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Item 1. Financial Statements

2023-10-06 compared with 2023-04-06 · 92 added, 239 removed, 496 unchanged (40% of the section changed)

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

THREE MONTHS ENDED AUGUST 31,

(In millions, except per share data)

2023 2022 2023 2022

Revenues $ 12,939 $ 12,687

8 unchanged sentences

Income tax expense

NET INCOME $ 1,240 $ 1,396 $ 4,039 $ 4,607

$ 1,450 $ 1,468

Earnings per common share:

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

2023 2022 2023 2022

Net income $ 1,450 $ 1,468

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(In millions)

37 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED FEBRUARY 28,

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

21 unchanged sentences

Cash provided (used) by financing activities:

Increase (decrease) in notes payable 4 4

Increase (decrease) in notes payable, net

Proceeds from exercise of stock options and other stock issuances 99 82

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SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 3 153 153

Repurchase of Class B Common Stock ( 13 ) ( 99 ) ( 1,420 ) ( 1,519 )

Dividends on common stock ($ 0.340 per share)

( 527 ) ( 527 )

Issuance of shares to employees, net of shares withheld for employee taxes ( 23 ) — ( 23 )

Stock-based compensation 192 192

Net income 1,240 1,240

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

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

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

CLASS A CLASS B

(In millions, except per share data)

SHARES AMOUNT SHARES AMOUNT

Balance at November 30, 2021 305 $ — 1,278 $ 3 $ 10,990 $ 145 $ 3,786 $ 14,924

Stock options exercised 1 112 112

Repurchase of Class B Common Stock ( 8 ) ( 57 ) ( 1,165 ) ( 1,222 )

Dividends on common stock ($ 0.305 per share)

( 488 ) ( 488 )

Issuance of shares to employees, net of shares withheld for employee taxes ( 20 ) ( 8 ) ( 28 )

Stock-based compensation 161 161

Net income 1,396 1,396

Other comprehensive income (loss) ( 46 ) ( 46 )

Balance at February 28, 2022 305 $ — 1,271 $ 3 $ 11,186 $ 99 $ 3,521 $ 14,809

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

CLASS A CLASS B

(In millions, except per share data)

SHARES AMOUNT SHARES AMOUNT

Balance at May 31, 2023 305 $ — 1,227 $ 3 $ 12,412 $ 231 $ 1,358 $ 14,004

Stock options exercised 2 106 106

Conversion to Class B Common Stock ( 7 ) 7 —

Repurchase of Class B Common Stock ( 10 ) ( 85 ) ( 1,047 ) ( 1,132 )

5 unchanged sentences

Other comprehensive income (loss) ( 95 ) ( 95 )

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

Balance at August 31, 2023 298 $ — 1,226 $ 3 $ 12,590 $ 136 $ 1,242 $ 13,971

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

11 unchanged sentences

Other comprehensive income (loss) 318 318

Balance at February 28, 2022 305 $ — 1,271 $ 3 $ 11,186 $ 99 $ 3,521 $ 14,809

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

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.

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NOTE 1 Summary of Significant Accounting Policies

NOTE 2 Inventories

NOTE 2 Accrued Liabilities

NOTE 3 Fair Value Measurements

NOTE 5 Short-term Borrowings and Credit Lines

NOTE 4 Income Taxes

6 unchanged sentences

NOTE 11 Contingencies

NOTE 14 Acquisitions and Divestitures

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The year-end Condensed Consolidated Balance Sheet data as of May 31, 2023, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S.

The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

The results of operations for the three and nine months ended February 28, 2023, are not necessarily indicative of results to be expected for the entire fiscal year.

The uncertain state of the global economy or worsening macroeconomic conditions could affect the Company’s business, including, among other things, potential impacts of inflation and rising interest rates on consumer behavior, higher inventory levels in various markets, higher inventory obsolescence reserves, higher promotional activity, reduced demand for product, reduced orders from wholesale customers for products and order cancellations.

There could also be new or prolonged COVID-19 related restrictions or disruptions.

Any of these factors, among others, could have material adverse impacts on the Company’s revenue growth as well as overall profitability in future periods.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2023 (the "Annual Report").

The results of operations for the three months ended August 31, 2023, are not necessarily indicative of results to be expected for the entire fiscal year.

RECENTLY ADOPTED ACCOUNTING STANDARDS

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

Disclosure of Supplier Finance Program Obligations.

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

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

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

NOTE 2 — INVENTORIES

Inventory balances of $ 8,905 million and $ 8,420 million at February 28, 2023 and May 31, 2022, respectively, were substantially all finished goods.

