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Item 7. Management’s Discussion and Analysis

2023-07-20 compared with 2022-07-21 · 259 added, 301 removed, 424 unchanged (57% of the section changed)

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We are the largest seller of athletic footwear and apparel in the world.

We sell our products through NIKE Direct operations, which is comprised of both NIKE-owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital"), to retail accounts and to a mix of independent distributors, licensees and sales representatives in virtually all countries around the world.

We sell our products through NIKE Direct operations, which is comprised of both NIKE-owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital"), to wholesale accounts and to a mix of independent distributors, licensees and sales representatives in nearly all countries around the world.

Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses.

Our strategy is to achieve long-term revenue growth by creating innovative, "must-have" products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail.

Through the Consumer Direct Acceleration, we are focusing on creating the marketplace of the future through more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners that share our marketplace vision.

Over the last several years, as we have executed against the Consumer Direct Acceleration, we have grown our NIKE Direct business to be approximately 42% of total NIKE Brand revenues for fiscal 2022, and we have reduced the number of wholesale accounts globally.

Additionally, we have aligned our product creation and category organizations around a new consumer construct focused on Men’s, Women’s and Kids’ and continue to invest in data and analytics, demand sensing, insight gathering, inventory management and other areas to create an end-to-end technology foundation, which we expect will further accelerate our digital transformation.

Through the Consumer Direct Acceleration strategy, we are focused on creating the marketplace of the future with more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners.

In addition, our product creation and marketing organizations are aligned to a consumer construct focused on sports dimensions through Men's, Women's and Kids', which allows us to better serve consumer needs.

We continue to invest in a new Enterprise Resource Planning Platform, data and analytics, demand sensing, insight gathering, and other areas to create an end-to-end technology foundation, which we believe will further accelerate our digital transformation.

We believe this unified approach will accelerate growth and unlock more efficiency for our business, while driving speed and responsiveness as we serve consumers globally.

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

These changes resulted in a net reduction of our global workforce and during fiscal 2021, we incurred pre-tax charges of $294 million, which relate to employee termination costs and, to a lesser extent, stock-based compensation expense.

For fiscal 2022, we recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense.

W e expect future annual wage-related savings will be reinvested to execute against this next phase of our strategy.

For more information related to our organizational realignment and related costs, see Note 21 — Restructuring within the accompanying Notes to the Consolidated Financial Statements.

COVID-19 AND MARKET DYNAMICS UPDATE

The COVID-19 pandemic and its impacts on the global supply chain created volatility in our fiscal 2022 business results and operations globally.

Despite these challenges, we achieved record Revenues for fiscal 2022, which increased 5% compared to the prior fiscal year with gross margin expansion of 120 basis points.

Our NIKE Direct business continued its momentum, growing 14% and 15% on a reported and currency-neutral basis, respectively, led by North America, APLA and EMEA, partially offset by declines in Greater China due to a COVID-19 resurgence in the third and fourth quarters of fiscal 2022 as well as marketplace dynamics.

During fiscal 2022, nearly all of our owned stores remained open across North America, EMEA and APLA.

In Greater China however, due to a COVID-19 resurgence, we experienced a higher level of temporary store closures, with some operating on reduced hours, as well as lower physical traffic compared to pre-pandemic levels.

During the first quarter of fiscal 2022, the majority of NIKE Brand and Converse contract manufacturers in Vietnam and Indonesia were subject to government mandated shutdowns due to COVID-19.

As a result of these closures, we lost approximately three months of production, impacting available product supply throughout fiscal 2022.

Globally, nearly all of our supplier base is currently operational without restrictions and with factory production exceeding pre-closure production levels.

In addition, our supply of available inventory continued to be impacted in the fourth quarter of fiscal 2022 as extended inventory transit times drove elevated levels of in-transit inventory.

These supply chain impacts and a COVID-19 resurgence in Greater China, combined with other factors, caused Inventories to grow to $8.4 billion, an increase of 23% compared to fiscal 2021.

We also experienced elevated transportation, logistics and fulfillment costs as a result of this dynamic environment, which partially offset gross margin expansion in fiscal 2022.

Inventory transit times as well as logistics and fulfillment costs are expected to remain elevated.

We also expect product costs to remain elevated due to higher input costs.

In the first quarter of fiscal 2023, we expect gross margin could be negatively impacted by increased promotional activity to sell seasonal product arriving late due to the combination of temporary factory closures at the beginning of fiscal 2022 and continued elevated transit times.

To mitigate the impact across our business, our teams are continuing to leverage our operational playbook and taking actions where we can, including balancing inventory across our geographies, pricing actions and employing a seasonless approach to products.

Despite these short-term dynamics, we believe our Consumer Direct Acceleration strategy continues to drive our business towards our long-term financial goals.

During fiscal 2022, we continued to invest in our digital transformation and brand campaigns as the world returned to sport, and we expect to maintain our multi-year investment plans in order to transform our business of the future.

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We expect the operating environment could remain volatile in fiscal 2023 as there remains risk that COVID-19 variants may continue to cause disruption to our operations and could have a material adverse impact on future revenue growth as well as overall profitability.

For more information refer to Item 1A.

Risk Factors, within Part I, Item 1.

FISCAL 2022 OVERVIEW

FINANCIAL HIGHLIGHTS

• In fiscal 2023, NIKE, Inc.

achieved record Revenues of $46.7 billion, which increased 5% and 6% on a reported and currency-neutral basis, respectively, driven by higher revenues in EMEA, North America and APLA, partially offset by declines in Greater China.

The NIKE Brand, which represents over 90% of NIKE, Inc.

Revenues, increased 5% and 6% on a reported and currency-neutral basis, respectively, compared to fiscal 2021.

NIKE Direct grew 14% and 15%, on a reported and currency-neutral basis, respectively, driven by an increase of 18% in NIKE Brand Digital, as growth in North America, APLA and EMEA was partially offset by a decline in Greater China.

Wholesale revenues declined 1% as declines in North America and Greater China were partially offset by growth in EMEA and APLA.

Revenues for Converse increased 6% and 7%, on a reported and currency-neutral basis, respecti vely, led by double-digit growth in our direct to consumer business, partially offset by lower wholesale revenues.

Income before income taxes remained flat for fiscal 2022, as higher revenues and gross margin expansion were offset by higher selling and administrative expense.

gross margin increased 120 basis points, led by margin expansion in our NIKE Direct business, a higher mix of full-price sales and favorable changes in net foreign currency exchange rates, including hedges, partially offset by elevated freight and logistics costs and higher inventory obsolescence reserves primarily recognized in Greater China in the fourth quarter of fiscal 2022.

Selling and administrative expense increased due to higher Operating overhead and Demand creation expense.

Operating overhead expense increased primarily due to higher strategic technology investments as well as increases in wage-related expenses and NIKE Direct variable costs.

This activity was partially offset by higher restructuring-related costs in the prior year related to our organizational realignment.

For more information, see Note 21 — Restructuring within the accompanying Notes to the Consolidated Financial Statements.

Demand creation expense increased primarily due to normalization of spend against brand campaigns and continued investments in digital marketing to support heightened digital demand.

ROIC as of May 31, 2022 was 46.5% compared to 48.8% as of May 31, 2021.

achieved record Revenues of $51.2 billion, which increased 10% and 16% on a reported and currency-neutral basis, respectively

• NIKE Direct revenues grew 14% from $18.7 billion in fiscal 2022 to $21.3 billion in fiscal 2023, and represented approximately 44% of total NIKE Brand revenues for fiscal 2023

• Gross margin for the fiscal year decreased 250 basis points to 43.5% primarily driven by higher product costs, higher markdowns and unfavorable changes in foreign currency exchange rates, partially offset by strategic pricing actions

• Inventories as of May 31, 2023 were $8.5 billion, flat compared to the prior year, driven by the actions we took throughout fiscal 2023 to manage inventory levels

• We returned $7.5 billion to our shareholders in fiscal 2023 through share repurchases and dividends

• Return on Invested Capital ("ROIC") as of May 31, 2023 was 31.5% compared to 46.5% as of May 31, 2022.

ROIC is considered a non-GAAP financial measure, see "Use of Non-GAAP Financial Measures" for further information.

