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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                         TO                         .

Commission File No. 1-10635
nke-20220831_g1.jpg
NIKE, Inc.
(Exact name of Registrant as specified in its charter)
Oregon
93-0584541
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices and zip code)

(503) 671-6453
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Class B Common Stock
NKE
New York Stock Exchange
(Title of each class)
(Trading symbol)
(Name of each exchange on which registered)
Indicate by check mark:
YES
NO
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
þ
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
if an emerging growth company, if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
þ
As of September 29, 2022, the number of shares of the Registrant's Common Stock outstanding were:
Class A
304,903,252 
Class B
1,259,687,689 
1,564,590,941 


NIKE, INC.
FORM 10-Q
TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED AUGUST 31,
(In millions, except per share data)
20222021
Revenues$12,687 $12,248 
Cost of sales7,072 6,552 
Gross profit5,615 5,696 
Demand creation expense943 918 
Operating overhead expense2,977 2,654 
Total selling and administrative expense3,920 3,572 
Interest expense (income), net13 57 
Other (income) expense, net(146)(39)
Income before income taxes1,828 2,106 
Income tax expense360 232 
NET INCOME$1,468 $1,874 
Earnings per common share:
Basic$0.94 $1.18 
Diluted$0.93 $1.16 
Weighted average common shares outstanding:
Basic1,567.1 1,581.9 
Diluted1,585.8 1,619.6 
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
1

NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)
20222021
Net income$1,468 $1,874 
Other comprehensive income (loss), net of tax:
Change in net foreign currency translation adjustment(226)(128)
Change in net gains (losses) on cash flow hedges555 438 
Change in net gains (losses) on other(11)3 
Total other comprehensive income (loss), net of tax318 313 
TOTAL COMPREHENSIVE INCOME$1,786 $2,187 
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
2

NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31,MAY 31,
(In millions)
20222022
ASSETS
Current assets:
Cash and equivalents$7,226 $8,574 
Short-term investments4,650 4,423 
Accounts receivable, net4,960 4,667 
Inventories9,662 8,420 
Prepaid expenses and other current assets2,379 2,129 
Total current assets28,877 28,213 
Property, plant and equipment, net4,778 4,791 
Operating lease right-of-use assets, net2,880 2,926 
Identifiable intangible assets, net283 286 
Goodwill282 284 
Deferred income taxes and other assets3,988 3,821 
TOTAL ASSETS$41,088 $40,321 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt$500 $500 
Notes payable9 10 
Accounts payable3,371 3,358 
Current portion of operating lease liabilities424 420 
Accrued liabilities6,277 6,220 
Income taxes payable338 222 
Total current liabilities10,919 10,730 
Long-term debt8,922 8,920 
Operating lease liabilities2,736 2,777 
Deferred income taxes and other liabilities2,689 2,613 
Commitments and contingencies (Note 12)
Redeemable preferred stock  
Shareholders' equity:
Common stock at stated value:
Class A convertible — 305 and 305 shares outstanding
  
Class B — 1,259 and 1,266 shares outstanding
3 3 
Capital in excess of stated value11,648 11,484 
Accumulated other comprehensive income (loss)636 318 
Retained earnings3,535 3,476 
Total shareholders' equity15,822 15,281 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$41,088 $40,321 
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
3

NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)
20222021
Cash provided (used) by operations:
Net income$1,468 $1,874 
Adjustments to reconcile net income to net cash provided (used) by operations:
Depreciation169 177 
Deferred income taxes(43)(145)
Stock-based compensation170 136 
Amortization, impairment and other(9)(9)
Net foreign currency adjustments16 43 
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable(415)36 
(Increase) decrease in inventories(1,363)101 
(Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets(128)(242)
Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities492 (860)
Cash provided (used) by operations357 1,111 
Cash provided (used) by investing activities:
Purchases of short-term investments(2,469)(2,550)
Maturities of short-term investments1,432 2,096 
Sales of short-term investments948 1,037 
Additions to property, plant and equipment(264)(184)
Other investing activities139 102 
Cash provided (used) by investing activities(214)501 
Cash provided (used) by financing activities:
Increase (decrease) in notes payable(1)13 
Proceeds from exercise of stock options and other stock issuances82 473 
Repurchase of common stock(983)(752)
Dividends — common and preferred(480)(435)
Other financing activities(22)(42)
Cash provided (used) by financing activities(1,404)(743)
Effect of exchange rate changes on cash and equivalents(87)(38)
Net increase (decrease) in cash and equivalents(1,348)831 
Cash and equivalents, beginning of period8,574 9,889 
CASH AND EQUIVALENTS, END OF PERIOD$7,226 $10,720 
Supplemental disclosure of cash flow information:
Non-cash additions to property, plant and equipment$124 $103 
Dividends declared and not paid482 436 
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
4

NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

COMMON STOCKCAPITAL IN EXCESS OF STATED VALUEACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)RETAINED EARNINGSTOTAL
CLASS ACLASS B
(In millions, except per share data)
SHARESAMOUNTSHARESAMOUNT
Balance at May 31, 2022305 $ 1,266 $3 $11,484 $318 $3,476 $15,281 
Stock options exercised2 80 80 
Repurchase of Class B common stock(9)(66)(925)(991)
Dividends on common stock ($0.305 per share) and preferred stock ($0.10 per share)
(482)(482)
Issuance of shares to employees, net of shares withheld for employee taxes(20)(2)(22)
Stock-based compensation170 170 
Net income1,468 1,468 
Other comprehensive income (loss)318 318 
Balance at August 31, 2022305 $ 1,259 $3 $11,648 $636 $3,535 $15,822 

COMMON STOCKCAPITAL IN EXCESS OF STATED VALUEACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)RETAINED EARNINGSTOTAL
CLASS ACLASS B
(In millions, except per share data)
SHARESAMOUNTSHARESAMOUNT
Balance at May 31, 2021305 $ 1,273 $3 $9,965 $(380)$3,179 $12,767 
Stock options exercised10 469 469 
Repurchase of Class B common stock(5)(29)(713)(742)
Dividends on common stock ($0.275 per share) and preferred stock ($0.10 per share)
(435)(435)
Issuance of shares to employees, net of shares withheld for employee taxes(20)(19)(39)
Stock-based compensation136 136 
Net income1,874 1,874 
Other comprehensive income (loss)313 313 
Balance at August 31, 2021305 $ 1,278 $3 $10,521 $(67)$3,886 $14,343 
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
5

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6

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, 2022, 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, 2022. The results of operations for the three months ended August 31, 2022, are not necessarily indicative of results to be expected for the entire fiscal year.
The uncertain state of the global economy or worsening macroeconomic conditions could affect the Company’s business, including, among other things, higher inventory levels in various markets, higher inventory obsolescence reserves, higher promotional activity, reduced demand for product, reduced orders from wholesale customers for product and order cancellations. There could also be new COVID-19 related restrictions or disruptions. Any of these factors, among others, could have material adverse impacts on the Company’s revenue growth as well as overall profitability in future periods.
NOTE 2 — INVENTORIES
Inventory balances of $9,662 million and $8,420 million at August 31, 2022 and May 31, 2022, respectively, were substantially all finished goods.
NOTE 3 — ACCRUED LIABILITIES
Accrued liabilities included the following:
AUGUST 31,MAY 31,
(Dollars in millions)20222022
Compensation and benefits, excluding taxes$980 $1,297 
Collateral received from counterparties to hedging instruments962486 
Sales-related reserves9501,015 
Import and logistics costs626489 
Allowance for expected loss on sale(1)
389397 
Other2,3702,536
TOTAL ACCRUED LIABILITIES$6,277 $6,220 
(1)Refer to Note 13 — Acquisitions and Divestitures for additional information.
NOTE 4 — FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities. For additional information about the Company's fair value policies, refer to Note 1 — Summary of Significant Accounting Policies of the Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

