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NOTE 1 — Summary of Significant Accounting Policies |
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NOTE 2 — Inventories |
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NOTE 3 — Identifiable Intangible Assets and Goodwill |
As of February 28, 2014 | As of May 31, 2013 | |||||||||||||||||||||||
(In millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Amortized intangible assets: | ||||||||||||||||||||||||
Patents | $ | 132 | $ | (40 | ) | $ | 92 | $ | 119 | $ | (35 | ) | $ | 84 | ||||||||||
Trademarks | 46 | (37 | ) | 9 | 43 | (32 | ) | 11 | ||||||||||||||||
Other | 19 | (17 | ) | 2 | 20 | (16 | ) | 4 | ||||||||||||||||
TOTAL | $ | 197 | $ | (94 | ) | $ | 103 | $ | 182 | $ | (83 | ) | $ | 99 | ||||||||||
Unamortized intangible assets — Trademarks | 283 | 283 | ||||||||||||||||||||||
IDENTIFIABLE INTANGIBLE ASSETS, NET | $ | 386 | $ | 382 |
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NOTE 4 — Accrued Liabilities |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
Compensation and benefits, excluding taxes | $ | 693 | $ | 713 | ||||
Endorsement compensation | 237 | 264 | ||||||
Dividends payable | 211 | 188 | ||||||
Taxes other than income taxes | 188 | 192 | ||||||
Import and logistics costs | 134 | 111 | ||||||
Advertising and marketing | 127 | 77 | ||||||
Fair value of derivatives | 111 | 34 | ||||||
Other(1) | 602 | 503 | ||||||
TOTAL ACCRUED LIABILITIES | $ | 2,303 | $ | 2,082 |
(1) | Other consists of various accrued expenses with no individual item accounting for more than 5% of the total accrued liabilities balance at February 28, 2014 and May 31, 2013. |
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NOTE 5 — Fair Value Measurements |
• | Level 1: Observable inputs such as 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 February 28, 2014 | ||||||||||||||||||
Fair Value Measurements Using | Assets/Liabilities at Fair Value | |||||||||||||||||
(In millions) | Level 1 | Level 2 | Level 3 | Balance Sheet Classification | ||||||||||||||
ASSETS | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 120 | $ | — | $ | 120 | Other current assets and other long-term assets | |||||||||
Embedded derivatives | — | 1 | — | 1 | Other current assets | |||||||||||||
Interest rate swap contracts | — | 7 | — | 7 | Other long-term assets | |||||||||||||
Total derivatives | — | 128 | — | 128 | ||||||||||||||
Available-for-sale securities: | ||||||||||||||||||
U.S. Treasury securities | — | — | — | — | Cash and equivalents | |||||||||||||
U.S. Agency securities | — | — | — | — | Cash and equivalents | |||||||||||||
Commercial paper and bonds | — | 150 | — | 150 | Cash and equivalents | |||||||||||||
Money market funds | — | 870 | — | 870 | Cash and equivalents | |||||||||||||
U.S. Treasury securities | 1,474 | — | — | 1,474 | Short-term investments | |||||||||||||
U.S. Agency securities | — | 868 | — | 868 | Short-term investments | |||||||||||||
Commercial paper and bonds | — | 823 | — | 823 | Short-term investments | |||||||||||||
Non-marketable preferred stock | — | — | 6 | 6 | Other long-term assets | |||||||||||||
Total available-for-sale securities | 1,474 | 2,711 | 6 | 4,191 | ||||||||||||||
TOTAL ASSETS | $ | 1,474 | $ | 2,839 | $ | 6 | $ | 4,319 | ||||||||||
LIABILITIES | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 116 | $ | — | $ | 116 | Accrued liabilities and other long-term liabilities | |||||||||
Embedded derivatives | — | 1 | — | 1 | Accrued liabilities | |||||||||||||
TOTAL LIABILITIES | $ | — | $ | 117 | $ | — | $ | 117 |
(1) | The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. The Company elects to record the gross assets and liabilities of its derivative financial instruments in the consolidated balance sheets. If the derivative financial instruments had been netted in the consolidated balance sheets, the asset and liability positions each would have been reduced by $70 million. No material amounts of collateral were received or posted on the Company’s derivative assets and liabilities as of February 28, 2014. |
As of May 31, 2013 | ||||||||||||||||||
Fair Value Measurements Using | Assets/Liabilities at Fair Value | |||||||||||||||||
(In millions) | Level 1 | Level 2 | Level 3 | Balance Sheet Classification | ||||||||||||||
ASSETS | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 278 | $ | — | $ | 278 | Other current assets and other long-term assets | |||||||||
Interest rate swap contracts | — | 11 | — | 11 | Other current assets and other long-term assets | |||||||||||||
Total derivatives | — | 289 | — | 289 | ||||||||||||||
Available-for-sale securities: | ||||||||||||||||||
U.S. Treasury securities | 425 | — | — | 425 | Cash and equivalents | |||||||||||||
U.S. Agency securities(2) | — | 395 | — | 395 | Cash and equivalents | |||||||||||||
Commercial paper and bonds(2) | — | 660 | — | 660 | Cash and equivalents | |||||||||||||
Money market funds | — | 836 | — | 836 | Cash and equivalents | |||||||||||||
U.S. Treasury securities | 1,583 | — | — | 1,583 | Short-term investments | |||||||||||||
U.S. Agency securities(2) | — | 631 | — | 631 | Short-term investments | |||||||||||||
Commercial paper and bonds(2) | — | 414 | — | 414 | Short-term investments | |||||||||||||
Non-marketable preferred stock | — | — | 5 | 5 | Other long-term assets | |||||||||||||
Total available-for-sale securities | 2,008 | 2,936 | 5 | 4,949 | ||||||||||||||
TOTAL ASSETS | $ | 2,008 | $ | 3,225 | $ | 5 | $ | 5,238 | ||||||||||
LIABILITIES | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 34 | $ | — | $ | 34 | Accrued liabilities and other long-term liabilities | |||||||||
TOTAL LIABILITIES | $ | — | $ | 34 | $ | — | $ | 34 |
(1) | The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. The Company elects to record the gross assets and liabilities of its derivative financial instruments in the consolidated balance sheets. If the derivative financial instruments had been netted in the consolidated balance sheets, the asset and liability positions each would have been reduced by $34 million. No material amounts of collateral were received or posted on the Company’s derivative assets and liabilities as of May 31, 2013. |
(2) | Amounts have been revised to reflect proper classification between U.S. Agency securities and commercial paper and bonds. |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
Available-for-sale securities: | ||||||||
U.S. Treasury and Agency | $ | 2,342 | $ | 2,214 | ||||
Commercial paper and bonds | 823 | 414 | ||||||
TOTAL AVAILABLE-FOR-SALE SECURITIES | $ | 3,165 | $ | 2,628 |
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NOTE 6 — Income Taxes |
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NOTE 7 — Stock-Based Compensation |
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Stock options(1) | $ | 32 | $ | 32 | $ | 93 | $ | 90 | ||||||||
ESPPs | 5 | 4 | 16 | 14 | ||||||||||||
Restricted stock | 6 | 9 | 22 | 24 | ||||||||||||
TOTAL STOCK-BASED COMPENSATION EXPENSE | $ | 43 | $ | 45 | $ | 131 | $ | 128 |
(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 three month periods ended February 28, 2014 and 2013 was $3 million and $6 million, respectively, and for the nine month periods ended February 28, 2014 and 2013 was $11 million and $16 million, respectively. |
Nine Months Ended February 28, | ||||||
2014 | 2013 | |||||
Dividend yield | 1.3 | % | 1.5 | % | ||
Expected volatility | 27.9 | % | 35.0 | % | ||
Weighted average expected life (in years) | 5.3 | 5.3 | ||||
Risk-free interest rate | 1.3 | % | 0.6 | % |
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NOTE 9 — Risk Management and Derivatives |
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
(In millions) | Balance Sheet Location | February 28, 2014 | May 31, 2013 | Balance Sheet Location | February 28, 2014 | May 31, 2013 | ||||||||||||||
Derivatives formally designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 79 | $ | 141 | Accrued liabilities | $ | 82 | $ | 12 | ||||||||||
Foreign exchange forwards and options | Deferred income taxes and other long-term assets | 20 | 79 | Deferred income taxes and other long-term liabilities | 6 | — | ||||||||||||||
Interest rate swap contracts | Deferred income taxes and other long-term assets | 7 | 11 | Deferred income taxes and other long-term liabilities | — | — | ||||||||||||||
Total derivatives formally designated as hedging instruments | 106 | 231 | 88 | 12 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | 21 | 58 | Accrued liabilities | 28 | 22 | ||||||||||||||
Embedded derivatives | Prepaid expenses and other current assets | 1 | — | Accrued liabilities | 1 | — | ||||||||||||||
Total derivatives not designated as hedging instruments | 22 | 58 | 29 | 22 | ||||||||||||||||
TOTAL DERIVATIVES | $ | 128 | $ | 289 | $ | 117 | $ | 34 |
(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) | ||||||||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income(1) | Three Months Ended February 28, | Nine Months Ended February 28, | ||||||||||||||
2014 | 2014 | 2014 | 2014 | |||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | (20 | ) | $ | (39 | ) | Revenue | $ | (1 | ) | $ | 20 | ||||||
Foreign exchange forwards and options | (12 | ) | (100 | ) | Cost of sales | (5 | ) | 18 | ||||||||||
Foreign exchange forwards and options | 1 | 4 | Selling and administrative expense | — | — | |||||||||||||
Foreign exchange forwards and options | (5 | ) | (28 | ) | Other expense (income), net | (5 | ) | 6 | ||||||||||
Total designated cash flow hedges | $ | (36 | ) | $ | (163 | ) | $ | (11 | ) | $ | 44 | |||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | — | $ | — | Other expense (income), net | $ | — | $ | — |
(1) | For the three and nine months ended February 28, 2014, 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. |
(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) | ||||||||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income(1) | Three Months Ended February 28, | Nine Months Ended February 28, | ||||||||||||||
2013 | 2013 | 2013 | 2013 | |||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | 37 | $ | 41 | Revenue | $ | (3 | ) | $ | (28 | ) | |||||||
Foreign exchange forwards and options | 60 | 17 | Cost of sales | 26 | 109 | |||||||||||||
Foreign exchange forwards and options | (1 | ) | (3 | ) | Selling and administrative expense | 1 | 2 | |||||||||||
Foreign exchange forwards and options | 25 | 15 | Other expense (income), net | (4 | ) | 9 | ||||||||||||
Total designated cash flow hedges | $ | 121 | $ | 70 | $ | 20 | $ | 92 | ||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | — | $ | — | Other expense (income), net | $ | — | $ | — |
(1) | For the three and nine months ended February 28, 2013, 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. |
Amount of Gain (Loss) Recognized in Income on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives | |||||||||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||||||
Interest rate swaps(1) | $ | 1 | $ | 1 | $ | 3 | $ | 4 | Interest expense (income), net | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||
Foreign exchange forwards and options | $ | (11 | ) | $ | 37 | $ | (50 | ) | $ | (14 | ) | Other expense (income), net | ||||||
Embedded derivatives | $ | 1 | $ | — | $ | — | $ | (3 | ) | Other expense (income), net |
(1) | All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements 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. |
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NOTE 10 — Accumulated Other Comprehensive Income |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at November 30, 2013 | $ | 24 | $ | 28 | $ | 95 | $ | (57 | ) | $ | 90 | |||||||||
Other comprehensive gains (losses) before reclassifications (2) | (34 | ) | (31 | ) | — | (3 | ) | (68 | ) | |||||||||||
Reclassifications to net income of previously deferred (gains) losses (3) | — | 10 | — | 1 | 11 | |||||||||||||||
Other comprehensive income (loss) | (34 | ) | (21 | ) | — | (2 | ) | (57 | ) | |||||||||||
Balance at February 28, 2014 | $ | (10 | ) | $ | 7 | $ | 95 | $ | (59 | ) | $ | 33 |
(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, $5 million, $0 million, $0 million, and $5 million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $(1) million, $0 million, $0 million, and $(1) million, respectively. |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at May 31, 2013 | $ | 41 | $ | 193 | $ | 95 | $ | (55 | ) | $ | 274 | |||||||||
Other comprehensive gains (losses) before reclassifications (2) | (51 | ) | (151 | ) | — | (7 | ) | (209 | ) | |||||||||||
Reclassifications to net income of previously deferred (gains) losses (3) | — | (35 | ) | — | 3 | (32 | ) | |||||||||||||
Other comprehensive income (loss) | (51 | ) | (186 | ) | — | (4 | ) | (241 | ) | |||||||||||
Balance at February 28, 2014 | $ | (10 | ) | $ | 7 | $ | 95 | $ | (59 | ) | $ | 33 |
(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, $12 million, $0 million, $0 million, and $12 million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $9 million, $0 million, $0 million, and $9 million, respectively. |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||
(In millions) | 2014 | 2014 | ||||||||
Gains (losses) on cash flow hedges: | ||||||||||
Foreign exchange forwards and options | $ | (1 | ) | $ | 20 | Revenue | ||||
Foreign exchange forwards and options | (5 | ) | 18 | Cost of sales | ||||||
Foreign exchange forwards and options | — | — | Selling and administrative expense | |||||||
Foreign exchange forwards and options | (5 | ) | 6 | Other expense (income), net | ||||||
Total before tax | (11 | ) | 44 | |||||||
Tax benefit (expense) | 1 | (9 | ) | |||||||
Gain (loss) net of tax | (10 | ) | 35 | |||||||
Gains (losses) on other | (1 | ) | (3 | ) | Other expense (income), net | |||||
Total before tax | (1 | ) | (3 | ) | ||||||
Tax benefit (expense) | — | — | ||||||||
Gain (loss) net of tax | (1 | ) | (3 | ) | ||||||
Total net gain (loss) reclassified for the period | $ | (11 | ) | $ | 32 |
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NOTE 11 — Discontinued Operations |
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues | $ | — | $ | 132 | $ | — | $ | 513 | ||||||||
Income before income taxes | — | 345 | — | 107 | ||||||||||||
Income tax expense | — | 141 | — | 58 | ||||||||||||
Net income from discontinued operations | $ | — | $ | 204 | $ | — | $ | 49 |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
Accounts payable | $ | — | $ | 1 | ||||
Accrued liabilities | — | 17 | ||||||
TOTAL LIABILITIES | $ | — | $ | 18 |
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NOTE 12 — Operating Segments |
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
REVENUE | ||||||||||||||||
North America | $ | 3,069 | $ | 2,737 | $ | 9,005 | $ | 8,167 | ||||||||
Western Europe | 1,292 | 1,057 | 3,667 | 3,141 | ||||||||||||
Central & Eastern Europe | 356 | 303 | 1,017 | 882 | ||||||||||||
Greater China | 697 | 641 | 1,900 | 1,800 | ||||||||||||
Japan | 177 | 195 | 545 | 632 | ||||||||||||
Emerging Markets | 937 | 867 | 2,869 | 2,838 | ||||||||||||
Global Brand Divisions | 26 | 29 | 89 | 84 | ||||||||||||
Total NIKE Brand | 6,554 | 5,829 | 19,092 | 17,544 | ||||||||||||
Converse | 420 | 361 | 1,274 | 1,095 | ||||||||||||
Corporate | (2 | ) | (3 | ) | 8 | (23 | ) | |||||||||
TOTAL NIKE CONSOLIDATED REVENUES | $ | 6,972 | $ | 6,187 | $ | 20,374 | $ | 18,616 | ||||||||
EARNINGS BEFORE INTEREST AND TAXES | ||||||||||||||||
North America | $ | 726 | $ | 653 | $ | 2,188 | $ | 1,863 | ||||||||
Western Europe | 275 | 179 | 663 | 501 | ||||||||||||
Central & Eastern Europe | 79 | 64 | 208 | 155 | ||||||||||||
Greater China | 234 | 218 | 601 | 570 | ||||||||||||
Japan | 21 | 24 | 92 | 92 | ||||||||||||
Emerging Markets | 229 | 216 | 682 | 735 | ||||||||||||
Global Brand Divisions | (533 | ) | (414 | ) | (1,461 | ) | (1,280 | ) | ||||||||
Total NIKE Brand | 1,031 | 940 | 2,973 | 2,636 | ||||||||||||
Converse | 133 | 121 | 402 | 336 | ||||||||||||
Corporate | (272 | ) | (205 | ) | (710 | ) | (608 | ) | ||||||||
Total NIKE Consolidated Earnings Before Interest and Taxes | 892 | 856 | 2,665 | 2,364 | ||||||||||||
Interest expense (income), net | 9 | (2 | ) | 25 | (6 | ) | ||||||||||
TOTAL NIKE CONSOLIDATED EARNINGS BEFORE TAXES | $ | 883 | $ | 858 | $ | 2,640 | $ | 2,370 |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
ACCOUNTS RECEIVABLE, NET | ||||||||
North America | $ | 1,559 | $ | 1,459 | ||||
Western Europe | 379 | 375 | ||||||
Central & Eastern Europe | 310 | 287 | ||||||
Greater China | 51 | 56 | ||||||
Japan | 113 | 154 | ||||||
Emerging Markets | 669 | 574 | ||||||
Global Brand Divisions | 45 | 29 | ||||||
Total NIKE Brand | 3,126 | 2,934 | ||||||
Converse | 214 | 131 | ||||||
Corporate | 15 | 52 | ||||||
TOTAL ACCOUNTS RECEIVABLE, NET | $ | 3,355 | $ | 3,117 | ||||
INVENTORIES | ||||||||
North America | $ | 1,764 | $ | 1,668 | ||||
Western Europe | 635 | 562 | ||||||
Central & Eastern Europe | 215 | 207 | ||||||
Greater China | 240 | 209 | ||||||
Japan | 105 | 69 | ||||||
Emerging Markets | 638 | 567 | ||||||
Global Brand Divisions | 13 | 34 | ||||||
Total NIKE Brand | 3,610 | 3,316 | ||||||
Converse | 207 | 210 | ||||||
Corporate | 8 | 4 | ||||||
TOTAL INVENTORIES | $ | 3,825 | $ | 3,530 | ||||
PROPERTY, PLANT AND EQUIPMENT, NET | ||||||||
North America | $ | 518 | $ | 424 | ||||
Western Europe | 355 | 327 | ||||||
Central & Eastern Europe | 48 | 44 | ||||||
Greater China | 218 | 213 | ||||||
Japan | 257 | 269 | ||||||
Emerging Markets | 113 | 89 | ||||||
Global Brand Divisions | 559 | 472 | ||||||
Total NIKE Brand | 2,068 | 1,838 | ||||||
Converse | 59 | 52 | ||||||
Corporate | 609 | 562 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 2,736 | $ | 2,452 |
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NOTE 13 — Commitments and Contingencies |
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As of February 28, 2014 | As of May 31, 2013 | |||||||||||||||||||||||
(In millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Amortized intangible assets: | ||||||||||||||||||||||||
Patents | $ | 132 | $ | (40 | ) | $ | 92 | $ | 119 | $ | (35 | ) | $ | 84 | ||||||||||
Trademarks | 46 | (37 | ) | 9 | 43 | (32 | ) | 11 | ||||||||||||||||
Other | 19 | (17 | ) | 2 | 20 | (16 | ) | 4 | ||||||||||||||||
TOTAL | $ | 197 | $ | (94 | ) | $ | 103 | $ | 182 | $ | (83 | ) | $ | 99 | ||||||||||
Unamortized intangible assets — Trademarks | 283 | 283 | ||||||||||||||||||||||
IDENTIFIABLE INTANGIBLE ASSETS, NET | $ | 386 | $ | 382 |
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As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
Compensation and benefits, excluding taxes | $ | 693 | $ | 713 | ||||
Endorsement compensation | 237 | 264 | ||||||
Dividends payable | 211 | 188 | ||||||
Taxes other than income taxes | 188 | 192 | ||||||
Import and logistics costs | 134 | 111 | ||||||
Advertising and marketing | 127 | 77 | ||||||
Fair value of derivatives | 111 | 34 | ||||||
Other(1) | 602 | 503 | ||||||
TOTAL ACCRUED LIABILITIES | $ | 2,303 | $ | 2,082 |
(1) | Other consists of various accrued expenses with no individual item accounting for more than 5% of the total accrued liabilities balance at February 28, 2014 and May 31, 2013. |
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As of February 28, 2014 | ||||||||||||||||||
Fair Value Measurements Using | Assets/Liabilities at Fair Value | |||||||||||||||||
(In millions) | Level 1 | Level 2 | Level 3 | Balance Sheet Classification | ||||||||||||||
ASSETS | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 120 | $ | — | $ | 120 | Other current assets and other long-term assets | |||||||||
Embedded derivatives | — | 1 | — | 1 | Other current assets | |||||||||||||
Interest rate swap contracts | — | 7 | — | 7 | Other long-term assets | |||||||||||||
Total derivatives | — | 128 | — | 128 | ||||||||||||||
Available-for-sale securities: | ||||||||||||||||||
U.S. Treasury securities | — | — | — | — | Cash and equivalents | |||||||||||||
U.S. Agency securities | — | — | — | — | Cash and equivalents | |||||||||||||
Commercial paper and bonds | — | 150 | — | 150 | Cash and equivalents | |||||||||||||
Money market funds | — | 870 | — | 870 | Cash and equivalents | |||||||||||||
U.S. Treasury securities | 1,474 | — | — | 1,474 | Short-term investments | |||||||||||||
U.S. Agency securities | — | 868 | — | 868 | Short-term investments | |||||||||||||
Commercial paper and bonds | — | 823 | — | 823 | Short-term investments | |||||||||||||
Non-marketable preferred stock | — | — | 6 | 6 | Other long-term assets | |||||||||||||
Total available-for-sale securities | 1,474 | 2,711 | 6 | 4,191 | ||||||||||||||
TOTAL ASSETS | $ | 1,474 | $ | 2,839 | $ | 6 | $ | 4,319 | ||||||||||
LIABILITIES | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 116 | $ | — | $ | 116 | Accrued liabilities and other long-term liabilities | |||||||||
Embedded derivatives | — | 1 | — | 1 | Accrued liabilities | |||||||||||||
TOTAL LIABILITIES | $ | — | $ | 117 | $ | — | $ | 117 |
(1) | The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. The Company elects to record the gross assets and liabilities of its derivative financial instruments in the consolidated balance sheets. If the derivative financial instruments had been netted in the consolidated balance sheets, the asset and liability positions each would have been reduced by $70 million. No material amounts of collateral were received or posted on the Company’s derivative assets and liabilities as of February 28, 2014. |
As of May 31, 2013 | ||||||||||||||||||
Fair Value Measurements Using | Assets/Liabilities at Fair Value | |||||||||||||||||
(In millions) | Level 1 | Level 2 | Level 3 | Balance Sheet Classification | ||||||||||||||
ASSETS | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 278 | $ | — | $ | 278 | Other current assets and other long-term assets | |||||||||
Interest rate swap contracts | — | 11 | — | 11 | Other current assets and other long-term assets | |||||||||||||
Total derivatives | — | 289 | — | 289 | ||||||||||||||
Available-for-sale securities: | ||||||||||||||||||
U.S. Treasury securities | 425 | — | — | 425 | Cash and equivalents | |||||||||||||
U.S. Agency securities(2) | — | 395 | — | 395 | Cash and equivalents | |||||||||||||
Commercial paper and bonds(2) | — | 660 | — | 660 | Cash and equivalents | |||||||||||||
Money market funds | — | 836 | — | 836 | Cash and equivalents | |||||||||||||
U.S. Treasury securities | 1,583 | — | — | 1,583 | Short-term investments | |||||||||||||
U.S. Agency securities(2) | — | 631 | — | 631 | Short-term investments | |||||||||||||
Commercial paper and bonds(2) | — | 414 | — | 414 | Short-term investments | |||||||||||||
Non-marketable preferred stock | — | — | 5 | 5 | Other long-term assets | |||||||||||||
Total available-for-sale securities | 2,008 | 2,936 | 5 | 4,949 | ||||||||||||||
TOTAL ASSETS | $ | 2,008 | $ | 3,225 | $ | 5 | $ | 5,238 | ||||||||||
LIABILITIES | ||||||||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange forwards and options(1) | $ | — | $ | 34 | $ | — | $ | 34 | Accrued liabilities and other long-term liabilities | |||||||||
TOTAL LIABILITIES | $ | — | $ | 34 | $ | — | $ | 34 |
(1) | The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. The Company elects to record the gross assets and liabilities of its derivative financial instruments in the consolidated balance sheets. If the derivative financial instruments had been netted in the consolidated balance sheets, the asset and liability positions each would have been reduced by $34 million. No material amounts of collateral were received or posted on the Company’s derivative assets and liabilities as of May 31, 2013. |
(2) | Amounts have been revised to reflect proper classification between U.S. Agency securities and commercial paper and bonds. |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
Available-for-sale securities: | ||||||||
U.S. Treasury and Agency | $ | 2,342 | $ | 2,214 | ||||
Commercial paper and bonds | 823 | 414 | ||||||
TOTAL AVAILABLE-FOR-SALE SECURITIES | $ | 3,165 | $ | 2,628 |
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Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Stock options(1) | $ | 32 | $ | 32 | $ | 93 | $ | 90 | ||||||||
ESPPs | 5 | 4 | 16 | 14 | ||||||||||||
Restricted stock | 6 | 9 | 22 | 24 | ||||||||||||
TOTAL STOCK-BASED COMPENSATION EXPENSE | $ | 43 | $ | 45 | $ | 131 | $ | 128 |
(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 three month periods ended February 28, 2014 and 2013 was $3 million and $6 million, respectively, and for the nine month periods ended February 28, 2014 and 2013 was $11 million and $16 million, respectively. |
Nine Months Ended February 28, | ||||||
2014 | 2013 | |||||
Dividend yield | 1.3 | % | 1.5 | % | ||
Expected volatility | 27.9 | % | 35.0 | % | ||
Weighted average expected life (in years) | 5.3 | 5.3 | ||||
Risk-free interest rate | 1.3 | % | 0.6 | % |
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Asset Derivatives | Liability Derivatives | |||||||||||||||||||
(In millions) | Balance Sheet Location | February 28, 2014 | May 31, 2013 | Balance Sheet Location | February 28, 2014 | May 31, 2013 | ||||||||||||||
Derivatives formally designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | $ | 79 | $ | 141 | Accrued liabilities | $ | 82 | $ | 12 | ||||||||||
Foreign exchange forwards and options | Deferred income taxes and other long-term assets | 20 | 79 | Deferred income taxes and other long-term liabilities | 6 | — | ||||||||||||||
Interest rate swap contracts | Deferred income taxes and other long-term assets | 7 | 11 | Deferred income taxes and other long-term liabilities | — | — | ||||||||||||||
Total derivatives formally designated as hedging instruments | 106 | 231 | 88 | 12 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Foreign exchange forwards and options | Prepaid expenses and other current assets | 21 | 58 | Accrued liabilities | 28 | 22 | ||||||||||||||
Embedded derivatives | Prepaid expenses and other current assets | 1 | — | Accrued liabilities | 1 | — | ||||||||||||||
Total derivatives not designated as hedging instruments | 22 | 58 | 29 | 22 | ||||||||||||||||
TOTAL DERIVATIVES | $ | 128 | $ | 289 | $ | 117 | $ | 34 |
(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) | ||||||||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income(1) | Three Months Ended February 28, | Nine Months Ended February 28, | ||||||||||||||
2014 | 2014 | 2014 | 2014 | |||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | (20 | ) | $ | (39 | ) | Revenue | $ | (1 | ) | $ | 20 | ||||||
Foreign exchange forwards and options | (12 | ) | (100 | ) | Cost of sales | (5 | ) | 18 | ||||||||||
Foreign exchange forwards and options | 1 | 4 | Selling and administrative expense | — | — | |||||||||||||
Foreign exchange forwards and options | (5 | ) | (28 | ) | Other expense (income), net | (5 | ) | 6 | ||||||||||
Total designated cash flow hedges | $ | (36 | ) | $ | (163 | ) | $ | (11 | ) | $ | 44 | |||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | — | $ | — | Other expense (income), net | $ | — | $ | — |
(1) | For the three and nine months ended February 28, 2014, 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. |
(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) | ||||||||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income(1) | Three Months Ended February 28, | Nine Months Ended February 28, | ||||||||||||||
2013 | 2013 | 2013 | 2013 | |||||||||||||||
Derivatives designated as cash flow hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | 37 | $ | 41 | Revenue | $ | (3 | ) | $ | (28 | ) | |||||||
Foreign exchange forwards and options | 60 | 17 | Cost of sales | 26 | 109 | |||||||||||||
Foreign exchange forwards and options | (1 | ) | (3 | ) | Selling and administrative expense | 1 | 2 | |||||||||||
Foreign exchange forwards and options | 25 | 15 | Other expense (income), net | (4 | ) | 9 | ||||||||||||
Total designated cash flow hedges | $ | 121 | $ | 70 | $ | 20 | $ | 92 | ||||||||||
Derivatives designated as net investment hedges: | ||||||||||||||||||
Foreign exchange forwards and options | $ | — | $ | — | Other expense (income), net | $ | — | $ | — |
(1) | For the three and nine months ended February 28, 2013, 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. |
Amount of Gain (Loss) Recognized in Income on Derivatives | Location of Gain (Loss) Recognized in Income on Derivatives | |||||||||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
Derivatives designated as fair value hedges: | ||||||||||||||||||
Interest rate swaps(1) | $ | 1 | $ | 1 | $ | 3 | $ | 4 | Interest expense (income), net | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||
Foreign exchange forwards and options | $ | (11 | ) | $ | 37 | $ | (50 | ) | $ | (14 | ) | Other expense (income), net | ||||||
Embedded derivatives | $ | 1 | $ | — | $ | — | $ | (3 | ) | Other expense (income), net |
(1) | All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements 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. |
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(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at November 30, 2013 | $ | 24 | $ | 28 | $ | 95 | $ | (57 | ) | $ | 90 | |||||||||
Other comprehensive gains (losses) before reclassifications (2) | (34 | ) | (31 | ) | — | (3 | ) | (68 | ) | |||||||||||
Reclassifications to net income of previously deferred (gains) losses (3) | — | 10 | — | 1 | 11 | |||||||||||||||
Other comprehensive income (loss) | (34 | ) | (21 | ) | — | (2 | ) | (57 | ) | |||||||||||
Balance at February 28, 2014 | $ | (10 | ) | $ | 7 | $ | 95 | $ | (59 | ) | $ | 33 |
(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, $5 million, $0 million, $0 million, and $5 million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $(1) million, $0 million, $0 million, and $(1) million, respectively. |
(In millions) | Foreign Currency Translation Adjustment(1) | Cash Flow Hedges | Net Investment Hedges(1) | Other | Total | |||||||||||||||
Balance at May 31, 2013 | $ | 41 | $ | 193 | $ | 95 | $ | (55 | ) | $ | 274 | |||||||||
Other comprehensive gains (losses) before reclassifications (2) | (51 | ) | (151 | ) | — | (7 | ) | (209 | ) | |||||||||||
Reclassifications to net income of previously deferred (gains) losses (3) | — | (35 | ) | — | 3 | (32 | ) | |||||||||||||
Other comprehensive income (loss) | (51 | ) | (186 | ) | — | (4 | ) | (241 | ) | |||||||||||
Balance at February 28, 2014 | $ | (10 | ) | $ | 7 | $ | 95 | $ | (59 | ) | $ | 33 |
(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, $12 million, $0 million, $0 million, and $12 million, respectively. |
(3) | Net of tax (benefit) expense of $0 million, $9 million, $0 million, $0 million, and $9 million, respectively. |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||
(In millions) | 2014 | 2014 | ||||||||
Gains (losses) on cash flow hedges: | ||||||||||
Foreign exchange forwards and options | $ | (1 | ) | $ | 20 | Revenue | ||||
Foreign exchange forwards and options | (5 | ) | 18 | Cost of sales | ||||||
Foreign exchange forwards and options | — | — | Selling and administrative expense | |||||||
Foreign exchange forwards and options | (5 | ) | 6 | Other expense (income), net | ||||||
Total before tax | (11 | ) | 44 | |||||||
Tax benefit (expense) | 1 | (9 | ) | |||||||
Gain (loss) net of tax | (10 | ) | 35 | |||||||
Gains (losses) on other | (1 | ) | (3 | ) | Other expense (income), net | |||||
Total before tax | (1 | ) | (3 | ) | ||||||
Tax benefit (expense) | — | — | ||||||||
Gain (loss) net of tax | (1 | ) | (3 | ) | ||||||
Total net gain (loss) reclassified for the period | $ | (11 | ) | $ | 32 |
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Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues | $ | — | $ | 132 | $ | — | $ | 513 | ||||||||
Income before income taxes | — | 345 | — | 107 | ||||||||||||
Income tax expense | — | 141 | — | 58 | ||||||||||||
Net income from discontinued operations | $ | — | $ | 204 | $ | — | $ | 49 |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
Accounts payable | $ | — | $ | 1 | ||||
Accrued liabilities | — | 17 | ||||||
TOTAL LIABILITIES | $ | — | $ | 18 |
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Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
(In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
REVENUE | ||||||||||||||||
North America | $ | 3,069 | $ | 2,737 | $ | 9,005 | $ | 8,167 | ||||||||
Western Europe | 1,292 | 1,057 | 3,667 | 3,141 | ||||||||||||
Central & Eastern Europe | 356 | 303 | 1,017 | 882 | ||||||||||||
Greater China | 697 | 641 | 1,900 | 1,800 | ||||||||||||
Japan | 177 | 195 | 545 | 632 | ||||||||||||
Emerging Markets | 937 | 867 | 2,869 | 2,838 | ||||||||||||
Global Brand Divisions | 26 | 29 | 89 | 84 | ||||||||||||
Total NIKE Brand | 6,554 | 5,829 | 19,092 | 17,544 | ||||||||||||
Converse | 420 | 361 | 1,274 | 1,095 | ||||||||||||
Corporate | (2 | ) | (3 | ) | 8 | (23 | ) | |||||||||
TOTAL NIKE CONSOLIDATED REVENUES | $ | 6,972 | $ | 6,187 | $ | 20,374 | $ | 18,616 | ||||||||
EARNINGS BEFORE INTEREST AND TAXES | ||||||||||||||||
North America | $ | 726 | $ | 653 | $ | 2,188 | $ | 1,863 | ||||||||
Western Europe | 275 | 179 | 663 | 501 | ||||||||||||
Central & Eastern Europe | 79 | 64 | 208 | 155 | ||||||||||||
Greater China | 234 | 218 | 601 | 570 | ||||||||||||
Japan | 21 | 24 | 92 | 92 | ||||||||||||
Emerging Markets | 229 | 216 | 682 | 735 | ||||||||||||
Global Brand Divisions | (533 | ) | (414 | ) | (1,461 | ) | (1,280 | ) | ||||||||
Total NIKE Brand | 1,031 | 940 | 2,973 | 2,636 | ||||||||||||
Converse | 133 | 121 | 402 | 336 | ||||||||||||
Corporate | (272 | ) | (205 | ) | (710 | ) | (608 | ) | ||||||||
Total NIKE Consolidated Earnings Before Interest and Taxes | 892 | 856 | 2,665 | 2,364 | ||||||||||||
Interest expense (income), net | 9 | (2 | ) | 25 | (6 | ) | ||||||||||
TOTAL NIKE CONSOLIDATED EARNINGS BEFORE TAXES | $ | 883 | $ | 858 | $ | 2,640 | $ | 2,370 |
As of February 28, | As of May 31, | |||||||
(In millions) | 2014 | 2013 | ||||||
ACCOUNTS RECEIVABLE, NET | ||||||||
North America | $ | 1,559 | $ | 1,459 | ||||
Western Europe | 379 | 375 | ||||||
Central & Eastern Europe | 310 | 287 | ||||||
Greater China | 51 | 56 | ||||||
Japan | 113 | 154 | ||||||
Emerging Markets | 669 | 574 | ||||||
Global Brand Divisions | 45 | 29 | ||||||
Total NIKE Brand | 3,126 | 2,934 | ||||||
Converse | 214 | 131 | ||||||
Corporate | 15 | 52 | ||||||
TOTAL ACCOUNTS RECEIVABLE, NET | $ | 3,355 | $ | 3,117 | ||||
INVENTORIES | ||||||||
North America | $ | 1,764 | $ | 1,668 | ||||
Western Europe | 635 | 562 | ||||||
Central & Eastern Europe | 215 | 207 | ||||||
Greater China | 240 | 209 | ||||||
Japan | 105 | 69 | ||||||
Emerging Markets | 638 | 567 | ||||||
Global Brand Divisions | 13 | 34 | ||||||
Total NIKE Brand | 3,610 | 3,316 | ||||||
Converse | 207 | 210 | ||||||
Corporate | 8 | 4 | ||||||
TOTAL INVENTORIES | $ | 3,825 | $ | 3,530 | ||||
PROPERTY, PLANT AND EQUIPMENT, NET | ||||||||
North America | $ | 518 | $ | 424 | ||||
Western Europe | 355 | 327 | ||||||
Central & Eastern Europe | 48 | 44 | ||||||
Greater China | 218 | 213 | ||||||
Japan | 257 | 269 | ||||||
Emerging Markets | 113 | 89 | ||||||
Global Brand Divisions | 559 | 472 | ||||||
Total NIKE Brand | 2,068 | 1,838 | ||||||
Converse | 59 | 52 | ||||||
Corporate | 609 | 562 | ||||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET | $ | 2,736 | $ | 2,452 |
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