Sales and operating results for Hurley products are included within the NIKE Brand's North America geographic operating segment. The company operates in two segments, Athletic Stores and Direct-to-Customers. Form 10-K Nike, Inc. As discussed in Note 17 - Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments. Report of Independent Registered Public Accounting Firm, Consolidated Statements of Income for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016, Consolidated Statements of Comprehensive Income for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016, Consolidated Balance Sheets at May 31, 2018 and May 31, 2017, Consolidated Statements of Cash Flows for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016, Consolidated Statements of Shareholders' Equity for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016, Notes to Consolidated Financial Statements, II - Valuation and Qualifying Accounts for the years ended May 31, 2018, 2017 and 2016. Annual Report 2005 “ Phhilip H. Knightilip H. Knight Chairman of the Board, Nike, Inc. athletes earned Olympic gold in every men’s running event except the marathon. The total intrinsic value of the options exercised during the years ended May 31, 2018 , 2017 and 2016 was $889 million , $594 million and $946 million , respectively. We also require these contractors to comply with applicable standards for product safety. Company contributions to the savings plan were $80 million , $75 million and $72 million and included in Cost of sales or Operating overhead expense , as applicable, for the years ended May 31, 2018 , 2017 and 2016 , respectively. The Company leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets under operating leases. The increase in currency-neutral footwear revenue for fiscal 2017 was attributable to growth in all key categories, most notably Running and Sportswear. The Company had no interest rate swaps designated as fair value hedges as of May 31, 2018. There are no differences in the dividend and liquidation preferences or participation rights of the holders of Class A and Class B Common Stock. Retail store revenues are recorded at the time of sale and digital commerce revenues are recorded upon delivery to the customer. In addition, we own many other trademarks that we utilize in marketing our products. Our audits also included performing such other procedures as we considered necessary in the circumstances. At May 31, 2017, the indefinitely reinvested earnings in foreign subsidiaries upon which United States income taxes had not been provided were approximately $12.2 billion . The carrying amounts of other current financial assets and other current financial liabilities approximate fair value. In certain European countries, we are required by local law to enter into and/or comply with industry-wide or national collective bargaining agreements. Conversely, a weakening U.S. Dollar against the indexed foreign currencies increases our inventory cost. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. Risks include, but are not limited to: credit card fraud; mismanagement of existing retail channel partners; and inability to manage costs associated with store construction and operation. Under this facility, we have agreed to various covenants. For fiscal 2017, unit sales of footwear increased 5% and higher ASP per pair contributed approximately 3 percentage points of footwear revenue growth. The weighted average assumptions used to estimate these fair values are as follows: Weighted average expected life (in years). in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. Corporate Governance … Accelerated stock option expense was $18 million , $14 million and $30 million for the years ended May 31, 2018 , 2017 and 2016 , respectively. As the Company completes its analysis of the Tax Act, including collecting, preparing and analyzing necessary information, performing and refining calculations and obtaining additional guidance from the IRS, U.S. Treasury Department, FASB or other standard setting and regulatory bodies on the Tax Act, it may record adjustments to the provisional amounts, which may be material. One of our wholly-owned subsidiary brands, Converse, headquartered in Boston, Massachusetts, designs, distributes and licenses casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks. The Company historically provided for U.S. income taxes on the undistributed earnings of foreign subsidiaries unless they were considered indefinitely reinvested outside the United States. The executive officers of NIKE, Inc. as of July 24, 2018 are as follows: Mark G. Parker, Chairman, President and Chief Executive Officer - Mr. Parker, 62, was appointed President and Chief Executive Officer in January 2006 and named Chairman of the Board in June 2016. Prior year amounts have been updated to reflect the adoption of Accounting Standards Update No. The Company's Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs. The update to the standard is effective for the Company on June 1, 2019, with early adoption permitted in any interim period. The scheduled maturity of Long-term debt in each of the years ending May 31, 2019 through 2023 are $6 million , $6 million , $3 million , $0 million and $500 million , respectively, at face value. Unit sales of apparel increased 4% and higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth, primarily due to higher ASPs from full-price, off-price and NIKE Direct sales. The Company leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets under operating leases expiring from 1 to 17 years after May 31, 2018 . In February 2018, the FASB issued Accounting Standards Update (ASU) No. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories and influencing sports and fitness preferences through extensive marketing. Dollars. Opinions on the Financial Statements and Internal Control over Financial Reporting. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. These changes had no impact on previously reported consolidated results of operations or shareholders' equity. Our NIKE Direct operations, both through our digital commerce operations and retail stores, also compete with multi-brand retailers selling our products. As of May 31, 2018 and 2017 , the Company had letters of credit outstanding totaling $165 million and $152 million , respectively. Great running is dependent on recovery. Negative publicity regarding production methods, alleged practices or workplace or related conditions of any of our suppliers, manufacturers or licensees could adversely affect our brand image and sales and force us to locate alternative suppliers, manufacturers or licenses. The NTC, whose functional currency is the U.S. Dollar, then sells the products to NIKE entities in their respective functional currencies. To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Currency-neutral apparel revenues grew 15% for fiscal 2018, driven by higher revenues in every key category, most notably Sportswear and, to a lesser extent, Football (Soccer), Training and NIKE Basketball. if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. We may hedge certain foreign currency exposures to lessen and delay, but not to completely eliminate, the effects of foreign currency fluctuations on our financial results. a detrimental change of $196 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin. For fiscal 2018, lower revenues from North America and Converse each reduced NIKE, Inc. Technical innovation in the design and manufacturing process of footwear, apparel and athletic equipment receives continued emphasis as we strive to produce products that help to enhance athletic performance, reduce injury and maximize comfort, while reducing waste. We could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities or increased volatility in our effective tax rate. NIKE, Inc. gross margin decreased 80 basis points primarily due to foreign currency exchange rate headwinds. The largest single footwear factory accounted for approximately 9% of total fiscal 2018 NIKE Brand footwear production. In 2011, her responsibilities expanded, and she became Vice President, General Counsel and Corporate Affairs. As a result, we may not be able to accurately predict our quarterly sales. Swoosh, LLC was formed by Philip H. Knight, our Chairman Emeritus, to hold the majority of his shares of Class A Common Stock. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from our estimates. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results, financial condition and cash flows. Converse is also a reportable segment for the Company, and operates in one industry: the design, marketing, licensing and selling of casual sneakers, apparel and accessories. Annual Report Scroll. References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations. Certain prior year amounts have been reclassified to conform to fiscal 2018 presentation. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. Our principal business activity is the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. Selling and administrative expense increased due to higher operating overhead costs primarily resulting from ongoing investments in our growing NIKE Direct business, partially offset by administrative cost efficiencies. Based in New York City, New York. The principal materials used in our footwear products are natural and synthetic rubber, plastic compounds, foam cushioning materials, natural and synthetic leather, nylon, polyester and canvas, as well as polyurethane films used to make NIKE Air-Sole cushioning components. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Any delays, interruption or increased costs in labor or wages, or the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short- and long-term. The exercise price for stock options and stock appreciation rights may not be less than the fair market value of the underlying shares on the date of grant. If any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. We file for, own and maintain many U.S. and foreign utility patents, as well as many U.S. and foreign design patents protecting components, technologies, materials, manufacturing techniques, features, functionality, and industrial and aesthetic designs used in and for the manufacture of various athletic and leisure footwear and apparel, athletic equipment and digital devices and related software applications. Our accounting systems include controls designed to reasonably assure assets are safeguarded from unauthorized use or disposition and provide for the preparation of financial statements in conformity with U.S. GAAP. 2016-02, Leases (Topic 842) , which replaces existing lease accounting guidance. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions. Analysts' estimates are based upon their own opinions and are often different from our estimates or expectations. Long-lived assets attributable to operations in Japan were $237 million and $223 million at May 31, 2018 and 2017 , respectively. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. On a currency-neutral basis, APLA revenues for fiscal 2017 increased 13%. NIKE is supplied by 124 footwear factories located in 13 countries. If, on June 30, 2018, all of these shares were converted into Class B Common Stock, the commensurate ownership percentage of our Class B Common Stock would be approximately 17%. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Comparable direct distribution market unit sales decreased 14%, while higher ASP per unit contributed approximately 2 percentage points of direct distribution markets revenue growth. As a result of this organizational realignment, beginning in fiscal 2018, the Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA). NIKE designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide. This, in addition to rapid changes in technology and consumer preferences in the markets for athletic and leisure footwear and apparel and athletic equipment, constitute significant risk factors in our operations. Letter from the CEO. We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. Our international operations and sources of supply are subject to the usual risks of doing business abroad, such as the implementation of, or potential changes in, foreign and domestic trade policies, increases in import duties, anti-dumping measures, quotas, safeguard measures, trade restrictions, restrictions on the transfer of funds and, in certain parts of the world, political instability and terrorism. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. Fifth Restated Bylaws, as amended (see Exhibit 3.2). They help to make the bag and checkout process possible as well as assisting in security issues and conforming to regulations. The Company records these costs in Demand creation expense at the point in time when it is obligated to its customers for the costs. Income before income taxes is as follows: The provision for income taxes is as follows: On December 22, 2017, the United States enacted the Tax Act, which significantly changes previous U.S. tax laws, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, a reduction in the corporate tax rate from 35% to 21%, as well as other changes. If our credit ratings are lowered, borrowing costs for future long-term debt or short-term credit facilities may increase and our financing options, including our access to the unsecured credit market, could be limited. Reported EBIT decreased 2%, in part reflecting the negative impact of changes in foreign currency exchange rates, primarily the Argentine Peso and Mexican Peso. For fiscal 2018 , contract factories in China, Vietnam and Thailand produced approximately 26%, 18% and 10% of total NIKE Brand apparel, respectively. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default, or our assets deposited or held in accounts with such counterparty, may be limited by the counterparty's liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. We currently license, and expect to continue licensing, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. XBRL Taxonomy Extension Calculation Linkbase, XBRL Taxonomy Extension Definition Document, XBRL Taxonomy Extension Presentation Linkbase. Virtually all of our apparel is manufactured outside of the United States by independent contract manufacturers which often operate multiple factories. The information required by Item 403 of Regulation S-K is included under "Election of Directors - Stock Holdings of Certain Owners and Management" in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and marketing activities. NIKE, Inc. Form 10-K (Filer) Published: 2020-07-24 16:07:45 Submitted: 2020-07-24 Filing Agent: NIKE, Inc. Period Ending In: 2020-05-31 Interactive XBRL Filing. Operating overhead also increased primarily due to continued investments in our growing NIKE Direct business and, to a lesser extent, higher administrative costs. During fiscal 2018 , Sojitz America provided financing and purchasing services for NIKE Brand products sold in certain NIKE markets including Argentina, Brazil, Canada, India, South Africa and Uruguay, excluding products produced and sold in the same country. A contingent rent liability is recognized together with the corresponding rent expense when specified levels have been achieved or when the Company determines that achieving the specified levels during the period is probable. The Company's Level 3 assets comprise investments in certain non-marketable preferred stock. Dollar currency pairs. Although we continue to evaluate the impact, at current rates, we do not anticipate the re-measurement to have a material impact on our results of operations or financial condition. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others. The currency-neutral increase in NIKE Brand apparel revenues for fiscal 2018 was fueled by growth in nearly all key categories, most notably Sportswear, NIKE Basketball and Football (Soccer). Refer to Note 9 - Income Taxes for additional information. The Corporate loss before interest and taxes largely consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses. To get more information about these cookies and the processing of your personal data, check our Privacy & Cookie Policy. The NIKE Brand is focused on performance athletic footwear, apparel, equipment, accessories and services across a wide range of sport categories, amplified with sport-inspired sportswear products carrying the Swoosh trademark, as well as other NIKE Brand trademarks. Currently, the Company has several such agreements in place. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our NIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers. NIKE, Inc. is a worldwide leader in the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. In addition to the products we sell to our wholesale customers and directly to consumers through our NIKE Direct operations, we have also entered into license agreements that permit unaffiliated parties to manufacture and sell, using NIKE-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. The VaR model estimates assume normal market conditions and a 95% confidence level. On August 28, 2015, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $2 billion of borrowings. Footwear Index consists of NIKE, Deckers Outdoor Corporation, Skechers U.S.A., Inc., Steven Madden, Ltd. and Wolverine World Wide, Inc. Because NIKE is part of the Dow Jones U.S. As of May 31, 2018 and 2017 , assets or liabilities required to be measured at fair value on a non-recurring basis were immaterial. New $15 Billion Share Repurchase Program Announced NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2018 fourth quarter and full year ended May 31, 2018. We establish relationships with professional athletes, sports teams and leagues, as well as other public figures, to develop, evaluate and promote our products, as well as establish product authenticity with consumers. Reported EBIT increased 5% for fiscal 2018 due to revenue growth and slight selling and administrative expense leverage, which was partially offset by gross margin contraction. Moreover, NIKE operates in a very competitive and rapidly changing environment. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. Actual results could differ from these estimates. Net of tax (benefit) expense of $ 0 million , $ (3) million , $ 0 million , $ (3) million and $ (6) million , respectively. Any litigation could result in reputational damage, substantial costs and a diversion of management's attention and resources needed to successfully run our business. These undesignated instruments are recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other expense (income), net , together with the re-measurement gain or loss from the hedged balance sheet position and/or embedded derivative contract. The Company recognizes interest and penalties related to income tax matters in Income tax expense . Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Note 1 - Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. In May 2014, the FASB issued ASU No. Our success depends on our ability to identify, originate and define product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. The Company, similar to many other multinational corporations, does a significant amount of business that would be impacted by changes to the trade policies of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). The athletic footwear, apparel and equipment industry is highly competitive on a worldwide basis. Tax effects unrelated to the Tax Act are released from  Accumulated other comprehensive income  using either the specific identification approach or the portfolio approach based on the nature of the underlying item. Selling and administrative expense increased due to higher demand creation expense driven by sports marketing and advertising costs. Therefore, we consider the interest rate and foreign currency market risks associated with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows. As of May 31, 2018 and 2017 , the Company's reserve balances for post-invoice sales discounts, returns and miscellaneous claims were $675 million and $643 million , respectively. Reported EBIT decreased 16% for fiscal 2017, in part reflecting the negative impact of weakening foreign currency exchange rates. The NIKE Brand, which represents over 90% of NIKE, Inc. We are subject to taxation in the United States, as well as various state and foreign jurisdictions. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. The transition tax is based on the Company's estimated total post-1986 undistributed foreign earnings at a tax rate of 15.5% for foreign cash and certain other specified assets, and 8% on the remaining earnings. Copies of these filings may also be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330 and are available on the SEC's website ( www.sec.gov ). The net change in working capital and other assets and liabilities resulted in an increase of $1,482 million for fiscal 2018, compared to a decrease of $935 million for fiscal 2017. 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