7

The following tables present information about the Company's financial assets 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, 2022
(Dollars in millions)
ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTS
Cash$746 $746 $— 
Level 1:
U.S. Treasury securities3,855 7 3,848 
Level 2:
Commercial paper and bonds720 31 689 
Money market funds5,579 5,579  
Time deposits968 863 105 
U.S. Agency securities8  8 
Total Level 27,275 6,473 802 
TOTAL$11,876 $7,226 $4,650 
MAY 31, 2022
(Dollars in millions)
ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTS
Cash$839 $839 $— 
Level 1:
U.S. Treasury securities3,801 8 3,793 
Level 2:
Commercial paper and bonds660 37 623 
Money market funds6,458 6,458  
Time deposits1,237 1,232 5 
U.S. Agency securities2  2 
Total Level 28,357 7,727 630 
TOTAL$12,997 $8,574 $4,423 
As of August 31, 2022, the Company held $3,165 million of available-for-sale debt securities with maturity dates within one year and $1,485 million with maturity dates over 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 $65 million and $17 million for the three months ended August 31, 2022 and 2021, respectively.
The following tables present information about the Company's derivative assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:
AUGUST 31, 2022
DERIVATIVE ASSETSDERIVATIVE LIABILITIES
(Dollars in millions)
ASSETS AT FAIR VALUEOTHER CURRENT ASSETSOTHER LONG-TERM ASSETSLIABILITIES AT FAIR VALUEACCRUED LIABILITIESOTHER LONG-TERM LIABILITIES
Level 2:
Foreign exchange forwards and options(1)
$1,426 $1,049 $377 $43 $39 $4 
Embedded derivatives3 3     
TOTAL$1,429 $1,052 $377 $43 $39 $4 
(1)If the foreign exchange derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $43 million as of August 31, 2022. As of that date, the Company received $962 million of cash collateral from counterparties related to foreign exchange derivative instruments. No amount of collateral was posted on the derivative liability balance as of August 31, 2022.
8

MAY 31, 2022
DERIVATIVE ASSETSDERIVATIVE LIABILITIES
(Dollars in millions)
ASSETS AT FAIR VALUEOTHER CURRENT ASSETSOTHER LONG-TERM ASSETSLIABILITIES AT FAIR VALUEACCRUED LIABILITIESOTHER LONG-TERM LIABILITIES
Level 2:
Foreign exchange forwards and options(1)
$875 $669 $206 $76 $65 $11 
Embedded derivatives5 5  1 1  
TOTAL$880 $674 $206 $77 $66 $11 
(1)If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $76 million as of May 31, 2022. As of that date, the Company received $486 million of cash collateral from counterparties related to foreign exchange derivative instruments. No amount of collateral was posted on the derivative liability balance as of May 31, 2022.
For additional information related to the Company's derivative financial instruments and credit risk, refer to Note 8 — 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 and debt issuance costs. The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2). The fair value of the Company's Long-term debt, including the current portion, was approximately $8,600 million at August 31, 2022 and $8,933 million at May 31, 2022.
The carrying amounts reflected on the Unaudited Condensed Consolidated Balance Sheets for Notes payable approximate fair value.
NOTE 5 — INCOME TAXES
The effective tax rate was 19.7% and 11.0% for the three months ended August 31, 2022 and 2021, respectively. The increase in the Company's effective tax rate was primarily due to a less favorable impact from stock-based compensation.
As of August 31, 2022, total gross unrecognized tax benefits, excluding related interest and penalties, were $861 million, $638 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, 2022, total gross unrecognized tax benefits, excluding related interest and penalties, were $848 million. As of August 31, 2022 and May 31, 2022, accrued interest and penalties related to uncertain tax positions were $262 million and $248 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 $30 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.
9

NOTE 6 — 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). Refer to Note 11 — Common Stock and Stock-Based Compensation of the Annual Report on Form 10-K for the fiscal year ended May 31, 2022 for further information.
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)
20222021
Stock options(1)
$75 $65 
ESPPs15 15 
Restricted stock and restricted stock units(1)(2)
80 56 
TOTAL STOCK-BASED COMPENSATION EXPENSE$170 $136 
(1)Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibility requirements.
(2)Restricted stock units include RSUs and PSUs.
The income tax benefit related to stock-based compensation expense was $20 million and $186 million for the three months ended August 31, 2022 and 2021, respectively, and reported within Income tax expense.
STOCK OPTIONS
The weighted average fair value per share of the options granted during the three months ended August 31, 2022 and 2021, computed as of the grant date using the Black-Scholes pricing model, was $32.13 and $38.64, respectively. The weighted average assumptions used to estimate these fair values were as follows:
 THREE MONTHS ENDED AUGUST 31,
20222021
Dividend yield0.8 %0.7 %
Expected volatility27.0 %25.2 %
Weighted average expected life (in years)5.85.9
Risk-free interest rate2.7 %0.8 %
Expected volatilities are based on an analysis of the historical volatility of the Company's common stock, the implied volatility in market-traded options on the Company's common stock with a term greater than one year, as well as other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.
As of August 31, 2022, the Company had $370 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.4 years.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
The weighted average fair value per share of restricted stock and RSUs granted for the three months ended August 31, 2022 and 2021, computed as of the grant date, was $112.83 and $161.46, respectively.
10

The weighted average fair value per share of PSUs granted for the three months ended August 31, 2022 and 2021, computed as of the grant date, was $137.77 and $247.06, respectively. The impact of granting PSUs for the three months ended August 31, 2022 and 2021, was not material to the Company's Unaudited Condensed Consolidated Financial Statements.
As of August 31, 2022, the Company had $659 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 2.4 years.
NOTE 7 — 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 excluded restricted stock, restricted stock units and options, including shares under ESPPs, to purchase an estimated additional 23.8 million and 1.1 million shares of common stock outstanding for the three months ended August 31, 2022 and 2021, respectively, because the awards were assumed to be anti-dilutive.
 THREE MONTHS ENDED AUGUST 31,
(In millions, except per share data)
20222021
Net income available to common stockholders$1,468 $1,874 
Determination of shares:
Weighted average common shares outstanding1,567.1 1,581.9 
Assumed conversion of dilutive stock options and awards18.7 37.7 
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING1,585.8 1,619.6 
Earnings per common share:
Basic$0.94 $1.18 
Diluted$0.93 $1.16 
NOTE 8 — 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, 2022, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K. For additional information about the Company's derivatives and hedging policies refer to Note 1 — Summary of Significant Accounting Policies and Note 14 — Risk Management and Derivatives of the Annual Report on Form 10-K for the fiscal year ended May 31, 2022.
The majority of derivatives outstanding as of August 31, 2022, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Japanese Yen/U.S. Dollar and Chinese Yuan/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.
11

The following tables present the fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets:    
 DERIVATIVE ASSETS
BALANCE SHEET LOCATIONAUGUST 31,MAY 31,
(Dollars in millions)
20222022
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and optionsPrepaid expenses and other current assets$990 $639 
Foreign exchange forwards and optionsDeferred income taxes and other assets377 206 
Total derivatives formally designated as hedging instruments1,367 845 
Derivatives not designated as hedging instruments:
Foreign exchange forwards and optionsPrepaid expenses and other current assets59 30 
Embedded derivativesPrepaid expenses and other current assets3 5 
Total derivatives not designated as hedging instruments62 35 
TOTAL DERIVATIVE ASSETS$1,429 $880 
DERIVATIVE LIABILITIES
BALANCE SHEET LOCATIONAUGUST 31,MAY 31,
(Dollars in millions)
20222022
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and optionsAccrued liabilities$16 $37 
Foreign exchange forwards and optionsDeferred income taxes and other liabilities4 11 
Total derivatives formally designated as hedging instruments20 48 
Derivatives not designated as hedging instruments:
Foreign exchange forwards and optionsAccrued liabilities23 28 
Embedded derivativesAccrued liabilities 1 
Total derivatives not designated as hedging instruments23 29 
TOTAL DERIVATIVE LIABILITIES$43 $77 
The following tables present the amounts in the Unaudited Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items:
THREE MONTHS ENDED AUGUST 31,
20222021
(Dollars in millions)
TOTALAMOUNT OF GAIN (LOSS)
ON CASH FLOW
HEDGE ACTIVITY
TOTALAMOUNT OF GAIN (LOSS)
ON CASH FLOW
HEDGE ACTIVITY
Revenues$12,687 $(9)$12,248 $(21)
Cost of sales7,072 109 6,552 (66)
Demand creation expense943 (1)918 1 
Other (income) expense, net(146)82 (39)(9)
Interest expense (income), net13 (2)57 (2)
12

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,
2022202120222021
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options$25 $(6)Revenues$(9)$(21)
Foreign exchange forwards and options487 265 Cost of sales109 (66)
Foreign exchange forwards and options(5)(1)Demand creation expense(1)1 
Foreign exchange forwards and options293 130 Other (income) expense, net82 (9)
Interest rate swaps(2)
  Interest expense (income), net(2)(2)
TOTAL DESIGNATED CASH FLOW HEDGES $800 $388 $179 $(97)
(1)For the three months ended August 31, 2022 and 2021, 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)
20222021
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options$50 $23 Other (income) expense, net
Embedded derivatives11 (5)Other (income) expense, net
CASH FLOW HEDGES
All changes in fair value of derivatives designated as cash flow hedge instruments are recorded in Accumulated other comprehensive income (loss) until Net income is affected by the variability of cash flows of the hedged transaction. Effective hedge results are classified in the Unaudited Condensed Consolidated Statements of Income in the same manner as the underlying exposure. When it is no longer probable the forecasted hedged transaction will occur in the initially identified time period, hedge accounting is discontinued and the Company accounts for the associated derivative as an undesignated instrument as discussed below. Additionally, the gains and losses associated with derivatives no longer designated as cash flow hedge instruments in Accumulated other comprehensive income (loss) are recognized immediately in Other (income) expense, net, if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-month period thereafter. In rare circumstances, the additional period of time may exceed two months due to extenuating circumstances related to the nature of the forecasted transaction that are outside the control or influence of the Company.
The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $15.9 billion as of August 31, 2022. Approximately $971 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of August 31, 2022, 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, 2022, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 33 months.
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UNDESIGNATED DERIVATIVE INSTRUMENTS
The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Unaudited Condensed Consolidated Balance Sheets and/or embedded derivative contracts. These undesignated instruments are recorded at fair value as a derivative asset or liability on the Unaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, together with the remeasurement gain or loss from the hedged balance sheet position and/or embedded derivative contract. The total notional amount of outstanding undesignated derivative instruments was $4 billion as of August 31, 2022.
EMBEDDED DERIVATIVES
Embedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related contract and recorded at fair value as a derivative asset or liability on the Unaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, through the date the foreign currency fluctuations cease to exist.
As of August 31, 2022, the total notional amount of embedded derivatives outstanding was approximately $434 million.
CREDIT RISK
The Company's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives per counterparty be greater than $50 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could trigger collateral requirements. As of August 31, 2022, 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 $1.4 billion. Accordingly, the Company was not required to post cash collateral as a result of these contingent features. Further, $962 million of collateral was received on the Company's derivative asset balance as of August 31, 2022. The Company considers the impact of the risk of counterparty default to be immaterial.
For additional information related to the Company's derivative financial instruments and collateral, refer to Note 4 — Fair Value Measurements.
NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in Accumulated other comprehensive income (loss), net of tax, were as follows:
(Dollars in millions)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT(1)
CASH FLOW HEDGES
NET INVESTMENT HEDGES(1)
OTHERTOTAL
Balance at May 31, 2022$(520)$779 $115 $(56)$318 
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications(2)
(272)716  (3)441 
Reclassifications to net income of previously deferred (gains) losses(3)
46 (161) (8)(123)
Total other comprehensive income (loss)(226)555  (11)318 
Balance at August 31, 2022$(746)$1,334 $115 $(67)$636 
(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, $(84) million, $0 million, $1 million and $(83) million, respectively.
(3)Net of tax (benefit) expense of $0 million, $18 million, $0 million, $3 million and $21 million, respectively.
14

(Dollars in millions)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT(1)
CASH FLOW HEDGES
NET INVESTMENT HEDGES(1)
OTHERTOTAL
Balance at May 31, 2021$2 $(435)$115 $(62)$(380)
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications(2)
(128)349  8 229 
Reclassifications to net income of previously deferred (gains) losses(3)
 89  (5)84 
Total other comprehensive income (loss)(128)438  3 313 
Balance at August 31, 2021$(126)$3 $115 $(59)$(67)
(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, $(39) million, $0 million, $(2) million and $(41) million, respectively.
(3)Net of tax (benefit) expense of $0 million, $(8) million, $0 million, $1 million and $(7) million, respectively.

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 INCOMELOCATION OF GAIN (LOSS)
RECLASSIFIED FROM ACCUMULATED
OTHER COMPREHENSIVE INCOME
(LOSS) INTO INCOME
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)
20222021
Gains (losses) on foreign currency translation adjustment$(46)$ Other (income) expense, net
Total before tax(46) 
Tax (expense) benefit  
Gain (loss) net of tax(46) 
Gains (losses) on cash flow hedges: