NOTE 5 — Accrued Liabilities |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
Compensation and benefits, excluding taxes | $ | 943 | $ | 997 | ||||
Endorsement compensation | 393 | 388 | ||||||
Dividends payable | 271 | 240 | ||||||
Import and logistics costs | 198 | 207 | ||||||
Fair value of derivatives | 162 | 162 | ||||||
Taxes other than income taxes payable | 159 | 172 | ||||||
Advertising and marketing | 119 | 117 | ||||||
Collateral received from counterparties to hedging instruments | 105 | 968 | ||||||
Other(1) | 687 | 698 | ||||||
TOTAL ACCRUED LIABILITIES | $ | 3,037 | $ | 3,949 |
(1) | Other consists of various accrued expenses with no individual item accounting for more than 5% of the total Accrued liabilities balance at May 31, 2016 and 2015. |
NOTE 13 — Benefit Plans |
NOTE 15 — Commitments and Contingencies |
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||||
Operating leases | $ | 491 | $ | 453 | $ | 395 | $ | 347 | $ | 301 | $ | 1,244 | $ | 3,231 | ||||||||||||||
Capital leases | $ | 7 | $ | 5 | $ | 2 | $ | 1 | $ | — | $ | — | $ | 15 |
NOTE 14 — Accumulated Other Comprehensive Income |
(In millions) | Foreign Currency Translation Adjustment(1)(2) | Cash Flow Hedges | Net Investment Hedges(1)(2) | Other | Total | |||||||||||||||
Balance at May 31, 2015 | $ | (31 | ) | $ | 1,220 | $ | 115 | $ | (58 | ) | $ | 1,246 | ||||||||
Other comprehensive gains (losses) before reclassifications(3) | (178 | ) | (47 | ) | — | 6 | (219 | ) | ||||||||||||
Reclassifications to net income of previously deferred (gains) losses(4) | 2 | (710 | ) | — | (1 | ) | (709 | ) | ||||||||||||
Other comprehensive income (loss) | (176 | ) | (757 | ) | — | 5 | (928 | ) | ||||||||||||
Balance at May 31, 2016 | $ | (207 | ) | $ | 463 | $ | 115 | $ | (53 | ) | $ | 318 |
(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) | Beginning balances have been updated to reflect the proper classification of $20 million of deferred tax balances between Foreign Currency Translation Adjustment and Net Investment Hedges. |
(3) | Net of tax benefit (expense) of $0 million, $28 million, $0 million, $(2) million and $26 million, respectively. |
(4) | Net of tax (benefit) expense of $0 million, $7 million, $0 million, $2 million and $9 million, respectively. |
(In millions) | Foreign Currency Translation Adjustment(1)(2) | Cash Flow Hedges | Net Investment Hedges(1)(2) | Other | Total | |||||||||||||||
Balance at May 31, 2014 | $ | (11 | ) | $ | 32 | $ | 115 | $ | (51 | ) | $ | 85 | ||||||||
Other comprehensive gains (losses) before reclassifications(3) | (20 | ) | 1,447 | — | 33 | 1,460 | ||||||||||||||
Reclassifications to net income of previously deferred (gains) losses(4) | — | (259 | ) | — | (40 | ) | (299 | ) | ||||||||||||
Other comprehensive income (loss) | (20 | ) | 1,188 | — | (7 | ) | 1,161 | |||||||||||||
Balance at May 31, 2015 | $ | (31 | ) | $ | 1,220 | $ | 115 | $ | (58 | ) | $ | 1,246 |
(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) | Beginning and ending balances have been updated to reflect the proper classification of $20 million of deferred tax balances between Foreign Currency Translation Adjustment and Net Investment Hedges. |
(3) | Net of tax benefit (expense) of $0 million, $(33) million, $0 million, $0 million and $(33) million, respectively. |
(4) | Net of tax (benefit) expense of $0 million, $2 million, $0 million, $0 million and $2 million, respectively. |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||
Year Ended May 31, | |||||||||
(In millions) | 2016 | 2015 | |||||||
Gains (losses) on foreign currency translation adjustment | $ | (2 | ) | $ | — | Other (income) expense, net | |||
Total before tax | (2 | ) | — | ||||||
Tax (expense) benefit | — | — | |||||||
Gain (loss) net of tax | (2 | ) | — | ||||||
Gains (losses) on cash flow hedges: | |||||||||
Foreign exchange forwards and options | (88 | ) | (95 | ) | Revenues | ||||
Foreign exchange forwards and options | 586 | 220 | Cost of sales | ||||||
Foreign exchange forwards and options | — | — | Total selling and administrative expense | ||||||
Foreign exchange forwards and options | 219 | 136 | Other (income) expense, net | ||||||
Total before tax | 717 | 261 | |||||||
Tax (expense) benefit | (7 | ) | (2 | ) | |||||
Gain (loss) net of tax | 710 | 259 | |||||||
Gains (losses) on other | 3 | 40 | Other (income) expense, net | ||||||
Total before tax | 3 | 40 | |||||||
Tax (expense) benefit | (2 | ) | — | ||||||
Gain (loss) net of tax | 1 | 40 | |||||||
Total net gain (loss) reclassified for the period | $ | 709 | $ | 299 |
NOTE 16 — Risk Management and Derivatives |
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
(In millions) | Balance Sheet Location | 2016 | 2015 | Balance Sheet Location | 2016 | 2015 | ||||||||||||||
Derivatives formally designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 447 | $ | 825 | Accrued liabilities | $ | 38 | $ | 140 | ||||||||||
Interest rate swaps | Prepaid expenses and other current assets | 7 | 78 | Accrued liabilities | 45 | — | ||||||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | 90 | 520 | Deferred income taxes and other liabilities | 12 | 4 | ||||||||||||||
Interest rate swaps | Deferred income taxes and other assets | — | — | Deferred income taxes and other liabilities | — | — | ||||||||||||||
Total derivatives formally designated as hedging instruments | 544 | 1,423 | 95 | 144 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | 40 | 209 | Accrued liabilities | 76 | 20 | ||||||||||||||
Embedded derivatives | Prepaid expenses and other current assets | 2 | 2 | Accrued liabilities | 2 | 2 | ||||||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | 26 | — | Deferred income taxes and other liabilities | 19 | — | ||||||||||||||
Embedded derivatives | Deferred income taxes and other assets | 5 | 5 | Deferred income taxes and other liabilities | 7 | 9 | ||||||||||||||
Total derivatives not designated as hedging instruments | 73 | 216 | 104 | 31 | ||||||||||||||||
TOTAL DERIVATIVES | $ | 617 | $ | 1,639 | $ | 199 | $ | 175 |
(In millions) | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives(1) | Amount of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income(1) | ||||||||||||||||||||||||
Year Ended May 31, | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income Into Income | Year Ended May 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||||||||||
Foreign exchange forwards and options | $ | 90 | $ | (202 | ) | $ | (48 | ) | Revenues | $ | (88 | ) | $ | (95 | ) | $ | 14 | |||||||||
Foreign exchange forwards and options | (57 | ) | 1,109 | (78 | ) | Cost of sales | 586 | 220 | 12 | |||||||||||||||||
Foreign exchange forwards and options | — | — | 4 | Total selling and administrative expense | — | — | — | |||||||||||||||||||
Foreign exchange forwards and options | (25 | ) | 497 | (21 | ) | Other (income) expense, net | 219 | 136 | 10 | |||||||||||||||||
Interest rate swaps | (83 | ) | 76 | — | Interest expense (income), net | — | — | — | ||||||||||||||||||
Total designated cash flow hedges | (75 | ) | 1,480 | (143 | ) | 717 | 261 | 36 | ||||||||||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||||||||||
Foreign exchange forwards and options | $ | — | $ | — | $ | — | Other (income) expense, net | $ | — | $ | — | $ | — |
(1) | For the years ended May 31, 2016, 2015 and 2014, the amounts recorded in Other (income) expense, net as a result of hedge ineffectiveness and the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial. |
Amount of Gain (Loss) Recognized in Income on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives | |||||||||||||
Year Ended May 31, | ||||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||
Interest rate swaps(1) | $ | 2 | $ | 5 | $ | 5 | Interest expense (income), net | |||||||
Derivatives not designated as hedging instruments: | ||||||||||||||
Foreign exchange forwards and options | (68 | ) | 611 | (75 | ) | Other (income) expense, net | ||||||||
Embedded derivatives | $ | (2 | ) | $ | (1 | ) | $ | (1 | ) | Other (income) expense, net |
(1) | All interest rate swaps designated as fair value hedges meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swaps are considered to exactly offset changes in the fair value of the underlying long-term debt. Refer to “Fair Value Hedges” in this note for additional detail. |
NOTE 11 — Common Stock and Stock-Based Compensation |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Stock options(1) | $ | 171 | $ | 136 | $ | 125 | ||||||
ESPPs | 31 | 24 | 22 | |||||||||
Restricted stock | 34 | 31 | 30 | |||||||||
TOTAL STOCK-BASED COMPENSATION EXPENSE | $ | 236 | $ | 191 | $ | 177 |
(1) | Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option expense for the years ended May 31, 2016, 2015 and 2014 was $30 million, $19 million and $15 million, respectively. |
Year Ended May 31, | |||||||||
2016 | 2015 | 2014 | |||||||
Dividend yield | 1.0 | % | 1.2 | % | 1.3 | % | |||
Expected volatility | 23.6 | % | 23.6 | % | 27.9 | % | |||
Weighted average expected life (in years) | 5.8 | 5.8 | 5.3 | ||||||
Risk-free interest rate | 1.7 | % | 1.7 | % | 1.3 | % |
Shares(1) | Weighted Average Option Price | ||||||
(In millions) | |||||||
Options outstanding May 31, 2013 | 135.3 | $ | 17.36 | ||||
Exercised | (22.0 | ) | 14.15 | ||||
Forfeited | (2.5 | ) | 24.17 | ||||
Granted | 16.3 | 31.77 | |||||
Options outstanding May 31, 2014 | 127.1 | 19.64 | |||||
Exercised | (27.2 | ) | 15.39 | ||||
Forfeited | (2.1 | ) | 29.51 | ||||
Granted | 18.4 | 38.84 | |||||
Options outstanding May 31, 2015 | 116.2 | 23.50 | |||||
Exercised | (22.5 | ) | 17.75 | ||||
Forfeited | (2.3 | ) | 39.96 | ||||
Granted | 20.6 | 56.41 | |||||
Options outstanding May 31, 2016 | 112.0 | $ | 30.38 | ||||
Options exercisable at May 31, | |||||||
2014 | 74.0 | $ | 15.71 | ||||
2015 | 68.6 | 18.26 | |||||
2016 | 66.5 | 21.48 |
(1) | Includes stock appreciation rights transactions. |
NOTE 12 — Earnings Per Share |
Year Ended May 31, | ||||||||||||
(In millions, except per share data) | 2016 | 2015 | 2014 | |||||||||
Determination of shares: | ||||||||||||
Weighted average common shares outstanding | 1,697.9 | 1,723.5 | 1,766.7 | |||||||||
Assumed conversion of dilutive stock options and awards | 44.6 | 45.3 | 44.9 | |||||||||
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 1,742.5 | 1,768.8 | 1,811.6 | |||||||||
Earnings per common share: | ||||||||||||
Basic | $ | 2.21 | $ | 1.90 | $ | 1.52 | ||||||
Diluted | $ | 2.16 | $ | 1.85 | $ | 1.49 |
NOTE 6 — Fair Value Measurements |
As of May 31, 2016 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 774 | $ | 774 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 1,265 | 100 | 1,165 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 831 | 827 | 4 | — | ||||||||||||
U.S. Agency securities | 679 | — | 679 | — | ||||||||||||
Commercial paper and bonds | 733 | 262 | 471 | — | ||||||||||||
Money market funds | 1,175 | 1,175 | — | — | ||||||||||||
Total level 2 | 3,418 | 2,264 | 1,154 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 10 | — | — | 10 | ||||||||||||
TOTAL | $ | 5,467 | $ | 3,138 | $ | 2,319 | $ | 10 |
As of May 31, 2015 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 615 | $ | 615 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 869 | 225 | 644 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 684 | 684 | — | — | ||||||||||||
U.S. Agency securities | 976 | 110 | 866 | — | ||||||||||||
Commercial paper and bonds | 914 | 352 | 562 | — | ||||||||||||
Money market funds | 1,866 | 1,866 | — | — | ||||||||||||
Total level 2 | 4,440 | 3,012 | 1,428 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 8 | — | — | 8 | ||||||||||||
TOTAL | $ | 5,932 | $ | 3,852 | $ | 2,072 | $ | 8 |
As of May 31, 2016 | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
(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) | $ | 603 | $ | 487 | $ | 116 | $ | 145 | $ | 115 | $ | 30 | ||||||||||||
Embedded derivatives | 7 | 2 | 5 | 9 | 2 | 7 | ||||||||||||||||||
Interest rate swaps(2) | 7 | 7 | — | 45 | 45 | — | ||||||||||||||||||
TOTAL | $ | 617 | $ | 496 | $ | 121 | $ | 199 | $ | 162 | $ | 37 |
(1) | If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $136 million as of May 31, 2016. As of that date, the Company had received $105 million of cash collateral from various counterparties related to these foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of May 31, 2016. |
(2) | As of May 31, 2016, no amount of cash collateral had been received or posted on the derivative asset and liability balances related to the Company's interest rate swaps. |
As of May 31, 2015 | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
(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) | $ | 1,554 | $ | 1,034 | $ | 520 | $ | 164 | $ | 160 | $ | 4 | ||||||||||||
Embedded derivatives | 7 | 2 | 5 | 11 | 2 | 9 | ||||||||||||||||||
Interest rate swaps(2) | 78 | 78 | — | — | — | — | ||||||||||||||||||
TOTAL | $ | 1,639 | $ | 1,114 | $ | 525 | $ | 175 | $ | 162 | $ | 13 |
(1) | If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $161 million as of May 31, 2015. As of that date, the Company had received $900 million of cash collateral and $74 million of securities from various counterparties related to these foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of May 31, 2015. |
