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Item 8. Financial Statements and Supplementary Data

2024-07-25 compared with 2023-07-20 · 168 added, 183 removed, 1068 unchanged (25% of the section changed)

59 unchanged sentences

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.

As described in Notes 1 and 7 to the consolidated financial statements, the Company is subject to taxation in the United States, as well as various state and foreign jurisdictions.

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.

As disclosed by management, the determination of the provision for income taxes by management requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws.

Furthermore, as part of determining its provision for income taxes, management evaluates the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity.

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 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.

The Company recorded income tax expense of $1,000 million for the year ended May 31, 2024.

As of May 31, 2024, total gross unrecognized tax benefits, excluding related interest and penalties, were $990 million, of which $699 million would affect the Company's effective tax rate if recognized in future periods.

The principal considerations for our determination that performing procedures relating to the accounting for income taxes is a critical audit matter are (i) the significant judgment by management when determining the provision for income taxes and interpreting and applying complex tax laws as it relates to determining the provision for income taxes and uncertain tax positions;

(ii) a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence related to management’s interpretation and application of complex tax laws as it relates to the determination of the provision for income taxes and the assessment of whether tax positions are more likely than not to be sustained;

and (iii) 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.

These procedures included testing the effectiveness of controls relating to income taxes.

These procedures also included, among others (i) testing the provision for income taxes, which included the effective tax rate reconciliation and assessing management’s interpretation and application of complex tax laws;

(ii) evaluating the completeness of management’s identification of uncertain tax positions by considering changes in facts or circumstances, changes in and compliance with tax laws, settled audit issues, new authoritative cases, or new audit activity, where applicable;

and (iii) for certain tax positions, evaluating management’s assessment of the technical merits of the tax positions by obtaining and inspecting third party income tax documentation.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) changes in and compliance with the tax laws;

(ii) management’s interpretation and application of certain complex tax laws as it relates to the determination of the provision for income taxes;

and (iii) the reasonableness of management's assessment of whether certain tax positions are more likely than not of being sustained.

/s/ PricewaterhouseCoopers LLP

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Stock options exercised 7 432 432

Conversion to Class B Common Stock ( 7 ) 7 —

Repurchase of Class B Common Stock ( 41 ) ( 347 ) ( 3,907 ) ( 4,254 )

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Note 17 Leases 89

Note 18 Acquisitions and Divestitures 89

Note 18 Divestitures 90

Note 19 Restructuring 91

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All significant intercompany transactions and balances have been eliminated.

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.

REVENUE RECOGNITION

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

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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.

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

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COST OF SALES

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

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CASH AND EQUIVALENTS

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

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SHORT-TERM INVESTMENTS

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

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

The allowance for uncollectible accounts receivable was $ 35 million as of May 31, 2024 and 2023.

INVENTORY VALUATION

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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.

There were immaterial impairment losses as of May 31, 2024, and no accumulated impairment losses as of May 31, 2023.

Additionally, the impact to Goodwill as a result of acquisitions and divestitures during fiscal 2024 and 2023, was immaterial.

OPERATING LEASES

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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 consolidated 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.

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Refer to Note 10 — Earnings Per Share for further discussion.

MANAGEMENT ESTIMATES

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.

RECENTLY ISSUED ACCOUNTING STANDARDS AND DISCLOSURE RULES

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.

In March 2024, the U.S.

Securities and Exchange Commission ("SEC") adopted the final rule under SEC Release No.

33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors.

This rule will require registrants to disclose certain climate-related information in registration statements and annual reports.

In April 2024, the SEC voluntarily stayed the final rule as a result of pending legal challenges.

The disclosure requirements will apply to the Company's fiscal year beginning June 1, 2025, pending resolution of the stay.

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

RECENTLY ADOPTED ACCOUNTING STANDARDS

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 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 .

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 May 31, 2024 and May 31, 2023, the Company had $ 840 million and $ 834 million, respectively, of outstanding supplier obligations confirmed as

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valid under these programs.

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

NOTE 2 — PROPERTY, PLANT AND EQUIPMENT

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Dividends payable 563 529

Allowance for expected loss on sale (1)

Other 2,011 1,911

Total Accrued Liabilities $ 5,725 $ 5,723

(1) Refer to Note 18 — Acquisitions and Divestitures for additional information.

