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Item 1. Financial Statements

2023-04-06 compared with 2023-01-05 · 103 added, 86 removed, 632 unchanged (23% 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)

37 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED NOVEMBER 30,

NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

40 unchanged sentences

SHARES AMOUNT SHARES AMOUNT

Balance at August 31, 2022 305 $ — 1,259 $ 3 $ 11,648 $ 636 $ 3,535 $ 15,822

Balance at November 30, 2022 305 $ — 1,245 $ 3 $ 11,851 $ 559 $ 2,859 $ 15,272

Stock options exercised 3 153 153

6 unchanged sentences

Other comprehensive income (loss) ( 257 ) ( 257 )

Balance at November 30, 2022 305 $ — 1,245 $ 3 $ 11,851 $ 559 $ 2,859 $ 15,272

Balance at February 28, 2023 305 $ — 1,235 $ 3 $ 12,074 $ 302 $ 2,152 $ 14,531

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

2 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 TOTAL

11 unchanged sentences

Other comprehensive income (loss) ( 16 ) ( 16 )

Balance at November 30, 2022 305 $ — 1,245 $ 3 $ 11,851 $ 559 $ 2,859 $ 15,272

Balance at February 28, 2023 305 $ — 1,235 $ 3 $ 12,074 $ 302 $ 2,152 $ 14,531

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

11 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

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, 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.

The results of operations for the three and nine months ended February 28, 2023, 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, potential impacts of inflation and rising interest rates on consumer behavior, higher inventory levels in various markets, higher inventory obsolescence reserves, higher promotional activity, reduced demand for product, reduced orders from wholesale customers for products 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.

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations, which enhances transparency surrounding the use of supplier finance programs.

The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs.

The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures.

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.

Inventory balances of $ 8,905 million and $ 8,420 million at February 28, 2023 and May 31, 2022, 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) 2023 2022

1 unchanged sentence

Sales-related reserves 1,067 1,015

Import and logistics costs 580 489

Dividends payable 531 485

Endorsement compensation 498 496

Allowance for expected loss on sale (1)

5 unchanged sentences

For additional information about the Company's fair value policies, refer to Note 1 — Summary of Significant Accounting Policies of the Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

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

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of February 28, 2023 and May 31, 2022, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

FEBRUARY 28, 2023

(Dollars in millions)

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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.

As of February 28, 2023, the Company held $ 3,089 million of available-for-sale debt securities with maturity dates within one year and $ 758 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.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 83 million and $ 22 million for the three months ended February 28, 2023 and 2022, respectively, and $ 196 million and $ 57 million for the nine months ended February 28, 2023 and 2022, 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

FEBRUARY 28, 2023

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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TOTAL $ 656 $ 556 $ 100 $ 178 $ 114 $ 64

(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 $ 100 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.

No amount of collateral was posted on the derivative liability balance as of February 28, 2023.

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 $ 8,410 million at November 30, 2022 and $ 8,933 million at May 31, 2022.

The fair value of the Company's Long-term debt, including the current portion, was approximately $ 8,241 million at February 28, 2023 and $ 8,933 million at May 31, 2022.

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, 2023 and May 31, 2022, the Company had no borrowings outstanding under its $ 3 billion commercial paper program.

On March 10, 2023, subsequent to the end of the third quarter of fiscal 2023, 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 8, 2024, 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 11, 2022, which matured on March 10, 2023.

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 6, 2023, 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, 2022.

NOTE 6 — INCOME TAXES

The effective tax rate was 19.5 % and 11.0 % for the six months ended November 30, 2022 and 2021, respectively.

The effective tax rate was 18.5 % and 12.7 % for the nine months ended February 28, 2023 and 2022, 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.

As of February 28, 2023, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 941 million, $ 657 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.

As of February 28, 2023 and May 31, 2022, accrued interest and penalties related to uncertain tax positions were $ 282 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.

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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.

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 additional 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,

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

(Dollars in millions)

9 unchanged sentences

(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.

The income tax benefit related to stock-based compensation expense was $ 22 million and $ 34 million for the three months ended February 28, 2023 and 2022, respectively, and $ 44 million and $ 307 million for the nine months ended February 28, 2023 and 2022, 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 fair value per share of stock options granted during the nine months ended February 28, 2023 and 2022, 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,

NINE MONTHS ENDED FEBRUARY 28,

Dividend yield 0.9 % 0.8 %

3 unchanged sentences

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 weighted average expected life of stock 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.

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

As of February 28, 2023, the Company had $ 502 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 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.

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.

The weighted average fair value per share of restricted stock and RSUs granted for the nine months ended February 28, 2023 and 2022, computed as of the grant date, was $ 110.27 and $ 158.94 , respectively.

The weighted average fair value per share of PSUs granted for the nine months ended February 28, 2023 and 2022, computed as of the grant date, was $ 134.71 and $ 250.52 , respectively.

As of February 28, 2023, the Company had $ 727 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 2.5 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 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,

The computations of diluted earnings per common share exclude restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an estimated additional 29.5 million and 9.3 million shares of common stock outstanding for the three months ended February 28, 2023 and 2022, respectively, and 31.8 million and 9.4 million shares of common stock outstanding for the nine months ended February 28, 2023 and 2022, respectively, because the awards were assumed to be anti-dilutive.

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

(In millions, except per share data)

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

As of and for the 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.

As of and for the nine months ended February 28, 2023, 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.

The majority of derivatives outstanding as of February 28, 2023, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

Dollar, Chinese Yuan/U.S.

Dollar, British Pound/Euro and Japanese Yen/U.S.

Dollar currency pairs.

2 unchanged sentences

DERIVATIVE ASSETS

BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

(Dollars in millions)

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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)

7 unchanged sentences

Interest expense (income), net ( 7 ) ( 2 ) 53 ( 2 )

SIX MONTHS ENDED NOVEMBER 30,

NINE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

15 unchanged sentences

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,

2023 2022 2023 2022

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TOTAL DESIGNATED CASH FLOW HEDGES $ ( 175 ) $ ( 2 ) $ 283 $ 38

(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.

(1) For the three months ended February 28, 2023 and 2022, 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,

2023 2022 2023 2022

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TOTAL DESIGNATED CASH FLOW HEDGES $ 476 $ 749 $ 760 $ ( 90 )

(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.

(1) For the nine months ended February 28, 2023 and 2022, 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)

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

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 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.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 19.5 billion as of February 28, 2023.

Approximately $ 495 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 28, 2023, 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.

As of February 28, 2023, 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 $ 4.6 billion as of November 30, 2022.

The total notional amount of outstanding undesignated derivative instruments was $ 4.7 billion as of February 28, 2023.

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.

As of February 28, 2023, the total notional amount of embedded derivatives outstanding was approximately $ 460 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, 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.

As of February 28, 2023, 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 $ 475 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.

Further, $ 100 million of collateral was received on the Company's derivative asset balance as of February 28, 2023.

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

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CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at August 31, 2022 $ ( 746 ) $ 1,334 $ 115 $ ( 67 ) $ 636

Balance at November 30, 2022 $ ( 392 ) $ 933 $ 115 $ ( 97 ) $ 559

Other comprehensive income (loss):

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Total other comprehensive income (loss) 153 ( 433 ) — 23 ( 257 )

Balance at November 30, 2022 $ ( 392 ) $ 933 $ 115 $ ( 97 ) $ 559

Balance at February 28, 2023 $ ( 239 ) $ 500 $ 115 $ ( 74 ) $ 302

(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.

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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

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Total other comprehensive income (loss) 281 ( 279 ) — ( 18 ) ( 16 )

Balance at November 30, 2022 $ ( 392 ) $ 933 $ 115 $ ( 97 ) $ 559

Balance at February 28, 2023 $ ( 239 ) $ 500 $ 115 $ ( 74 ) $ 302

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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

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, 2022

THREE MONTHS ENDED FEBRUARY 28, 2023

(Dollars in millions)

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TOTAL REVENUES $ 4,913 $ 3,246 $ 1,994 $ 1,601 $ 12 $ 11,766 $ 612 $ 12 $ 12,390

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

SIX MONTHS ENDED NOVEMBER 30, 2022

NINE MONTHS ENDED FEBRUARY 28, 2023

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 16,253 $ 10,068 $ 5,438 $ 4,735 $ 44 $ 36,538 $ 1,841 $ 13 $ 38,392

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

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.

For the three and nine months ended February 28, 2023 and 2022, 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.

As of February 28, 2023 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.

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 $ 1,477 $ 1,670 $ 4,955 $ 5,277

NOVEMBER 30, MAY 31,

FEBRUARY 28, MAY 31,

(Dollars in millions)

18 unchanged sentences

TOTAL INVENTORIES $ 8,905 $ 8,420

NOVEMBER 30, MAY 31,

FEBRUARY 28, MAY 31,

(Dollars in millions)

12 unchanged sentences

NOTE 13 — 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.

9 unchanged sentences

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.

The sale of the Company's entities in Argentina and Uruguay to a third-party distributor was completed during the second quarter of fiscal 2023 and the net loss on the sale of these entities totaled approximately $ 550 million.

This loss included $ 389 million, recognized primarily in fiscal 2020, largely due to the anticipated release of the cumulative foreign currency translation losses.

The remaining loss recognized in fiscal 2023 was due to the devaluation of local currency and cash equivalents included in the transferred assets.

Upon completion of the sale, the foreign currency translation losses recorded in Accumulated other comprehensive income (loss) were reclassified to Net income within Other (income) expense, net, on the Unaudited Condensed Consolidated Statements of Comprehensive Income along with the allowance for previously recognized losses recorded in Accrued liabilities.

The net loss was classified within Corporate.

The net cash proceeds received are reflected within Other investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows.

As of May 31, 2022, held-for-sale assets were $ 182 million and held-for-sale liabilities were $ 58 million.

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