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Item 1. Financial Statements

2024-01-05 compared with 2023-10-06 · 194 added, 94 removed, 494 unchanged (37% of the section changed)

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(In millions, except per share data)

2023 2022 2023 2022

Revenues $ 13,388 $ 13,315 $ 26,327 $ 26,002

7 unchanged sentences

Income before income taxes

1,922 1,650 3,570 3,478

Income tax expense

344 319 542 679

$ 1,578 $ 1,331 $ 3,028 $ 2,799

Earnings per common share:

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2023 2022 2023 2022

Net income $ 1,578 $ 1,331 $ 3,028 $ 2,799

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(In millions)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED AUGUST 31,

SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

40 unchanged sentences

SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 2 106 106

Repurchase of Class B Common Stock ( 12 ) ( 99 ) ( 1,110 ) ( 1,209 )

Dividends on common stock ($ 0.370 per share)

( 565 ) ( 565 )

Issuance of shares to employees, net of shares withheld for employee taxes 3 68 6 74

Stock-based compensation 206 206

Net income 1,578 1,578

Other comprehensive income (loss) ( 15 ) ( 15 )

Balance at November 30, 2023 298 $ — 1,219 $ 3 $ 12,871 $ 121 $ 1,151 $ 14,146

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

Stock options exercised 1 69 69

Repurchase of Class B Common Stock ( 17 ) ( 123 ) ( 1,484 ) ( 1,607 )

Dividends on common stock ($ 0.340 per share)

( 526 ) ( 526 )

Issuance of shares to employees, net of shares withheld for employee taxes 2 63 3 66

Stock-based compensation 194 194

Net income 1,331 1,331

Other comprehensive income (loss) ( 77 ) ( 77 )

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

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

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Other comprehensive income (loss) ( 110 ) ( 110 )

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

Balance at November 30, 2023 298 $ — 1,219 $ 3 $ 12,871 $ 121 $ 1,151 $ 14,146

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

11 unchanged sentences

Other comprehensive income (loss) 241 241

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

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

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

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NOTE 11 Contingencies

NOTE 12 Acquisitions and Divestitures

NOTE 13 Subsequent Events

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The results of operations for the three and six months ended November 30, 2023, are not necessarily indicative of results to be expected for the entire fiscal year.

RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses.

The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and included within segment profit and loss.

The amendments are effective for the Company's annual periods beginning June 1, 2024, and interim periods beginning June 1, 2025, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements.

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

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for the Company’s annual periods beginning June 1, 2025, with early adoption permitted, and should be applied either prospectively or retrospectively.

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

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):

In September 2022, the FASB issued ASU 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 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.

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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.

As of November 30, 2023 and May 31, 2023, the Company had $ 819 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.

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Accrued liabilities included the following:

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(Dollars in millions) 2023 2023

Compensation and benefits, excluding taxes

$ 1,254 $ 1,737

Sales-related reserves 1,130 994

Dividends payable

Import and logistics

Taxes other than income taxes payable

Endorsement compensation

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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

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of November 30, 2023 and May 31, 2023, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

NOVEMBER 30, 2023

(Dollars in millions)

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

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.

As of November 30, 2023, the Company held $ 1,316 million of available-for-sale debt securities with maturity dates within one year and $ 692 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 $ 99 million and $ 65 million for the three months ended August 31, 2023 and 2022, respectively.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 92 million and $ 49 million for the three months ended November 30, 2023 and 2022, respectively, and $ 191 million and $ 114 million for the six months ended November 30, 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:

AUGUST 31, 2023

NOVEMBER 30, 2023

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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$ 371 $ 322 $ 49 $ 202 $ 162 $ 40

(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 $ 233 million as of August 31, 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 August 31, 2023.

As of that date, no amount of cash collateral had been received or posted on the derivative asset and liability balances related to these foreign exchange derivative instruments.

