XML 44 R21.htm IDEA: XBRL DOCUMENT
v3.23.2

Risk Management and Derivatives | 12 Months Ended
--- | ---
May 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Risk Management and Derivatives |
NOTE 12 — 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. The Company does not hold or issue derivatives for trading or speculative purposes. The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships. The majority of derivatives outstanding as of May 31, 2023, 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 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 Consolidated Balance Sheets:
| DERIVATIVE ASSETS
| BALANCE SHEET LOCATION | MAY 31,
(Dollars in millions) | 2023 |  | 2022
Derivatives formally designated as hedging instruments: |  |  |  |
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 480 |  |  | $ | 639 |
Foreign exchange forwards and options | Deferred income taxes and other assets | 64 |  |  | 206 |
Total derivatives formally designated as hedging instruments |  | 544 |  |  | 845 |
Derivatives not designated as hedging instruments: |  |  |  |
Foreign exchange forwards and options and embedded derivatives | Prepaid expenses and other current assets | 13 |  |  | 35 |
Total derivatives not designated as hedging instruments |  | 13 |  |  | 35 |
TOTAL DERIVATIVE ASSETS |  | $ | 557 |  |  | $ | 880 |
| DERIVATIVE LIABILITIES
| BALANCE SHEET LOCATION | MAY 31,
(Dollars in millions) | 2023 |  | 2022
Derivatives formally designated as hedging instruments: |  |  |  |
Foreign exchange forwards and options | Accrued liabilities | $ | 93 |  |  | $ | 37 |
Foreign exchange forwards and options | Deferred income taxes and other liabilities | 52 |  |  | 11 |
Total derivatives formally designated as hedging instruments |  | 145 |  |  | 48 |
Derivatives not designated as hedging instruments: |  |  |  |
Foreign exchange forwards and options and embedded derivatives | Accrued liabilities | 35 |  |  | 29 |
Total derivatives not designated as hedging instruments |  | 35 |  |  | 29 |
TOTAL DERIVATIVE LIABILITIES |  | $ | 180 |  |  | $ | 77 |
The following table presents the amounts in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the fiscal years ended May 31, 2023, 2022 and 2021:
| YEAR ENDED MAY 31,
| 2023 |  | 2022 |  | 2021
(Dollars in millions) | TOTAL | AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY |  | TOTAL | AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY |  | TOTAL | AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY
Revenues | $ | 51,217 |  | $ | 26 |  |  | $ | 46,710 |  | $ | (82) |  |  | $ | 44,538 |  | $ | 45 |
Cost of sales | 28,925 |  | 581 |  |  | 25,231 |  | (23) |  |  | 24,576 |  | 51 |
Demand creation expense | 4,060 |  | (5) |  |  | 3,850 |  | 1 |  |  | 3,114 |  | 3 |
Other (income) expense, net | (280) |  | 338 |  |  | (181) |  | 130 |  |  | 14 |  | (47) |
Interest expense (income), net | (6) |  | (8) |  |  | 205 |  | (7) |  |  | 262 |  | (7) |
The following tables present the amounts affecting the Consolidated Statements of Income for the years ended May 31, 2023, 2022 and 2021:
(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)
YEAR ENDED MAY 31, |  | LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME |  | YEAR ENDED MAY 31,
2023 | 2022 | 2021 |  |  | 2023 | 2022 | 2021
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |
Foreign exchange forwards and options | $ | 16 |  | $ | (39) |  | $ | (61) |  |  | Revenues |  | $ | 26 |  | $ | (82) |  | $ | 45 |
Foreign exchange forwards and options | 305 |  | 889 |  | (563) |  |  | Cost of sales |  | 581 |  | (23) |  | 51 |
Foreign exchange forwards and options | (1) |  | (6) |  | 5 |  |  | Demand creation expense |  | (5) |  | 1 |  | 3 |
Foreign exchange forwards and options | 207 |  | 492 |  | (163) |  |  | Other (income) expense, net |  | 338 |  | 130 |  | (47) |
Interest rate swaps(2) | — |  | — |  | — |  |  | Interest expense (income), net |  | (8) |  | (7) |  | (7) |
Total designated cash flow hedges | $ | 527 |  | $ | 1,336 |  | $ | (782) |  |  |  |  | $ | 932 |  | $ | 19 |  | $ | 45 |
(1)For the fiscal years ended May 31, 2023, 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
| YEAR ENDED MAY 31, |
(Dollars in millions) | 2023 | 2022 | 2021 |
Derivatives designated as hedging instruments: |  |  |  |  |
Foreign exchange forwards and options and embedded derivatives | $ | 28 |  | $ | 38 |  | $ | (167) |  |  | 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 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 purpose of the Company's foreign exchange risk management program is to lessen both the positive and negative effects of currency fluctuations on the Company's consolidated results of operations, financial position and cash flows. Foreign currency exposures the Company may elect to hedge in this manner include product costs, non-functional currency denominated revenues, intercompany revenues, demand creation expenses, investments in U.S. Dollar denominated available-for-sale debt securities and certain other intercompany transactions. Product cost foreign currency exposures are primarily generated through non-functional currency denominated product purchases. NIKE entities primarily purchase product in two ways: (1) Certain NIKE entities purchase product from the NIKE Trading Company ("NTC"), a wholly-owned sourcing hub that buys NIKE branded products from third-party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the product to NIKE entities in their respective functional currencies. NTC sales to a NIKE entity with a different functional currency result in a foreign currency exposure for the NTC. (2) Other NIKE entities purchase product directly from third-party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar. The Company's policy permits the utilization of derivatives to reduce its foreign currency exposures where internal netting or other strategies cannot be effectively employed. Typically, the Company may enter into hedge contracts starting up to 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was $18.2 billion as of May 31, 2023. As of May 31, 2023, approximately $419 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature. As of May 31, 2023, 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 Company has, in the past, been exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. The Company had no interest rate swaps designated as fair value hedges as of May 31, 2023. NET INVESTMENT HEDGES The Company has, in the past, hedged and may, in the future, hedge the risk of variability in foreign currency-denominated net investments in wholly-owned international operations. All changes in fair value of the derivatives designated as net investment hedges are reported in Accumulated other comprehensive income (loss) along with the foreign currency translation adjustments on those investments. The Company had no outstanding net investment hedges as of May 31, 2023. 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 Consolidated Balance Sheets. These undesignated instruments are recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other (income) expense, net, together with the remeasurement gain or loss from the hedged balance sheet position. The total notional amount of outstanding undesignated derivative instruments was $4.7 billion as of May 31, 2023. CREDIT RISK The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings; however, this does not eliminate the Company's exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored. The Company's derivative contracts contain credit risk-related contingent features designed to protect against significant deterioration in counterparties' creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives per counterparty be greater than $50 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could trigger collateral requirements. As of May 31, 2023, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net liability position of approximately $2 million. Accordingly, the Company posted no cash collateral as a result of these contingent features. Further, as of May 31, 2023, the Company had received $36 million in cash collateral from various counterparties to its derivative contracts. The Company 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.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration