Item 1. Financial Statements
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)
2022 2021 2022 2021
Revenues $ 13,315 $ 11,357 $ 26,002 $ 23,605
Cost of sales 7,604 6,144 14,676 12,696
Gross profit 5,711 5,213 11,326 10,909
Demand creation expense 1,102 1,017 2,045 1,935
Operating overhead expense 3,022 2,742 5,999 5,396
Total selling and administrative expense 4,124 3,759 8,044 7,331
Interest expense (income), net 16 55 29 112
Other (income) expense, net ( 79 ) ( 102 ) ( 225 ) ( 141 )
Income before income taxes 1,650 1,501 3,478 3,607
Income tax expense 319 164 679 396
NET INCOME $ 1,331 $ 1,337 $ 2,799 $ 3,211
Earnings per common share:
Basic $ 0.85 $ 0.84 $ 1.79 $ 2.03
Diluted $ 0.85 $ 0.83 $ 1.77 $ 1.98
Weighted average common shares outstanding:
Basic 1,559.0 1,582.4 1,563.1 1,582.2
Diluted 1,572.4 1,617.4 1,579.1 1,618.5
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
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NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
(Dollars in millions)
2022 2021 2022 2021
Net income $ 1,331 $ 1,337 $ 2,799 $ 3,211
Other comprehensive income (loss), net of tax:
Change in net foreign currency translation adjustment 354 ( 155 ) 128 ( 283 )
Change in net gains (losses) on cash flow hedges ( 401 ) 366 154 804
Change in net gains (losses) on other ( 30 ) 1 ( 41 ) 4
Total other comprehensive income (loss), net of tax ( 77 ) 212 241 525
TOTAL COMPREHENSIVE INCOME $ 1,254 $ 1,549 $ 3,040 $ 3,736
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
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NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, MAY 31,
(In millions)
2022 2022
ASSETS
Current assets:
Cash and equivalents $ 6,490 $ 8,574
Short-term investments 4,131 4,423
Accounts receivable, net 5,437 4,667
Inventories 9,326 8,420
Prepaid expenses and other current assets 2,063 2,129
Total current assets 27,447 28,213
Property, plant and equipment, net 4,854 4,791
Operating lease right-of-use assets, net 2,809 2,926
Identifiable intangible assets, net 280 286
Goodwill 281 284
Deferred income taxes and other assets 3,976 3,821
TOTAL ASSETS $ 39,647 $ 40,321
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 500 $ 500
Notes payable 7 10
Accounts payable 2,810 3,358
Current portion of operating lease liabilities 426 420
Accrued liabilities 6,020 6,220
Income taxes payable 436 222
Total current liabilities 10,199 10,730
Long-term debt 8,924 8,920
Operating lease liabilities 2,668 2,777
Deferred income taxes and other liabilities 2,584 2,613
Commitments and contingencies (Note 12)
Redeemable preferred stock — —
Shareholders' equity:
Common stock at stated value:
Class A convertible — 305 and 305 shares outstanding
— —
Class B — 1,245 and 1,266 shares outstanding
3 3
Capital in excess of stated value 11,851 11,484
Accumulated other comprehensive income (loss) 559 318
Retained earnings 2,859 3,476
Total shareholders' equity 15,272 15,281
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,647 $ 40,321
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
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NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30,
(Dollars in millions)
2022 2021
Cash provided (used) by operations:
Net income $ 2,799 $ 3,211
Adjustments to reconcile net income to net cash provided (used) by operations:
Depreciation 342 358
Deferred income taxes ( 150 ) ( 222 )
Stock-based compensation 364 306
Amortization, impairment and other 137 3
Net foreign currency adjustments ( 125 ) 48
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable ( 878 ) 543
(Increase) decrease in inventories ( 948 ) 268
(Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets ( 239 ) ( 444 )
Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities 56 ( 203 )
Cash provided (used) by operations 1,358 3,868
Cash provided (used) by investing activities:
Purchases of short-term investments ( 3,500 ) ( 6,699 )
Maturities of short-term investments 1,951 3,891
Sales of short-term investments 1,972 2,032
Additions to property, plant and equipment ( 500 ) ( 362 )
Other investing activities 54 33
Cash provided (used) by investing activities ( 23 ) ( 1,105 )
Cash provided (used) by financing activities:
Increase (decrease) in notes payable ( 3 ) 13
Proceeds from exercise of stock options and other stock issuances 260 846
Repurchase of common stock ( 2,550 ) ( 1,723 )
Dividends — common and preferred ( 960 ) ( 873 )
Other financing activities ( 68 ) ( 109 )
Cash provided (used) by financing activities ( 3,321 ) ( 1,846 )
Effect of exchange rate changes on cash and equivalents ( 98 ) ( 55 )
Net increase (decrease) in cash and equivalents ( 2,084 ) 862
Cash and equivalents, beginning of period 8,574 9,889
CASH AND EQUIVALENTS, END OF PERIOD $ 6,490 $ 10,751
Supplemental disclosure of cash flow information:
Non-cash additions to property, plant and equipment $ 124 $ 103
Dividends declared and not paid 526 481
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
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NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS TOTAL
CLASS A CLASS B
(In millions, except per share data)
SHARES AMOUNT SHARES AMOUNT
Balance at August 31, 2022 305 $ — 1,259 $ 3 $ 11,648 $ 636 $ 3,535 $ 15,822
Stock options exercised 1 69 69
Repurchase of Class B Common Stock ( 17 ) ( 123 ) ( 1,484 ) ( 1,607 )
Dividends on common stock ($ 0.340 per share)
( 526 ) ( 526 )
Issuance of shares to employees, net of shares withheld for employee taxes 2 63 3 66
Stock-based compensation 194 194
Net income 1,331 1,331
Other comprehensive income (loss) ( 77 ) ( 77 )
Balance at November 30, 2022 305 $ — 1,245 $ 3 $ 11,851 $ 559 $ 2,859 $ 15,272
COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS 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 TOTAL
CLASS A CLASS B
(In millions, except per share data)
SHARES AMOUNT SHARES AMOUNT
Balance at May 31, 2022 305 $ — 1,266 $ 3 $ 11,484 $ 318 $ 3,476 $ 15,281
Stock options exercised 3 149 149
Repurchase of Class B Common Stock ( 26 ) ( 189 ) ( 2,409 ) ( 2,598 )
Dividends on common stock ($ 0.645 per share) and preferred stock ($ 0.10 per share)
( 1,008 ) ( 1,008 )
Issuance of shares to employees, net of shares withheld for employee taxes 2 43 1 44
Stock-based compensation 364 364
Net income 2,799 2,799
Other comprehensive income (loss) 241 241
Balance at November 30, 2022 305 $ — 1,245 $ 3 $ 11,851 $ 559 $ 2,859 $ 15,272
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COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS 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
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
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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 Contingencies
23
NOTE 13 Acquisitions and Divestitures
23
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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, 2022, 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, 2022. The results of operations for the three and six months ended November 30, 2022, are not necessarily indicative of results to be expected for the entire fiscal year.
The uncertain state of the global economy or worsening macroeconomic conditions could affect the Company’s business, including, among other things, higher inventory levels in various markets, higher inventory obsolescence reserves, higher promotional activity, reduced demand for product, reduced orders from wholesale customers for product and order cancellations. There could also be new or prolonged COVID-19 related restrictions or disruptions. Any of these factors, among others, could have material adverse impacts on the Company’s revenue growth as well as overall profitability in future periods.
NOTE 2 — INVENTORIES
Inventory balances of $ 9,326 million and $ 8,420 million at November 30, 2022 and May 31, 2022, respectively, were substantially all finished goods.
NOTE 3 — ACCRUED LIABILITIES
Accrued liabilities included the following:
NOVEMBER 30, MAY 31,
(Dollars in millions) 2022 2022
Compensation and benefits, excluding taxes $ 1,220 $ 1,297
Sales-related reserves 1,149 1,015
Import and logistics costs 580 489
Dividends payable 534 485
Allowance for expected loss on sale (1)
— 397
Other 2,537 2,537
TOTAL ACCRUED LIABILITIES $ 6,020 $ 6,220
(1) Refer to Note 13 — 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, 2022.
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The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of November 30, 2022 and May 31, 2022, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:
NOVEMBER 30, 2022
(Dollars in millions)
ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS
Cash $ 788 $ 788 $ —
Level 1:
U.S. Treasury securities 3,417 4 3,413
Level 2:
Commercial paper and bonds 622 29 593
Money market funds 5,024 5,024 —
Time deposits 753 645 108
U.S. Agency securities 17 — 17
Total Level 2 6,416 5,698 718
TOTAL $ 10,621 $ 6,490 $ 4,131
MAY 31, 2022
(Dollars in millions)
ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS
Cash $ 839 $ 839 $ —
Level 1:
U.S. Treasury securities 3,801 8 3,793
Level 2:
Commercial paper and bonds 660 37 623
Money market funds 6,458 6,458 —
Time deposits 1,237 1,232 5
U.S. Agency securities 2 — 2
Total Level 2 8,357 7,727 630
TOTAL $ 12,997 $ 8,574 $ 4,423
As of November 30, 2022, the Company held $ 3,060 million of available-for-sale debt securities with maturity dates within one year and $ 1,071 million with maturity dates greater than 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 $ 49 million and $ 18 million for the three months ended November 30, 2022 and 2021, respectively, and $ 114 million and $ 35 million for the six months ended November 30, 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, 2022
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)
$ 953 $ 759 $ 194 $ 134 $ 93 $ 41
Embedded derivatives 6 6 — 1 1 —
TOTAL $ 959 $ 765 $ 194 $ 135 $ 94 $ 41
(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 $ 133 million as of November 30, 2022. As of that date, the Company received $ 345 million of cash collateral from counterparties related to foreign exchange derivative instruments. No amount of collateral was posted on the derivative liability balance as of November 30, 2022.
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MAY 31, 2022
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)
$ 875 $ 669 $ 206 $ 76 $ 65 $ 11
Embedded derivatives 5 5 — 1 1 —
TOTAL $ 880 $ 674 $ 206 $ 77 $ 66 $ 11
(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 $ 76 million as of May 31, 2022. As of that date, the Company received $ 486 million of cash collateral from counterparties related to foreign exchange derivative instruments. No amount of collateral was posted on the derivative liability balance as of May 31, 2022.
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 $ 8,410 million at November 30, 2022 and $ 8,933 million at May 31, 2022.
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 19.5 % and 11.0 % for the six months ended November 30, 2022 and 2021, respectively. The increase in the Company's effective tax rate was primarily due to a less favorable impact from stock-based compensation and a shift in the Company's earnings mix.
As of November 30, 2022, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 867 million, $ 652 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, 2022, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 848 million. As of November 30, 2022 and May 31, 2022, accrued interest and penalties related to uncertain tax positions were $ 276 million and $ 248 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. 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 2011 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.
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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 and stock awards, including restricted stock and restricted stock units. Restricted stock units include both time-vesting restricted stock units (RSUs) as well as performance-based restricted stock units (PSUs). 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, 2022 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)
2022 2021 2022 2021
Stock options (1)
$ 79 $ 81 $ 154 $ 146
ESPPs 18 14 33 29
Restricted stock and restricted stock units (1)(2)
97 75 177 131
TOTAL STOCK-BASED COMPENSATION EXPENSE $ 194 $ 170 $ 364 $ 306
(1) Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibility requirements.
(2) Restricted stock units include RSUs and PSUs.
The income tax benefit related to stock-based compensation expense was $ 2 million and $ 87 million for the three months ended November 30, 2022 and 2021, respectively, and $ 22 million and $ 273 million for the six months ended November 30, 2022 and 2021, respectively, and reported within Income tax expense.
STOCK OPTIONS
The weighted average fair value per share of options granted during the six months ended November 30, 2022 and 2021, computed as of the grant date using the Black-Scholes pricing model, was $ 31.31 and $ 37.53 , respectively. The weighted average assumptions used to estimate these fair values were as follows:
SIX MONTHS ENDED NOVEMBER 30,
2022 2021
Dividend yield 0.9 % 0.8 %
Expected volatility 27.1 % 24.9 %
Weighted average expected life (in years) 5.8 5.8
Risk-free interest rate 3.3 % 0.9 %
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, 2022, the Company had $ 584 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 RSUs granted for the six months ended November 30, 2022 and 2021, computed as of the grant date, was $ 107.60 and $ 163.27 , respectively.
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The weighted average fair value per share of PSUs granted for the six months ended November 30, 2022 and 2021, computed as of the grant date, was $ 134.71 and $ 250.52 , respectively.
As of November 30, 2022, the Company had $ 760 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.6 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 estimated additional 38.0 million and 9.2 million shares of common stock outstanding for the three months ended November 30, 2022 and 2021, respectively, and 35.1 million and 9.1 million shares of common stock outstanding for the six months ended November 30, 2022 and 2021, respectively, because the awards were assumed to be anti-dilutive.
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
(In millions, except per share data)
2022 2021 2022 2021
Net income available to common stockholders $ 1,331 $ 1,337 $ 2,799 $ 3,211
Determination of shares:
Weighted average common shares outstanding 1,559.0 1,582.4 1,563.1 1,582.2
Assumed conversion of dilutive stock options and awards 13.4 35.0 16.0 36.3
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,572.4 1,617.4 1,579.1 1,618.5
Earnings per common share:
Basic $ 0.85 $ 0.84 $ 1.79 $ 2.03
Diluted $ 0.85 $ 0.83 $ 1.77 $ 1.98
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, 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, 2022.
The majority of derivatives outstanding as of November 30, 2022, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Japanese Yen/U.S. Dollar and Chinese Yuan/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.
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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)
2022 2022
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options Prepaid expenses and other current assets $ 745 $ 639
Foreign exchange forwards and options Deferred income taxes and other assets 194 206
Total derivatives formally designated as hedging instruments 939 845
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options Prepaid expenses and other current assets 14 30
Embedded derivatives Prepaid expenses and other current assets 6 5
Total derivatives not designated as hedging instruments 20 35
TOTAL DERIVATIVE ASSETS $ 959 $ 880
DERIVATIVE LIABILITIES
BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,
(Dollars in millions)
2022 2022
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options Accrued liabilities $ 58 $ 37
Foreign exchange forwards and options Deferred income taxes and other liabilities 41 11
Total derivatives formally designated as hedging instruments 99 48
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options Accrued liabilities 35 28
Embedded derivatives Accrued liabilities 1 1
Total derivatives not designated as hedging instruments 36 29
TOTAL DERIVATIVE LIABILITIES $ 135 $ 77
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,
2022 2021
(Dollars in millions)
TOTAL AMOUNT OF GAIN (LOSS)
ON CASH FLOW
HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS)
ON CASH FLOW
HEDGE ACTIVITY
Revenues $ 13,315 $ 4 $ 11,357 $ ( 20 )
Cost of sales 7,604 173 6,144 ( 30 )
Demand creation expense 1,102 ( 2 ) 1,017 —
Other (income) expense, net ( 79 ) 125 ( 102 ) 20
Interest expense (income), net 16 ( 2 ) 55 ( 1 )
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SIX MONTHS ENDED NOVEMBER 30,
2022 2021
(Dollars in millions)
TOTAL AMOUNT OF GAIN (LOSS)
ON CASH FLOW
HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS)
ON CASH FLOW
HEDGE ACTIVITY
Revenues $ 26,002 $ ( 5 ) $ 23,605 $ ( 41 )
Cost of sales 14,676 282 12,696 ( 96 )
Demand creation expense 2,045 ( 3 ) 1,935 1
Other (income) expense, net ( 225 ) 207 ( 141 ) 11
Interest expense (income), net 29 ( 4 ) 112 ( 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,
2022 2021 2022 2021
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options $ ( 3 ) $ ( 31 ) Revenues $ 4 $ ( 20 )
Foreign exchange forwards and options ( 101 ) 253 Cost of sales 173 ( 30 )
Foreign exchange forwards and options 2 ( 2 ) Demand creation expense ( 2 ) —
Foreign exchange forwards and options ( 47 ) 143 Other (income) expense, net 125 20
Interest rate swaps (2)
— — Interest expense (income), net ( 2 ) ( 1 )
TOTAL DESIGNATED CASH FLOW HEDGES $ ( 149 ) $ 363 $ 298 $ ( 31 )
(1) For the three months ended November 30, 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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(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,
2022 2021 2022 2021
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options $ 22 $ ( 37 ) Revenues $ ( 5 ) $ ( 41 )
Foreign exchange forwards and options 386 518 Cost of sales 282 ( 96 )
Foreign exchange forwards and options ( 3 ) ( 3 ) Demand creation expense ( 3 ) 1
Foreign exchange forwards and options 246 273 Other (income) expense, net 207 11
Interest rate swaps (2)
— — Interest expense (income), net ( 4 ) ( 3 )
TOTAL DESIGNATED CASH FLOW HEDGES $ 651 $ 751 $ 477 $ ( 128 )
(1) For the six months ended November 30, 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.
