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MarketScreener Homepage  >  Equities  >  Nyse  >  Nike, Inc.    NKE

NIKE, INC.

(NKE)
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NIKE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/08/2020 | 04:12pm EST

OVERVIEW

NIKE designs, develops, markets and sells athletic footwear, apparel, equipment,
accessories and services worldwide. We are the largest seller of athletic
footwear and apparel in the world. We sell our products through NIKE-owned
retail stores and through digital platforms (which we refer to collectively as
our "NIKE Direct" operations), to retail accounts and to a mix of independent
distributors, licensees and sales representatives in virtually all countries
around the world. Our goal is to deliver value to our shareholders by building a
profitable global portfolio of branded footwear, apparel, equipment and
accessories businesses. Our strategy is to achieve long-term revenue growth by
creating innovative, "must-have" products, building deep personal consumer
connections with our brands and delivering compelling consumer experiences
through digital platforms and at retail.
Since fiscal 2018, through the Consumer Direct Offense and our Triple Double
strategy, we have focused on doubling the impact of innovation, increasing our
speed and agility to market and growing our direct connections with consumers.
In June 2020, we announced a new digitally empowered phase of the Consumer
Direct Offense strategy: Consumer Direct Acceleration. This strategic
acceleration will focus on three specific areas. First, creating the marketplace
of the future through more premium, consistent and seamless consumer experiences
that more closely align with what consumers want and need. This strategy will
lead with NIKE Digital and our own stores, as well as through select strategic
partners who share our marketplace vision. Second, we will align our product
creation and category organizations around a new consumer construct focused on
Men's, Women's and Kids'. This approach allows us to create product that better
meets individual consumer needs, including more specialization of our category
approach, while re-aligning and simplifying our offense to accelerate our
largest growth opportunities. In particular, we'll be reinvesting in our Women's
and Kids' businesses and will also simplify our operating model across the
remainder of the Company to optimize effectiveness. Third, we will unify
investments in data and analytics, demand sensing, insight gathering, inventory
management and other areas against an end-to-end technology foundation to
accelerate our digital transformation. We believe this unified approach will
accelerate growth and unlock more efficiency for our business, while driving
speed and responsiveness as we serve consumers globally.
As a result of our strategic acceleration, management announced on July 22,
2020, a series of leadership and operating model changes to streamline and speed
up our execution. These changes will result in a net reduction of our global
workforce and we expect to incur pre-tax charges of approximately $315 million,
the majority of which relate to employee termination costs and, to a lesser
extent, stock-based compensation expense. These amounts reflect the continued
evaluation and variability of our original estimate of employee termination
costs and required changes in assumptions used to calculate stock-based
compensation expense. The amount of costs recognized during the first quarter of
fiscal 2021 were not material as the majority will be recognized during the
second quarter and are subject to change until all details are finalized. The
related cash expenditures will take place throughout fiscal 2021. We expect
future annual wage-related savings, as a result of these actions, will be
reinvested to execute against this next phase of our strategy.
COVID-19 UPDATE
The COVID-19 pandemic continues to impact our business results and operations
globally causing us to transform the way we operate in order to better serve our
consumers. Since the onset of the pandemic, we have focused on recalibrating
supply and demand, increasing digital distribution capacity, securing liquidity
and prudently managing spend, all while ensuring the health and safety of our
employees and consumers. As a result, Revenues declined only 1% versus prior
year and were flat on a currency-neutral basis, despite physical retail traffic
being below prior year levels. Inventory levels declined 9% compared to May 31,
2020, and we ended the first quarter of fiscal 2021 with $9.5 billion of Cash
and equivalents and Short-term investments.
Our NIKE Direct business remains a priority as we navigate through the pandemic,
as it enhances our ability to connect directly with the consumer. During the
first quarter of fiscal 2021, NIKE Direct sales were $3.7 billion, growing 13%
on a currency-neutral basis, with growth across all geographies. NIKE Brand
digital remained our fastest growing channel, growing 83%, with North America,
APLA and Greater China growing double-digits and EMEA growing triple-digits.
Nearly all of our NIKE-owned retail stores were open during the first quarter of
fiscal 2021 across North America, EMEA and Greater China, with approximately 90%
of stores open in APLA. However, despite a majority of stores being open during
the quarter, we experienced a decline in comparable store sales in North
America, APLA and EMEA, primarily due to reduced physical retail traffic, in
part resulting from safety-related measures in response to COVID-19.
We continue to monitor the ongoing and evolving situation, as well as guidance
from international and domestic authorities, including federal, state and local
public health authorities and may take additional actions based on their
recommendations. In these circumstances, there may be developments outside our
control requiring us to adjust our operating plan. As such, fiscal 2021 will
continue to be a time of uncertainty across each of our geographies and we
expect each market recovery will be dynamic. While our results for the first
quarter of fiscal 2021 are positive, there remains the risk that COVID-19 could
have
                                                                            

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material adverse impacts on our future revenue growth as well as our overall
profitability and may lead to higher than normal inventory levels in various
markets, revised payment terms with certain of our wholesale customers, higher
sales-related reserves and a volatile effective tax rate driven by changes in
the mix of earnings across the Company's jurisdictions.
FIRST QUARTER OVERVIEW
For the first quarter of fiscal 2021, NIKE, Inc. Revenues decreased 1% to $10.6
billion compared to the first quarter of fiscal 2020 and were flat on a
currency-neutral basis. Net income was $1,518 million and diluted earnings per
common share was $0.95 for the first quarter of fiscal 2021, compared to Net
income of $1,367 million and diluted earnings per common share of $0.86 for the
first quarter of fiscal 2020.
Income before income taxes increased 10% compared to the first quarter of fiscal
2020, primarily due to lower selling and administrative expense partially offset
by a decline in gross margin and lower revenues. The NIKE Brand, which
represents over 90% of NIKE, Inc. Revenues, declined 1% compared to the first
quarter of fiscal 2020. On a currency-neutral basis, NIKE Brand revenues were
flat as higher revenues in EMEA and Greater China were offset by declines in
APLA and North America. NIKE Brand revenue growth in footwear was offset by a
decline in apparel, while growth in Sportswear and the Jordan Brand was offset
by declines in all other key categories. Revenues for Converse increased 1% and
2% on a reported and currency-neutral basis, respectively, reflecting
double-digit growth in Asia and Europe, as well as higher digital sales
globally.
Our effective tax rate was 11.5% for the first quarter of fiscal 2021 compared
to 12.4% for the first quarter of fiscal 2020, due to discrete items including a
more favorable impact from stock-based compensation, offset by a reserve 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.
Diluted earnings per common share reflects a relatively unchanged weighted
average diluted common shares outstanding, due to the temporary suspension of
our share repurchase program.
USE OF NON-GAAP FINANCIAL MEASURES
Throughout this Quarterly Report on Form 10-Q, we discuss non-GAAP financial
measures, including references to wholesale equivalent revenues,
currency-neutral revenues as well as Total NIKE Brand earnings before interest
and taxes (EBIT) and Total NIKE, Inc. EBIT, which should be considered in
addition to, and not in lieu of, the financial measures calculated and presented
in accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP"). References to wholesale equivalent revenues are
intended to provide context as to the total size of our NIKE Brand market
footprint if we had no NIKE Direct operations. NIKE Brand wholesale equivalent
revenues consist of (1) sales to external wholesale customers and (2) internal
sales from our wholesale operations to our NIKE Direct operations, which are
charged at prices comparable to those charged to external wholesale customers.
Currency-neutral revenues are calculated using actual exchange rates in use
during the comparative prior year period to enhance the visibility of the
underlying business trends excluding the impact of translation arising from
foreign currency exchange rate fluctuations. EBIT is calculated as Net Income
before Interest expense (income), net and Income tax expense in the Unaudited
Condensed Consolidated Statements of Income.
Management uses these non-GAAP financial measures when evaluating the Company's
performance, including when making financial and operating decisions.
Additionally, management believes these non-GAAP financial measures provide
investors with additional financial information that should be considered when
assessing our underlying business performance and trends. However, references to
wholesale equivalent revenues, currency-neutral revenues and EBIT should not be
considered in isolation or as a substitute for other financial measures
calculated and presented in accordance with U.S. GAAP and may not be comparable
to similarly titled non-GAAP measures used by other companies.
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RESULTS OF OPERATIONS
                                                                        THREE MONTHS ENDED AUGUST 31,
(Dollars in millions, except per share data)                      2020              2019                  % CHANGE
Revenues                                                    $      10,594$      10,660                  -1  %
Cost of sales                                                       5,853             5,789                   1  %
Gross profit                                                        4,741             4,871                  -3  %
Gross margin                                                         44.8   %          45.7  %
Demand creation expense                                               677             1,018                 -33  %
Operating overhead expense                                          2,298             2,310                  -1  %
Total selling and administrative expense                            2,975             3,328                 -11  %
% of revenues                                                        28.1   %          31.2  %
Interest expense (income), net                                         65                15                   -
Other (income) expense, net                                           (14)              (33)                  -
Income before income taxes                                          1,715             1,561                  10  %
Income tax expense                                                    197               194                   2  %
Effective tax rate                                                   11.5   %          12.4  %
NET INCOME                                                  $       1,518$       1,367                  11  %
Diluted earnings per common share                           $        0.95$        0.86                  10  %