(2) | As of May 31, 2015, the Company had received $68 million of cash collateral related to its interest rate swaps. |
• | Level 1: Quoted prices in active markets for identical assets or liabilities. |
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
• | Level 3: Unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions. |
NOTE 4 — Identifiable Intangible Assets and Goodwill |
NOTE 9 — Income Taxes |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Income before income taxes: | ||||||||||||
United States | $ | 956 | $ | 1,967 | $ | 3,066 | ||||||
Foreign | 3,667 | 2,238 | 478 | |||||||||
TOTAL INCOME BEFORE INCOME TAXES | $ | 4,623 | $ | 4,205 | $ | 3,544 |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Current: | ||||||||||||
United States | ||||||||||||
Federal | $ | 304 | $ | 596 | $ | 259 | ||||||
State | 71 | 80 | 104 | |||||||||
Foreign | 568 | 369 | 499 | |||||||||
Total | 943 | 1,045 | 862 | |||||||||
Deferred: | ||||||||||||
United States | ||||||||||||
Federal | (57 | ) | (66 | ) | 19 | |||||||
State | (16 | ) | (11 | ) | (3 | ) | ||||||
Foreign | (7 | ) | (36 | ) | (27 | ) | ||||||
Total | (80 | ) | (113 | ) | (11 | ) | ||||||
TOTAL INCOME TAX EXPENSE | $ | 863 | $ | 932 | $ | 851 |
Year Ended May 31, | |||||||||
2016 | 2015 | 2014 | |||||||
Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
State taxes, net of federal benefit | 1.1 | % | 0.9 | % | 1.8 | % | |||
Foreign earnings | -18.6 | % | -15.7 | % | 2.2 | % | |||
Deferred charge | 0.4 | % | 0.9 | % | -14.6 | % | |||
Other, net | 0.8 | % | 1.1 | % | -0.4 | % | |||
EFFECTIVE INCOME TAX RATE | 18.7 | % | 22.2 | % | 24.0 | % |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
Deferred tax assets: | ||||||||
Allowance for doubtful accounts | $ | 5 | $ | 11 | ||||
Inventories | 88 | 59 | ||||||
Sales return reserves | 182 | 143 | ||||||
Deferred compensation | 274 | 258 | ||||||
Stock-based compensation | 206 | 179 | ||||||
Reserves and accrued liabilities | 78 | 92 | ||||||
Net operating loss carry-forwards | 44 | 10 | ||||||
Undistributed earnings of foreign subsidiaries | 179 | 149 | ||||||
Other | 72 | 76 | ||||||
Total deferred tax assets | 1,128 | 977 | ||||||
Valuation allowance | (52 | ) | (9 | ) | ||||
Total deferred tax assets after valuation allowance | 1,076 | 968 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment | (268 | ) | (220 | ) | ||||
Intangibles | (92 | ) | (93 | ) | ||||
Other | (4 | ) | (38 | ) | ||||
Total deferred tax liability | (364 | ) | (351 | ) | ||||
NET DEFERRED TAX ASSET | $ | 712 | $ | 617 |
As of May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Unrecognized tax benefits, beginning of the period | $ | 438 | $ | 506 | $ | 447 | ||||||
Gross increases related to prior period tax positions(1) | 49 | 32 | 814 | |||||||||
Gross decreases related to prior period tax positions(1) | (20 | ) | (123 | ) | (166 | ) | ||||||
Gross increases related to current period tax positions | 81 | 82 | 125 | |||||||||
Gross decreases related to current period tax positions | — | (9 | ) | (30 | ) | |||||||
Settlements(1) | (13 | ) | (27 | ) | (676 | ) | ||||||
Lapse of statute of limitations | (17 | ) | (10 | ) | (4 | ) | ||||||
Changes due to currency translation | (12 | ) | (13 | ) | (4 | ) | ||||||
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD | $ | 506 | $ | 438 | $ | 506 |
(1) | During the fourth quarter of the fiscal year ended May 31, 2014, the Company reached a resolution with the IRS on a U.S. Unilateral Advanced Pricing Agreement that covers intercompany transfer pricing for fiscal years 2011 through 2020. As a result, the Company recorded a gross increase in unrecognized tax benefits related to prior period tax positions, a gross decrease in unrecognized tax benefits related to prior period tax positions and a settlement. The net impact of these items resulted in a decrease to unrecognized tax benefits. |
Year Ending May 31, | ||||||||||||||||||||||||||||
(In millions) | 2017 | 2018 | 2019 | 2020 | 2021-2035 | Indefinite | Total | |||||||||||||||||||||
Net operating losses | $ | 1 | $ | 4 | $ | 1 | $ | 1 | $ | 35 | $ | 101 | $ | 143 |
NOTE 2 — Inventories |
NOTE 8 — Long-Term Debt |
Book Value Outstanding As of May 31, | |||||||||||||||||
Scheduled Maturity (Dollars and Yen in millions) | Original Principal | Interest Rate | Interest Payments | 2016 | 2015 | ||||||||||||
Corporate Bond Payables:(1) | |||||||||||||||||
October 15, 2015(2) | $ | 100 | 5.15 | % | Semi-Annually | $ | — | $ | 101 | ||||||||
May 1, 2023(3) | $ | 500 | 2.25 | % | Semi-Annually | 499 | 499 | ||||||||||
May 1, 2043(3) | $ | 500 | 3.63 | % | Semi-Annually | 499 | 499 | ||||||||||
November 1, 2045(4) | $ | 1,000 | 3.88 | % | Semi-Annually | 991 | — | ||||||||||
Promissory Notes: | |||||||||||||||||
April 1, 2017(5) | $ | 40 | 6.20 | % | Monthly | 38 | 39 | ||||||||||
January 1, 2018(5) | $ | 19 | 6.79 | % | Monthly | — | 19 | ||||||||||
Japanese Yen Notes: | |||||||||||||||||
August 20, 2001 through November 20, 2020(6) | ¥ | 9,000 | 2.60 | % | Quarterly | 18 | 20 | ||||||||||
August 20, 2001 through November 20, 2020(6) | ¥ | 4,000 | 2.00 | % | Quarterly | 9 | 9 | ||||||||||
Total | 2,054 | 1,186 | |||||||||||||||
Less current maturities | 44 | 107 | |||||||||||||||
TOTAL LONG-TERM DEBT | $ | 2,010 | $ | 1,079 |
(1) | These senior unsecured obligations rank equally with the Company's other unsecured and unsubordinated indebtedness. |
(2) | The Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the note and pays variable interest payments based on the six-month LIBOR plus a spread. The swaps have the same notional amount and maturity date as the corresponding note. On October 15, 2015, the Company repaid the long-term debt which had previously been hedged with these interest rate swaps. Accordingly, as of May 31, 2016, the Company had no interest rate swaps designated as fair value hedges. |
(3) | The bonds are redeemable at the Company's option prior to February 1, 2023 and November 1, 2042, respectively, at a price equal to the greater of (i) 100% of the aggregate principal amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to February 1, 2023 and November 1, 2042, respectively, the bonds also feature a par call provision, which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest. |
(4) | The bonds are redeemable at the Company's option prior to May 1, 2045, at a price equal to the greater of (i) 100% of the aggregate principal amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to May 1, 2045, the bonds also feature a par call provision, which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest. |
(5) | The Company assumed a total of $59 million in bonds payable as part of its agreement to purchase certain Corporate properties; this was treated as a non-cash financing transaction. The property serves as collateral for the debt. The purchase of these properties was accounted for as a business combination where the total consideration of $85 million was allocated to the land and buildings acquired; no other tangible or intangible assets or liabilities resulted from the purchase. The bonds mature in 2017 and 2018 and the Company does not have the ability to re-negotiate the terms of the debt agreements and would incur significant financial penalties if the notes were paid-off prior to maturity. During the year ended May 31, 2016, the notes due January 1, 2018 were legally defeased and an insignificant loss on defeasance was recognized. |
(6) | NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. |
NOTE 10 — Redeemable Preferred Stock |
NOTE 3 — Property, Plant and Equipment |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
Land | $ | 286 | $ | 273 | ||||
Buildings | 1,467 | 1,250 | ||||||
Machinery, equipment and internal-use software | 3,510 | 3,329 | ||||||
Leasehold improvements | 1,338 | 1,150 | ||||||
Construction in process | 437 | 350 | ||||||
Total property, plant and equipment, gross | 7,038 | 6,352 | ||||||
Less accumulated depreciation | 3,518 | 3,341 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 3,520 | $ | 3,011 |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
Land | $ | 286 | $ | 273 | ||||
Buildings | 1,467 | 1,250 | ||||||
Machinery, equipment and internal-use software | 3,510 | 3,329 | ||||||
Leasehold improvements | 1,338 | 1,150 | ||||||
Construction in process | 437 | 350 | ||||||
Total property, plant and equipment, gross | 7,038 | 6,352 | ||||||
Less accumulated depreciation | 3,518 | 3,341 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 3,520 | $ | 3,011 |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||
Year Ended May 31, | |||||||||
(In millions) | 2016 | 2015 | |||||||
Gains (losses) on foreign currency translation adjustment | $ | (2 | ) | $ | — | Other (income) expense, net | |||
Total before tax | (2 | ) | — | ||||||
Tax (expense) benefit | — | — | |||||||
Gain (loss) net of tax | (2 | ) | — | ||||||
Gains (losses) on cash flow hedges: | |||||||||
Foreign exchange forwards and options | (88 | ) | (95 | ) | Revenues | ||||
Foreign exchange forwards and options | 586 | 220 | Cost of sales | ||||||
Foreign exchange forwards and options | — | — | Total selling and administrative expense | ||||||
Foreign exchange forwards and options | 219 | 136 | Other (income) expense, net | ||||||
Total before tax | 717 | 261 | |||||||
Tax (expense) benefit | (7 | ) | (2 | ) | |||||
Gain (loss) net of tax | 710 | 259 | |||||||
Gains (losses) on other | 3 | 40 | Other (income) expense, net | ||||||
Total before tax | 3 | 40 | |||||||
Tax (expense) benefit | (2 | ) | — | ||||||
Gain (loss) net of tax | 1 | 40 | |||||||
Total net gain (loss) reclassified for the period | $ | 709 | $ | 299 |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
ACCOUNTS RECEIVABLE, NET | ||||||||
North America | $ | 1,689 | $ | 1,737 | ||||
Western Europe | 378 | 344 | ||||||
Central & Eastern Europe | 194 | 242 | ||||||
Greater China | 74 | 84 | ||||||
Japan | 129 | 134 | ||||||
Emerging Markets | 409 | 461 | ||||||
Global Brand Divisions | 76 | 88 | ||||||
Total NIKE Brand | 2,949 | 3,090 | ||||||
Converse | 270 | 258 | ||||||
Corporate | 22 | 10 | ||||||
TOTAL ACCOUNTS RECEIVABLE, NET | $ | 3,241 | $ | 3,358 | ||||
INVENTORIES | ||||||||
North America | $ | 2,363 | $ | 2,207 | ||||
Western Europe | 929 | 699 | ||||||
Central & Eastern Europe | 210 | 169 | ||||||
Greater China | 375 | 249 | ||||||
Japan | 146 | 94 | ||||||
Emerging Markets | 478 | 528 | ||||||
Global Brand Divisions | 35 | 32 | ||||||
Total NIKE Brand | 4,536 | 3,978 | ||||||
Converse | 306 | 237 | ||||||
Corporate | (4 | ) | 122 | |||||
TOTAL INVENTORIES | $ | 4,838 | $ | 4,337 | ||||
PROPERTY, PLANT AND EQUIPMENT, NET | ||||||||
North America | $ | 742 | $ | 632 | ||||
Western Europe | 589 | 451 | ||||||
Central & Eastern Europe | 50 | 47 | ||||||
Greater China | 234 | 254 | ||||||
Japan | 223 | 205 | ||||||
Emerging Markets | 109 | 103 | ||||||
Global Brand Divisions | 511 | 484 | ||||||
Total NIKE Brand | 2,458 | 2,176 | ||||||
Converse | 125 | 122 | ||||||
Corporate | 937 | 713 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 3,520 | $ | 3,011 |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
Compensation and benefits, excluding taxes | $ | 943 | $ | 997 | ||||
Endorsement compensation | 393 | 388 | ||||||
Dividends payable | 271 | 240 | ||||||
Import and logistics costs | 198 | 207 | ||||||
Fair value of derivatives | 162 | 162 | ||||||
Taxes other than income taxes payable | 159 | 172 | ||||||
Advertising and marketing | 119 | 117 | ||||||
Collateral received from counterparties to hedging instruments | 105 | 968 | ||||||
Other(1) | 687 | 698 | ||||||
TOTAL ACCRUED LIABILITIES | $ | 3,037 | $ | 3,949 |
(1) | Other consists of various accrued expenses with no individual item accounting for more than 5% of the total Accrued liabilities balance at May 31, 2016 and 2015. |
(In millions) | Foreign Currency Translation Adjustment(1)(2) | Cash Flow Hedges | Net Investment Hedges(1)(2) | Other | Total | |||||||||||||||
Balance at May 31, 2015 | $ | (31 | ) | $ | 1,220 | $ | 115 | $ | (58 | ) | $ | 1,246 | ||||||||
Other comprehensive gains (losses) before reclassifications(3) | (178 | ) | (47 | ) | — | 6 | (219 | ) | ||||||||||||
Reclassifications to net income of previously deferred (gains) losses(4) | 2 | (710 | ) | — | (1 | ) | (709 | ) | ||||||||||||
Other comprehensive income (loss) | (176 | ) | (757 | ) | — | 5 | (928 | ) | ||||||||||||
Balance at May 31, 2016 | $ | (207 | ) | $ | 463 | $ | 115 | $ | (53 | ) | $ | 318 |
(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) | Beginning balances have been updated to reflect the proper classification of $20 million of deferred tax balances between Foreign Currency Translation Adjustment and Net Investment Hedges. |
(3) | Net of tax benefit (expense) of $0 million, $28 million, $0 million, $(2) million and $26 million, respectively. |
(4) | Net of tax (benefit) expense of $0 million, $7 million, $0 million, $2 million and $9 million, respectively. |
(In millions) | Foreign Currency Translation Adjustment(1)(2) | Cash Flow Hedges | Net Investment Hedges(1)(2) | Other | Total | |||||||||||||||
Balance at May 31, 2014 | $ | (11 | ) | $ | 32 | $ | 115 | $ | (51 | ) | $ | 85 | ||||||||
Other comprehensive gains (losses) before reclassifications(3) | (20 | ) | 1,447 | — | 33 | 1,460 | ||||||||||||||
Reclassifications to net income of previously deferred (gains) losses(4) | — | (259 | ) | — | (40 | ) | (299 | ) | ||||||||||||
Other comprehensive income (loss) | (20 | ) | 1,188 | — | (7 | ) | 1,161 | |||||||||||||
Balance at May 31, 2015 | $ | (31 | ) | $ | 1,220 | $ | 115 | $ | (58 | ) | $ | 1,246 |
(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) | Beginning and ending balances have been updated to reflect the proper classification of $20 million of deferred tax balances between Foreign Currency Translation Adjustment and Net Investment Hedges. |
(3) | Net of tax benefit (expense) of $0 million, $(33) million, $0 million, $0 million and $(33) million, respectively. |
(4) | Net of tax (benefit) expense of $0 million, $2 million, $0 million, $0 million and $2 million, respectively. |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Stock options(1) | $ | 171 | $ | 136 | $ | 125 | ||||||
ESPPs | 31 | 24 | 22 | |||||||||
Restricted stock | 34 | 31 | 30 | |||||||||
TOTAL STOCK-BASED COMPENSATION EXPENSE | $ | 236 | $ | 191 | $ | 177 |
(1) | Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option expense for the years ended May 31, 2016, 2015 and 2014 was $30 million, $19 million and $15 million, respectively. |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Current: | ||||||||||||
United States | ||||||||||||
Federal | $ | 304 | $ | 596 | $ | 259 | ||||||
State | 71 | 80 | 104 | |||||||||
Foreign | 568 | 369 | 499 | |||||||||
Total | 943 | 1,045 | 862 | |||||||||
Deferred: | ||||||||||||
United States | ||||||||||||
Federal | (57 | ) | (66 | ) | 19 | |||||||
State | (16 | ) | (11 | ) | (3 | ) | ||||||
Foreign | (7 | ) | (36 | ) | (27 | ) | ||||||
Total | (80 | ) | (113 | ) | (11 | ) | ||||||
TOTAL INCOME TAX EXPENSE | $ | 863 | $ | 932 | $ | 851 |
Book Value Outstanding As of May 31, | |||||||||||||||||
Scheduled Maturity (Dollars and Yen in millions) | Original Principal | Interest Rate | Interest Payments | 2016 | 2015 | ||||||||||||
Corporate Bond Payables:(1) | |||||||||||||||||
October 15, 2015(2) | $ | 100 | 5.15 | % | Semi-Annually | $ | — | $ | 101 | ||||||||
May 1, 2023(3) | $ | 500 | 2.25 | % | Semi-Annually | 499 | 499 | ||||||||||
May 1, 2043(3) | $ | 500 | 3.63 | % | Semi-Annually | 499 | 499 | ||||||||||
November 1, 2045(4) | $ | 1,000 | 3.88 | % | Semi-Annually | 991 | — | ||||||||||
Promissory Notes: | |||||||||||||||||
April 1, 2017(5) | $ | 40 | 6.20 | % | Monthly | 38 | 39 | ||||||||||
January 1, 2018(5) | $ | 19 | 6.79 | % | Monthly | — | 19 | ||||||||||
Japanese Yen Notes: | |||||||||||||||||
August 20, 2001 through November 20, 2020(6) | ¥ | 9,000 | 2.60 | % | Quarterly | 18 | 20 | ||||||||||
August 20, 2001 through November 20, 2020(6) | ¥ | 4,000 | 2.00 | % | Quarterly | 9 | 9 | ||||||||||
Total | 2,054 | 1,186 | |||||||||||||||
Less current maturities | 44 | 107 | |||||||||||||||
TOTAL LONG-TERM DEBT | $ | 2,010 | $ | 1,079 |
(1) | These senior unsecured obligations rank equally with the Company's other unsecured and unsubordinated indebtedness. |
(2) | The Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the note and pays variable interest payments based on the six-month LIBOR plus a spread. The swaps have the same notional amount and maturity date as the corresponding note. On October 15, 2015, the Company repaid the long-term debt which had previously been hedged with these interest rate swaps. Accordingly, as of May 31, 2016, the Company had no interest rate swaps designated as fair value hedges. |
(3) | The bonds are redeemable at the Company's option prior to February 1, 2023 and November 1, 2042, respectively, at a price equal to the greater of (i) 100% of the aggregate principal amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to February 1, 2023 and November 1, 2042, respectively, the bonds also feature a par call provision, which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest. |
(4) | The bonds are redeemable at the Company's option prior to May 1, 2045, at a price equal to the greater of (i) 100% of the aggregate principal amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to May 1, 2045, the bonds also feature a par call provision, which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest. |
(5) | The Company assumed a total of $59 million in bonds payable as part of its agreement to purchase certain Corporate properties; this was treated as a non-cash financing transaction. The property serves as collateral for the debt. The purchase of these properties was accounted for as a business combination where the total consideration of $85 million was allocated to the land and buildings acquired; no other tangible or intangible assets or liabilities resulted from the purchase. The bonds mature in 2017 and 2018 and the Company does not have the ability to re-negotiate the terms of the debt agreements and would incur significant financial penalties if the notes were paid-off prior to maturity. During the year ended May 31, 2016, the notes due January 1, 2018 were legally defeased and an insignificant loss on defeasance was recognized. |
(6) | NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
Deferred tax assets: | ||||||||
Allowance for doubtful accounts | $ | 5 | $ | 11 | ||||
Inventories | 88 | 59 | ||||||
Sales return reserves | 182 | 143 | ||||||
Deferred compensation | 274 | 258 | ||||||
Stock-based compensation | 206 | 179 | ||||||
Reserves and accrued liabilities | 78 | 92 | ||||||
Net operating loss carry-forwards | 44 | 10 | ||||||
Undistributed earnings of foreign subsidiaries | 179 | 149 | ||||||
Other | 72 | 76 | ||||||
Total deferred tax assets | 1,128 | 977 | ||||||
Valuation allowance | (52 | ) | (9 | ) | ||||
Total deferred tax assets after valuation allowance | 1,076 | 968 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment | (268 | ) | (220 | ) | ||||
Intangibles | (92 | ) | (93 | ) | ||||
Other | (4 | ) | (38 | ) | ||||
Total deferred tax liability | (364 | ) | (351 | ) | ||||
NET DEFERRED TAX ASSET | $ | 712 | $ | 617 |
(In millions) | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives(1) | Amount of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income(1) | ||||||||||||||||||||||||
Year Ended May 31, | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income Into Income | Year Ended May 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||||||||||
Foreign exchange forwards and options | $ | 90 | $ | (202 | ) | $ | (48 | ) | Revenues | $ | (88 | ) | $ | (95 | ) | $ | 14 | |||||||||
Foreign exchange forwards and options | (57 | ) | 1,109 | (78 | ) | Cost of sales | 586 | 220 | 12 | |||||||||||||||||
Foreign exchange forwards and options | — | — | 4 | Total selling and administrative expense | — | — | — | |||||||||||||||||||