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The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of May 31, 2024 and 2023, 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.

(Dollars in millions)

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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.

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

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$ 343 $ 299 $ 44 $ 120 $ 115 $ 5

(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.

Interest rate swaps (1)

— — — 31 — 31

$ 343 $ 299 $ 44 $ 151 $ 115 $ 36

(1) If the foreign exchange and interest rate swap derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 142 million as of May 31, 2024.

As of that date, the Company received $ 112 million of cash collateral from various counterparties on the derivative asset balance and posted $ 10 million cash collateral on the derivative liability balance.

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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

Foreign exchange forwards and options and embedded derivatives (1)

Foreign exchange forwards and options (1)

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

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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.

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NOTE 5 — SHORT-TERM BORROWINGS AND CREDIT LINES

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

The carrying amounts reflected on 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 %.

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 0.04 % of the total undrawn commitment.

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This facility replaces the prior $ 1 billion 364 -day credit facility agreement entered into on March 10, 2023, which matured on March 8, 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 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.

2 unchanged sentences

NOTE 6 — LONG-TERM DEBT

Long-term debt, net of unamortized premiums, discounts and debt issuance costs, comprises the following:

Long-term debt, net of unamortized premiums, discounts, and debt issuance costs, and swap fair value adjustments comprises the following:

BOOK VALUE OUTSTANDING

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Corporate Term Debt:

May 1, 2023 $ 500 2.25 % Semi-Annually $ — $ 500

March 27, 2025 1,000 2.40 % Semi-Annually $ 999 $ 998

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March 27, 2030 1,500 2.85 % Semi-Annually 1,494 1,492

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

March 27, 2040 (3)

1,000 3.25 % Semi-Annually 966 987

May 1, 2043 (3)

500 3.63 % Semi-Annually 488 496

November 1, 2045 (3)

1,000 3.88 % Semi-Annually 986 986

November 1, 2046 500 3.38 % Semi-Annually 492 492

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(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.

(3) The Company entered into interest rate swap agreements pursuant to which the Company receives fixed interest payments at the same rate as the term debt and pays variable interest payments based on SOFR plus a fixed spread.

At May 31, 2024, the notional amount outstanding of these swaps was $ 1.8 billion and had interest rates payable that ranged from 4.6 % to 5.1 %.

These swaps mature during fiscal 2034.

The scheduled maturity of Long-term debt in each of the years ending May 31, 2025 through 2029, are $ 1,000 million, $ 0 million, $ 2,000 million, $ 0 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 Company's Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts, and debt issuance costs, and swap fair value adjustments.

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).

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EFFECTIVE INCOME TAX RATE 14.9 % 18.2 % 9.1 %

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, 2024 was lower than the effective tax rate for the fiscal year ended May 31, 2023.

The decrease in the Company's effective tax rate was primarily due to changes in the Company's earning mix and one-time benefits including 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.

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.

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

intangible property in fiscal 2022.

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.

intangible property ownership rights and implemented

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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.

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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.

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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:

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 did not have a material impact on the Company's Consolidated Financial Statements for fiscal 2024.

Deferred income tax assets and liabilities comprise the following as of:

(Dollars in millions)

Deferred tax assets:

Inventories (1)

Sales return reserves

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Subpart F deferred tax 409 374

Foreign tax credit carry-forward — 103

Total deferred tax assets 3,176 2,780

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Right-of-use assets ( 397 ) ( 441 )

( 56 ) ( 92 )

Total deferred tax liabilities ( 827 ) ( 959 )

1 unchanged sentence

$ 2,320 $ 1,799

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

See Note 18 — Acquisitions and Divestitures for additional information.

(1) Of the total $ 2,320 million net deferred tax asset for the period ended May 31, 2024, $ 2,465 million was included within Deferred income taxes and other assets and $( 145 ) million was included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

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.

Deferred tax assets as of May 31, 2024 and 2023, were reduced by a valuation allowance.

For the fiscal years ended May 31, 2024 and 2023, a valuation allowance was provided for U.S.

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

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

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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.

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

The liability for payment of interest and penalties increased by $ 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, 2024 and 2023, accrued interest and penalties related to uncertain tax positions were $ 332 million and $ 268 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.

As of May 31, 2024 and 2023, long-term income taxes payable unrelated to unrecognized tax benefits were $ 266 million and $ 373 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.

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indirect tax provisions, was $ 338 million, $ 263 million and $ 221 million for the fiscal years ended May 31, 2024, 2023 and 2022, 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.

The benefit of the tax holiday on diluted earnings per common share, before taking into consideration other U.S.

indirect tax provisions, was $ 0.22 , $ 0.17 and $ 0.14 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively.

NOTE 8 — REDEEMABLE PREFERRED STOCK

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The Company's articles of incorporation do not permit the issuance of additional preferred stock.

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NOTE 9 — COMMON STOCK AND STOCK-BASED COMPENSATION

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

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STOCK-BASED COMPENSATION

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(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, 2024, 2023 and 2022, expense for restricted stock units includes an immaterial amount of expense for PSUs.

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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 fair value per share of stock options granted during the fiscal years ended May 31, 2024, 2023 and 2022, computed as of the grant date using the Black-Scholes pricing model, was $ 32.78 , $ 31.31 and $ 37.53 , respectively.

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

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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.

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 41.0 million, 31.7 million and 9.4 million shares of common stock outstanding for the fiscal years ended May 31, 2024, 2023 and 2022, respectively, because the awards were assumed to be anti-dilutive.

YEAR ENDED MAY 31,

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Company contributions to the savings plan were $ 153 million, $ 136 million and $ 126 million and included in Cost of sales or Operating overhead expense, as applicable, for the fiscal years ended May 31, 2024, 2023 and 2022, 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.

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Deferred compensation plan liabilities were $ 1,063 million and $ 897 million as of May 31, 2024 and 2023, 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

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

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The majority of derivatives outstanding as of May 31, 2024, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

4 unchanged sentences

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

2024 FORM 10-K 79

DERIVATIVE ASSETS

6 unchanged sentences

Derivatives not designated as hedging instruments:

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

Foreign exchange forwards and options

Prepaid expenses and other current assets 30 13

Total derivatives not designated as hedging instruments 30 13

6 unchanged sentences

Foreign exchange forwards and options Deferred income taxes and other liabilities 5 52

Interest rate swaps Deferred income taxes and other liabilities 31 —

Total derivatives formally designated as hedging instruments 146 145

Derivatives not designated as hedging instruments:

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

Foreign exchange forwards and options

Accrued liabilities 5 35

Total derivatives not designated as hedging instruments 5 35

TOTAL DERIVATIVE LIABILITIES $ 151 $ 180

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

HEDGE ACTIVITY TOTAL AMOUNT OF

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 )

2024 FORM 10-K 80

37 unchanged sentences

2024 2023 2022

Derivatives designated as hedging instruments:

Derivatives not designated as hedging instruments:

Foreign exchange forwards and options and embedded derivatives $ 24 $ 28 $ 38 Other (income) expense, net

20 unchanged sentences

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.

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was $ 16.2 billion and $ 18.2 billion as of May 31, 2024 and 2023, respectively.

As of May 31, 2024, approximately $ 231 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.

2 unchanged sentences

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.

The Company is 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 which are designated as fair value hedges of the related long-term debt.

Changes in the fair values of the interest rate swaps are recorded in Long-term debt or Current portion of long-term debt.

The total notional amount of outstanding interest rate swaps designated as fair value hedges was $ 1.8 billion as of May 31, 2024.

The Company had no outstanding fair value hedges as of May 31, 2023.

NET INVESTMENT HEDGES

1 unchanged sentence

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.

The Company had no outstanding net investment hedges as of May 31, 2024 and 2023.

UNDESIGNATED DERIVATIVE INSTRUMENTS

1 unchanged sentence

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.

The total notional amount of outstanding undesignated derivative instruments was $ 4.4 billion and $ 4.7 billion as of May 31, 2024 and 2023, respectively.

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

4 unchanged sentences

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's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the fair value of outstanding derivatives per counterparty.

For certain counterparties, collateral would only be posted for the fair value of outstanding derivatives per counterparty greater than $ 50 million.

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

As of May 31, 2024, the Company was in compliance with all credit risk-related contingent features.

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

15 unchanged sentences

(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.

(2) Net of immaterial tax impact.

(3) Reclassifications to net income of previously deferred (gains) losses are recorded within Other (income) expense, net for foreign currency translation adjustment, net investment hedges, and other.

(Dollars in millions)

10 unchanged sentences

(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

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)

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

(2) Net of immaterial tax impact.

For additional information related to the Company's cash flow hedges refer to Note 12 — Risk Management and Derivatives.

2024 FORM 10-K 83

15 unchanged sentences

TOTAL REVENUES $ 21,396 $ 13,607 $ 7,545 $ 6,729 $ 45 $ 49,322 $ 2,082 $ ( 42 ) $ 51,362

(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, 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.

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

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

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

7 unchanged sentences

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

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

2024 FORM 10-K 84

12 unchanged sentences

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

(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.

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.

4 unchanged sentences

The estimated cost of inventory for expected product returns was $ 331 million and $ 226 million as of May 31, 2024 and 2023, respectively, and was recorded in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

2024 FORM 10-K 85

NOTE 15 — OPERATING SEGMENTS AND RELATED INFORMATION

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

The Company's operating segments reflect 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.

6 unchanged sentences

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.

Refer to Note 18 — 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.

4 unchanged sentences

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

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

84 unchanged sentences

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 5,000 $ 5,081

(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.

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 similar to that as reported above for the NIKE Brand operating segments with the exception of the United States.

Revenues derived in the United States were $ 21,551 million, $ 22,007 million and $ 18,749 million for the fiscal years ended May 31, 2024, 2023 and 2022, respectively.

5 unchanged sentences

China 501 559

TOTAL LONG-LIVED ASSETS

$ 7,718 $ 8,004

2024 FORM 10-K 88

10 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.

4 unchanged sentences

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.

For the fiscal years ended May 31, 2024, 2023 and 2022, lease expense primarily consisted of operating lease costs of $ 618 million, $ 585 million and $ 593 million, respectively, as well as $ 433 million, $ 403 million and $ 366 million, respectively, primarily related to variable lease costs.

As of and for the fiscal years ended May 31, 2024 and 2023 and 2022, finance leases were not a material component of the Company's lease portfolio.

24 unchanged sentences

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ 458 $ 602 $ 537

NOTE 18 — ACQUISITIONS AND DIVESTITURES

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

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

During 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.

NOTE 18 — 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.

3 unchanged sentences

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.

2024 FORM 10-K 90

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.

During the third quarter of fiscal 2024, the Company announced a multi-year enterprise initiative designed to accelerate its future growth.

As part of this initiative, management has taken steps to streamline the organization which resulted in a net reduction in the Company's global workforce.

As of May 31, 2024, the Company expects to recognize pre-tax restructuring charges of approximately $ 450 million, primarily associated with employee severance costs and accelerated stock-based compensation expense, the majority of which were recognized in fiscal 2024.

The related cash payments are expected to be substantially complete by the end of the first half of fiscal 2025.

The expected pre-tax charges are estimates and are subject to a number of assumptions and actual results may vary from the estimates provided.

Pre-tax restructuring charges were classified within Corporate as follows:

TWELVE MONTHS ENDED MAY 31, 2024

(Dollars in millions)

OPERATING OVERHEAD EXPENSE

COST OF SALES

Employee severance and related costs (1)

$ 336 $ 56 $ 392

Stock-based compensation expense (2)

Total pre-tax restructuring charges $ 379 $ 64 $ 443

(1) Employee severance costs are recognized when a future related expense is considered probable and reasonably estimable.

(2) Non-cash restructuring related stock-based compensation expense is accelerated over the requisite service period, which for certain impacted employees will extend through the first half of fiscal 2025.

As of May 31, 2024, the majority of the remaining employee severance and related costs are reflected within Accrued liabilities on the Consolidated Balance Sheets, classified within Other in Note 3 — Accrued Liabilities.

The related activity is as follows:

(Dollars in millions)

Balance at May 31, 2023 $ —

Employee severance and related costs

Cash payments ( 123 )

Foreign currency translation and other ( 2 )

Balance at May 31, 2024 $ 267

2024 FORM 10-K 91

2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data