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)
2022 2021 2022 2021
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options $ ( 6 ) $ 9 $ 44 $ 32 Other (income) expense, net
Embedded derivatives 23 ( 4 ) 34 ( 9 ) 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 $ 17.4 billion as of November 30, 2022. Approximately $ 798 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of November 30, 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, 2022, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 30 months.
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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 $ 4.6 billion as of November 30, 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, 2022, the total notional amount of embedded derivatives outstanding was approximately $ 360 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, 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 $ 820 million. Accordingly, the Company was not required to post cash collateral as a result of these contingent features. Further, $ 345 million of collateral was received on the Company's derivative asset balance as of November 30, 2022. 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.
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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, 2022 $ ( 746 ) $ 1,334 $ 115 $ ( 67 ) $ 636
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications (2)
45 ( 138 ) — ( 24 ) ( 117 )
Reclassifications to net income of previously deferred (gains) losses (3)
309 ( 263 ) — ( 6 ) 40
Total other comprehensive income (loss) 354 ( 401 ) — ( 30 ) ( 77 )
Balance at November 30, 2022 $ ( 392 ) $ 933 $ 115 $ ( 97 ) $ 559
(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 , $ 11 million, $ 0 million , $ 6 million and $ 17 million, respectively.
(3) Net of tax (benefit) expense of $( 16 ) million, $ 35 million, $ 0 million , $ 3 million and $ 22 million, respectively.
(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 May 31, 2022 $ ( 520 ) $ 779 $ 115 $ ( 56 ) $ 318
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications (2)
( 227 ) 578 — ( 27 ) 324
Reclassifications to net income of previously deferred (gains) losses (3)
355 ( 424 ) — ( 14 ) ( 83 )
Total other comprehensive income (loss) 128 154 — ( 41 ) 241
Balance at November 30, 2022 $ ( 392 ) $ 933 $ 115 $ ( 97 ) $ 559
(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 , $( 73 ) million, $ 0 million , $ 7 million and $( 66 ) million, respectively.
(3) Net of tax (benefit) expense of $( 16 ) million, $ 53 million, $ 0 million , $ 6 million and $ 43 million, respectively.
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(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.
