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Item 8. Financial Statements and Supplementary Data

2023-07-20 compared with 2022-07-21 · 120 added, 210 removed, 1131 unchanged (23% of the section changed)

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Management of NIKE, Inc.

is responsible for the information and representations contained in this report.

is responsible for the information and representations contained in this Annual Report.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S.

GAAP") and include certain amounts based on our best estimates and judgments.

Other financial information in this report is consistent with these financial statements.

Other financial information in this Annual Report is consistent with these financial statements.

Our accounting systems include controls designed to reasonably assure assets are safeguarded from unauthorized use or disposition and provide for the preparation of financial statements in conformity with U.S.

These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties.

An internal corporate audit department reviews the results of its work with the Audit & Finance Committee of the Board of Directors, presently comprised of three outside, independent directors.

An internal corporate audit department reviews the results of its work with the Audit & Finance Committee of the Board of Directors, presently comprised of four outside, independent directors.

The Audit & Finance Committee is responsible for the appointment of the independent registered public accounting firm and reviews, with the independent registered public accounting firm, management and the internal corporate audit staff, the scope and the results of the annual audit, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as the Audit & Finance Committee deems appropriate.

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of June 1, 2019.

Basis for Opinions

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and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matters

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As disclosed by management, the use of significant judgment and estimates, as well as the interpretation and application of complex tax laws is required by management to determine the Company's provision for income taxes.

The principal considerations for our determination that performing procedures relating to the accounting for income taxes is a critical audit matter are a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to (i) management's assessment of complex tax laws and regulations as it relates to determining the provision for income taxes and (ii) management's assessment of the realizability of deferred tax assets, specifically related to available tax planning strategies.

The principal considerations for our determination that performing procedures relating to the accounting for income taxes is a critical audit matter are a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management's assessment of complex tax laws and regulations as it relates to determining the provision for income taxes.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to income taxes, including controls over management's assessment of the realizability of deferred tax assets.

These procedures also included, among others, evaluating the effect on the Company's tax provision of changes in its legal entity structure, evaluating changes in and compliance with tax laws, and testing the calculation of the provision of income taxes, including assessing management’s tax planning strategies for the utilization of deferred tax assets.

These procedures included testing the effectiveness of controls relating to income taxes, evaluating changes in and compliance with tax laws, and testing the calculation of the provision of income taxes.

Professionals with specialized skill and knowledge were used to assist in evaluating changes in and compliance with the tax laws and regulations and the provision for income taxes.

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Cash provided (used) by financing activities:

Proceeds from borrowings, net of debt issuance costs — — 6,134

Increase (decrease) in notes payable, net ( 4 ) 15 ( 52 )

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Stock options exercised 21 954 954

Conversion to Class B Common Stock ( 10 ) 10 —

Repurchase of Class B Common Stock ( 5 ) ( 28 ) ( 622 ) ( 650 )

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Other comprehensive income (loss) ( 324 ) ( 324 )

Adoption of ASC Topic 842 (Note 1) ( 1 ) ( 1 )

Balance at May 31, 2021 305 $ — 1,273 $ 3 $ 9,965 $ ( 380 ) $ 3,179 $ 12,767

Stock options exercised 17 924 924

Conversion to Class B Common Stock ( 10 ) 10 —

Repurchase of Class B Common Stock ( 27 ) ( 186 ) ( 3,808 ) ( 3,994 )

19 unchanged sentences

Note 1 Summary of Significant Accounting Policies 61

Note 2 Inventories 67

Note 2 Property, Plant and Equipment 67

Note 4 Identifiable Intangible Assets and Goodwill 68

Note 3 Accrued Liabilities 67

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is a worldwide leader in the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services.

portfolio brands include the NIKE Brand, Jordan Brand, Hurley, prior to its divestiture in fiscal 2020, and Converse.

portfolio brands include the NIKE Brand, Jordan Brand and Converse.

The NIKE Brand is focused on performance athletic footwear, apparel, equipment, accessories and services across Men's, Women's and Kids', amplified with sport-inspired lifestyle products carrying the Swoosh trademark, as well as other NIKE Brand trademarks.

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Sales and operating results of Jordan Brand products are reported within the respective NIKE Brand geographic operating segments.

Sales and operating results of Hurley brand products, prior to its divestiture in fiscal 2020, were reported within the NIKE Brand's North America geographic operating segment.

Refer to Note 20 — Acquisitions and Divestitures for information regarding the divestiture of the Company's wholly-owned subsidiary, Hurley.

Converse designs, distributes, licenses and sells casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks.

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All significant intercompany transactions and balances have been eliminated.

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

As a result, the Company deconsolidated its Russian legal entities, which 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, the Company made the decision to leave the Russian marketplace.

REVENUE RECOGNITION

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The estimated cost of inventory for product returns is recorded in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

2022 FORM 10-K 62

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

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If actual or expected future returns, discounts or claims are significantly greater or lower than the reserves established, a reduction or increase to net Revenues is recorded in the period in which such determination is made.

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COST OF SALES

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Through cooperative advertising programs, the Company reimburses its wholesale customers for certain costs of advertising the Company's products.

To the extent the Company receives a distinct good or service in exchange for consideration paid to the customer does not exceed the fair value of that good or service, the amounts reimbursed are recorded in Demand creation expense.

Total advertising and promotion expenses, which the Company refers to as Demand creation expense, were $ 3,850 million, $ 3,114 million and $ 3,592 million for the years ended May 31, 2022, 2021 and 2020, respectively.

To the extent the Company receives a distinct good or service in exchange for consideration paid to the customer that does not exceed the fair value of that good or service, the amounts reimbursed are recorded in Demand creation expense.

Total Demand creation expense was $ 4,060 million, $ 3,850 million and $ 3,114 million for the years ended May 31, 2023, 2022 and 2021, respectively.

Prepaid advertising and promotion expenses totaled $ 755 million and $ 773 million at May 31, 2023 and 2022, respectively, of which $ 372 million and $ 329 million, respectively, were recorded in Prepaid expenses and other current assets, and $ 383 million and $ 444 million, respectively, were recorded in Deferred income taxes and other assets, depending on the period to which the prepayment applied.

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Operating overhead expense consists primarily of wage and benefit-related expenses, research and development costs, bad debt expense as well as other administrative expenses such as rent, depreciation and amortization, professional services, certain technology investments, meetings and travel.

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CASH AND EQUIVALENTS

Cash and equivalents represent cash and short-term, highly liquid investments, that are both readily convertible to known amounts of cash and so near their maturity they present insignificant risk of changes in value because of changes in interest rates, with maturities three months or less at the date of purchase.

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SHORT-TERM INVESTMENTS

Short-term investments consist of highly liquid investments with maturities over 90 days at the date of purchase.

Short-term investments consist of highly liquid investments with maturities over three months at the date of purchase.

At May 31, 2023 and 2022, Short-term investments consisted of available-for-sale debt securities, which are recorded at fair value with unrealized gains and losses reported, net of tax, in Accumulated other comprehensive income (loss), unless unrealized losses are determined to be unrecoverable.

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In addition to judgments about the creditworthiness of significant customers based on ongoing credit evaluations, the Company considers historical levels of credit losses, as well as macroeconomic and industry trends to determine the amount of the allowance.

Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet date and related allowances are considered non-current and recorded in Deferred income taxes and other assets.

The allowance for uncollectible accounts receivable was $ 35 million and $ 34 million as of May 31, 2023 and 2022, respectively.

INVENTORY VALUATION

Inventories are stated at lower of cost and net realizable value and valued on either an average or a specific identification cost basis.

Inventories, substantially all of which are finished goods, are stated at lower of cost and net realizable value and valued on either an average or a specific identification cost basis.

In some instances, the Company ships products directly from its suppliers to the customer, with the related inventory and cost of sales recognized on a specific identification basis.

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The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value.

Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation that the carrying amount may not be recoverable, among other factors.

For purposes of testing goodwill for impairment, the Company allocates goodwill across its reporting units, which are considered the Company's operating segments.

The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary.

If an impairment test is necessary, the Company will estimate the fair value of its related reporting units.

If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired and the Company will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired.

If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary.

If a quantitative fair value measurement calculation is required for these intangible assets, the Company primarily utilizes the relief-from-royalty method.

This method assumes trade names and trademarks have value to the extent their owner is relieved of the obligation to pay royalties for the benefits received from them.

This method requires the Company to estimate the future revenues for the related brands, the appropriate royalty rate and the weighted average cost of capital.

If the carrying value of the indefinite-lived intangible exceeds its fair value, the asset is determined to be impaired, and the Company will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

For both goodwill and indefinite-lived intangible assets, which primarily consist of acquired trade names and trademarks, the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or an intangible asset with an indefinite life is less than its carrying amount.

If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is greater than its carrying amount, an impairment test is unnecessary.

If an impairment test is necessary, the Company will estimate the fair value of the related reporting unit or indefinite-lived intangible asset.

If the carrying value of a reporting unit or indefinite-lived intangible asset exceeds its fair value, the goodwill of that reporting unit or indefinite-lived intangible asset is determined to be impaired and the Company will record an impairment charge equal to the excess of the carrying value over the related fair value.

There were no accumulated impairment losses as of May 31, 2023 and 2022.

Additionally, the impact to Goodwill as a result of acquisitions and divestitures during fiscal 2023 and 2022, was not material.

OPERATING LEASES

Beginning in fiscal 2020, the Company adopted Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) .

The Company's lease recognition policies under Topic 842 are described in the following paragraphs.

The Company primarily leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets.

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The Company does not record leases with an initial term of 12 months or less on the Consolidated Balance Sheets and recognizes related lease payments in the Consolidated Statements of Income on a straight-line basis over the lease term.

Certain lease agreements include variable lease

2022 FORM 10-K 65

payments, which are based on a percent of retail sales over specified levels or adjust periodically for inflation as a result of changes in a published index, primarily the Consumer Price Index, and are expensed as incurred.

Certain lease agreements include variable lease payments, which are based on a percent of retail sales over specified levels or adjust periodically for inflation as a result of changes in a published index, primarily the Consumer Price Index, and are expensed as incurred.

FAIR VALUE MEASUREMENTS

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The Company uses a three-level hierarchy that prioritizes fair value measurements based on the types of inputs used, as follows:

2023 FORM 10-K 64

Quoted prices in active markets for identical assets or liabilities.

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Adjustments resulting from translating foreign functional currency financial statements into U.S.

Dollars are included in the foreign currency translation adjustment, a component of Accumulated other comprehensive income (loss) in Total shareholders' equity.

Dollars are included in the foreign currency translation adjustment, a component of Accumulated other comprehensive income (loss).

The Company's global subsidiaries have various monetary assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their functional currency.

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The Company uses derivative financial instruments to reduce its exposure to changes in foreign currency exchange rates and interest rates.

All derivatives are recorded at fair value on the Consolidated Balance Sheets and changes in the fair value of derivative financial instruments are either recognized in Accumulated other comprehensive income (loss) (a component of Total shareholders' equity), Long-term debt or Net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge and, if designated, the extent to which the hedge is effective.

All derivatives are recorded at fair value on the Consolidated Balance Sheets and changes in the fair value of derivative financial instruments are either recognized in Accumulated other comprehensive income (loss), Long-term debt or Net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge and, if designated, the extent to which the hedge is effective.

The Company classifies the cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items.

For undesignated hedges and designated cash flow hedges, this is primarily within the Cash provided by operations component of the Consolidated Statements of Cash Flows.

For designated net investment hedges, this is within the Cash used by investing activities component of the Consolidated Statements of Cash Flows.

For designated net investment hedges, this is within the Cash provided by investing activities component of the Consolidated Statements of Cash Flows.

For the Company's fair value hedges, which are interest rate swaps used to mitigate the change in fair value of its fixed-rate debt attributable to changes in interest rates, the related cash flows from periodic interest payments are reflected within the Cash provided by operations component of the Consolidated Statements of Cash Flows.

Refer to Note 12 — Risk Management and Derivatives for additional information on the Company's risk management program and derivatives.

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STOCK-BASED COMPENSATION

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Refer to Note 9 — Common Stock and Stock-Based Compensation for additional information on the Company's stock-based compensation programs.

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The Company accounts for income taxes using the asset and liability method.

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Actual results could differ from these estimates.

Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company's financial statements will depend on a number of factors, including the further spread and duration of COVID-19 and the economic impacts of the pandemic.

There remains risk that COVID-19 could have a material, adverse impact on future revenue growth as well as overall profitability .

NOTE 2 — INVENTORIES

Inventory balances of $ 8,420 million and $ 6,854 million as of May 31, 2022 and 2021, respectively, were substantially all finished goods.

Additionally, the macroeconomic environment could remain volatile as the risk exists that worsening macroeconomic conditions could have a material, adverse impact on future revenue growth as well as overall profitability.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

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

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

The Company will adopt the required guidance in the first quarter of fiscal 2024 and is currently evaluating the ASU to determine its impact on the Company's disclosures .

2023 FORM 10-K 66

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Capitalized interest was not material for the fiscal years ended May 31, 2023, 2022 and 2021.

NOTE 4 — IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL

Identifiable intangible assets, net consist of indefinite-lived trademarks, acquired trademarks and other intangible assets.

The following table summarizes the Company's Identifiable intangible assets, net balances:

(Dollars in millions)

GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION NET CARRYING AMOUNT GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION NET CARRYING AMOUNT

Indefinite-lived trademarks $ 259 $ — $ 259 $ 246 $ — $ 246

Acquired trademarks and other 66 39 27 50 27 23

IDENTIFIABLE INTANGIBLE ASSETS, NET $ 325 $ 39 $ 286 $ 296 $ 27 $ 269

Goodwill was $ 284 million and $ 242 million as of May 31, 2022 and 2021, respectively, and there were no accumulated impairment losses as of May 31, 2022 and 2021.

Additionally, the impact to Goodwill during fiscal 2022 and 2021 as a result of acquisitions and divestitures was not material.

NOTE 3 — ACCRUED LIABILITIES

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Sales-related reserves 994 1,015

Endorsement compensation 552 496

Dividends payable 529 485

Allowance for expected loss on sale (1)

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For further information related to credit risk, refer to Note 12 — Risk Management and Derivatives.

The following tables present information about the Company's derivative assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

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DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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$ 557 $ 493 $ 64 $ 180 $ 128 $ 52

Embedded derivatives 5 5 — 1 1 —

TOTAL $ 880 $ 674 $ 206 $ 77 $ 66 $ 11

(1) If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 178 million as of May 31, 2023.

As of that date, the Company received $ 486 million of cash collateral from counterparties related to foreign exchange derivative instruments.

As of that date, the Company received $ 36 million of cash collateral from various counterparties related to foreign exchange derivative instruments.

No amount of collateral was posted on the derivative liability balance as of May 31, 2023.

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ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES

Foreign exchange forwards and options (1)

Foreign exchange forwards and options and embedded derivatives (1)

$ 880 $ 674 $ 206 $ 77 $ 66 $ 11

Embedded derivatives — — — 1 1 —

TOTAL $ 92 $ 76 $ 16 $ 457 $ 416 $ 41

(1) If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 76 million as of May 31, 2022.

As of that date, the Company had posted $ 39 million of cash collateral to various counterparties related to foreign exchange derivative instruments.

No amount of collateral was received on the Company's derivative asset balance as of May 31, 2021.

As of that date, the Company had received $ 486 million of cash collateral from various counterparties related to foreign exchange derivative instruments.

No amount of collateral was posted on the Company's derivative liability balance as of May 31, 2022.

For additional information related to the Company's derivative financial instruments, refer to Note 12 — Risk Management and Derivatives.

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NON-RECURRING FAIR VALUE MEASUREMENTS

As further discussed in Note 20 — Acquisitions and Divestitures, during fiscal 2020, the Company met the criteria to recognize the related assets and liabilities of its Brazil, Argentina, Chile and Uruguay entities as held-for-sale.

As further discussed in Note 18 — Acquisitions and Divestitures, the Company met the criteria to recognize the related assets and liabilities of its Argentina, Chile and Uruguay entities as held-for-sale as of May 31, 2022.

