of cash flow information: Non-cash additions to property, plant and equipment $ 103 $ 118 Dividends declared and not paid 481 435 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 4 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 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, 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 5 Table of Contents 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 13 725 725 Repurchase of Class B Common Stock ( 11 ) ( 69 ) ( 1,641 ) ( 1,710 ) Dividends on common stock ($ 0.580 per share) and preferred stock ($ 0.10 per share) ( 918 ) ( 918 ) Issuance of shares to employees, net of shares withheld for employee taxes 3 63 ( 45 ) 18 Stock-based compensation 306 306 Net income 3,211 3,211 Other comprehensive income (loss) 525 525 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 May 31, 2020 315 $ — 1,243 $ 3 $ 8,299 $ ( 56 ) $ ( 191 ) $ 8,055 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) ( 820 ) ( 820 ) Issuance of shares to employees, net of shares withheld for employee taxes 2 55 ( 28 ) 27 Stock-based compensation 325 325 Net income 2,769 2,769 Other comprehensive income (loss) ( 373 ) ( 373 ) 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. 6 Table of Contents NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies 8 Note 2 Inventories 8 Note 3 Accrued Liabilities 8 Note 4 Fair Value Measurements 8 Note 5 Income Taxes 10 Note 6 Stock-Based Compensation 11 Note 7 Earnings Per Share 12 Note 8 Risk Management and Derivatives 12 Note 9 Accumulated Other Comprehensive Income (Loss) 17 Note 10 Revenues 19 Note 11 Operating Segments 21 Note 12 Acquisitions and Divestitures 23 Note 13 Restructuring 23 7 Table of Contents NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Unaudited Condensed Consolidated Financial Statements include the accounts of NIKE, Inc. and its subsidiaries (the “Company” or “NIKE”) and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim period. 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. GAAP”). 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 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 $ 6,506 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: NOVEMBER 30, MAY 31, (Dollars in millions) 2021 2021 Compensation and benefits, excluding taxes $ 1,178 $ 1,472 Sales-related reserves 903 1,077 Dividends payable 482 436 Allowance for expected loss on sale (1) 344 358 Other 2,524 2,720 TOTAL ACCRUED LIABILITIES $ 5,431 $ 6,063 (1) Refer to Note 12 — Acquisitions and Divestitures for additional information. NOTE 4 — FAIR VALUE MEASUREMENTS The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities. 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. 8 Table of Contents 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) ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS Cash $ 840 $ 840 $ — Level 1: U.S. Treasury securities 3,878 224 3,654 Level 2: Commercial paper and bonds 738 44 694 Money market funds 8,732 8,732 — Time deposits 915 911 4 Total Level 2 10,385 9,687 698 TOTAL $ 15,103 $ 10,751 $ 4,352 MAY 31, 2021 (Dollars in millions) ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS Cash $ 840 $ 840 $ — Level 1: U.S. Treasury securities 2,892 — 2,892 Level 2: Commercial paper and bonds 748 57 691 Money market funds 7,701 7,701 — Time deposits 1,293 1,291 2 U.S. Agency securities 2 — 2 Total Level 2 9,744 9,049 695 TOTAL $ 13,476 $ 9,889 $ 3,587 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 $ 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: NOVEMBER 30, 2021 DERIVATIVE ASSETS DERIVATIVE LIABILITIES (Dollars in millions) ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES Level 2: Foreign exchange forwards and options (1) $ 546 $ 444 $ 102 $ 75 $ 71 $ 4 Embedded derivatives 1 1 — 4 4 — 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 $ 75 million as of November 30, 2021. 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. 9 Table of Contents MAY 31, 2021 DERIVATIVE ASSETS DERIVATIVE LIABILITIES (Dollars in millions) ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES Level 2: Foreign exchange forwards and options (1) $ 92 $ 76 $ 16 $ 456 $ 415 $ 41 Embedded derivatives — — — 1 1 — TOTAL $ 92 $ 76 $ 16 $ 457 $ 416 $ 41 (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, 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. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value. FINANCIAL ASSETS AND LIABILITIES NOT RECORDED AT FAIR VALUE 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 $ 10,438 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 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. v. Commissioner. 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 $ 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. The Company is currently under audit by the U.S. Internal Revenue Service ("IRS") for fiscal years 2017 through 2019. The Company has closed all U.S. federal income tax matters through fiscal 2016, with the exception of certain transfer pricing adjustments. Tax years after 2010 remain open in certain major foreign jurisdictions. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $ 20 million within the next 12 months. In January 2019, the European Commission opened a formal investigation to examine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company. 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 prior periods, and the Company's income taxes related to prior periods in the Netherlands could increase. 10 Table of Contents NOTE 6 — STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION The NIKE, Inc. Stock Incentive Plan (the “Stock Incentive Plan”) provides for the issuance of up to 798 million previously unissued shares of Class B Common Stock in connection with equity awards granted under the Stock Incentive Plan. The Stock Incentive Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance-based awards. In addition to the Stock Incentive Plan, the Company gives employees the right to purchase shares at a discount from the market price under employee stock purchase plans (ESPPs). Refer to Note 11 — Common Stock and Stock-Based Compensation of the Annual Report on Form 10-K for the fiscal year ended May 31, 2021 for further information. 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 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 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 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: SIX MONTHS ENDED NOVEMBER 30, 2021 2020 Dividend yield 0.8 % 0.9 % Expected volatility 24.9 % 27.3 % Weighted average expected life (in years) 5.8 6.0 Risk-free interest rate 0.9 % 0.4 % 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. The interest rate is based on the U.S. 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 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 six months ended November 30, 2021 and 2020, computed as of the grant date, was $ 163.27 and $ 109.36 , respectively. 11 Table of Contents 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 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 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 Determination of shares: Weighted average common shares outstanding 1,582.4 1,573.0 1,582.2 1,567.4 Assumed conversion of dilutive stock options and awards 35.0 36.5 36.3 34.5 DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,617.4 1,609.5 1,618.5 1,601.9 Earnings per common share: Basic $ 0.84 $ 0.80 $ 2.03 $ 1.77 Diluted $ 0.83 $ 0.78 $ 1.98 $ 1.73 NOTE 8 — RISK MANAGEMENT AND DERIVATIVES 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 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 November 30, 2021, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Chinese Yuan/U.S. Dollar and Japanese Yen/U.S. Dollar currency pairs. All derivatives are recognized on the Unaudited Condensed Consolidated Balance Sheets at fair value and classified based on the instrument's maturity date. 12 Table of Contents The following tables present the fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets: DERIVATIVE ASSETS BALANCE SHEET LOCATION NOVEMBER 30, MAY 31, (Dollars in millions) 2021 2021 Derivatives formally designated as hedging instruments: Foreign exchange forwards and options Prepaid expenses and other current assets $ 428 $ 42 Foreign exchange forwards and options Deferred income taxes and other assets 102 16 Total derivatives formally designated as hedging instruments 530 58 Derivatives not designated as hedging instruments: Foreign exchange forwards and options Prepaid expenses and other current assets 16 34 Embedded derivatives Prepaid expenses and other current assets 1 — Total derivatives not designated as hedging instruments 17 34 TOTAL DERIVATIVE ASSETS $ 547 $ 92 DERIVATIVE LIABILITIES BALANCE SHEET LOCATION NOVEMBER 30, MAY 31, (Dollars in millions) 2021 2021 Derivatives formally designated as hedging instruments: Foreign exchange forwards and options Accrued liabilities $ 56 $ 385 Foreign exchange forwards and options Deferred income taxes and other liabilities 4 41 Total derivatives formally designated as hedging instruments 60 426 Derivatives not designated as hedging instruments: Foreign exchange forwards and options Accrued liabilities 15 30 Embedded derivatives Accrued liabilities 4 1 Total derivatives not designated as hedging instruments 19 31 TOTAL DERIVATIVE LIABILITIES $ 79 $ 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 NOVEMBER 30, 2021 2020 (Dollars in millions) TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY Revenues $ 11,357 $ ( 20 ) $ 11,243 $ 26 Cost of sales 6,144 ( 30 ) 6,396 31 Demand creation expense 1,017 — 729 — Other (income) expense, net ( 102 ) 20 54 ( 13 ) Interest expense (income), net 55 ( 1 ) 70 ( 1 ) 13 Table of Contents SIX MONTHS ENDED NOVEMBER 30, 2021 2020 (Dollars in millions) TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW 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: (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) THREE MONTHS ENDED NOVEMBER 30, LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME THREE MONTHS ENDED NOVEMBER 30, 2021 2020 2021 2020 Derivatives designated as cash flow hedges: Foreign exchange forwards and options $ ( 31 ) $ 6 Revenues $ ( 20 ) $ 26 Foreign exchange forwards and options 253 ( 69 ) Cost of sales ( 30 ) 31 Foreign exchange forwards and options ( 2 ) 2 Demand creation expense — — Foreign exchange forwards and options 143 1 Other (income) expense, net 20 ( 13 ) Interest rate swaps (2) — — Interest expense (income), net ( 1 ) ( 1 ) TOTAL DESIGNATED CASH FLOW HEDGES $ 363 $ ( 60 ) $ ( 31 ) $ 43 (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. 14 Table of Contents (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 and options $ ( 37 ) $ 6 Revenues $ ( 41 ) $ 40 Foreign exchange forwards and options 518 ( 440 ) Cost of sales ( 96 ) 145 Foreign exchange forwards and options ( 3 ) 3 Demand creation expense 1 1 Foreign exchange forwards and options 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. (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. AMOUNT OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES LOCATION OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2021 2020 2021 2020 Derivatives not designated as hedging instruments: Foreign exchange forwards and options $ 9 $ ( 49 ) $ 32 $ ( 87 ) Other (income) expense, net Embedded derivatives ( 4 ) ( 9 ) ( 9 ) ( 13 ) Other (income) expense, net CASH FLOW HEDGES 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. 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. 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 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. 15 Table of Contents 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 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 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 $ 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 November 30, 2021, the total notional amount of embedded derivatives outstanding was approximately $ 634 million. CREDIT RISK 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 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, $ 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. For additional information related to the Company's derivative financial instruments and collateral, refer to Note 4 — Fair Value Measurements. 16 Table of Contents NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in Accumulated other comprehensive income (loss), net of tax, were as follows: (Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL Balance at August 31, 2021 $ ( 126 ) $ 3 $ 115 $ ( 59 ) $ ( 67 ) Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications (2) ( 155 ) 336 — 6 187 Reclassifications to net income of previously deferred (gains) losses (3) — 30 — ( 5 ) 25 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) OTHER TOTAL 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 ) (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 , $( 4 ) million, $ 0 million , $ 0 million and $( 4 ) million, respectively. (3) Net of tax (benefit) expense of $ 0 million , $ 4 million, $ 0 million , $ 0 million and $ 4 million, respectively. (Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL Balance at May 31, 2021 $ 2 $ ( 435 ) $ 115 $ ( 62 ) $ ( 380 ) Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications (2) ( 283 ) 685 — 14 416 Reclassifications to net income of previously deferred (gains) losses (3) — 119 — ( 10 ) 109 Total other comprehensive income (loss) ( 283 ) 804 — 4 525 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, $( 66 ) million, $ 0 million, $( 4 ) million and $( 70 ) million, respectively. (3) Net of tax (benefit) expense of $ 0 million, $( 9 ) million, $ 0 million, $ 4 million and $( 5 ) million, respectively. 17 Table of Contents (Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL 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 ) (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, $ 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: AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME 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: Foreign exchange forwards and options $ ( 20 ) $ 26 $ ( 41 ) $ 40 Revenues Foreign exchange forwards and options ( 30 ) 31 ( 96 ) 145 Cost of sales Foreign exchange forwards and options — — 1 1 Demand creation expense Foreign exchange forwards and options 20 ( 13 ) 11 ( 5 ) Other (income) expense, net Interest rate swaps ( 1 ) ( 1 ) ( 3 ) ( 3 ) Interest expense (income), net Total before tax ( 31 ) 43 ( 128 ) 178 Tax (expense) benefit 1 ( 4 ) 9 ( 7 ) Gain (loss) net of tax ( 30 ) 39 ( 119 ) 171 Gains (losses) on other 8 1 14 ( 7 ) Other (income) expense, net Total before tax 8 1 14 ( 7 ) Tax (expense) benefit ( 3 ) — ( 4 ) — Gain (loss) net of tax 5 1 10 ( 7 ) Total net gain (loss) reclassified for the period $ ( 25 ) $ 41 $ ( 109 ) $ 165 18 Table of Contents NOTE 10 — REVENUES DISAGGREGATION OF REVENUES The following tables present the Company's Revenues disaggregated by reportable operating segment, major product line and distribution channel: THREE 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. Revenues by: Footwear $ 2,852 $ 1,806 $ 1,235 $ 887 $ — $ 6,780 $ 485 $ — $ 7,265 Apparel 1,480 1,202 564 402 — 3,648 34 — 3,682 Equipment 145 134 45 58 — 382 5 — 387 Other — — — — 6 6 33 ( 16 ) 23 TOTAL REVENUES $ 4,477 $ 3,142 $ 1,844 $ 1,347 $ 6 $ 10,816 $ 557 $ ( 16 ) $ 11,357 Revenues by: Sales to Wholesale Customers $ 