NOTE 5 — Accrued Liabilities |
As of May 31, | ||||||||
(In millions) | 2018 | 2017 | ||||||
Compensation and benefits, excluding taxes | $ | 897 | $ | 871 | ||||
Endorsement compensation | 425 | 396 | ||||||
Dividends payable | 320 | 300 | ||||||
Import and logistics costs | 268 | 257 | ||||||
Taxes other than income taxes payable | 224 | 196 | ||||||
Fair value of derivatives | 184 | 168 | ||||||
Advertising and marketing | 140 | 125 | ||||||
Collateral received from counterparties to hedging instruments | 23 | — | ||||||
Other(1) | 788 | 698 | ||||||
TOTAL ACCRUED LIABILITIES | $ | 3,269 | $ | 3,011 |
(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, 2018 and 2017. |
NOTE 13 — Benefit Plans |
NOTE 15 — Commitments and Contingencies |
2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||||||||||
Operating leases | $ | 589 | $ | 523 | $ | 472 | $ | 412 | $ | 361 | $ | 1,608 | $ | 3,965 | ||||||||||||||
Capital leases and other financing obligations(1) | $ | 44 | $ | 37 | $ | 40 | $ | 38 | $ | 36 | $ | 229 | $ | 424 |
(1) | Capital leases and other financing obligations include payments related to build-to-suit lease arrangements. |
NOTE 14 — Accumulated Other Comprehensive Income |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at May 31, 2017 | $ | (191 | ) | $ | (52 | ) | $ | 115 | $ | (85 | ) | $ | (213 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Other comprehensive gains (losses) before reclassifications(2) | (6 | ) | (52 | ) | — | 2 | (56 | ) | ||||||||||||
Reclassifications to net income of previously deferred (gains) losses(3) | — | 128 | — | 32 | 160 | |||||||||||||||
Total other comprehensive income (loss) | (6 | ) | 76 | — | 34 | 104 | ||||||||||||||
Reclassifications to retained earnings in accordance with ASU 2018-02(4) | 24 | (7 | ) | — | — | 17 | ||||||||||||||
Balance at May 31, 2018 | $ | (173 | ) | $ | 17 | $ | 115 | $ | (51 | ) | $ | (92 | ) |
(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 $(24) million, $(3) million, $0 million, $(4) million and $(31) million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $(3) million, $0 million, $0 million and $(3) million, respectively. |
(4) | Refer to Note 1 — Summary of Significant Accounting Policies for additional information on the adoption of ASU 2018-02 during the third quarter of fiscal 2018. |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at May 31, 2016 | $ | (207 | ) | $ | 463 | $ | 115 | $ | (53 | ) | $ | 318 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Other comprehensive gains (losses) before reclassifications(2) | 15 | 118 | — | (14 | ) | 119 | ||||||||||||||
Reclassifications to net income of previously deferred (gains) losses(3) | 1 | (633 | ) | — | (18 | ) | (650 | ) | ||||||||||||
Total other comprehensive income (loss) | 16 | (515 | ) | — | (32 | ) | (531 | ) | ||||||||||||
Balance at May 31, 2017 | $ | (191 | ) | $ | (52 | ) | $ | 115 | $ | (85 | ) | $ | (213 | ) |
(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, $24 million, $0 million, $3 million and $27 million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $(3) million, $0 million, $(3) million and $(6) 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) | 2018 | 2017 | |||||||
Gains (losses) on foreign currency translation adjustment | $ | — | $ | (1 | ) | Other expense (income), net | |||
Total before tax | — | (1 | ) | ||||||
Tax (expense) benefit | — | — | |||||||
Gain (loss) net of tax | — | (1 | ) | ||||||
Gains (losses) on cash flow hedges: | |||||||||
Foreign exchange forwards and options | 34 | 96 | Revenues | ||||||
Foreign exchange forwards and options | (90 | ) | 339 | Cost of sales | |||||
Foreign exchange forwards and options | 1 | — | Total selling and administrative expense | ||||||
Foreign exchange forwards and options | (69 | ) | 199 | Other expense (income), net | |||||
Interest rate swaps | (7 | ) | (4 | ) | Interest expense (income), net | ||||
Total before tax | (131 | ) | 630 | ||||||
Tax (expense) benefit | 3 | 3 | |||||||
Gain (loss) net of tax | (128 | ) | 633 | ||||||
Gains (losses) on other | (32 | ) | 15 | Other expense (income), net | |||||
Total before tax | (32 | ) | 15 | ||||||
Tax (expense) benefit | — | 3 | |||||||
Gain (loss) net of tax | (32 | ) | 18 | ||||||
Total net gain (loss) reclassified for the period | $ | (160 | ) | $ | 650 |
NOTE 16 — Risk Management and Derivatives |
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
(In millions) | Balance Sheet Location | 2018 | 2017 | Balance Sheet Location | 2018 | 2017 | ||||||||||||||
Derivatives formally designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 118 | $ | 113 | Accrued liabilities | $ | 156 | $ | 59 | ||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | 152 | 13 | Deferred income taxes and other liabilities | — | 73 | ||||||||||||||
Total derivatives formally designated as hedging instruments | 270 | 126 | 156 | 132 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | 119 | 103 | Accrued liabilities | 26 | 107 | ||||||||||||||
Embedded derivatives | Prepaid expenses and other current assets | 3 | 1 | Accrued liabilities | 2 | 2 | ||||||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | — | 2 | Deferred income taxes and other liabilities | — | 7 | ||||||||||||||
Embedded derivatives | Deferred income taxes and other assets | 8 | 9 | Deferred income taxes and other liabilities | 6 | 6 | ||||||||||||||
Total derivatives not designated as hedging instruments | 130 | 115 | 34 | 122 | ||||||||||||||||
TOTAL DERIVATIVES | $ | 400 | $ | 241 | $ | 190 | $ | 254 |
(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, | ||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||||||||||
Foreign exchange forwards and options | $ | 19 | $ | 72 | $ | 90 | Revenues | $ | 34 | $ | 96 | $ | (88 | ) | ||||||||||||
Foreign exchange forwards and options | (50 | ) | 43 | (57 | ) | Cost of sales | (90 | ) | 339 | 586 | ||||||||||||||||
Foreign exchange forwards and options | 1 | (4 | ) | — | Total selling and administrative expense | 1 | — | — | ||||||||||||||||||
Foreign exchange forwards and options | (19 | ) | 37 | (25 | ) | Other expense (income), net | (69 | ) | 199 | 219 | ||||||||||||||||
Interest rate swaps(2) | — | (54 | ) | (83 | ) | Interest expense (income), net | (7 | ) | (4 | ) | — | |||||||||||||||
Total designated cash flow hedges | $ | (49 | ) | $ | 94 | $ | (75 | ) | $ | (131 | ) | $ | 630 | $ | 717 |
(1) | For the years ended May 31, 2018, 2017 and 2016, the amounts recorded in Other expense (income), 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. |
(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, 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, | ||||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||
Interest rate swaps(1) | $ | — | $ | — | $ | 2 | Interest expense (income), net | |||||||
Derivatives not designated as hedging instruments: | ||||||||||||||
Foreign exchange forwards and options | (57 | ) | (44 | ) | (68 | ) | Other expense (income), net | |||||||
Embedded derivatives | $ | (4 | ) | $ | (2 | ) | $ | (2 | ) | Other expense (income), 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) | 2018 | 2017 | 2016 | |||||||||
Stock options(1) | $ | 149 | $ | 145 | $ | 171 | ||||||
ESPPs | 34 | 36 | 31 | |||||||||
Restricted stock | 35 | 34 | 34 | |||||||||
TOTAL STOCK-BASED COMPENSATION EXPENSE | $ | 218 | $ | 215 | $ | 236 |
(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 was $18 million, $14 million and $30 million for the years ended May 31, 2018, 2017 and 2016, respectively. |
Year Ended May 31, | |||||||||
2018 | 2017 | 2016 | |||||||
Dividend yield | 1.2 | % | 1.1 | % | 1.0 | % | |||
Expected volatility | 16.4 | % | 17.4 | % | 23.6 | % | |||
Weighted average expected life (in years) | 6.0 | 6.0 | 5.8 | ||||||
Risk-free interest rate | 2.0 | % | 1.3 | % | 1.7 | % |
Shares(1) | Weighted Average Option Price | ||||||
(In millions) | |||||||
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 | |||||
Exercised | (17.1 | ) | 20.42 | ||||
Forfeited | (2.3 | ) | 49.47 | ||||
Granted | 12.2 | 57.81 | |||||
Options outstanding May 31, 2017 | 104.8 | 34.79 | |||||
Exercised | (24.1 | ) | 25.07 | ||||
Forfeited | (4.3 | ) | 55.31 | ||||
Granted | 16.8 | 59.08 | |||||
Options outstanding May 31, 2018 | 93.2 | $ | 40.73 | ||||
Options exercisable at May 31, | |||||||
2016 | 66.5 | $ | 21.48 | ||||
2017 | 67.9 | 26.03 | |||||
2018 | 58.5 | 31.60 |
(1) | Includes stock appreciation rights transactions. |
NOTE 12 — Earnings Per Share |
Year Ended May 31, | ||||||||||||
(In millions, except per share data) | 2018 | 2017 | 2016 | |||||||||
Determination of shares: | ||||||||||||
Weighted average common shares outstanding | 1,623.8 | 1,657.8 | 1,697.9 | |||||||||
Assumed conversion of dilutive stock options and awards | 35.3 | 34.2 | 44.6 | |||||||||
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 1,659.1 | 1,692.0 | 1,742.5 | |||||||||
Earnings per common share: | ||||||||||||
Basic | $ | 1.19 | $ | 2.56 | $ | 2.21 | ||||||
Diluted | $ | 1.17 | $ | 2.51 | $ | 2.16 |
NOTE 6 — Fair Value Measurements |
As of May 31, 2018 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 415 | $ | 415 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 1,178 | 500 | 678 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 925 | 907 | 18 | — | ||||||||||||
U.S. Agency securities | 102 | 100 | 2 | — | ||||||||||||
Commercial paper and bonds | 451 | 153 | 298 | — | ||||||||||||
Money market funds | 2,174 | 2,174 | — | — | ||||||||||||
Total level 2 | 3,652 | 3,334 | 318 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 11 | — | — | 11 | ||||||||||||
TOTAL | $ | 5,256 | $ | 4,249 | $ | 996 | $ | 11 |
As of May 31, 2017 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 505 | $ | 505 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 1,545 | 159 | 1,386 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 813 | 769 | 44 | — | ||||||||||||
U.S. Agency securities | 522 | 150 | 372 | — | ||||||||||||
Commercial paper and bonds | 820 | 251 | 569 | — | ||||||||||||
Money market funds | 1,974 | 1,974 | — | — | ||||||||||||
Total level 2 | 4,129 | 3,144 | 985 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 10 | — | — | 10 | ||||||||||||
TOTAL | $ | 6,189 | $ | 3,808 | $ | 2,371 | $ | 10 |
As of May 31, 2018 | ||||||||||||||||||||||||
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) | $ | 389 | $ | 237 | $ | 152 | $ | 182 | $ | 182 | $ | — | ||||||||||||
Embedded derivatives | 11 | 3 | 8 | 8 | 2 | 6 | ||||||||||||||||||
TOTAL | $ | 400 | $ | 240 | $ | 160 | $ | 190 | $ | 184 | $ | 6 |
(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 $182 million as of May 31, 2018. As of that date, the Company had received $23 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, 2018. |
As of May 31, 2017 | ||||||||||||||||||||||||
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) | $ | 231 | $ | 216 | $ | 15 | $ | 246 | $ | 166 | $ | 80 | ||||||||||||
Embedded derivatives | 10 | 1 | 9 | 8 | 2 | 6 | ||||||||||||||||||
TOTAL | $ | 241 | $ | 217 | $ | 24 | $ | 254 | $ | 168 | $ | 86 |
(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 $187 million as of May 31, 2017. As of that date, no amount of cash collateral had been received or posted on the derivative asset and liability balance related to these foreign exchange derivative instruments. |