This required the Company to remeasure the disposal groups at fair value, less costs to sell, which is considered a Level 3 fair value measurement and was based on each transaction's estimated consideration.

During fiscal 2022, the Company continued to use estimated consideration to measure the fair value of each disposal group.

All other assets or liabilities required to be measured at fair value on a non-recurring basis as of May 31, 2023 and 2022 were immaterial.

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NOTE 5 — SHORT-TERM BORROWINGS AND CREDIT LINES

Notes payable as of May 31, 2022 and 2021, are summarized below:

(Dollars in millions)

BORROWINGS INTEREST RATE BORROWINGS INTEREST RATE

Notes payable:

operations $ — 0.00 % — 0.00 %

operations $ 10 19.80 % (1)

$ 2 17.80 % (1)

TOTAL NOTES PAYABLE $ 10 $ 2

(1) Weighted average interest rate includes non-interest bearing overdrafts.

The carrying amounts reflected in the Consolidated Balance Sheets for Notes payable approximate fair value.

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

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

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

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

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

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

On March 11, 2022, the Company 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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The facility fee is 0.04 % of the total undrawn commitment.

On March 10, 2023, the Company entered into a 364 -day committed credit facility agreement with a syndicate of banks, which provides for up to $ 1 billion of borrowings, with an option to increase borrowings up to $ 1.5 billion in total with lender approval.

The facility matures on March 8, 2024, with an option to extend the maturity date an additional 364 days.

This facility replaces the prior $ 1 billion 364 -day credit facility agreement entered into on March 11, 2022, which matured on March 10, 2023.

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

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

As of and for the periods ended May 31, 2023 and 2022, no amounts were outstanding under any of the Company's committed credit facilities.

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Foreign-derived intangible income benefit - 6.1 % - 4.1 % - 3.7 %

Excess tax benefits from share-based compensation - 4.9 % - 4.5 % - 7.2 %

Excess tax benefits from stock-based compensation - 1.1 % - 4.9 % - 4.5 %

Income tax audits and contingency reserves 1.0 % 1.5 % 1.5 %

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The Company recognizes taxes due under the GILTI provision as a current period expense.

The effective tax rate for the fiscal year ended May 31, 2022 was lower than the effective tax rate for the fiscal year ended May 31, 2021.

The decrease was primarily due to a shift in the Company's earnings mix and recognition of a non-cash, one-time benefit related to the onshoring of the Company's non-U.S.

The effective tax rate for the fiscal year ended May 31, 2023 was higher than the effective tax rate for the fiscal year ended May 31, 2022.

The increase was primarily due to decreased benefits from stock-based compensation and the prior year recognition of a non-cash, one-time benefit related to the onshoring of the Company's non-U.S.

intangible property.

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The effective tax rate for the fiscal year ended May 31, 2021 was higher than the effective tax rate for the fiscal year ended May 31, 2020, due to a change in the proportion of earnings taxed in the U.S., related to the recovery from the impact of the COVID-19 pandemic and less favorable impacts from discrete items such as stock-based compensation.

Income tax audit and contingency reserves for the fiscal year ended May 31, 2021, reflects recognition of a reserve of 1.2 % related to Altera Corp.

Commissioner , where the taxpayer was denied a hearing before the U.S.

Supreme Court on June 22, 2020, thereby ratifying the Ninth Circuit Court's decision and requiring the inclusion of stock-based compensation in intercompany cost-sharing arrangements, and other matters of 0.3 %.

The effective tax rate for the fiscal year ended May 31, 2022 was lower than the effective tax rate for the fiscal year ended May 31, 2021.

The decrease was primarily due to a shift in the Company's earnings mix and recognition of a non-cash, one-time benefit related to the onshoring of the Company's non-U.S.

intangible property.

Deferred tax assets and liabilities comprise the following as of:

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NET DEFERRED TAX ASSET (2)

(1) The above amounts exclude deferred taxes held-for-sale as of May 31, 2022 and 2021.

$ 1,799 $ 1,665

(1) The above amounts exclude deferred taxes held-for-sale as of May 31, 2022.

See Note 18 — Acquisitions and Divestitures for additional information.

(2) Of the total $ 1,799 million net deferred tax asset for the period ended May 31, 2023, $ 2,026 million was included within Deferred income taxes and other assets and $( 227 ) million was included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

Of the total $ 1,665 million net deferred tax asset for the period ended May 31, 2022, $ 1,891 million was included within Deferred income taxes and other assets and $( 226 ) million was included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits as of:

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The Company recognizes interest and penalties related to income tax matters in Income tax expense.

The liability for payment of interest and penalties increased by $ 45 million during the fiscal year ended May 31, 2022, increased by $ 45 million during the fiscal year ended May 31, 2021, and decreased by $ 16 million during the fiscal year ended May 31, 2020.

As of May 31, 2022 and 2021, accrued interest and penalties related to uncertain tax positions were $ 248 million and $ 203 million, respectively (excluding federal benefit) and included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

The liability for payment of interest and penalties increased by $ 20 million during the fiscal year ended May 31, 2023, increased by $ 45 million during the fiscal year ended May 31, 2022, and increased by $ 45 million during the fiscal year ended May 31, 2021.

As of May 31, 2023 and 2022, accrued interest and penalties related to uncertain tax positions were $ 268 million and $ 248 million, respectively (excluding federal benefit) and were included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

As of May 31, 2023 and 2022, long-term income taxes payable were $ 373 million and $ 535 million, respectively, and were included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

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If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to prior periods, and the Company's income taxes related to prior periods in the Netherlands could increase.

The Company 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 the Company's legal entity structure that reduced the withholding tax consequences of a decision to remit undistributed earnings in the Netherlands, the Company changed its assertion regarding its ability and intent to indefinitely reinvest undistributed earnings of certain foreign subsidiaries.

The Company has evaluated its 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.

A portion of the Company's foreign operations benefit from a tax holiday, which is set to expire in 2031.

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capital loss carryforwards and on tax benefits generated by certain entities with operating losses.

There was a $ 7 million net increase in the valuation allowance for the fiscal year ended May 31, 2022, compared to a $ 14 million net decrease for the fiscal year ended May 31, 2021, and $ 62 million net decrease for the fiscal year ended May 31, 2020.

The Company has recorded deferred tax assets of $ 103 million as of May 31, 2022 for U.S.

foreign tax credit carry-forwards which will begin to expire in 2032.

There was a $ 3 million net increase in the valuation allowance for the fiscal year ended May 31, 2023, compared to a $ 7 million net increase for the fiscal year ended May 31, 2022, and $ 14 million net decrease for the fiscal year ended May 31, 2021.

The Company has available domestic and foreign loss carry-forwards of $ 61 million as of May 31, 2023.

If not utilized, such losses will expire as follows:

YEAR ENDING MAY 31,

(Dollars in millions)

2023 2024 2025 2026 2027-2042 INDEFINITE TOTAL

Net operating losses $ — $ — $ — $ — $ 7 $ 37 $ 44

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If not utilized, $ 33 million of losses will expire in the periods between fiscal 2028 and 2043.

NOTE 8 — REDEEMABLE PREFERRED STOCK

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The value of repurchased shares is deducted from Total shareholders' equity through allocation to Capital in excess of stated value and Retained earnings.

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STOCK-BASED COMPENSATION

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Substantially all awards under the Stock Incentive Plan vest ratably over 4 years of continued employment, with stock options expiring 10 years from the date of grant.

During the fiscal year ended May 31, 2022, under the Stock Incentive Plan, the Company granted PSUs which replaced cash-based long-term incentive awards historically granted under the Company's Long-Term Incentive Plan.

The impact of granting PSUs during the fiscal year ended May 31, 2022, was not material to the Company’s Consolidated Financial Statements.

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

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Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibility requirements and was $ 64 million, $ 57 million and $ 67 million for the fiscal years ended May 31, 2023, 2022 and 2021, respectively.

During fiscal 2022 and 2021, an immaterial amount of accelerated stock option and restricted stock unit expense was also recorded for certain employees impacted by the Company's organizational realignment.

During fiscal 2021, an immaterial amount of accelerated stock option and restricted stock unit expense was also recorded for certain employees impacted by the Company's organizational realignment.

For more information, see Note 19 — Restructuring.

(2) Restricted stock units includes RSUs and PSUs.

(2) For the fiscal years ended May 31, 2023 and 2022, expense for restricted stock units includes an immaterial amount of expense for PSUs.

The income tax benefit related to stock-based compensation expense was $ 71 million, $ 327 million and $ 297 million for the fiscal years ended May 31, 2023, 2022 and 2021, respectively, and reported within Income tax expense.

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STOCK OPTIONS

The weighted average fair value per share of the options granted during the years ended May 31, 2022, 2021 and 2020, computed as of the grant date using the Black-Scholes pricing model, was $ 37.53 , $ 26.75 and $ 18.71 , respectively.

The weighted average fair value per share of stock options granted during the years ended May 31, 2023, 2022 and 2021, computed as of the grant date using the Black-Scholes pricing model, was $ 31.31 , $ 37.53 and $ 26.75 , respectively.

The weighted average assumptions used to estimate these fair values were as follows:

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

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The following summarizes the stock option transactions under the plan discussed above:

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EMPLOYEE STOCK PURCHASE PLANS

In addition to the Stock Incentive Plan, the Company gives employees the right to purchase shares at a discount from the market price under employee stock purchase plans (ESPPs).

In addition to the Stock Incentive Plan, the Company gives employees the right to purchase shares at a discount from the market price under ESPPs.

Subject to the annual statutory limit, employees are eligible to participate through payroll deductions of up to 10 % of their compensation.

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The number of shares of restricted stock and restricted stock units vested includes shares of common stock withheld by the Company on behalf of employees to satisfy the minimum statutory tax withholding requirements.

PSUs provide the right to receive shares of the Company's common stock based on the Company's achievement of certain performance criteria throughout the three-year performance period and continued employment through the vesting date.

As such, the number of shares issued at the end of the performance period may range between 0 % and 200 % of the original target award amount ( 100 %).

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The following summarizes the restricted stock and restricted stock unit activity under the plan discussed above:

SHARES WEIGHTED AVERAGE GRANT DATE

The following summarizes the restricted stock and restricted stock units transactions under the plan discussed above:

WEIGHTED AVERAGE GRANT DATE

(In millions)

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Forfeited ( 0.7 ) 131.10

Granted 4.5 115.56

Nonvested as of May 31, 2023 8.3 $ 126.97

(1) Includes 0.5 million PSUs, which are presented assuming issuance at the original target award amount (100%).

The weighted average fair value per share of restricted stock and RSUs granted for the fiscal years ended May 31, 2022, 2021 and 2020, computed as of the grant date, was $ 153.63 , $ 113.84 and $ 88.26 , respectively.

During the fiscal years ended May 31, 2022, 2021 and 2020, the aggregate fair value of vested restricted stock and RSUs was $ 354 million, $ 310 million and $ 98 million, respectively, computed as of the date of vesting.