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CONSOLIDATED OPERATING RESULTS
REVENUES
                                                                      THREE MONTHS ENDED AUGUST 31,
                                                                                                      % CHANGE EXCLUDING
(Dollars in millions)                                   2020            2019               % CHANGE  CURRENCY CHANGES(1)
NIKE, Inc. Revenues:
NIKE Brand Revenues by:
Footwear                                          $        6,768$   6,521                  4  %                 5  %
Apparel                                                    2,875        3,121                 -8  %                -7  %
Equipment                                                    371          448                -17  %               -16  %
Global Brand Divisions(2)                                      4            6                -33  %               -31  %
Total NIKE Brand Revenues                                 10,018       10,096                 -1  %                 0  %
Converse                                                     563          555                  1  %                 2  %
Corporate(3)                                                  13            9                  -                    -
TOTAL NIKE, INC. REVENUES                         $       10,594$  10,660                 -1  %                 0  %
Supplemental NIKE Brand Revenues Details:
NIKE Brand Revenues by:
Sales to Wholesale Customers                      $        6,364$   6,842                 -7  %                -6  %
Sales through NIKE Direct                                  3,650        3,248                 12  %                13  %
Global Brand Divisions(2)                                      4            6                -33  %               -31  %
TOTAL NIKE BRAND REVENUES                         $       10,018$  10,096                 -1  %                 0  %


(1)The percent change excluding currency changes represents a non-GAAP financial
measure. See "Use of Non-GAAP Financial Measures" for further information.
(2)Global Brand Divisions revenues are primarily attributable to NIKE Brand
licensing businesses that are not part of a geographic operating segment.
(3)Corporate revenues primarily consist 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 our central
foreign exchange risk management program.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
On a currency-neutral basis, NIKE, Inc. Revenues were flat for the first quarter
of fiscal 2021, as revenues within the NIKE Brand were relatively unchanged and
Converse revenues increased slightly. Higher revenues in Greater China and EMEA
each contributed approximately 1 percentage point of growth to NIKE, Inc.
Revenues, while lower revenues in APLA and North America each reduced NIKE, Inc.
Revenues by approximately 1 percentage point.
On a currency-neutral basis, NIKE Brand footwear revenues increased 5%, driven
by growth in several key categories, primarily Sportswear and the Jordan Brand.
Unit sales of footwear were flat, while higher average selling price (ASP) per
pair contributed approximately 5 percentage points of footwear revenue growth,
primarily due to higher full-price ASP, on a wholesale equivalent basis, as well
as the favorable impact of growth in our NIKE Direct business.
Currency-neutral NIKE Brand apparel revenues contracted 7%, reflecting lower
revenues in several key categories, most notably Training, partially offset by
growth in Football (Soccer). Unit sales of apparel decreased 6% and lower ASP
per unit reduced apparel revenues by approximately 1 percentage point. Lower ASP
per unit was primarily due to lower full-price ASP and unfavorable full-price
mix, partially offset by the favorable impact of growth in our NIKE Direct
business.
On a reported basis, NIKE Direct revenues represented approximately 36% of our
total NIKE Brand revenues for the first quarter of fiscal 2021 compared to 32%
for the first quarter of fiscal 2020. Digital commerce sales were $1.9 billion
for the first quarter of fiscal 2021 compared to $1.1 billion for the first
quarter of fiscal 2020. On a currency-neutral basis, NIKE Direct revenues
increased 13%, driven by digital commerce sales growth of 83%, which more than
offset comparable store sales contraction of 20% primarily due to reduced
physical retail traffic, in part resulting from safety-related measures in
response to COVID-19. Comparable store sales, which exclude digital commerce
sales, comprises revenues from NIKE-owned in-line and factory stores for which
all three of the following requirements have been met: (1) the store has been
open at least one year, (2) square footage has not changed by more than 15%
within the past year and (3) the store has not been permanently repositioned
within the past year. Comparable store sales includes revenues from stores that
were temporarily closed during the period as a result of COVID-19. Comparable
store sales represents a performance measure that we believe is useful
information for management and investors in understanding the performance of our
established NIKE-owned in-line and factory stores. Management considers this
metric when making financial and
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operating decisions. The method of calculating comparable store sales varies
across the retail industry. As a result, our calculation of this metric may not
be comparable to similarly titled measures used by other companies.
GROSS MARGIN
                                           THREE MONTHS ENDED AUGUST 31,
           (Dollars in millions)         2020              2019         % CHANGE
           Gross Profit            $       4,741$       4,871         -3  %
           Gross Margin                     44.8   %          45.7  %   (90) bps


