NIKE, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Management of NIKE, Inc. 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 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. GAAP. 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 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. The independent registered public accounting firm and the internal corporate auditors have full access to the Audit & Finance Committee, with and without the presence of management, to discuss any appropriate matters. 2023 FORM 10-K 51 Table of Contents MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13(a) - 15(f) and Rule 15(d) - 15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements. 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. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2023. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the Consolidated Financial Statements and (2) the effectiveness of our internal control over financial reporting as of May 31, 2023, as stated in their report herein. John J. Donahoe II Matthew Friend President and Chief Executive Officer Executive Vice President and Chief Financial Officer 2023 FORM 10-K 52 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of NIKE, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of NIKE, Inc. and its subsidiaries (the “Company”) as of May 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended May 31, 2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of May 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2023 in conformity with accounting principles generally accepted in the United States of America. 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. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; 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. 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. 2023 FORM 10-K 53 Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for Income Taxes As described in Notes 1 and 7 to the consolidated financial statements, the Company recorded income tax expense of $1,131 million for the year ended May 31, 2023, and has net deferred tax assets of $1,799 million, including a valuation allowance of $22 million, and total gross unrecognized tax benefits, excluding related interest and penalties, of $936 million as of May 31, 2023, $651 million of which would affect the Company's effective tax rate if recognized in future periods. The realization of deferred tax assets is dependent on future taxable earnings. Management assesses the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies and considers foreign tax credit utilization in making this assessment of realization. A valuation allowance is established against the net deferred tax asset to the extent that recovery is not likely. The Company is subject to taxation in the United States, as well as various state and foreign jurisdictions. 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 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, 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. /s/ PricewaterhouseCoopers LLP Portland, Oregon July 20, 2023 We have served as the Company's auditor since 1974. 2023 FORM 10-K 54 Table of Contents NIKE, INC. CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED MAY 31, (In millions, except per share data) 2023 2022 2021 Revenues $ 51,217 $ 46,710 $ 44,538 Cost of sales 28,925 25,231 24,576 Gross profit 22,292 21,479 19,962 Demand creation expense 4,060 3,850 3,114 Operating overhead expense 12,317 10,954 9,911 Total selling and administrative expense 16,377 14,804 13,025 Interest expense (income), net ( 6 ) 205 262 Other (income) expense, net ( 280 ) ( 181 ) 14 Income before income taxes 6,201 6,651 6,661 Income tax expense 1,131 605 934 NET INCOME $ 5,070 $ 6,046 $ 5,727 Earnings per common share: Basic $ 3.27 $ 3.83 $ 3.64 Diluted $ 3.23 $ 3.75 $ 3.56 Weighted average common shares outstanding: Basic 1,551.6 1,578.8 1,573.0 Diluted 1,569.8 1,610.8 1,609.4 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 2023 FORM 10-K 55 Table of Contents NIKE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Net income $ 5,070 $ 6,046 $ 5,727 Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment 267 ( 522 ) 496 Change in net gains (losses) on cash flow hedges ( 348 ) 1,214 ( 825 ) Change in net gains (losses) on other ( 6 ) 6 5 Total other comprehensive income (loss), net of tax ( 87 ) 698 ( 324 ) TOTAL COMPREHENSIVE INCOME $ 4,983 $ 6,744 $ 5,403 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 2023 FORM 10-K 56 Table of Contents NIKE, INC. CONSOLIDATED BALANCE SHEETS MAY 31, (In millions) 2023 2022 ASSETS Current assets: Cash and equivalents $ 7,441 $ 8,574 Short-term investments 3,234 4,423 Accounts receivable, net 4,131 4,667 Inventories 8,454 8,420 Prepaid expenses and other current assets 1,942 2,129 Total current assets 25,202 28,213 Property, plant and equipment, net 5,081 4,791 Operating lease right-of-use assets, net 2,923 2,926 Identifiable intangible assets, net 274 286 Goodwill 281 284 Deferred income taxes and other assets 3,770 3,821 TOTAL ASSETS $ 37,531 $ 40,321 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ — $ 500 Notes payable 6 10 Accounts payable 2,862 3,358 Current portion of operating lease liabilities 425 420 Accrued liabilities 5,723 6,220 Income taxes payable 240 222 Total current liabilities 9,256 10,730 Long-term debt 8,927 8,920 Operating lease liabilities 2,786 2,777 Deferred income taxes and other liabilities 2,558 2,613 Commitments and contingencies (Note 16) Redeemable preferred stock — — Shareholders' equity: Common stock at stated value: Class A convertible — 305 and 305 shares outstanding — — Class B — 1,227 and 1,266 shares outstanding 3 3 Capital in excess of stated value 12,412 11,484 Accumulated other comprehensive income (loss) 231 318 Retained earnings (deficit) 1,358 3,476 Total shareholders' equity 14,004 15,281 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 37,531 $ 40,321 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 2023 FORM 10-K 57 Table of Contents NIKE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Cash provided (used) by operations: Net income $ 5,070 $ 6,046 $ 5,727 Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation 703 717 744 Deferred income taxes ( 117 ) ( 650 ) ( 385 ) Stock-based compensation 755 638 611 Amortization, impairment and other 156 123 53 Net foreign currency adjustments ( 213 ) ( 26 ) ( 138 ) Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable 489 ( 504 ) ( 1,606 ) (Increase) decrease in inventories ( 133 ) ( 1,676 ) 507 (Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets ( 644 ) ( 845 ) ( 182 ) Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities ( 225 ) 1,365 1,326 Cash provided (used) by operations 5,841 5,188 6,657 Cash provided (used) by investing activities: Purchases of short-term investments ( 6,059 ) ( 12,913 ) ( 9,961 ) Maturities of short-term investments 3,356 8,199 4,236 Sales of short-term investments 4,184 3,967 2,449 Additions to property, plant and equipment ( 969 ) ( 758 ) ( 695 ) Other investing activities 52 ( 19 ) 171 Cash provided (used) by investing activities 564 ( 1,524 ) ( 3,800 ) Cash provided (used) by financing activities: Increase (decrease) in notes payable, net ( 4 ) 15 ( 52 ) Repayment of borrowings ( 500 ) — ( 197 ) Proceeds from exercise of stock options and other stock issuances 651 1,151 1,172 Repurchase of common stock ( 5,480 ) ( 4,014 ) ( 608 ) Dividends — common and preferred ( 2,012 ) ( 1,837 ) ( 1,638 ) Other financing activities ( 102 ) ( 151 ) ( 136 ) Cash provided (used) by financing activities ( 7,447 ) ( 4,836 ) ( 1,459 ) Effect of exchange rate changes on cash and equivalents ( 91 ) ( 143 ) 143 Net increase (decrease) in cash and equivalents ( 1,133 ) ( 1,315 ) 1,541 Cash and equivalents, beginning of year 8,574 9,889 8,348 CASH AND EQUIVALENTS, END OF YEAR $ 7,441 $ 8,574 $ 9,889 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of capitalized interest $ 347 $ 290 $ 293 Income taxes 1,517 1,231 1,177 Non-cash additions to property, plant and equipment 211 160 179 Dividends declared and not paid 524 480 438 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 2023 FORM 10-K 58 Table of Contents NIKE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY COMMON STOCK CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS (DEFICIT) TOTAL CLASS A CLASS B (In millions, except per share data) SHARES AMOUNT SHARES AMOUNT Balance at May 31, 2020 315 $ — 1,243 $ 3 $ 8,299 $ ( 56 ) $ ( 191 ) $ 8,055 Stock options exercised 21 954 954 Conversion to Class B Common Stock ( 10 ) 10 — Repurchase of Class B Common Stock ( 5 ) ( 28 ) ( 622 ) ( 650 ) Dividends on common stock ($ 1.070 per share) and preferred stock ($ 0.10 per share) ( 1,692 ) ( 1,692 ) Issuance of shares to employees, net of shares withheld for employee taxes 4 129 ( 43 ) 86 Stock-based compensation 611 611 Net income 5,727 5,727 Other comprehensive income (loss) ( 324 ) ( 324 ) Balance at May 31, 2021 305 $ — 1,273 $ 3 $ 9,965 $ ( 380 ) $ 3,179 $ 12,767 Stock options exercised 17 924 924 Repurchase of Class B Common Stock ( 27 ) ( 186 ) ( 3,808 ) ( 3,994 ) Dividends on common stock ($ 1.190 per share) and preferred stock ($ 0.10 per share) ( 1,886 ) ( 1,886 ) Issuance of shares to employees, net of shares withheld for employee taxes 3 143 ( 55 ) 88 Stock-based compensation 638 638 Net income 6,046 6,046 Other comprehensive income (loss) 698 698 Balance at May 31, 2022 305 $ — 1,266 $ 3 $ 11,484 $ 318 $ 3,476 $ 15,281 Stock options exercised 8 421 421 Repurchase of Class B Common Stock ( 51 ) ( 378 ) ( 5,131 ) ( 5,509 ) Dividends on common stock ($ 1.325 per share) and preferred stock ($ 0.10 per share) ( 2,059 ) ( 2,059 ) Issuance of shares to employees, net of shares withheld for employee taxes 4 130 2 132 Stock-based compensation 755 755 Net income 5,070 5,070 Other comprehensive income (loss) ( 87 ) ( 87 ) Balance at May 31, 2023 305 $ — 1,227 $ 3 $ 12,412 $ 231 $ 1,358 $ 14,004 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 2023 FORM 10-K 59 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies 61 Note 2 Property, Plant and Equipment 67 Note 3 Accrued Liabilities 67 Note 4 Fair Value Measurements 68 Note 5 Short-Term Borrowings and Credit Lines 70 Note 6 Long-Term Debt 71 Note 7 Income Taxes 72 Note 8 Redeemable Preferred Stock 74 Note 9 Common Stock and Stock-Based Compensation 74 Note 10 Earnings Per Share 77 Note 11 Benefit Plans 77 Note 12 Risk Management and Derivatives 77 Note 13 Accumulated Other Comprehensive Income (Loss) 81 Note 14 Revenues 83 Note 15 Operating Segments and Related Information 84 Note 16 Commitments and Contingencies 88 Note 17 Leases 88 Note 18 Acquisitions and Divestitures 89 Note 19 Restructuring 90 2023 FORM 10-K 60 Table of Contents NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS NIKE, Inc. is a worldwide leader in the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. NIKE, Inc. 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. The Jordan Brand is focused on athletic and casual footwear, apparel and accessories using the Jumpman trademark. Sales and operating results of Jordan Brand products are reported within the respective NIKE Brand geographic operating segments. 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. In some markets outside the U.S., these trademarks are licensed to third parties who design, distribute, market and sell similar products. Operating results of the Converse brand are reported on a stand-alone basis. BASIS OF CONSOLIDATION The Consolidated Financial Statements include the accounts of NIKE, Inc. and its subsidiaries (the "Company" or "NIKE"). All significant intercompany transactions and balances have been eliminated. REVENUE RECOGNITION Revenue transactions associated with the sale of NIKE Brand footwear, apparel and equipment, as well as Converse products, comprise a single performance obligation, which consists of the sale of products to customers either through wholesale or direct to consumer channels. The Company satisfies the performance obligation and records revenues when transfer of control to the customer has occurred, based on the terms of sale. A customer is considered to have control once they are able to direct the use and receive substantially all of the benefits of the product. Control is transferred to wholesale customers upon shipment or upon receipt depending on the country of the sale and the agreement with the customer. Control transfers to retail store customers at the time of sale and to substantially all digital commerce customers upon shipment. The transaction price is determined based upon the invoiced sales price, less anticipated sales returns, discounts and miscellaneous claims from customers. Payment terms for wholesale transactions depend on the country of sale or agreement with the customer and payment is generally required within 90 days or less of shipment to or receipt by the wholesale customer. Payment is due at the time of sale for retail store and digital commerce transactions. Consideration for trademark licensing contracts is earned through sales-based or usage-based royalty arrangements, and the associated revenues are recognized over the license period. Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, and are collected by the Company from a customer, are excluded from Revenues and Cost of sales in the Consolidated Statements of Income. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in Cost of sales when the related revenues are recognized. SALES-RELATED RESERVES Consideration promised in the Company's contracts with customers is variable due to anticipated reductions, such as sales returns, discounts and miscellaneous claims from customers. The Company estimates the most likely amount it will be entitled to receive and records an anticipated reduction against Revenues, with an offsetting increase to Accrued liabilities at the time revenues are recognized. The estimated cost of inventory for product returns is recorded in Prepaid expenses and other current assets on the Consolidated Balance Sheets. The provision for anticipated sales returns consists 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. Estimates of discretionary authorized returns, discounts and claims are based on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts and claims and (3) estimated returns, discounts and claims expected but not yet finalized with customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from estimates recorded. 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. 2023 FORM 10-K 61 Table of Contents COST OF SALES Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), third-party royalties, certain foreign currency hedge gains and losses and product design costs. Shipping and handling costs are expensed as incurred and included in Cost of sales. DEMAND CREATION EXPENSE Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary products, television, digital and print advertising as well as media costs, brand events and retail brand presentation. Advertising production costs are expensed the first time an advertisement is run. Advertising media costs are expensed when the advertisement appears. Costs related to brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is complete and delivered. A significant amount of the Company's promotional expenses result from payments under endorsement contracts. In general, endorsement payments are expensed on a straight-line basis over the term of the contract. However, certain contracts contain elements that may be accounted for differently based upon the facts and circumstances of each individual contract. Prepayments made under contracts are included in Prepaid expenses and other current assets or Deferred income taxes and other assets depending on the period to which the prepayment applies. Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sport (e.g., winning a championship). The Company records 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 the Company determines payments are probable, the amounts are reported in Demand creation expense ratably over the contract period based on the Company's best estimate of the endorser's performance. In these instances, to the extent actual payments to the endorser differ from the Company's 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 the Company records in Cost of sales as the related sales occur. For contracts containing minimum guaranteed royalty payments, the Company records the amount of any guaranteed payment in excess of that earned through sales of product within Demand creation expense. 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 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. OPERATING OVERHEAD EXPENSE 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. 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. 2023 FORM 10-K 62 Table of Contents SHORT-TERM INVESTMENTS 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. Realized gains and losses on the sale of securities are determined by specific identification. The Company considers all available-for-sale debt securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and, therefore, classifies all securities with maturity dates beyond three months at the date of purchase as current assets within Short-term investments on the Consolidated Balance Sheets. Refer to Note 4 — Fair Value Measurements for more information on the Company's Short-term investments. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE Accounts receivable, net consist primarily of amounts due from customers. The Company makes ongoing estimates relating to the collectability of its accounts receivable and maintains an allowance for expected losses resulting from the inability of its customers to make required payments. 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. The allowance for uncollectible accounts receivable was $ 35 million and $ 34 million as of May 31, 2023 and 2022, respectively. INVENTORY VALUATION 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. Inventory costs primarily consist of product cost from the Company's suppliers, as well as inbound freight, import duties, taxes, insurance, logistics and other handling fees. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for land improvements, buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. Depreciation and amortization of assets used in manufacturing, warehousing and product distribution are recorded in Cost of sales. Depreciation and amortization of all other assets are recorded in Operating overhead expense. SOFTWARE DEVELOPMENT COSTS Expenditures for major software purchases and software developed for internal use are capitalized and amortized over 2 to 12 years on a straight-line basis. The Company's policy provides for the capitalization of external direct costs associated with developing or obtaining internal use computer software. The Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. Development costs of computer software to be sold, leased or otherwise marketed as an integral part of a product are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company's products are released soon after technological feasibility has been established; therefore, software development costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally, most software development costs have been expensed as incurred. 2023 FORM 10-K 63 Table of Contents IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews 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, the Company 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 that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies, which 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. GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS 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. For purposes of testing goodwill for impairment, the Company allocates goodwill across its reporting units, which are considered the Company's operating segments. 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 The Company primarily leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets. The Company determines if an arrangement is a lease at inception and begins recording lease activity at the commencement date, which is generally the date in which the Company takes possession of or controls the physical use of the asset. Lease components are not separated from non-lease components for real estate leases within the Company's lease portfolio. Right-of-use ("ROU") assets and lease liabilities are recognized based on the present value of lease payments over the lease term with lease expense recognized on a straight-line basis. The Company's incremental borrowing rate is used to determine the present value of future lease payments unless the implicit rate is readily determinable. Lease agreements may contain rent escalation clauses, renewal or termination options, rent holidays or certain landlord incentives, including tenant improvement allowances. ROU assets include amounts for scheduled rent increases and are reduced by the amount of lease incentives. The lease term includes the non-cancelable period of the lease and options to extend or terminate the lease when it is reasonably certain the Company will exercise those options. 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 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 The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. 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 Table of Contents • Level 1: Quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement. Pricing vendors are utilized for a majority of Level 1 and Level 2 investments. These vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. The fair value of derivative contracts is determined using observable market inputs such as the daily market foreign currency rates, forward pricing curves, currency volatilities, currency correlations and interest rates and considers nonperformance risk of the Company and its counterparties. The Company's fair value measurement process includes comparing fair values to another independent pricing vendor to ensure appropriate fair values are recorded. Refer to Note 4 — Fair Value Measurements for additional information. FOREIGN CURRENCY TRANSLATION AND FOREIGN CURRENCY TRANSACTIONS 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). 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. These balance sheet items are subject to remeasurement, the impact of which is recorded in Other (income) expense, net, within the Consolidated Statements of Income. ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES 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), 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 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. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation by estimating the fair value, net of estimated forfeitures, of equity awards and recognizing the related expense as Cost of sales or Operating overhead expense, as applicable, in the Consolidated Statements of Income on a straight-line basis over the vesting period. Substantially all awards vest ratably over four years of continued employment, with stock options expiring 10 years from the date of grant. Performance-based restricted stock units vest based on the Company's achievement of certain performance criteria throughout the three-year performance period and continued employment through the vesting date. The fair value of options, stock appreciation rights and employees' purchase rights under the employee stock purchase plans ("ESPPs") is determined using the Black-Scholes option pricing model. The fair value of restricted stock and time-vesting restricted stock units is established by the market price on the date of grant. The fair value of performance-based restricted stock units is estimated as of the grant date using a Monte Carlo simulation. Refer to Note 9 — Common Stock and Stock-Based Compensation for additional information on the Company's stock-based compensation programs. 2023 FORM 10-K 65 Table of Contents INCOME TAXES The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The Company records a valuation allowance to reduce deferred tax assets to the amount management believes is more likely than not to be realized. Realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain. At least quarterly, the Company assesses taxable income in prior carryback periods, the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies. The Company uses forecasts of taxable income and considers foreign tax credit utilization in making this assessment of realization, which are inherently uncertain and can result in significant variation between estimated and actual results. To the extent the Company believes that recovery is not likely, a valuation allowance is established against the net deferred tax asset, which increases the Company's income tax expense in the period when such determination is made. The Company recognizes a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not the position will be sustained upon examination by relevant tax authorities. The Company recognizes interest and penalties related to income tax matters in Income tax expense. Refer to Note 7 — Income Taxes for further discussion. EARNINGS PER SHARE Basic earnings per common share is calculated by dividing Net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. Refer to Note 10 — Earnings Per Share for further discussion. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 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 Table of Contents NOTE 2 — PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net included the following: MAY 31, (Dollars in millions) 2023 2022 Land and improvements $ 326 $ 330 Buildings 3,293 3,170 Machinery and equipment 3,083 2,870 Internal-use software 1,612 1,616 Leasehold improvements 1,876 1,712 Construction in process 525 399 Total property, plant and equipment, gross 10,715 10,097 Less accumulated depreciation 5,634 5,306 TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 5,081 $ 4,791 Capitalized interest was not material for the fiscal years ended May 31, 2023, 2022 and 2021. NOTE 3 — ACCRUED LIABILITIES Accrued liabilities included the following: MAY 31, (Dollars in millions) 2023 2022 Compensation and benefits, excluding taxes $ 1,737 $ 1,297 Sales-related reserves 994 1,015 Endorsement compensation 552 496 Dividends payable 529 485 Allowance for expected loss on sale (1) — 397 Other 1,911 2,530 Total Accrued Liabilities $ 5,723 $ 6,220 (1) Refer to Note 18 — Acquisitions and Divestitures for additional information. 2023 FORM 10-K 67 Table of Contents NOTE 4 — FAIR VALUE MEASUREMENTS The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of May 31, 2023 and 2022, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement. Refer to Note 1 — Summary of Significant Accounting Policies for additional detail regarding the Company's fair value measurement methodology. MAY 31, 2023 (Dollars in millions) ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS Cash $ 1,767 $ 1,767 $ — Level 1: U.S. Treasury securities 2,655 — 2,655 Level 2: Commercial paper and bonds 543 15 528 Money market funds 5,157 5,157 — Time deposits 507 502 5 U.S. Agency securities 46 — 46 Total Level 2 6,253 5,674 579 TOTAL $ 10,675 $ 7,441 $ 3,234 MAY 31, 2022 (Dollars in millions) ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS Cash $ 839 $ 839 $ — Level 1: U.S. Treasury securities 3,801 8 3,793 Level 2: Commercial paper and bonds 660 37 623 Money market funds 6,458 6,458 — Time deposits 1,237 1,232 5 U.S. Agency securities 2 — 2 Total Level 2 8,357 7,727 630 TOTAL $ 12,997 $ 8,574 $ 4,423 As of May 31, 2023, the Company held $ 2,563 million of available-for-sale debt securities with maturity dates within one year and $ 671 million with maturity dates over one year and less than five years in Short-term investments on the Consolidated Balance Sheets. The fair value of the Company's available-for-sale debt securities approximates their amortized cost. Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 297 million, $ 94 million and $ 34 million for the years ended May 31, 2023, 2022 and 2021, respectively. The Company records the assets and liabilities of its derivative financial instruments on a gross basis on the Consolidated Balance Sheets. The Company's derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. Any amounts of cash collateral received related to these instruments associated with the Company's credit-related contingent features are recorded in Cash and equivalents and Accrued liabilities, the latter of which would further offset against the Company's derivative asset balance. Any amounts of cash collateral posted related to these instruments associated with the Company's credit-related contingent features are recorded in Prepaid expenses and other current assets, which would further offset against the Company's derivative liability balance. Cash collateral received or posted related to the Company's credit-related contingent features is presented in the Cash provided by operations component of the Consolidated Statements of Cash Flows. The Company does not recognize amounts of non-cash collateral received, such as securities, on the Consolidated Balance Sheets. For further information related to credit risk, refer to Note 12 — Risk Management and Derivatives. 2023 FORM 10-K 68 Table of Contents 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: MAY 31, 2023 DERIVATIVE ASSETS DERIVATIVE LIABILITIES (Dollars in millions) ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES Level 2: Foreign exchange forwards and options (1) $ 557 $ 493 $ 64 $ 180 $ 128 $ 52 (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 $ 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. MAY 31, 2022 DERIVATIVE ASSETS DERIVATIVE LIABILITIES (Dollars in millions) ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES Level 2: Foreign exchange forwards and options and embedded derivatives (1) $ 880 $ 674 $ 206 $ 77 $ 66 $ 11 (1) If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 76 million as of May 31, 2022. As of that date, the Company 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. For fair value information regarding Notes payable and Long-term debt, refer to Note 5 — Short-Term Borrowings and Credit Lines and Note 6 — Long-Term Debt, respectively. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value. NON-RECURRING FAIR VALUE MEASUREMENTS 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. 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. 2023 FORM 10-K 69 Table of Contents NOTE 5 — SHORT-TERM BORROWINGS AND CREDIT LINES The carrying amounts reflected in the Consolidated Balance Sheets for Notes payable approximate fair value. 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 . This facility replaces the prior $ 2 billion five-year credit facility agreement entered into on August 16, 2019, which would have matured on August 16, 2024. Based on the Company's current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing Term SOFR for the applicable interest period plus 0.60 %. The facility fee is 0.04 % of the total undrawn commitment. 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. 2023 FORM 10-K 70 Table of Contents NOTE 6 — LONG-TERM DEBT Long-term debt, net of unamortized premiums, discounts and debt issuance costs, comprises the following: BOOK VALUE OUTSTANDING AS OF MAY 31, Scheduled Maturity (Dollars in millions) ORIGINAL PRINCIPAL INTEREST RATE INTEREST PAYMENTS 2023 2022 Corporate Term Debt: (1)(2) May 1, 2023 $ 500 2.25 % Semi-Annually $ — $ 500 March 27, 2025 1,000 2.40 % Semi-Annually 998 996 November 1, 2026 1,000 2.38 % Semi-Annually 997 997 March 27, 2027 1,000 2.75 % Semi-Annually 997 996 March 27, 2030 1,500 2.85 % Semi-Annually 1,492 1,491 March 27, 2040 1,000 3.25 % Semi-Annually 987 986 May 1, 2043 500 3.63 % Semi-Annually 496 496 November 1, 2045 1,000 3.88 % Semi-Annually 986 985 November 1, 2046 500 3.38 % Semi-Annually 492 492 March 27, 2050 1,500 3.38 % Semi-Annually 1,482 1,481 Total 8,927 9,420 Less Current Portion of Long-Term Debt — 500 TOTAL LONG-TERM DEBT $ 8,927 $ 8,920 (1) These senior unsecured obligations rank equally with the Company's other unsecured and unsubordinated indebtedness. (2) The bonds are redeemable at the Company's option at a price equal to the greater of (i) 100 % of the aggregate principal amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. However, the bonds also feature a par call provision, which allows for the bonds to be redeemed at a price equal to 100 % of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest on or after the Par Call Date, as defined in the respective notes. The scheduled maturity of Long-term debt in each of the years ending May 31, 2024 through 2028, are $ 0 million , $ 1,000 million, $ 0 million , $ 2,000 million and $ 0 million , respectively, at face value. The Company's Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs. The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2). The fair value of the Company's Long-term debt, including the current portion, was approximately $ 7,889 million and $ 8,933 million as of May 31, 2023 and 2022, respectively. 2023 FORM 10-K 71 Table of Contents NOTE 7 — INCOME TAXES Income before income taxes is as follows: YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Income before income taxes: United States $ 4,663 $ 6,020 $ 5,723 Foreign 1,538 631 938 TOTAL INCOME BEFORE INCOME TAXES $ 6,201 $ 6,651 $ 6,661 The provision for income taxes is as follows: YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Current: United States Federal $ 430 $ 231 $ 328 State 184 98 134 Foreign 634 926 857 Total Current 1,248 1,255 1,319 Deferred: United States Federal ( 162 ) ( 522 ) ( 371 ) State ( 25 ) ( 16 ) ( 34 ) Foreign 70 ( 112 ) 20 Total Deferred ( 117 ) ( 650 ) ( 385 ) TOTAL INCOME TAX EXPENSE $ 1,131 $ 605 $ 934 A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows: YEAR ENDED MAY 31, 2023 2022 2021 Federal income tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 1.5 % 1.4 % 1.3 % Foreign earnings 1.7 % - 1.8 % 0.2 % Subpart F deferred tax benefit 0.0 % - 4.7 % 0.0 % Foreign-derived intangible income benefit - 6.1 % - 4.1 % - 3.7 % 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 % U.S. research and development tax credit - 1.2 % - 1.0 % - 0.9 % Other, net 1.4 % 1.7 % - 0.9 % EFFECTIVE INCOME TAX RATE 18.2 % 9.1 % 14.0 % On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"), which significantly changed U.S. tax law and included a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries. 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, 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. During the fourth quarter of fiscal 2022, the Company onshored certain non-U.S. intangible property ownership rights and implemented changes in the Company's legal entity structure. The tax restructuring increases the possibility that foreign earnings in future periods will be subject to tax in the U.S. due to Subpart F of the Internal Revenue Code. The Company recognized a deferred tax asset and corresponding non-cash deferred income tax benefit of 4.7 %, to establish the deferred tax deduction that is expected to reduce taxable income in future periods. 2023 FORM 10-K 72 Table of Contents 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: MAY 31, (Dollars in millions) 2023 2022 Deferred tax assets: Inventories (1) $ 79 $ 136 Sales return reserves (1) 89 109 Deferred compensation (1) 321 313 Stock-based compensation 261 195 Reserves and accrued liabilities (1) 144 145 Operating lease liabilities 511 508 Intangibles 255 275 Capitalized research and development expenditures 548 353 Net operating loss carry-forwards 15 8 Subpart F deferred tax 374 313 Foreign tax credit carry-forward — 103 Other (1) 183 148 Total deferred tax assets 2,780 2,606 Valuation allowance ( 22 ) ( 19 ) Total deferred tax assets after valuation allowance 2,758 2,587 Deferred tax liabilities: Foreign withholding tax on undistributed earnings of foreign subsidiaries ( 186 ) ( 146 ) Property, plant and equipment (1) ( 276 ) ( 247 ) Right-of-use assets ( 441 ) ( 437 ) Other (1) ( 56 ) ( 92 ) Total deferred tax liabilities ( 959 ) ( 922 ) NET DEFERRED TAX ASSET (2) $ 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: MAY 31, (Dollars in millions) 2023 2022 2021 Unrecognized tax benefits, beginning of the period $ 848 $ 896 $ 771 Gross increases related to prior period tax positions 95 71 77 Gross decreases related to prior period tax positions ( 17 ) ( 145 ) ( 22 ) Gross increases related to current period tax positions 50 62 59 Settlements ( 18 ) ( 17 ) ( 5 ) Lapse of statute of limitations ( 7 ) ( 10 ) ( 6 ) Changes due to currency translation ( 15 ) ( 9 ) 22 UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD $ 936 $ 848 $ 896 As of May 31, 2023, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 936 million, of which $ 651 million would affect the Company's effective tax rate if recognized in future periods. The majority of the total gross unrecognized tax benefits are long-term in nature and included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets. 2023 FORM 10-K 73 Table of Contents 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 $ 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. The Company is subject to taxation in the U.S., as well as various state and foreign jurisdictions. The Company is currently under audit by the U.S. IRS for fiscal years 2017 through 2019. The Company has closed all U.S. federal income tax matters through fiscal 2016, with the exception of certain transfer pricing adjustments. Tax years after 2011 remain open in certain major foreign jurisdictions. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $ 50 million within the next 12 months. In January 2019, the European Commission opened a formal investigation to examine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company. The Company believes the investigation is without merit. If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to prior periods, and the Company's income taxes related to prior periods in the Netherlands could increase. A portion of the Company's foreign operations benefit from a tax holiday, which is set to expire in 2031. This tax holiday may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The tax benefit attributable to this tax holiday, before taking into consideration other U.S. indirect tax provisions, was $ 263 million, $ 221 million and $ 238 million for the fiscal years ended May 31, 2023, 2022 and 2021, respectively. The benefit of the tax holiday on diluted earnings per common share was $ 0.17 , $ 0.14 and $ 0.15 for the fiscal years ended May 31, 2023, 2022 and 2021, respectively. Deferred tax assets as of May 31, 2023 and 2022, were reduced by a valuation allowance. For the fiscal year ended May 31, 2023, a valuation allowance was provided for U.S. capital loss carryforwards and on tax benefits generated by certain entities with operating losses. For the fiscal year ended May 31, 2022, a valuation allowance was provided for U.S. capital loss carryforwards and on tax benefits generated by certain entities with operating losses. 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, $ 33 million of losses will expire in the periods between fiscal 2028 and 2043. NOTE 8 — REDEEMABLE PREFERRED STOCK Sojitz America is the sole owner of the Company's authorized redeemable preferred stock, $ 1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $ 0.3 million. A cumulative dividend of $ 0.10 per share is payable annually on May 31, and no dividends may be declared or paid on the common stock of the Company unless dividends on the redeemable preferred stock have been declared and paid in full. There have been no changes in the redeemable preferred stock in the fiscal years ended May 31, 2023, 2022 and 2021. As the holder of the redeemable preferred stock, Sojitz America does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries; on merger, consolidation, liquidation or dissolution of the Company; or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. The redeemable preferred stock has been fully issued to Sojitz America and is not blank check preferred stock. The Company's articles of incorporation do not permit the issuance of additional preferred stock. NOTE 9 — COMMON STOCK AND STOCK-BASED COMPENSATION COMMON STOCK The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 400 million and 2,400 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. There are no differences in the dividend and liquidation preferences or participation rights of the holders of Class A and Class B Common Stock. From time to time, the Company's Board of Directors authorizes share repurchase programs for the repurchase of Class B Common Stock. The value of repurchased shares is deducted from Total shareholders' equity through allocation to Capital in excess of stated value and Retained earnings. 2023 FORM 10-K 74 Table of Contents STOCK-BASED COMPENSATION The NIKE, Inc. Stock Incentive Plan (the "Stock Incentive Plan") provides for the issuance of up to 798 million previously unissued shares of Class B Common Stock in connection with equity awards granted under the Stock Incentive Plan. The Stock Incentive Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, and stock awards, including restricted stock and restricted stock units. Restricted stock units include both time-vesting restricted stock units ("RSUs") as well as performance-based restricted stock units ("PSUs"). A committee of the Board of Directors administers the Stock Incentive Plan and has the authority to determine the employees to whom awards will be made, the amount of the awards and the other terms and conditions of the awards. The Company generally grants stock options, restricted stock and restricted stock units on an annual basis. The exercise price for stock options and stock appreciation rights may not be less than the fair market value of the underlying shares on the date of grant. 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. The following table summarizes the Company's total stock-based compensation expense recognized in Cost of sales or Operating overhead expense, as applicable: YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Stock options (1) $ 311 $ 297 $ 323 ESPPs 72 60 63 Restricted stock and restricted stock units (1)(2) 372 281 225 TOTAL STOCK-BASED COMPENSATION EXPENSE $ 755 $ 638 $ 611 (1) Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibility requirements and was $ 64 million, $ 57 million and $ 67 million for the fiscal years ended May 31, 2023, 2022 and 2021, respectively. 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) 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. STOCK OPTIONS 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: YEAR ENDED MAY 31, 2023 2022 2021 Dividend yield 0.9 % 0.8 % 0.9 % Expected volatility 27.1 % 24.9 % 27.3 % Weighted average expected life (in years) 5.8 5.8 6.0 Risk-free interest rate 3.3 % 0.9 % 0.4 % Expected volatilities are based on an analysis of the historical volatility of the Company's common stock, the implied volatility in market traded options on the Company's common stock with a term greater than one year , as well as other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 2023 FORM 10-K 75 Table of Contents The following summarizes the stock option transactions under the plan discussed above: SHARES (1) WEIGHTED AVERAGE OPTION PRICE (In millions) Options outstanding as of May 31, 2022 68.0 $ 88.66 Exercised ( 7.5 ) 57.11 Forfeited ( 1.5 ) 122.93 Granted 12.0 107.44 Options outstanding as of May 31, 2023 71.0 $ 94.40 (1) Includes stock appreciation rights transactions. Options exercisable as of May 31, 2023 were 44.7 million and had a weighted average option price of $ 79.95 per share. The aggregate intrinsic value for options outstanding and exercisable as of May 31, 2023 was $ 1,380 million and $ 1,307 million, respectively. The total intrinsic value of the options exercised during the years ended May 31, 2023, 2022 and 2021 was $ 438 million, $ 1,742 million and $ 1,571 million, respectively. The intrinsic value is the amount by which the market value of the underlying stock exceeds the exercise price of the options. The weighted average contractual life remaining for options outstanding and options exercisable as of May 31, 2023 was 5.9 years and 4.5 years, respectively. As of May 31, 2023, the Company had $ 425 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.5 years. 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 ESPPs. Subject to the annual statutory limit, employees are eligible to participate through payroll deductions of up to 10 % of their compensation. At the end of each six-month offering period, shares are purchased by the participants at 85 % of the lower of the fair market value at the beginning or the end of the offering period. Employees purchased 3.0 million, 2.0 million and 2.5 million shares during each of the fiscal years ended May 31, 2023, 2022 and 2021, respectively. RESTRICTED STOCK AND RESTRICTED STOCK UNITS Recipients of restricted stock are entitled to cash dividends and to vote their respective shares throughout the period of restriction. Recipients of restricted stock units, which includes RSUs and PSUs, are entitled to dividend equivalent cash payments upon vesting. 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. The following summarizes the restricted stock and restricted stock units transactions under the plan discussed above: SHARES (1) WEIGHTED AVERAGE GRANT DATE FAIR VALUE (In millions) Nonvested as of May 31, 2022 6.7 $ 130.88 Vested ( 2.2 ) 114.85 Forfeited ( 0.7 ) 131.10 Granted 4.5 115.56 Nonvested as of May 31, 2023 8.3 $ 126.97 (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. 2023 FORM 10-K 76 Table of Contents NOTE 10 — EARNINGS PER SHARE The following is a reconciliation from basic earnings per common share to diluted earnings per common share. The computations of diluted earnings per common share excluded restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an estimated additional 31.7 million, 9.4 million and 11.3 million shares of common stock outstanding for the fiscal years ended May 31, 2023, 2022 and 2021, respectively, because the awards were assumed to be anti-dilutive. YEAR ENDED MAY 31, (In millions, except per share data) 2023 2022 2021 Net income available to common stockholders $ 5,070 $ 6,046 $ 5,727 Determination of shares: Weighted average common shares outstanding 1,551.6 1,578.8 1,573.0 Assumed conversion of dilutive stock options and awards 18.2 32.0 36.4 DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,569.8 1,610.8 1,609.4 Earnings per common share: Basic $ 3.27 $ 3.83 $ 3.64 Diluted $ 3.23 $ 3.75 $ 3.56 NOTE 11 — BENEFIT PLANS The Company has a qualified 401(k) Savings and Profit Sharing Plan, in which all U.S. employees are able to participate. The Company matches a portion of employee contributions to the savings plan. 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 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. The Company allows certain highly compensated employees and non-employee directors of the Company to defer compensation under a nonqualified deferred compensation plan. A rabbi trust was established to fund the Company's nonqualified deferred compensation plan obligation. The assets in the rabbi trust of approximately $ 875 million and $ 876 million as of May 31, 2023 and 2022, respectively, primarily consist of company owned life insurance policies recorded at their cash surrender value and are classified in Deferred income taxes and other assets on the Consolidated Balance Sheets. Deferred compensation plan liabilities were $ 897 million and $ 890 million as of May 31, 2023 and 2022, respectively, and primarily classified in Deferred income taxes and other liabilities on the Consolidated Balance Sheets. The Company has pension plans in various countries worldwide. The pension plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $ 29 million and $ 30 million as of May 31, 2023 and 2022, respectively, and primarily classified as non-current in Deferred income taxes and other liabilities on the Consolidated Balance Sheets. NOTE 12 — RISK MANAGEMENT AND DERIVATIVES The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking hedge transactions. 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. 2023 FORM 10-K 77 Table of Contents The majority of derivatives outstanding as of May 31, 2023, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Chinese Yuan/U.S. Dollar and Japanese Yen/U.S. Dollar currency pairs. All derivatives are recognized on the Consolidated Balance Sheets at fair value and classified based on the instrument's maturity date. The following tables present the fair values of derivative instruments included within the Consolidated Balance Sheets: DERIVATIVE ASSETS BALANCE SHEET LOCATION MAY 31, (Dollars in millions) 2023 2022 Derivatives formally designated as hedging instruments: Foreign exchange forwards and options Prepaid expenses and other current assets $ 480 $ 639 Foreign exchange forwards and options Deferred income taxes and other assets 64 206 Total derivatives formally designated as hedging instruments 544 845 Derivatives not designated as hedging instruments: 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 TOTAL DERIVATIVE ASSETS $ 557 $ 880 DERIVATIVE LIABILITIES BALANCE SHEET LOCATION MAY 31, (Dollars in millions) 2023 2022 Derivatives formally designated as hedging instruments: Foreign exchange forwards and options Accrued liabilities $ 93 $ 37 Foreign exchange forwards and options Deferred income taxes and other liabilities 52 11 Total derivatives formally designated as hedging instruments 145 48 Derivatives not designated as hedging instruments: Foreign exchange forwards and options and embedded derivatives Accrued liabilities 35 29 Total derivatives not designated as hedging instruments 35 29 TOTAL DERIVATIVE LIABILITIES $ 180 $ 77 The following table presents the amounts in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the fiscal years ended May 31, 2023, 2022 and 2021: YEAR ENDED MAY 31, 2023 2022 2021 (Dollars in millions) TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY Revenues $ 51,217 $ 26 $ 46,710 $ ( 82 ) $ 44,538 $ 45 Cost of sales 28,925 581 25,231 ( 23 ) 24,576 51 Demand creation expense 4,060 ( 5 ) 3,850 1 3,114 3 Other (income) expense, net ( 280 ) 338 ( 181 ) 130 14 ( 47 ) Interest expense (income), net ( 6 ) ( 8 ) 205 ( 7 ) 262 ( 7 ) 2023 FORM 10-K 78 Table of Contents The following tables present the amounts affecting the Consolidated Statements of Income for the years ended May 31, 2023, 2022 and 2021: (Dollars in millions) AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES (1) AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME (1) YEAR ENDED MAY 31, LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME YEAR ENDED MAY 31, 2023 2022 2021 2023 2022 2021 Derivatives designated as cash flow hedges: Foreign exchange forwards and options $ 16 $ ( 39 ) $ ( 61 ) Revenues $ 26 $ ( 82 ) $ 45 Foreign exchange forwards and options 305 889 ( 563 ) Cost of sales 581 ( 23 ) 51 Foreign exchange forwards and options ( 1 ) ( 6 ) 5 Demand creation expense ( 5 ) 1 3 Foreign exchange forwards and options 207 492 ( 163 ) Other (income) expense, net 338 130 ( 47 ) Interest rate swaps (2) — — — Interest expense (income), net ( 8 ) ( 7 ) ( 7 ) Total designated cash flow hedges $ 527 $ 1,336 $ ( 782 ) $ 932 $ 19 $ 45 (1) For the fiscal years ended May 31, 2023, 2022, and 2021, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial. (2) Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt. AMOUNT OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES LOCATION OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Derivatives designated as hedging instruments: Foreign exchange forwards and options and embedded derivatives $ 28 $ 38 $ ( 167 ) Other (income) expense, net CASH FLOW HEDGES All changes in fair value of derivatives designated as cash flow hedge instruments are recorded in Accumulated other comprehensive income (loss) until Net income is affected by the variability of cash flows of the hedged transaction. Effective hedge results are classified in the Consolidated Statements of Income in the same manner as the underlying exposure. When it is no longer probable the forecasted hedged transaction will occur in the initially identified time period, hedge accounting is discontinued and the Company accounts for the associated derivative as an undesignated instrument as discussed below. Additionally, the gains and losses associated with derivatives no longer designated as cash flow hedge instruments in Accumulated other comprehensive income (loss) are recognized immediately in Other (income) expense, net, if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-month period thereafter. In rare circumstances, the additional period of time may exceed two months due to extenuating circumstances related to the nature of the forecasted transaction that are outside the control or influence of the Company. The purpose of the Company's foreign exchange risk management program is to lessen both the positive and negative effects of currency fluctuations on the Company's consolidated results of operations, financial position and cash flows. Foreign currency exposures the Company may elect to hedge in this manner include product costs, non-functional currency denominated revenues, intercompany revenues, demand creation expenses, investments in U.S. 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. NIKE entities primarily purchase product in two ways: (1) Certain NIKE entities purchase product from the NIKE Trading Company ("NTC"), a wholly-owned sourcing hub that buys NIKE branded products from third-party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the product to NIKE entities in their respective functional currencies. NTC sales to a NIKE entity with a different functional currency result in a foreign currency 2023 FORM 10-K 79 Table of Contents exposure for the NTC. (2) Other NIKE entities purchase product directly from third-party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar. 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. Typically, the Company may enter into hedge contracts starting up to 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100 % of the exposure by the time the forecasted transaction occurs. The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was $ 18.2 billion as of May 31, 2023. As of May 31, 2023, approximately $ 419 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature. As of May 31, 2023, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months. FAIR VALUE HEDGES The Company has, in the past, been exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. The Company had no interest rate swaps designated as fair value hedges as of May 31, 2023. NET INVESTMENT HEDGES The Company has, in the past, hedged and may, in the future, hedge the risk of variability in foreign currency-denominated net investments in wholly-owned international operations. All changes in fair value of the derivatives designated as net investment hedges are reported in Accumulated other comprehensive income (loss) along with the foreign currency translation adjustments on those investments. The Company had no outstanding net investment hedges as of May 31, 2023. 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. 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. The total notional amount of outstanding undesignated derivative instruments was $ 4.7 billion as of May 31, 2023. CREDIT RISK The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings; however, this does not eliminate the Company's exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored. The Company's derivative contracts contain credit risk-related contingent features designed to protect against significant deterioration in counterparties' creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $ 50 million should the fair value of outstanding derivatives per counterparty be greater than $ 50 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could trigger collateral requirements. As of 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. Further, as of May 31, 2023, the Company had received $ 36 million in cash collateral from various counterparties to its derivative contracts. The Company considers the impact of the risk of counterparty default to be immaterial. For additional information related to the Company's derivative financial instruments and collateral, refer to Note 4 — Fair Value Measurements. 2023 FORM 10-K 80 Table of Contents NOTE 13 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in Accumulated other comprehensive income (loss), net of tax, were as follows: (Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL Balance at May 31, 2022 $ ( 520 ) $ 779 $ 115 $ ( 56 ) $ 318 Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications (2) ( 91 ) 487 — ( 20 ) 376 Reclassifications to net income of previously deferred (gains) losses (3) 358 ( 835 ) — 14 ( 463 ) Total other comprehensive income (loss) 267 ( 348 ) — ( 6 ) ( 87 ) Balance at May 31, 2023 $ ( 253 ) $ 431 $ 115 $ ( 62 ) $ 231 (1) The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity. (2) Net of tax benefit (expense) of $ 0 million , $( 40 ) million, $ 0 million , $ 6 million and $( 34 ) million, respectively. (3) Net of tax (benefit) expense of $( 16 ) million, $ 97 million, $ 0 million , $( 5 ) million and $ 76 million, respectively. (Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL Balance at May 31, 2021 $ 2 $ ( 435 ) $ 115 $ ( 62 ) $ ( 380 ) Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications (2) ( 522 ) 1,222 — 28 728 Reclassifications to net income of previously deferred (gains) losses (3) — ( 8 ) — ( 22 ) ( 30 ) Total other comprehensive income (loss) ( 522 ) 1,214 — 6 698 Balance at May 31, 2022 $ ( 520 ) $ 779 $ 115 $ ( 56 ) $ 318 (1) The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity. (2) Net of tax benefit (expense) of $ 0 million , $( 114 ) million, $ 0 million , $( 9 ) million and $( 123 ) million, respectively. (3) Net of tax (benefit) expense of $ 0 million , $ 11 million, $ 0 million , $ 9 million and $ 20 million, respectively. 2023 FORM 10-K 81 Table of Contents The following table summarizes the reclassifications from Accumulated other comprehensive income (loss) to the Consolidated Statements of Income: AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 Gains (losses) on foreign currency translation adjustment $ ( 374 ) $ — Other (income) expense, net Total before tax ( 374 ) — Tax (expense) benefit 16 — Gain (loss) net of tax ( 358 ) — Gains (losses) on cash flow hedges: Foreign exchange forwards and options 26 ( 82 ) Revenues Foreign exchange forwards and options 581 ( 23 ) Cost of sales Foreign exchange forwards and options ( 5 ) 1 Demand creation expense Foreign exchange forwards and options 338 130 Other (income) expense, net Interest rate swaps ( 8 ) ( 7 ) Interest expense (income), net Total before tax 932 19 Tax (expense) benefit ( 97 ) ( 11 ) Gain (loss) net of tax 835 8 Gains (losses) on other ( 19 ) 31 Other (income) expense, net Total before tax ( 19 ) 31 Tax (expense) benefit 5 ( 9 ) Gain (loss) net of tax ( 14 ) 22 Total net gain (loss) reclassified for the period $ 463 $ 30 2023 FORM 10-K 82 Table of Contents NOTE 14 — REVENUES DISAGGREGATION OF REVENUES The following tables present the Company's Revenues disaggregated by reportable operating segment, major product line and distribution channel: YEAR ENDED MAY 31, 2023 (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. Revenues by: Footwear $ 14,897 $ 8,260 $ 5,435 $ 4,543 $ — $ 33,135 $ 2,155 $ — $ 35,290 Apparel 5,947 4,566 1,666 1,664 — 13,843 90 — 13,933 Equipment 764 592 147 224 — 1,727 28 — 1,755 Other — — — — 58 58 154 27 239 TOTAL REVENUES $ 21,608 $ 13,418 $ 7,248 $ 6,431 $ 58 $ 48,763 $ 2,427 $ 27 $ 51,217 Revenues by: Sales to Wholesale Customers $ 11,273 $ 8,522 $ 3,866 $ 3,736 $ — $ 27,397 $ 1,299 $ — $ 28,696 Sales through Direct to Consumer 10,335 4,896 3,382 2,695 — 21,308 974 — 22,282 Other — — — — 58 58 154 27 239 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 GLOBAL BRAND DIVISIONS TOTAL NIKE BRAND CONVERSE CORPORATE TOTAL NIKE, INC. Revenues by: Footwear $ 12,228 $ 7,388 $ 5,416 $ 4,111 $ — $ 29,143 $ 2,094 $ — $ 31,237 Apparel 5,492 4,527 1,938 1,610 — 13,567 103 — 13,670 Equipment 633 564 193 234 — 1,624 26 — 1,650 Other — — — — 102 102 123 ( 72 ) 153 TOTAL REVENUES $ 18,353 $ 12,479 $ 7,547 $ 5,955 $ 102 $ 44,436 $ 2,346 $ ( 72 ) $ 46,710 Revenues by: Sales to Wholesale Customers $ 9,621 $ 8,377 $ 4,081 $ 3,529 $ — $ 25,608 $ 1,292 $ — $ 26,900 Sales through Direct to Consumer 8,732 4,102 3,466 2,426 — 18,726 931 — 19,657 Other — — — — 102 102 123 ( 72 ) 153 TOTAL REVENUES $ 18,353 $ 12,479 $ 7,547 $ 5,955 $ 102 $ 44,436 $ 2,346 $ ( 72 ) $ 46,710 2023 FORM 10-K 83 Table of Contents YEAR ENDED MAY 31, 2021 (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. Revenues by: Footwear $ 11,644 $ 6,970 $ 5,748 $ 3,659 $ — $ 28,021 $ 1,986 $ — $ 30,007 Apparel 5,028 3,996 2,347 1,494 — 12,865 104 — 12,969 Equipment 507 490 195 190 — 1,382 29 — 1,411 Other — — — — 25 25 86 40 151 TOTAL REVENUES $ 17,179 $ 11,456 $ 8,290 $ 5,343 $ 25 $ 42,293 $ 2,205 $ 40 $ 44,538 Revenues by: Sales to Wholesale Customers $ 10,186 $ 7,812 $ 4,513 $ 3,387 $ — $ 25,898 $ 1,353 $ — $ 27,251 Sales through Direct to Consumer 6,993 3,644 3,777 1,956 — 16,370 766 — 17,136 Other — — — — 25 25 86 40 151 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. Converse Other revenues were primarily attributable to licensing businesses. Corporate revenues primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse but managed through the Company's central foreign exchange risk management program. As of May 31, 2023 and 2022, the Company did not have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued liabilities on the Consolidated Balance Sheets. SALES-RELATED RESERVES As of May 31, 2023 and 2022, the Company's sales-related reserve balance, which includes returns, post-invoice sales discounts and miscellaneous claims, was $ 994 million and $ 1,015 million, respectively, recorded in Accrued liabilities on the Consolidated Balance Sheets. 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. NOTE 15 — OPERATING SEGMENTS AND RELATED INFORMATION The Company's operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity. Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa ("EMEA"); Greater China; and Asia Pacific & Latin America ("APLA"), and include results for the NIKE and Jordan brands. 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. Converse is also a reportable segment for the Company and operates in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories. Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. Global Brand Divisions costs represent demand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. 2023 FORM 10-K 84 Table of Contents Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company's headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses. The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes ("EBIT"), which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income. As part of the Company's centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in the Company's geographic operating segments and to Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons, and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entity's functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from the Company's centrally managed foreign exchange risk management program and other conversion gains and losses. Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and are therefore provided below. 2023 FORM 10-K 85 Table of Contents YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 REVENUES North America $ 21,608 $ 18,353 $ 17,179 Europe, Middle East & Africa 13,418 12,479 11,456 Greater China 7,248 7,547 8,290 Asia Pacific & Latin America 6,431 5,955 5,343 Global Brand Divisions 58 102 25 Total NIKE Brand 48,763 44,436 42,293 Converse 2,427 2,346 2,205 Corporate 27 ( 72 ) 40 TOTAL NIKE, INC. REVENUES $ 51,217 $ 46,710 $ 44,538 EARNINGS BEFORE INTEREST AND TAXES North America $ 5,454 $ 5,114 $ 5,089 Europe, Middle East & Africa 3,531 3,293 2,435 Greater China 2,283 2,365 3,243 Asia Pacific & Latin America 1,932 1,896 1,530 Global Brand Divisions ( 4,841 ) ( 4,262 ) ( 3,656 ) Converse 676 669 543 Corporate ( 2,840 ) ( 2,219 ) ( 2,261 ) Interest expense (income), net ( 6 ) 205 262 TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 6,201 $ 6,651 $ 6,661 ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT North America $ 283 $ 146 $ 98 Europe, Middle East & Africa 215 197 153 Greater China 56 78 94 Asia Pacific & Latin America 64 56 54 Global Brand Divisions 271 222 278 Total NIKE Brand 889 699 677 Converse 7 9 7 Corporate 140 103 107 TOTAL ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT $ 1,036 $ 811 $ 791 DEPRECIATION North America $ 128 $ 124 $ 130 Europe, Middle East & Africa 120 134 136 Greater China 54 41 46 Asia Pacific & Latin America 42 42 43 Global Brand Divisions 211 220 222 Total NIKE Brand 555 561 577 Converse 17 22 26 Corporate 131 134 141 TOTAL DEPRECIATION $ 703 $ 717 $ 744 2023 FORM 10-K 86 Table of Contents AS OF MAY 31, (Dollars in millions) 2023 2022 ACCOUNTS RECEIVABLE, NET North America $ 1,653 $ 1,850 Europe, Middle East & Africa 1,197 1,351 Greater China 162 406 Asia Pacific & Latin America (1) 700 664 Global Brand Divisions 96 113 Total NIKE Brand 3,808 4,384 Converse 235 230 Corporate 88 53 TOTAL ACCOUNTS RECEIVABLE, NET $ 4,131 $ 4,667 INVENTORIES North America $ 3,806 $ 4,098 Europe, Middle East & Africa 2,167 1,887 Greater China 973 1,044 Asia Pacific & Latin America (1) 894 686 Global Brand Divisions 232 197 Total NIKE Brand 8,072 7,912 Converse 305 279 Corporate 77 229 TOTAL INVENTORIES $ 8,454 $ 8,420 PROPERTY, PLANT AND EQUIPMENT, NET North America $ 794 $ 639 Europe, Middle East & Africa 1,009 920 Greater China 292 303 Asia Pacific & Latin America (1) 279 274 Global Brand Divisions 840 789 Total NIKE Brand 3,214 2,925 Converse 38 49 Corporate 1,829 1,817 TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 5,081 $ 4,791 (1) Excludes assets held-for-sale as of May 31, 2022. See Note 18 — Acquisitions and Divestitures for additional information. REVENUES AND LONG-LIVED ASSETS BY GEOGRAPHIC AREA After allocation of revenues for Global Brand Divisions, Converse and Corporate to geographical areas based on the location where the sales originated, revenues by geographical area are essentially the same as reported above for the NIKE Brand operating segments with the exception of the United States. Revenues derived in the United States were $ 22,007 million, $ 18,749 million and $ 17,363 million for the fiscal years ended May 31, 2023, 2022 and 2021, respectively. The Company's largest concentrations of long-lived assets primarily consist of the Company's corporate headquarters, retail locations and distribution facilities in the United States and China, as well as distribution facilities in Belgium. Long-lived assets attributable to operations in these countries, which consist of property, plant and equipment, net and operating lease ROU assets, net, were as follows: MAY 31, (Dollars in millions) 2023 2022 United States $ 5,129 $ 4,916 Belgium 702 646 China 559 538 2023 FORM 10-K 87 Table of Contents NOTE 16 — COMMITMENTS AND CONTINGENCIES 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. Currently, the Company has several such agreements in place. 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, tax, intellectual property and other matters. The outcome of these legal matters is inherently uncertain, and the Company cannot predict the eventual outcome of currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or consequences relating to those matters. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. If one or more legal matters were to be resolved against the Company in a reporting period for amounts above management's expectations, the Company's financial position, operating results and cash flows for that reporting period could be materially adversely affected. In the opinion of management, based on its current knowledge and after consultation with counsel, the Company does not believe any currently pending legal matters will have a material adverse impact on the Company's results of operations, financial position or cash flows, except as described below. BELGIAN CUSTOMS CLAIM The Company has received claims for certain years from the Belgian Customs Authorities for alleged underpaid duties related to products imported beginning in fiscal 2018. The Company disputes these claims and has engaged in the appellate process. 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. If this matter is ultimately resolved against the Company, the amounts owed, including fines, penalties and other consequences relating to the matter, could have a material adverse effect on the Company's results of operations, financial position and cash flows. NOTE 17 — LEASES Lease expense is recognized in Cost of sales or Operating overhead expense within the Consolidated Statements of Income, based on the underlying nature of the leased asset. For the fiscal years ended May 31, 2023, 2022 and 2021, lease expense primarily consisted of operating lease costs of $ 585 million, $ 593 million and $ 589 million, respectively. Lease expense also consisted of $ 403 million, $ 366 million and $ 347 million for fiscal years ended May 31, 2023, 2022 and 2021, respectively, primarily related to variable lease costs, which includes an immaterial amount of short-term lease costs. As of and for the fiscal years ended May 31, 2023 and 2022 and 2021, finance leases were not a material component of the Company's lease portfolio. The undiscounted cash flows for future maturities of the Company's operating lease liabilities and the reconciliation to the Operating lease liabilities recognized in the Company's Consolidated Balance Sheets are as follows: (Dollars in millions) AS OF MAY 31, 2023 (1) Fiscal 2024 $ 506 Fiscal 2025 562 Fiscal 2026 490 Fiscal 2027 436 Fiscal 2028 369 Thereafter 1,225 Total undiscounted future cash flows related to lease payments $ 3,588 Less interest 377 Present value of lease liabilities $ 3,211 (1) Excludes $ 278 million as of May 31, 2023, of future operating lease payments for lease agreements signed but not yet commenced. 2023 FORM 10-K 88 Table of Contents The following table includes supplemental information used to calculate the present value of Operating lease liabilities: AS OF MAY 31, 2023 2022 Weighted-average remaining lease term (in years) 7.5 7.8 Weighted-average discount rate 2.5 % 2.3 % The following table includes supplemental cash and non-cash information related to operating leases: YEAR ENDED MAY 31, (Dollars in millions) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 575 $ 589 $ 583 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ 602 $ 537 $ 489 NOTE 18 — ACQUISITIONS AND DIVESTITURES ACQUISITIONS 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. DIVESTITURES During the fourth quarter of fiscal 2022, the Company entered into separate definitive agreements to sell its entities in Argentina and Uruguay as well as its entity in Chile to third-party distributors. The 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 During fiscal 2020, the Company entered into a definitive agreement to sell substantially all of its NIKE Brand operations in Brazil and shift to a distributor operating model. During fiscal 2021, the transaction closed and the Company recognized a loss of approximately $ 50 million within Other (income) expense, net classified within Corporate, on the Consolidated Statements of Income. Cash proceeds received were reflected within Other investing activities on the Consolidated Statements of Cash Flows. 2023 FORM 10-K 89 Table of Contents NOTE 19 — RESTRUCTURING 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. These costs were classified within Corporate. 2023 FORM 10-K 90 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or financial statement disclosure required to be reported under this Item.