During the fourth quarter of fiscal 2022, we entered into separate definitive agreements to sell our legal entities in Argentina and Uruguay as well as our legal entity in Chile to third-party distributors.

The assets and liabilities of these entities will remain classified as held-for-sale on our Consolidated Balance Sheets until the transactions close, which is expected to occur prior to the end of the third quarter of fiscal 2023.

For more information related to our planned distributor partnership transition within APLA, see Note 20 — Acquisitions and Divestitures within the accompanying Notes to the Consolidated Financial Statements.

In future quarters, as we shift from a wholesale and direct to consumer operating model to a distributor operating model within these countries, we expect consolidated NIKE, Inc.

and APLA revenue growth will be reduced due to differences in commercial terms.

However, over time we expect the future operating model to have a favorable impact on our overall profitability as we reduce selling and administrative expenses, as well as lessen exposure to foreign exchange rate volatility.

Economic sanctions imposed on Russia during the fourth quarter of fiscal 2022, impacted our local business and a reduction in the Ruble liquidity affected our ability to manage operational impact and related foreign currency risk.

As a result, we deconsolidated our Russian legal entities, the net revenues of which were less than one percent of consolidated net Revenues for fiscal 2021.

The deconsolidation of our Russian legal entities resulted in a one-time, pre-tax charge of $96 million recognized within Other (income) expense, net, classified within Corporate.

Subsequent to the end of fiscal 2022, we made the decision to leave the Russian marketplace.

While foreign currency markets remain volatile, in part due to geopolitical dynamics which have led to a stronger U.S.

Dollar, we continue to see opportunities to drive future growth and profitability.

We remain committed to effectively managing our business and mitigating financial market risks to achieve our financial goals over the long-term by executing against the operational strategies outlined above.

For discussion related to the results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021 refer to Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2022 Form 10-K, which was filed with the United States Securities and Exchange Commission on July 21, 2022.

USE OF NON-GAAP FINANCIAL MEASURES

Throughout this Annual Report on Form 10-K, we discuss non-GAAP financial measures, including references to wholesale equivalent revenues, currency-neutral revenues, Total NIKE Brand earnings before interest and taxes (EBIT) and Total NIKE, Inc.

EBIT, as well as EBIT Margin and ROIC, which should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“U.S.

References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations.

NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our NIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers.

Additionally, currency-neutral revenues are calculated

CURRENT ECONOMIC CONDITIONS AND MARKET DYNAMICS

• Consumer Spending:

Our fiscal 2023 growth in Revenues reflects strong demand for our products despite ongoing uncertainty in the global economy.

We will continue to closely monitor macroeconomic conditions, including potential impacts of inflation and rising interest rates on consumer behavior.

• Inflationary Pressures:

Inflationary pressures, including higher product input, freight and logistics costs negatively impacted gross margin for fiscal 2023.

The strategic pricing actions we have taken partially offset the impacts of these higher costs.

• Supply Chain Volatility:

Supply chain challenges, macroeconomic conditions and the impact of the COVID-19 pandemic on the manufacturing of our product disrupted the flow of seasonal product in fiscal 2022 and the first quarter of fiscal 2023, resulting in elevated inventory levels at the end of the first quarter of fiscal 2023.

Throughout fiscal 2023, we took action to reduce excess inventory by decreasing future inventory purchases and increasing promotional activity.

These actions, along with the stabilization of inventory transit times in the second and third quarters of fiscal 2023, resulted in the normalization of the seasonal flow of product in the fourth quarter of fiscal 2023.

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using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations.

EBIT is calculated as Net Income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income.

EBIT Margin is calculated as EBIT divided by total NIKE, Inc.

ROIC represents a performance measure that management believes is useful information in understanding the Company's ability to effectively manage invested capital, see the table below for how the Company calculates this measure.

Management uses these non-GAAP financial measures when evaluating the Company's performance, including when making financial and operating decisions.

• COVID-19 Impacts in Greater China:

During the first and second quarters of fiscal 2023, we managed through continued temporary store closures and reduced retail traffic in Greater China, primarily due to COVID-19 related local government restrictions.

At the beginning of the third quarter of fiscal 2023, the government mandated restrictions were lifted and we experienced improvement in physical retail traffic.

• Foreign Currency Impacts:

As a global company with significant operations outside the United States, we are exposed to risk arising from foreign currency exchange rates.

For fiscal 2023, fluctuations in foreign currency exchange rates negatively impacted our reported Revenues by approximately $2,859 million, reducing our revenue growth rate to 10% on a reported basis from 16% on a currency-neutral basis.

Foreign currency impacts, net of hedges, also reduced our reported Income before income taxes by approximately $1,023 million.

For further information, refer to "Foreign Currency Exposures and Hedging Practices".

The operating environment could remain volatile in fiscal 2024 as the risk exists that worsening macroeconomic conditions could have a material adverse impact on our future revenue growth as well as overall profitability.

For more information refer to Item 1A Risk Factors, within Part I, Item 1.

RECENT DEVELOPMENTS

During the first and second quarters of fiscal 2023, we completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors, respectively.

Now that we have completed the shift from a wholesale and direct to consumer operating model to a distributor model within our Central and South America ("CASA") territory, we expect consolidated NIKE, Inc.

and Asia Pacific & Latin America ("APLA") revenue growth will be reduced due to different commercial terms.

However, over time we expect the future operating model to have a favorable impact on our overall profitability as we reduce selling and administrative expenses, as well as reduce exposure to foreign exchange rate volatility.

USE OF NON-GAAP FINANCIAL MEASURES

Throughout this Annual Report on Form 10-K, we discuss non-GAAP financial measures, which should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with U.S.

References to these measures should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S.

GAAP and may not be comparable to similarly titled measures used by other companies.

Management uses these non-GAAP measures when evaluating the Company's performance, including when making financial and operating decisions.

Additionally, management believes these non-GAAP financial measures provide investors with additional financial information that should be considered when assessing our underlying business performance and trends.

However, references to wholesale equivalent revenues, currency-neutral revenues, ROIC, EBIT and EBIT margin should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S.

GAAP and may not be comparable to similarly titled non-GAAP measures used by other companies.

Earnings Before Interest and Taxes ("EBIT") :

Calculated as Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income.

Total NIKE, Inc.

EBIT for fiscal 2023 and fiscal 2022 is as follows:

YEAR ENDED MAY 31,

(Dollars in millions)

Net income $ 5,070 $ 6,046

Interest expense (income), net (6) 205

Income tax expense 1,131 605

Earnings before interest and taxes $ 6,195 $ 6,856

EBIT Margin :

Calculated as total NIKE, Inc.

EBIT divided by total NIKE, Inc.

Our EBIT Margin calculation for fiscal 2023 and fiscal 2022 is as follows:

YEAR ENDED MAY 31,

(Dollars in millions)

Earnings before interest and taxes $ 6,195 $ 6,856

Total NIKE, Inc.

Revenues $ 51,217 $ 46,710

EBIT Margin 12.1% 14.7%

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Return on Invested Capital ("ROIC") :

Represents a performance measure that management believes is useful information in understanding the Company's ability to effectively manage invested capital.

Our ROIC calculation as of May 31, 2023 and 2022 is as follows:

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Income tax adjustment (1)

(1,130) (624)

Earnings before interest and after taxes $ 5,065 $ 6,232

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1) Current portion of long-term debt, 2) Notes Payable, 3) Current portion of operating lease liabilities, 4) Long-term debt and 5) Operating lease liabilities.

Currency-neutral revenues :

Currency-neutral revenues enhance visibility to underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations.

Currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period in place of the exchange rates in use during the current period.

Wholesale equivalent revenues :

References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations.

COMPARABLE STORE SALES

Comparable store sales :

This key metric, which excludes NIKE Brand Digital sales, comprises revenues from NIKE-owned in-line and factory stores for which all three of the following requirements have been met:

(1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year and (3) the store has not been permanently repositioned within the past year.

Comparable store sales includes revenues from stores that were temporarily closed during the period as a result of COVID-19.

Comparable store sales represents a performance metric that we believe is useful information for management and investors in understanding the performance of our established NIKE-owned in-line and factory stores.

Management considers this metric when making financial and operating decisions.

The method of calculating comparable store sales varies across the retail industry.

As a result, our calculation of this metric may not be comparable to similarly titled metrics used by other companies.

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(1) The percent change excluding currency changes and the presentation of wholesale equivalent revenues represent non-GAAP financial measures.

See "Use of Non-GAAP Financial Measures" for further information.

For further information, see "Use of Non-GAAP Financial Measures".

(2) Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

(3) Corporate revenues primarily consist 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 our central foreign exchange risk management program.

(4) As a result of the Consumer Direct Acceleration strategy, announced in fiscal 2021, the Company is now organized around a new consumer construct of Men's, Women's and Kids'.

(4) As a result of the Consumer Direct Acceleration strategy, announced in fiscal 2021, the Company is now organized around a consumer construct of Men's, Women's and Kids'.

Beginning in the first quarter of fiscal 2022, unisex products are classified within Men's, and Jordan Brand revenues are separately reported.

Certain prior year amounts have been reclassified to conform to fiscal 2022 presentation.

Certain prior year amounts were reclassified to conform to fiscal 2022 presentation.

These changes had no impact on previously reported consolidated results of operations or shareholders' equity.

For additional information about the Consumer Direct Acceleration refer to Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations within the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

(5) Others include products not allocated to Men's, Women's, NIKE Kids' and Jordan Brand, as well as certain adjustments that are not allocated to products designated by consumer.

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FISCAL 2023 COMPARED TO FISCAL 2022

On a currency-neutral basis, NIKE, Inc.

Revenues increased 6% for fiscal 2022, driven by higher revenues in EMEA, North America and APLA, partially offset by lower revenues in Greater China.

Higher revenues in EMEA and North America each contributed approximately 3 percentage points to NIKE, Inc.

Revenues, and APLA contributed approximately 2 percentage points, while lower revenues in Greater China reduced NIKE, Inc.

Revenues by approximately 2 percentage points.

On a currency-neutral basis, NIKE Brand footwear revenues increased 4% for fiscal 2022, driven by growth in NIKE Direct, partially offset by a decline in our wholesale business.

Unit sales of footwear decreased 3%, while higher average selling price (ASP) per pair contributed approximately 7 percentage points of footwear revenue growth.

Higher ASP per pair was primarily due to higher NIKE Direct ASP, the favorable impact of growth in our NIKE Direct business, higher full-price ASP, net of discounts, on a wholesale equivalent basis, and a higher mix of full-price sales.

Currency-neutral NIKE Brand apparel revenues increased 6% for fiscal 2022, driven primarily by growth in Men's.

Unit sales of apparel remained flat, and higher ASP per unit contributed approximately 6 percentage points of apparel revenue growth.

Higher ASP per unit was primarily due to higher full-price and NIKE Direct ASPs.

On a reported basis, NIKE Direct revenues represented approximately 42% of our total NIKE Brand revenues for fiscal 2022 compared to 39% for fiscal 2021.

Revenues were $51.2 billion in fiscal 2023, which increased 10% and 16% compared to fiscal 2022 on a reported and currency-neutral basis, respectively.

The increase was due to higher revenues in North America, Europe, Middle East & Africa ("EMEA"), APLA and Greater China, which contributed approximately 7, 6, 2 and 1 percentage points to NIKE, Inc.

Revenues, respectively.

• NIKE Brand revenues, which represented over 90% of NIKE, Inc.

Revenues, increased 10% and 16% on a reported and currency-neutral basis, respectively.

This increase was primarily due to higher revenues in Men's, the Jordan Brand, Women's and Kids' which grew 17%, 35%,11% and 10%, respectively, on a wholesale equivalent basis.

• NIKE Brand footwear revenues increased 20% on a currency-neutral basis, due to higher revenues in Men's, the Jordan Brand, Women's and Kids'.

Unit sales of footwear increased 13%, while higher average selling price ("ASP") per pair contributed approximately 7 percentage points of footwear revenue growth.

Higher ASP was primarily due to higher full-price ASP, net of discounts, on a wholesale equivalent basis, and growth in the size of our NIKE Direct business, partially offset by lower NIKE Direct ASP.

• NIKE Brand apparel revenues increased 8% on a currency-neutral basis, primarily due to higher revenues in Men's.

Unit sales of apparel increased 4%, while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth.

Higher ASP was primarily due to higher full-price ASP and growth in the size of our NIKE Direct business, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity.

• NIKE Direct revenues increased 14% from $18.7 billion in fiscal 2022 to $21.3 billion in fiscal 2023.

On a currency-neutral basis, NIKE Direct revenues increased 20% primarily driven by NIKE Brand Digital sales growth of 24%, comparable store sales growth of 14% and the addition of new stores.

For further information regarding comparable store sales, including the definition, see "Comparable Store Sales".

NIKE Brand Digital sales were $12.6 billion for fiscal 2023 compared to $10.7 billion for fiscal 2022.

On a currency-neutral basis, NIKE Direct revenues increased 15% for fiscal 2022, driven by NIKE Brand Digital sales growth of 18%, comparable store sales growth of 10%, in part due to improved physical retail traffic, and the addition of new stores.

Comparable store sales, which exclude NIKE Brand Digital sales, comprises revenues from NIKE-owned in-line and factory stores for which all three of the following requirements have been met:

(1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year and (3) the store has not been permanently repositioned within the past year.

Comparable store sales includes revenues from stores that were temporarily closed during the period as a result of COVID-19.

Comparable store sales represents a performance measure that we believe is useful information for management and investors in understanding the performance of our established NIKE-owned in-line and factory stores.

Management considers this metric when making financial and operating decisions.

The method of calculating comparable store sales varies across the retail industry.

As a result, our calculation of this metric may not be comparable to similarly titled measures used by other companies.

On a currency-neutral basis, fiscal 2022 NIKE Brand revenue growth of 6% was primarily driven by increases in Men's and the Jordan Brand, which grew 3% and 7%, respectively.

2023 FORM 10-K 33

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For fiscal 2023, our consolidated gross profit increased 4% to $22,292 million compared to $21,479 million for fiscal 2022.

Gross margin increased 120 basis points to 46.0% for fiscal 2022 compared to 44.8% for fiscal 2021 due to the following:

Gross margin decreased 250 basis points to 43.5% for fiscal 2023 compared to 46.0% for fiscal 2022 due to the following:

*Wholesale equivalent

The increase in gross margin for fiscal 2022 was primarily due to higher margin in our NIKE Direct business, a higher mix of full-price sales on a wholesale equivalent basis and favorable changes in net foreign currency exchange rates, including hedges.

This activity was partially offset by higher product costs on a wholesale equivalent basis, largely due to elevated freight and logistics costs as well as an increase in other costs primarily due to higher inventory obsolescence reserves recognized in Greater China in the fourth quarter of fiscal 2022.

The decrease in gross margin for fiscal 2023 was primarily due to:

• Higher NIKE Brand product costs, on a wholesale equivalent basis, primarily due to higher input costs and elevated inbound freight and logistics costs as well as product mix;

• Lower margin in our NIKE Direct business, driven by higher promotional activity to liquidate inventory in the current period compared to lower promotional activity in the prior period resulting from lower available inventory supply;

• Unfavorable changes in net foreign currency exchange rates, including hedges;

• Lower off-price margin, on a wholesale equivalent basis.

This was partially offset by:

• Higher NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis, due primarily to strategic pricing actions and product mix;

• Lower other costs, primarily due to higher inventory obsolescence reserves recognized in Greater China in the fourth quarter of fiscal 2022.

TOTAL SELLING AND ADMINISTRATIVE EXPENSE

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FISCAL 2023 COMPARED TO FISCAL 2022

Demand creation expense increased 24% for fiscal 2022, primarily due to higher advertising and marketing spend against brand campaigns as we experienced marketplace closures in the prior year due to COVID-19, as well as continued investments in digital marketing to support heightened digital demand.

Changes in foreign currency exchange rates decreased Demand creation expense by approximately 1 percentage point.

Operating overhead expense increased 11% for fiscal 2022, primarily due to higher strategic technology investments and increases in wage-related expenses and NIKE Direct variable costs.

This activity was partially offset by higher restructuring-related costs in the prior year related to our organizational realignment.

For more information, see Note 21 — Restructuring within the accompanying Notes to the Consolidated Financial Statements.

Changes in foreign currency exchange rates had an insignificant impact on Operating overhead expense.

