Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include certain amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements.

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. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties.

An internal corporate audit department reviews the results of its work with the Audit & Finance Committee of the Board of Directors, presently comprised of three outside, independent directors. The Audit & Finance Committee is responsible for the appointment of the independent registered public accounting firm and reviews, with the independent registered public accounting firm, management and the internal corporate audit staff, the scope and the results of the annual audit, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as the Audit & Finance Committee deems appropriate. The independent registered public accounting firm and the internal corporate auditors have full access to the Audit & Finance Committee, with and without the presence of management, to discuss any appropriate matters.

2020 FORM 10-K 52

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13(a) - 15(f) and Rule 15(d) - 15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2020.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the Consolidated Financial Statements and (2) the effectiveness of our internal control over financial reporting as of May 31, 2020, as stated in their report herein.

John J. Donahoe II	Matthew Friend
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

2020 FORM 10-K 53

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of NIKE, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of NIKE, Inc. and its subsidiaries (the “Company”) as of May 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended May 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of June 1, 2019 and the manner in which it accounts for revenue from contracts with customers and the manner in which it accounts for income taxes related to intra-entity transfers other than inventory as of June 1, 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

2020 FORM 10-K 54

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Income Taxes

As described in Note 9 to the consolidated financial statements, the Company recorded income tax expense of $348 million for the year ended May 31, 2020, and has net deferred tax assets of $732 million, including a valuation allowance of $26 million, and total gross unrecognized tax benefits, excluding related interest and penalties, of $771 million as of May 31, 2020, $536 million of which would affect the Company's effective tax rate if recognized in future periods. The Company is subject to taxation in the United States, as well as various state and foreign jurisdictions. As disclosed by management, the use of significant judgment and estimates, as well as the interpretation and application of complex tax laws is required by management to determine its provision for income taxes.

The principal considerations for our determination that performing procedures relating to the accounting for income taxes is a critical audit matter are the significant judgment by management when assessing complex tax laws and regulations, including new temporary regulations and recent court rulings, as it relates to determining the provision for income taxes and other tax positions. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the provision for income taxes and other tax positions. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the provision for income taxes and other tax positions. These procedures also included, among others, evaluating the effect on the Company's tax provision of changes in its legal entity structure and tax laws, testing management's tax calculations and considering the Company's compliance with tax laws. We also used professionals with specialized skill and knowledge to assist in evaluating the application of relevant tax laws, the provision for income taxes and the reasonableness of management's assessments of whether certain tax positions are more-likely-than-not of being sustained.

/s/ PricewaterhouseCoopers LLP

Portland, Oregon

July 24, 2020

We have served as the Company's auditor since 1974.

2020 FORM 10-K 55

NIKE, INC.

CONSOLIDATED STATEMENTS OF INCOME

	YEAR ENDED MAY 31,
(In millions, except per share data)	2020			2019			2018
Revenues	$	37,403		$	39,117		$	36,397
Cost of sales	21,162			21,643			20,441
Gross profit	16,241			17,474			15,956
Demand creation expense	3,592			3,753			3,577
Operating overhead expense	9,534			8,949			7,934
Total selling and administrative expense	13,126			12,702			11,511
Interest expense (income), net	89			49			54
Other (income) expense, net	139			(78		)	66
Income before income taxes	2,887			4,801			4,325
Income tax expense	348			772			2,392
NET INCOME	$	2,539		$	4,029		$	1,933
Earnings per common share:
Basic	$	1.63		$	2.55		$	1.19
Diluted	$	1.60		$	2.49		$	1.17
Weighted average common shares outstanding:
Basic	1,558.8			1,579.7			1,623.8
Diluted	1,591.6			1,618.4			1,659.1

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

2020 FORM 10-K 56

NIKE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Net income	$	2,539		$	4,029		$	1,933
Other comprehensive income (loss), net of tax:
Change in net foreign currency translation adjustment	(148		)	(173		)	(6		)
Change in net gains (losses) on cash flow hedges	(130		)	503			76
Change in net gains (losses) on other	(9		)	(7		)	34
Total other comprehensive income (loss), net of tax	(287		)	323			104
TOTAL COMPREHENSIVE INCOME	$	2,252		$	4,352		$	2,037

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

2020 FORM 10-K 57

NIKE, INC.

CONSOLIDATED BALANCE SHEETS

	MAY 31,
(In millions)	2020			2019
ASSETS
Current assets:
Cash and equivalents	$	8,348		$	4,466
Short-term investments	439			197
Accounts receivable, net	2,749			4,272
Inventories	7,367			5,622
Prepaid expenses and other current assets	1,653			1,968
Total current assets	20,556			16,525
Property, plant and equipment, net	4,866			4,744
Operating lease right-of-use assets, net	3,097			—
Identifiable intangible assets, net	274			283
Goodwill	223			154
Deferred income taxes and other assets	2,326			2,011
TOTAL ASSETS	$	31,342		$	23,717
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	3		$	6
Notes payable	248			9
Accounts payable	2,248			2,612
Current portion of operating lease liabilities	445			—
Accrued liabilities	5,184			5,010
Income taxes payable	156			229
Total current liabilities	8,284			7,866
Long-term debt	9,406			3,464
Operating lease liabilities	2,913			—
Deferred income taxes and other liabilities	2,684			3,347
Commitments and contingencies (Note 18)
Redeemable preferred stock	—			—
Shareholders' equity:
Common stock at stated value:
Class A convertible — 315 and 315 shares outstanding	—			—
Class B — 1,243 and 1,253 shares outstanding	3			3
Capital in excess of stated value	8,299			7,163
Accumulated other comprehensive income (loss)	(56		)	231
Retained earnings (deficit)	(191		)	1,643
Total shareholders' equity	8,055			9,040
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	31,342		$	23,717

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

2020 FORM 10-K 58

NIKE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Cash provided (used) by operations:
Net income	$	2,539		$	4,029		$	1,933
Adjustments to reconcile net income to net cash provided (used) by operations:
Depreciation	721			705			747
Deferred income taxes	(380		)	34			647
Stock-based compensation	429			325			218
Amortization, impairment and other	398			15			27
Net foreign currency adjustments	23			233			(99		)
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable	1,239			(270		)	187
(Increase) decrease in inventories	(1,854		)	(490		)	(255		)
(Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets	(654		)	(203		)	35
Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities	24			1,525			1,515
Cash provided (used) by operations	2,485			5,903			4,955
Cash provided (used) by investing activities:
Purchases of short-term investments	(2,426		)	(2,937		)	(4,783		)
Maturities of short-term investments	74			1,715			3,613
Sales of short-term investments	2,379			2,072			2,496
Additions to property, plant and equipment	(1,086		)	(1,119		)	(1,028		)
Other investing activities	31			5			(22		)
Cash provided (used) by investing activities	(1,028		)	(264		)	276
Cash provided (used) by financing activities:
Proceeds from borrowings, net of debt issuance costs	6,134			—			—
Increase (decrease) in notes payable, net	49			(325		)	13
Proceeds from exercise of stock options and other stock issuances	885			700			733
Repurchase of common stock	(3,067		)	(4,286		)	(4,254		)
Dividends — common and preferred	(1,452		)	(1,332		)	(1,243		)
Other financing activities	(58		)	(50		)	(84		)
Cash provided (used) by financing activities	2,491			(5,293		)	(4,835		)
Effect of exchange rate changes on cash and equivalents	(66		)	(129		)	45
Net increase (decrease) in cash and equivalents	3,882			217			441
Cash and equivalents, beginning of year	4,466			4,249			3,808
CASH AND EQUIVALENTS, END OF YEAR	$	8,348		$	4,466		$	4,249
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest	$	140		$	153		$	125
Income taxes	1,028			757			529
Non-cash additions to property, plant and equipment	121			160			294
Dividends declared and not paid	385			347			320

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

2020 FORM 10-K 59

NIKE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	COMMON STOCK											CAPITAL IN EXCESS OF STATED VALUE			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			RETAINED EARNINGS (DEFICIT)			TOTAL
	CLASS A						CLASS B
(In millions, except per share data)	SHARES		AMOUNT				SHARES		AMOUNT
Balance at May 31, 2017	329		$	—			1,314		$	3		$	5,710		$	(213	)	$	6,907		$	12,407
Stock options exercised							24					600									600
Repurchase of Class B Common Stock							(70	)				(254		)				(4,013		)	(4,267		)
Dividends on common stock ($0.78 per share) and preferred stock ($0.10 per share)																		(1,265		)	(1,265		)
Issuance of shares to employees, net of shares withheld for employee taxes							4					110						(28		)	82
Stock-based compensation												218									218
Net income																		1,933			1,933
Other comprehensive income (loss)															104						104
Reclassifications to retained earnings in accordance with ASU 2018-02															17			(17		)	—
Balance at May 31, 2018	329		$	—			1,272		$	3		$	6,384		$	(92	)	$	3,517		$	9,812
Stock options exercised							18					539									539
Conversion to Class B Common Stock	(14	)					14														—
Repurchase of Class B Common Stock							(54	)				(227		)				(4,056		)	(4,283		)
Dividends on common stock ($0.86 per share) and preferred stock ($0.10 per share)																		(1,360		)	(1,360		)
Issuance of shares to employees, net of shares withheld for employee taxes							3					142						(3		)	139
Stock-based compensation												325									325
Net income																		4,029			4,029
Other comprehensive income (loss)															323						323
Adoption of ASU 2016-16 (Note 1)																		(507		)	(507		)
Adoption of ASC Topic 606 (Note 1)																		23			23
Balance at May 31, 2019	315		$	—			1,253		$	3		$	7,163		$	231		$	1,643		$	9,040
Stock options exercised							20					703									703
Repurchase of Class B Common Stock							(34	)				(161		)				(2,872		)	(3,033		)
Dividends on common stock ($0.955 per share) and preferred stock ($0.10 per share)																		(1,491		)	(1,491		)
Issuance of shares to employees, net of shares withheld for employee taxes							4					165						(9		)	156
Stock-based compensation												429									429
Net income																		2,539			2,539
Other comprehensive income (loss)															(287		)				(287		)
Adoption of ASC Topic 842 (Note 1)																		(1		)	(1		)
Balance at May 31, 2020	315		$	—			1,243		$	3		$	8,299		$	(56	)	$	(191	)	$	8,055

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1	Summary of Significant Accounting Policies	62
Note 2	Inventories	69
Note 3	Property, Plant and Equipment	69
Note 4	Identifiable Intangible Assets and Goodwill	69
Note 5	Accrued Liabilities	70
Note 6	Fair Value Measurements	70
Note 7	Short-Term Borrowings and Credit Lines	73
Note 8	Long-Term Debt	74
Note 9	Income Taxes	75
Note 10	Redeemable Preferred Stock	78
Note 11	Common Stock and Stock-Based Compensation	78
Note 12	Earnings Per Share	80
Note 13	Benefit Plans	80
Note 14	Risk Management and Derivatives	81
Note 15	Accumulated Other Comprehensive Income (Loss)	86
Note 16	Revenues	88
Note 17	Operating Segments and Related Information	89
Note 18	Commitments and Contingencies	92
Note 19	Leases	92
Note 20	Acquisitions and Divestitures	93
Note 21	Subsequent Events	94

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NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

NIKE, Inc. is a worldwide leader in the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. NIKE, Inc. portfolio brands include the NIKE Brand, Jordan Brand, Hurley and Converse. 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 lifestyle products carrying the Swoosh trademark, as well as other NIKE Brand trademarks. The Jordan Brand is focused on athletic and casual footwear, apparel and accessories using the Jumpman trademark. Sales and operating results of Jordan Brand products are reported within the respective NIKE Brand geographic operating segments. The Hurley brand is focused on action sports and youth lifestyle apparel and accessories under the Hurley trademark. Sales and operating results of Hurley brand products, prior to its divestiture, are reported within the NIKE Brand's North America geographic operating segment. Refer to Note 20 — Acquisitions and Divestitures for information regarding the divestiture of the Company's wholly-owned subsidiary, Hurley. Converse designs, distributes, licenses and sells casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks. In some markets outside the U.S., these trademarks are licensed to third parties who design, distribute, market and sell similar products. Operating results of the Converse brand are reported on a stand-alone basis.

BASIS OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of NIKE, Inc. and its subsidiaries (the "Company" or "NIKE"). All significant intercompany transactions and balances have been eliminated.

REVENUE RECOGNITION

Beginning in fiscal 2019, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). Prior to fiscal 2019, amounts have not been restated and continue to be reported in accordance with the Company's historical accounting policies. The Company's revenue recognition policies under Topic 606 are described in the following paragraphs and references to prior period policies under Accounting Standard Codification Topic 605 — Revenue Recognition (Topic 605), are included below in the event they are substantially different.

Revenue transactions associated with the sale of NIKE Brand footwear, apparel and equipment, as well as Converse products, comprise a single performance obligation, which consists of the sale of products to customers either through wholesale or direct to consumer channels. The Company satisfies the performance obligation and records revenues when transfer of control has passed to the customer, based on the terms of sale. A customer is considered to have control once they are able to direct the use and receive substantially all of the benefits of the product.

Transfer of control passes to wholesale customers upon shipment or upon receipt depending on the country of the sale and the agreement with the customer. Control passes to retail store customers at the time of sale and to substantially all digital commerce customers upon shipment. Prior to fiscal 2019, the requirements for recognizing revenue were met upon delivery to the customer. The transaction price is determined based upon the invoiced sales price, less anticipated sales returns, discounts and miscellaneous claims from customers. Payment terms for wholesale transactions depend on the country of sale or agreement with the customer and payment is generally required within 90 days or less of shipment to or receipt by the wholesale customer. Payment is due at the time of sale for retail store and digital commerce transactions.

Consideration for trademark licensing contracts is earned through sales-based or usage-based royalty arrangements and the associated revenues are recognized over the license period.

Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, and are collected by the Company from a customer, are excluded from Revenues and Cost of sales in the Consolidated Statements of Income. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales when the related revenues are recognized.

SALES-RELATED RESERVES

Consideration promised in the Company's contracts with customers is variable due to anticipated reductions such as sales returns, discounts and miscellaneous claims from customers. The Company estimates the most likely amount it will be entitled to receive and records an anticipated reduction against Revenues, with an offsetting increase to Accrued liabilities at the time revenues are recognized. The estimated cost of inventory for product returns is recorded in Prepaid expenses and other current assets on the Consolidated Balance Sheets. Prior to fiscal 2019, the Company's reserve balances were reported net of the

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estimated cost of inventory for product returns and recognized within Accounts receivable, net for wholesale transactions and Accrued liabilities for the Company's direct to consumer business, on the Consolidated Balance Sheets.

The provision for anticipated sales returns consists of both contractual return rights and discretionary authorized returns. Provisions for post-invoice sales discounts consist of both contractual programs and discretionary discounts that are expected to be granted at a later date.

Estimates of discretionary authorized returns, discounts and claims are based on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts and claims and (3) estimated returns, discounts and claims expected, but not yet finalized with customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from estimates recorded. If actual or expected future returns, discounts or claims were significantly greater or lower than the reserves established, a reduction or increase to net revenues would be recorded in the period in which such determination was made.

COST OF SALES

Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), third-party royalties, certain foreign currency hedge gains and losses and product design costs. Shipping and handling costs are expensed as incurred and included in Cost of sales.

DEMAND CREATION EXPENSE

Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation. Advertising production costs are expensed the first time an advertisement is run. Advertising media costs are expensed when the advertisement appears. Costs related to brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is complete and delivered.

A significant amount of the Company's promotional expenses result from payments under endorsement contracts. In general, endorsement payments are expensed on a straight-line basis over the term of the contract. However, certain contract elements may be accounted for differently based upon the facts and circumstances of each individual contract. Prepayments made under contracts are included in Prepaid expenses and other current assets or Deferred income taxes and other assets depending on the period to which the prepayment applies.

Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sport (e.g., winning a championship). The Company records Demand creation expense for these amounts when the endorser achieves the specific goal.

Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a specified ranking in a sport for a year). When the Company determines payments are probable, the amounts are reported in Demand creation expense ratably over the contract period based on the Company's best estimate of the endorser's performance. In these instances, to the extent actual payments to the endorser differ from the Company's estimate due to changes in the endorser's performance, adjustments to Demand creation expense may be recorded in a future period.

Certain contracts provide for royalty payments to endorsers based upon a predetermined percent of sales of particular products, which the Company records in Cost of sales as the related sales occur. For contracts containing minimum guaranteed royalty payments, the Company records the amount of any guaranteed payment in excess of that earned through sales of product within Demand creation expense.

Through cooperative advertising programs, the Company reimburses its wholesale customers for certain costs of advertising the Company's products. The Company records these costs in Demand creation expense at the point in time it is obligated to its customers for the costs. This obligation may arise prior to the related advertisement being run.

Total advertising and promotion expenses, which the Company refers to as Demand creation expense, were $3,592 million, $3,753 million and $3,577 million for the years ended May 31, 2020, 2019 and 2018, respectively. Prepaid advertising and promotion expenses totaled $686 million and $773 million at May 31, 2020 and 2019, respectively, of which $326 million and $333 million, respectively, was recorded in Prepaid expenses and other current assets, and $360 million and $440 million, respectively, was recorded in Deferred income taxes and other assets, depending on the period to which the prepayment applied.

2020 FORM 10-K 63

OPERATING OVERHEAD EXPENSE

Operating overhead expense consists primarily of wage and benefit-related expenses, research and development costs, bad debt expense, as well as other administrative expenses, such as rent, depreciation and amortization, professional services, meetings and travel.

CASH AND EQUIVALENTS

Cash and equivalents represent cash and short-term, highly liquid investments, that are both readily convertible to known amounts of cash, and so near their maturity they present insignificant risk of changes in value because of changes in interest rates, including commercial paper, U.S. Treasury, U.S. Agency, money market funds, time deposits and corporate debt securities with maturities of 90 days or less at the date of purchase.

SHORT-TERM INVESTMENTS

Short-term investments consist of highly liquid investments, including commercial paper, U.S. Treasury, U.S. Agency, time deposits and corporate debt securities, with maturities over 90 days at the date of purchase. Debt securities the Company has the ability and positive intent to hold to maturity are carried at amortized cost. At May 31, 2020 and 2019, the Company did not hold any short-term investments classified as trading or held-to-maturity.

At May 31, 2020 and 2019, Short-term investments consisted of available-for-sale debt securities, which are recorded at fair value with unrealized gains and losses reported, net of tax, in Accumulated other comprehensive income (loss), unless unrealized losses are determined to be other than temporary. Realized gains and losses on the sale of securities are determined by specific identification. The Company considers all available-for-sale debt securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and, therefore, classifies all securities with maturity dates beyond 90 days at the date of purchase as current assets within Short-term investments on the Consolidated Balance Sheets.

Refer to Note 6 — Fair Value Measurements for more information on the Company's short-term investments.

ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE

Accounts receivable, net consist primarily of amounts receivable from customers. The Company makes ongoing estimates relating to the collectability of its accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In addition to judgments about the creditworthiness of significant customers based on ongoing credit evaluations, the Company considers historical levels of credit losses, as well as macroeconomic and industry trends, such as the impacts of COVID–19, to determine the amount of the allowance. Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet date and related allowances are considered non-current and recorded in Deferred income taxes and other assets. The allowance for uncollectible accounts receivable was $214 million and $30 million as of May 31, 2020 and 2019, respectively.

INVENTORY VALUATION

Inventories are stated at lower of cost and net realizable value, and valued on either an average or a specific identification cost basis. In some instances, the Company ships product directly from its suppliers to the customer, with the related inventory and cost of sales recognized on a specific identification basis. Inventory costs primarily consist of product cost from the Company's suppliers, as well as inbound freight, import duties, taxes, insurance and logistics and other handling fees.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for land improvements, buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years.

Depreciation and amortization of assets used in manufacturing, warehousing and product distribution are recorded in Cost of sales. Depreciation and amortization of all other assets are recorded in Operating overhead expense.

SOFTWARE DEVELOPMENT COSTS

Internal Use Software: Expenditures for major software purchases and software developed for internal use are capitalized and amortized over a 2 to 12-year period on a straight-line basis. The Company's policy provides for the capitalization of external direct costs associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects.

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The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred.

Computer Software to be Sold, Leased or Otherwise Marketed: Development costs of computer software to be sold, leased or otherwise marketed as an integral part of a product are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company's products are released soon after technological feasibility has been established. Therefore, software development costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. 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. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value.

GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS

The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation that the carrying amount may not be recoverable, among other factors.

For purposes of testing goodwill for impairment, the Company allocates goodwill across its reporting units, which are considered the Company's operating segments. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment test is necessary, the Company will estimate the fair value of its related reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired and the Company will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. The Company may first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for these intangible assets, the Company primarily utilizes the relief-from-royalty method. This method assumes trade names and trademarks have value to the extent their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brands, the appropriate royalty rate and the weighted average cost of capital. If the carrying value of the indefinite-lived intangible exceeds its fair value, the asset is determined to be impaired and the Company will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

OPERATING LEASES

Beginning in fiscal 2020, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Prior period amounts have not been restated and continue to be reported in accordance with the Company's historical accounting policies. The Company's lease recognition policies under Topic 842 are described in the following paragraphs.

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The Company primarily leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets. The Company determines if an arrangement is a lease at inception and begins recording lease activity at the commencement date, which is generally the date in which the Company takes possession of or controls the physical use of the asset. Right-of-use (ROU) assets and lease liabilities are recognized based on the present value of lease payments over the lease term with lease expense recognized on a straight-line basis. The Company's incremental borrowing rate is used to determine the present value of future lease payments unless the implicit rate is readily determinable.

Lease agreements may contain rent escalation clauses, renewal or termination options, rent holidays or certain landlord incentives, including tenant improvement allowances. ROU assets include amounts for scheduled rent increases and are reduced by the amount of lease incentives. The lease term includes the non-cancelable period of the lease and options to extend or terminate the lease when it is reasonably certain the Company will exercise those options. Certain lease agreements include variable lease payments, which are based on a percent of retail sales over specified levels or adjust periodically for inflation as a result of changes in a published index, primarily the Consumer Price Index.

FAIR VALUE MEASUREMENTS

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives, equity securities and available-for-sale debt securities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the Financial Accounting Standards Board (FASB) that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach).

The levels of the fair value hierarchy are described below:

•	Level 1: Quoted prices in active markets for identical assets or liabilities.

•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•	Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions.

The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement.

Pricing vendors are utilized for a majority of Level 1 and Level 2 investments. These vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. The fair value of derivative contracts is determined using observable market inputs such as the daily market foreign currency rates, forward pricing curves, currency volatilities, currency correlations and interest rates and considers nonperformance risk of the Company and its counterparties.

The Company's fair value measurement process includes comparing fair values to another independent pricing vendor to ensure appropriate fair values are recorded.

Refer to Note 6 — Fair Value Measurements for additional information.

FOREIGN CURRENCY TRANSLATION AND FOREIGN CURRENCY TRANSACTIONS

Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of Accumulated other comprehensive income (loss) in Total shareholders' equity.

The Company's global subsidiaries have various assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in Other (income) expense, net, within the Consolidated Statements of Income.

ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES

The Company uses derivative financial instruments to reduce its exposure to changes in foreign currency exchange rates and interest rates. All derivatives are recorded at fair value on the Consolidated Balance Sheets and changes in the fair value of derivative financial instruments are either recognized in Accumulated other comprehensive income (loss) (a component of Total shareholders' equity), Long-term debt or Net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge and, if designated, the extent to which the hedge is effective. The Company classifies the cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items. For undesignated

2020 FORM 10-K 66

hedges and designated cash flow hedges, this is primarily within the Cash provided by operations component of the Consolidated Statements of Cash Flows. For designated net investment hedges, this is within the Cash used by investing activities component of the Consolidated Statements of Cash Flows. For the Company's fair value hedges, which are interest rate swaps used to mitigate the change in fair value of its fixed-rate debt attributable to changes in interest rates, the related cash flows from periodic interest payments are reflected within the Cash provided by operations component of the Consolidated Statements of Cash Flows. Refer to Note 14 — Risk Management and Derivatives for additional information on the Company's risk management program and derivatives.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation by estimating the fair value, net of estimated forfeitures, of equity awards and recognizing the related expense as Cost of sales or Operating overhead expense, as applicable, in the Consolidated Statements of Income on a straight-line basis over the vesting period. Substantially all awards vest ratably over four years of continued employment, with stock options expiring ten years from the date of grant. The fair value of options, stock appreciation rights, and employees' purchase rights under the employee stock purchase plans (ESPPs) is determined using the Black-Scholes option pricing model. The fair value of restricted stock and restricted stock units is established by the market price on the date of grant.

Refer to Note 11 — Common Stock and Stock-Based Compensation for additional information on the Company's stock-based compensation programs.

INCOME TAXES

The Company accounts for income taxes using the asset and liability method. 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. The Company records a valuation allowance to reduce deferred tax assets to the amount management believes is more likely than not to be realized.

The Company recognizes a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not the position will be sustained upon examination by relevant tax authorities. The Company recognizes interest and penalties related to income tax matters in Income tax expense.

Refer to Note 9 — Income Taxes for further discussion.

EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing Net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards.

Refer to Note 12 — Earnings Per Share for further discussion.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company's financial statements will depend on a number of factors, including the magnitude and duration of the pandemic. The Company expects it may have a material, adverse impact on future revenue growth as well as overall profitability and may continue to lead to higher than normal inventory levels, revised payment terms with certain wholesale customers, higher sales-related reserves, factory cancellation costs and a volatile effective tax rate driven by changes in the mix of earnings across the Company's jurisdictions.

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RECENTLY ADOPTED ACCOUNTING STANDARDS

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which replaced existing lease accounting guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record ROU assets and corresponding lease liabilities on the balance sheet. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The new guidance requires the Company to continue to classify leases as either an operating or finance lease, with classification affecting the pattern of expense recognition in the income statement. In addition, the new standard requires enhanced disclosure surrounding the amount, timing and uncertainty of cash flows arising from leasing agreements.

In July 2018, the FASB issued ASU No. 2018-11, which provided entities with an additional transition method. Under the new transition method, an entity initially applies the new standard at the adoption date, versus at the beginning of the earliest period presented, and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company elected this transition method and adopted Topic 842 using a modified retrospective approach in the first quarter of fiscal 2020 with the cumulative effect of initially applying the new standard recognized in Retained earnings at June 1, 2019. Comparative prior period information has not been adjusted and continues to be reported in accordance with previous lease accounting guidance in Accounting Standards Codification (ASC) Topic 840 - Leases.

Upon adoption, the Company elected the package of transition practical expedients which allowed the Company to carry forward prior conclusions related to: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for existing leases. Additionally, the Company elected the practical expedient to not separate lease components from nonlease components for all real estate leases within the portfolio. The Company made an accounting policy election to not record leases with an initial term of 12 months or less on the Consolidated Balance Sheets and will recognize related lease payments in the Consolidated Statements of Income on a straight-line basis over the lease term.

In preparation for implementation, the Company executed changes to business processes, including implementing a software solution to assist with the new reporting requirements. The adoption of Topic 842 resulted in a $2.7 billion increase to total assets and total liabilities as of June 1, 2019. Upon adoption, the Company recognized $3.2 billion of total operating lease liabilities and $2.9 billion of operating lease ROU assets, as well as removed $348 million of existing deferred rent liabilities, which was recorded as an offset against the ROU assets. In addition, the Company removed $184 million of existing assets and liabilities related to build-to-suit lease arrangements. Several other asset and liability line items in the Company's Consolidated Balance Sheets were also impacted by immaterial amounts. The adoption of the standard did not have a material impact on the Consolidated Statements of Income or Consolidated Statements of Cash Flows. For more information on the Company's lease arrangements refer to Note 19 — Leases.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The updated guidance requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Income tax effects of intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party. The Company adopted the standard on June 1, 2018, using a modified retrospective approach, with the cumulative effect of applying the new standard recognized in Retained earnings at the date of adoption. The adoption resulted in reductions to Retained earnings, Deferred income taxes and other assets, and Prepaid expenses and other current assets of $507 million, $422 million and $45 million, respectively, and an increase in Deferred income taxes and other liabilities of $40 million on the Consolidated Balance Sheets.

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NOTE 2 — INVENTORIES

Inventory balances of $7,367 million and $5,622 million at May 31, 2020 and 2019, respectively, were substantially all finished goods.

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net included the following:

	MAY 31,
(Dollars in millions)	2020			2019
Land and improvements	$	345		$	329
Buildings	2,442			2,445
Machinery and equipment	2,751			2,726
Internal-use software	1,483			1,609
Leasehold improvements	1,554			1,563
Construction in process	1,086			797
Total property, plant and equipment, gross	9,661			9,469
Less accumulated depreciation	4,795			4,725
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET	$	4,866		$	4,744

Capitalized interest was not material for the years ended May 31, 2020, 2019 and 2018.

NOTE 4 — IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL

Identifiable intangible assets, net consist of indefinite-lived trademarks, acquired trademarks and other intangible assets. The following table summarizes the Company's Identifiable intangible assets, net balances as of May 31, 2020 and 2019:

	MAY 31,
	2020										2019
(Dollars in millions)	GROSS CARRYING AMOUNT			ACCUMULATED AMORTIZATION			NET CARRYING AMOUNT				GROSS CARRYING AMOUNT			ACCUMULATED AMORTIZATION			NET CARRYING AMOUNT
Indefinite-lived trademarks	$	246		$	—		$	246			$	281		$	—		$	281
Acquired trademarks and other	47			19			28				22			20			2
IDENTIFIABLE INTANGIBLE ASSETS, NET	$	293		$	19		$	274			$	303		$	20		$	283

Goodwill was $223 million and $154 million at May 31, 2020 and 2019, respectively and there were no accumulated impairment losses as of May 31, 2020 and 2019. Additionally, the impact to Goodwill during fiscal 2020 and 2019 as a result of acquisitions and divestitures was not material.

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NOTE 5 — ACCRUED LIABILITIES

Accrued liabilities included the following:

	MAY 31,
(Dollars in millions)	2020			2019
Compensation and benefits, excluding taxes	$	1,248		$	1,232
Sales-related reserves	1,178			1,218
Allowance for cumulative foreign currency translation losses(1)	405			—
Endorsement compensation	393			424
Dividends payable	384			346
Import and logistics costs	273			296
Taxes other than income taxes payable	202			234
Fair value of derivatives	190			52
Liabilities held-for-sale(1)	146			—
Advertising and marketing	97			114
Collateral received from counterparties to hedging instruments	—			289
Other(2)	668			805
TOTAL ACCRUED LIABILITIES	$	5,184		$	5,010

(1)	Refer to Note 20 — Acquisitions and Divestitures for additional information.

(2)	Other consists of various accrued expenses with no individual item accounting for more than 5% of the total Accrued liabilities balance at May 31, 2020 and 2019*.*

NOTE 6 — FAIR VALUE MEASUREMENTS

The following tables present information about the Company's financial assets measured at fair value on a recurring basis as of May 31, 2020 and 2019 and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement. Refer to Note 1 — Summary of Significant Accounting Policies for additional detail regarding the Company's fair value measurement methodology.

	MAY 31, 2020
(Dollars in millions)	ASSETS AT FAIR VALUE			CASH AND EQUIVALENTS			SHORT-TERM INVESTMENTS
Cash	$	596		$	596		$	—
Level 1:
U.S. Treasury securities	1,204			800			404
Level 2:
Commercial paper and bonds	32			—			32
Money market funds	5,973			5,973			—
Time deposits	981			979			2
U.S. Agency securities	1			—			1
Total Level 2	6,987			6,952			35
TOTAL	$	8,787		$	8,348		$	439

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	MAY 31, 2019
(Dollars in millions)	ASSETS AT FAIR VALUE			CASH AND EQUIVALENTS			SHORT-TERM INVESTMENTS
Cash	$	853		$	853		$	—
Level 1:
U.S. Treasury securities	347			200			147
Level 2:
Commercial paper and bonds	34			1			33
Money market funds	1,637			1,637			—
Time deposits	1,791			1,775			16
U.S. Agency securities	1			—			1
Total Level 2	3,463			3,413			50
TOTAL	$	4,663		$	4,466		$	197

As of May 31, 2020, the Company held $396 million of available-for-sale debt securities with maturity dates within one year and $43 million with maturity dates over one year and less than five years in Short-term investments on the Consolidated Balance Sheets. The fair value of the Company's available-for-sale debt securities approximates their amortized cost.

Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $62 million, $82 million and $70 million for the years ended May 31, 2020, 2019 and 2018, respectively.

The Company elects to record the gross assets and liabilities of its derivative financial instruments on the Consolidated Balance Sheets. 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. Any amounts of cash collateral received related to these instruments associated with the Company's credit-related contingent features are recorded in Cash and equivalents and Accrued liabilities, the latter of which would further offset against the Company's derivative asset balance. Any amounts of cash collateral posted related to these instruments associated with the Company's credit-related contingent features are recorded in Prepaid expenses and other current assets, which would further offset against the Company's derivative liability balance. Cash collateral received or posted related to the Company's credit related contingent features is presented in the Cash provided by operations component of the Consolidated Statements of Cash Flows. Any amounts of non-cash collateral received, such as securities, are not recorded on the Consolidated Balance Sheets pursuant to U.S. GAAP. For further information related to credit risk, refer to Note 14 — Risk Management and Derivatives.

The following tables present information about the Company's derivative assets and liabilities measured at fair value on a recurring basis as of May 31, 2020 and 2019 and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement.

	MAY 31, 2020
	DERIVATIVE ASSETS										DERIVATIVE LIABILITIES
(Dollars 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)	$	94		$	91		$	3			$	205		$	188		$	17
Embedded derivatives	1			1			—				2			2			—
TOTAL	$	95		$	92		$	3			$	207		$	190		$	17

(1)	If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions would have been reduced by $76 million as of May 31, 2020*. As of that date,* no amount of cash collateral had been received or posted on the derivative asset and liability balances related to these foreign exchange derivative instruments.

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	MAY 31, 2019
	DERIVATIVE ASSETS										DERIVATIVE LIABILITIES
(Dollars 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)	$	611		$	611		$	—			$	51		$	51		$	—
Embedded derivatives	11			5			6				3			1			2
TOTAL	$	622		$	616		$	6			$	54		$	52		$	2

(1)

If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $50 million as of May 31, 2019*. As of that date, the Company had received* $289 million of cash collateral from various counterparties related to foreign exchange derivative instruments. No amount of collateral was posted on the Company's derivative liability balance as of May 31, 2019*.*

No transfers among the levels within the fair value hierarchy occurred during the years ended May 31, 2020 or 2019.

For additional information related to the Company's derivative financial instruments, refer to Note 14 — Risk Management and Derivatives. For fair value information regarding Notes payable and Long-term debt, refer to Note 7 — Short-Term Borrowings and Credit Lines and Note 8 — Long-Term Debt, respectively. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value.

NON-RECURRING FAIR VALUE MEASUREMENTS

As further discussed in Note 20 — Acquisitions and Divestitures, the Company met the criteria to recognize the related assets and liabilities of its Brazil, Argentina, Chile and Uruguay entities as held-for-sale in the third quarter of fiscal 2020 and the classification of these balances remain as such, as of May 31, 2020. This required the Company to remeasure the disposal groups at fair value, less costs to sell, which is considered a Level 3 fair value measurement and was based on each transaction's estimated consideration at the date of close. The carrying value of the Argentina, Chile and Uruguay disposal groups exceeded their fair value, less costs to sell and as a result, the Company recognized a non-recurring impairment charge of $405 million. This charge was primarily due to the anticipated release of non-cash cumulative foreign currency translation losses which were included as part of the carrying value of the Argentina, Chile and Uruguay disposal groups when measuring for impairment. For the fiscal year ended May 31, 2020, the charge was recognized in Other (income) expense, net on the Consolidated Statements of Income, classified within Corporate, and a corresponding allowance within Accrued Liabilities on the Consolidated Balance Sheets.

All other assets or liabilities required to be measured at fair value on a non-recurring basis as of May 31, 2020 were immaterial. As of May 31, 2019, all assets or liabilities required to be measured at fair value on a non-recurring basis were immaterial.

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NOTE 7 — SHORT-TERM BORROWINGS AND CREDIT LINES

Notes payable as of May 31, 2020 and 2019 are summarized below:

	MAY 31,
	2020							2019
(Dollars in millions)	BORROWINGS			INTEREST RATE				BORROWINGS			INTEREST RATE
Notes payable:
Commercial paper(1)	$	248		1.65	%			$	—		0.00	%
U.S. operations	—			0.00	%			2			0.00	%	(2)
Non-U.S. operations	—			0.00	%			7			26.00	%	(2)
TOTAL NOTES PAYABLE	$	248						$	9

(1)	Commercial paper borrowings with original maturities greater than three months are included in Proceeds from borrowings, net of debt issuance costs on the Consolidated Statements of Cash Flows.

(2)	Weighted average interest rate includes non-interest bearing overdrafts.

The carrying amounts reflected in the Consolidated Balance Sheets for Notes payable approximate fair value.

On August 16, 2019, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $2 billion of borrowings, with the option to increase borrowings up to $3 billion in total upon lender approval. The facility matures on August 16, 2024, with a one year extension option prior to any anniversary of the closing date, provided that in no event shall it extend beyond August 16, 2026. Based on the Company's current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing LIBOR plus 0.46%. The facility fee is 0.04% of the total commitment. This facility replaces the prior $2 billion credit facility agreement entered into on August 28, 2015, which would have matured August 28, 2020. As of and for the periods ended May 31, 2020 and 2019, no amounts were outstanding under either committed credit facility.

On April 6, 2020, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $2 billion of borrowings, in addition to the existing credit facility discussed above. The new facility matures on April 5, 2021. Based on the Company's current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing LIBOR plus 1.05%. The facility fee is 0.20% of the total commitment. As of May 31, 2020, no amounts were outstanding under this committed credit facility.

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NOTE 8 — LONG-TERM DEBT

Long-term debt, net of unamortized premiums, discounts and debt issuance costs, comprises the following:

							BOOK VALUE OUTSTANDING AS OF MAY 31,
Scheduled Maturity (Dollars and Yen in millions)	ORIGINAL PRINCIPAL			INTEREST RATE		INTEREST PAYMENTS	2020			2019
Corporate Term Debt:(1)(2)
May 1, 2023	$	500		2.25	%	Semi-Annually	$	499		$	498
March 27, 2025	1,000			2.40	%	Semi-Annually	994			—
November 1, 2026	1,000			2.38	%	Semi-Annually	995			994
March 27, 2027	1,000			2.75	%	Semi-Annually	994			—
March 27, 2030	1,500			2.85	%	Semi-Annually	1,489			—
March 27, 2040	1,000			3.25	%	Semi-Annually	985			—
May 1, 2043	500			3.63	%	Semi-Annually	495			495
November 1, 2045	1,000			3.88	%	Semi-Annually	984			983
November 1, 2046	500			3.38	%	Semi-Annually	491			491
March 27, 2050	1,500			3.38	%	Semi-Annually	1,480			—
Japanese Yen Notes:(3)
August 20, 2001 through November 20, 2020	¥	9,000		2.60	%	Quarterly	$	2		$	6
August 20, 2001 through November 20, 2020	4,000			2.00	%	Quarterly	1			3
Total							9,409			3,470
Less current maturities							3			6
TOTAL LONG-TERM DEBT							$	9,406		$	3,464

(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 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. However, 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 on or after the Par Call Date, as defined in the respective notes.

(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.

The scheduled maturity of Long-term debt in each of the years ending May 31, 2021 through 2025 are $3 million, $0 million, $500 million, $0 million and $1,000 million, respectively, at face value.

The Company's long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs. The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2). The fair value of the Company's long-term debt, including the current portion, was approximately $10,645 million at May 31, 2020 and $3,524 million at May 31, 2019.

2020 FORM 10-K 74

NOTE 9 — INCOME TAXES

Income before income taxes is as follows:

	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Income before income taxes:
United States	$	2,954		$	593		$	744
Foreign	(67		)	4,208			3,581
TOTAL INCOME BEFORE INCOME TAXES	$	2,887		$	4,801		$	4,325

The provision for income taxes is as follows:

	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Current:
United States
Federal	$	(109	)	$	74		$	1,167
State	81			56			45
Foreign	756			608			533
Total Current	728			738			1,745
Deferred:
United States
Federal	(231		)	(33		)	595
State	(47		)	(9		)	25
Foreign	(102		)	76			27
Total Deferred	(380		)	34			647
TOTAL INCOME TAX EXPENSE	$	348		$	772		$	2,392

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”) which significantly changed previous U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21% and a one-time transition tax on deemed repatriation of undistributed foreign earnings. For fiscal 2018, the change in the corporate tax rate resulted in a blended U.S. federal statutory rate for the Company of approximately 29%.

As of May 31, 2020 and 2019, long-term income taxes payable were $757 million and $902 million, respectively, and were included within Deferred income taxes and other assets on the Consolidated Balance Sheets.

A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:

	YEAR ENDED MAY 31,
	2020		2019		2018
Federal income tax rate	21.0	%	21.0	%	29.2	%
State taxes, net of federal benefit	0.8	%	1.0	%	0.8	%
Foreign earnings	5.9	%	-1.1	%	-19.2	%
Foreign-derived intangible income benefit related to the Tax Act	-8.1	%	—	%	—	%
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	-7.2	%	-3.6	%	-5.3	%
Income tax audits and contingency reserves	-1.4	%	1.3	%	2.9	%
U.S. research and development tax credit	-1.8	%	-1.0	%	-0.6	%
Other, net	2.9	%	-1.5	%	0.5	%
EFFECTIVE INCOME TAX RATE	12.1	%	16.1	%	55.3	%

The effective tax rate for the fiscal year ended May 31, 2020 was lower than the effective tax rate for the fiscal year ended May 31, 2019 due to increased benefits from discrete items such as stock-based compensation. The foreign earnings rate impact shown above for the fiscal year ended May 31, 2020 includes withholding taxes of 6.5% and held for sale accounting items of

2020 FORM 10-K 75

2.9%, offset by a benefit for statutory rate differences and other items of 3.5%. The foreign derived intangible income benefit reflects U.S. tax benefits introduced by the Tax Act for companies serving foreign markets. This benefit became available to the Company as a result of a restructuring of its intellectual property interests. Income tax audit and contingency reserves reflect benefits associated with the modification of the treatment of certain research and development expenditures of 2.9% offset by an increase related to the resolution of an audit by the U.S. Internal Revenue Service ("IRS") and other matters of 1.5%. Included in other is the deferral of income tax effects related to intra-entity transfers of inventory of 2.3% and other items of 0.6%.