• | Level 1: Quoted prices in active markets for identical assets or liabilities. |
• | Level 2: Inputs other than observable quoted prices 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 with little or no market data available, which require the reporting entity to develop its own assumptions. |
NOTE 4 — Identifiable Intangible Assets and Goodwill |
As of May 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
(In millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Acquired trademarks and other | $ | 22 | $ | 18 | $ | 4 | $ | 19 | $ | 17 | $ | 2 | ||||||||||||
Indefinite-lived trademarks | 281 | — | 281 | 281 | — | 281 | ||||||||||||||||||
INDENTIFIABLE INTANGIBLE ASSETS, NET | $ | 303 | $ | 18 | $ | 285 | $ | 300 | $ | 17 | $ | 283 |
NOTE 9 — Income Taxes |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Income before income taxes: | ||||||||||||
United States | $ | 744 | $ | 1,240 | $ | 956 | ||||||
Foreign | 3,581 | 3,646 | 3,667 | |||||||||
TOTAL INCOME BEFORE INCOME TAXES | $ | 4,325 | $ | 4,886 | $ | 4,623 |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Current: | ||||||||||||
United States | ||||||||||||
Federal | $ | 1,167 | $ | 398 | $ | 304 | ||||||
State | 45 | 82 | 71 | |||||||||
Foreign | 533 | 439 | 568 | |||||||||
Total | 1,745 | 919 | 943 | |||||||||
Deferred: | ||||||||||||
United States | ||||||||||||
Federal | 595 | (279 | ) | (57 | ) | |||||||
State | 25 | (9 | ) | (16 | ) | |||||||
Foreign | 27 | 15 | (7 | ) | ||||||||
Total | 647 | (273 | ) | (80 | ) | |||||||
TOTAL INCOME TAX EXPENSE | $ | 2,392 | $ | 646 | $ | 863 |
Year Ended May 31, | |||||||||
2018 | 2017 | 2016 | |||||||
Federal income tax rate | 29.2 | % | 35.0 | % | 35.0 | % | |||
State taxes, net of federal benefit | 1.2 | % | 1.1 | % | 1.1 | % | |||
Foreign earnings | -18.4 | % | -20.7 | % | -18.2 | % | |||
Transition tax related to the Tax Act | 43.3 | % | — | % | — | % | |||
Remeasurement of deferred tax assets and liabilities related to the Tax Act | 3.7 | % | — | % | — | % | |||
Excess tax benefits from share-based compensation | -5.3 | % | — | % | — | % | |||
Resolution of a U.S. tax matter | — | % | -3.2 | % | — | % | |||
Other, net | 1.6 | % | 1.0 | % | 0.8 | % | |||
EFFECTIVE INCOME TAX RATE | 55.3 | % | 13.2 | % | 18.7 | % |
As of May 31, | ||||||||
(In millions) | 2018 | 2017 | ||||||
Deferred tax assets: | ||||||||
Inventories | $ | 73 | $ | 90 | ||||
Sales return reserves | 104 | 130 | ||||||
Deferred compensation | 250 | 348 | ||||||
Stock-based compensation | 135 | 225 | ||||||
Reserves and accrued liabilities | 102 | 88 | ||||||
Net operating loss carry-forwards | 88 | 84 | ||||||
Foreign tax credit carry-forwards | — | 208 | ||||||
Undistributed earnings of foreign subsidiaries | — | 173 | ||||||
Other | 106 | 106 | ||||||
Total deferred tax assets | 858 | 1,452 | ||||||
Valuation allowance | (95 | ) | (82 | ) | ||||
Total deferred tax assets after valuation allowance | 763 | 1,370 | ||||||
Deferred tax liabilities: | ||||||||
Foreign withholding tax on undistributed earnings of foreign subsidiaries | (155 | ) | — | |||||
Property, plant and equipment | (167 | ) | (254 | ) | ||||
Intangibles | (77 | ) | (90 | ) | ||||
Other | (26 | ) | (2 | ) | ||||
Total deferred tax liabilities | (425 | ) | (346 | ) | ||||
NET DEFERRED TAX ASSET | $ | 338 | $ | 1,024 |
As of May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Unrecognized tax benefits, beginning of the period | $ | 461 | $ | 506 | $ | 438 | ||||||
Gross increases related to prior period tax positions | 19 | 31 | 49 | |||||||||
Gross decreases related to prior period tax positions | (12 | ) | (163 | ) | (20 | ) | ||||||
Gross increases related to current period tax positions | 249 | 115 | 81 | |||||||||
Settlements | — | (12 | ) | (13 | ) | |||||||
Lapse of statute of limitations | (20 | ) | (21 | ) | (17 | ) | ||||||
Changes due to currency translation | 1 | 5 | (12 | ) | ||||||||
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD | $ | 698 | $ | 461 | $ | 506 |
Year Ending May 31, | ||||||||||||||||||||||||||||
(In millions) | 2019 | 2020 | 2021 | 2022 | 2023-2039 | Indefinite | Total | |||||||||||||||||||||
Net operating losses | $ | 1 | $ | 5 | $ | 2 | $ | 1 | $ | 91 | $ | 189 | $ | 289 |
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 | 2018 | 2017 | ||||||||||||
Corporate Bond Payables:(1)(2) | |||||||||||||||||
May 1, 2023 | $ | 500 | 2.25 | % | Semi-Annually | $ | 498 | $ | 497 | ||||||||
November 1, 2026 | $ | 1,000 | 2.38 | % | Semi-Annually | 994 | 993 | ||||||||||
May 1, 2043 | $ | 500 | 3.63 | % | Semi-Annually | 495 | 495 | ||||||||||
November 1, 2045 | $ | 1,000 | 3.88 | % | Semi-Annually | 982 | 981 | ||||||||||
November 1, 2046 | $ | 500 | 3.38 | % | Semi-Annually | 490 | 490 | ||||||||||
Japanese Yen Notes:(3) | |||||||||||||||||
August 20, 2001 through November 20, 2020 | ¥ | 9,000 | 2.60 | % | Quarterly | 10 | 14 | ||||||||||
August 20, 2001 through November 20, 2020 | ¥ | 4,000 | 2.00 | % | Quarterly | 5 | 7 | ||||||||||
Total | 3,474 | 3,477 | |||||||||||||||
Less current maturities | 6 | 6 | |||||||||||||||
TOTAL LONG-TERM DEBT | $ | 3,468 | $ | 3,471 |
(1) | These senior unsecured obligations rank equally with the Company’s other unsecured and unsubordinated indebtedness. |
(2) | The bonds are redeemable at the Company’s option up to three months prior to the scheduled maturity date for the bonds maturing in 2023 and 2026, and up to six months prior to the scheduled maturity date for the bonds maturing in 2043, 2045 and 2046, 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. Within three and six months to scheduled maturity, 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. |
(3) | 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) | 2018 | 2017 | ||||||
Land and improvements | $ | 331 | $ | 285 | ||||
Buildings | 2,195 | 1,564 | ||||||
Machinery, equipment and internal-use software | 4,230 | 3,867 | ||||||
Leasehold improvements | 1,494 | 1,484 | ||||||
Construction in process | 641 | 758 | ||||||
Total property, plant and equipment, gross | 8,891 | 7,958 | ||||||
Less accumulated depreciation | 4,437 | 3,969 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 4,454 | $ | 3,989 |
As of May 31, | ||||||||
(In millions) | 2018 | 2017 | ||||||
Land and improvements | $ | 331 | $ | 285 | ||||
Buildings | 2,195 | 1,564 | ||||||
Machinery, equipment and internal-use software | 4,230 | 3,867 | ||||||
Leasehold improvements | 1,494 | 1,484 | ||||||
Construction in process | 641 | 758 | ||||||
Total property, plant and equipment, gross | 8,891 | 7,958 | ||||||
Less accumulated depreciation | 4,437 | 3,969 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 4,454 | $ | 3,989 |
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) | 2018 | 2017 | |||||||
Gains (losses) on foreign currency translation adjustment | $ | — | $ | (1 | ) | Other expense (income), net | |||
Total before tax | — | (1 | ) | ||||||
Tax (expense) benefit | — | — | |||||||
Gain (loss) net of tax | — | (1 | ) | ||||||
Gains (losses) on cash flow hedges: | |||||||||
Foreign exchange forwards and options | 34 | 96 | Revenues | ||||||
Foreign exchange forwards and options | (90 | ) | 339 | Cost of sales | |||||
Foreign exchange forwards and options | 1 | — | Total selling and administrative expense | ||||||
Foreign exchange forwards and options | (69 | ) | 199 | Other expense (income), net | |||||
Interest rate swaps | (7 | ) | (4 | ) | Interest expense (income), net | ||||
Total before tax | (131 | ) | 630 | ||||||
Tax (expense) benefit | 3 | 3 | |||||||
Gain (loss) net of tax | (128 | ) | 633 | ||||||
Gains (losses) on other | (32 | ) | 15 | Other expense (income), net | |||||
Total before tax | (32 | ) | 15 | ||||||
Tax (expense) benefit | — | 3 | |||||||
Gain (loss) net of tax | (32 | ) | 18 | ||||||
Total net gain (loss) reclassified for the period | $ | (160 | ) | $ | 650 |
As of May 31, | ||||||||
(In millions) | 2018 | 2017 | ||||||
ACCOUNTS RECEIVABLE, NET | ||||||||
North America | $ | 1,443 | $ | 1,798 | ||||
Europe, Middle East & Africa | 870 | 690 | ||||||
Greater China | 101 | 102 | ||||||
Asia Pacific & Latin America | 720 | 693 | ||||||
Global Brand Divisions | 102 | 86 | ||||||
Total NIKE Brand | 3,236 | 3,369 | ||||||
Converse | 240 | 297 | ||||||
Corporate | 22 | 11 | ||||||
TOTAL ACCOUNTS RECEIVABLE, NET | $ | 3,498 | $ | 3,677 | ||||
INVENTORIES | ||||||||
North America | $ | 2,270 | $ | 2,218 | ||||
Europe, Middle East & Africa | 1,433 | 1,327 | ||||||
Greater China | 580 | 463 | ||||||
Asia Pacific & Latin America | 687 | 694 | ||||||
Global Brand Divisions | 91 | 68 | ||||||
Total NIKE Brand | 5,061 | 4,770 | ||||||
Converse | 268 | 286 | ||||||
Corporate | (68 | ) | (1 | ) | ||||
TOTAL INVENTORIES | $ | 5,261 | $ | 5,055 | ||||
PROPERTY, PLANT AND EQUIPMENT, NET | ||||||||
North America | $ | 848 | $ | 819 | ||||
Europe, Middle East & Africa | 849 | 709 | ||||||
Greater China | 256 | 225 | ||||||
Asia Pacific & Latin America | 339 | 340 | ||||||
Global Brand Divisions | 597 | 533 | ||||||
Total NIKE Brand | 2,889 | 2,626 | ||||||
Converse | 115 | 125 | ||||||
Corporate | 1,450 | 1,238 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 4,454 | $ | 3,989 |
As of May 31, | ||||||||
(In millions) | 2018 | 2017 | ||||||
Compensation and benefits, excluding taxes | $ | 897 | $ | 871 | ||||
Endorsement compensation | 425 | 396 | ||||||
Dividends payable | 320 | 300 | ||||||
Import and logistics costs | 268 | 257 | ||||||
Taxes other than income taxes payable | 224 | 196 | ||||||
Fair value of derivatives | 184 | 168 | ||||||
Advertising and marketing | 140 | 125 | ||||||
Collateral received from counterparties to hedging instruments | 23 | — | ||||||
Other(1) | 788 | 698 | ||||||
TOTAL ACCRUED LIABILITIES | $ | 3,269 | $ | 3,011 |
(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, 2018 and 2017. |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at May 31, 2017 | $ | (191 | ) | $ | (52 | ) | $ | 115 | $ | (85 | ) | $ | (213 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Other comprehensive gains (losses) before reclassifications(2) | (6 | ) | (52 | ) | — | 2 | (56 | ) | ||||||||||||
Reclassifications to net income of previously deferred (gains) losses(3) | — | 128 | — | 32 | 160 | |||||||||||||||
Total other comprehensive income (loss) | (6 | ) | 76 | — | 34 | 104 | ||||||||||||||
Reclassifications to retained earnings in accordance with ASU 2018-02(4) | 24 | (7 | ) | — | — | 17 | ||||||||||||||
Balance at May 31, 2018 | $ | (173 | ) | $ | 17 | $ | 115 | $ | (51 | ) | $ | (92 | ) |
(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 $(24) million, $(3) million, $0 million, $(4) million and $(31) million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $(3) million, $0 million, $0 million and $(3) million, respectively. |
(4) | Refer to Note 1 — Summary of Significant Accounting Policies for additional information on the adoption of ASU 2018-02 during the third quarter of fiscal 2018. |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at May 31, 2016 | $ | (207 | ) | $ | 463 | $ | 115 | $ | (53 | ) | $ | 318 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Other comprehensive gains (losses) before reclassifications(2) | 15 | 118 | — | (14 | ) | 119 | ||||||||||||||
Reclassifications to net income of previously deferred (gains) losses(3) | 1 | (633 | ) | — | (18 | ) | (650 | ) | ||||||||||||
Total other comprehensive income (loss) | 16 | (515 | ) | — | (32 | ) | (531 | ) | ||||||||||||
Balance at May 31, 2017 | $ | (191 | ) | $ | (52 | ) | $ | 115 | $ | (85 | ) | $ | (213 | ) |
(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, $24 million, $0 million, $3 million and $27 million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $(3) million, $0 million, $(3) million and $(6) million, respectively. |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Stock options(1) | $ | 149 | $ | 145 | $ | 171 | ||||||
ESPPs | 34 | 36 | 31 | |||||||||
Restricted stock | 35 | 34 | 34 | |||||||||
TOTAL STOCK-BASED COMPENSATION EXPENSE | $ | 218 | $ | 215 | $ | 236 |
(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 was $18 million, $14 million and $30 million for the years ended May 31, 2018, 2017 and 2016, respectively. |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Current: | ||||||||||||
United States | ||||||||||||
Federal | $ | 1,167 | $ | 398 | $ | 304 | ||||||
State | 45 | 82 | 71 | |||||||||
Foreign | 533 | 439 | 568 | |||||||||
Total | 1,745 | 919 | 943 | |||||||||
Deferred: | ||||||||||||
United States | ||||||||||||
Federal | 595 | (279 | ) | (57 | ) | |||||||
State | 25 | (9 | ) | (16 | ) | |||||||
Foreign | 27 | 15 | (7 | ) | ||||||||
Total | 647 | (273 | ) | (80 | ) | |||||||
TOTAL INCOME TAX EXPENSE | $ | 2,392 | $ | 646 | $ | 863 |
Book Value Outstanding as of May 31, | |||||||||||||||||
Scheduled Maturity (Dollars and Yen in millions) | Original Principal | Interest Rate | Interest Payments | 2018 | 2017 | ||||||||||||
Corporate Bond Payables:(1)(2) | |||||||||||||||||
May 1, 2023 | $ | 500 | 2.25 | % | Semi-Annually | $ | 498 | $ | 497 | ||||||||
November 1, 2026 | $ | 1,000 | 2.38 | % | Semi-Annually | 994 | 993 | ||||||||||
May 1, 2043 | $ | 500 | 3.63 | % | Semi-Annually | 495 | 495 | ||||||||||
November 1, 2045 | $ | 1,000 | 3.88 | % | Semi-Annually | 982 | 981 | ||||||||||
November 1, 2046 | $ | 500 | 3.38 | % | Semi-Annually | 490 | 490 | ||||||||||
Japanese Yen Notes:(3) | |||||||||||||||||
August 20, 2001 through November 20, 2020 | ¥ | 9,000 | 2.60 | % | Quarterly | 10 | 14 | ||||||||||
August 20, 2001 through November 20, 2020 | ¥ | 4,000 | 2.00 | % | Quarterly | 5 | 7 | ||||||||||
Total | 3,474 | 3,477 | |||||||||||||||
Less current maturities | 6 | 6 | |||||||||||||||
TOTAL LONG-TERM DEBT | $ | 3,468 | $ | 3,471 |
(1) | These senior unsecured obligations rank equally with the Company’s other unsecured and unsubordinated indebtedness. |
(2) | The bonds are redeemable at the Company’s option up to three months prior to the scheduled maturity date for the bonds maturing in 2023 and 2026, and up to six months prior to the scheduled maturity date for the bonds maturing in 2043, 2045 and 2046, 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. Within three and six months to scheduled maturity, 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. |
(3) | 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) | 2018 | 2017 | ||||||
Deferred tax assets: | ||||||||
Inventories | $ | 73 | $ | 90 | ||||
Sales return reserves | 104 | 130 | ||||||
Deferred compensation | 250 | 348 | ||||||
Stock-based compensation | 135 | 225 | ||||||
Reserves and accrued liabilities | 102 | 88 | ||||||
Net operating loss carry-forwards | 88 | 84 | ||||||
Foreign tax credit carry-forwards | — | 208 | ||||||
Undistributed earnings of foreign subsidiaries | — | 173 | ||||||
Other | 106 | 106 | ||||||
Total deferred tax assets | 858 | 1,452 | ||||||
Valuation allowance | (95 | ) | (82 | ) | ||||
Total deferred tax assets after valuation allowance | 763 | 1,370 | ||||||
Deferred tax liabilities: | ||||||||
Foreign withholding tax on undistributed earnings of foreign subsidiaries | (155 | ) | — | |||||
Property, plant and equipment | (167 | ) | (254 | ) | ||||
Intangibles | (77 | ) | (90 | ) | ||||
Other | (26 | ) | (2 | ) | ||||
Total deferred tax liabilities | (425 | ) | (346 | ) | ||||
NET DEFERRED TAX ASSET | $ | 338 | $ | 1,024 |
(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, | ||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||||||||||
Foreign exchange forwards and options | $ | 19 | $ | 72 | $ | 90 | Revenues | $ | 34 | $ | 96 | $ | (88 | ) | ||||||||||||
Foreign exchange forwards and options | (50 | ) | 43 | (57 | ) | Cost of sales | (90 | ) | 339 | 586 | ||||||||||||||||
Foreign exchange forwards and options | 1 | (4 | ) | — | Total selling and administrative expense | 1 | — | — | ||||||||||||||||||
Foreign exchange forwards and options | (19 | ) | 37 | (25 | ) | Other expense (income), net | (69 | ) | 199 | 219 | ||||||||||||||||
Interest rate swaps(2) | — | (54 | ) | (83 | ) | Interest expense (income), net | (7 | ) | (4 | ) | — | |||||||||||||||
Total designated cash flow hedges | $ | (49 | ) | $ | 94 | $ | (75 | ) | $ | (131 | ) | $ | 630 | $ | 717 |
(1) | For the years ended May 31, 2018, 2017 and 2016, the amounts recorded in Other expense (income), 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. |
(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, 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, | ||||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||
Interest rate swaps(1) | $ | — | $ | — | $ | 2 | Interest expense (income), net | |||||||
Derivatives not designated as hedging instruments: | ||||||||||||||
Foreign exchange forwards and options | (57 | ) | (44 | ) | (68 | ) | Other expense (income), net | |||||||
Embedded derivatives | $ | (4 | ) | $ | (2 | ) | $ | (2 | ) | Other expense (income), 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, 2018 | ||||||||||||||||||||||||
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) | $ | 389 | $ | 237 | $ | 152 | $ | 182 | $ | 182 | $ | — | ||||||||||||
Embedded derivatives | 11 | 3 | 8 | 8 | 2 | 6 | ||||||||||||||||||
TOTAL | $ | 400 | $ | 240 | $ | 160 | $ | 190 | $ | 184 | $ | 6 |
(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 $182 million as of May 31, 2018. As of that date, the Company had received $23 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, 2018. |
As of May 31, 2017 | ||||||||||||||||||||||||
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) | $ | 231 | $ | 216 | $ | 15 | $ | 246 | $ | 166 | $ | 80 | ||||||||||||
Embedded derivatives | 10 | 1 | 9 | 8 | 2 | 6 | ||||||||||||||||||
TOTAL | $ | 241 | $ | 217 | $ | 24 | $ | 254 | $ | 168 | $ | 86 |
(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 $187 million as of May 31, 2017. As of that date, no amount of cash collateral had been received or posted on the derivative asset and liability balance related to these foreign exchange derivative instruments. |
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
(In millions) | Balance Sheet Location | 2018 | 2017 | Balance Sheet Location | 2018 | 2017 | ||||||||||||||
Derivatives formally designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 118 | $ | 113 | Accrued liabilities | $ | 156 | $ | 59 | ||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | 152 | 13 | Deferred income taxes and other liabilities | — | 73 | ||||||||||||||
Total derivatives formally designated as hedging instruments | 270 | 126 | 156 | 132 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | 119 | 103 | Accrued liabilities | 26 | 107 | ||||||||||||||
Embedded derivatives | Prepaid expenses and other current assets | 3 | 1 | Accrued liabilities | 2 | 2 | ||||||||||||||
Foreign exchange forwards and options | Deferred income taxes and other assets | — | 2 | Deferred income taxes and other liabilities | — | 7 | ||||||||||||||
Embedded derivatives | Deferred income taxes and other assets | 8 | 9 | Deferred income taxes and other liabilities | 6 | 6 | ||||||||||||||
Total derivatives not designated as hedging instruments | 130 | 115 | 34 | 122 | ||||||||||||||||
TOTAL DERIVATIVES | $ | 400 | $ | 241 | $ | 190 | $ | 254 |
Year Ended May 31, | ||||||||||||
(In millions, except per share data) | 2018 | 2017 | 2016 | |||||||||
Determination of shares: | ||||||||||||
Weighted average common shares outstanding | 1,623.8 | 1,657.8 | 1,697.9 | |||||||||
Assumed conversion of dilutive stock options and awards | 35.3 | 34.2 | 44.6 | |||||||||
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 1,659.1 | 1,692.0 | 1,742.5 | |||||||||
Earnings per common share: | ||||||||||||
Basic | $ | 1.19 | $ | 2.56 | $ | 2.21 | ||||||
Diluted | $ | 1.17 | $ | 2.51 | $ | 2.16 |
Year Ended May 31, | |||||||||
2018 | 2017 | 2016 | |||||||
Federal income tax rate | 29.2 | % | 35.0 | % | 35.0 | % | |||
State taxes, net of federal benefit | 1.2 | % | 1.1 | % | 1.1 | % | |||
Foreign earnings | -18.4 | % | -20.7 | % | -18.2 | % | |||
Transition tax related to the Tax Act | 43.3 | % | — | % | — | % | |||
Remeasurement of deferred tax assets and liabilities related to the Tax Act | 3.7 | % | — | % | — | % | |||
Excess tax benefits from share-based compensation | -5.3 | % | — | % | — | % | |||
Resolution of a U.S. tax matter | — | % | -3.2 | % | — | % | |||
Other, net | 1.6 | % | 1.0 | % | 0.8 | % | |||
EFFECTIVE INCOME TAX RATE | 55.3 | % | 13.2 | % | 18.7 | % |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Footwear | $ | 22,268 | $ | 21,081 | $ | 19,871 | ||||||
Apparel | 10,733 | 9,654 | 9,067 | |||||||||
Equipment | 1,396 | 1,425 | 1,496 | |||||||||
Other | 2,000 | 2,190 | 1,942 | |||||||||
TOTAL NIKE, INC. REVENUES | $ | 36,397 | $ | 34,350 | $ | 32,376 |
As of May 31, 2018 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 415 | $ | 415 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 1,178 | 500 | 678 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 925 | 907 | 18 | — | ||||||||||||
U.S. Agency securities | 102 | 100 | 2 | — | ||||||||||||
Commercial paper and bonds | 451 | 153 | 298 | — | ||||||||||||
Money market funds | 2,174 | 2,174 | — | — | ||||||||||||
Total level 2 | 3,652 | 3,334 | 318 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 11 | — | — | 11 | ||||||||||||
TOTAL | $ | 5,256 | $ | 4,249 | $ | 996 | $ | 11 |
As of May 31, 2017 | ||||||||||||||||
(In millions) | Assets at Fair Value | Cash Equivalents | Short-term Investments | Other Long-term Assets | ||||||||||||
Cash | $ | 505 | $ | 505 | $ | — | $ | — | ||||||||
Level 1: | ||||||||||||||||
U.S. Treasury securities | 1,545 | 159 | 1,386 | — | ||||||||||||
Level 2: | ||||||||||||||||
Time deposits | 813 | 769 | 44 | — | ||||||||||||
U.S. Agency securities | 522 | 150 | 372 | — | ||||||||||||
Commercial paper and bonds | 820 | 251 | 569 | — | ||||||||||||
Money market funds | 1,974 | 1,974 | — | — | ||||||||||||
Total level 2 | 4,129 | 3,144 | 985 | — | ||||||||||||
Level 3: | ||||||||||||||||
Non-marketable preferred stock | 10 | — | — | 10 | ||||||||||||
TOTAL | $ | 6,189 | $ | 3,808 | $ | 2,371 | $ | 10 |
As of May 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
(In millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Acquired trademarks and other | $ | 22 | $ | 18 | $ | 4 | $ | 19 | $ | 17 | $ | 2 | ||||||||||||
Indefinite-lived trademarks | 281 | — | 281 | 281 | — | 281 | ||||||||||||||||||
INDENTIFIABLE INTANGIBLE ASSETS, NET | $ | 303 | $ | 18 | $ | 285 | $ | 300 | $ | 17 | $ | 283 |
2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||||||||||
Operating leases | $ | 589 | $ | 523 | $ | 472 | $ | 412 | $ | 361 | $ | 1,608 | $ | 3,965 | ||||||||||||||
Capital leases and other financing obligations(1) | $ | 44 | $ | 37 | $ | 40 | $ | 38 | $ | 36 | $ | 229 | $ | 424 |
(1) | Capital leases and other financing obligations include payments related to build-to-suit lease arrangements. |
2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||||||||||
Operating leases | $ | 589 | $ | 523 | $ | 472 | $ | 412 | $ | 361 | $ | 1,608 | $ | 3,965 | ||||||||||||||
Capital leases and other financing obligations(1) | $ | 44 | $ | 37 | $ | 40 | $ | 38 | $ | 36 | $ | 229 | $ | 424 |
(1) | Capital leases and other financing obligations include payments related to build-to-suit lease arrangements. |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Income before income taxes: | ||||||||||||
United States | $ | 744 | $ | 1,240 | $ | 956 | ||||||
Foreign | 3,581 | 3,646 | 3,667 | |||||||||
TOTAL INCOME BEFORE INCOME TAXES | $ | 4,325 | $ | 4,886 | $ | 4,623 |
As of May 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
(In millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Acquired trademarks and other | $ | 22 | $ | 18 | $ | 4 | $ | 19 | $ | 17 | $ | 2 | ||||||||||||
Indefinite-lived trademarks | 281 | — | 281 | 281 | — | 281 | ||||||||||||||||||
INDENTIFIABLE INTANGIBLE ASSETS, NET | $ | 303 | $ | 18 | $ | 285 | $ | 300 | $ | 17 | $ | 283 |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
REVENUES | ||||||||||||
North America | $ | 14,855 | $ | 15,216 | $ | 14,764 | ||||||
Europe, Middle East & Africa | 9,242 | 7,970 | 7,568 | |||||||||
Greater China | 5,134 | 4,237 | 3,785 | |||||||||
Asia Pacific & Latin America | 5,166 | 4,737 | 4,317 | |||||||||
Global Brand Divisions | 88 | 73 | 73 | |||||||||
Total NIKE Brand | 34,485 | 32,233 | 30,507 | |||||||||
Converse | 1,886 | 2,042 | 1,955 | |||||||||
Corporate | 26 | 75 | (86 | ) | ||||||||
TOTAL NIKE, INC. REVENUES | $ | 36,397 | $ | 34,350 | $ | 32,376 | ||||||
EARNINGS BEFORE INTEREST AND TAXES | ||||||||||||
North America | $ | 3,600 | $ | 3,875 | $ | 3,763 | ||||||
Europe, Middle East & Africa | 1,587 | 1,507 | 1,787 | |||||||||
Greater China | 1,807 | 1,507 | 1,372 | |||||||||
Asia Pacific & Latin America | 1,189 | 980 | 1,002 | |||||||||
Global Brand Divisions | (2,658 | ) | (2,677 | ) | (2,596 | ) | ||||||
Total NIKE Brand | 5,525 | 5,192 | 5,328 | |||||||||
Converse | 310 | 477 | 487 | |||||||||
Corporate | (1,456 | ) | (724 | ) | (1,173 | ) | ||||||
Total NIKE, Inc. Earnings Before Interest and Taxes | 4,379 | 4,945 | 4,642 | |||||||||
Interest expense (income), net | 54 | 59 | 19 | |||||||||
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES | $ | 4,325 | $ | 4,886 | $ | 4,623 | ||||||
ADDITIONS TO LONG-LIVED ASSETS | ||||||||||||
North America | $ | 196 | $ | 223 | $ | 242 | ||||||
Europe, Middle East & Africa | 240 | 173 | 234 | |||||||||
Greater China | 76 | 51 | 44 | |||||||||
Asia Pacific & Latin America | 49 | 59 | 62 | |||||||||
Global Brand Divisions | 286 | 278 | 258 | |||||||||
Total NIKE Brand | 847 | 784 | 840 | |||||||||
Converse | 22 | 30 | 39 | |||||||||
Corporate | 325 | 387 | 312 | |||||||||
TOTAL ADDITIONS TO LONG-LIVED ASSETS | $ | 1,194 | $ | 1,201 | $ | 1,191 | ||||||
DEPRECIATION | ||||||||||||
North America | $ | 160 | $ | 140 | $ | 133 | ||||||
Europe, Middle East & Africa | 116 | 106 | 85 | |||||||||
Greater China | 56 | 54 | 48 | |||||||||
Asia Pacific & Latin America | 55 | 54 | 42 | |||||||||
Global Brand Divisions | 217 | 233 | 230 | |||||||||
Total NIKE Brand | 604 | 587 | 538 | |||||||||
Converse | 33 | 28 | 27 | |||||||||
Corporate | 110 | 91 | 84 | |||||||||
TOTAL DEPRECIATION | $ | 747 | $ | 706 | $ | 649 |
Shares(1) | Weighted Average Option Price | ||||||
(In millions) | |||||||
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 | |||||
Exercised | (17.1 | ) | 20.42 | ||||
Forfeited | (2.3 | ) | 49.47 | ||||
Granted | 12.2 | 57.81 | |||||
Options outstanding May 31, 2017 | 104.8 | 34.79 | |||||
Exercised | (24.1 | ) | 25.07 | ||||
Forfeited | (4.3 | ) | 55.31 | ||||
Granted | 16.8 | 59.08 | |||||
Options outstanding May 31, 2018 | 93.2 | $ | 40.73 | ||||
Options exercisable at May 31, | |||||||
2016 | 66.5 | $ | 21.48 | ||||
2017 | 67.9 | 26.03 | |||||
2018 | 58.5 | 31.60 |
(1) | Includes stock appreciation rights transactions. |
Year Ended May 31, | |||||||||
2018 | 2017 | 2016 | |||||||
Dividend yield | 1.2 | % | 1.1 | % | 1.0 | % | |||
Expected volatility | 16.4 | % | 17.4 | % | 23.6 | % | |||
Weighted average expected life (in years) | 6.0 | 6.0 | 5.8 | ||||||
Risk-free interest rate | 2.0 | % | 1.3 | % | 1.7 | % |
As of May 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(Dollars in millions) | Borrowings | Interest Rate | Borrowings | Interest Rate | ||||||||||||
Notes payable: | ||||||||||||||||
Commercial paper | $ | 325 | 1.77 | % | $ | 325 | 0.86 | % | ||||||||
U.S. operations | 1 | 0.00 | % | (1) | — | 0.00 | % | (1) | ||||||||
Non-U.S. operations | 10 | 18.11 | % | (1) | — | 0.00 | % | (1) | ||||||||
TOTAL NOTES PAYABLE | $ | 336 | $ | 325 | ||||||||||||
Interest-bearing accounts payable: | ||||||||||||||||
Sojitz America | $ | 61 | 2.82 | % | $ | 51 | 1.78 | % |
(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, 2016 | $ | 379 | $ | 788 | $ | (15 | ) | $ | (708 | ) | $ | 444 | ||||||||
For the year ended May 31, 2017 | 444 | 696 | 3 | (800 | ) | 343 | ||||||||||||||
For the year ended May 31, 2018 | 343 | 640 | 5 | (658 | ) | 330 | ||||||||||||||
Allowance for doubtful accounts(2) | ||||||||||||||||||||
For the year ended May 31, 2016 | $ | 78 | $ | 52 | $ | (2 | ) | $ | (85 | ) | $ | 43 | ||||||||
For the year ended May 31, 2017 | 43 | 16 | — | (40 | ) | 19 | ||||||||||||||
For the year ended May 31, 2018 | 19 | 19 | — | (8 | ) | 30 |
(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) | 2018 | 2017 | 2016 | |||||||||
REVENUES | ||||||||||||
North America | $ | 14,855 | $ | 15,216 | $ | 14,764 | ||||||
Europe, Middle East & Africa | 9,242 | 7,970 | 7,568 | |||||||||
Greater China | 5,134 | 4,237 | 3,785 | |||||||||
Asia Pacific & Latin America | 5,166 | 4,737 | 4,317 | |||||||||
Global Brand Divisions | 88 | 73 | 73 | |||||||||
Total NIKE Brand | 34,485 | 32,233 | 30,507 | |||||||||
Converse | 1,886 | 2,042 | 1,955 | |||||||||
Corporate | 26 | 75 | (86 | ) | ||||||||
TOTAL NIKE, INC. REVENUES | $ | 36,397 | $ | 34,350 | $ | 32,376 | ||||||
EARNINGS BEFORE INTEREST AND TAXES | ||||||||||||
North America | $ | 3,600 | $ | 3,875 | $ | 3,763 | ||||||
Europe, Middle East & Africa | 1,587 | 1,507 | 1,787 | |||||||||
Greater China | 1,807 | 1,507 | 1,372 | |||||||||
Asia Pacific & Latin America | 1,189 | 980 | 1,002 | |||||||||
Global Brand Divisions | (2,658 | ) | (2,677 | ) | (2,596 | ) | ||||||
Total NIKE Brand | 5,525 | 5,192 | 5,328 | |||||||||
Converse | 310 | 477 | 487 | |||||||||
Corporate | (1,456 | ) | (724 | ) | (1,173 | ) | ||||||
Total NIKE, Inc. Earnings Before Interest and Taxes | 4,379 | 4,945 | 4,642 | |||||||||
Interest expense (income), net | 54 | 59 | 19 | |||||||||
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES | $ | 4,325 | $ | 4,886 | $ | 4,623 | ||||||
ADDITIONS TO LONG-LIVED ASSETS | ||||||||||||
North America | $ | 196 | $ | 223 | $ | 242 | ||||||
Europe, Middle East & Africa | 240 | 173 | 234 | |||||||||
Greater China | 76 | 51 | 44 | |||||||||
Asia Pacific & Latin America | 49 | 59 | 62 | |||||||||
Global Brand Divisions | 286 | 278 | 258 | |||||||||
Total NIKE Brand | 847 | 784 | 840 | |||||||||
Converse | 22 | 30 | 39 | |||||||||
Corporate | 325 | 387 | 312 | |||||||||
TOTAL ADDITIONS TO LONG-LIVED ASSETS | $ | 1,194 | $ | 1,201 | $ | 1,191 | ||||||
DEPRECIATION | ||||||||||||
North America | $ | 160 | $ | 140 | $ | 133 | ||||||
Europe, Middle East & Africa | 116 | 106 | 85 | |||||||||
Greater China | 56 | 54 | 48 | |||||||||
Asia Pacific & Latin America | 55 | 54 | 42 | |||||||||
Global Brand Divisions | 217 | 233 | 230 | |||||||||
Total NIKE Brand | 604 | 587 | 538 | |||||||||
Converse | 33 | 28 | 27 | |||||||||
Corporate | 110 | 91 | 84 | |||||||||
TOTAL DEPRECIATION | $ | 747 | $ | 706 | $ | 649 |
As of May 31, | ||||||||
(In millions) | 2018 | 2017 | ||||||
ACCOUNTS RECEIVABLE, NET | ||||||||
North America | $ | 1,443 | $ | 1,798 | ||||
Europe, Middle East & Africa | 870 | 690 | ||||||
Greater China | 101 | 102 | ||||||
Asia Pacific & Latin America | 720 | 693 | ||||||
Global Brand Divisions | 102 | 86 | ||||||
Total NIKE Brand | 3,236 | 3,369 | ||||||
Converse | 240 | 297 | ||||||
Corporate | 22 | 11 | ||||||
TOTAL ACCOUNTS RECEIVABLE, NET | $ | 3,498 | $ | 3,677 | ||||
INVENTORIES | ||||||||
North America | $ | 2,270 | $ | 2,218 | ||||
Europe, Middle East & Africa | 1,433 | 1,327 | ||||||
Greater China | 580 | 463 | ||||||
Asia Pacific & Latin America | 687 | 694 | ||||||
Global Brand Divisions | 91 | 68 | ||||||
Total NIKE Brand | 5,061 | 4,770 | ||||||
Converse | 268 | 286 | ||||||
Corporate | (68 | ) | (1 | ) | ||||
TOTAL INVENTORIES | $ | 5,261 | $ | 5,055 | ||||
PROPERTY, PLANT AND EQUIPMENT, NET | ||||||||
North America | $ | 848 | $ | 819 | ||||
Europe, Middle East & Africa | 849 | 709 | ||||||
Greater China | 256 | 225 | ||||||
Asia Pacific & Latin America | 339 | 340 | ||||||
Global Brand Divisions | 597 | 533 | ||||||
Total NIKE Brand | 2,889 | 2,626 | ||||||
Converse | 115 | 125 | ||||||
Corporate | 1,450 | 1,238 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 4,454 | $ | 3,989 |
Year Ended May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Footwear | $ | 22,268 | $ | 21,081 | $ | 19,871 | ||||||
Apparel | 10,733 | 9,654 | 9,067 | |||||||||
Equipment | 1,396 | 1,425 | 1,496 | |||||||||
Other | 2,000 | 2,190 | 1,942 | |||||||||
TOTAL NIKE, INC. REVENUES | $ | 36,397 | $ | 34,350 | $ | 32,376 |
NOTE 7 — Short-Term Borrowings and Credit Lines |
As of May 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(Dollars in millions) | Borrowings | Interest Rate | Borrowings | Interest Rate | ||||||||||||
Notes payable: | ||||||||||||||||
Commercial paper | $ | 325 | 1.77 | % | $ | 325 | 0.86 | % | ||||||||
U.S. operations | 1 | 0.00 | % | (1) | — | 0.00 | % | (1) | ||||||||
Non-U.S. operations | 10 | 18.11 | % | (1) | — | 0.00 | % | (1) | ||||||||
TOTAL NOTES PAYABLE | $ | 336 | $ | 325 | ||||||||||||
Interest-bearing accounts payable: | ||||||||||||||||
Sojitz America | $ | 61 | 2.82 | % | $ | 51 | 1.78 | % |
(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 observable quoted prices 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 with little or no market data available, which require the reporting entity to develop its own assumptions. |
As of May 31, | ||||||||||||
(In millions) | 2018 | 2017 | 2016 | |||||||||
Unrecognized tax benefits, beginning of the period | $ | 461 | $ | 506 | $ | 438 | ||||||
Gross increases related to prior period tax positions | 19 | 31 | 49 | |||||||||
Gross decreases related to prior period tax positions | (12 | ) | (163 | ) | (20 | ) | ||||||
Gross increases related to current period tax positions | 249 | 115 | 81 | |||||||||
Settlements | — | (12 | ) | (13 | ) | |||||||
Lapse of statute of limitations | (20 | ) | (21 | ) | (17 | ) | ||||||
Changes due to currency translation | 1 | 5 | (12 | ) | ||||||||
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD | $ | 698 | $ | 461 | $ | 506 |
Year Ending May 31, | ||||||||||||||||||||||||||||
(In millions) | 2019 | 2020 | 2021 | 2022 | 2023-2039 | Indefinite | Total | |||||||||||||||||||||
Net operating losses | $ | 1 | $ | 5 | $ | 2 | $ | 1 | $ | 91 | $ | 189 | $ | 289 |