NIKE, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED AUGUST 31, (In millions, except per share data) 2024 2023 Revenues $ 11,589 $ 12,939 Cost of sales 6,332 7,219 Gross profit 5,257 5,720 Demand creation expense 1,226 1,069 Operating overhead expense 2,822 3,047 Total selling and administrative expense 4,048 4,116 Interest expense (income), net ( 43 ) ( 34 ) Other (income) expense, net ( 55 ) ( 10 ) Income before income taxes 1,307 1,648 Income tax expense 256 198 NET INCOME $ 1,051 $ 1,450 Earnings per common share: Basic $ 0.70 $ 0.95 Diluted $ 0.70 $ 0.94 Weighted average common shares outstanding: Basic 1,497.7 1,528.4 Diluted 1,502.0 1,543.3 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 1 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 Net income $ 1,051 $ 1,450 Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment 138 36 Change in net gains (losses) on cash flow hedges ( 227 ) ( 134 ) Change in net gains (losses) on other 9 3 Total other comprehensive income (loss), net of tax ( 80 ) ( 95 ) TOTAL COMPREHENSIVE INCOME $ 971 $ 1,355 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 2 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AUGUST 31, MAY 31, (In millions) 2024 2024 ASSETS Current assets: Cash and equivalents $ 8,485 $ 9,860 Short-term investments 1,809 1,722 Accounts receivable, net 4,764 4,427 Inventories 8,253 7,519 Prepaid expenses and other current assets 1,729 1,854 Total current assets 25,040 25,382 Property, plant and equipment, net 4,948 5,000 Operating lease right-of-use assets, net 2,792 2,718 Identifiable intangible assets, net 259 259 Goodwill 240 240 Deferred income taxes and other assets 4,588 4,511 TOTAL ASSETS $ 37,867 $ 38,110 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,000 $ 1,000 Notes payable 12 6 Accounts payable 3,357 2,851 Current portion of operating lease liabilities 491 477 Accrued liabilities 5,075 5,725 Income taxes payable 693 534 Total current liabilities 10,628 10,593 Long-term debt 7,998 7,903 Operating lease liabilities 2,625 2,566 Deferred income taxes and other liabilities 2,672 2,618 Commitments and contingencies (Note 11) Redeemable preferred stock — — Shareholders' equity: Common stock at stated value: Class A convertible — 298 and 298 shares outstanding — — Class B — 1,193 and 1,205 shares outstanding 3 3 Capital in excess of stated value 13,557 13,409 Accumulated other comprehensive income (loss) ( 27 ) 53 Retained earnings 411 965 Total shareholders' equity 13,944 14,430 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 37,867 $ 38,110 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 3 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 Cash provided (used) by operations: Net income $ 1,051 $ 1,450 Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation 188 191 Deferred income taxes ( 53 ) ( 68 ) Stock-based compensation 183 196 Amortization, impairment and other ( 4 ) ( 5 ) Net foreign currency adjustments ( 7 ) ( 7 ) Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable ( 312 ) ( 621 ) (Increase) decrease in inventories ( 679 ) ( 263 ) (Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets ( 265 ) ( 225 ) Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities 292 ( 714 ) Cash provided (used) by operations 394 ( 66 ) Cash provided (used) by investing activities: Purchases of short-term investments ( 968 ) ( 1,144 ) Maturities of short-term investments 144 778 Sales of short-term investments 778 1,038 Additions to property, plant and equipment ( 120 ) ( 253 ) Other investing activities — ( 1 ) Cash provided (used) by investing activities ( 166 ) 418 Cash provided (used) by financing activities: Increase (decrease) in notes payable, net 6 — Proceeds from exercise of stock options and other stock issuances 131 99 Repurchase of common stock ( 1,184 ) ( 1,133 ) Dividends — common and preferred ( 558 ) ( 524 ) Other financing activities ( 17 ) ( 41 ) Cash provided (used) by financing activities ( 1,622 ) ( 1,599 ) Effect of exchange rate changes on cash and equivalents 19 ( 16 ) Net increase (decrease) in cash and equivalents ( 1,375 ) ( 1,263 ) Cash and equivalents, beginning of period 9,860 7,441 CASH AND EQUIVALENTS, END OF PERIOD $ 8,485 $ 6,178 Supplemental disclosure of cash flow information: Non-cash additions to property, plant and equipment $ 48 $ 148 Dividends declared and not paid 554 519 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 4 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 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 Repurchase of Class B Common Stock ( 15 ) ( 132 ) ( 1,061 ) ( 1,193 ) Dividends on common stock ($ 0.370 per share) and preferred stock at $ 0.10 per share ( 554 ) ( 554 ) Issuance of shares to employees, net of shares withheld for employee taxes ( 27 ) 10 ( 17 ) Stock-based compensation 183 183 Net income 1,051 1,051 Other comprehensive income (loss) ( 80 ) ( 80 ) 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 CLASS A CLASS B (In millions, except per share data) SHARES AMOUNT SHARES AMOUNT Balance at May 31, 2023 305 $ — 1,227 $ 3 $ 12,412 $ 231 $ 1,358 $ 14,004 Stock options exercised 2 106 106 Conversion to Class B Common Stock ( 7 ) 7 — Repurchase of Class B Common Stock ( 10 ) ( 85 ) ( 1,047 ) ( 1,132 ) Dividends on common stock ($ 0.340 per share) and preferred stock at $ 0.10 per share ( 519 ) ( 519 ) Issuance of shares to employees, net of shares withheld for employee taxes ( 39 ) ( 39 ) Stock-based compensation 196 196 Net income 1,450 1,450 Other comprehensive income (loss) ( 95 ) ( 95 ) 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. 5 Table of Contents NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Summary of Significant Accounting Policies 7 NOTE 2 Accrued Liabilities 7 NOTE 3 Fair Value Measurements 8 NOTE 4 Income Taxes 10 NOTE 5 Stock-Based Compensation 11 NOTE 6 Earnings Per Share 11 NOTE 7 Risk Management and Derivatives 12 NOTE 8 Accumulated Other Comprehensive Income (Loss) 14 NOTE 9 Revenues 15 NOTE 10 Operating Segments 16 NOTE 11 Commitments and Contingencies 18 NOTE 12 Restructuring 18 NOTE 13 Supplier Finance Programs 18 6 Table of Contents NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Unaudited Condensed Consolidated Financial Statements include the accounts of NIKE, Inc. and its subsidiaries (the "Company" or "NIKE") and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim period. The year-end Condensed Consolidated Balance Sheet data as of May 31, 2024, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). 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 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 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 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 may 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 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. NOTE 2 — ACCRUED LIABILITIES Accrued liabilities included the following: AUGUST 31, MAY 31, (Dollars in millions) 2024 2024 Compensation and benefits, excluding taxes $ 1,073 $ 1,291 Sales-related reserves 1,200 1,282 Dividends payable 559 563 Endorsement compensation 283 578 Other 1,960 2,011 TOTAL ACCRUED LIABILITIES $ 5,075 $ 5,725 7 Table of Contents NOTE 3 — FAIR VALUE MEASUREMENTS The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities. 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) ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS Cash $ 1,768 $ 1,768 $ — Level 1: U.S. Treasury securities 1,194 13 1,181 Level 2: Commercial paper and bonds 615 19 596 Money market funds 6,456 6,456 — Time deposits 236 229 7 U.S. Agency securities 25 — 25 Total Level 2 7,332 6,704 628 TOTAL $ 10,294 $ 8,485 $ 1,809 MAY 31, 2024 (Dollars in millions) ASSETS AT FAIR VALUE CASH AND EQUIVALENTS SHORT-TERM INVESTMENTS Cash $ 1,222 $ 1,222 $ — Level 1: U.S. Treasury securities 1,175 155 1,020 Level 2: Commercial paper and bonds 591 17 574 Money market funds 8,119 8,119 — Time deposits 440 347 93 U.S. Agency securities 35 — 35 Total Level 2 9,185 8,483 702 TOTAL $ 11,582 $ 9,860 $ 1,722 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 $ 120 million and $ 99 million for the three months ended August 31, 2024 and 2023, respectively. 8 Table of Contents The following tables present information about the Company's derivative assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement: AUGUST 31, 2024 DERIVATIVE ASSETS DERIVATIVE LIABILITIES (Dollars in millions) ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES Level 2: Foreign exchange forwards and options (1) $ 175 $ 165 $ 10 $ 198 $ 167 $ 31 Interest rate swaps (1) 63 — 63 — — — TOTAL $ 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. MAY 31, 2024 DERIVATIVE ASSETS DERIVATIVE LIABILITIES (Dollars in millions) ASSETS AT FAIR VALUE OTHER CURRENT ASSETS OTHER LONG-TERM ASSETS LIABILITIES AT FAIR VALUE ACCRUED LIABILITIES OTHER LONG-TERM LIABILITIES Level 2: Foreign exchange forwards and options (1) $ 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 $ 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. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value. FINANCIAL ASSETS AND LIABILITIES NOT RECORDED AT FAIR VALUE The Company's Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts, debt issuance costs and interest rate 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). 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. 9 Table of Contents NOTE 4 — INCOME TAXES 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. 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 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 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. The Company is currently under audit by the U.S. IRS for fiscal years 2017 through 2019. The Company has closed all U.S. federal income tax matters through fiscal 2016, with the exception of certain transfer pricing adjustments. Tax years after 2011 remain open in certain major foreign jurisdictions. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $ 20 million within the next 12 months. In January 2019, the European Commission opened a formal investigation to examine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company. The Company believes the investigation is without merit. If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to prior periods, and the Company's income taxes related to prior periods in the Netherlands could increase. 10 Table of Contents NOTE 5 — STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION The NIKE, Inc. Stock Incentive Plan (the "Stock Incentive Plan") provides for the issuance of up to 798 million previously unissued shares of Class B Common Stock in connection with equity awards granted under the Stock Incentive Plan. The Stock Incentive Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights and stock awards, including restricted stock and restricted stock units. Restricted stock units include both time-vesting restricted stock units ("RSUs") as well as performance-based restricted stock units ("PSUs"). 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"). The following table summarizes the Company's total stock-based compensation expense recognized in Cost of sales or Operating overhead expense, as applicable: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 Stock options (1) $ 71 $ 76 ESPPs 13 21 Restricted stock and restricted stock units (1)(2) 99 99 TOTAL STOCK-BASED COMPENSATION EXPENSE $ 183 $ 196 (1) Expense for stock options includes the expense associated with stock appreciation rights. (2) Expense for restricted stock units includes an immaterial amount of expense for PSUs. STOCK OPTIONS 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 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 61.1 million and 33.7 million shares of common stock outstanding for the three months ended August 31, 2024 and 2023, respectively, because the awards were assumed to be anti-dilutive. THREE MONTHS ENDED AUGUST 31, (In millions, except per share data) 2024 2023 Net income available to common stockholders $ 1,051 $ 1,450 Determination of shares: Weighted average common shares outstanding 1,497.7 1,528.4 Assumed conversion of dilutive stock options and awards 4.3 14.9 DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,502.0 1,543.3 Earnings per common share: Basic $ 0.70 $ 0.95 Diluted $ 0.70 $ 0.94 11 Table of Contents NOTE 7 — RISK MANAGEMENT AND DERIVATIVES The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. 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. Dollar and Japanese Yen/U.S. Dollar currency pairs. All derivatives are recognized on the Unaudited Condensed Consolidated Balance Sheets at fair value and classified based on the instrument's maturity date. The following tables present the fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets: DERIVATIVE ASSETS BALANCE SHEET LOCATION AUGUST 31, MAY 31, (Dollars in millions) 2024 2024 Derivatives formally designated as hedging instruments: Foreign exchange forwards and options Prepaid expenses and other current assets $ 139 $ 269 Foreign exchange forwards and options Deferred income taxes and other assets 10 44 Interest rate swaps Deferred income taxes and other assets 63 — Total derivatives formally designated as hedging instruments 212 313 Derivatives not designated as hedging instruments: Foreign exchange forwards and options Prepaid expenses and other current assets 26 30 Total derivatives not designated as hedging instruments 26 30 TOTAL DERIVATIVE ASSETS $ 238 $ 343 DERIVATIVE LIABILITIES BALANCE SHEET LOCATION AUGUST 31, MAY 31, (Dollars in millions) 2024 2024 Derivatives formally designated as hedging instruments: Foreign exchange forwards and options Accrued liabilities $ 161 $ 110 Foreign exchange forwards and options Deferred income taxes and other liabilities 31 5 Interest rate swaps Deferred income taxes and other liabilities — 31 Total derivatives formally designated as hedging instruments 192 146 Derivatives not designated as hedging instruments: Foreign exchange forwards and options Accrued liabilities 6 5 Total derivatives not designated as hedging instruments 6 5 TOTAL DERIVATIVE LIABILITIES $ 198 $ 151 12 Table of Contents The following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income: (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) THREE MONTHS ENDED AUGUST 31, LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME THREE MONTHS ENDED AUGUST 31, 2024 2023 2024 2023 Derivatives designated as cash flow hedges: Foreign exchange forwards and options $ ( 44 ) $ ( 18 ) Revenues $ ( 21 ) $ 1 Foreign exchange forwards and options ( 98 ) ( 2 ) Cost of sales 70 86 Foreign exchange forwards and options — — Demand creation expense — — Foreign exchange forwards and options ( 29 ) ( 10 ) Other (income) expense, net 30 35 Interest rate swaps (2) — — Interest expense (income), net ( 2 ) ( 2 ) TOTAL DESIGNATED CASH FLOW HEDGES $ ( 171 ) $ ( 30 ) $ 77 $ 120 (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. (2) Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt. AMOUNT OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES LOCATION OF GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 Derivatives not designated as hedging instruments: 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 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 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 $ 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 $ 3.8 billion and $ 4.4 billion as of August 31, 2024 and May 31, 2024, respectively. CREDIT RISK 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 . 13 Table of Contents NOTE 8 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in Accumulated other comprehensive income (loss), net of tax, were as follows: (Dollars in millions) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL Balance at May 31, 2024 $ ( 256 ) $ 247 $ 115 $ ( 53 ) $ 53 Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications (2) 137 ( 151 ) — 7 ( 7 ) Reclassifications to net income of previously deferred (gains) losses (2)(3) 1 ( 76 ) — 2 ( 73 ) Total other comprehensive income (loss) 138 ( 227 ) — 9 ( 80 ) Balance at August 31, 2024 $ ( 118 ) $ 20 $ 115 $ ( 44 ) $ ( 27 ) (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. (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) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1) CASH FLOW HEDGES NET INVESTMENT HEDGES (1) OTHER TOTAL Balance at May 31, 2023 $ ( 253 ) $ 431 $ 115 $ ( 62 ) $ 231 Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications (2) 36 ( 23 ) — — 13 Reclassifications to net income of previously deferred (gains) losses (2)(3) — ( 111 ) — 3 ( 108 ) Total other comprehensive income (loss) 36 ( 134 ) — 3 ( 95 ) Balance at August 31, 2023 $ ( 217 ) $ 297 $ 115 $ ( 59 ) $ 136 (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. (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. For additional information related to the Company's cash flow hedges refer to Note 7 — Risk Management and Derivatives. 14 Table of Contents NOTE 9 — REVENUES DISAGGREGATION OF REVENUES The following tables present the Company's Revenues disaggregated by reportable operating segment, major product line and distribution channel: THREE MONTHS ENDED AUGUST 31, 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. Revenues by: Footwear $ 3,212 $ 1,952 $ 1,246 $ 1,052 $ — $ 7,462 $ 436 $ — $ 7,898 Apparel 1,331 993 360 348 — 3,032 17 — 3,049 Equipment 283 198 60 62 — 603 12 — 615 Other — — — — 14 14 36 ( 23 ) 27 TOTAL REVENUES $ 4,826 $ 3,143 $ 1,666 $ 1,462 $ 14 $ 11,111 $ 501 $ ( 23 ) $ 11,589 Revenues by: Sales to Wholesale Customers $ 2,475 $ 2,074 $ 971 $ 890 $ — $ 6,410 $ 275 $ — $ 6,685 Sales through Direct to Consumer 2,351 1,069 695 572 — 4,687 190 — 4,877 Other — — — — 14 14 36 ( 23 ) 27 TOTAL REVENUES $ 4,826 $ 3,143 $ 1,666 $ 1,462 $ 14 $ 11,111 $ 501 $ ( 23 ) $ 11,589 THREE MONTHS ENDED AUGUST 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. Revenues by: Footwear $ 3,733 $ 2,260 $ 1,287 $ 1,141 $ — $ 8,421 $ 522 $ — $ 8,943 Apparel 1,479 1,137 401 371 — 3,388 20 — 3,408 Equipment 211 213 47 60 — 531 11 — 542 Other — — — — 13 13 35 ( 2 ) 46 TOTAL REVENUES $ 5,423 $ 3,610 $ 1,735 $ 1,572 $ 13 $ 12,353 $ 588 $ ( 2 ) $ 12,939 Revenues by: Sales to Wholesale Customers $ 2,772 $ 2,379 $ 895 $ 937 $ — $ 6,983 $ 329 $ — $ 7,312 Sales through Direct to Consumer 2,651 1,231 840 635 — 5,357 224 — 5,581 Other — — — — 13 13 35 ( 2 ) 46 TOTAL REVENUES $ 5,423 $ 3,610 $ 1,735 $ 1,572 $ 13 $ 12,353 $ 588 $ ( 2 ) $ 12,939 Global Brand Divisions revenues included NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. Converse Other revenues were primarily attributable to licensing businesses. Corporate revenues primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through the Company's central foreign exchange risk management program. As of August 31, 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. 15 Table of Contents NOTE 10 — OPERATING SEGMENTS The Company's operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity. Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa ("EMEA"); Greater China; and Asia Pacific & Latin America ("APLA"), and include results for the NIKE and Jordan brands. The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment. Converse is also a reportable segment for the Company and operates in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories. Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. Global Brand Divisions costs represent demand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company's headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses. The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes ("EBIT"), which represents Net income before Interest expense (income), net, and Income taxes in the Unaudited Condensed Consolidated Statements of Income. As part of the Company's centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in the Company's geographic operating segments and to Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons, and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entity's functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from the Company's centrally managed foreign exchange risk management program and other conversion gains and losses. Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and are therefore provided below. 16 Table of Contents THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 REVENUES North America $ 4,826 $ 5,423 Europe, Middle East & Africa 3,143 3,610 Greater China 1,666 1,735 Asia Pacific & Latin America 1,462 1,572 Global Brand Divisions 14 13 Total NIKE Brand 11,111 12,353 Converse 501 588 Corporate ( 23 ) ( 2 ) TOTAL NIKE, INC. REVENUES $ 11,589 $ 12,939 EARNINGS BEFORE INTEREST AND TAXES North America $ 1,216 $ 1,434 Europe, Middle East & Africa 792 930 Greater China 502 525 Asia Pacific & Latin America 402 414 Global Brand Divisions ( 1,227 ) ( 1,205 ) Converse 121 167 Corporate ( 542 ) ( 651 ) Interest expense (income), net ( 43 ) ( 34 ) TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 1,307 $ 1,648 AUGUST 31, MAY 31, (Dollars in millions) 2024 2024 ACCOUNTS RECEIVABLE, NET North America $ 1,730 $ 1,723 Europe, Middle East & Africa 1,466 1,239 Greater China 426 327 Asia Pacific & Latin America 793 792 Global Brand Divisions 103 103 Total NIKE Brand 4,518 4,184 Converse 226 201 Corporate 20 42 TOTAL ACCOUNTS RECEIVABLE, NET $ 4,764 $ 4,427 INVENTORIES North America $ 3,519 $ 3,134 Europe, Middle East & Africa 2,064 2,028 Greater China 1,234 1,070 Asia Pacific & Latin America 977 810 Global Brand Divisions 158 166 Total NIKE Brand 7,952 7,208 Converse 313 296 Corporate ( 12 ) 15 TOTAL INVENTORIES (1) $ 8,253 $ 7,519 (1) Inventories as of August 31, 2024 and May 31, 2024, were substantially all finished goods. 17 Table of Contents AUGUST 31, MAY 31, (Dollars in millions) 2024 2024 PROPERTY, PLANT AND EQUIPMENT, NET North America $ 716 $ 744 Europe, Middle East & Africa 1,121 1,089 Greater China 252 258 Asia Pacific & Latin America 292 282 Global Brand Divisions 807 842 Total NIKE Brand 3,188 3,215 Converse 23 27 Corporate 1,737 1,758 TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,948 $ 5,000 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. The outcome of these legal matters is inherently uncertain, and the Company cannot predict the eventual outcome of currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or consequences relating to those matters. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. If one or more legal matters were to be resolved against the Company in a reporting period for amounts above management's expectations, the Company's financial position, operating results and cash flows for that reporting period could be materially adversely affected. In the opinion of management, based on its current knowledge and after consultation with counsel, the Company does not believe any currently pending legal matters will have a material adverse impact on the Company's results of operations, financial position or cash flows, except as described below. BELGIAN CUSTOMS CLAIM The Company has received claims for certain years from Belgian Customs and other government authorities for alleged underpaid duties related to products imported beginning in fiscal 2018. The Company disputes these claims and has engaged in the appellate process. The Company has issued bank guarantees in order to appeal the claims. At this time, the Company is unable to estimate the range of loss and cannot predict the final outcome as it could take several years to reach a resolution on this matter. If this matter is ultimately resolved against the Company, the amounts owed, including fines, penalties and other consequences relating to the matter, could have a material adverse effect on the Company's results of operations, financial position and cash flows. NOTE 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 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 Certain financial institutions offer voluntary supplier finance programs facilitated through a third-party platform that provide participating suppliers the option to finance valid payment obligations from the Company. The Company is not a party to agreements negotiated between participating suppliers and third-party financial institutions. The Company's obligations to its suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in these programs and the Company does not provide guarantees to third parties in connection with these programs. As of August 31, 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. 18 Table of Contents