NIKE Inc
For the period ended Feb 29, 2024. Filed Apr 4, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Feb 29, 2024 · Filed Apr 4, 2024
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Risk Management and Derivatives
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 nine months ended February 29, 2024, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report. For additional information about the Company's derivatives and hedging policies, refer to Note 1 — Summary of Significant Accounting Policies and Note 12 — Risk Management and Derivatives within the Annual Report.
The majority of derivatives outstanding as of February 29, 2024, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. 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 · FEBRUARY 29, · MAY 31, | ||||
| (Dollars in millions) · 2024 · 2023 | ||||
| Derivatives formally designated as hedging instruments: | ||||
| Foreign exchange forwards and options | Prepaid expenses and other current assets | $312 | $480 | |
| Foreign exchange forwards and options | Deferred income taxes and other assets | 66 | 64 | |
| Interest rate swap contracts | Deferred income taxes and other assets | 2 | — | |
| Total derivatives formally designated as hedging instruments | 380 | 544 | ||
| Derivatives not designated as hedging instruments: | ||||
| Foreign exchange forwards and options | Prepaid expenses and other current assets | 12 | 13 | |
| Total derivatives not designated as hedging instruments | 12 | 13 | ||
| TOTAL DERIVATIVE ASSETS | $392 | $557 | ||
| DERIVATIVE LIABILITIES | ||||
| BALANCE SHEET LOCATION · FEBRUARY 29, · MAY 31, | ||||
| (Dollars in millions) | 2024 | 2023 | ||
| Derivatives formally designated as hedging instruments: | ||||
| Foreign exchange forwards and options | Accrued liabilities | $121 | $93 | |
| Foreign exchange forwards and options | Deferred income taxes and other liabilities | 17 | 52 | |
| Interest rate swap contracts | Deferred income taxes and other liabilities | 4 | — | |
| Total derivatives formally designated as hedging instruments | 142 | 145 | ||
| Derivatives not designated as hedging instruments: | ||||
| Foreign exchange forwards and options | Accrued liabilities | 11 | 35 | |
| Total derivatives not designated as hedging instruments | 11 | 35 | ||
| TOTAL DERIVATIVE LIABILITIES | $153 | $180 | ||
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 · LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME · THREE MONTHS ENDED | |||||
| FEBRUARY 29, 2024 · FEBRUARY 28, 2023 · FEBRUARY 29, 2024 · FEBRUARY 28, 2023 | |||||
| Derivatives designated as cash flow hedges: | |||||
| Foreign exchange forwards and options | $(32) | $30 | Revenues | $(10) | $14 |
| Foreign exchange forwards and options | 135 | (141) | Cost of sales | 70 | 182 |
| Foreign exchange forwards and options | — | 1 | Demand creation expense | 1 | (1) |
| Foreign exchange forwards and options | 49 | (65) | Other (income) expense, net | 52 | 90 |
| Interest rate swaps(2) | — | — | Interest expense (income), net | (2) | (2) |
| TOTAL DESIGNATED CASH FLOW HEDGES | $152 | $(175) | $111 | $283 | |
(1)For the three months ended February 29, 2024 and February 28, 2023, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.
(2)Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt.
| (Dollars in millions) · AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES(1) · AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME(1) | |||||
|---|---|---|---|---|---|
| NINE MONTHS ENDED · LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME · NINE MONTHS ENDED | |||||
| FEBRUARY 29, 2024 · FEBRUARY 28, 2023 · FEBRUARY 29, 2024 · FEBRUARY 28, 2023 | |||||
| Derivatives designated as cash flow hedges: | |||||
| Foreign exchange forwards and options | $(55) | $52 | Revenues | $(7) | $9 |
| Foreign exchange forwards and options | 154 | 245 | Cost of sales | 221 | 464 |
| Foreign exchange forwards and options | 2 | (2) | Demand creation expense | 1 | (4) |
| Foreign exchange forwards and options | 78 | 181 | Other (income) expense, net | 138 | 297 |
| Interest rate swaps(2) | — | — | Interest expense (income), net | (6) | (6) |
| TOTAL DESIGNATED CASH FLOW HEDGES | $179 | $476 | $347 | $760 | |
(1)For the nine months ended February 29, 2024 and February 28, 2023, the amounts recorded in Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.
(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 INCOMEON DERIVATIVES | |||||
|---|---|---|---|---|---|
| THREE MONTHS ENDED · NINE MONTHS ENDED | |||||
| (Dollars in millions) · FEBRUARY 29, 2024 · FEBRUARY 28, 2023 · FEBRUARY 29, 2024 · FEBRUARY 28, 2023 | |||||
| Derivatives not designated as hedging instruments: | |||||
| Foreign exchange forwards and options and embedded derivatives | $9 | $(26) | $(1) | $52 | Other (income) expense, net |
CASH FLOW HEDGES
The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately $17.6 billion as of February 29, 2024. Approximately $250 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) as of February 29, 2024, are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature. As of February 29, 2024, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.
FAIR VALUE HEDGES
The total notional amount of outstanding interest rate swap contracts designated as fair value hedges was $901 million as of February 29, 2024.
UNDESIGNATED DERIVATIVE INSTRUMENTS
The total notional amount of outstanding undesignated derivative instruments was $3.9 billion as of February 29, 2024.
CREDIT RISK
As of February 29, 2024, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net asset position of approximately $239 million. Accordingly, the Company was not required to post cash collateral as a result of these contingent features. Further, $48 million of collateral was received on the Company's derivative asset balance as of February 29, 2024. The Company considers the impact of the risk of counterparty default to be immaterial.
For additional information related to the Company's derivative financial instruments and collateral, refer to Note 3 — Fair Value Measurements.
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