For the first quarter of fiscal 2021, our consolidated gross margin was 90 basis
points lower than the respective prior year period and reflected unfavorable
impacts from COVID-19. The change in gross margin primarily reflected the
following factors:
•Lower margin in our NIKE Direct business, reflecting higher promotions to
reduce excess inventory (decreasing gross margin 150 basis points);
•Higher NIKE Brand product costs, on a wholesale equivalent basis, in part due
to incremental tariffs in North America (decreasing gross margin approximately
120 basis points);
•Unfavorable changes in net foreign currency exchange rates, including hedges,
(decreasing gross margin approximately 30 basis points);
•Higher NIKE Brand full-price ASP, net of discounts, (increasing gross margin
approximately 200 basis points); and
•Lower other costs, in part reflecting the favorable impact from the release of
factory cancellation cost accruals due to higher than anticipated consumer
demand, partially offset by higher supply chain costs (increasing gross margin
approximately 20 basis points).
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
                                                                        THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                                             2020              2019                  % CHANGE
Demand creation expense(1)                                  $         677     $       1,018                 -33  %
Operating overhead expense                                          2,298             2,310                  -1  %
Total selling and administrative expense                    $       2,975$       3,328                 -11  %
% of revenues                                                        28.1   %          31.2  %           (310) bps


(1)Demand creation expense consists of advertising and promotion costs,
including costs of endorsement contracts, complimentary product, television,
digital and print advertising and media costs, brand events and retail brand
presentation.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
Demand creation expense decreased 33% for the first quarter of fiscal 2021,
primarily driven by lower advertising and marketing costs, as well as lower
sports marketing expenses, due to live sporting events being predominately
postponed or cancelled, and a decline in retail brand presentation costs. This
activity was partially offset by an increase in digital marketing to support
heightened digital demand. Changes in foreign currency exchange rates decreased
Demand creation expense by approximately 1 percentage point.
Operating overhead expense decreased 1% driven by lower travel and related
expenses, partially offset by continued investments in digital capabilities and
restructuring costs associated with changes to our organization model announced
in July 2020. Changes in foreign currency exchange rates decreased Operating
overhead expense by approximately 1 percentage point.
OTHER (INCOME) EXPENSE, NET
                                     THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                         2020                  2019
Other (income) expense, net   $           (14)                     $ (33)


Other (income) expense, net comprises foreign currency conversion gains and
losses from the re-measurement of monetary assets and liabilities denominated in
non-functional currencies and the impact of certain foreign currency derivative
instruments, as well as unusual or non-operating transactions that are outside
the normal course of business.
For the first quarter of fiscal 2021, Other (income) expense, net decreased from
$33 million of other income, net to $14 million in the current year, primarily
due to an incremental charge related to our planned, strategic distributor
partnership transition within APLA. For more information see Note 13 -
Acquisitions and Divestitures within the accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements.
                                                                            

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We estimate the combination of the translation of foreign currency-denominated
profits from our international businesses and the year-over-year change in
foreign currency-related gains and losses included in Other (income) expense,
net had unfavorable impacts of approximately $38 million on our Income before
income taxes for the first quarter of fiscal 2021.
INCOME TAXES
                                THREE MONTHS ENDED AUGUST 31,
                                  2020                2019      % CHANGE
Effective tax rate                          11.5  %  12.4  %    (90) bps


Our effective tax rate was 11.5% for the first quarter of fiscal 2021, compared
to 12.4% for the first quarter of fiscal 2020. The decrease in our effective tax
rate was attributable to discrete items including a more favorable impact from
stock-based compensation, offset by a reserve 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. Refer to Note 6 - Income Taxes within the accompanying Notes to
the Unaudited Condensed Consolidated Financial Statements for additional
information.
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OPERATING SEGMENTS
Our 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. The Company's NIKE Direct operations are managed within each geographic
operating segment. Converse is also a reportable operating segment for the
Company, and operates predominately in one industry: the design, marketing,
licensing and selling of athletic lifestyle sneakers, apparel and accessories.
As part of our centrally managed foreign exchange risk management program,
standard foreign currency exchange rates are assigned twice per year to each
NIKE Brand entity in our geographic operating segments and 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 into the
entity's functional currency. Differences between assigned standard foreign
currency exchange rates and actual market rates are included in Corporate,
together with foreign currency hedge gains and losses generated from our
centrally managed foreign exchange risk management program and other conversion
gains and losses.
The breakdown of revenues is as follows:
                                                                            

THREE MONTHS ENDED AUGUST 31,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                             2020            2019               % CHANGE  CURRENCY CHANGES(1)
North America                                               $        4,225$   4,293                 -2  %                -1  %
Europe, Middle East & Africa                                         2,910        2,773                  5  %                 5  %
Greater China                                                        1,780        1,679                  6  %                 8  %
Asia Pacific & Latin America                                         1,099        1,345                -18  %               -12  %
Global Brand Divisions(2)                                                4            6                -33  %               -31  %
TOTAL NIKE BRAND                                                    10,018       10,096                 -1  %                 0  %
Converse                                                               563          555                  1  %                 2  %
Corporate(3)                                                            13            9                  -                    -
TOTAL NIKE, INC. REVENUES                                   $       10,594$  10,660                 -1  %                 0  %


(1)  The percent change excluding currency changes represents a non-GAAP
financial measure. See "Use of Non-GAAP Financial Measures" for further
information.
(2)  Global Brand Divisions revenues are primarily attributable to NIKE Brand
licensing businesses that are not part of a geographic operating segment.
(3)  Corporate revenues primarily consist 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 our central
foreign exchange risk management program.
The primary financial measure used by the Company to evaluate performance of
individual operating segments is EBIT, which represents Net income before
Interest expense (income), net and Income tax expense in the Unaudited Condensed
Consolidated Statements of Income. As discussed in Note 12 - Operating Segments
in the accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements, certain corporate costs are not included in EBIT of our operating
segments.
                                                                            

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The breakdown of earnings before interest and taxes is as follows:

                                                                       THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                                             2020            2019                 % CHANGE
North America                                               $        1,302$    1,100                  18  %
Europe, Middle East & Africa                                           692           609                  14  %
Greater China                                                          688           669                   3  %
Asia Pacific & Latin America                                           280           341                 -18  %
Global Brand Divisions                                                (853)         (857)                  0  %
TOTAL NIKE BRAND(1)                                                  2,109         1,862                  13  %
Converse                                                               168           138                  22  %
Corporate                                                             (497)         (424)                -17  %
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES(1)               1,780         1,576                  13  %
Interest expense (income), net                                          65            15                   -
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES                 $        1,715$    1,561                  10  %


(1) Total NIKE Brand EBIT and Total NIKE, Inc. EBIT represent non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" for further information. NORTH AMERICA

THREE MONTHS ENDED AUGUST 31,

                                                                                                                  % CHANGE EXCLUDING
(Dollars in millions)                                                 2020           2019               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                        $       2,957$   2,669                 11  %               11  %
Apparel                                                                 1,125        1,431                -21  %              -21  %
Equipment                                                                 143          193                -26  %              -26  %
TOTAL REVENUES                                                  $       4,225$   4,293                 -2  %               -1  %
Revenues by:
Sales to Wholesale Customers                                    $       2,719$   2,864                 -5  %               -5  %
Sales through NIKE Direct                                               1,506        1,429                  5  %                5  %
TOTAL REVENUES                                                  $       4,225$   4,293                 -2  %               -1  %
EARNINGS BEFORE INTEREST AND TAXES                              $       1,302$   1,100                 18  %


We believe there continues to be a meaningful shift in the way consumers shop
for product and make purchasing decisions across each of our geographies.
Consumers are demanding a constant flow of fresh and innovative product, and
have an expectation for superior service and rapid delivery, all fueled by the
shift toward digital and mono-brand experiences in NIKE Direct. We anticipate
continued evolution within the retail landscape, driven by shifting consumer
traffic patterns across digital and physical channels. Specifically, the
evolution of the North America marketplace is resulting in third-party retail
store closures, which is expected to be further accelerated as a result of the
effects of COVID-19; however, we remain focused on building long-term momentum
with our differentiated strategic wholesale customers, fueled by our deliberate
shifts in product allocations and investments in enhanced consumer experiences
leveraging digital.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
On a currency-neutral basis, North America revenues for the first quarter of
fiscal 2021 decreased 1%, as lower revenues in most key categories, led by
Training, were partially offset by growth in Sportswear and the Jordan Brand.
NIKE Direct revenues increased 5% as strong digital commerce sales growth of 99%
more than offset a 35% decline in comparable store sales primarily due to
reduced physical retail traffic, in part resulting from safety-related measures
in response to COVID-19.
Footwear revenues increased 11% on a currency-neutral basis, driven by growth in
Sportswear and the Jordan Brand. Unit sales of footwear increased 6% and higher
ASP per pair contributed approximately 5 percentage points of footwear revenue
growth. Higher ASP per pair was primarily due to higher NIKE Direct and
full-price ASPs.
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On a currency-neutral basis, apparel revenues decreased 21%, reflecting lower
revenues in nearly all key categories, primarily Training and Sportswear. Unit
sales of apparel contracted 19%, while lower ASP per unit reduced apparel
revenues by approximately 2 percentage points. The decrease in ASP per unit was
primarily driven by lower full-price ASP, partially offset by the favorable
impact of growth in our NIKE Direct business, as well as higher NIKE Direct ASP.
Reported EBIT increased 18% as lower selling and administrative expense and
gross margin expansion more than offset lower revenues. Gross margin increased
approximately 150 basis points primarily due to higher full-price ASP and lower
other costs, partially offset by higher product costs, in part due to
incremental tariffs, and lower margin in our NIKE Direct business driven by
higher promotions to reduce excess inventory. The decrease in other costs was
primarily a result of the favorable impact from the release of factory
cancellation cost accruals due to an increase in consumer demand. Selling and
administrative expense decreased due to lower demand creation and operating
overhead expense. The decrease in demand creation expense reflected lower
advertising and marketing costs, a decline in retail brand presentation costs,
as well as lower sports marketing expense, partially offset by continued
investments in digital marketing to support heightened digital demand. Operating
overhead expense decreased primarily as a result of lower wage-related expense
and administrative costs.
EUROPE, MIDDLE EAST & AFRICA

THREE MONTHS ENDED AUGUST 31,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2020           2019               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $       1,802$   1,758                  3  %                2  %
Apparel                                                                 971          869                 12  %               11  %
Equipment                                                               137          146                 -6  %               -6  %
TOTAL REVENUES                                                $       2,910$   2,773                  5  %                5  %
Revenues by:
Sales to Wholesale Customers                                  $       1,973$   2,042                 -3  %               -4  %
Sales through NIKE Direct                                               937          731                 28  %               27  %
TOTAL REVENUES                                                $       2,910$   2,773                  5  %                5  %
EARNINGS BEFORE INTEREST AND TAXES                            $         692    $     609                 14  %


FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
On a currency-neutral basis, EMEA revenues for the first quarter of fiscal
2021 grew 5%, driven by higher revenues across most territories, led by UK &
Ireland, which grew 30%, partially offset by lower revenues in Eastern Europe,
which declined 23%. Revenues increased in all key categories, led by the Jordan
Brand and Sportswear. NIKE Direct revenues increased 27% driven by strong
digital commerce sales growth of 116%, partially offset by comparable store
sales contraction of 11% primarily due to reduced physical retail traffic, in
part resulting from safety-related measures in response to COVID-19.
Currency-neutral footwear revenues grew 2%, driven by higher revenues in most
key categories, led by the Jordan Brand and Sportswear, partially offset by
declines in Football (Soccer). Unit sales of footwear decreased 6% while higher
ASP per pair contributed approximately 8 percentage points of footwear revenue
growth. Higher ASP per pair primarily resulted from higher full-price and
off-price ASPs, as well as the favorable impact of growth in our NIKE Direct
business.
Currency-neutral apparel revenues increased 11% due to growth in all key
categories, led by Football (Soccer) and Sportswear. Unit sales of apparel
increased 9% and higher ASP per unit contributed approximately 2 percentage
points of apparel revenue growth. Higher ASP per unit was primarily due to
higher full-price ASP, in part reflecting lower discounts, and the favorable
impact of growth in our NIKE Direct business.
Reported EBIT increased 14% as higher revenues and lower selling and
administrative expense more than offset a decline in gross margin. Gross margin
decreased approximately 360 basis points primarily due to lower margin in our
NIKE Direct business driven by higher promotions to reduce excess inventory,
unfavorable changes in standard foreign currency exchange rates and unfavorable
full-price mix, partially offset by higher full-price ASP and off-price margin.
Selling and administrative expense decreased due to lower demand creation and
operating overhead expense. Lower demand creation expense was driven by lower
sports marketing expense, as well as lower advertising and marketing costs. The
decrease in operating overhead expense was primarily due to lower travel and
related expenses.
                                                                            

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GREATER CHINA

THREE MONTHS ENDED AUGUST 31,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2020           2019               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $       1,251$   1,164                  7  %               10  %
Apparel                                                                 478          465                  3  %                5  %
Equipment                                                                51           50                  2  %                3  %
TOTAL REVENUES                                                $       1,780$   1,679                  6  %                8  %
Revenues by:
Sales to Wholesale Customers                                  $         964    $     986                 -2  %                0  %
Sales through NIKE Direct                                               816          693                 18  %               21  %
TOTAL REVENUES                                                $       1,780$   1,679                  6  %                8  %
EARNINGS BEFORE INTEREST AND TAXES                            $         688    $     669                  3  %


FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
On a currency-neutral basis, Greater China revenues for the first quarter of
fiscal 2021 increased 8% due to higher revenues in nearly all key categories,
led by Sportswear and the Jordan Brand. NIKE Direct revenues increased 21% due
to digital commerce sales growth of 28%, comparable store sales growth of 13%
and the addition of new stores.
Currency-neutral footwear revenues increased 10% for the first quarter of fiscal
2021 driven by higher revenues in most key categories, primarily Sportswear, the
Jordan Brand and NIKE Basketball. Unit sales of footwear increased 19% while
lower ASP per pair reduced footwear revenues by approximately 9 percentage
points, driven by lower NIKE Direct ASP and unfavorable full-price mix.
Currency-neutral apparel revenues grew 5% for the first quarter of fiscal 2021
due to higher revenues in most key categories, led by Sportswear. Unit sales of
apparel increased 11% while lower ASP per unit reduced apparel revenues by
approximately 6 percentage points as unfavorable full-price mix, as well as
lower full-price and NIKE Direct ASPs, more than offset higher off-price ASP.
Reported EBIT increased 3% for the first quarter of fiscal 2021 as higher
revenues and lower selling and administrative expense more than offset a decline
in gross margin. Gross margin decreased 530 basis points reflecting lower margin
in our NIKE Direct business driven by higher promotions to reduce excess
inventory, unfavorable changes in standard foreign currency exchange rates,
higher product costs and unfavorable full-price mix. Selling and administrative
expense decreased due to lower demand creation expense, while operating overhead
expense was relatively flat. Demand creation expense decreased primarily due to
lower advertising and marketing expenses. Operating overhead expense was
relatively unchanged as lower travel and related expenses were offset by
increases in other administrative costs.
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ASIA PACIFIC & LATIN AMERICA