The weighted average fair value per share of PSUs granted for the fiscal year ended May 31, 2022, computed as of the grant date was $ 239.38 .

The fair value of PSUs is estimated on the grant date using a Monte Carlo simulation assuming a weighted average expected volatility of 27.1 % and weighted average risk-free interest rate of 0.5 %.

Expected volatilities are based on an analysis of the historical volatility of the Company's common stock at the date of grant for periods corresponding with the vesting period of the PSU.

The interest rate is based on the U.S.

Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the vesting period of the PSU.

No PSUs vested during the fiscal year ended May 31, 2022.

(1) Includes an immaterial amount of PSU transactions

The weighted average fair value per share of restricted stock and restricted stock units granted for the fiscal years ended May 31, 2023, 2022 and 2021, computed as of the grant date, was $ 115.56 , $ 168.04 and $ 113.84 , respectively.

During the fiscal years ended May 31, 2023, 2022 and 2021, the aggregate fair value of vested restricted stock and restricted stock units was $ 250 million, $ 354 million and $ 310 million, respectively, computed as of the date of vesting.

As of May 31, 2023, the Company had $ 649 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.3 years.

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NOTE 10 — EARNINGS PER SHARE

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The Company matches a portion of employee contributions to the savings plan.

Company contributions to the savings plan were $ 126 million, $ 110 million and $ 107 million and included in Cost of sales or Operating overhead expense, as applicable, for the years ended May 31, 2022, 2021 and 2020, respectively.

The terms of the plan also allow for annual discretionary profit sharing contributions, as recommended by senior management and approved by the Board of Directors, to the accounts of eligible U.S.

employees who work at least 1,000 hours in a year.

There were no profit sharing contributions made to the plan for the fiscal years ended May 31, 2022, 2021 and 2020.

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Company contributions to the savings plan were $ 136 million, $ 126 million and $ 110 million and included in Cost of sales or Operating overhead expense, as applicable, for the fiscal years ended May 31, 2023, 2022 and 2021, respectively.

The Company also has a Long-Term Incentive Plan ("LTIP") adopted by the Board of Directors and approved by shareholders in September 1997, which has been amended from time to time.

The Company recognized $ 16 million, $ 78 million and $ 66 million of Operating overhead expense related to cash awards under the LTIP during the years ended May 31, 2022, 2021 and 2020, respectively.

During the fiscal year ended May 31, 2022, under the Stock Incentive Plan, the Company granted PSUs which replaced cash-based long-term incentive awards historically granted under the Company's LTIP.

The Company recognized an immaterial amount of Operating overhead expense related to cash awards under the LTIP during the years ended May 31, 2023, 2022 and 2021.

During the fiscal years ended May 31, 2023 and 2022, under the Stock Incentive Plan, the Company granted PSUs which replaced cash-based long-term incentive awards historically granted under the Company's LTIP.

Refer to Note 9 — Common Stock and Stock-Based Compensation for further information related to PSUs.

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This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships.

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The majority of derivatives outstanding as of May 31, 2023, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

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All derivatives are recognized on the Consolidated Balance Sheets at fair value and classified based on the instrument's maturity date.

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The following tables present the fair values of derivative instruments included within the Consolidated Balance Sheets:

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Derivatives not designated as hedging instruments:

Foreign exchange forwards and options Prepaid expenses and other current assets 30 34

Embedded derivatives Prepaid expenses and other current assets 5 —

Foreign exchange forwards and options and embedded derivatives Prepaid expenses and other current assets 13 35

Total derivatives not designated as hedging instruments 13 35

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Derivatives not designated as hedging instruments:

Foreign exchange forwards and options Accrued liabilities 28 30

Embedded derivatives Accrued liabilities 1 1

Foreign exchange forwards and options and embedded derivatives Accrued liabilities 35 29

Total derivatives not designated as hedging instruments 35 29

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2023 2022 2021

Derivatives not designated as hedging instruments:

Foreign exchange forwards and options $ 40 $ ( 150 ) $ 76 Other (income) expense, net

Embedded derivatives ( 2 ) ( 17 ) ( 1 ) Other (income) expense, net

Derivatives designated as hedging instruments:

Foreign exchange forwards and options and embedded derivatives $ 28 $ 38 $ ( 167 ) Other (income) expense, net

CASH FLOW HEDGES

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Dollar denominated available-for-sale debt securities and certain other intercompany transactions.

Product cost foreign currency exposures are primarily generated through non-functional currency denominated product purchases and the foreign currency adjustment program described below.

Product cost foreign currency exposures are primarily generated through non-functional currency denominated product purchases.

NIKE entities primarily purchase product in two ways:

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Dollar, then sells the product to NIKE entities in their respective functional currencies.

NTC sales to a NIKE entity with a different

NTC sales to a NIKE entity with a different functional currency result in a foreign currency

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functional currency result in a foreign currency exposure for the NTC.

exposure for the NTC.

(2) Other NIKE entities purchase product directly from third-party factories in U.S.

These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S.

The Company operates a foreign currency adjustment program with certain factories.

The program is designed to more effectively manage foreign currency risk by assuming certain of the factories' foreign currency exposures, some of which are natural offsets to the Company's existing foreign currency exposures.

Under this program, the Company's 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 portion of the indices denominated in the local or functional currency of the factory, the Company may elect to place formally designated cash flow hedges.

For all currencies within the indices, excluding the U.S.

Dollar and the local or functional currency of the factory, an embedded derivative contract is created upon the factory's acceptance of NIKE's purchase order.

Embedded derivative contracts are separated from the related purchase order, as further described within the Embedded Derivatives section below.

The Company's policy permits the utilization of derivatives to reduce its foreign currency exposures where internal netting or other strategies cannot be effectively employed.

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UNDESIGNATED DERIVATIVE INSTRUMENTS

The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Consolidated Balance Sheets and/or embedded derivative contracts.

These undesignated instruments are recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, together with the remeasurement gain or loss from the hedged balance sheet position and/or embedded derivative contract.

The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Consolidated Balance Sheets.

The total notional amount of outstanding undesignated derivative instruments was $ 4.7 billion as of May 31, 2023.

EMBEDDED DERIVATIVES

As part of the foreign currency adjustment program described above, an embedded derivative contract is created upon the factory's acceptance of NIKE's purchase order for currencies within the factory currency exposure indices that are neither the U.S.

Dollar nor the local or functional currency of the factory.

In addition, embedded derivative contracts are created when the Company enters into certain other contractual agreements which have payments that are indexed to currencies that are not the functional currency of either substantial party to the contracts.

Embedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related contract and recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, through the date the foreign currency fluctuations cease to exist.

As of May 31, 2022, the total notional amount of embedded derivatives outstanding was approximately $ 584 million.

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The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments.

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Additionally, a certain level of decline in credit rating of either the Company or the counterparty could trigger collateral requirements.

As of May 31, 2022, the Company was in compliance with all credit risk-related contingent features, and no derivative instruments with such features were in a net liability position.

As of May 31, 2023, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net liability position of approximately $ 2 million.

Accordingly, the Company posted no cash collateral as a result of these contingent features.

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For additional information related to the Company's derivative financial instruments and collateral, refer to Note 4 — Fair Value Measurements.

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NOTE 13 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA (1)

GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 14,897 $ 8,260 $ 5,435 $ 4,543 $ — $ 33,135 $ 2,155 $ — $ 35,290

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TOTAL REVENUES $ 21,608 $ 13,418 $ 7,248 $ 6,431 $ 58 $ 48,763 $ 2,427 $ 27 $ 51,217

(1) Refer to Note 18 — Acquisitions and Divestitures for additional information on the transition of the Company's NIKE Brand businesses in its CASA territory to third-party distributors.

YEAR ENDED MAY 31, 2022

(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA (1)

GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 12,228 $ 7,388 $ 5,416 $ 4,111 $ — $ 29,143 $ 2,094 $ — $ 31,237

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TOTAL REVENUES $ 18,353 $ 12,479 $ 7,547 $ 5,955 $ 102 $ 44,436 $ 2,346 $ ( 72 ) $ 46,710

(1) Refer to Note 20 — Acquisitions and Divestitures for additional information on the transition of the Company's NIKE Brand business in Brazil to a third-party distributor.

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(Dollars in millions)

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

NORTH AMERICA EUROPE, MIDDLE EAST & AFRICA GREATER CHINA ASIA PACIFIC & LATIN AMERICA (1)

GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC.

Footwear $ 11,644 $ 6,970 $ 5,748 $ 3,659 $ — $ 28,021 $ 1,986 $ — $ 30,007

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TOTAL REVENUES $ 17,179 $ 11,456 $ 8,290 $ 5,343 $ 25 $ 42,293 $ 2,205 $ 40 $ 44,538

(1) Refer to Note 18 — Acquisitions and Divestitures for additional information on the transition of the Company's NIKE Brand business in Brazil to a third-party distributor.

For the fiscal years ended May 31, 2023, 2022 and 2021, Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

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The estimated cost of inventory for expected product returns was $ 226 million and $ 194 million as of May 31, 2023 and 2022, respectively, and was recorded in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

MAJOR CUSTOMERS

No customer accounted for 10% or more of the Company's consolidated net Revenues during the fiscal years ended May 31, 2022, 2021 and 2020.

NOTE 15 — OPERATING SEGMENTS AND RELATED INFORMATION

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Greater China;

and Asia Pacific & Latin America (APLA), and include results for the NIKE and Jordan brands, results for the Hurley brand, prior to its divestiture in fiscal 2020, were included in North America.

Refer to Note 20 — Acquisitions and Divestitures for information regarding the fiscal 2020 divestiture of the Company's wholly-owned subsidiary, Hurley, and the planned transition of NIKE Brand businesses in certain countries within APLA to third-party distributors.

and Asia Pacific & Latin America ("APLA"), and include results for the NIKE and Jordan brands.

Refer to Note 18 — Acquisitions and Divestitures for information regarding the transition of NIKE Brand businesses in certain countries within APLA to third-party distributors.

The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment.

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Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company.

Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a

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geographic operating segment.

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

Global Brand Divisions costs represent demand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology.

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Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with centrally managed departments;

2 unchanged sentences

and certain foreign currency gains and losses, including certain hedge gains and losses.

For the fiscal year ended May 31, 2020, Corporate included a non-recurring impairment charge, recognized as a result of the Company's decision to transition certain NIKE Brand businesses within APLA to a third-party distributor.

This charge primarily reflected the anticipated release of associated non-cash cumulative foreign currency translation losses.

For more information regarding this charge, refer to Note 20 — Acquisitions and Divestitures .

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

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TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 5,081 $ 4,791

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

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

See Note 18 — Acquisitions and Divestitures for additional information.

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NOTE 16 — COMMITMENTS AND CONTINGENCIES

As of May 31, 2022 and 2021, the Company had bank guarantees and letters of credit outstanding totaling $ 289 million and $ 275 million, respectively, issued primarily for real estate agreements, self-insurance programs and other general business obligations.

As of May 31, 2023 and 2022, the Company had bank guarantees and letters of credit outstanding totaling $ 588 million and $ 289 million, respectively, issued primarily for real estate agreements, self-insurance programs, other general business obligations and legal matters.

In connection with various contracts and agreements, the Company provides routine indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor.

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However, based on the Company's historical experience and the estimated probability of future loss, the Company has determined the fair value of such indemnification is not material to the Company's financial position or results of operations.

In the ordinary course of business, the Company is subject to various legal proceedings, claims and government investigations relating to its business, products and actions of its employees and representatives, including contractual and employment relationships, product liability, antitrust, customs, intellectual property and other matters.

The outcome of these legal matters is inherently uncertain, and the Company cannot predict the eventual outcome of currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or consequences relating to those matters.

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The Company has received claims for certain years from the Belgian Customs Authorities for alleged underpaid duties related to products imported beginning in fiscal 2018.

The Company disputes these claims and plans to appeal.

The Company disputes these claims and has engaged in the appellate process.

The Company has issued bank guarantees in order to appeal the claims.

At this time, the Company is unable to estimate the range of loss and cannot predict the final outcome as it could take several years to reach a resolution on this matter.

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Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ 602 $ 537 $ 489

(1) Excludes the amount initially capitalized in conjunction with the adoption of Topic 842.

NOTE 18 — ACQUISITIONS AND DIVESTITURES

During fiscal 2022, 2021 and 2020, the Company made multiple acquisitions focused on gaining new capabilities to fuel its Consumer Direct Offense strategy, serving consumers personally at a global scale.

During fiscal 2023, 2022 and 2021, the Company made multiple acquisitions focused on gaining new capabilities to fuel its Consumer Direct Acceleration strategy, serving consumers personally at a global scale.

The impact of acquisitions, individually and in aggregate, was not considered material to the Company's Consolidated Financial Statements.

During fiscal 2020, as a result of the Company's decision to transition its wholesale and direct to consumer operating model in certain countries within its APLA operating segment to third-party distributors, the related assets and liabilities of these entities were classified as held-for-sale within Prepaid expenses and other current assets and Accrued liabilities, respectively, on the Consolidated Balance Sheets.

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

The assets and liabilities of these entities 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.

As of May 31, 2022, held-for-sale assets were $ 182 million, primarily consisting of $ 73 million of Accounts receivable, net and $ 59 million of Inventories;

held-for-sale liabilities were $ 58 million, primarily consisting of $ 26 million of Accrued liabilities and $ 20 million of Accounts payable.

As of May 31, 2021, held-for-sale assets were $ 175 million, primarily consisting of $ 76 million of Inventories and $ 59 million of Accounts receivable, net;

held-for-sale liabilities were $ 72 million, primarily consisting of $ 25 million of Accounts payable and $ 22 million of Accrued liabilities.

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The Company has recognized total expected net losses of $ 397 million as of May 31, 2022, related to the Argentina, Uruguay and Chile transactions within Other (income) expense, net, classified within Corporate, and a corresponding allowance within Accrued liabilities on the Consolidated Balance Sheets.

The initial expected loss of $ 405 million recognized in fiscal 2020 was largely due to the anticipated release of the cumulative net foreign currency translation losses and subsequently adjusted for changes in fair value.

These losses will be reclassified from Accumulated other comprehensive income (loss) to Net income upon sale of the legal entities.

At the completion of the sale of the Argentina and Uruguay entities, the Company expects to recognize future losses, in part due to changes in foreign currency exchange rates.

The losses are not expected to be material to the Company's Consolidated Financial Statements.

For more information see Note 6 — Fair Value Measurements.

The sale of the Company's entity in Chile to a third-party distributor was completed during the first quarter of fiscal 2023.

The impacts from the transaction were not material to the Company's Consolidated Financial Statements.

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

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

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

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

The net loss was classified within Corporate.

The net cash proceeds received are reflected within Other investing activities on the Company's Consolidated Statements of Cash Flows.

The related assets and liabilities of these entities within the Company's APLA operating segment were classified as held-for-sale on the Consolidated Balance Sheets within Prepaid expenses and other currents and Accrued liabilities, respectively, until the transactions closed.

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

OTHER DIVESTITURES

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Cash proceeds received were reflected within Other investing activities on the Consolidated Statements of Cash Flows.

On October 29, 2019, the Company signed a definitive agreement to sell the assets and liabilities of its wholly-owned subsidiary brand, Hurley.

The transaction closed on December 6, 2019, and the impacts of the divestiture were not considered material to the Company's Consolidated Financial Statements.

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NOTE 19 — RESTRUCTURING

In fiscal 2021, the Company announced a new digitally empowered phase of its Consumer Direct Offense strategy:

Consumer Direct Acceleration.

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

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

For the fiscal year ended May 31, 2021 , the Company recognized employee termination costs of $ 214 million and $ 35 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $ 212 million.

Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Cost of sales was $ 41 million and $ 4 million, respectively, for the fiscal year ended May 31, 2021 .

For the fiscal year ended May 31, 2022 , the Co mpany recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense.

For all periods presented these costs were classified within Corporate.

Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Cost of sales was $ 41 million and $ 4 million, respectively.

These costs were classified within Corporate.

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2 unchanged sentences

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 8. Financial Statements and Supplementary Data