The effective tax rate for the year fiscal ended May 31, 2019 was lower than the effective tax rate for the fiscal year ended May 31, 2018 due to significant changes related to the enactment of the Tax Act in fiscal year 2018 and reduction in the U.S. federal statutory rate to 21% in fiscal year 2019.

Deferred tax assets and liabilities comprise the following as of:

	MAY 31,
(Dollars in millions)	2020			2019
Deferred tax assets:
Inventories	$	84		$	66
Sales return reserves	115			128
Deferred compensation	295			271
Stock-based compensation	168			156
Reserves and accrued liabilities	120			101
Operating lease liabilities	491			—
Capitalized research and development expenditures	189			—
Net operating loss carry-forwards	21			81
Other	127			125
Total deferred tax assets	1,610			928
Valuation allowance	(26		)	(88		)
Total deferred tax assets after valuation allowance	1,584			840
Deferred tax liabilities:
Foreign withholding tax on undistributed earnings of foreign subsidiaries	(165		)	(235		)
Property, plant and equipment	(232		)	(188		)
Right-of-use assets	(423		)	—
Other	(32		)	(41		)
Total deferred tax liabilities	(852		)	(464		)
NET DEFERRED TAX ASSET	$	732		$	376

The above amounts exclude deferred taxes of the Company's Brazil, Argentina, Chile and Uruguay operations which are classified as held-for-sale on the Consolidated Balance Sheets as of May 31, 2020. See Note 20 — Acquisitions and Divestitures for additional information.

The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits as of:

	MAY 31,
(Dollars in millions)	2020			2019			2018
Unrecognized tax benefits, beginning of the period	$	808		$	698		$	461
Gross increases related to prior period tax positions	181			85			19
Gross decreases related to prior period tax positions	(171		)	(32		)	(12		)
Gross increases related to current period tax positions	50			81			249
Settlements	(58		)	—			—
Lapse of statute of limitations	(28		)	(35		)	(20		)
Changes due to currency translation	(11		)	11			1
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD	$	771		$	808		$	698

As of May 31, 2020, total gross unrecognized tax benefits, excluding related interest and penalties, were $771 million, $536 million of which would affect the Company's effective tax rate if recognized in future periods. The majority of the total gross

2020 FORM 10-K 76

unrecognized tax benefits are long-term in nature and included within Deferred income taxes and other assets on the Consolidated Balance Sheets.

The Company recognizes interest and penalties related to income tax matters in income tax expense. The liability for payment of interest and penalties decreased by $16 million during the year ended May 31, 2020, increased by $17 million during the fiscal year ended May 31, 2019 and decreased by $14 million during the fiscal year ended May 31, 2018. As of May 31, 2020 and 2019, accrued interest and penalties related to uncertain tax positions were $158 million and $174 million, respectively (excluding federal benefit).

The Company is subject to taxation in the United States, as well as various state and foreign jurisdictions. The Company is currently under audit by the IRS for fiscal years 2017 through 2019. The Company has closed all U.S. federal income tax matters through fiscal 2016, with the exception of certain transfer pricing adjustments. Tax years after 2009 remain open in certain major foreign jurisdictions. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $50 million within the next 12 months. In January 2019, the European Commission opened a formal investigation to examine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company. The Company believes the investigation is without merit. If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to current and prior periods, and the Company's Netherlands income taxes in the future could increase.

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. As a result of the enactment of the Tax Act, in fiscal 2018 the Company reevaluated its historic indefinite reinvestment assertion and determined that any historical or future undistributed earnings of foreign subsidiaries are no longer considered to be indefinitely reinvested. Effective January 1, 2020, however, the tax law in the Netherlands, one of the Company's major jurisdictions, changed. As a result of the change in law, the Company's undistributed earnings in the Netherlands are subject to withholding tax upon distribution. It is the Company's intention to indefinitely reinvest the historical earnings of its foreign subsidiaries outside North America prior to May 31, 2020 to ensure there is sufficient working capital to expand operations outside the United States. Accordingly, the Company has not recorded a deferred tax liability related to foreign withholding taxes on approximately $8.1 billion of undistributed earnings of these foreign subsidiaries as of May 31, 2020. Withholding taxes of approximately $1.2 billion would be payable upon the remittance of these undistributed earnings as of May 31, 2020.

A portion of the Company's foreign operations benefit from a tax holiday, which is set to expire in 2021. This tax holiday may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The tax benefit attributable to this tax holiday was $238 million, $167 million and $126 million for the fiscal years ended May 31, 2020, 2019 and 2018, respectively. The benefit of the tax holiday on diluted earnings per common share was $0.15, $0.10 and $0.08 for the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

Deferred tax assets at May 31, 2020 and 2019 were reduced by a valuation allowance. For the fiscal year ended May 31, 2020, a valuation allowance was provided for U.S. foreign tax credit carry-forwards and on tax benefits generated by entities with operating losses. For the fiscal year ended May 31, 2019, the valuation allowance provided primarily related to tax benefits generated by certain entities with operating losses. There was a $62 million net decrease in the valuation allowance for the fiscal year ended May 31, 2020, compared to a $7 million net decrease for the fiscal year ended May 31, 2019, and $13 million net increase for the year ended May 31, 2018. The decrease in the Company's net valuation allowance for the fiscal year ended May 31, 2020 is primarily related to the classification of the Company's Brazil and Argentina operations as held-for-sale on the Consolidated Balance Sheets as of May 31, 2020. See Note 20 — Acquisitions and Divestitures for additional information.

The Company has recorded deferred tax assets of $15 million at May 31, 2020 for U.S. foreign tax credit carry-forwards which will begin to expire in 2030.

The Company has available domestic and foreign loss carry-forwards of $83 million at May 31, 2020. If not utilized, such losses will expire as follows:

	YEAR ENDING MAY 31,
(Dollars in millions)	2021			2022			2023			2024			2025-2040			INDEFINITE			TOTAL
Net operating losses	$	—		$	3		$	2		$	2		$	59		$	17		$	83

The above amounts at May 31, 2020 exclude net operating loss carry-forwards of the Company's Brazil, Argentina and Chile operations which are included in assets held-for-sale on the Consolidated Balance Sheets at May 31, 2020. See Note 20 — Acquisitions and Divestitures for additional information.

2020 FORM 10-K 77

NOTE 10 — REDEEMABLE PREFERRED STOCK

Sojitz America is the sole owner of the Company's authorized redeemable preferred stock, $1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends on the redeemable preferred stock have been declared and paid in full. There have been no changes in the redeemable preferred stock in the fiscal years ended May 31, 2020, 2019 and 2018. As the holder of the redeemable preferred stock, Sojitz America does not have general voting rights, but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company, or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. The redeemable preferred stock has been fully issued to Sojitz America and is not blank check preferred stock. The Company's articles of incorporation do not permit the issuance of additional preferred stock.

NOTE 11 — COMMON STOCK AND STOCK-BASED COMPENSATION

COMMON STOCK

The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 400 million and 2,400 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. There are no differences in the dividend and liquidation preferences or participation rights of the holders of Class A and Class B Common Stock. From time to time, the Company's Board of Directors authorizes share repurchase programs for the repurchase of Class B Common Stock. The value of repurchased shares is deducted from Total shareholders' equity through allocation to Capital in excess of stated value and Retained earnings.

STOCK-BASED COMPENSATION

The NIKE, Inc. Stock Incentive Plan (the “Stock Incentive Plan”) provides for the issuance of up to 718 million previously unissued shares of Class B Common Stock in connection with equity awards granted under the Stock Incentive Plan. The Stock Incentive Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance-based awards. 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. A committee of the Board of Directors administers the Stock Incentive Plan. The committee has the authority to determine the employees to whom awards will be made, the amount of the awards and the other terms and conditions of the awards. The Company generally grants stock options and restricted stock on an annual basis. Substantially all awards under the Stock Incentive Plan vest ratably over 4 years of continued employment, with stock options expiring 10 years from the date of grant.

The following table summarizes the Company's total stock-based compensation expense recognized in Cost of sales or Operating overhead expense, as applicable:

	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Stock options(1)	$	237		$	207		$	149
ESPPs	53			40			34
Restricted stock	139			78			35
TOTAL STOCK-BASED COMPENSATION EXPENSE	$	429		$	325		$	218

(1)	Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees meeting certain retirement eligibility requirements. Accelerated stock option expense was $53 million*,* $41 million and $18 million for the fiscal years ended May 31, 2020*,* 2019 and 2018*, respectively.*

The income tax benefit related to stock-based compensation expense was $207 million, $175 million and $230 million for the fiscal years ended May 31, 2020, 2019 and 2018, respectively, and reported within Income tax expense.

2020 FORM 10-K 78

STOCK OPTIONS

The weighted average fair value per share of the options granted during the years ended May 31, 2020, 2019 and 2018, computed as of the grant date using the Black-Scholes pricing model, was $18.71, $22.78 and $9.82, respectively. The weighted average assumptions used to estimate these fair values were as follows:

	YEAR ENDED MAY 31,
	2020		2019		2018
Dividend yield	1.0	%	1.0	%	1.2	%
Expected volatility	23.0	%	26.6	%	16.4	%
Weighted average expected life (in years)	6.0		6.0		6.0
Risk-free interest rate	1.5	%	2.8	%	2.0	%

Expected volatilities are based on the historical volatility of the Company's common stock, the implied volatility in market traded options on the Company's common stock with a term greater than one year, as well as other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.

The following summarizes the stock option transactions under the plan discussed above:

	SHARES**(1)**		WEIGHTED AVERAGE OPTION PRICE
	(In millions)
Options outstanding as of May 31, 2019	91.3		$	50.59
Exercised	(20.1	)	35.26
Forfeited	(2.2	)	75.74
Granted	19.1		85.29
Options outstanding as of May 31, 2020	88.1		$	60.98

(1)	Includes stock appreciation rights transactions.

Options exercisable as of May 31, 2020 were 48.5 million and had a weighted average option price of $46.91 per share. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2020 was $3,316 million and $2,506 million, respectively. The total intrinsic value of the options exercised during the years ended May 31, 2020, 2019 and 2018 was $1,161 million, $938 million and $889 million, respectively. The intrinsic value is the amount by which the market value of the underlying stock exceeds the exercise price of the options. The weighted average contractual life remaining for options outstanding and options exercisable at May 31, 2020 was 6.2 years and 4.5 years, respectively. As of May 31, 2020, the Company had $411 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.6 years.

EMPLOYEE STOCK PURCHASE PLANS

In addition to the Stock Incentive Plan, the Company gives employees the right to purchase shares at a discount from the market price under employee stock purchase plans (ESPPs). Subject to the annual statutory limit, employees are eligible to participate through payroll deductions of up to 10% of their compensation. At the end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Employees purchased 2.7 million, 2.5 million and 3.1 million shares during each of the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

Recipients of restricted stock are entitled to cash dividends and to vote their respective shares throughout the period of restriction. Recipients of restricted stock units are entitled to dividend equivalent cash payments upon vesting. The number of restricted stock and restricted stock units vested includes shares of common stock withheld by the Company on behalf of employees to satisfy the minimum statutory tax withholding requirements.

2020 FORM 10-K 79

The following summarizes the restricted stock and restricted stock unit activity under the plan discussed above:

		SHARES		WEIGHTED AVERAGE GRANT DATE FAIR VALUE
		(In millions)
Nonvested as of May 31, 2019		4.4		$	70.93
Vested		(1.1	)	72.64
Forfeited		(0.3	)	79.62
Granted		3.8		88.26
Nonvested as of May 31, 2020		6.8		$	79.84

The weighted average fair value per share of restricted stock and restricted stock units granted for the years ended May 31, 2020, 2019 and 2018, computed as of the grant date, was $88.26, $80.95, and $62.51, respectively. During the years ended May 31, 2020, 2019 and 2018, the aggregate fair value of restricted stock and restricted stock units vested was $98 million, $44 million and $113 million, respectively, computed as of the date of vesting. As of May 31, 2020, the Company had $342 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.7 years.

NOTE 12 — EARNINGS PER SHARE

The following is a reconciliation from basic earnings per common share to diluted earnings per common share. The computations of diluted earnings per common share excluded options, including shares under ESPPs, and restricted stock to purchase an additional 30.6 million, 17.5 million and 42.9 million shares of common stock outstanding for the fiscal years ended May 31, 2020, 2019 and 2018, respectively, because the options and restricted stock were anti-dilutive.

	YEAR ENDED MAY 31,
(In millions, except per share data)	2020			2019			2018
Net income available to common stockholders	$	2,539		$	4,029		$	1,933
Determination of shares:
Weighted average common shares outstanding	1,558.8			1,579.7			1,623.8
Assumed conversion of dilutive stock options and awards	32.8			38.7			35.3
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	1,591.6			1,618.4			1,659.1
Earnings per common share:
Basic	$	1.63		$	2.55		$	1.19
Diluted	$	1.60		$	2.49		$	1.17

NOTE 13 — BENEFIT PLANS

The Company has a qualified 401(k) Savings and Profit Sharing Plan, in which all U.S. employees are able to participate. The Company matches a portion of employee contributions to the savings plan. Company contributions to the savings plan were $107 million, $90 million and $80 million and included in Cost of sales or Operating overhead expense, as applicable, for the years ended May 31, 2020, 2019 and 2018, respectively. The terms of the plan also allow for annual discretionary profit sharing contributions, as recommended by senior management and approved by the Board of Directors, to the accounts of eligible U.S. employees who work at least 1,000 hours in a year. For the fiscal year ended May 31, 2020, there were no profit sharing contributions made to the plan. Profit sharing contributions of $37 million and $59 million were made to the plan and included in Cost of sales or Operating overhead expense, as applicable, for the years ended May 31, 2019 and 2018, respectively.

The Company also has a Long-Term Incentive Plan (LTIP) adopted by the Board of Directors and approved by shareholders in September 1997 and later amended and approved in fiscal 2007 and fiscal 2012. The Company recognized $66 million, $83 million and $33 million of Operating overhead expense related to cash awards under the LTIP during the years ended May 31, 2020, 2019 and 2018, respectively.

The Company allows certain highly compensated employees and non-employee directors of the Company to defer compensation under a nonqualified deferred compensation plan. Deferred compensation plan liabilities were $725 million and $647 million at

2020 FORM 10-K 80

May 31, 2020 and 2019, respectively, and primarily classified as non-current in Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

The Company has pension plans in various countries worldwide. The pension plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $79 million and $73 million at May 31, 2020 and 2019, respectively, and primarily classified as non-current in Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

NOTE 14 — RISK MANAGEMENT AND DERIVATIVES

The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes.

The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships.

The majority of derivatives outstanding as of May 31, 2020 are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Japanese Yen/U.S. Dollar and Chinese Yuan/U.S. Dollar currency pairs. All derivatives are recognized on the Consolidated Balance Sheets at fair value and classified based on the instrument's maturity date.

The following tables present the fair values of derivative instruments included within the Consolidated Balance Sheets as of May 31, 2020 and 2019:

	DERIVATIVE ASSETS
	BALANCE SHEET LOCATION	MAY 31,
(Dollars in millions)	2020				2019
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	$	43			$	509
Foreign exchange forwards and options	Deferred income taxes and other assets	1				—
Total derivatives formally designated as hedging instruments		44				509
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	48				102
Embedded derivatives	Prepaid expenses and other current assets	1				5
Foreign exchange forwards and options	Deferred income taxes and other assets	2				—
Embedded derivatives	Deferred income taxes and other assets	—				6
Total derivatives not designated as hedging instruments		51				113
TOTAL DERIVATIVE ASSETS		$	95			$	622

2020 FORM 10-K 81

	DERIVATIVE LIABILITIES
	BALANCE SHEET LOCATION	MAY 31,
(Dollars in millions)	2020				2019
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	$	173			$	5
Foreign exchange forwards and options	Deferred income taxes and other liabilities	17				—
Total derivatives formally designated as hedging instruments		190				5
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	15				46
Embedded derivatives	Accrued liabilities	2				1
Embedded derivatives	Deferred income taxes and other liabilities	—				2
Total derivatives not designated as hedging instruments		17				49
TOTAL DERIVATIVE LIABILITIES		$	207			$	54

The following table presents the amounts in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the fiscal years ended May 31, 2020, 2019 and 2018:

	YEAR ENDED MAY 31,
	2020							2019							2018
(Dollars in millions)	TOTAL			AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY				TOTAL			AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY				TOTAL			AMOUNT OF GAIN (LOSS) ON CASH FLOW HEDGE ACTIVITY
Revenues	$	37,403		$	(17	)		$	39,117		$	(5	)		$	36,397		$	34
Cost of sales	21,162			364				21,643			53				20,441			(90		)
Demand creation expense	3,592			(2		)		3,753			—				3,577			1
Other (income) expense, net	139			181				(78		)	35				66			(69		)
Interest expense (income), net	89			(7		)		49			(7		)		54			(7		)

The following tables present the amounts affecting the Consolidated Statements of Income for the years ended May 31, 2020, 2019 and 2018:

2020 FORM 10-K 82

(Dollars in millions)	AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) ON DERIVATIVES**(1)**										AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME**(1)**
YEAR ENDED MAY 31,										LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME		YEAR ENDED MAY 31,
2020			2019			2018					2020			2019			2018
Derivatives designated ascash flow hedges:
Foreign exchange forwardsand options	$	28		$	14		$	19			Revenues		$	(17	)	$	(5	)	$	34
Foreign exchange forwardsand options	283			405			(50		)		Cost of sales		364			53			(90		)
Foreign exchange forwardsand options	1			2			1				Demand creation expense		(2		)	—			1
Foreign exchange forwardsand options	90			156			(19		)		Other (income) expense, net		181			35			(69		)
Interest rate swaps(2)	—			—			—				Interest expense (income), net		(7		)	(7		)	(7		)
Total designated cash****flow hedges	$	402		$	577		$	(49	)				$	519		$	76		$	(131	)

(1)	For the fiscal years ended May 31, 2020*,* 2019 and 2018*, the amounts recorded in* Other (income) expense, net as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(2)	Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income (loss), will be released through Interest expense (income), net over the term of the issued debt.

	AMOUNT OF GAIN (LOSS) RECOGNIZED****IN INCOME ON DERIVATIVES										LOCATION OF GAIN (LOSS)RECOGNIZED IN INCOMEON DERIVATIVES
	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	$	76		$	166		$	(57	)		Other (income) expense, net
Embedded derivatives	(1		)	7			(4		)		Other (income) expense, net

CASH FLOW HEDGES

All changes in fair value of derivatives designated as cash flow hedges are recorded in Accumulated other comprehensive income (loss) until Net income is affected by the variability of cash flows of the hedged transaction. Effective hedge results are classified in the Consolidated Statements of Income in the same manner as the underlying exposure. Derivative instruments designated as cash flow hedges must be discontinued when it is no longer probable the forecasted hedged transaction will occur in the initially identified time period. The gains and losses associated with discontinued derivative instruments in Accumulated other comprehensive income (loss) will be recognized immediately in Other (income) expense, net, if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-month period thereafter. In rare circumstances, the additional period of time may exceed two months due to extenuating circumstances related to the nature of the forecasted transaction that are outside the control or influence of the Company. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company accounts for the derivative as an undesignated instrument as discussed below.

The purpose of the Company's foreign exchange risk management program is to lessen both the positive and negative effects of currency fluctuations on the Company's consolidated results of operations, financial position and cash flows. Foreign currency exposures the Company may elect to hedge in this manner include product cost exposures, non-functional currency denominated external and intercompany revenues, demand creation expenses, investments in U.S. Dollar denominated available-for-sale debt securities and certain other intercompany transactions.

Product cost exposures are primarily generated through non-functional currency denominated product purchases and the foreign currency adjustment program described below. NIKE entities primarily purchase product in two ways: (1) Certain NIKE entities purchase product from the NIKE Trading Company (NTC), a wholly-owned sourcing hub that buys NIKE branded products from third party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the product to NIKE entities in their respective functional currencies. NTC sales to a NIKE entity with a different functional currency result in a foreign currency exposure for the NTC. (2) Other NIKE entities purchase product directly from third party factories in U.S. Dollars.

2020 FORM 10-K 83

These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar.

The Company operates a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories' foreign currency exposures, some of which are natural offsets to the Company's existing foreign currency exposures. Under this program, the Company's payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated. For the portion of the indices denominated in the local or functional currency of the factory, the Company may elect to place formally designated cash flow hedges. For all currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory, an embedded derivative contract is created upon the factory's acceptance of NIKE's purchase order. Embedded derivative contracts are separated from the related purchase order, as further described within the Embedded Derivatives section below.

The Company's policy permits the utilization of derivatives to reduce its foreign currency exposures where internal netting or other strategies cannot be effectively employed. Typically, the Company may enter into hedge contracts starting up to 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was $8.1 billion as of May 31, 2020.

As of May 31, 2020, approximately $374 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive income (loss) are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature. As of May 31, 2020, the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 24 months.

FAIR VALUE HEDGES

The Company has, in the past, been exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. All interest rate swaps designated as fair value hedges of the related long-term debt meet the shortcut method requirements under U.S. GAAP. 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. The Company had no interest rate swaps designated as fair value hedges as of May 31, 2020.

NET INVESTMENT HEDGES

The Company has, in the past, hedged and may, in the future, hedge the risk of variability in foreign currency-denominated net investments in wholly-owned international operations. All changes in fair value of the derivatives designated as net investment hedges are reported in Accumulated other comprehensive income (loss) along with the foreign currency translation adjustments on those investments. The Company had no outstanding net investment hedges as of May 31, 2020.

UNDESIGNATED DERIVATIVE INSTRUMENTS

The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Consolidated Balance Sheets and/or the embedded derivative contracts. 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 (income) expense, net, together with the re-measurement gain or loss from the hedged balance sheet position and/or embedded derivative contract. The total notional amount of outstanding undesignated derivative instruments was $4.1 billion as of May 31, 2020.

EMBEDDED DERIVATIVES

As part of the foreign currency adjustment program described above, an embedded derivative contract is created upon the factory's acceptance of NIKE's purchase order for currencies within the factory currency exposure indices that are neither the U.S. Dollar nor the local or functional currency of the factory. In addition, embedded derivative contracts are created when the Company enters into certain other contractual agreements which have payments that are indexed to currencies that are not the functional currency of either substantial party to the contracts. Embedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related contract and 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 (income) expense, net, through the date the foreign currency fluctuations cease to exist.

2020 FORM 10-K 84

At May 31, 2020, the total notional amount of embedded derivatives outstanding was approximately $281 million.

CREDIT RISK

The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings; however, this does not eliminate the Company's exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored.

The Company's derivative contracts contain credit risk-related contingent features designed to protect against significant deterioration in counterparties' creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives per counterparty be greater than $50 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could also trigger collateral requirements. As of May 31, 2020, the Company was in compliance with all credit risk-related contingent features, and had derivative instruments with such features in a net liability position of $137 million. However, no derivative instruments with credit risk-related contingent features in a net liability position were greater than $50 million by counterparty. Accordingly, the Company was not required to post any collateral as a result of these contingent features. Further, as of May 31, 2020, the Company had received no cash collateral from various counterparties to its derivative contracts. The Company considers the impact of the risk of counterparty default to be immaterial.

For additional information related to the Company's derivative financial instruments and collateral, refer to Note 6 — Fair Value Measurements.

2020 FORM 10-K 85

NOTE 15 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in Accumulated other comprehensive income (loss), net of tax, were as follows:

(Dollars in millions)	FOREIGN CURRENCY TRANSLATION ADJUSTMENT**(1)**			CASH FLOW HEDGES			NET INVESTMENT HEDGES**(1)**			OTHER			TOTAL
Balance at May 31, 2019	$	(346	)	$	520		$	115		$	(58	)	$	231
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications(2)	(149		)	387			—			(8		)	230
Reclassifications to net income of previously deferred (gains) losses(3)	1			(517		)	—			(1		)	(517		)
Total other comprehensive income (loss)	(148		)	(130		)	—			(9		)	(287		)
Balance at May 31, 2020	$	(494	)	$	390		$	115		$	(67	)	$	(56	)

(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, $(15) million, $0 million, $*1 million and $(14) million, respectively.

(3)	*Net of tax (benefit) expense of $0 million, $2 million, $0 million, $*0 million and $2 million, respectively.

(Dollars in millions)	FOREIGN CURRENCY TRANSLATION ADJUSTMENT**(1)**			CASH FLOW HEDGES			NET INVESTMENT HEDGES**(1)**			OTHER			TOTAL
Balance at May 31, 2018	$	(173	)	$	17		$	115		$	(51	)	$	(92	)
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications(2)	(173		)	573			—			10			410
Reclassifications to net income of previously deferred (gains) losses(3)	—			(70		)	—			(17		)	(87		)
Total other comprehensive income (loss)	(173		)	503			—			(7		)	323
Balance at May 31, 2019	$	(346	)	$	520		$	115		$	(58	)	$	231

(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, $(4) million, $0 million, $*1 million and $(3) million, respectively.

(3)	*Net of tax (benefit) expense of $0 million, $6 million, $0 million, $*0 million and $6 million, respectively.

2020 FORM 10-K 86

The following table summarizes the reclassifications from Accumulated other comprehensive income (loss) to the Consolidated Statements of Income:

	AMOUNT OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME						LOCATION OF GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INTO INCOME
	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019
Gains (losses) on foreign currency translation adjustment	$	(1	)	$	—		Other (income) expense, 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	$	(17	)	(5		)	Revenues
Foreign exchange forwards and options	364			53			Cost of sales
Foreign exchange forwards and options	(2		)	—			Demand creation expense
Foreign exchange forwards and options	181			35			Other (income) expense, net
Interest rate swaps	(7		)	(7		)	Interest expense (income), net
Total before tax	519			76
Tax (expense) benefit	(2		)	(6		)
Gain (loss) net of tax	517			70
Gains (losses) on other	1			17			Other (income) expense, net
Total before tax	1			17
Tax (expense) benefit	—			—
Gain (loss) net of tax	1			17
Total net gain (loss) reclassified for the period	$	517		$	87

2020 FORM 10-K 87

NOTE 16 — REVENUES

DISAGGREGATION OF REVENUES

The following tables present the Company's revenues disaggregated by reportable operating segment, major product line and by distribution channel:

	YEAR ENDED MAY 31, 2020
(Dollars in millions)	NORTH AMERICA			EUROPE, MIDDLE EAST & AFRICA			GREATER CHINA			ASIA PACIFIC & LATIN AMERICA			GLOBAL BRAND DIVISIONS			TOTAL NIKE BRAND			CONVERSE			CORPORATE			TOTAL NIKE, INC.
Revenues by:
Footwear	$	9,329		$	5,892		$	4,635		$	3,449		$	—		$	23,305		$	1,642		$	—		$	24,947
Apparel	4,639			3,053			1,896			1,365			—			10,953			89			—			11,042
Equipment	516			402			148			214			—			1,280			25			—			1,305
Other	—			—			—			—			30			30			90			(11		)	109
TOTAL REVENUES	$	14,484		$	9,347		$	6,679		$	5,028		$	30		$	35,568		$	1,846		$	(11	)	$	37,403
Revenues by:
Sales to Wholesale Customers	$	9,371		$	6,574		$	3,803		$	3,408		$	—		$	23,156		$	1,154		$	—		$	24,310
Sales through Direct to Consumer	5,113			2,773			2,876			1,620			—			12,382			602			—			12,984
Other	—			—			—			—			30			30			90			(11		)	109
TOTAL REVENUES	$	14,484		$	9,347		$	6,679		$	5,028		$	30		$	35,568		$	1,846		$	(11	)	$	37,403

	YEAR ENDED MAY 31, 2019
(Dollars in millions)	NORTH AMERICA			EUROPE, MIDDLE EAST & AFRICA			GREATER CHINA			ASIA PACIFIC & LATIN AMERICA			GLOBAL BRAND DIVISIONS			TOTAL NIKE BRAND			CONVERSE			CORPORATE			TOTAL NIKE, INC.
Revenues by:
Footwear	$	10,045		$	6,293		$	4,262		$	3,622		$	—		$	24,222		$	1,658		$	—		$	25,880
Apparel	5,260			3,087			1,808			1,395			—			11,550			118			—			11,668
Equipment	597			432			138			237			—			1,404			24			—			1,428
Other	—			—			—			—			42			42			106			(7		)	141
TOTAL REVENUES	$	15,902		$	9,812		$	6,208		$	5,254		$	42		$	37,218		$	1,906		$	(7	)	$	39,117
Revenues by:
Sales to Wholesale Customers	$	10,875		$	7,076		$	3,726		$	3,746		$	—		$	25,423		$	1,247		$	—		$	26,670
Sales through Direct to Consumer	5,027			2,736			2,482			1,508			—			11,753			553			—			12,306
Other	—			—			—			—			42			42			106			(7		)	141
TOTAL REVENUES	$	15,902		$	9,812		$	6,208		$	5,254		$	42		$	37,218		$	1,906		$	(7	)	$	39,117

For the fiscal years ended May 31, 2020 and 2019, Other revenues for Global Brand Divisions and Converse were primarily attributable to licensing businesses. For the fiscal years ended May 31, 2020 and 2019, Other revenues for Corporate primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse but managed through the Company's central foreign exchange risk management program.

As of May 31, 2020 and 2019, the Company did not have any contract assets and had an immaterial amount of contract liabilities recorded in Accrued Liabilities on the Consolidated Balance Sheets.

2020 FORM 10-K 88

SALES-RELATED RESERVES

At May 31, 2020 and May 31, 2019, the Company's sales-related reserve balance, which includes returns, post-invoice sales discounts and miscellaneous claims, was $1,178 million and $1,218 million, respectively, recorded in Accrued liabilities on the Consolidated Balance Sheets. The estimated cost of inventory for expected product returns was $313 million and $410 million as of May 31, 2020 and May 31, 2019, respectively, and was recorded in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

MAJOR CUSTOMERS

No customer accounted for 10% or more of the Company's consolidated net Revenues during the fiscal years ended May 31, 2020, 2019 and 2018.

NOTE 17 — OPERATING SEGMENTS AND RELATED INFORMATION

The Company's operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity.

Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. 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), and include results for the NIKE and Jordan brands, with the results for the Hurley brand, prior to its divestiture, included in North America. Refer to Note 20 — Acquisitions and Divestitures for information regarding the divestiture of the Company's wholly-owned subsidiary, Hurley, and the planned transition of NIKE Brand businesses in certain countries within APLA to third-party distributors.

The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment. Converse is also a reportable segment for the Company, and operates in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories.

Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment, and demand creation and operating overhead expense, including product creation and design expenses that are centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology.

Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company's headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses. For the fiscal year ended May 31, 2020, Corporate includes the non-recurring impairment charge, recognized as a result of the Company's decision to transition its operations in Brazil, Argentina, Chile and Uruguay to third-party distributors. This charge primarily reflects the anticipated release of associated non-cash cumulative foreign currency translation losses. For more information regarding this charge, refer to Note 20 — Acquisitions and Divestitures.

The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (EBIT), which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income.

As part of the Company's centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in the Company's geographic operating segments and to Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entity's functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from the Company's centrally managed foreign exchange risk management program and other conversion gains and losses.

Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and are therefore provided below.

2020 FORM 10-K 89

	YEAR ENDED MAY 31,
(Dollars in millions)	2020			2019			2018
REVENUES
North America	$	14,484		$	15,902		$	14,855
Europe, Middle East & Africa	9,347			9,812			9,242
Greater China	6,679			6,208			5,134
Asia Pacific & Latin America	5,028			5,254			5,166
Global Brand Divisions	30			42			88
Total NIKE Brand	35,568			37,218			34,485
Converse	1,846			1,906			1,886
Corporate	(11		)	(7		)	26
TOTAL NIKE, INC. REVENUES	$	37,403		$	39,117		$	36,397
EARNINGS BEFORE INTEREST AND TAXES
North America	$	2,899		$	3,925		$	3,600
Europe, Middle East & Africa	1,541			1,995			1,587
Greater China	2,490			2,376			1,807
Asia Pacific & Latin America	1,184			1,323			1,189
Global Brand Divisions	(3,468		)	(3,262		)	(2,658		)
Converse	297			303			310
Corporate	(1,967		)	(1,810		)	(1,456		)
Interest expense (income), net	89			49			54
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES	$	2,887		$	4,801		$	4,325
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
North America	$	110		$	117		$	196
Europe, Middle East & Africa	139			233			240
Greater China	28			49			76
Asia Pacific & Latin America	41			47			49
Global Brand Divisions	438			278			286
Total NIKE Brand	756			724			847
Converse	12			18			22
Corporate	356			333			325
TOTAL ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT	$	1,124		$	1,075		$	1,194
DEPRECIATION
North America	$	148		$	149		$	160
Europe, Middle East & Africa	132			111			116
Greater China	44			50			56
Asia Pacific & Latin America	46			53			55
Global Brand Divisions	214			195			217
Total NIKE Brand	584			558			604
Converse	25			31			33
Corporate	112			116			110
TOTAL DEPRECIATION	$	721		$	705		$	747

2020 FORM 10-K 90

	AS OF MAY 31,
(Dollars in millions)	2020			2019
ACCOUNTS RECEIVABLE, NET
North America	$	1,020		$	1,718
Europe, Middle East & Africa	712			1,164
Greater China	321			245
Asia Pacific & Latin America(1)	425			771
Global Brand Divisions	65			105
Total NIKE Brand	2,543			4,003
Converse	149			243
Corporate	57			26
TOTAL ACCOUNTS RECEIVABLE, NET	$	2,749		$	4,272
INVENTORIES
North America	$	3,077		$	2,328
Europe, Middle East & Africa	2,070			1,390
Greater China	882			693
Asia Pacific & Latin America(1)	770			694
Global Brand Divisions	137			126
Total NIKE Brand	6,936			5,231
Converse	341			269
Corporate	90			122
TOTAL INVENTORIES	$	7,367		$	5,622
PROPERTY, PLANT AND EQUIPMENT, NET
North America	$	645		$	814
Europe, Middle East & Africa	885			929
Greater China	214			237
Asia Pacific & Latin America(1)	296			326
Global Brand Divisions	830			665
Total NIKE Brand	2,870			2,971
Converse	80			100
Corporate	1,916			1,673
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET	$	4,866		$	4,744

(1)	Excludes assets held-for-sale as of May 31, 2020*. See* Note 20 — Acquisitions and Divestitures for additional information.

REVENUES AND LONG-LIVED ASSETS BY GEOGRAPHIC AREA

After allocation of revenues for Global Brand Divisions, Converse and Corporate to geographical areas based on the location where the sales originated, revenues by geographical area are essentially the same as reported above for the NIKE Brand operating segments with the exception of the United States. Revenues derived in the United States were $14,625 million, $16,091 million and $15,314 million for the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

The Company's largest concentrations of long-lived assets primarily consist of the Company's corporate headquarters, retail locations and distribution facilities in the United States and China, as well as distribution facilities in Belgium. Long-lived assets attributable to operations in these countries, which primarily consists of property, plant and equipment, net, as well as operating lease right-of-use assets, net in conjunction with the adoption of Topic 842 in fiscal 2020, were as follows:

	MAY 31,
(Dollars in millions)	2020**(1)**			2019
United States	$	5,114		$	3,174
Belgium	606			618
China	457			242

(1)	Includes operating lease right-of-use assets, net in conjunction with the adoption of Topic 842. Comparative prior period information has not been adjusted and continues to be reported in accordance with previous accounting guidance in effect for those periods.

2020 FORM 10-K 91

NOTE 18 — COMMITMENTS AND CONTINGENCIES

As of May 31, 2020 and 2019, the Company had bank guarantees and letters of credit outstanding totaling $239 million and $215 million, respectively, issued primarily for real estate agreements, self-insurance programs and other general business obligations.

In connection with various contracts and agreements, the Company provides routine indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor. Currently, the Company has several such agreements in place. However, based on the Company's historical experience and the estimated probability of future loss, the Company has determined the fair value of such indemnification is not material to the Company's financial position or results of operations.

In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights and a variety of other matters. While the Company cannot predict the outcome of its pending legal matters with certainty, the Company does not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material impact on the Company's results of operations, financial position or cash flows.

NOTE 19 — LEASES

Lease expense is recognized in Cost of sales or Operating overhead expense within the Consolidated Statements of Income, based on the underlying nature of the leased asset. For the fiscal year ended May 31, 2020, lease expense primarily consisted of operating lease costs of $569 million, along with $337 million primarily related to variable lease costs which includes an immaterial amount of short-term lease costs. As of and for the fiscal year ended May 31, 2020, finance leases were not a material component of the Company's lease portfolio.

Amounts of future undiscounted cash flows related to operating lease payments over the lease term are as follows and are reconciled to the present value of the operating lease liabilities as recorded on the Consolidated Balance Sheets:

(Dollars in millions)	AS OF MAY 31, 2020**(1)**
Fiscal 2021	$	550
Fiscal 2022	514
Fiscal 2023	456
Fiscal 2024	416
Fiscal 2025	374
Thereafter	1,474
Total undiscounted future cash flows related to lease payments	$	3,784
Less: Interest	426
Present value of lease liabilities	$	3,358

(1)	Excludes $67 million of future operating lease payments for lease agreements signed but not yet commenced.

In accordance with Topic 840, rent expense, excluding executory costs, was $829 million and $820 million for the fiscal years ended May 31, 2019 and 2018, respectively. Amounts of minimum future annual commitments under non-cancelable operating and capital leases in accordance with Topic 840 were as follows:

	AS OF MAY 31, 2019
(Dollars in millions)	OPERATING LEASES			CAPITAL LEASES AND OTHER FINANCING OBLIGATIONS**(1)**			TOTAL
Fiscal 2020	$	553		$	32		$	585
Fiscal 2021	513			34			547
Fiscal 2022	441			40			481
Fiscal 2023	386			37			423
Fiscal 2024	345			34			379
Thereafter	1,494			197			1,691
TOTAL	$	3,732		$	374		$	4,106

(1)	Capital leases and other financing obligations include payments related to build-to-suit lease arrangements.

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The following table includes the weighted average remaining lease terms, in years, and the weighted average discount rate used to calculate the present value of operating lease liabilities:

	AS OF MAY 31,
	2020
Weighted-average remaining lease term (years)	8.7
Weighted-average discount rate	2.4	%

The following table includes supplemental cash and non-cash information related to operating leases:

	FISCAL YEAR ENDED
(Dollars in millions)	MAY 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	532
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities(1)	$	705

(1)	Excludes the amount initially capitalized in conjunction with the adoption of Topic 842.

NOTE 20 — ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

During fiscal 2020, 2019 and 2018, the Company made multiple acquisitions focused on gaining new capabilities to fuel its Consumer Direct Offense strategy, serving consumers personally at a global scale. The impact of acquisitions, individually and in the aggregate, was not considered material to the Company's Consolidated Financial Statements.

DIVESTITURES

During the third quarter of fiscal 2020, as a result of the Company's decision to transition its wholesale and direct to consumer operating model in certain countries within its APLA operating segment, the Company signed definitive agreements to sell its NIKE Brand businesses in Brazil, Argentina, Chile and Uruguay to third-party distributors. Specifically, NIKE entered into agreements to sell its operations in Argentina, Chile and Uruguay to Grupo Axo and to sell substantially all of its operations in Brazil to Grupo SBF S.A., through its wholly-owned subsidiary. The Company will retain a small operation in Brazil focused on certain sports marketing assets, local manufacturing and Converse. These transactions are expected to close in the first half of fiscal 2021, with Grupo SBF S.A.'s transaction subject to Brazil Antitrust Authority approvals.

As a result of this decision, beginning in the third quarter of fiscal 2020, the related assets and liabilities of these entities were classified as held-for-sale and remain as such on the Consolidated Balance Sheets as of May 31, 2020, which consisted of the following:

•	Assets of $506 million, primarily consisting of $264 million of Inventories and $138 million of Accounts receivable, net which were reclassified to Prepaid expenses and other current assets on the Company's Consolidated Balance Sheets; and

•	Liabilities of $146 million, primarily consisting of $85 million of Accrued liabilities, as well as $49 million of Accounts Payable, which was reclassified to Accrued liabilities on the Company's Consolidated Balance Sheets.

As a result of meeting the criteria for held-for-sale classification, the Company recognized a non-recurring impairment charge of $405 million within Other (income) expense, net on the Consolidated Statements of Income, classified within Corporate, and a corresponding allowance within Accrued Liabilities on the Consolidated Balance Sheets. This charge was primarily due to the anticipated release of non-cash cumulative foreign currency translation losses, which were included as part of the carrying value of the Argentina, Chile and Uruguay disposal groups when measuring for impairment. These losses will be reclassified from Accumulated other comprehensive income (loss) to Net income upon closure of the transaction. For more information see Note 6 — Fair Value Measurements.

On October 29, 2019, the Company signed a definitive agreement to sell the assets and liabilities of its wholly-owned subsidiary brand, Hurley. The transaction closed on December 6, 2019, and the impacts of the divestiture are not considered material to the Company.

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NOTE 21 — SUBSEQUENT EVENTS

In June 2020, the Company announced a new digitally empowered phase of its Consumer Direct Offense, the Consumer Direct Acceleration. As a result, on July 22, 2020, management announced a series of leadership and operating model changes to streamline and speed up strategic execution for the Company. The changes are expected to lead to a net loss of jobs, resulting in pre-tax, one-time employee termination costs of approximately $200 million to $250 million, which is expected to be incurred primarily during the first half of fiscal 2021, in the form of cash expenditures.

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