Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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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.

2021 FORM 10-K 53

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, 2021.

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, 2021, as stated in their report herein.


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

2021 FORM 10-K 54

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, 2021 and 2020, 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, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2021 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, 2021, 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.

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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 Notes 1 and 9 to the consolidated financial statements, the Company recorded income tax expense of $934 million for the year ended May 31, 2021, and has net deferred tax assets of $1,133 million, including a valuation allowance of $12 million, and total gross unrecognized tax benefits, excluding related interest and penalties, of $896 million as of May 31, 2021, $609 million of which would affect the Company's effective tax rate if recognized in future periods. The realization of deferred tax assets is dependent on future taxable earnings. Management assesses the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies and considers foreign tax credit utilization in making this assessment of realization. A valuation allowance is established against the net deferred tax asset to the extent that recovery is not likely. 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 the Company's 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 high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to (i) management's assessment of complex tax laws and regulations, including recent court rulings, as it relates to determining the provision for income taxes and other tax positions, and (ii) management's assessment of realizability of deferred tax assets, specifically around future taxable income, foreign tax credit utilization and available tax planning strategies. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matters 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, including controls over management's assessments of the realizability of deferred tax assets. These procedures also included, among others, evaluating the effect on the Company's tax provision of changes in its legal entity structure, evaluating changes in and compliance with tax laws, and testing management's tax calculations including the Company's forecast of future taxable income, tax planning strategies, and foreign tax credit utilization of deferred tax assets. Professionals with specialized skill and knowledge were used 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 20, 2021

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

2021 FORM 10-K 56

NIKE, INC.

CONSOLIDATED STATEMENTS OF INCOME


	YEAR ENDED MAY 31,
(In millions, except per share data)	2021		2020		2019
Revenues	$	44,538	$	37,403	$	39,117
Cost of sales	24,576		21,162		21,643
Gross profit	19,962		16,241		17,474
Demand creation expense	3,114		3,592		3,753
Operating overhead expense	9,911		9,534		8,949
Total selling and administrative expense	13,025		13,126		12,702
Interest expense (income), net	262		89		49
Other (income) expense, net	14		139		(78)
Income before income taxes	6,661		2,887		4,801
Income tax expense	934		348		772
NET INCOME	$	5,727	$	2,539	$	4,029
Earnings per common share:
Basic	$	3.64	$	1.63	$	2.55
Diluted	$	3.56	$	1.60	$	2.49
Weighted average common shares outstanding:
Basic	1,573.0		1,558.8		1,579.7
Diluted	1,609.4		1,591.6		1,618.4

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

2021 FORM 10-K 57

NIKE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020		2019
Net income	$	5,727	$	2,539	$	4,029
Other comprehensive income (loss), net of tax:
Change in net foreign currency translation adjustment	496		(148)		(173)
Change in net gains (losses) on cash flow hedges	(825)		(130)		503
Change in net gains (losses) on other	5		(9)		(7)
Total other comprehensive income (loss), net of tax	(324)		(287)		323
TOTAL COMPREHENSIVE INCOME	$	5,403	$	2,252	$	4,352

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

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NIKE, INC.

CONSOLIDATED BALANCE SHEETS


	MAY 31,
(In millions)	2021		2020
ASSETS
Current assets:
Cash and equivalents	$	9,889	$	8,348
Short-term investments	3,587		439
Accounts receivable, net	4,463		2,749
Inventories	6,854		7,367
Prepaid expenses and other current assets	1,498		1,653
Total current assets	26,291		20,556
Property, plant and equipment, net	4,904		4,866
Operating lease right-of-use assets, net	3,113		3,097
Identifiable intangible assets, net	269		274
Goodwill	242		223
Deferred income taxes and other assets	2,921		2,326
TOTAL ASSETS	$	37,740	$	31,342
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	3
Notes payable	2		248
Accounts payable	2,836		2,248
Current portion of operating lease liabilities	467		445
Accrued liabilities	6,063		5,184
Income taxes payable	306		156
Total current liabilities	9,674		8,284
Long-term debt	9,413		9,406
Operating lease liabilities	2,931		2,913
Deferred income taxes and other liabilities	2,955		2,684
Commitments and contingencies (Note 18)
Redeemable preferred stock	—		—
Shareholders' equity:
Common stock at stated value:
Class A convertible — 305 and 315 shares outstanding	—		—
Class B — 1,273 and 1,243 shares outstanding	3		3
Capital in excess of stated value	9,965		8,299
Accumulated other comprehensive income (loss)	(380)		(56)
Retained earnings (deficit)	3,179		(191)
Total shareholders' equity	12,767		8,055
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	37,740	$	31,342

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

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NIKE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020		2019
Cash provided (used) by operations:
Net income	$	5,727	$	2,539	$	4,029
Adjustments to reconcile net income to net cash provided (used) by operations:
Depreciation	744		721		705
Deferred income taxes	(385)		(380)		34
Stock-based compensation	611		429		325
Amortization, impairment and other	53		398		15
Net foreign currency adjustments	(138)		23		233
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable	(1,606)		1,239		(270)
(Increase) decrease in inventories	507		(1,854)		(490)
(Increase) decrease in prepaid expenses, operating lease right-of-use assets and other current and non-current assets	(182)		(654)		(203)
Increase (decrease) in accounts payable, accrued liabilities, operating lease liabilities and other current and non-current liabilities	1,326		24		1,525
Cash provided (used) by operations	6,657		2,485		5,903
Cash provided (used) by investing activities:
Purchases of short-term investments	(9,961)		(2,426)		(2,937)
Maturities of short-term investments	4,236		74		1,715
Sales of short-term investments	2,449		2,379		2,072
Additions to property, plant and equipment	(695)		(1,086)		(1,119)
Other investing activities	171		31		5
Cash provided (used) by investing activities	(3,800)		(1,028)		(264)
Cash provided (used) by financing activities:
Proceeds from borrowings, net of debt issuance costs	—		6,134		—
Increase (decrease) in notes payable, net	(52)		49		(325)
Repayment of borrowings	(197)		(6)		(6)
Proceeds from exercise of stock options and other stock issuances	1,172		885		700
Repurchase of common stock	(608)		(3,067)		(4,286)
Dividends — common and preferred	(1,638)		(1,452)		(1,332)
Other financing activities	(136)		(52)		(44)
Cash provided (used) by financing activities	(1,459)		2,491		(5,293)
Effect of exchange rate changes on cash and equivalents	143		(66)		(129)
Net increase (decrease) in cash and equivalents	1,541		3,882		217
Cash and equivalents, beginning of year	8,348		4,466		4,249
CASH AND EQUIVALENTS, END OF YEAR	$	9,889	$	8,348	$	4,466
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest	$	293	$	140	$	153
Income taxes	1,177		1,028		757
Non-cash additions to property, plant and equipment	179		121		160
Dividends declared and not paid	438		385		347

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

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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, 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
Stock options exercised				21			954						954
Conversion to Class B Common Stock	(10)			10									—
Repurchase of Class B Common Stock				(5)			(28)				(622)		(650)
Dividends on common stock ($1.070 per share) and preferred stock ($0.10 per share)											(1,692)		(1,692)
Issuance of shares to employees, net of shares withheld for employee taxes				4			129				(43)		86
Stock-based compensation							611						611
Net income											5,727		5,727
Other comprehensive income (loss)									(324)				(324)
Balance at May 31, 2021	305	$	—	1,273	$	3	$	9,965	$	(380)	$	3,179	$	12,767

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	63
Note 2	Inventories	69
Note 3	Property, Plant and Equipment	69
Note 4	Identifiable Intangible Assets and Goodwill	70
Note 5	Accrued Liabilities	70
Note 6	Fair Value Measurements	70
Note 7	Short-Term Borrowings and Credit Lines	72
Note 8	Long-Term Debt	73
Note 9	Income Taxes	74
Note 10	Redeemable Preferred Stock	77
Note 11	Common Stock and Stock-Based Compensation	77
Note 12	Earnings Per Share	79
Note 13	Benefit Plans	79
Note 14	Risk Management and Derivatives	80
Note 15	Accumulated Other Comprehensive Income (Loss)	84
Note 16	Revenues	86
Note 17	Operating Segments and Related Information	87
Note 18	Commitments and Contingencies	91
Note 19	Leases	91
Note 20	Acquisitions and Divestitures	92
Note 21	Restructuring	93

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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, prior to its divestiture in fiscal 2020, 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. Sales and operating results of Hurley brand products, prior to its divestiture in fiscal 2020, were 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). The Company's revenue recognition policies under Topic 606 are described in the following paragraphs.

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 to the customer has occurred, 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.

Control is transferred to wholesale customers upon shipment or upon receipt depending on the country of the sale and the agreement with the customer. Control transfers to retail store customers at the time of sale and to substantially all digital commerce customers upon shipment. 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 fulfillment costs 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.

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.

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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 are significantly greater or lower than the reserves established, a reduction or increase to net Revenues is recorded in the period in which such determination is 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 products, 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 contracts contain elements that 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 $3,114 million, $3,592 million and $3,753 million for the years ended May 31, 2021, 2020 and 2019, respectively. Prepaid advertising and promotion expenses totaled $630 million and $686 million at May 31, 2021 and 2020, respectively, of which $338 million and $326 million, respectively, were recorded in Prepaid expenses and other current assets, and $292 million and $360 million, respectively, were recorded in Deferred income taxes and other assets, depending on the period to which the prepayment applied.

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.

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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. At May 31, 2021 and 2020, 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 unrecoverable. 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 due from customers. The Company makes ongoing estimates relating to the collectability of its accounts receivable and maintains an allowance for expected 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 $93 million and $214 million as of May 31, 2021 and 2020, 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 products 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, 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

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. The Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. 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.

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.

2021 FORM 10-K 65

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). Periods prior to fiscal 2020 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.

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. Lease components are not separated from nonlease components for real estate leases within the Company's lease portfolio. 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. The Company does not record leases with an initial term of 12 months or less on the Consolidated Balance Sheets, and recognizes related lease payments in the Consolidated Statements of Income on a straight-line basis over the lease term. Certain lease agreements include variable lease

2021 FORM 10-K 66

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, and are expensed as incurred.

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 monetary assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to remeasurement, 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 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.

2021 FORM 10-K 67

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 10 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. Realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain. At least quarterly, the Company assesses taxable income in prior carryback periods, the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies. The Company uses forecasts of taxable income and considers foreign tax credit utilization in making this assessment of realization, which are inherently uncertain and can result in significant variation between estimated and actual results. To the extent the Company believes that recovery is not likely, a valuation allowance is established against the net deferred tax asset, which increases the Company’s income tax expense in the period when such determination is made.

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. There remains risk that COVID-19 could have a material, adverse impact on future revenue growth as well as overall profitability and may lead to higher than normal inventory levels in various markets, adverse impacts on the global supply chain, 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.

RECENTLY ADOPTED ACCOUNTING STANDARDS

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

2021 FORM 10-K 68

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.


NOTE 2 — INVENTORIES

Inventory balances of $6,854 million and $7,367 million as of May 31, 2021 and 2020, 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)	2021		2020
Land and improvements	$	363	$	345
Buildings	3,365		2,442
Machinery and equipment	3,023		2,751
Internal-use software	1,391		1,483
Leasehold improvements	1,608		1,554
Construction in process	311		1,086
Total property, plant and equipment, gross	10,061		9,661
Less accumulated depreciation	5,157		4,795
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET	$	4,904	$	4,866

Capitalized interest was not material for the years ended May 31, 2021, 2020 and 2019.


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, 2021 and 2020:


	MAY 31,
	2021						2020
(Dollars in millions)	GROSS CARRYING AMOUNT		ACCUMULATED AMORTIZATION		NET CARRYING AMOUNT		GROSS CARRYING AMOUNT		ACCUMULATED AMORTIZATION		NET CARRYING AMOUNT
Indefinite-lived trademarks	$	246	$	—	$	246	$	246	$	—	$	246
Acquired trademarks and other	50		27		23		47		19		28
IDENTIFIABLE INTANGIBLE ASSETS, NET	$	296	$	27	$	269	$	293	$	19	$	274

Goodwill was $242 million and $223 million as of May 31, 2021 and 2020, respectively, and there were no accumulated impairment losses as of May 31, 2021 and 2020. Additionally, the impact to Goodwill during fiscal 2021 and 2020 as a result of acquisitions and divestitures was not material.

2021 FORM 10-K 69


NOTE 5 — ACCRUED LIABILITIES

Accrued liabilities included the following:


	MAY 31,
(Dollars in millions)	2021		2020
Compensation and benefits, excluding taxes	$	1,472	$	1,248
Sales-related reserves	1,077		1,178
Allowance for expected loss on sale(1)	358		405
Other	3,156		2,353
TOTAL ACCRUED LIABILITIES	$	6,063	$	5,184

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


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, 2021 and 2020, 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, 2021
(Dollars in millions)	ASSETS AT FAIR VALUE		CASH AND EQUIVALENTS		SHORT-TERM INVESTMENTS
Cash	$	840	$	840	$	—
Level 1:
U.S. Treasury securities	2,892		—		2,892
Level 2:
Commercial paper and bonds	748		57		691
Money market funds	7,701		7,701		—
Time deposits	1,293		1,291		2
U.S. Agency securities	2		—		2
Total Level 2	9,744		9,049		695
TOTAL	$	13,476	$	9,889	$	3,587


	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

As of May 31, 2021, the Company held $2,993 million of available-for-sale debt securities with maturity dates within one year and $594 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 $34 million, $62 million and $82 million for the years ended May 31, 2021, 2020 and 2019, respectively.

2021 FORM 10-K 70

The Company records the assets and liabilities of its derivative financial instruments on a gross basis 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. The Company does not recognize amounts of non-cash collateral received, such as securities, on the Consolidated Balance Sheets. 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 and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:


	MAY 31, 2021
	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)	$	92	$	76	$	16	$	456	$	415	$	41
Embedded derivatives	—		—		—		1		1		—
TOTAL	$	92	$	76	$	16	$	457	$	416	$	41

*(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 $93 million as of May 31, 2021. As of that date, the Company had posted $39 million of cash collateral to various counterparties related to foreign exchange derivative instruments. No amount of collateral was received on the Company's derivative asset balance as of May 31, 2021.


	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 each 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.

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, during fiscal 2020, the Company met the criteria to recognize the related assets and liabilities of its Brazil, Argentina, Chile and Uruguay entities as held-for-sale. 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. During fiscal 2021, the Company continued to use estimated consideration to measure the fair value of each disposal group.

All other assets or liabilities required to be measured at fair value on a non-recurring basis as of May 31, 2021 and 2020 were immaterial.

2021 FORM 10-K 71


NOTE 7 — SHORT-TERM BORROWINGS AND CREDIT LINES

Notes payable as of May 31, 2021 and 2020, are summarized below:


	MAY 31,
	2021					2020
(Dollars in millions)	BORROWINGS		INTEREST RATE			BORROWINGS		INTEREST RATE
Notes payable:
Commercial paper(1)	$	—	0.00	%		$	248	1.65	%
U.S. operations	—		0.00	%		—		0.00	%	(2)
Non-U.S. operations	2		17.80	%	(2)	—		0.00	%
TOTAL NOTES PAYABLE	$	2				$	248

*(1)*Commercial paper borrowings and repayments with original maturities greater than three months are included in Proceeds from borrowings, net of debt issuance costs and Repayment of borrowings, respectively, 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 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 the facility 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 London Interbank Offered Rate (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.

On March 15, 2021, the Company entered into a committed credit facility agreement with a syndicate of banks, which provides up to $1 billion of borrowings, with the option to increase borrowings up to $1.5 billion in total upon lender approval. The facility matures on March 14, 2022, with a 364-day extension option up to 30 days prior to the existing termination date, provided that in no event shall the facility extend beyond March 13, 2023. This facility replaces the prior $2 billion credit facility agreement entered into on April 6, 2020, which would have matured 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 0.50%. The facility fee is 0.03% of the total undrawn commitment. Additionally, the Company decreased its $4 billion commercial paper program to $3 billion in connection with the new credit facility agreement.

As of and for the periods ended May 31, 2021 and 2020, no amounts were outstanding under any of the Company's committed credit facilities.

2021 FORM 10-K 72


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	2021		2020
Corporate Term Debt:(1)(2)
May 1, 2023	$	500	2.25	%	Semi-Annually	$	499	$	499
March 27, 2025	1,000		2.40	%	Semi-Annually	995		994
November 1, 2026	1,000		2.38	%	Semi-Annually	996		995
March 27, 2027	1,000		2.75	%	Semi-Annually	995		994
March 27, 2030	1,500		2.85	%	Semi-Annually	1,490		1,489
March 27, 2040	1,000		3.25	%	Semi-Annually	986		985
May 1, 2043	500		3.63	%	Semi-Annually	496		495
November 1, 2045	1,000		3.88	%	Semi-Annually	984		984
November 1, 2046	500		3.38	%	Semi-Annually	491		491
March 27, 2050	1,500		3.38	%	Semi-Annually	1,481		1,480
Japanese Yen Notes:(3)
August 20, 2001 through November 20, 2020	¥	9,000	2.60	%	Quarterly	$	—	$	2
August 20, 2001 through November 20, 2020	4,000		2.00	%	Quarterly	—		1
Total						9,413		9,409
Less current maturities						—		3
TOTAL LONG-TERM DEBT						$	9,413	$	9,406

*(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 matured 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, 2022 through 2026, are $0 million, $500 million, $0 million, $1,000 million and $0 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 $10,275 million and $10,645 million as of May 31, 2021 and 2020, respectively.

2021 FORM 10-K 73


NOTE 9 — INCOME TAXES

Income before income taxes is as follows:


	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020		2019
Income before income taxes:
United States	$	5,723	$	2,954	$	593
Foreign	938		(67)		4,208
TOTAL INCOME BEFORE INCOME TAXES	$	6,661	$	2,887	$	4,801

The provision for income taxes is as follows:


	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020		2019
Current:
United States
Federal	$	328	$	(109)	$	74
State	134		81		56
Foreign	857		756		608
Total Current	1,319		728		738
Deferred:
United States
Federal	(371)		(231)		(33)
State	(34)		(47)		(9)
Foreign	20		(102)		76
Total Deferred	(385)		(380)		34
TOTAL INCOME TAX EXPENSE	$	934	$	348	$	772

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


	YEAR ENDED MAY 31,
	2021		2020		2019
Federal income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.3	%	0.8	%	1.0	%
Foreign earnings	0.2	%	5.9	%	-1.1	%
Foreign-derived intangible income benefit	-3.7	%	-8.1	%	—	%
Excess tax benefits from share-based compensation	-4.5	%	-7.2	%	-3.6	%
Income tax audits and contingency reserves	1.5	%	-1.4	%	1.3	%
U.S. research and development tax credit	-0.9	%	-1.8	%	-1.0	%
Other, net	-0.9	%	2.9	%	-1.5	%
EFFECTIVE INCOME TAX RATE	14.0	%	12.1	%	16.1	%

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Tax Act"), which significantly changed U.S. tax law and included a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries. The Company recognizes taxes due under the GILTI provision as a current period expense.

The effective tax rate for the fiscal year ended May 31, 2021, was higher than the effective tax rate for the fiscal year ended May 31, 2020, due to a change in the proportion of earnings taxed in the U.S., related to the recovery from the impact of the COVID-19 pandemic and less favorable impacts from discrete items such as stock-based compensation. Income tax audit and contingency reserves for the fiscal year ended May 31, 2021, reflects recognition of a reserve of 1.2% related to Altera Corp. v. Commissioner, where the taxpayer was denied a hearing before the U.S. Supreme Court on June 22, 2020, thereby ratifying the Ninth Circuit Court's decision and requiring the inclusion of stock-based compensation in intercompany cost-sharing arrangements, and other matters of 0.3%.

2021 FORM 10-K 74

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 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%.

Deferred tax assets and liabilities comprise the following as of:


	MAY 31,
(Dollars in millions)	2021		2020
Deferred tax assets:
Inventories(1)	$	78	$	84
Sales return reserves(1)	100		115
Deferred compensation(1)	350		295
Stock-based compensation	175		168
Reserves and accrued liabilities(1)	96		120
Operating lease liabilities	499		491
Intangibles	187		—
Capitalized research and development expenditures	349		189
Net operating loss carry-forwards(1)	15		21
Other(1)	178		127
Total deferred tax assets	2,027		1,610
Valuation allowance(1)	(12)		(26)
Total deferred tax assets after valuation allowance	2,015		1,584
Deferred tax liabilities:
Foreign withholding tax on undistributed earnings of foreign subsidiaries	(182)		(165)
Property, plant and equipment(1)	(255)		(232)
Right-of-use assets	(431)		(423)
Other(1)	(14)		(32)
Total deferred tax liabilities	(882)		(852)
NET DEFERRED TAX ASSET	$	1,133	$	732

*(1)*The above amounts exclude deferred taxes held-for-sale as of May 31, 2021 and 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)	2021		2020		2019
Unrecognized tax benefits, beginning of the period	$	771	$	808	$	698
Gross increases related to prior period tax positions	77		181		85
Gross decreases related to prior period tax positions	(22)		(171)		(32)
Gross increases related to current period tax positions	59		50		81
Settlements	(5)		(58)		—
Lapse of statute of limitations	(6)		(28)		(35)
Changes due to currency translation	22		(11)		11
UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD	$	896	$	771	$	808

As of May 31, 2021, total gross unrecognized tax benefits, excluding related interest and penalties, were $896 million, $609 million of which would affect the Company's effective tax rate if recognized in future periods. The majority of the total gross unrecognized tax benefits are long-term in nature and included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

2021 FORM 10-K 75

The Company recognizes interest and penalties related to income tax matters in income tax expense. The liability for payment of interest and penalties increased by $45 million during the year ended May 31, 2021, decreased by $16 million during the fiscal year ended May 31, 2020, and increased by $17 million during the fiscal year ended May 31, 2019. As of May 31, 2021 and 2020, accrued interest and penalties related to uncertain tax positions were $203 million and $158 million, respectively (excluding federal benefit).

As of May 31, 2021 and 2020, long-term income taxes payable were $640 million and $757 million, respectively, and were included within Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

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 2010 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 $40 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 certain 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 $10.3 billion of undistributed earnings of these foreign subsidiaries as of May 31, 2021. Withholding taxes of approximately $1.5 billion would be payable upon the remittance of these undistributed earnings as of May 31, 2021.

A portion of the Company's foreign operations benefit from a tax holiday, which is set to expire in 2031. 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, $238 million and $167 million for the fiscal years ended May 31, 2021, 2020 and 2019, respectively. The benefit of the tax holiday on diluted earnings per common share was $0.15, $0.15 and $0.10 for the fiscal years ended May 31, 2021, 2020 and 2019, respectively.

Deferred tax assets as of May 31, 2021 and 2020, were reduced by a valuation allowance. For the fiscal year ended May 31, 2021, a valuation allowance was provided for U.S. capital loss carryforwards and on tax benefits generated by certain entities with operating losses. For the fiscal year ended May 31, 2020, a valuation allowance was provided for U.S. foreign tax credit carryforwards and on tax benefits generated by certain entities with operating losses. There was a $14 million net decrease in the valuation allowance for the fiscal year ended May 31, 2021, compared to a $62 million net decrease for the fiscal year ended May 31, 2020, and $7 million net decrease for the year ended May 31, 2019.

The Company has available domestic and foreign loss carry-forwards of $65 million as of May 31, 2021. If not utilized, such losses will expire as follows:


	YEAR ENDING MAY 31,
(Dollars in millions)	2022		2023		2024		2025		2026-2041		INDEFINITE		TOTAL
Net operating losses	$	—	$	—	$	—	$	—	$	42	$	23	$	65

2021 FORM 10-K 76


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, 2021, 2020 and 2019. 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 798 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)	2021		2020		2019
Stock options(1)	$	323	$	237	$	207
ESPPs	63		53		40
Restricted stock(1)	225		139		78
TOTAL STOCK-BASED COMPENSATION EXPENSE	$	611	$	429	$	325

*(1)*Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibility requirements and was $67 million, $53 million and $41 million for the fiscal years ended May 31, 2021, 2020 and 2019, respectively. During fiscal 2021, an immaterial amount of accelerated stock option and restricted stock expense was also recorded for certain employees impacted by the Company's organizational realignment. For more information, see Note 21 — Restructuring.

The income tax benefit related to stock-based compensation expense was $297 million, $207 million and $175 million for the fiscal years ended May 31, 2021, 2020 and 2019, respectively, and reported within Income tax expense.

2021 FORM 10-K 77

STOCK OPTIONS

The weighted average fair value per share of the options granted during the years ended May 31, 2021, 2020 and 2019, computed as of the grant date using the Black-Scholes pricing model, was $26.75, $18.71 and $22.78, respectively. The weighted average assumptions used to estimate these fair values were as follows:


	YEAR ENDED MAY 31,
	2021		2020		2019
Dividend yield	0.9	%	1.0	%	1.0	%
Expected volatility	27.3	%	23.0	%	26.6	%
Weighted average expected life (in years)	6.0		6.0		6.0
Risk-free interest rate	0.4	%	1.5	%	2.8	%

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, 2020	88.1	$	60.98
Exercised	(20.7)	46.31
Forfeited	(3.8)	95.87
Granted	14.7	112.65
Options outstanding as of May 31, 2021	78.3	$	72.88

*(1)*Includes stock appreciation rights transactions.

Options exercisable as of May 31, 2021, were 44.2 million and had a weighted average option price of $57.43 per share. The aggregate intrinsic value for options outstanding and exercisable as of May 31, 2021, was $4,976 million and $3,494 million, respectively. The total intrinsic value of the options exercised during the years ended May 31, 2021, 2020 and 2019 was $1,571 million, $1,161 million and $938 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 as of May 31, 2021, was 5.9 years and 4.2 years, respectively. As of May 31, 2021, the Company had $415 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 2.5 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 2.5 million, 2.7 million and 2.5 million shares during each of the fiscal years ended May 31, 2021, 2020 and 2019, 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.

2021 FORM 10-K 78

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, 2020	6.8	$	79.84
Vested	(2.7)	76.95
Forfeited	(1.1)	81.70
Granted	3.6	113.84
Nonvested as of May 31, 2021	6.6	$	99.70

The weighted average fair value per share of restricted stock and restricted stock units granted for the years ended May 31, 2021, 2020 and 2019, computed as of the grant date, was $113.84, $88.26 and $80.95, respectively. During the years ended May 31, 2021, 2020 and 2019, the aggregate fair value of restricted stock and restricted stock units vested was $310 million, $98 million and $44 million, respectively, computed as of the date of vesting. As of May 31, 2021, the Company had $448 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 2.5 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 restricted stock and options, including shares under ESPPs, to purchase an additional 11.3 million, 30.6 million and 17.5 million shares of common stock outstanding for the fiscal years ended May 31, 2021, 2020 and 2019, respectively, because the awards were anti-dilutive.


	YEAR ENDED MAY 31,
(In millions, except per share data)	2021		2020		2019
Net income available to common stockholders	$	5,727	$	2,539	$	4,029
Determination of shares:
Weighted average common shares outstanding	1,573.0		1,558.8		1,579.7
Assumed conversion of dilutive stock options and awards	36.4		32.8		38.7
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	1,609.4		1,591.6		1,618.4
Earnings per common share:
Basic	$	3.64	$	1.63	$	2.55
Diluted	$	3.56	$	1.60	$	2.49


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 $110 million, $107 million and $90 million and included in Cost of sales or Operating overhead expense, as applicable, for the years ended May 31, 2021, 2020 and 2019, 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. There were no profit sharing contributions made to the plan for the fiscal years ended May 31, 2021 and 2020. Profit sharing contributions of $37 million were made to the plan and included in Cost of sales or Operating overhead expense, as applicable, for the year ended May 31, 2019.

The Company also has a Long-Term Incentive Plan (LTIP) adopted by the Board of Directors and approved by shareholders in September 1997, which has been amended from time to time. The Company recognized $78 million, $66 million and $83 million of Operating overhead expense related to cash awards under the LTIP during the years ended May 31, 2021, 2020 and 2019, 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 $944 million and $725 million as of

2021 FORM 10-K 79

May 31, 2021 and 2020, respectively, and primarily classified 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 $64 million and $79 million as of May 31, 2021 and 2020, 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, 2021, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Chinese Yuan/U.S. Dollar and Japanese Yen/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.

2021 FORM 10-K 80

The following tables present the fair values of derivative instruments included within the Consolidated Balance Sheets:


	DERIVATIVE ASSETS
	BALANCE SHEET LOCATION	MAY 31,
(Dollars in millions)	2021			2020
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	$	42		$	43
Foreign exchange forwards and options	Deferred income taxes and other assets	16			1
Total derivatives formally designated as hedging instruments		58			44
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	34			48
Embedded derivatives	Prepaid expenses and other current assets	—			1
Foreign exchange forwards and options	Deferred income taxes and other assets	—			2

Total derivatives not designated as hedging instruments		34			51
TOTAL DERIVATIVE ASSETS		$	92		$	95


	DERIVATIVE LIABILITIES
	BALANCE SHEET LOCATION	MAY 31,
(Dollars in millions)	2021			2020
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	$	385		$	173
Foreign exchange forwards and options	Deferred income taxes and other liabilities	41			17
Total derivatives formally designated as hedging instruments		426			190
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Accrued liabilities	30			15
Embedded derivatives	Accrued liabilities	1			2


Total derivatives not designated as hedging instruments		31			17
TOTAL DERIVATIVE LIABILITIES		$	457		$	207

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, 2021, 2020 and 2019:


	YEAR ENDED MAY 31,
	2021				2020				2019
(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	$	44,538	$	45	$	37,403	$	(17)	$	39,117	$	(5)
Cost of sales	24,576		51		21,162		364		21,643		53
Demand creation expense	3,114		3		3,592		(2)		3,753		—
Other (income) expense, net	14		(47)		139		181		(78)		35
Interest expense (income), net	262		(7)		89		(7)		49		(7)

2021 FORM 10-K 81

The following tables present the amounts affecting the Consolidated Statements of Income for the years ended May 31, 2021, 2020 and 2019:


(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,
2021	2020		2019					2021	2020	2019
Derivatives designated ascash flow hedges:
Foreign exchange forwardsand options	$	(61)	$	28	$	14		Revenues		$	45	$	(17)	$	(5)
Foreign exchange forwardsand options	(563)		283		405			Cost of sales		51		364		53
Foreign exchange forwardsand options	5		1		2			Demand creation expense		3		(2)		—
Foreign exchange forwardsand options	(163)		90		156			Other (income) expense, net		(47)		181		35
Interest rate swaps(2)	—		—		—			Interest expense (income), net		(7)		(7)		(7)
Total designated cashflow hedges	$	(782)	$	402	$	577				$	45	$	519	$	76

*(1)*For the fiscal years ended May 31, 2021, 2020 and 2019, 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) RECOGNIZEDIN INCOME ON DERIVATIVES						LOCATION OF GAIN (LOSS)RECOGNIZED IN INCOMEON DERIVATIVES
	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020		2019


Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	$	(150)	$	76	$	166	Other (income) expense, net
Embedded derivatives	(17)		(1)		7		Other (income) expense, net

CASH FLOW HEDGES

All changes in fair value of derivatives designated as cash flow hedge instruments 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. When it is no longer probable the forecasted hedged transaction will occur in the initially identified time period, hedge accounting is discontinued and the Company accounts for the associated derivative as an undesignated instrument as discussed below. Additionally, the gains and losses associated with derivatives no longer designated as cash flow hedge instruments in Accumulated other comprehensive income (loss) are 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.

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 costs, non-functional currency denominated revenues, intercompany revenues, demand creation expenses, investments in U.S. Dollar denominated available-for-sale debt securities and certain other intercompany transactions.

Product cost foreign currency 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

2021 FORM 10-K 82

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. 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 $17.4 billion as of May 31, 2021.

As of May 31, 2021, approximately $369 million of deferred net losses (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, 2021, 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. The Company had no interest rate swaps designated as fair value hedges as of May 31, 2021.

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, 2021.

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 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 remeasurement gain or loss from the hedged balance sheet position and/or embedded derivative contract. The total notional amount of outstanding undesignated derivative instruments was $4.8 billion as of May 31, 2021.

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.

As of May 31, 2021, the total notional amount of embedded derivatives outstanding was approximately $415 million.

2021 FORM 10-K 83

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 trigger collateral requirements. As of May 31, 2021, the Company was in compliance with all credit risk-related contingent features, and derivative instruments with such features were in a net liability position of approximately $364 million. Accordingly, the Company posted $39 million of cash collateral as a result of these contingent features. Further, as of May 31, 2021, 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.


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, 2020	$	(494)	$	390	$	115	$	(67)	$	(56)
Other comprehensive income (loss):
Other comprehensive gains (losses) before reclassifications(2)	499		(788)		—		(8)		(297)
Reclassifications to net income of previously deferred (gains) losses(3)	(3)		(37)		—		13		(27)
Total other comprehensive income (loss)	496		(825)		—		5		(324)
Balance at May 31, 2021	$	2	$	(435)	$	115	$	(62)	$	(380)

*(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, $(6) million, $0 million, $(1) million and $(7) million, respectively.

*(3)*Net of tax (benefit) expense of $0 million, $8 million, $0 million, $0 million and $8 million, respectively.


(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)

*(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.

2021 FORM 10-K 84

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)	2021		2020
Gains (losses) on foreign currency translation adjustment	$	3	$	(1)	Other (income) expense, net
Total before tax	3		(1)
Tax (expense) benefit	—		—
Gain (loss) net of tax	3		(1)
Gains (losses) on cash flow hedges:
Foreign exchange forwards and options	$	45	(17)		Revenues
Foreign exchange forwards and options	51		364		Cost of sales
Foreign exchange forwards and options	3		(2)		Demand creation expense
Foreign exchange forwards and options	(47)		181		Other (income) expense, net
Interest rate swaps	(7)		(7)		Interest expense (income), net
Total before tax	45		519
Tax (expense) benefit	(8)		(2)
Gain (loss) net of tax	37		517
Gains (losses) on other	(13)		1		Other (income) expense, net
Total before tax	(13)		1
Tax (expense) benefit	—		—
Gain (loss) net of tax	(13)		1
Total net gain (loss) reclassified for the period	$	27	$	517

2021 FORM 10-K 85


NOTE 16 — REVENUES

DISAGGREGATION OF REVENUES

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


	YEAR ENDED MAY 31, 2021
(Dollars in millions)	NORTH AMERICA		EUROPE, MIDDLE EAST & AFRICA		GREATER CHINA		ASIA PACIFIC & LATIN AMERICA(1)		GLOBAL BRAND DIVISIONS		TOTAL NIKE BRAND		CONVERSE		CORPORATE		TOTAL NIKE, INC.
Revenues by:
Footwear	$	11,644	$	6,970	$	5,748	$	3,659	$	—	$	28,021	$	1,986	$	—	$	30,007
Apparel	5,028		3,996		2,347		1,494		—		12,865		104		—		12,969
Equipment	507		490		195		190		—		1,382		29		—		1,411
Other	—		—		—		—		25		25		86		40		151
TOTAL REVENUES	$	17,179	$	11,456	$	8,290	$	5,343	$	25	$	42,293	$	2,205	$	40	$	44,538
Revenues by:
Sales to Wholesale Customers	$	10,186	$	7,812	$	4,513	$	3,387	$	—	$	25,898	$	1,353	$	—	$	27,251
Sales through Direct to Consumer	6,993		3,644		3,777		1,956		—		16,370		766		—		17,136
Other	—		—		—		—		25		25		86		40		151
TOTAL REVENUES	$	17,179	$	11,456	$	8,290	$	5,343	$	25	$	42,293	$	2,205	$	40	$	44,538

*(1)*Refer to Note 20 — Acquisitions and Divestitures for additional information on the transition of the Company's NIKE Brand business in Brazil to a third-party distributor.


	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

2021 FORM 10-K 86


	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, 2021, 2020 and 2019, Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. Converse Other revenues were primarily attributable to licensing businesses. Corporate revenues 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, 2021 and 2020, 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.

SALES-RELATED RESERVES

As of May 31, 2021 and 2020, the Company's sales-related reserve balance, which includes returns, post-invoice sales discounts and miscellaneous claims, was $1,077 million and $1,178 million, respectively, recorded in Accrued liabilities on the Consolidated Balance Sheets. The estimated cost of inventory for expected product returns was $269 million and $313 million as of May 31, 2021 and 2020, 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, 2021, 2020 and 2019.


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, results for the Hurley brand, prior to its divestiture in fiscal 2020, were included in North America. Refer to Note 20 — Acquisitions and Divestitures for information regarding the fiscal 2020 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 revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a

2021 FORM 10-K 87

geographic operating segment. Global Brand Divisions costs represent demand creation and operating overhead expense that include product creation and design expenses 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 included a non-recurring impairment charge, recognized as a result of the Company's decision to transition certain NIKE Brand businesses within APLA to a third-party distributor. This charge primarily reflected 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.

2021 FORM 10-K 88


	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020		2019
REVENUES
North America	$	17,179	$	14,484	$	15,902
Europe, Middle East & Africa	11,456		9,347		9,812
Greater China	8,290		6,679		6,208
Asia Pacific & Latin America	5,343		5,028		5,254
Global Brand Divisions	25		30		42
Total NIKE Brand	42,293		35,568		37,218
Converse	2,205		1,846		1,906
Corporate	40		(11)		(7)
TOTAL NIKE, INC. REVENUES	$	44,538	$	37,403	$	39,117
EARNINGS BEFORE INTEREST AND TAXES
North America	$	5,089	$	2,899	$	3,925
Europe, Middle East & Africa	2,435		1,541		1,995
Greater China	3,243		2,490		2,376
Asia Pacific & Latin America	1,530		1,184		1,323
Global Brand Divisions	(3,656)		(3,468)		(3,262)
Converse	543		297		303
Corporate	(2,261)		(1,967)		(1,810)
Interest expense (income), net	262		89		49
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES	$	6,661	$	2,887	$	4,801
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
North America	$	98	$	110	$	117
Europe, Middle East & Africa	153		139		233
Greater China	94		28		49
Asia Pacific & Latin America	54		41		47
Global Brand Divisions	278		438		278
Total NIKE Brand	677		756		724
Converse	7		12		18
Corporate	107		356		333
TOTAL ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT	$	791	$	1,124	$	1,075
DEPRECIATION
North America	$	130	$	148	$	149
Europe, Middle East & Africa	136		132		111
Greater China	46		44		50
Asia Pacific & Latin America	43		46		53
Global Brand Divisions	222		214		195
Total NIKE Brand	577		584		558
Converse	26		25		31
Corporate	141		112		116
TOTAL DEPRECIATION	$	744	$	721	$	705

2021 FORM 10-K 89


	AS OF MAY 31,
(Dollars in millions)	2021		2020
ACCOUNTS RECEIVABLE, NET
North America	$	1,777	$	1,020
Europe, Middle East & Africa	1,349		712
Greater China	288		321
Asia Pacific & Latin America(1)	643		425
Global Brand Divisions	128		65
Total NIKE Brand	4,185		2,543
Converse	225		149
Corporate	53		57
TOTAL ACCOUNTS RECEIVABLE, NET	$	4,463	$	2,749
INVENTORIES
North America	$	2,851	$	3,077
Europe, Middle East & Africa	1,821		2,070
Greater China	1,247		882
Asia Pacific & Latin America(1)	667		770
Global Brand Divisions	153		137
Total NIKE Brand	6,739		6,936
Converse	290		341
Corporate	(175)		90
TOTAL INVENTORIES	$	6,854	$	7,367
PROPERTY, PLANT AND EQUIPMENT, NET
North America	$	617	$	645
Europe, Middle East & Africa	982		885
Greater China	288		214
Asia Pacific & Latin America(1)	304		296
Global Brand Divisions	780		830
Total NIKE Brand	2,971		2,870
Converse	63		80
Corporate	1,870		1,916
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET	$	4,904	$	4,866

*(1)*Excludes assets held-for-sale as of May 31, 2021. 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 $17,363 million, $14,625 million and $16,091 million for the fiscal years ended May 31, 2021, 2020 and 2019, 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 and operating lease ROU assets, net, were as follows:


	MAY 31,
(Dollars in millions)	2021		2020
United States	$	4,927	$	5,114
Belgium	676		606
China	518		457

2021 FORM 10-K 90


NOTE 18 — COMMITMENTS AND CONTINGENCIES

As of May 31, 2021 and 2020, the Company had bank guarantees and letters of credit outstanding totaling $275 million and $239 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 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, 2021, lease expense primarily consisted of operating lease costs of $589 million, along with $347 million primarily related to variable lease costs, which includes an immaterial amount of short-term lease costs. 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. Prior to the adoption of Topic 842, and in accordance with ASC Topic 840 - Leases, rent expense, excluding executory costs, was $829 million for the fiscal year ended May 31, 2019. As of and for the fiscal years ended May 31, 2021 and 2020, finance leases were not a material component of the Company's lease portfolio.

The undiscounted cash flows for future maturities of the Company’s operating lease liabilities and the reconciliation to the Operating lease liabilities recognized in the Company’s Consolidated Balance Sheets are as follows:


(Dollars in millions)	AS OF MAY 31, 2021(1)
Fiscal 2022	$	534
Fiscal 2023	530
Fiscal 2024	490
Fiscal 2025	437
Fiscal 2026	357
Thereafter	1,397
Total undiscounted future cash flows related to lease payments	$	3,745
Less: Interest	347
Present value of lease liabilities	$	3,398

*(1)*Excludes $78 million as of May 31, 2021, of future operating lease payments for lease agreements signed but not yet commenced.

The following table includes supplemental information used to calculate the present value of Operating lease liabilities:


	AS OF MAY 31,
	2021		2020
Weighted-average remaining lease term (in years)	8.3		8.7
Weighted-average discount rate	2.3	%	2.4	%

2021 FORM 10-K 91

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


	YEAR ENDED MAY 31,
(Dollars in millions)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	583	$	532
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	489	$	705	(1)

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


NOTE 20 — ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

During fiscal 2021, 2020 and 2019, 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 aggregate, was not considered material to the Company's Consolidated Financial Statements.

DIVESTITURES

During 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 has maintained a small operation in Brazil focused on certain sports marketing assets, local manufacturing and Converse.

As a result of this decision, beginning in fiscal 2020, the related assets and liabilities of these entities were classified as held-for-sale within Prepaid expenses and other current assets and Accrued liabilities, respectively, on the Consolidated Balance Sheets.

BRAZIL

During fiscal 2021, the transaction with Grupo SBF S.A. closed, and the Company recognized a loss of approximately $50 million within Other (income) expense, net classified within Corporate, on the Consolidated Statements of Income. Cash proceeds received were reflected within Other investing activities on the Consolidated Statements of Cash Flows.

As of May 31, 2020, held-for-sale assets and liabilities consisted of the following:

Held-for-sale assets of $272 million, primarily consisting of $142 million of Inventories and $101 million of Accounts receivable, net; and
Held-for-sale liabilities of $91 million, primarily consisting of $51 million of Accrued liabilities.

ARGENTINA, CHILE AND URUGUAY

During fiscal 2021, the Company and Grupo Axo mutually agreed to terminate the sale and purchase agreement for the transition of NIKE’s businesses in Argentina, Chile and Uruguay to a distributor partnership. However, as the Company remains committed to selling its legal entities in all three countries and granting distribution rights to third-party distributors, the assets and liabilities of the entities have remained classified as held-for-sale on the Consolidated Balance Sheets.

As of May 31, 2021, held-for-sale assets and liabilities consisted of the following:

Held-for-sale assets of $175 million, primarily consisting of $76 million of Inventories and $59 million of Accounts receivable, net; and
Held-for-sale liabilities of $72 million, primarily consisting of $25 million of Accounts payable and $22 million of Accrued liabilities.

As of May 31, 2020, held-for-sale assets and liabilities consisted of the following:

Held-for-sale assets of $234 million, primarily consisting of $122 million of Inventories and $50 million of Prepaid expenses and other current assets; and
Held-for-sale liabilities of $55 million, primarily consisting of $34 million of Accrued liabilities.

2021 FORM 10-K 92

The Company has recognized total expected net losses of $358 million as of May 31, 2021, related to the Argentina, Chile and Uruguay transaction within Other (income) expense, net, classified within Corporate, and a corresponding allowance within Accrued liabilities on the Consolidated Balance Sheets. The initial expected loss of $405 million recognized in fiscal 2020 and subsequently adjusted for changes in fair value is largely due to the anticipated release of the cumulative net foreign currency translation losses. These losses will be reclassified from Accumulated other comprehensive income (loss) to Net income upon sale of the legal entities. For more information see Note 6 — Fair Value Measurements.

OTHER DIVESTITURES

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 were not considered material to the Company's Consolidated Financial Statements.


NOTE 21 — RESTRUCTURING

During the first quarter of fiscal 2021, the Company announced a new digitally empowered phase of its Consumer Direct Offense strategy: Consumer Direct Acceleration. As a result, management announced a series of leadership and operating model changes to streamline and speed up strategic execution for the Company. These changes resulted in a net reduction of the Company's global workforce, and during fiscal 2021, the Company incurred pre-tax charges of $294 million, which relate to employee termination costs and, to a lesser extent, stock-based compensation expense. This amount reflects the continued evaluation and variability of the Company's original estimate of employee termination costs and required changes in assumptions used to calculate stock-based compensation expense. The related cash expenditures primarily took place throughout fiscal 2021, and all related actions are substantially complete.

As of May 31, 2021, the Company recognized employee termination costs of $214 million and $35 million within Operating overhead expense and Cost of sales, respectively, on the Consolidated Statements of Income. These costs were classified within Corporate.

The activity was recognized within Accrued liabilities as follows:


(Dollars in millions)
Balance at May 31, 2020	$	—
Employee termination costs	249
Cash payments	(212)
Foreign currency translation and other	1
Balance at May 31, 2021	$	38

Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Costs of sales was $41 million and $4 million, respectively, for the fiscal year ended May 31, 2021.

2021 FORM 10-K 93

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