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)
2022 2021 2022 2021
Gains (losses) on foreign currency translation adjustment $ ( 325 ) $ — $ ( 371 ) $ — Other (income) expense, net
Total before tax ( 325 ) — ( 371 ) —
Tax (expense) benefit 16 — 16 —
Gain (loss) net of tax ( 309 ) — ( 355 ) —
Gains (losses) on cash flow hedges:
Foreign exchange forwards and options $ 4 $ ( 20 ) $ ( 5 ) $ ( 41 ) Revenues
Foreign exchange forwards and options 173 ( 30 ) 282 ( 96 ) Cost of sales
Foreign exchange forwards and options ( 2 ) — ( 3 ) 1 Demand creation expense
Foreign exchange forwards and options 125 20 207 11 Other (income) expense, net
Interest rate swaps ( 2 ) ( 1 ) ( 4 ) ( 3 ) Interest expense (income), net
Total before tax 298 ( 31 ) 477 ( 128 )
Tax (expense) benefit ( 35 ) 1 ( 53 ) 9
Gain (loss) net of tax 263 ( 30 ) 424 ( 119 )
Gains (losses) on other 9 8 20 14 Other (income) expense, net
Total before tax 9 8 20 14
Tax (expense) benefit ( 3 ) ( 3 ) ( 6 ) ( 4 )
Gain (loss) net of tax 6 5 14 10
Total net gain (loss) reclassified for the period $ ( 40 ) $ ( 25 ) $ 83 $ ( 109 )
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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, 2022
(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 $ 3,963 $ 2,063 $ 1,370 $ 1,108 $ — $ 8,504 $ 517 $ — $ 9,021
Apparel 1,685 1,281 393 435 — 3,794 21 — 3,815
Equipment 182 145 25 56 — 408 6 — 414
Other — — — — 18 18 42 5 65
TOTAL REVENUES $ 5,830 $ 3,489 $ 1,788 $ 1,599 $ 18 $ 12,724 $ 586 $ 5 $ 13,315
Revenues by:
Sales to Wholesale Customers $ 3,183 $ 2,242 $ 897 $ 965 $ — $ 7,287 $ 304 $ — $ 7,591
Sales through Direct to Consumer 2,647 1,247 891 634 — 5,419 240 — 5,659
Other — — — — 18 18 42 5 65
TOTAL REVENUES $ 5,830 $ 3,489 $ 1,788 $ 1,599 $ 18 $ 12,724 $ 586 $ 5 $ 13,315
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
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SIX MONTHS ENDED NOVEMBER 30, 2022
(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 $ 7,768 $ 4,075 $ 2,603 $ 2,172 $ — $ 16,618 $ 1,093 $ — $ 17,711
Apparel 3,179 2,434 767 848 — 7,228 42 — 7,270
Equipment 393 313 74 114 — 894 14 — 908
Other — — — — 32 32 80 1 113
TOTAL REVENUES $ 11,340 $ 6,822 $ 3,444 $ 3,134 $ 32 $ 24,772 $ 1,229 $ 1 $ 26,002
Revenues by:
Sales to Wholesale Customers $ 6,210 $ 4,445 $ 1,736 $ 1,879 $ — $ 14,270 $ 647 $ — $ 14,917
Sales through Direct to Consumer 5,130 2,377 1,708 1,255 — 10,470 502 — 10,972
Other — — — — 32 32 80 1 113
TOTAL REVENUES $ 11,340 $ 6,822 $ 3,444 $ 3,134 $ 32 $ 24,772 $ 1,229 $ 1 $ 26,002
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
For the three and six months ended November 30, 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, 2022 and May 31, 2022, the Company did no t have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.
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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.
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THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
(Dollars in millions)
2022 2021 2022 2021
REVENUES
North America $ 5,830 $ 4,477 $ 11,340 $ 9,356
Europe, Middle East & Africa 3,489 3,142 6,822 6,449
Greater China 1,788 1,844 3,444 3,826
Asia Pacific & Latin America 1,599 1,347 3,134 2,812
Global Brand Divisions 18 6 32 13
Total NIKE Brand 12,724 10,816 24,772 22,456
Converse 586 557 1,229 1,186
Corporate 5 ( 16 ) 1 ( 37 )
TOTAL NIKE, INC. REVENUES $ 13,315 $ 11,357 $ 26,002 $ 23,605
EARNINGS BEFORE INTEREST AND TAXES
North America $ 1,497 $ 1,235 $ 2,874 $ 2,669
Europe, Middle East & Africa 990 806 1,965 1,681
Greater China 511 569 1,052 1,270
Asia Pacific & Latin America 485 388 985 869
Global Brand Divisions ( 1,226 ) ( 1,071 ) ( 2,413 ) ( 2,058 )
Converse 153 132 362 336
Corporate ( 744 ) ( 503 ) ( 1,318 ) ( 1,048 )
Interest expense (income), net 16 55 29 112
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 1,650 $ 1,501 $ 3,478 $ 3,607
NOVEMBER 30, MAY 31,
(Dollars in millions)
2022 2022
ACCOUNTS RECEIVABLE, NET
North America $ 2,365 $ 1,850
Europe, Middle East & Africa 1,647 1,351
Greater China 225 406
Asia Pacific & Latin America (1)
804 664
Global Brand Divisions 87 113
Total NIKE Brand 5,128 4,384
Converse 244 230
Corporate 65 53
TOTAL ACCOUNTS RECEIVABLE, NET $ 5,437 $ 4,667
INVENTORIES
North America $ 4,299 $ 4,098
Europe, Middle East & Africa 2,112 1,887
Greater China 1,083 1,044
Asia Pacific & Latin America (1)
890 686
Global Brand Divisions 214 197
Total NIKE Brand 8,598 7,912
Converse 353 279
Corporate 375 229
TOTAL INVENTORIES $ 9,326 $ 8,420
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NOVEMBER 30, MAY 31,
(Dollars in millions)
2022 2022
PROPERTY, PLANT AND EQUIPMENT, NET
North America $ 720 $ 639
Europe, Middle East & Africa 902 920
Greater China 284 303
Asia Pacific & Latin America (1)
269 274
Global Brand Divisions 794 789
Total NIKE Brand 2,969 2,925
Converse 41 49
Corporate 1,844 1,817
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,854 $ 4,791
(1) Excludes assets held-for-sale as of May 31, 2022. See Note 13 — Acquisitions and Divestitures for additional information.
NOTE 12 — CONTINGENCIES
In the ordinary course of business, the Company is subject to various legal proceedings, claims and government investigations relating to its business, products and actions of its employees and representatives, including contractual and employment relationships, product liability, antitrust, customs, intellectual property and other matters. The outcome of these legal matters is inherently uncertain, and the Company cannot predict the eventual outcome of currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or consequences relating to those matters. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. If one or more legal matters were to be resolved against the Company in a reporting period for amounts above management's expectations, the Company's financial position, operating results and cash flows for that reporting period could be materially adversely affected. In the opinion of management, based on its current knowledge and after consultation with counsel, the Company does not believe any currently pending legal matters will have a material adverse impact on the Company's results of operations, financial position or cash flows, except as described below.
BELGIAN CUSTOMS CLAIM
The Company has received claims for certain years from the Belgian Customs Authorities for alleged underpaid duties related to products imported beginning in fiscal 2018. The Company disputes these claims and has engaged in the appellate process. At this time, the Company is unable to estimate the range of loss and cannot predict the final outcome as it could take several years to reach a resolution on this matter. If this matter is ultimately resolved against the Company, the amounts owed, including fines, penalties and other consequences relating to the matter, could have a material adverse effect on the Company's results of operations, financial position and cash flows.
NOTE 13 — ACQUISITIONS AND DIVESTITURES
During the fourth quarter of fiscal 2022, the Company entered into separate definitive agreements to sell its entities in Argentina and Uruguay, as well as its entity in Chile, to third-party distributors. The related assets and liabilities of these entities within the Company’s APLA operating segment were classified as held-for-sale on the Consolidated Balance Sheets within Prepaid expenses and other current assets and Accrued liabilities, respectively, until the transactions closed. As of May 31, 2022, held-for-sale assets were $ 182 million and held-for-sale liabilities were $ 58 million.
The sale of the Company’s entity in Chile to a third-party distributor was completed during the first quarter of fiscal 2023. The impacts from the transaction were not material to the Company’s Unaudited Condensed Consolidated Financial Statements.
During the second quarter of fiscal 2023, the Company completed the sale of its entities in Argentina and Uruguay to a third-party distributor. The net loss on the sale of these entities totaled approximately $ 550 million, $ 389 million of which was recognized by the Company in prior periods and a corresponding allowance within in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets. The previously recognized loss was primarily due to the anticipated release of the cumulative foreign currency translation losses. Upon completion of the sale, these foreign currency translation losses were reclassified from Accumulated other comprehensive income (loss) to Net income within Other (income) expense, net, classified within Corporate, and were largely offset by the release of the valuation allowance recognized within Accrued liabilities. The remaining loss, primarily due to the devaluation of the local currency and cash equivalents included in the transfer of assets, was recognized upon completion of the sale within Other (income) expense, net, classified within Corporate on the Unaudited Condensed Consolidated Statements of Income. Cash proceeds received, net of cash and cash equivalents transferred, are reflected within Other investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.