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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

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

The fair value of the Company's Long-term debt, including the current portion, was approximately $ 7,744 million at November 30, 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.

NOTE 4 — INCOME TAXES

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.

The effective tax rate was 15.2 % and 19.5 % for the six months ended November 30, 2023 and 2022, respectively.

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

foreign tax credit regulations.

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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.

Other one-time benefits included a reduction in accrued withholding taxes on undistributed foreign earnings recognized in the second quarter of fiscal 2024.

On August 16, 2022, the U.S.

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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.

As of November 30, 2023, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 931 million, $ 649 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 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.

As of November 30, 2023 and May 31, 2023, accrued interest and penalties related to uncertain tax positions were $ 287 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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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 AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2023 2022 2023 2022

Stock options (1)

$ 88 $ 79 $ 164 $ 154

ESPPs 17 18 38 33

Restricted stock and restricted stock units (2)

101 97 200 177

TOTAL STOCK-BASED COMPENSATION EXPENSE $ 206 $ 194 $ 402 $ 364

(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.

(2) Restricted stock units include RSUs and PSUs.

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.

The income tax benefit related to stock-based compensation expense was $ 1 million and $ 2 million for the three months ended November 30, 2023 and 2022, respectively, and $ 18 million and $ 22 million for the six months ended November 30, 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 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:

THREE MONTHS ENDED AUGUST 31,

Dividend yield 1.1 % 0.8 %

Expected volatility 29.2 % 27.0 %

Weighted average expected life (in years) 5.8 5.8

Risk-free interest rate 4.2 % 2.7 %

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 stock options is based on an analysis of historical and expected future exercise patterns.

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 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.

As of November 30, 2023, the Company had $ 621 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.7 years.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

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.

As of November 30, 2023, the Company had $ 859 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 2.7 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 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,

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 46.2 million and 38.0 million shares of common stock outstanding for the three months ended November 30, 2023 and 2022, respectively, and 43.5 million and 35.1 million shares of common stock outstanding for the six months ended November 30, 2023 and 2022, respectively, because the awards were assumed to be anti-dilutive.

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(In millions, except per share data)

2023 2022 2023 2022

Net income available to common stockholders $ 1,578 $ 1,331 $ 3,028 $ 2,799

8 unchanged sentences

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 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.

As of and for the six months ended November 30, 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.

The majority of derivatives outstanding as of November 30, 2023, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

Dollar, British Pound/Euro, Chinese Yuan/U.S.

4 unchanged sentences

DERIVATIVE ASSETS

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,

(Dollars in millions)

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DERIVATIVE LIABILITIES

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

BALANCE SHEET LOCATION NOVEMBER 30, MAY 31,

(Dollars in millions)

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TOTAL DERIVATIVE LIABILITIES $ 202 $ 180

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 AUGUST 31,

The following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income:

(Dollars in millions)

TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY TOTAL AMOUNT OF GAIN (LOSS)

HEDGE ACTIVITY

Revenues $ 12,939 $ 1 $ 12,687 $ ( 9 )

Cost of sales 7,219 86 7,072 109

Demand creation expense 1,069 — 943 ( 1 )

Other (income) expense, net ( 10 ) 35 ( 146 ) 82

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)

THREE MONTHS ENDED NOVEMBER 30, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED NOVEMBER 30,

2023 2022 2023 2022

Derivatives designated as cash flow hedges:

Foreign exchange forwards and options $ ( 5 ) $ ( 3 ) Revenues $ 2 $ 4

Foreign exchange forwards and options 21 ( 101 ) Cost of sales 65 173

Foreign exchange forwards and options 2 2 Demand creation expense — ( 2 )

Foreign exchange forwards and options 39 ( 47 ) Other (income) expense, net 51 125

Interest rate swaps (2)

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

The following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income:

TOTAL DESIGNATED CASH FLOW HEDGES $ 57 $ ( 149 ) $ 116 $ 298

(1) For the three months ended November 30, 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)

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INCOME (LOSS) INTO INCOME (1)

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

SIX MONTHS ENDED NOVEMBER 30, LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED AUGUST 31,

(LOSS) INTO INCOME SIX MONTHS ENDED NOVEMBER 30,

2023 2022 2023 2022

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TOTAL DESIGNATED CASH FLOW HEDGES $ 27 $ 651 $ 236 $ 477

(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.