2,327 $ 2,112 $ 896 $ 784 $ — $ 6,119 $ 303 $ — $ 6,422 Sales through Direct to Consumer 2,150 1,030 948 563 — 4,691 221 — 4,912 Other — — — — 6 6 33 ( 16 ) 23 TOTAL REVENUES $ 4,477 $ 3,142 $ 1,844 $ 1,347 $ 6 $ 10,816 $ 557 $ ( 16 ) $ 11,357 THREE 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. Revenues by: Footwear $ 2,512 $ 1,731 $ 1,567 $ 991 $ — $ 6,801 $ 416 $ — $ 7,217 Apparel 1,368 1,104 681 432 — 3,585 32 — 3,617 Equipment 126 123 50 48 — 347 7 — 354 Other — — — — 8 8 21 26 55 TOTAL REVENUES $ 4,006 $ 2,958 $ 2,298 $ 1,471 $ 8 $ 10,741 $ 476 $ 26 $ 11,243 Revenues by: Sales to Wholesale Customers $ 2,354 $ 1,985 $ 1,159 $ 925 $ — $ 6,423 $ 259 $ — $ 6,682 Sales through Direct to Consumer 1,652 973 1,139 546 — 4,310 196 — 4,506 Other — — — — 8 8 21 26 55 TOTAL REVENUES $ 4,006 $ 2,958 $ 2,298 $ 1,471 $ 8 $ 10,741 $ 476 $ 26 $ 11,243 19 Table of Contents 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. Revenues by: 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 Revenues by: 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. Revenues by: 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 Revenues by: 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 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. 20 Table of Contents NOTE 11 — OPERATING SEGMENTS The Company's operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity. Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA), and include results for the NIKE and Jordan brands. The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment. Converse is also a reportable segment for the Company and operates in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories. Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. Global Brand Divisions costs represent demand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company's headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses. The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (EBIT), which represents Net income before Interest expense (income), net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income. As part of the Company's centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in the Company's geographic operating segments and to Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entity's functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from the Company's centrally managed foreign exchange risk management program and other conversion gains and losses. Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and are therefore provided below. 21 Table of Contents THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2021 2020 2021 2020 REVENUES North America $ 4,477 $ 4,006 $ 9,356 $ 8,231 Europe, Middle East & Africa 3,142 2,958 6,449 5,868 Greater China 1,844 2,298 3,826 4,078 Asia Pacific & Latin America 1,347 1,471 2,812 2,570 Global Brand Divisions 6 8 13 12 Total NIKE Brand 10,816 10,741 22,456 20,759 Converse 557 476 1,186 1,039 Corporate ( 16 ) 26 ( 37 ) 39 TOTAL NIKE, INC. REVENUES $ 11,357 $ 11,243 $ 23,605 $ 21,837 EARNINGS BEFORE INTEREST AND TAXES North America $ 1,235 $ 1,023 $ 2,669 $ 2,325 Europe, Middle East & Africa 806 660 1,681 1,352 Greater China 569 891 1,270 1,579 Asia Pacific & Latin America 388 424 869 704 Global Brand Divisions ( 1,071 ) ( 841 ) ( 2,058 ) ( 1,694 ) Converse 132 87 336 255 Corporate ( 503 ) ( 718 ) ( 1,048 ) ( 1,215 ) Interest expense (income), net 55 70 112 135 TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 1,501 $ 1,456 $ 3,607 $ 3,171 NOVEMBER 30, MAY 31, (Dollars in millions) 2021 2021 ACCOUNTS RECEIVABLE, NET North America $ 1,469 $ 1,777 Europe, Middle East & Africa 1,176 1,349 Greater China 217 288 Asia Pacific & Latin America (1) 532 643 Global Brand Divisions 76 128 Total NIKE Brand 3,470 4,185 Converse 218 225 Corporate 58 53 TOTAL ACCOUNTS RECEIVABLE, NET $ 3,746 $ 4,463 INVENTORIES North America $ 2,796 $ 2,851 Europe, Middle East & Africa 1,426 1,821 Greater China 1,120 1,247 Asia Pacific & Latin America (1) 636 667 Global Brand Divisions 236 153 Total NIKE Brand 6,214 6,739 Converse 256 290 Corporate 36 ( 175 ) TOTAL INVENTORIES $ 6,506 $ 6,854 22 Table of Contents NOVEMBER 30, MAY 31, (Dollars in millions) 2021 2021 PROPERTY, PLANT AND EQUIPMENT, NET North America $ 616 $ 617 Europe, Middle East & Africa 935 982 Greater China 302 288 Asia Pacific & Latin America (1) 295 304 Global Brand Divisions 791 780 Total NIKE Brand 2,939 2,971 Converse 55 63 Corporate 1,818 1,870 TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,812 $ 4,904 (1) Excludes assets held-for-sale as of November 30, 2021 and May 31, 2021. See Note 12 — Acquisitions and Divestitures for additional information. NOTE 12 — ACQUISITIONS AND DIVESTITURES 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 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 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. These losses will be reclassified from Accumulated other comprehensive income (loss) to Net income upon sale of the legal entities. NOTE 13 — RESTRUCTURING 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. 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. 23 Table of Contents