Foreign exchange forwards and options | (25 | ) | 497 | (21 | ) | Other (income) expense, net | 219 | 136 | 10 | |||||||||||||||||
Interest rate swaps | (83 | ) | 76 | — | Interest expense (income), net | — | — | — | ||||||||||||||||||
Total designated cash flow hedges | (75 | ) | 1,480 | (143 | ) | 717 | 261 | 36 | ||||||||||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||||||||||
Foreign exchange forwards and options | $ | — | $ | — | $ | — | Other (income) expense, net | $ | — | $ | — | $ | — |
(1) | For the years ended May 31, 2016, 2015 and 2014, the amounts recorded in Other (income) expense, net as a result of hedge ineffectiveness and the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial. |
Amount of Gain (Loss) Recognized in Income on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives | |||||||||||||
Year Ended May 31, | ||||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||
Interest rate swaps(1) | $ | 2 | $ | 5 | $ | 5 | Interest expense (income), net | |||||||
Derivatives not designated as hedging instruments: | ||||||||||||||
Foreign exchange forwards and options | (68 | ) | 611 | (75 | ) | Other (income) expense, net | ||||||||
Embedded derivatives | $ | (2 | ) | $ | (1 | ) | $ | (1 | ) | Other (income) expense, net |
(1) | All interest rate swaps designated as fair value hedges meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swaps are considered to exactly offset changes in the fair value of the underlying long-term debt. Refer to “Fair Value Hedges” in this note for additional detail. |
As of May 31, 2016 | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
(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) | $ | 603 | $ | 487 | $ | 116 | $ | 145 | $ | 115 | $ | 30 | ||||||||||||
Embedded derivatives | 7 | 2 | 5 | 9 | 2 | 7 | ||||||||||||||||||
Interest rate swaps(2) | 7 | 7 | — | 45 | 45 | — | ||||||||||||||||||
TOTAL | $ | 617 | $ | 496 | $ | 121 | $ | 199 | $ | 162 | $ | 37 |
(1) | If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $136 million as of May 31, 2016. As of that date, the Company had received $105 million of cash collateral from various counterparties related to these foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of May 31, 2016. |
(2) | As of May 31, 2016, no amount of cash collateral had been received or posted on the derivative asset and liability balances related to the Company's interest rate swaps. |
As of May 31, 2015 | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
(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) | $ | 1,554 | $ | 1,034 | $ | 520 | $ | 164 | $ | 160 | $ | 4 | ||||||||||||
Embedded derivatives | 7 | 2 | 5 | 11 | 2 | 9 | ||||||||||||||||||
Interest rate swaps(2) | 78 | 78 | — | — | — | — | ||||||||||||||||||
TOTAL | $ | 1,639 | $ | 1,114 | $ | 525 | $ | 175 | $ | 162 | $ | 13 |
(1) | If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $161 million as of May 31, 2015. As of that date, the Company had received $900 million of cash collateral and $74 million of securities from various counterparties related to these foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of May 31, 2015. |
(2) | As of May 31, 2015, the Company had received $68 million of cash collateral related to its interest rate swap |
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
(In millions) | Balance Sheet Location | 2016 | 2015 | Balance Sheet Location | 2016 | 2015 | ||||||||||||||
Derivatives formally designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 447 | $ | 825 | Accrued liabilities | $ | 38 | $ | 140 | ||||||||||
Interest rate swaps | Prepaid expenses and other current assets | 7 | 78 | Accrued liabilities | 45 | — | ||||||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | 90 | 520 | Deferred income taxes and other liabilities | 12 | 4 | ||||||||||||||
Interest rate swaps | Deferred income taxes and other assets | — | — | Deferred income taxes and other liabilities | — | — | ||||||||||||||
Total derivatives formally designated as hedging instruments | 544 | 1,423 | 95 | 144 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | 40 | 209 | Accrued liabilities | 76 | 20 | ||||||||||||||
Embedded derivatives | Prepaid expenses and other current assets | 2 | 2 | Accrued liabilities | 2 | 2 | ||||||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | 26 | — | Deferred income taxes and other liabilities | 19 | — | ||||||||||||||
Embedded derivatives | Deferred income taxes and other assets | 5 | 5 | Deferred income taxes and other liabilities | 7 | 9 | ||||||||||||||
Total derivatives not designated as hedging instruments | 73 | 216 | 104 | 31 | ||||||||||||||||
TOTAL DERIVATIVES | $ | 617 | $ | 1,639 | $ | 199 | $ | 175 |
Year Ended May 31, | ||||||||||||
(In millions, except per share data) | 2016 | 2015 | 2014 | |||||||||
Determination of shares: | ||||||||||||
Weighted average common shares outstanding | 1,697.9 | 1,723.5 | 1,766.7 | |||||||||
Assumed conversion of dilutive stock options and awards | 44.6 | 45.3 | 44.9 | |||||||||
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 1,742.5 | 1,768.8 | 1,811.6 | |||||||||
Earnings per common share: | ||||||||||||
Basic | $ | 2.21 | $ | 1.90 | $ | 1.52 | ||||||
Diluted | $ | 2.16 | $ | 1.85 | $ | 1.49 |
Year Ended May 31, | |||||||||
2016 | 2015 | 2014 | |||||||
Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
State taxes, net of federal benefit | 1.1 | % | 0.9 | % | 1.8 | % | |||
Foreign earnings | -18.6 | % | -15.7 | % | 2.2 | % | |||
Deferred charge | 0.4 | % | 0.9 | % | -14.6 | % | |||
Other, net | 0.8 | % | 1.1 | % | -0.4 | % | |||
EFFECTIVE INCOME TAX RATE | 18.7 | % | 22.2 | % | 24.0 | % |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Footwear | $ | 19,871 | $ | 18,318 | $ | 16,208 | ||||||
Apparel | 9,067 | 8,637 | 8,109 | |||||||||
Equipment | 1,496 | 1,631 | 1,670 | |||||||||
Other | 1,942 | 2,015 | 1,812 | |||||||||
TOTAL NIKE CONSOLIDATED REVENUES | $ | 32,376 | $ | 30,601 | $ | 27,799 |
As of May 31, 2016 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 774 | $ | 774 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 1,265 | 100 | 1,165 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 831 | 827 | 4 | — | ||||||||||||
U.S. Agency securities | 679 | — | 679 | — | ||||||||||||
Commercial paper and bonds | 733 | 262 | 471 | — | ||||||||||||
Money market funds | 1,175 | 1,175 | — | — | ||||||||||||
Total level 2 | 3,418 | 2,264 | 1,154 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 10 | — | — | 10 | ||||||||||||
TOTAL | $ | 5,467 | $ | 3,138 | $ | 2,319 | $ | 10 |
As of May 31, 2015 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 615 | $ | 615 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 869 | 225 | 644 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 684 | 684 | — | — | ||||||||||||