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 adopted the required guidance in the first quarter of fiscal 2024.

Certain financial institutions offer voluntary supplier finance programs facilitated through a third-party platform that provide participating suppliers the option to finance valid payment obligations from the Company.

The Company is not a party to agreements negotiated between participating suppliers and third-party financial institutions.

The Company's obligations to its suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in these programs and the Company does not provide guarantees to third parties in connection with these programs.

As of August 31, 2023 and May 31, 2023, the Company had $ 953 million and $ 834 million, respectively, of outstanding supplier obligations confirmed as valid under these programs.

These amounts are included within Accounts payable on the Unaudited Condensed Consolidated Balance Sheets.

NOTE 2 — ACCRUED LIABILITIES

Accrued liabilities included the following:

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions) 2023 2023

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Dividends payable

Import and logistics

Endorsement compensation

Allowance for expected loss on sale (1)

Other 1,583 1,541

TOTAL ACCRUED LIABILITIES $ 4,987 $ 5,723

(1) Refer to Note 14 — Acquisitions and Divestitures for additional information.

NOTE 3 — FAIR VALUE MEASUREMENTS

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities.

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

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

FEBRUARY 28, 2023

For additional information about the Company's fair value policies, refer to Note 1 — Summary of Significant Accounting Policies within the Annual Report.

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

AUGUST 31, 2023

(Dollars in millions)

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TOTAL $ 10,675 $ 7,441 $ 3,234

As of February 28, 2023, the Company held $ 3,089 million of available-for-sale debt securities with maturity dates within one year and $ 758 million with maturity dates greater than one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.

As of August 31, 2023, the Company held $ 1,945 million of available-for-sale debt securities with maturity dates within one year and $ 667 million with maturity dates greater than one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.

The fair value of the Company's available-for-sale debt securities approximates their amortized cost.

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

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 99 million and $ 65 million for the three months ended August 31, 2023 and 2022, respectively.

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

FEBRUARY 28, 2023

AUGUST 31, 2023

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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$ 491 $ 420 $ 71 $ 235 $ 177 $ 58

Embedded derivatives 5 5 — 2 2 —

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

(1) If the foreign exchange derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 175 million as of February 28, 2023.

As of that date, the Company received $ 7 million of cash collateral from counterparties related to foreign exchange derivative instruments.

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

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

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

3 unchanged sentences

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

Embedded derivatives 5 5 — 1 1 —

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

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

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The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2).

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

For fair value information regarding Notes payable, refer to Note 5 — Short-term Borrowings and Credit Lines.

NOTE 5 — SHORT-TERM BORROWINGS AND CREDIT LINES

The fair value of the Company's Long-term debt, including the current portion, was approximately $ 7,768 million at August 31, 2023 and $ 7,889 million at May 31, 2023.

The carrying amounts reflected on the Unaudited Condensed Consolidated Balance Sheets for Notes payable approximate fair value.

As of February 28, 2023 and May 31, 2022, the Company had no borrowings outstanding under its $ 3 billion commercial paper program.

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

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

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

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

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

As of April 6, 2023, no amounts were outstanding under this committed credit facility.

There have been no other changes to the credit lines reported in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

NOTE 4 — INCOME TAXES

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

The increase in the Company's effective tax rate was primarily due to a less favorable impact from stock-based compensation and a shift in the Company's earnings mix.

As of February 28, 2023, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 941 million, $ 657 million of which would affect the Company's effective tax rate if recognized in future periods.

The effective tax rate was 12.0 % and 19.7 % for the three months ended August 31, 2023 and 2022, respectively.

The decrease in the Company's effective tax rate was primarily due to the impact of temporary relief provided by the Internal Revenue Service ("IRS") relating to U.S.

foreign tax credit regulations.

On July 21, 2023, the IRS issued Notice 2023-55 which specifically delayed the application of certain U.S.

foreign tax credit regulations that had previously limited the Company's ability to claim credits on certain foreign taxes for the fiscal year ended May 31, 2023.

As a result of this new guidance, the Company recognized a one-time tax benefit related to prior year tax positions in the first three months of fiscal 2024.

On August 16, 2022, the U.S.

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

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

Based on the Company's current analysis of the provisions, these tax law changes are not expected to have a material impact on the Company's financial statements for fiscal 2024.

As of August 31, 2023, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 931 million, $ 644 million of which would affect the Company's effective tax rate if recognized in future periods.

The majority of the total gross unrecognized tax benefits are long-term in nature and included within Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

As of May 31, 2023, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 936 million.