(1) For the six months ended November 30, 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 AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2023 2022 2023 2022

Derivatives not designated as hedging instruments:

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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 Unaudited Condensed 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 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.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 17.7 billion as of November 30, 2023.

Approximately $ 252 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of November 30, 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 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.

As of November 30, 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.

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.

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 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.

The total notional amount of outstanding undesignated derivative instruments was $ 4.6 billion as of November 30, 2023.

As of November 30, 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 $ 169 million.

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

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

Further, no collateral was received on the Company's derivative asset balance as of November 30, 2023.

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

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CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

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

Other comprehensive income (loss):

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Total other comprehensive income (loss) 39 ( 55 ) — 1 ( 15 )

Balance at November 30, 2023 $ ( 178 ) $ 242 $ 115 $ ( 58 ) $ 121

(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 immaterial tax impact.

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

45 ( 138 ) — ( 24 ) ( 117 )

Reclassifications to net income of previously deferred (gains) losses (2)

309 ( 263 ) — ( 6 ) 40

Total other comprehensive income (loss) 354 ( 401 ) — ( 30 ) ( 77 )

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

(2) Net of tax benefit (expense) of $ 0 million , $ 7 million, $ 0 million , $ 0 million and $ 7 million, respectively.

(3) Net of tax (benefit) expense of $ 0 million , $ 9 million, $ 0 million , $( 1 ) million and $ 8 million, respectively.

(2) Net of immaterial tax impact.

(Dollars in millions)

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Total other comprehensive income (loss) 75 ( 189 ) — 4 ( 110 )

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

Balance at November 30, 2023 $ ( 178 ) $ 242 $ 115 $ ( 58 ) $ 121

(2) Net of tax benefit (expense) of $ 0 million , $( 84 ) million, $ 0 million , $ 1 million and $( 83 ) million, respectively.

(3) Net of tax (benefit) expense of $ 0 million , $ 18 million, $ 0 million , $ 3 million and $ 21 million, respectively.

(2) Net of immaterial tax impact.

(Dollars in millions)

FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1)

CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

Balance at May 31, 2022 $ ( 520 ) $ 779 $ 115 $ ( 56 ) $ 318

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

( 227 ) 578 — ( 27 ) 324

Reclassifications to net income of previously deferred (gains) losses (2)

355 ( 424 ) — ( 14 ) ( 83 )

Total other comprehensive income (loss) 128 154 — ( 41 ) 241

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

(2) Net of immaterial tax impact.

The following table summarizes the reclassifications from Accumulated other comprehensive income (loss) to the Unaudited Condensed Consolidated Statements of Income:

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(LOSS) INTO INCOME

THREE MONTHS ENDED AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2023 2022 2023 2022

Gains (losses) on foreign currency translation adjustment $ ( 2 ) $ ( 325 ) $ ( 2 ) $ ( 371 ) 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 AUGUST 31, 2023

THREE MONTHS ENDED NOVEMBER 30, 2023

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 5,625 $ 3,567 $ 1,863 $ 1,805 $ 12 $ 12,872 $ 519 $ ( 3 ) $ 13,388

THREE MONTHS ENDED AUGUST 31, 2022

THREE MONTHS ENDED NOVEMBER 30, 2022

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 5,830 $ 3,489 $ 1,788 $ 1,599 $ 18 $ 12,724 $ 586 $ 5 $ 13,315

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.