U.S. Agency securities | 976 | 110 | 866 | — | ||||||||||||
Commercial paper and bonds | 914 | 352 | 562 | — | ||||||||||||
Money market funds | 1,866 | 1,866 | — | — | ||||||||||||
Total level 2 | 4,440 | 3,012 | 1,428 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 8 | — | — | 8 | ||||||||||||
TOTAL | $ | 5,932 | $ | 3,852 | $ | 2,072 | $ | 8 |
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||||
Operating leases | $ | 491 | $ | 453 | $ | 395 | $ | 347 | $ | 301 | $ | 1,244 | $ | 3,231 | ||||||||||||||
Capital leases | $ | 7 | $ | 5 | $ | 2 | $ | 1 | $ | — | $ | — | $ | 15 |
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||||
Operating leases | $ | 491 | $ | 453 | $ | 395 | $ | 347 | $ | 301 | $ | 1,244 | $ | 3,231 | ||||||||||||||
Capital leases | $ | 7 | $ | 5 | $ | 2 | $ | 1 | $ | — | $ | — | $ | 15 |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Income before income taxes: | ||||||||||||
United States | $ | 956 | $ | 1,967 | $ | 3,066 | ||||||
Foreign | 3,667 | 2,238 | 478 | |||||||||
TOTAL INCOME BEFORE INCOME TAXES | $ | 4,623 | $ | 4,205 | $ | 3,544 |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
REVENUES | ||||||||||||
North America | $ | 14,764 | $ | 13,740 | $ | 12,299 | ||||||
Western Europe | 5,884 | 5,705 | 4,979 | |||||||||
Central & Eastern Europe | 1,431 | 1,421 | 1,387 | |||||||||
Greater China | 3,785 | 3,067 | 2,602 | |||||||||
Japan | 869 | 755 | 771 | |||||||||
Emerging Markets | 3,701 | 3,898 | 3,949 | |||||||||
Global Brand Divisions | 73 | 115 | 125 | |||||||||
Total NIKE Brand | 30,507 | 28,701 | 26,112 | |||||||||
Converse | 1,955 | 1,982 | 1,684 | |||||||||
Corporate | (86 | ) | (82 | ) | 3 | |||||||
TOTAL NIKE CONSOLIDATED REVENUES | $ | 32,376 | $ | 30,601 | $ | 27,799 | ||||||
EARNINGS BEFORE INTEREST AND TAXES | ||||||||||||
North America | $ | 3,763 | $ | 3,645 | $ | 3,077 | ||||||
Western Europe | 1,434 | 1,275 | 855 | |||||||||
Central & Eastern Europe | 289 | 249 | 279 | |||||||||
Greater China | 1,372 | 993 | 816 | |||||||||
Japan | 174 | 100 | 131 | |||||||||
Emerging Markets | 892 | 818 | 952 | |||||||||
Global Brand Divisions | (2,596 | ) | (2,267 | ) | (1,993 | ) | ||||||
Total NIKE Brand | 5,328 | 4,813 | 4,117 | |||||||||
Converse | 487 | 517 | 496 | |||||||||
Corporate | (1,173 | ) | (1,097 | ) | (1,036 | ) | ||||||
Total NIKE Consolidated Earnings Before Interest and Taxes | 4,642 | 4,233 | 3,577 | |||||||||
Interest expense (income), net | 19 | 28 | 33 | |||||||||
TOTAL NIKE CONSOLIDATED INCOME BEFORE INCOME TAXES | $ | 4,623 | $ | 4,205 | $ | 3,544 | ||||||
ADDITIONS TO LONG-LIVED ASSETS | ||||||||||||
North America | $ | 242 | $ | 208 | $ | 240 | ||||||
Western Europe | 215 | 216 | 120 | |||||||||
Central & Eastern Europe | 17 | 20 | 19 | |||||||||
Greater China | 44 | 69 | 63 | |||||||||
Japan | 13 | 15 | 9 | |||||||||
Emerging Markets | 51 | 37 | 55 | |||||||||
Global Brand Divisions | 258 | 225 | 225 | |||||||||
Total NIKE Brand | 840 | 790 | 731 | |||||||||
Converse | 39 | 69 | 30 | |||||||||
Corporate | 312 | 144 | 161 | |||||||||
TOTAL ADDITIONS TO LONG-LIVED ASSETS | $ | 1,191 | $ | 1,003 | $ | 922 | ||||||
DEPRECIATION | ||||||||||||
North America | $ | 133 | $ | 121 | $ | 109 | ||||||
Western Europe | 72 | 75 | 71 | |||||||||
Central & Eastern Europe | 12 | 12 | 11 | |||||||||
Greater China | 48 | 46 | 38 | |||||||||
Japan | 18 | 22 | 19 | |||||||||
Emerging Markets | 25 | 27 | 25 | |||||||||
Global Brand Divisions | 230 | 210 | 175 | |||||||||
Total NIKE Brand | 538 | 513 | 448 | |||||||||
Converse | 27 | 18 | 16 | |||||||||
Corporate | 84 | 75 | 54 | |||||||||
TOTAL DEPRECIATION | $ | 649 | $ | 606 | $ | 518 |
Shares(1) | Weighted Average Option Price | ||||||
(In millions) | |||||||
Options outstanding May 31, 2013 | 135.3 | $ | 17.36 | ||||
Exercised | (22.0 | ) | 14.15 | ||||
Forfeited | (2.5 | ) | 24.17 | ||||
Granted | 16.3 | 31.77 | |||||
Options outstanding May 31, 2014 | 127.1 | 19.64 | |||||
Exercised | (27.2 | ) | 15.39 | ||||
Forfeited | (2.1 | ) | 29.51 | ||||
Granted | 18.4 | 38.84 | |||||
Options outstanding May 31, 2015 | 116.2 | 23.50 | |||||
Exercised | (22.5 | ) | 17.75 | ||||
Forfeited | (2.3 | ) | 39.96 | ||||
Granted | 20.6 | 56.41 | |||||
Options outstanding May 31, 2016 | 112.0 | $ | 30.38 | ||||
Options exercisable at May 31, | |||||||
2014 | 74.0 | $ | 15.71 | ||||
2015 | 68.6 | 18.26 | |||||
2016 | 66.5 | 21.48 |
(1) | Includes stock appreciation rights transactions. |
Year Ended May 31, | |||||||||
2016 | 2015 | 2014 | |||||||
Dividend yield | 1.0 | % | 1.2 | % | 1.3 | % | |||
Expected volatility | 23.6 | % | 23.6 | % | 27.9 | % | |||
Weighted average expected life (in years) | 5.8 | 5.8 | 5.3 | ||||||
Risk-free interest rate | 1.7 | % | 1.7 | % | 1.3 | % |
As of May 31, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
(Dollars in millions) | Borrowings | Interest Rate | Borrowings | Interest Rate | ||||||||||||
Notes payable: | ||||||||||||||||
U.S. operations | $ | — | 0.00 | % | (1) | $ | — | 0.00 | % | (1) | ||||||
Non-U.S. operations | 1 | 13.00 | % | (1) | 74 | 12.39 | % | (1) | ||||||||
TOTAL NOTES PAYABLE | $ | 1 | $ | 74 | ||||||||||||
Interest-bearing accounts payable: | ||||||||||||||||
Sojitz America | $ | 39 | 1.27 | % | $ | 78 | 0.98 | % |
(1) | Weighted average interest rate includes non-interest bearing overdrafts. |
(In millions) | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts(1) | Write-Offs, Net | Balance at End of Period | |||||||||||||||
Sales returns reserve | ||||||||||||||||||||
For the year ended May 31, 2014 | $ | 241 | $ | 619 | $ | (3 | ) | $ | (549 | ) | $ | 308 | ||||||||
For the year ended May 31, 2015 | 308 | 726 | (35 | ) | (620 | ) | 379 | |||||||||||||
For the year ended May 31, 2016 | 379 | 788 | (15 | ) | (708 | ) | 444 | |||||||||||||
Allowance for doubtful accounts(2) | ||||||||||||||||||||
For the year ended May 31, 2014 | $ | 104 | $ | 13 | $ | (2 | ) | $ | (37 | ) | $ | 78 | ||||||||
For the year ended May 31, 2015 | 78 | 35 | (15 | ) | (20 | ) | 78 | |||||||||||||
For the year ended May 31, 2016 | 78 | 52 | (2 | ) | (85 | ) | 43 |
(1) | Amounts included in this column primarily relate to foreign currency translation. |
(2) | Includes both current and non-current portions of the allowance for doubtful accounts. The non-current portion is included in Deferred income taxes and other assets on the Consolidated Balance Sheets. |
NOTE 17 — Operating Segments and Related Information |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
REVENUES | ||||||||||||
North America | $ | 14,764 | $ | 13,740 | $ | 12,299 | ||||||