As of February 28, 2023 and May 31, 2022, accrued interest and penalties related to uncertain tax positions were $ 282 million and $ 248 million, respectively, (excluding federal benefit) and included within Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

As of August 31, 2023 and May 31, 2023, accrued interest and penalties related

to uncertain tax positions were $ 274 million and $ 268 million, respectively, (excluding federal benefit) and included within Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

The Company is subject to taxation in the U.S., as well as various state and foreign jurisdictions.

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

Refer to Note 11 — Common Stock and Stock-Based Compensation of the Annual Report on Form 10-K for the fiscal year ended May 31, 2022 for additional information.

For additional information, refer to Note 9 — Common Stock and Stock-Based Compensation within the Annual Report.

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

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

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

2023 2022 2023 2022

Stock options (1)

$ 78 $ 75 $ 232 $ 221

ESPPs 20 15 53 44

Restricted stock and restricted stock units (1)(2)

94 71 271 202

TOTAL STOCK-BASED COMPENSATION EXPENSE $ 196 $ 170

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(2) Restricted stock units include RSUs and PSUs.

The income tax benefit related to stock-based compensation expense was $ 22 million and $ 34 million for the three months ended February 28, 2023 and 2022, respectively, and $ 44 million and $ 307 million for the nine months ended February 28, 2023 and 2022, respectively, and reported within Income tax expense.

The income tax benefit related to stock-based compensation expense was $ 17 million and $ 20 million for the three months ended August 31, 2023 and 2022, respectively, and reported within Income tax expense.

STOCK OPTIONS

The weighted average fair value per share of stock options granted during the nine months ended February 28, 2023 and 2022, computed as of the grant date using the Black-Scholes pricing model, was $ 31.31 and $ 37.53 , respectively.

The weighted average fair value per share of stock options granted during the three months ended August 31, 2023 and 2022, computed as of the grant date using the Black-Scholes pricing model, was $ 34.79 and $ 32.13 , respectively.

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

NINE MONTHS ENDED FEBRUARY 28,

THREE MONTHS ENDED AUGUST 31,

Dividend yield 1.1 % 0.8 %

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The weighted average expected life of stock options is based on an analysis of historical and expected future exercise patterns.

The interest rate is based on the U.S.

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 stock options.

As of February 28, 2023, the Company had $ 502 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.6 years.

As of August 31, 2023, the Company had $ 387 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 2.4 years.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

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

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

As of February 28, 2023, the Company had $ 727 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.5 years.

The weighted average fair value per share of restricted stock and restricted stock units granted for the three months ended August 31, 2023 and 2022, computed as of the grant date, was $ 106.85 and $ 127.16 , respectively.

As of August 31, 2023, the Company had $ 676 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.

NOTE 6 — 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 exclude restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an estimated additional 29.5 million and 9.3 million shares of common stock outstanding for the three months ended February 28, 2023 and 2022, respectively, and 31.8 million and 9.4 million shares of common stock outstanding for the nine months ended February 28, 2023 and 2022, respectively, because the awards were assumed to be anti-dilutive.

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

The computations of diluted earnings per common share exclude restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an estimated additional 33.7 million and 23.8 million shares of common stock outstanding for the three months ended August 31, 2023 and 2022, respectively, because the awards were assumed to be anti-dilutive.

THREE MONTHS ENDED AUGUST 31,

(In millions, except per share data)

2023 2022 2023 2022

Net income available to common stockholders $ 1,450 $ 1,468

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

As of and for the nine months ended February 28, 2023, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K.

For additional information about the Company's derivatives and hedging policies, refer to Note 1 — Summary of Significant Accounting Policies and Note 14 — Risk Management and Derivatives of the Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

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

Dollar, Chinese Yuan/U.S.

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

As of and for the three months ended August 31, 2023, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report.

For additional information about the Company's derivatives and hedging policies, refer to Note 1 — Summary of Significant Accounting Policies and Note 12 — Risk Management and Derivatives within the Annual Report.

The majority of derivatives outstanding as of August 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.

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DERIVATIVE ASSETS

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

(Dollars in millions)

5 unchanged sentences

Foreign exchange forwards and options Prepaid expenses and other current assets 14 13

Embedded derivatives Prepaid expenses and other current assets 5 5

Total derivatives not designated as hedging instruments

1 unchanged sentence

DERIVATIVE LIABILITIES

BALANCE SHEET LOCATION FEBRUARY 28, MAY 31,

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

(Dollars in millions)

5 unchanged sentences

Foreign exchange forwards and options Accrued liabilities 35 35

Embedded derivatives Accrued liabilities 2 1

Total derivatives not designated as hedging instruments

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The following tables present the amounts in the Unaudited Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items:

THREE MONTHS ENDED FEBRUARY 28,

(Dollars in millions)

TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY

Revenues $ 12,390 $ 14 $ 10,871 $ ( 22 )

Cost of sales 7,019 182 5,804 17

Demand creation expense 923 ( 1 ) 854 —

Other (income) expense, net ( 58 ) 90 ( 94 ) 45

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

NINE MONTHS ENDED FEBRUARY 28,

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

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INCOME (LOSS) INTO INCOME (1)

THREE MONTHS ENDED FEBRUARY 28, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED FEBRUARY 28,

2023 2022 2023 2022

Derivatives designated as cash flow hedges:

Foreign exchange forwards and options $ 30 $ ( 37 ) Revenues $ 14 $ ( 22 )

Foreign exchange forwards and options ( 141 ) 4 Cost of sales 182 17

Foreign exchange forwards and options 1 — Demand creation expense ( 1 ) —

Foreign exchange forwards and options ( 65 ) 31 Other (income) expense, net 90 45

Interest rate swaps (2)

— — Interest expense (income), net ( 2 ) ( 2 )

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

(1) For the three months ended February 28, 2023 and 2022, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(2) Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt.

(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)

NINE MONTHS ENDED FEBRUARY 28, LOCATION OF GAIN (LOSS)

THREE MONTHS ENDED AUGUST 31, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME NINE MONTHS ENDED FEBRUARY 28,

(LOSS) INTO INCOME THREE MONTHS ENDED AUGUST 31,

2023 2022 2023 2022

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TOTAL DESIGNATED CASH FLOW HEDGES $ ( 30 ) $ 800 $ 120 $ 179

(1) For the nine months ended February 28, 2023 and 2022, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(1) For the three months ended August 31, 2023 and 2022, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

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ON DERIVATIVES

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

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

2023 2022 2023 2022

Derivatives not designated as hedging instruments:

Foreign exchange forwards and options $ ( 12 ) $ ( 20 ) $ 32 $ 12 Other (income) expense, net

Embedded derivatives ( 14 ) — 20 ( 9 ) Other (income) expense, net

Foreign exchange forwards and options and embedded derivatives

$ ( 27 ) $ 61 Other (income) expense, net

CASH FLOW HEDGES

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

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

Approximately $ 495 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 28, 2023, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 18.3 billion as of August 31, 2023.

Approximately $ 313 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of August 31, 2023, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income.

Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature.

As of February 28, 2023, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.

As of August 31, 2023, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.

UNDESIGNATED DERIVATIVE INSTRUMENTS

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

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

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

EMBEDDED DERIVATIVES

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

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

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

The total notional amount of outstanding undesignated derivative instruments was $ 3.7 billion as of August 31, 2023.

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 February 28, 2023, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net asset position of approximately $ 475 million.

As of August 31, 2023, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net asset position of approximately $ 256 million.

Accordingly, the Company was not required to post cash collateral as a result of these contingent features.

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

Further, $ 7 million of collateral was received on the Company's derivative asset balance as of August 31, 2023.

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

5 unchanged sentences

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

150 ( 179 ) — — ( 29 )

Reclassifications to net income of previously deferred (gains) losses (3)

3 ( 254 ) — 23 ( 228 )

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

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

(1) The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity.

(2) Net of tax benefit (expense) of $ 0 million , $( 4 ) million, $ 0 million , $ 1 million and $( 3 ) million, respectively.

(3) Net of tax (benefit) expense of $ 0 million , $ 29 million, $ 0 million , $( 9 ) million and $ 20 million, respectively.

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at November 30, 2021 $ ( 281 ) $ 369 $ 115 $ ( 58 ) $ 145

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

( 6 ) 4 — ( 7 ) ( 9 )

Reclassifications to net income of previously deferred (gains) losses (3)

— ( 33 ) — ( 4 ) ( 37 )

Total other comprehensive income (loss) ( 6 ) ( 29 ) — ( 11 ) ( 46 )

Balance at February 28, 2022 $ ( 287 ) $ 340 $ 115 $ ( 69 ) $ 99

(2) Net of tax benefit (expense) of $ 0 million , $ 6 million, $ 0 million , $ 2 million and $ 8 million, respectively.

(3) Net of tax (benefit) expense of $ 0 million , $ 5 million, $ 0 million , $ 1 million and $ 6 million, respectively.

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at May 31, 2023 $ ( 253 ) $ 431 $ 115 $ ( 62 ) $ 231

5 unchanged sentences

Total other comprehensive income (loss) 36 ( 134 ) — 3 ( 95 )

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

Balance at August 31, 2023 $ ( 217 ) $ 297 $ 115 $ ( 59 ) $ 136

11 unchanged sentences

Total other comprehensive income (loss) ( 226 ) 555 — ( 11 ) 318

Balance at February 28, 2022 $ ( 287 ) $ 340 $ 115 $ ( 69 ) $ 99

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

6 unchanged sentences

(LOSS) INTO INCOME

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

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

2023 2022 2023 2022

Gains (losses) on foreign currency translation adjustment $ — $ ( 46 ) Other (income) expense, net

19 unchanged sentences

The following tables present the Company's Revenues disaggregated by reportable operating segment, major product line and distribution channel:

THREE MONTHS ENDED FEBRUARY 28, 2023

(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.

Footwear $ 3,322 $ 2,011 $ 1,496 $ 1,141 $ — $ 7,970 $ 540 $ — $ 8,510

Apparel 1,419 1,094 461 407 — 3,381 29 — 3,410

Equipment 172 141 37 53 — 403 6 — 409

Other — — — — 12 12 37 12 61

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

Sales to Wholesale Customers $ 2,323 $ 2,061 $ 1,126 $ 913 $ — $ 6,423 $ 323 $ — $ 6,746

Sales through Direct to Consumer 2,590 1,185 868 688 — 5,331 252 — 5,583

Other — — — — 12 12 37 12 61

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

THREE MONTHS ENDED FEBRUARY 28, 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.

Footwear $ 2,532 $ 1,569 $ 1,554 $ 1,005 $ — $ 6,660 $ 503 $ — $ 7,163

Apparel 1,207 1,083 548 394 — 3,232 29 — 3,261

Equipment 143 127 58 62 — 390 7 — 397

Other — — — — 41 41 28 ( 19 ) 50

TOTAL REVENUES $ 3,882 $ 2,779 $ 2,160 $ 1,461 $ 41 $ 10,323 $ 567 $ ( 19 ) $ 10,871

Sales to Wholesale Customers $ 1,769 $ 1,858 $ 1,241 $ 860 $ — $ 5,728 $ 303 $ — $ 6,031

Sales through Direct to Consumer 2,113 921 919 601 — 4,554 236 — 4,790

Other — — — — 41 41 28 ( 19 ) 50

TOTAL REVENUES $ 3,882 $ 2,779 $ 2,160 $ 1,461 $ 41 $ 10,323 $ 567 $ ( 19 ) $ 10,871

NINE MONTHS ENDED FEBRUARY 28, 2023

THREE MONTHS ENDED AUGUST 31, 2023

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 5,423 $ 3,610 $ 1,735 $ 1,572 $ 13 $ 12,353 $ 588 $ ( 2 ) $ 12,939

NINE MONTHS ENDED FEBRUARY 28, 2022

THREE MONTHS ENDED AUGUST 31, 2022

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 5,510 $ 3,333 $ 1,656 $ 1,535 $ 14 $ 12,048 $ 643 $ ( 4 ) $ 12,687

For the three and nine months ended February 28, 2023 and 2022, Global Brand Divisions revenues included NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

For the three months ended August 31, 2023 and 2022, 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 February 28, 2023 and May 31, 2022, the Company did no t have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.

As of August 31, 2023 and May 31, 2023, the Company did no t have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets.

NOTE 10 — OPERATING SEGMENTS

24 unchanged sentences

Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and are therefore provided below.

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

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

2023 2022 2023 2022

North America $ 5,423 $ 5,510

19 unchanged sentences

INCOME BEFORE INCOME TAXES $ 1,648 $ 1,828

FEBRUARY 28, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions)

18 unchanged sentences

TOTAL INVENTORIES (1)

FEBRUARY 28, MAY 31,

$ 8,698 $ 8,454

(1) Inventories as of August 31, 2023 and May 31, 2023, were substantially all finished goods.

AUGUST 31, MAY 31,

(Dollars in millions)

9 unchanged sentences

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 5,109 $ 5,081

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

See Note 14 — Acquisitions and Divestitures for additional information.

NOTE 11 — CONTINGENCIES

5 unchanged sentences

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 has received claims for certain years from Belgian Customs and other government 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 14 — ACQUISITIONS AND DIVESTITURES

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

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

The impacts from the transaction were not material to the Company’s Unaudited Condensed Consolidated Financial Statements.

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

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

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

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

The net loss was classified within Corporate.

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

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

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements