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Item 1. Financial Statements

2024-10-07 compared with 2024-04-04 · 90 added, 269 removed, 462 unchanged (44% of the section changed)

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(In millions, except per share data)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Revenues $ 11,589 $ 12,939

7 unchanged sentences

Income before income taxes

1,404 1,477 4,974 4,955

Income tax expense

$ 1,051 $ 1,450

$ 1,172 $ 1,240 $ 4,200 $ 4,039

Earnings per common share:

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Net income $ 1,051 $ 1,450

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

FEBRUARY 29, MAY 31,

AUGUST 31, MAY 31,

(In millions)

37 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 29, 2024 FEBRUARY 28, 2023

Cash provided (used) by operations:

39 unchanged sentences

SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 2 135 135

Repurchase of Class B Common Stock ( 8 ) ( 67 ) ( 799 ) ( 866 )

Dividends on common stock ($ 0.370 per share)

( 561 ) ( 561 )

Issuance of shares to employees, net of shares withheld for employee taxes ( 27 ) 7 ( 20 )

Stock-based compensation 216 216

Net income 1,172 1,172

Other comprehensive income (loss) 4 4

Balance at February 29, 2024 298 $ — 1,213 $ 3 $ 13,128 $ 125 $ 970 $ 14,226

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

CLASS A CLASS B

(In millions, except per share data)

SHARES AMOUNT SHARES AMOUNT

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

Stock options exercised 3 153 153

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

Dividends on common stock ($ 0.340 per share)

( 527 ) ( 527 )

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

Stock-based compensation 192 192

Net income 1,240 1,240

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

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

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

CLASS A CLASS B

(In millions, except per share data)

SHARES AMOUNT SHARES AMOUNT

Balance at May 31, 2024 298 $ — 1,205 $ 3 $ 13,409 $ 53 $ 965 $ 14,430

Stock options exercised 3 124 124

Conversion to Class B Common Stock ( 7 ) 7 —

Repurchase of Class B Common Stock ( 15 ) ( 132 ) ( 1,061 ) ( 1,193 )

Dividends on common stock ($ 1.080 per share) and preferred stock ($ 0.10 per share)

Dividends on common stock ($ 0.370 per share) and preferred stock at $ 0.10 per share

( 554 ) ( 554 )

3 unchanged sentences

Other comprehensive income (loss) ( 80 ) ( 80 )

Balance at February 29, 2024 298 $ — 1,213 $ 3 $ 13,128 $ 125 $ 970 $ 14,226

Balance at August 31, 2024 298 $ — 1,193 $ 3 $ 13,557 $ ( 27 ) $ 411 $ 13,944

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

4 unchanged sentences

Stock options exercised 2 106 106

Conversion to Class B Common Stock ( 7 ) 7 —

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

Dividends on common stock ($ 0.985 per share) and preferred stock ($ 0.10 per share)

Dividends on common stock ($ 0.340 per share) and preferred stock at $ 0.10 per share

( 519 ) ( 519 )

3 unchanged sentences

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

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

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

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

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NOTE 3 Fair Value Measurements

NOTE 4 Short-Term Borrowings and Credit Lines

NOTE 4 Income Taxes

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NOTE 10 Operating Segments

NOTE 12 Contingencies

NOTE 13 Acquisitions and Divestitures

NOTE 11 Commitments and Contingencies

NOTE 12 Restructuring

NOTE 13 Supplier Finance Programs

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, 2024 (the "Annual Report").

The results of operations for the three and nine months ended February 29, 2024, are not necessarily indicative of results to be expected for the entire fiscal year.

The results of operations for the three months ended August 31, 2024, are not necessarily indicative of results to be expected for the entire fiscal year.

RECENTLY ISSUED ACCOUNTING STANDARDS AND DISCLOSURE RULES

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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 will require public entities to disclose significant segment expenses 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.

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

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

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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.

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

This rule would 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 and legal challenges.

The disclosure requirements would 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 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 February 29, 2024 and May 31, 2023, the Company had $ 704 million and $ 834 million, respectively, of outstanding supplier obligations confirmed as valid under these programs.

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

NOTE 2 — ACCRUED LIABILITIES

Accrued liabilities included the following:

FEBRUARY 29, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions) 2024 2024

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

For additional information about the Company's fair value policies, refer to Note 1 — Summary of Significant Accounting Policies 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 February 29, 2024 and May 31, 2023, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

FEBRUARY 29, 2024

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of August 31, 2024 and May 31, 2024, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:

AUGUST 31, 2024

(Dollars in millions)

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TOTAL $ 11,582 $ 9,860 $ 1,722

As of February 29, 2024, the Company held $ 867 million of available-for-sale debt securities with maturity dates within one year and $ 746 million with maturity dates greater than one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.

As of August 31, 2024, the Company held $ 1,038 million of available-for-sale debt securities with maturity dates within one year and $ 771 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 $ 113 million and $ 83 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $ 304 million and $ 196 million for the nine months ended February 29, 2024 and February 28, 2023, respectively.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $ 120 million and $ 99 million for the three months ended August 31, 2024 and 2023, respectively.

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

FEBRUARY 29, 2024

AUGUST 31, 2024

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

3 unchanged sentences

$ 175 $ 165 $ 10 $ 198 $ 167 $ 31

Interest rate swap contracts (1)

Interest rate swaps (1)

63 — 63 — — —

(1) If the derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 149 million as of February 29, 2024.

As of that date, the Company received $ 48 million of cash collateral from counterparties related to derivative instruments.

No amount of collateral was posted on the derivative liability balance as of February 29, 2024.

$ 238 $ 165 $ 73 $ 198 $ 167 $ 31

(1) If the derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $ 141 million as of August 31, 2024.

As of that date, the Company received $ 34 million of cash collateral and $ 12 million of securities from various counterparties on the derivative asset balance and posted $ 45 million cash collateral on the derivative liability balance.

DERIVATIVE ASSETS DERIVATIVE LIABILITIES

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

Interest rate swaps (1)

— — — 31 — 31

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

(1) If the 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 $ 36 million of cash collateral from counterparties related to derivative instruments.

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

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.

For additional information related to the Company's derivative financial instruments and credit risk, refer to Note 7 — Risk Management and Derivatives.

3 unchanged sentences

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 was approximately $ 7,764 million at February 29, 2024 and $ 7,889 million at May 31, 2023.

NOTE 4 — SHORT-TERM BORROWINGS AND CREDIT LINES

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

As of February 29, 2024 and May 31, 2023, the Company had no borrowings outstanding under its $ 3 billion commercial paper program.

On March 8, 2024, subsequent to the end of the third quarter of fiscal 2024, the Company entered into a 364 -day committed credit facility agreement with a syndicate of banks, which provides for up to $ 1 billion of borrowings, with an option to increase borrowings up to $ 1.5 billion in total with lender approval.

The facility matures on March 7, 2025, with an option to extend the maturity date an additional 364 days.

This facility replaces the prior $ 1 billion 364 -day credit facility agreement entered into on March 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.

As of April 4, 2024, no amounts were outstanding under this committed credit facility.

There have been no other changes to the credit lines reported in the Annual Report for the fiscal year ended May 31, 2023.

The fair value of the Company's Long-term debt was approximately $ 7,932 million at August 31, 2024 and $ 7,631 million at May 31, 2024.

NOTE 4 — INCOME TAXES

The effective tax rate was 15.6 % and 18.5 % for the nine months ended February 29, 2024 and February 28, 2023, 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.

The effective tax rate was 19.6 % and 12.0 % for the three months ended August 31, 2024 and 2023, respectively.

The increase in the Company's effective tax rate was primarily due to a one-time benefit recognized in the first three months of fiscal 2024 from the impact of temporary relief provided by the Internal Revenue Service ("IRS") relating to U.S.

foreign tax credit regulations.

1 unchanged sentence

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.

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.

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

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

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

As of February 29, 2024, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 988 million, $ 701 million of which would affect the Company's effective tax rate if recognized in future periods.

As a result of this guidance, the Company recognized a one-time tax benefit related to fiscal 2023 tax positions in the first three months of fiscal 2024.

The Organization for Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the “Inclusive Framework”) have put forth Pillar Two proposals that ensure a minimal level of taxation.

Several countries in which the Company operates, including several European Union member states, have adopted domestic legislation to implement the Inclusive Framework’s global corporate minimum tax rate of fifteen percent.

This legislation became effective for the Company beginning June 1, 2024.

Based on the Company’s current analysis of Pillar Two provisions, these tax law changes did not have a material impact on the Company's financial statements for the first three months of fiscal 2025 and are not expected to for fiscal 2025.

As of August 31, 2024, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 999 million, $ 709 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, 2024, total gross unrecognized tax benefits, excluding related interest and penalties, were $ 990 million.

As of February 29, 2024 and May 31, 2023, accrued interest and penalties related to uncertain tax positions were $ 314 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 August 31, 2024 and May 31, 2024, accrued interest and penalties related to uncertain tax positions were $ 346 million and $ 332 million, respectively, (excluding federal benefit) and included within Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

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

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

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

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

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Stock options (1)

$ 89 $ 78 $ 253 $ 232

ESPPs 17 20 55 53

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

110 94 310 271

TOTAL STOCK-BASED COMPENSATION EXPENSE $ 183 $ 196

(1) Expense for stock options includes the expense associated with stock appreciation rights.

(2) Restricted stock units include RSUs and PSUs.

The income tax benefit related to stock-based compensation expense was $ 12 million and $ 22 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $ 30 million and $ 44 million for the nine months ended February 29, 2024 and February 28, 2023, respectively, and reported within Income tax expense.

(2) Expense for restricted stock units includes an immaterial amount of expense for PSUs.

STOCK OPTIONS

As of February 29, 2024, the Company had $ 478 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.6 years.

As of August 31, 2024, the Company had $ 324 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.4 years.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

As of February 29, 2024, the Company had $ 699 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.5 years.

As of August 31, 2024, the Company had $ 517 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.3 years.

NOTE 6 — EARNINGS PER SHARE

The following is a reconciliation from basic earnings per common share to diluted earnings per common share.

The computations of diluted earnings per common share exclude restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an estimated additional 40.9 million and 29.5 million shares of common stock outstanding for the three months ended February 29, 2024 and February 28, 2023, respectively, and 42.6 million and 31.8 million shares of common stock outstanding for the nine months ended February 29, 2024 and February 28, 2023, respectively, because the awards were assumed to be anti-dilutive.

THREE MONTHS ENDED NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(In millions, except per share data)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Net income available to common stockholders $ 1,051 $ 1,450

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 nine months ended February 29, 2024, 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 February 29, 2024, are designated as foreign currency cash flow hedges, primarily for Euro/U.S.

As of and for the three months ended August 31, 2024, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report.

The majority of derivatives outstanding as of August 31, 2024, 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 FEBRUARY 29, MAY 31,

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

(Dollars in millions)

2 unchanged sentences

Foreign exchange forwards and options Deferred income taxes and other assets 10 44

Interest rate swap contracts

Interest rate swaps

Deferred income taxes and other assets

5 unchanged sentences

DERIVATIVE LIABILITIES

BALANCE SHEET LOCATION FEBRUARY 29, MAY 31,

BALANCE SHEET LOCATION AUGUST 31, MAY 31,

(Dollars in millions)

2 unchanged sentences

Foreign exchange forwards and options Deferred income taxes and other liabilities 31 5

Interest rate swap contracts

Interest rate swaps

Deferred income taxes and other liabilities

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INCOME (LOSS) INTO INCOME (1)

THREE MONTHS ENDED LOCATION OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME THREE MONTHS ENDED

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Derivatives designated as cash flow hedges:

Foreign exchange forwards and options $ ( 32 ) $ 30 Revenues $ ( 10 ) $ 14

Foreign exchange forwards and options 135 ( 141 ) Cost of sales 70 182

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

Foreign exchange forwards and options 49 ( 65 ) Other (income) expense, net 52 90

Interest rate swaps (2)

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

TOTAL DESIGNATED CASH FLOW HEDGES $ 152 $ ( 175 ) $ 111 $ 283

(1) For the three months ended February 29, 2024 and February 28, 2023, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

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

(Dollars in millions)

AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER

COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES (1)

AMOUNT OF GAIN (LOSS)

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE

INCOME (LOSS) INTO INCOME (1)

NINE MONTHS ENDED LOCATION OF GAIN (LOSS)

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

RECLASSIFIED FROM ACCUMULATED

OTHER COMPREHENSIVE INCOME

(LOSS) INTO INCOME NINE MONTHS ENDED

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

(LOSS) INTO INCOME THREE MONTHS ENDED AUGUST 31,

2024 2023 2024 2023

Derivatives designated as cash flow hedges:

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TOTAL DESIGNATED CASH FLOW HEDGES $ ( 171 ) $ ( 30 ) $ 77 $ 120

(1) For the nine months ended February 29, 2024 and February 28, 2023, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(1) For the three months ended August 31, 2024 and 2023, 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 NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Derivatives not designated as hedging instruments:

Foreign exchange forwards and options and embedded derivatives $ 9 $ ( 26 ) $ ( 1 ) $ 52 Other (income) expense, net

Foreign exchange forwards and options

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

CASH FLOW HEDGES

The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $ 17.6 billion as of February 29, 2024.

Approximately $ 250 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 29, 2024, 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 appr oximately $ 16.6 billion and $ 16.2 billion as of August 31, 2024 and May 31, 2024, respectively.

Approxima tely $ 63 million of def erred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of August 31, 2024, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income.

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

As of February 29, 2024, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.

As of August 31, 2024, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.

FAIR VALUE HEDGES

The total notional amount of outstanding interest rate swap contracts designated as fair value hedges was $ 901 million as of February 29, 2024.

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

UNDESIGNATED DERIVATIVE INSTRUMENTS

The total notional amount of outstanding undesignated derivative instruments was $ 3.9 billion as of February 29, 2024.

As of February 29, 2024, 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 $ 239 million.

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

Further, $ 48 million of collateral was received on the Company's derivative asset balance as of February 29, 2024.

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

The total notional amount of outstanding undesignated derivative instruments was $ 3.8 billion and $ 4.4 billion as of August 31, 2024 and May 31, 2024, respectively.

As of August 31, 2024, the Company was in compliance with all credit risk-related contingent features and considers the impact of the risk of counterparty default to be immaterial.

For additional information related to the Company's derivative financial instruments and collateral, refer to Note 3 — Fair Value Measurements .

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CASH FLOW HEDGES NET INVESTMENT HEDGES (1)

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

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

( 57 ) 150 — 4 97

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

— ( 100 ) — 7 ( 93 )

Total other comprehensive income (loss) ( 57 ) 50 — 11 4

Balance at February 29, 2024 $ ( 235 ) $ 292 $ 115 $ ( 47 ) $ 125

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

Other comprehensive income (loss):

Other comprehensive gains (losses) before reclassifications (2)

150 ( 179 ) — — ( 29 )

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

3 ( 254 ) — 23 ( 228 )

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

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

(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, 2024 $ ( 256 ) $ 247 $ 115 $ ( 53 ) $ 53

5 unchanged sentences

Total other comprehensive income (loss) 138 ( 227 ) — 9 ( 80 )

Balance at February 29, 2024 $ ( 235 ) $ 292 $ 115 $ ( 47 ) $ 125

Balance at August 31, 2024 $ ( 118 ) $ 20 $ 115 $ ( 44 ) $ ( 27 )

(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)

8 unchanged sentences

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

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

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

(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:

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

THREE MONTHS ENDED NINE MONTHS ENDED

(Dollars in millions)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

Gains (losses) on foreign currency translation adjustment $ — $ ( 3 ) $ ( 2 ) $ ( 374 ) Other (income) expense, net

Total before tax — ( 3 ) ( 2 ) ( 374 )

Tax (expense) benefit — — — 16

Gain (loss) net of tax — ( 3 ) ( 2 ) ( 358 )

Gains (losses) on cash flow hedges:

Foreign exchange forwards and options ( 10 ) 14 ( 7 ) 9 Revenues

Foreign exchange forwards and options 70 182 221 464 Cost of sales

Foreign exchange forwards and options 1 ( 1 ) 1 ( 4 ) Demand creation expense

Foreign exchange forwards and options 52 90 138 297 Other (income) expense, net

Interest rate swaps ( 2 ) ( 2 ) ( 6 ) ( 6 ) Interest expense (income), net

Total before tax 111 283 347 760

Tax (expense) benefit ( 11 ) ( 29 ) ( 33 ) ( 82 )

Gain (loss) net of tax 100 254 314 678

Gains (losses) on other ( 9 ) ( 32 ) 1 ( 12 ) Other (income) expense, net

Total before tax ( 9 ) ( 32 ) 1 ( 12 )

Tax (expense) benefit 2 9 ( 1 ) 3

Gain (loss) net of tax ( 7 ) ( 23 ) — ( 9 )

Total net gain (loss) reclassified for the period $ 93 $ 228 $ 312 $ 311

For additional information related to the Company's cash flow hedges refer to Note 7 — Risk Management and Derivatives.

NOTE 9 — REVENUES

1 unchanged sentence

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

THREE MONTHS ENDED FEBRUARY 29, 2024

(Dollars in millions)

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

Footwear $ 3,460 $ 1,960 $ 1,547 $ 1,195 $ — $ 8,162 $ 426 $ — $ 8,588

Apparel 1,408 994 498 390 — 3,290 25 — 3,315

Equipment 202 184 39 62 — 487 9 — 496

Other — — — — 9 9 35 ( 14 ) 30

TOTAL REVENUES $ 5,070 $ 3,138 $ 2,084 $ 1,647 $ 9 $ 11,948 $ 495 $ ( 14 ) $ 12,429

Sales to Wholesale Customers $ 2,440 $ 1,966 $ 1,243 $ 939 $ — $ 6,588 $ 257 $ — $ 6,845

Sales through Direct to Consumer 2,630 1,172 841 708 — 5,351 203 — 5,554

Other — — — — 9 9 35 ( 14 ) 30

TOTAL REVENUES $ 5,070 $ 3,138 $ 2,084 $ 1,647 $ 9 $ 11,948 $ 495 $ ( 14 ) $ 12,429

THREE MONTHS ENDED FEBRUARY 28, 2023

(Dollars in millions)

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

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

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

Equipment 172 141 37 53 — 403 6 — 409

Other — — — — 12 12 37 12 61

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

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

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

Other — — — — 12 12 37 12 61

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

NINE MONTHS ENDED FEBRUARY 29, 2024

THREE MONTHS ENDED AUGUST 31, 2024

(Dollars in millions)

9 unchanged sentences

TOTAL REVENUES $ 4,826 $ 3,143 $ 1,666 $ 1,462 $ 14 $ 11,111 $ 501 $ ( 23 ) $ 11,589

NINE MONTHS ENDED FEBRUARY 28, 2023

THREE MONTHS ENDED AUGUST 31, 2023

(Dollars in millions)

9 unchanged sentences

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

For the three and nine months ended February 29, 2024 and three and nine months ended February 28, 2023, Global Brand Divisions revenues included 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.

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

As of February 29, 2024 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 August 31, 2024 and May 31, 2024, 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.

For the three and nine months ended February 29, 2024, Corporate also includes pre-tax restructuring charges recognized as a result of the Company taking steps to streamline the organization.

These pre-tax charges primarily reflect employee severance costs and accelerated stock-based compensation expense.

For more information, refer to Note 14 — Restructuring.

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.

4 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 NINE MONTHS ENDED

THREE MONTHS ENDED AUGUST 31,

(Dollars in millions)

FEBRUARY 29, 2024 FEBRUARY 28, 2023 FEBRUARY 29, 2024 FEBRUARY 28, 2023

North America $ 4,826 $ 5,423

19 unchanged sentences

INCOME BEFORE INCOME TAXES $ 1,307 $ 1,648

FEBRUARY 29, MAY 31,

AUGUST 31, MAY 31,

(Dollars in millions)

19 unchanged sentences

$ 8,253 $ 7,519

(1) Inventories as of February 29, 2024 and May 31, 2023, were substantially all finished goods.

FEBRUARY 29, MAY 31,

(1) Inventories as of August 31, 2024 and May 31, 2024, were substantially all finished goods.

AUGUST 31, MAY 31,

(Dollars in millions)

9 unchanged sentences

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,948 $ 5,000

NOTE 12 — CONTINGENCIES

NOTE 11 — COMMITMENTS AND CONTINGENCIES

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

9 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 13 — 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 12 — RESTRUCTURING

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 is taking steps to streamline the organization which will include a net reduction in the Company's global workforce.

As of February 29, 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 are expected to be recognized by the end of fiscal 2024.

The related cash payments are expected to take place through 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.

During the third quarter of fiscal 2024, the Company recognized pre-tax restructuring charges of $ 403 million.

These charges were classified within Corporate as follows:

THREE MONTHS ENDED FEBRUARY 29, 2024

(Dollars in millions)

OPERATING OVERHEAD EXPENSE

COST OF SALES TOTAL

Employee severance and related costs (1)

$ 319 $ 60 $ 379

Stock-based compensation expense (2)

Total pre-tax restructuring charges

$ 340 $ 63 $ 403

(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 could extend through the first half of fiscal 2025.

As of February 29, 2024, a majority of the $ 379 million of employee severance and related costs are reflected within Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets, classified within Other in Note 2 — Accrued Liabilities, and an immaterial amount is reflected within Accounts payable.

As of February 29, 2024, the Company has no t made any cash payments related to this activity.

As part of this initiative, management streamlined the organization which resulted in a net reduction in the Company's global workforce.

During the three months ended August 31, 2024, the Company recognized an immaterial amount of pre-tax restructuring charges and made cash payments, primarily related to employee severance, of $ 217 million.

Cash payments related to the restructuring are expected to be substantially paid by the end of the first half of fiscal 2025.

As of August 31, 2024 and May 31, 2024, the amounts within Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets related to the pre-tax restructuring charges were $ 56 million and $ 267 million, respectively .

NOTE 13 — SUPPLIER FINANCE PROGRAMS

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

As of August 31, 2024 and May 31, 2024, the Company had $ 970 million and $ 840 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.

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