Western Europe | 5,884 | 5,705 | 4,979 | |||||||||
Central & Eastern Europe | 1,431 | 1,421 | 1,387 | |||||||||
Greater China | 3,785 | 3,067 | 2,602 | |||||||||
Japan | 869 | 755 | 771 | |||||||||
Emerging Markets | 3,701 | 3,898 | 3,949 | |||||||||
Global Brand Divisions | 73 | 115 | 125 | |||||||||
Total NIKE Brand | 30,507 | 28,701 | 26,112 | |||||||||
Converse | 1,955 | 1,982 | 1,684 | |||||||||
Corporate | (86 | ) | (82 | ) | 3 | |||||||
TOTAL NIKE CONSOLIDATED REVENUES | $ | 32,376 | $ | 30,601 | $ | 27,799 | ||||||
EARNINGS BEFORE INTEREST AND TAXES | ||||||||||||
North America | $ | 3,763 | $ | 3,645 | $ | 3,077 | ||||||
Western Europe | 1,434 | 1,275 | 855 | |||||||||
Central & Eastern Europe | 289 | 249 | 279 | |||||||||
Greater China | 1,372 | 993 | 816 | |||||||||
Japan | 174 | 100 | 131 | |||||||||
Emerging Markets | 892 | 818 | 952 | |||||||||
Global Brand Divisions | (2,596 | ) | (2,267 | ) | (1,993 | ) | ||||||
Total NIKE Brand | 5,328 | 4,813 | 4,117 | |||||||||
Converse | 487 | 517 | 496 | |||||||||
Corporate | (1,173 | ) | (1,097 | ) | (1,036 | ) | ||||||
Total NIKE Consolidated Earnings Before Interest and Taxes | 4,642 | 4,233 | 3,577 | |||||||||
Interest expense (income), net | 19 | 28 | 33 | |||||||||
TOTAL NIKE CONSOLIDATED INCOME BEFORE INCOME TAXES | $ | 4,623 | $ | 4,205 | $ | 3,544 | ||||||
ADDITIONS TO LONG-LIVED ASSETS | ||||||||||||
North America | $ | 242 | $ | 208 | $ | 240 | ||||||
Western Europe | 215 | 216 | 120 | |||||||||
Central & Eastern Europe | 17 | 20 | 19 | |||||||||
Greater China | 44 | 69 | 63 | |||||||||
Japan | 13 | 15 | 9 | |||||||||
Emerging Markets | 51 | 37 | 55 | |||||||||
Global Brand Divisions | 258 | 225 | 225 | |||||||||
Total NIKE Brand | 840 | 790 | 731 | |||||||||
Converse | 39 | 69 | 30 | |||||||||
Corporate | 312 | 144 | 161 | |||||||||
TOTAL ADDITIONS TO LONG-LIVED ASSETS | $ | 1,191 | $ | 1,003 | $ | 922 | ||||||
DEPRECIATION | ||||||||||||
North America | $ | 133 | $ | 121 | $ | 109 | ||||||
Western Europe | 72 | 75 | 71 | |||||||||
Central & Eastern Europe | 12 | 12 | 11 | |||||||||
Greater China | 48 | 46 | 38 | |||||||||
Japan | 18 | 22 | 19 | |||||||||
Emerging Markets | 25 | 27 | 25 | |||||||||
Global Brand Divisions | 230 | 210 | 175 | |||||||||
Total NIKE Brand | 538 | 513 | 448 | |||||||||
Converse | 27 | 18 | 16 | |||||||||
Corporate | 84 | 75 | 54 | |||||||||
TOTAL DEPRECIATION | $ | 649 | $ | 606 | $ | 518 |
As of May 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
ACCOUNTS RECEIVABLE, NET | ||||||||
North America | $ | 1,689 | $ | 1,737 | ||||
Western Europe | 378 | 344 | ||||||
Central & Eastern Europe | 194 | 242 | ||||||
Greater China | 74 | 84 | ||||||
Japan | 129 | 134 | ||||||
Emerging Markets | 409 | 461 | ||||||
Global Brand Divisions | 76 | 88 | ||||||
Total NIKE Brand | 2,949 | 3,090 | ||||||
Converse | 270 | 258 | ||||||
Corporate | 22 | 10 | ||||||
TOTAL ACCOUNTS RECEIVABLE, NET | $ | 3,241 | $ | 3,358 | ||||
INVENTORIES | ||||||||
North America | $ | 2,363 | $ | 2,207 | ||||
Western Europe | 929 | 699 | ||||||
Central & Eastern Europe | 210 | 169 | ||||||
Greater China | 375 | 249 | ||||||
Japan | 146 | 94 | ||||||
Emerging Markets | 478 | 528 | ||||||
Global Brand Divisions | 35 | 32 | ||||||
Total NIKE Brand | 4,536 | 3,978 | ||||||
Converse | 306 | 237 | ||||||
Corporate | (4 | ) | 122 | |||||
TOTAL INVENTORIES | $ | 4,838 | $ | 4,337 | ||||
PROPERTY, PLANT AND EQUIPMENT, NET | ||||||||
North America | $ | 742 | $ | 632 | ||||
Western Europe | 589 | 451 | ||||||
Central & Eastern Europe | 50 | 47 | ||||||
Greater China | 234 | 254 | ||||||
Japan | 223 | 205 | ||||||
Emerging Markets | 109 | 103 | ||||||
Global Brand Divisions | 511 | 484 | ||||||
Total NIKE Brand | 2,458 | 2,176 | ||||||
Converse | 125 | 122 | ||||||
Corporate | 937 | 713 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 3,520 | $ | 3,011 |
Year Ended May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Footwear | $ | 19,871 | $ | 18,318 | $ | 16,208 | ||||||
Apparel | 9,067 | 8,637 | 8,109 | |||||||||
Equipment | 1,496 | 1,631 | 1,670 | |||||||||
Other | 1,942 | 2,015 | 1,812 | |||||||||
TOTAL NIKE CONSOLIDATED REVENUES | $ | 32,376 | $ | 30,601 | $ | 27,799 |
NOTE 7 — Short-Term Borrowings and Credit Lines |
As of May 31, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
(Dollars in millions) | Borrowings | Interest Rate | Borrowings | Interest Rate | ||||||||||||
Notes payable: | ||||||||||||||||
U.S. operations | $ | — | 0.00 | % | (1) | $ | — | 0.00 | % | (1) | ||||||
Non-U.S. operations | 1 | 13.00 | % | (1) | 74 | 12.39 | % | (1) | ||||||||
TOTAL NOTES PAYABLE | $ | 1 | $ | 74 | ||||||||||||
Interest-bearing accounts payable: | ||||||||||||||||
Sojitz America | $ | 39 | 1.27 | % | $ | 78 | 0.98 | % |
(1) | Weighted average interest rate includes non-interest bearing overdrafts. |
NOTE 1 — Summary of Significant Accounting Policies |
• | Level 1: Quoted prices in active markets for identical assets or liabilities. |
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
• | Level 3: Unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions. |
As of May 31, | ||||||||||||
(In millions) | 2016 | 2015 | 2014 | |||||||||
Unrecognized tax benefits, beginning of the period | $ | 438 | $ | 506 | $ | 447 | ||||||
Gross increases related to prior period tax positions(1) | 49 | 32 | 814 | |||||||||
Gross decreases related to prior period tax positions(1) | (20 | ) | (123 | ) | (166 | ) | ||||||
Gross increases related to current period tax positions | 81 | 82 | 125 | |||||||||
Gross decreases related to current period tax positions | — | (9 | ) | (30 | ) | |||||||
Settlements(1) | (13 | ) | (27 | ) | (676 | ) | ||||||
Lapse of statute of limitations | (17 | ) | (10 | ) | (4 | ) | ||||||
Changes due to currency translation | (12 | ) | (13 | ) | (4 | ) | ||||||
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD | $ | 506 | $ | 438 | $ | 506 |
(1) | During the fourth quarter of the fiscal year ended May 31, 2014, the Company reached a resolution with the IRS on a U.S. Unilateral Advanced Pricing Agreement that covers intercompany transfer pricing for fiscal years 2011 through 2020. As a result, the Company recorded a gross increase in unrecognized tax benefits related to prior period tax positions, a gross decrease in unrecognized tax benefits related to prior period tax positions and a settlement. The net impact of these items resulted in a decrease to unrecognized tax benefits. |
Year Ending May 31, | ||||||||||||||||||||||||||||
(In millions) | 2017 | 2018 | 2019 | 2020 | 2021-2035 | Indefinite | Total | |||||||||||||||||||||
Net operating losses | $ | 1 | $ | 4 | $ | 1 | $ | 1 | $ | 35 | $ | 101 | $ | 143 |