Demand creation expense increased 5% for fiscal 2023, primarily due to higher advertising and marketing expense and higher sports marketing expense.

Changes in foreign currency exchange rates decreased Demand creation expense by approximately 4 percentage points.

Operating overhead expense increased 12%, primarily due to higher wage-related expenses, NIKE Direct variable costs, strategic technology enterprise investments and other administrative costs.

Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 3 percentage points.

2023 FORM 10-K 34

OTHER (INCOME) EXPENSE, NET

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FISCAL 2023 COMPARED TO FISCAL 2022

Other (income) expense, net changed from $14 million of other expense, net in fiscal 2021 to $181 million of other income, net in the current year, primarily due to a $219 million net favorable change in foreign currency conversion gains and losses, including hedges, as well as a net favorable impact related to our strategic distributor partnership transition within APLA, partially offset by the one-time charge related to the deconsolidation of our Russian operations.

2022 FORM 10-K 34

Other (income) expense, net increased from $181 million of other income, net in fiscal 2022 to $280 million in the current fiscal year, primarily due to a net favorable change in foreign currency conversion gains and losses, including hedges, and the one-time charge related to the deconsolidation of our Russian operations recognized in the prior year.

This increase was partially offset by net unfavorable activity related to our strategic distributor partnership transition within APLA, including the loss recognized upon the completion of the sale of our entities in Argentina and Uruguay to a third-party distributor in the second quarter of fiscal 2023.

For more information related to our distributor partnership transition within APLA, see Note 18 — Acquisitions and Divestitures within the accompanying Notes to the Consolidated Financial Statements.

We estimate the combination of the translation of foreign currency-denominated profits from our international businesses, and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had a favorable impact on our Income before income taxes of $132 million for fiscal 2022.

We estimate the combination of the translation of foreign currency-denominated profits from our international businesses, and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had an unfavorable impact on our Income before income taxes of $1,023 million for fiscal 2023.

FISCAL 2023 FISCAL 2022 % CHANGE FISCAL 2021 % CHANGE

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FISCAL 2023 COMPARED TO FISCAL 2022

Our effective tax rate was 9.1% for fiscal 2022, compared to 14.0% for fiscal 2021, primarily due to a shift in our earnings mix and recognition of a non-cash, one-time benefit related to the onshoring of certain non-U.S.

intangible property ownership rights in the fourth quarter of fiscal 2022.

Our effective tax rate was 18.2% for fiscal 2023, compared to 9.1% for fiscal 2022, primarily due to decreased benefits from stock-based compensation and a non-cash, one-time benefit in the prior year related to the onshoring of certain non-U.S.

intangible property ownership rights.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S.

corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income," which is effective for NIKE beginning June 1, 2023.

Based on our current analysis of the provisions, we do not expect these tax law changes to have a material impact on our financial statements;

however, we will continue to evaluate their impact as further information becomes available.

2023 FORM 10-K 35

OPERATING SEGMENTS

Our operating segments are evidence of the structure of the Company's internal organization.

As discussed in Note 15 — Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, our 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 geographic operating segment.

Converse is also a reportable operating segment for the Company and operates predominately in one industry:

the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories.

As part of our centrally managed foreign exchange risk management program, standard foreign currency exchange rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and 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 into the entity's functional currency.

Differences between assigned standard foreign currency exchange rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses.

2022 FORM 10-K 35

The breakdown of Revenues is as follows:

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(1) The percent change excluding currency changes represents a non-GAAP financial measure.

See "Use of Non-GAAP Financial Measures" for further information.

(2) Refer to Note 20 — Acquisitions and Divestitures within the accompanying Notes to the Consolidated Financial Statements for additional information on the transition of our NIKE Brand business in Brazil to a third-party distributor.

For further information, see "Use of Non-GAAP Financial Measures".

(2) For additional information on the transition of our NIKE Brand businesses within our CASA territory to a third-party distributor, see Note 18 — Acquisitions and Divestitures of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report.

(3) Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

(4) Corporate revenues primarily consist 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 our central foreign exchange risk management program.

The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT, which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income.

As discussed in Note 17 — Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments.

The breakdown of earnings before interest and taxes is as follows:

The primary financial measure used by the Company to evaluate performance is Earnings Before Interest and Taxes ("EBIT").

As discussed in Note 15 — Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT.

The breakdown of EBIT is as follows:

(Dollars in millions)

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FISCAL 2023 COMPARED TO FISCAL 2022

On a currency-neutral basis, North America revenues increased 7%, due primarily to higher revenues in Men's and the Jordan Brand.

• North America revenues increased 18% on a currency-neutral basis, primarily due to higher revenues in Men's and the Jordan Brand.

NIKE Direct revenues increased 18%, driven by strong digital sales growth of 23%, comparable store sales growth of 9% and the addition of new stores.

Footwear revenues increased 5% on a currency-neutral basis, driven by growth in NIKE Direct, partially offset by a decline in our wholesale business.

Unit sales of footwear decreased 4%, while higher ASP per pair contributed approximately 9 percentage points of footwear revenue growth.

Higher ASP per pair was primarily due to higher NIKE Direct ASP, the favorable impact of growth in our NIKE Direct business and a higher mix of full-price sales.

On a currency-neutral basis, apparel revenues increased 9%, driven primarily by higher revenues in Men's.

Unit sales of apparel decreased 2%, while higher ASP per unit contributed approximately 11 percentage points of apparel revenue growth.

The increase in ASP per unit was primarily driven by higher full-price and NIKE Direct ASPs as well as a higher mix of full-price sales.

Reported EBIT remained flat as higher revenues were offset by higher selling and administrative expense and gross margin contraction.

Gross margin decreased approximately 10 basis points, largely due to higher product and other costs, partially offset by higher margins and the favorable impact of growth in our NIKE Direct business, a higher mix of full-price sales and higher full-price ASP, net of discounts, primarily due to strategic pricing actions.

Higher product and other costs were primarily due to increased freight, logistics and warehousing costs.

Selling and administrative expense increased due to higher demand creation and operating overhead expense.

Demand creation expense increased primarily as a result of higher advertising and marketing expense, as well as higher digital marketing investments.

The increase in operating overhead expense reflected higher wage-related costs as well as an increase in NIKE Direct variable costs.

• Footwear revenues increased 22% on a currency-neutral basis, primarily due to higher revenues in Men's and the Jordan Brand.

Unit sales of footwear increased 17%, while higher ASP per pair contributed approximately 5 percentage points of footwear revenue growth.

Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity as well as lower available inventory supply in the prior period and a lower mix of full-price sales.

• Apparel revenues increased 9% on a currency-neutral basis, primarily due to higher revenues in Men's.

Unit sales of apparel increased 7%, while higher ASP per unit contributed approximately 2 percentage points of apparel revenue growth.

Higher ASP per unit was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity.

Reported EBIT increased 7% due to higher revenues and the following:

• Gross margin contraction of 310 basis points primarily due to higher product costs, reflecting higher input costs and inbound freight and logistics costs and product mix, lower margins in NIKE Direct due to higher promotional activity and a lower mix of full-price sales.

This was partially offset by higher full-price ASP, net of discounts, largely due to strategic pricing actions and product mix.

• Selling and administrative expense increased 15% due to higher operating overhead and demand creation expense.

The increase in operating overhead expense was primarily due to higher wage-related costs and higher NIKE Direct variable costs, in part due to new store additions.

Demand creation expense increased primarily due to higher sports marketing expense and an increase in digital marketing.

2023 FORM 10-K 37

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FISCAL 2023 COMPARED TO FISCAL 2022

On a currency-neutral basis, EMEA revenues for fiscal 2022 grew 12%, due primarily to higher revenues in Men’s, the Jordan Brand and Women's.

NIKE Direct revenues increased 15%, primarily due to comparable store sales growth of 30% due to improved physical retail traffic, in part resulting from temporary store closures and safety-related measures in response to COVID-19 in the prior year, as well as digital sales growth of 8%.

Currency-neutral footwear revenues increased 9%, driven by higher revenues in the Jordan Brand and Men's.

Unit sales of footwear decreased 1%, while higher ASP per pair contributed approximately 10 percentage points of footwear revenue growth.

Higher ASP per pair was primarily due to higher NIKE Direct and full-price ASPs as well as a higher mix of full-price sales.

Currency-neutral apparel revenues increased 16% due primarily to higher revenues in Men's and Women's.

Unit sales of apparel increased 9%, while higher ASP per unit contributed approximately 7 percentage points of apparel revenue growth, primarily due to higher full-price and NIKE Direct ASPs.

Reported EBIT increased 35% as gross margin expansion and higher revenues more than offset higher selling and administrative expense.

Gross margin increased approximately 570 basis points primarily due to higher NIKE Direct margins, favorable changes in standard foreign currency exchange rates, a higher mix of full-price sales and higher full-price ASP, net of discounts, partially offset by higher product costs.

Higher full-price ASP, net of discounts, was largely due to strategic pricing actions, while higher product costs were primarily due to increased freight and logistics costs.

Selling and administrative expense increased due to higher demand creation and operating overhead expense.

Higher demand creation expense was driven by higher advertising and marketing expense.

Higher operating overhead expense was primarily due to increases in wage-related expenses and professional services.

• EMEA revenues increased 21% on a currency-neutral basis, due to higher revenues in Men's, the Jordan Brand, Women's and Kids'.

NIKE Direct revenues increased 33%, driven primarily by strong digital sales growth of 43% and comparable store sales growth of 22%.

• Footwear revenues increased 25% on a currency-neutral basis, due to higher revenues in Men's, the Jordan Brand, Women's and Kids'.

Unit sales of footwear increased 9%, while higher ASP per pair contributed approximately 16 percentage points of footwear revenue growth.

Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct.

• Apparel revenues increased 14% on a currency-neutral basis, primarily due to higher revenues in Men's.

Unit sales of apparel increased 2%, while higher ASP per unit contributed approximately 12 percentage points of apparel revenue growth.

Higher ASP per unit was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity.

Reported EBIT increased 7% due to higher revenues and the following:

• Gross margin contraction of 60 basis points primarily due to higher product costs reflecting higher input costs, inbound freight and logistics costs and product mix, higher other costs and unfavorable changes in standard foreign currency exchange rates.

This was partially offset by higher full-price ASP, net of discounts, primarily due to strategic pricing actions and product mix.

• Selling and administrative expense increased 4% due to higher operating overhead and demand creation expense.

Operating overhead expense increased primarily due to higher wage-related expenses and other administrative costs, partially offset by favorable changes in foreign currency exchange rates.

Demand creation expense increased primarily due to higher advertising and marketing expense, partially offset by favorable changes in foreign currency exchange rates.

2023 FORM 10-K 38

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FISCAL 2023 COMPARED TO FISCAL 2022

On a currency-neutral basis, Greater China revenues for fiscal 2022 decreased 13%, reflecting impacts from supply chain constraints, government restrictions due to COVID-19 as well as marketplace dynamics.

The decrease in revenues was primarily due to lower revenues in Men’s and Women's.

NIKE Direct revenues decreased 12% due to digital sales declines of 15% and comparable store sales declines of 14%, in part due to reduced physical retail traffic as a result of government restrictions due to COVID-19 as well as ongoing marketplace dynamics, partially offset by the addition of new stores.

Currency-neutral footwear revenues decreased 10%, driven primarily by lower revenues in Men's and Women's.

Unit sales of footwear decreased 7%, while lower ASP per pair reduced footwear revenues by approximately 3 percentage points, driven by lower NIKE Direct and full-price ASPs, reflecting higher discounts.

Currency-neutral apparel revenues decreased 21%, due primarily to lower revenues in Men's and Women's.

Unit sales of apparel decreased 15%, while lower ASP per unit reduced apparel revenues by approximately 6 percentage points, primarily due to lower NIKE Direct and full-price ASPs, reflecting higher discounts.

Reported EBIT decreased 27% due to lower revenues, gross margin contraction and higher selling and administrative expense.

Gross margin decreased approximately 390 basis points, reflecting impacts from COVID-19 related government restrictions which reduced physical retail traffic and led to higher inventory obsolescence reserves recognized primarily in the fourth quarter of fiscal 2022.

The decrease in gross margin was also largely due to higher product costs and lower NIKE Direct margins.

This activity was partially offset by favorable changes in standard foreign currency exchange rates.

Selling and administrative expense increased due to higher demand creation and operating overhead expense.

Growth in demand creation expense was primarily due to higher advertising and marketing expense.

Operating overhead expense increased largely due to higher wage-related costs and higher strategic technology investments.

• Greater China revenues increased 4% on a currency-neutral basis, primarily due to higher revenues in the Jordan Brand, partially offset by lower revenues in Men's and Women's.

NIKE Direct revenues increased 5%, due to comparable store sales growth of 9% and the addition of new stores, partially offset by digital sales declines of 4%.

• Footwear revenues increased 8% on a currency-neutral basis, primarily due to higher revenues in the Jordan Brand and Men's.

Unit sales of footwear increased 7%, while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth.

Higher ASP per pair was primarily due to higher NIKE Direct ASP and a higher mix of full-price sales, largely offset by a lower mix of NIKE Direct sales.

• Apparel revenues decreased 7% on a currency-neutral basis, primarily due to lower revenues in Men's and Women's.

Unit sales of apparel decreased 8%, while higher ASP per unit contributed approximately 1 percentage point of apparel revenue growth.

Higher ASP per unit was primarily due to a higher mix of full price sales, partially offset by lower off-price ASP.

Reported EBIT decreased 3% due to lower revenues and the following:

• Gross margin expansion of approximately 140 basis points, primarily due to higher inventory obsolescence reserves recognized in the fourth quarter of fiscal 2022, favorable changes in standard foreign currency exchange rates and higher full-price ASP, net of discounts, in part due to product mix.

This was partially offset by higher product costs reflecting higher input costs and product mix.

• Selling and administrative expense was flat due to increased operating overhead expense offset by lower demand creation expense.

The increase in operating overhead expense was primarily due to higher wage-related expenses and other administrative costs, partially offset by favorable changes in foreign currency exchange rates.

Demand creation expense decreased primarily due to lower retail brand presentation costs, lower digital marketing and favorable changes in foreign currency exchange rates, partially offset by higher advertising and marketing expense.

2023 FORM 10-K 39

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As discussed previously, our NIKE Brand business in Brazil transitioned to a distributor operating model during fiscal 2021.

During the fourth quarter of fiscal 2022, we signed separate definitive agreements to sell our legal entities in Argentina and Uruguay as well as our legal entity in Chile to third-party distributors.

The assets and liabilities of our legal entities in Argentina, Chile and Uruguay will remain classified as held-for-sale on the Consolidated Balance Sheets until the transactions close, which is expected to occur prior to the end of the third quarter of fiscal 2023.

The impacts of closing the Brazil transaction as well as classifying the Argentina, Chile, and Uruguay entities as held-for-sale in fiscal 2020 are included within Corporate and are not reflected in the APLA operating segment results.

We completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors in the first and second quarters of fiscal 2023, respectively.

The impacts of closing these transactions are included within Corporate and are not reflected in the APLA operating segment results.

This completed the transition of our NIKE Brand businesses within our CASA marketplace, which now reflects a full distributor operating model.

For more information see Note 18 — Acquisitions and Divestitures within the accompanying Notes to the Consolidated Financial Statements.

FISCAL 2023 COMPARED TO FISCAL 2022

On a currency-neutral basis, APLA revenues increased 16% for fiscal 2022.

The increase was due to higher revenues across nearly all territories, driven by SOCO (which comprises Argentina, Chile and Uruguay), Mexico and Korea, which increased 58%, 35% and 16%, respectively.

Revenues increased primarily due to higher revenues in Men’s and Women's.

NIKE Direct revenues increased 30%, primarily due to digital sales growth of 51% and comparable store sales growth of 13%, in part due to improved physical retail traffic, partially offset by store closures.

Currency-neutral footwear revenues increased 17% for fiscal 2022 in part due to higher revenues in Women's and Men's.

• APLA revenues increased 17% on a currency-neutral basis due to higher revenues across nearly all territories, led by Southeast Asia and India, Korea and Japan.

The increase was partially offset by a decline in our CASA territory.

Within our CASA territory, the transition of our Chile, Argentina and Uruguay entities to a third-party distributor operating model reduced APLA revenue growth by approximately 5 percentage points.

Revenues increased primarily due to growth in Men's, Women's and the Jordan Brand.

NIKE Direct revenues increased 22%, driven by digital sales growth of 23% and comparable store sales growth of 28%.

• Footwear revenues increased 19% on a currency-neutral basis, primarily due to higher revenues in Men's, Women's and the Jordan Brand.

Unit sales of footwear increased 16%, while higher ASP per pair contributed approximately 3 percentage points of footwear revenue growth.

Higher ASP per pair was driven by higher NIKE Direct ASP, higher full-price ASP, reflecting lower discounts, higher off-price ASP and a higher mix of full-price sales.

Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.

Currency-neutral apparel revenues increased 12% for fiscal 2022 due primarily to higher revenues in Men's.

Unit sales of apparel increased 3%, while higher ASP per unit contributed approximately 9 percentage points of apparel revenue growth, driven by higher full-price ASP, reflecting lower discounts, as well as higher NIKE Direct and off-price ASPs.

Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.

Reported EBIT increased 24% for fiscal 2022, as higher revenues and gross margin expansion more than offset higher selling and administrative expense.

Gross margin increased approximately 400 basis points primarily due to higher margins and the favorable impact of growth in our NIKE Direct business, higher full-price ASP largely due to lower discounts, favorable changes in standard foreign currency exchange rates, lower other costs as well as a higher mix of full-price sales.

The decrease in other costs was primarily due to lower warehousing costs.

Selling and administrative expense increased due to higher demand creation and operating overhead expense.

Higher demand creation expense was primarily due to higher digital marketing investments to support heightened digital demand.

The increase in operating overhead expense was primarily due to an increase in NIKE Direct variable expenses as well as higher bad debt expense.

Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP.

• Apparel revenues increased 13% on a currency-neutral basis, primarily due to higher revenues in Men's.

Unit sales of apparel increased 9%, while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth.

Higher ASP per unit was primarily due to higher full-price and off-price ASPs, partially offset by lower NIKE Direct ASP.

Reported EBIT increased 2% due to higher revenues and the following:

• Gross margin contraction of approximately 190 basis points primarily due to higher product costs, reflecting product mix and higher input costs, as well as unfavorable changes in standard foreign currency exchange rates.

This was partially offset by higher full-price ASP, net of discounts, due to product mix and strategic pricing actions.

• Selling and administrative expense increased 8% due to higher operating overhead and demand creation expense.

Operating overhead expense increased primarily due to higher wage-related expenses and an increase in NIKE Direct variable costs, partially offset by favorable changes in foreign currency exchange rates.

Demand creation expense increased primarily due to higher sports marketing expense and higher advertising and marketing expense, partially offset by favorable changes in foreign currency exchange rates.

2023 FORM 10-K 40

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FISCAL 2023 COMPARED TO FISCAL 2022

Global Brand Divisions' loss before interest and taxes increased 17% for fiscal 2022 due to higher total selling and administrative expense, driven by higher operating overhead and demand creation expense.

Higher operating overhead expense was primarily due to an increase in strategic technology investments, continued investment in digital capabilities and higher wage-related expenses.

Higher demand creation expense was primarily due to higher advertising and marketing expense and higher sports marketing costs.

Global Brand Divisions' loss before interest and taxes increased 14% for fiscal 2023 primarily due to a 12% increase in selling and administrative expense from higher operating overhead expense largely driven by higher wage-related costs and strategic technology enterprise investments.

(Dollars in millions)

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FISCAL 2023 COMPARED TO FISCAL 2022

On a currency-neutral basis, Converse revenues increased 7% for fiscal 2022 due to revenue growth in North America, Western Europe and licensee markets, partially offset by declines in Asia.

Direct to consumer revenues increased 22%, led by strong digital demand.

Wholesale revenues decreased 4%, primarily due to ongoing marketplace dynamics in China as well as global supply chain constraints.

Combined unit sales within the wholesale and direct to consumer channels decreased 6%, while ASP increased 12%, driven by growth in direct to consume r.

Reported EBIT increased 23%, driven by gross margin expansion and higher revenues, partially offset by higher selling and administrative expense.

Gross margin increased approximately 360 basis points as higher margins in direct to consumer, growth in licensee revenues, favorable changes in standard foreign currency exchange rates, and higher full-price ASP, net of discounts, were partially offset by higher product costs due to increased freight, duty and logistics costs.

Selling and administrative expense increased due to higher demand creation and operating overhead expense.

Demand creation expense increased primarily due to higher advertising and marketing expense, while operating overhead increased primarily due to higher professional services costs.

• Converse revenues increased 8% on a currency-neutral basis for fiscal 2023 due to revenue growth in North America, Western Europe and licensee markets, partially offset by declines in Asia.

Combined unit sales within the wholesale and direct to consumer channels increased 1% while ASP increased 6%, driven by strategic pricing actions in Western Europe and North America.

• Direct to consumer revenues increased 8% on a currency-neutral basis, led by strong digital sales growth in North America.

• Wholesale revenues increased 7% on a currency-neutral basis, as growth in North America and Western Europe was partially offset by declines in Asia due to marketplace dynamics in China.

Reported EBIT increased 1% due to higher revenues and the following:

• Gross margin expansion of approximately 50 basis points as higher full-price ASP, net of discounts, lower other costs, and growth in licensee revenues were partially offset by higher product costs, lower margins in direct to consumer in part reflecting increased promotional activity, and unfavorable changes in standard foreign currency exchange rates.

• Selling and administrative expense increased 7% due to higher operating overhead and demand creation expense.

Operating overhead expense increased primarily as a result of higher wage-related expenses.

Demand creation expense increased as a result of higher advertising and marketing costs, partially offset by lower retail brand presentation costs.

2023 FORM 10-K 41

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FISCAL 2023 COMPARED TO FISCAL 2022

Corporate's loss before interest and taxes decreased $42 million during fiscal 2022, primarily due to the following:

• a favorable change in net foreign currency gains and losses of $219 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net;

Corporate's loss before interest and taxes increased $621 million during fiscal 2023, primarily due to the following:

• an unfavorable change of $371 million primarily related to higher wage and other professional services expenses, reported as a component of consolidated Operating overhead expense;

• an unfavorable change of $352 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses;

these results are reported as a component of consolidated gross margin;

• a favorable change of $13 million largely due to higher restructuring-related costs associated with our organizational realignment in the prior year and, to a lesser extent, a net favorable impact related to our strategic distributor partnership transition within APLA in the current year, partially offset by the one-time charge related to the deconsolidation of our Russian operations and higher administrative and wage-related expenses in fiscal 2022.

• an unfavorable change of $45 million largely due to net unfavorable activity related to our strategic distributor partnership transition within APLA, including the loss recognized upon completion of the sale our entities in Argentina and Uruguay to a third-party distributor in the second quarter of fiscal 2023.

This was partially offset by the one-time charge related to the deconsolidation of our Russian operations recognized in the prior year, with the net amount of these activities reported as a component of consolidated Other (income) expense, net;

• a favorable change in net foreign currency gains and losses of $174 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net.

FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES

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We do not hold or issue derivative instruments for trading or speculative purposes.

Refer to Note 6 — Fair Value Measurements and Note 14 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end.

2023 FORM 10-K 42

Refer to Note 4 — Fair Value Measurements and Note 12 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end.

TRANSACTIONAL EXPOSURES

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Under this program, our payments to these factories are adjusted for rate fluctuations in the basket of currencies ("factory currency exposure index") in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products ("factory input costs") are denominated.

For the currency within the factory currency exposure indices that is the local or functional currency of the factory, the currency rate fluctuation affecting the product cost is recorded within Inventories and is recognized in Cost of sales when the related product is sold to a third-party.

All currencies within the indices, excluding the U.S.

Dollar and the local or functional currency of the factory, are recognized as embedded derivative contracts and are recorded at fair value through Other (income) expense, net.

Refer to Note 14 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional detail.

As an offset to the impacts of the fluctuating U.S.

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• Other Costs — Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent.

In certain cases, the Company has entered into contractual agreements which have payments indexed to foreign currencies that create embedded derivative contracts recorded at fair value through Other (income) expense, net.

Refer to Note 14 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional detail.

• Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies.

These balance sheet items are subject to remeasurement which may create fluctuations in Other (income) expense, net within our consolidated results of operations.

These balance sheet items are subject to remeasurement which may create fluctuations in Other (income) expense, net within our Consolidated Statements of Income.

MANAGING TRANSACTIONAL EXPOSURES

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We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above.

Generally, these are accounted for as cash flow hedges, except for hedges of the embedded derivative components of the product cost exposures and other contractual agreements.

Generally, these are accounted for as cash flow hedges.

2023 FORM 10-K 43

Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement, and embedded derivative contracts are not formally designated as hedging instruments.

Accordingly, changes in fair value of these instruments are recognized in Other (income) expense, net and are intended to offset the foreign currency impact of the remeasurement of the related non-functional currency denominated asset or liability or the embedded derivative contract being hedged.

Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement are not formally designated as hedging instruments.

TRANSLATIONAL EXPOSURES

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Dollar reduces our consolidated earnings.

The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately $295 million, a benefit of approximately $893 million and a detriment of approximately $867 million for the years ended May 31, 2022, 2021 and 2020, respectively.

The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately $87 million, a benefit of approximately $260 million and a detriment of approximately $212 million for the years ended May 31, 2022, 2021 and 2020, respectively.

Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%.

Management has concluded our Argentina subsidiary within our APLA operating segment is operating in a hyper-inflationary market.

As a result, beginning in the second quarter of fiscal 2019, the functional currency of our Argentina subsidiary changed from the local currency to the U.S.

As of and for the period ended May 31, 2022, this change did not have a material impact on our results of operations or financial condition, and we do not anticipate it will have a material impact in future periods based on current rates.

The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately $2,859 million, $295 million and a benefit of approximately $893 million for the years ended May 31, 2023, 2022 and 2021, respectively.

The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately $824 million, $87 million and a benefit of approximately $260 million for the years ended May 31, 2023, 2022 and 2021, respectively.

MANAGING TRANSLATIONAL EXPOSURES

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Dollar denominated investments at non-U.S.

Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under U.S.

Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under generally accepted accounting principles in the United States of America ("U.S.

We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S.

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Dollar denominated available-for-sale investments are accounted for as cash flow hedges.

We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had favorable impacts of approximately $132 million and $19 million and an unfavorable impact of approximately $91 million on our Income before income taxes for the years ended May 31, 2022, 2021 and 2020, respectively.

We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had an unfavorable impact of approximately $1,023 million and a favorable impact of approximately $132 million and $19 million on our Income before income taxes for the years ended May 31, 2023, 2022 and 2021, respectively.

NET INVESTMENTS IN FOREIGN SUBSIDIARIES

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There were no cash flows from net investment hedge settlements for the years ended May 31, 2023, 2022 and 2021.

2022 FORM 10-K 44

LIQUIDITY AND CAPITAL RESOURCES

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Net income, adjusted for non-cash items, generated $6,354 million of operating cash inflow for fiscal 2023, compared to $6,848 million for fiscal 2022.

The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of $1,660 million for fiscal 2022, compared to an increase of $45 million for fiscal 2021.

The net change in working capital was unfavorably impacted by a $2,183 million increase in Inventories, partially offset by a favorable impact from a $1,102 million decrease in Accounts receivable.

These changes were, in part, due to supply chain constraints, which caused higher levels of in-transit inventory and therefore a lower supply of available inventory to meet consumer demand.

Cash provided (used) by investing activities was an outflow of $1,524 million for fiscal 2022, compared to an outflow of $3,800 million for fiscal 2021, primarily driven by the net change in short-term investments.

During fiscal 2022, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash outflow of $747 million compared to a cash outflow of $3,276 million in fiscal 2021.

Additionally, during fiscal 2022, we continued investing in our infrastructure to support future growth, specifically focused around digital capabilities, our end-to-end technology foundation, our corporate facilities and improvements across our supply chain.

In future periods, we expect to make annual capital expenditures of approximately 3% of annual revenues.

The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of $513 million for fiscal 2023 compared to a decrease of $1,660 million for fiscal 2022.

For fiscal 2023, the net change in working capital compared to the prior year was impacted by unfavorable changes in Accounts payable, offset by favorable impacts from Inventories and Accounts receivable.

These changes were, in part, due to reduced inventory purchases in the current period and timing of wholesale shipments.

Further impacting these changes was a lower available supply of inventory in the prior year due to supply chain constraints.

Cash provided (used) by investing activities was an inflow of $564 million for fiscal 2023, compared to an outflow of $1,524 million for fiscal 2022, primarily driven by the net change in short-term investments.

For fiscal 2023, the net change in short-term

2023 FORM 10-K 44

investments (including sales, maturities and purchases) resulted in a cash inflow of $1,481 million compared to a cash outflow of $747 million for fiscal 2022.

Additionally, we continue to invest in our infrastructure to support future growth, specifically focused around digital capabilities, our end-to-end technology foundation, our corporate facilities and improvements across our supply chain.

Cash provided (used) by financing activities was an outflow of $7,447 million for fiscal 2023 compared to an outflow of $4,836 million for fiscal 2022.

This change was driven by our resumption of the share repurchase program in the fourth quarter of fiscal 2021, resulting in $4,014 million of share repurchases during fiscal 2022 compared to $608 million during fiscal 2021.

In fiscal 2022, we purchased 27.3 million shares of NIKE's Class B Common Stock for $3,994 million (an average price of $146.11 per share) under the four-year, $15 billion share repurchase program approved by the Board of Directors in June 2018.

As of May 31, 2022, we had repurchased 77.4 million shares at a cost of $8,663 million (an average price of $111.98 per share) under this program.

In June 2022, the Board of Directors authorized a new four-year, $18 billion program to repurchase shares of the Company's Class B common stock.

The new program will replace the current $15 billion share repurchase program, which will be terminated in fiscal 2023.

Repurchases under the new program will be made in open market or privately negotiated transactions in compliance with the Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other relevant factors.

The new share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended at any time at our discretion.

We continue to expect funding of share repurchases will come from operating cash flows and excess cash.

The increased outflow in fiscal 2023 was driven by higher share repurchases of $5,480 million for fiscal 2023 compared to $4,014 million for fiscal 2022, the repayment of $500 million of senior notes that matured in fiscal 2023, as well as lower proceeds from stock option exercises, which resulted in a cash inflow of $651 million in fiscal 2023 compared to $1,151 million in fiscal 2022.

In fiscal 2023, we purchased a total of 50.0 million shares of NIKE's Class B Common Stock for $5.5 billion (an average price of $110.32 per share).

In August 2022, we terminated the previous four-year, $15 billion share repurchase program approved by the Board of Directors in June 2018.

Under this program, we repurchased 6.5 million shares for a total approximate cost of $710.0 million (an average price of $109.85 per share) during the first quarter of fiscal 2023 and 83.8 million shares for a total approximate cost of $9.4 billion (an average price of $111.82 per share) during the term of the program.

Upon termination of the four-year, $15 billion program, we began purchasing shares under the new four-year, $18 billion share repurchase plan authorized by the Board of Directors in June 2022.

As of May 31, 2023, we had repurchased 43.5 million shares at a cost of approximately $4.8 billion (an average price of $110.38 per share) under this new program.

We continue to expect funding of share repurchases will come from operating cash flows.

The timing and the amount of share repurchases will be dictated by our capital needs and stock market conditions.

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On July 21, 2022, we filed a shelf registration statement (the "Shelf") with the U.S.

Securities and Exchange Commission (SEC) which permits us to issue an unlimited amount of debt securities from time to time.

The Shelf expires on July 23, 2022, and we plan to file a new shelf registration statement with the SEC in July 2022.

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

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

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

Refer to Note 7 — Short-Term Borrowings and Credit Lines for additional information.

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

Securities and Exchange Commission (the "SEC") which permits us to issue an unlimited amount of debt securities from time to time.

The Shelf expires on July 21, 2025.

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

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

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Refer to Note 5 — Short-Term Borrowings and Credit Lines for additional information.

On March 10, 2023, we entered into a 364-day committed credit facility agreement with a syndicate of banks which provides for up to $1 billion of borrowings, with the 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 by 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.

Refer to Note 5 — Short-Term Borrowings and Credit Lines for additional information.

We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively.

As it relates to our committed credit facilities entered into on March 11, 2022, if our long-term debt ratings were to decline, the facility fees and interest rates would increase.

As it relates to our committed credit facilities entered into on March 11, 2022 and March 10, 2023, if our long-term debt ratings were to decline, the facility fees and interest rates would increase.

Conversely, if our long-term debt ratings were to improve, the facility fees and interest rates would decrease.

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Under these facilities, we have agreed to various covenants.

These covenants include limits on our disposal of assets and the amount of debt secured by liens we may incur.

In the event we were to have any borrowings outstanding under these facilities, failed to meet any covenant and were unable to obtain a waiver from a majority of the banks in the syndicate, any borrowings would become immediately due and

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As of May 31, 2022, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future.

These covenants include limits on the disposal of assets and the amount of debt secured by liens we may incur.

In the event we were to have any borrowings outstanding under these facilities, failed to meet any covenant and were unable to obtain a waiver from a majority of the banks in the applicable syndicate, any borrowings would become immediately due and payable.

As of May 31, 2023, we were in full compliance with each of these covenants, and we believe it is unlikely we will fail to meet any of these covenants in the foreseeable future.

Liquidity is also provided by our $3 billion commercial paper program.

As of and for the fiscal year ended May 31, 2022, we did not have any borrowings outstanding under our $3 billion program.

As of May 31, 2021, we had no commercial paper outstanding.

As of and for the fiscal years ended May 31, 2023 and 2022, we did not have any borrowings outstanding under our $3 billion program.

We may continue to issue commercial paper or other debt securities depending on general corporate needs.

To date, we have not experienced difficulty accessing the credit markets;

however, future volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets.

As of May 31, 2022, we had cash, cash equivalents and short-term investments totaling $13.0 billion, primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds, U.S.

government sponsored enterprise obligations, U.S.

To date, we have not experienced difficulty accessing the capital or credit markets;

however, future volatility may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets.

As of May 31, 2023, we had Cash and equivalents and Short-term investments totaling $10.7 billion, primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds, U.S.

Treasury obligations and other investment grade fixed-income securities.

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While individual securities have varying durations, as of May 31, 2023, the weighted-average days to maturity of our cash equivalents and short-term investments portfolio was 98 days.

We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.

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We believe that existing Cash and equivalents, Short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.

Our material cash requirements as of May 31, 2023, were as follows:

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These amounts represent the transition tax on deemed repatriation of undistributed earnings of foreign subsidiaries, which are reflected net of foreign tax credits we utilized.

Refer to Part II, Item 8.

Financial Statements and Supplementary Data, Note 9 - Income Taxes, in our fiscal 2020 Form 10-K, which was filed with the United States Securities and Exchange Commission on July 24, 2020, for additional information.

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Refer to Note 16 — Commitments and Contingencies in the accompanying Notes to the Consolidated Financial Statements for further information related to our off-balance sheet arrangements, bank guarantees and letters of credit.

OFF-BALANCE SHEET ARRANGEMENTS

As of May 31, 2023, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our current and future financial condition, results of operations, liquidity, capital expenditures or capital resources.

In connection with various contracts and agreements, we routinely provide indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where we are acting as the guarantor.

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NEW ACCOUNTING PRONOUNCEMENTS

We do not expect that any recently issued accounting pronouncements will have a material effect on our Consolidated Financial Statements.

Refer to Note 1 — Summary of Significant Accounting Policies within the accompanying Notes to the Consolidated Financial Statements for recently adopted and issued accounting standards.

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CRITICAL ACCOUNTING ESTIMATES

Our previous discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Our previous discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

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Management has reviewed and discussed these critical accounting estimates with the Audit & Finance Committee of the Board of Directors.

These policies require that we make estimates in the preparation of our Consolidated Financial Statements as of a given date.

Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting estimates.

Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in the preparation of our Consolidated Financial Statements.

Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

REVENUE RECOGNITION

Revenue is recognized when transfer of control to the customer has occurred, which is either upon shipment or upon receipt, depending on the terms of sale.

The transaction price is determined based upon the invoiced sales price, less anticipated sales returns, discounts and miscellaneous claims from customers.

The provision for anticipated sales returns consists of both contractual return rights and discretionary authorized returns.

SALES-RELATED RESERVES

Provisions for anticipated sales returns consist of both contractual return rights and discretionary authorized returns.

Provisions for post-invoice sales discounts consist of both contractual programs and discretionary discounts that are expected to be granted at a later date.

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If actual or expected future returns, discounts or claims were significantly different than reserves established, a reduction or increase to net revenues would be recorded in the period in which such determination was made.

Refer also to Note 1 — Summary of Significant Accounting Policies and Note 16 — Revenues in the accompanying Notes to the Consolidated Financial Statements for additional information.

Refer to Note 14 — Revenues in the accompanying Notes to the Consolidated Financial Statements for additional information.

INVENTORY RESERVES

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If changes in market conditions result in reductions to the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination.

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CONTINGENT PAYMENTS UNDER ENDORSEMENT CONTRACTS

A significant amount of our Demand creation expense relates to payments under endorsement contracts.

In general, endorsement payments are expensed on a straight-line basis over the term of the contract.

However, certain contract elements may be accounted for differently based upon the facts and circumstances of each individual contract.

Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship).

We record Demand creation expense for these amounts when the endorser achieves the specific goal.

Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a specified ranking in a sport for a year).

When we determine payments are probable, the amounts are reported in Demand creation expense ratably over the contract period based on our best estimate of the endorser's performance.

In these instances, to the extent actual payments to the endorser differ from our estimate due to changes in the endorser's performance, adjustments to Demand creation expense may be recorded in a future period.

Certain contracts provide for royalty payments to endorsers based upon a predetermined percent of sales of particular products, which we record in Cost of sales as the related sales occur.

For contracts containing minimum guaranteed royalty payments, we record the amount of any guaranteed payment in excess of that earned through sales of product within Demand creation expense.

PROPERTY, PLANT AND EQUIPMENT AND DEFINITE-LIVED ASSETS

We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable.

Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others.

If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group.

If the recoverability test indicates the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies that would typically include an estimate of discounted cash flows.

Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value.

HEDGE ACCOUNTING FOR DERIVATIVES

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By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions.

When the designated amount of anticipated or actual transactions decline below hedged levels, or if it is no longer probable a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we are required to reclassify the cumulative change in fair value of the over-hedged portion of the related hedge contract from Accumulated other comprehensive income (loss) to Other (income) expense, net during the quarter in which the decrease occurs.

When the designated amount of anticipated or actual transactions decline below hedged levels, or if it is no longer probable a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we reclassify the cumulative change in fair value of the over-hedged portion of the related hedge contract from Accumulated other comprehensive income (loss) to Other (income) expense, net during the quarter in which the decrease occurs.

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 our control or influence.

Refer to Note 12 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional information.

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We are subject to taxation in the United States, as well as various state and foreign jurisdictions.

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When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs.

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We record valuation allowances against our deferred tax assets, when necessary.

Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain.

At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income.

To the extent we believe that recovery is not likely, we establish a valuation allowance against our net deferred tax asset, which increases our Income tax expense in the period when such determination is made.

We historically had not provided for deferred income taxes on the undistributed earnings of certain foreign subsidiaries as they were considered indefinitely reinvested outside the U.S.

During the fourth quarter of fiscal 2022, in connection with a change in our legal entity structure that reduced the withholding tax consequences of a decision to remit undistributed earnings in the Netherlands, we changed our assertion regarding our ability and intent to indefinitely reinvest undistributed earnings of certain foreign subsidiaries.

We have evaluated our historic indefinite reinvestment assertion as a result of the legal entity restructuring and determined that any historical or future undistributed earnings of foreign subsidiaries are no longer considered to be indefinitely reinvested.

There is no deferred tax liability associated with those earnings.

On a quarterly basis, we evaluate the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity.

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OTHER CONTINGENCIES

In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights and a variety of other matters.

In the ordinary course of business, we are subject to various legal proceedings, claims and government investigations related to our business, products and actions of our employees and representatives, including contractual and employment relationships, product liability, antitrust, customs, tax, intellectual property and other matters.

We record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable.

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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-K

Item 7. Management’s Discussion and Analysis