SIX MONTHS ENDED NOVEMBER 30, 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 $ 7,490 $ 4,446 $ 2,648 $ 2,444 $ — $ 17,028 $ 964 $ — $ 17,992

Apparel 3,147 2,337 870 808 — 7,162 50 — 7,212

Equipment 411 394 80 125 — 1,010 18 — 1,028

Other — — — — 25 25 75 ( 5 ) 95

TOTAL REVENUES $ 11,048 $ 7,177 $ 3,598 $ 3,377 $ 25 $ 25,225 $ 1,107 $ ( 5 ) $ 26,327

Sales to Wholesale Customers $ 5,674 $ 4,517 $ 1,922 $ 1,988 $ — $ 14,101 $ 586 $ — $ 14,687

Sales through Direct to Consumer 5,374 2,660 1,676 1,389 — 11,099 446 — 11,545

Other — — — — 25 25 75 ( 5 ) 95

TOTAL REVENUES $ 11,048 $ 7,177 $ 3,598 $ 3,377 $ 25 $ 25,225 $ 1,107 $ ( 5 ) $ 26,327

SIX MONTHS ENDED NOVEMBER 30, 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 $ 7,768 $ 4,075 $ 2,603 $ 2,172 $ — $ 16,618 $ 1,093 $ — $ 17,711

Apparel 3,179 2,434 767 848 — 7,228 42 — 7,270

Equipment 393 313 74 114 — 894 14 — 908

Other — — — — 32 32 80 1 113

TOTAL REVENUES $ 11,340 $ 6,822 $ 3,444 $ 3,134 $ 32 $ 24,772 $ 1,229 $ 1 $ 26,002

Sales to Wholesale Customers $ 6,210 $ 4,445 $ 1,736 $ 1,879 $ — $ 14,270 $ 647 $ — $ 14,917

Sales through Direct to Consumer 5,130 2,377 1,708 1,255 — 10,470 502 — 10,972

Other — — — — 32 32 80 1 113

TOTAL REVENUES $ 11,340 $ 6,822 $ 3,444 $ 3,134 $ 32 $ 24,772 $ 1,229 $ 1 $ 26,002

For the three and six months ended November 30, 2023 and 2022, Global Brand Divisions revenues included NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.

Converse Other revenues were primarily attributable to licensing businesses.

Corporate revenues primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through the Company's central foreign exchange risk management program.

As of 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.

As of November 30, 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

18 unchanged sentences

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 Unaudited Condensed Consolidated Statements of Income.

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 taxes in the Unaudited Condensed 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.

3 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 AUGUST 31,

THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,

(Dollars in millions)

2023 2022 2023 2022

North America $ 5,625 $ 5,830 $ 11,048 $ 11,340

19 unchanged sentences

INCOME BEFORE INCOME TAXES $ 1,922 $ 1,650 $ 3,570 $ 3,478

AUGUST 31, MAY 31,

NOVEMBER 30, MAY 31,

(Dollars in millions)

19 unchanged sentences

$ 7,979 $ 8,454

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

AUGUST 31, MAY 31,

(1) Inventories as of November 30, 2023 and May 31, 2023, were substantially all finished goods.

NOVEMBER 30, MAY 31,

(Dollars in millions)

21 unchanged sentences

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 12 — ACQUISITIONS AND DIVESTITURES

During the second quarter of fiscal 2023, the sale of the Company's entities in Argentina and Uruguay to a third-party distributor was completed 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.

NOTE 13 — SUBSEQUENT EVENTS

In December 2023, the Company announced an enterprise initiative designed to accelerate its future growth.

As part of this initiative, management is taking steps to streamline the organization which are expected to result in pre-tax restructuring charges of approximately $ 400 million to $ 450 million, primarily associated with employee severance costs largely expected to be recognized in the third quarter of fiscal 2024 within Operating overhead expense.

The expected pre-tax charges are estimates and are subject to a number of assumptions.

Actual results may vary from the estimates provided above.

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