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Item 1. Financial Statements

2022-04-05 compared with 2022-01-06 · 115 added, 91 removed, 636 unchanged (24% of the section changed)

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(In millions, except per share data)

19 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

9 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, MAY 31,

FEBRUARY 28, MAY 31,

(In millions)

36 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED NOVEMBER 30,

NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

41 unchanged sentences

SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 1 112 112

6 unchanged sentences

Other comprehensive income (loss) ( 46 ) ( 46 )

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

Balance at February 28, 2022 305 $ — 1,271 $ 3 $ 11,186 $ 99 $ 3,521 $ 14,809

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

2 unchanged sentences

SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 4 187 187

Conversion to Class B Common Stock ( 10 ) 10 —

Dividends on common stock ($ 0.275 per share)

4 unchanged sentences

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

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

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

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

10 unchanged sentences

Other comprehensive income (loss) 479 479

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

Balance at February 28, 2022 305 $ — 1,271 $ 3 $ 11,186 $ 99 $ 3,521 $ 14,809

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

10 unchanged sentences

Other comprehensive income (loss) ( 390 ) ( 390 )

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

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

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

4 unchanged sentences

Note 4 Fair Value Measurements

Note 5 Short-Term Borrowings and Credit Lines

Note 6 Income Taxes

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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 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.

The results of operations for the three and nine months ended February 28, 2022, are not necessarily indicative of results to be expected for the entire fiscal year.

The extent to which the 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.

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 that the operating environment could remain volatile as COVID-19 variants may 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.

Inventory balances of $ 7,700 million and $ 6,854 million at February 28, 2022 and May 31, 2021, respectively, were substantially all finished goods.

NOTE 3 — ACCRUED LIABILITIES

Accrued liabilities included the following:

NOVEMBER 30, MAY 31,

FEBRUARY 28, MAY 31,

(Dollars in millions) 2022 2021

9 unchanged sentences

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

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of 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

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of February 28, 2022 and May 31, 2021, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

FEBRUARY 28, 2022

(Dollars in millions)

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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.

As of February 28, 2022, the Company held $ 4,077 million of available-for-sale debt securities with maturity dates within one year and $ 686 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.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 22 million and $ 8 million for the three months ended February 28, 2022 and 2021, respectively, and $ 57 million and $ 21 million for the nine months ended February 28, 2022 and 2021, 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

FEBRUARY 28, 2022

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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TOTAL $ 484 $ 416 $ 68 $ 108 $ 104 $ 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.

As of that date, the Company received $ 62 million of cash collateral from various counterparties related to foreign exchange derivative instruments.

No amount of collateral was posted on the derivative liability balance as of February 28, 2022.

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 $ 10,438 million at November 30, 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 $ 9,719 million at February 28, 2022 and $ 10,275 million at May 31, 2021.

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

NOTE 5 — SHORT-TERM BORROWINGS AND CREDIT LINES

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

As of February 28, 2022 and May 31, 2021, the Company had no borrowings outstanding under its $ 3 billion commercial paper program.

On March 11, 2022, subsequent to the end of the third quarter of fiscal 2022, the Company entered into a 364 -day committed credit facility agreement with a syndicate of banks, which provides for up to $ 1 billion of borrowings, with an option to increase borrowings up to $ 1.5 billion in total with lender approval.

The facility matures on March 10, 2023, with an option to extend the maturity date an additional 364 days.

This facility replaces the prior $ 1 billion 364 -day credit facility agreement entered into on March 15, 2021, which would have matured on March 14, 2022.

Based on the Company's current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing Term Secured Overnight Financing Rate (Term SOFR) for the applicable interest period plus 0.60 %.

The facility fee is 0.02 % of the total undrawn commitment.

As of April 5, 2022, no amounts were outstanding under this committed credit facility.

On March 11, 2022, the Company also entered into a five-year committed credit facility agreement with a syndicate of banks which provides for up to $ 2 billion of borrowings, with the option to increase borrowings up to $ 3 billion in total with lender approval.

The facility matures on March 11, 2027, with options to extend the maturity date up to an additional two years .

This facility replaces the prior $ 2 billion five-year credit facility agreement entered into on August 16, 2019, which would have matured on August 16, 2024.

Based on the Company's current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing Term SOFR for the applicable interest period plus 0.60 %.

The facility fee is 0.04 % of the total undrawn commitment.

As of April 5, 2022, no amounts were outstanding under this committed credit facility.

There have been no other changes to the credit lines reported in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

NOTE 6 — 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.

The effective tax rate was 12.7 % and 12.3 % for the nine months ended February 28, 2022 and 2021, respectively.

The increase in the Company's effective tax rate was primarily due to the impact of recently finalized U.S.

tax regulations published by the U.S.

Treasury and Internal Revenue Service ("IRS") on January 4, 2022.

These regulations overhaul various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S.

income taxes.

While these regulations are generally effective on March 7, 2022, some retroactive provisions limit the Company's ability to claim credits on certain foreign taxes as of the third quarter of fiscal 2022.

The increase in the Company's effective tax rate was partially offset by changes in discrete items compared to the first nine months of fiscal 2021, including 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 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.

As of February 28, 2022, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 871 million, $ 648 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 liability for payment of interest and penalties increased by $ 27 million during the nine months ended February 28, 2022.

As of February 28, 2022 and May 31, 2021, accrued interest and penalties related to uncertain tax positions were $ 230 million and $ 203 million, respectively, (excluding federal benefit) and included within Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

The Company is subject to taxation in the U.S., 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.

IRS for fiscal years 2017 through 2019.

The Company has closed all U.S.

13 unchanged sentences

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

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

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

7 unchanged sentences

(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.

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

An immaterial amount of accelerated stock option and restricted stock expense was also recorded for certain employees impacted by the Company's organizational realignment;

for more information see Note 14 — 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.

(2) Includes expense for performance-based restricted stock units granted during the nine months ended February 28, 2022.

The income tax benefit related to stock-based compensation expense was $ 34 million and $ 67 million for the three months ended February 28, 2022 and 2021, respectively, and $ 307 million and $ 256 million for the nine months ended February 28, 2022 and 2021, 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 fair value per share of the options granted during the nine months ended February 28, 2022 and 2021, 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,

NINE MONTHS ENDED FEBRUARY 28,

Dividend yield 0.8 % 0.9 %

6 unchanged sentences

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

As of 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.

As of February 28, 2022, the Company had $ 484 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.6 years.

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.

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 weighted average fair value per share of restricted stock and restricted stock units granted for the nine months ended February 28, 2022 and 2021, computed as of the grant date, was $ 158.94 and $ 112.44 , respectively.

During the nine months ended February 28, 2022, 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.

The weighted average fair value per share of PSUs granted for the nine months ended February 28, 2022, computed as of the grant date, was $ 250.52 .

The impact of granting PSUs during the nine months ended February 28, 2022, was not material to the Company's Unaudited Condensed Consolidated Financial Statements.

As of February 28, 2022, the Company had $ 629 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 2.6 years.

NOTE 8 — 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,

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

For the nine months ended February 28, 2022 and 2021, the computations of diluted earnings per common share excluded 9.4 million and 11.6 million shares of common stock outstanding, respectively, because the awards were anti-dilutive.

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(In millions, except per share data)

10 unchanged sentences

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

As of and for the 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.

As of and for the nine months ended February 28, 2022, 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.

The majority of derivatives outstanding as of February 28, 2022, 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 NOVEMBER 30, MAY 31,

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

(Dollars in millions)

9 unchanged sentences

DERIVATIVE LIABILITIES

BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

(Dollars in millions)

9 unchanged sentences

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,

THREE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

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Interest expense (income), net 53 ( 2 ) 64 ( 2 )

SIX MONTHS ENDED NOVEMBER 30,

NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

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INCOME (LOSS) INTO INCOME (1)

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

THREE MONTHS ENDED FEBRUARY 28, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED NOVEMBER 30,

(LOSS) INTO INCOME THREE MONTHS ENDED FEBRUARY 28,

2022 2021 2022 2021

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TOTAL DESIGNATED CASH FLOW HEDGES $ ( 2 ) $ ( 160 ) $ 38 $ ( 46 )

(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.

(1) For the three months ended February 28, 2022 and 2021, 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.

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INCOME (LOSS) INTO INCOME (1)

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

NINE MONTHS ENDED FEBRUARY 28, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME SIX MONTHS ENDED NOVEMBER 30,

(LOSS) INTO INCOME NINE MONTHS ENDED FEBRUARY 28,

2022 2021 2022 2021

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TOTAL DESIGNATED CASH FLOW HEDGES $ 749 $ ( 750 ) $ ( 90 ) $ 132

(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.

(1) For the nine months ended February 28, 2022 and 2021, 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.

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ON DERIVATIVES

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

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

9 unchanged sentences

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.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 17.2 billion as of February 28, 2022.

Approximately $ 305 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 28, 2022, 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.

As of February 28, 2022, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 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 $ 3.3 billion as of November 30, 2021.

The total notional amount of outstanding undesignated derivative instruments was $ 3.2 billion as of February 28, 2022.

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.

As of February 28, 2022, the total notional amount of embedded derivatives outstanding was approximately $ 589 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 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.

As of February 28, 2022, 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 $ 375 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.

Further, $ 62 million of collateral was received on the Company's derivative asset balance as of February 28, 2022.

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

5 unchanged sentences

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

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

Other comprehensive income (loss):

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Total other comprehensive income (loss) ( 6 ) ( 29 ) — ( 11 ) ( 46 )

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

Balance at February 28, 2022 $ ( 287 ) $ 340 $ 115 $ ( 69 ) $ 99

(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.

4 unchanged sentences

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

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

Other comprehensive income (loss):

4 unchanged sentences

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

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

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

11 unchanged sentences

Total other comprehensive income (loss) ( 289 ) 775 — ( 7 ) 479

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

Balance at February 28, 2022 $ ( 287 ) $ 340 $ 115 $ ( 69 ) $ 99

11 unchanged sentences

Total other comprehensive income (loss) 494 ( 878 ) — ( 6 ) ( 390 )

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

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

6 unchanged sentences

(LOSS) INTO INCOME

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

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

21 unchanged sentences

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

THREE MONTHS ENDED FEBRUARY 28, 2022

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 3,882 $ 2,779 $ 2,160 $ 1,461 $ 41 $ 10,323 $ 567 $ ( 19 ) $ 10,871

THREE MONTHS ENDED NOVEMBER 30, 2020

THREE MONTHS ENDED FEBRUARY 28, 2021

(Dollars in millions)

9 unchanged sentences

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

SIX MONTHS ENDED NOVEMBER 30, 2021

NINE MONTHS ENDED FEBRUARY 28, 2022

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 13,238 $ 9,228 $ 5,986 $ 4,273 $ 54 $ 32,779 $ 1,753 $ ( 56 ) $ 34,476

SIX MONTHS ENDED NOVEMBER 30, 2020

NINE MONTHS ENDED FEBRUARY 28, 2021

(Dollars in millions)

9 unchanged sentences

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

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.

For the three and nine months ended February 28, 2022 and 2021, Global Brand Divisions revenues included 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.

As of February 28, 2022 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 12 — 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 NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

21 unchanged sentences

INCOME BEFORE INCOME TAXES $ 1,670 $ 1,636 $ 5,277 $ 4,807

NOVEMBER 30, MAY 31,

FEBRUARY 28, MAY 31,

(Dollars in millions)

18 unchanged sentences

TOTAL INVENTORIES $ 7,700 $ 6,854

NOVEMBER 30, MAY 31,

FEBRUARY 28, MAY 31,

(Dollars in millions)

9 unchanged sentences

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,806 $ 4,904

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

(1) Excludes assets held-for-sale as of February 28, 2022 and May 31, 2021.

See Note 13 — 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 November 30, 2021, held-for-sale assets were $ 209 million, primarily consisting of $ 86 million of Accounts receivable, net and $ 61 million of Inventories;

As of February 28, 2022, held-for-sale assets were $ 201 million, primarily consisting of $ 75 million of Accounts receivable, net and $ 60 million of Inventories;

held-for-sale liabilities were $ 51 million, primarily consisting of $ 27 million of Accrued liabilities and $ 19 million of Accounts payable.

1 unchanged sentence

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.

As of February 28, 2022, 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.

3 unchanged sentences

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.

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

For the three and nine months ended February 28, 2022 , 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 February 28, 2021, the Company recognized employee termination costs of $ 23 million and $ 6 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $ 99 million.

For the nine months ended February 28, 2021, the Company recognized employee termination costs of $ 168 million and $ 36 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $ 170 million.

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

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