THREE MONTHS ENDED AUGUST 31,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2020           2019               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $         758    $     930                -18  %              -12  %
Apparel                                                                 301          356                -15  %              -10  %
Equipment                                                                40           59                -32  %              -28  %
TOTAL REVENUES                                                $       1,099$   1,345                -18  %              -12  %
Revenues by:
Sales to Wholesale Customers                                  $         708    $     950                -25  %              -19  %
Sales through NIKE Direct                                               391          395                 -1  %                4  %
TOTAL REVENUES                                                $       1,099$   1,345                -18  %              -12  %
EARNINGS BEFORE INTEREST AND TAXES                            $         280    $     341                -18  %


As discussed previously, we entered into definitive agreements to sell our NIKE
Brand businesses in Brazil, Argentina, Chile and Uruguay and shift to a
distributor operating model. The impacts of entering into these agreements are
included within Corporate and are not reflected in the APLA operating segment
results. These transactions are expected to close prior to January 1, 2021.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
On a currency-neutral basis, APLA revenues decreased 12% for the first quarter
of fiscal 2021. The decline was due to lower revenues in several territories,
led by our Latin America third-party distributor business and SOCO (which
comprises Argentina, Chile and Uruguay), which decreased 79% and 34%,
respectively. Revenues decreased in nearly all key categories, primarily
Football (Soccer) and Running. NIKE Direct revenues increased 4%, driven by
digital commerce sales growth of 91%, partially offset by comparable store sales
contraction of 28% primarily due to temporary store closures and reduced
physical retail traffic, in part due to safety-related measures in response to
COVID-19.
Currency-neutral footwear revenues decreased 12% for the first quarter of fiscal
2021 due to lower revenues in nearly all key categories, primarily Sportswear,
Football (Soccer) and Running, partially offset by the Jordan Brand. Unit sales
of footwear decreased 24%, partially offset by higher ASP per pair contributing
approximately 12 percentage points. Higher ASP per pair was driven by higher
full-price ASP, in part reflecting inflationary conditions in our SOCO
territory, as well as the favorable impact of growth in our NIKE Direct
business.
Currency-neutral apparel revenues contracted 10% for the first quarter of fiscal
2021, as higher revenues in Sportswear were more than offset by lower revenues
in all other key categories, most notably Football (Soccer) and Running. Unit
sales of apparel decreased 14%, partially offset by higher ASP per unit
contributing approximately 4 percentage points, driven by higher full-price ASP,
in part reflecting inflationary conditions in our SOCO territory.
Reported EBIT decreased 18% for the first quarter of fiscal 2021 primarily due
to lower revenues and a decline in gross margin, partially offset by lower
selling and administrative expense. Gross margin decreased approximately 100
basis points as higher full-price ASP, in part reflecting inflationary
conditions in our SOCO territory, was more than offset by higher product costs,
an increase in other costs, lower margin in our NIKE Direct business, as well as
unfavorable changes in standard foreign currency exchange rates. The increase in
other costs was primarily due to higher warehousing and freight costs, as well
as inventory obsolescence. Selling and administrative expense decreased due to
lower demand creation and overhead expense. The decrease in demand creation
expense was primarily due to lower advertising and marketing costs, as well as
sports marketing expense. Lower operating overhead expense was primarily due to
lower travel and related expenses.
GLOBAL BRAND DIVISIONS
                                                                          

THREE MONTHS ENDED AUGUST 31,

                                                                                                         % CHANGE EXCLUDING
(Dollars in millions)                                       2020            2019               % CHANGE    CURRENCY CHANGES
Revenues                                              $            4    $       6                -33  %              -31  %
Earnings (Loss) Before Interest and Taxes             $         (853)   $    (857)                 0  %


Global Brand Divisions primarily represent demand creation and operating overhead expense, including product creation and design expenses that are centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital

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operations and enterprise technology. Revenues for Global Brand Divisions are
primarily attributable to NIKE Brand licensing businesses that are not part of a
geographic operating segment.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
Global Brand Divisions' loss before interest and taxes was relatively flat for
the first quarter of fiscal 2021, with total selling and administrative expense
decreasing slightly. Lower demand creation expense was primarily due to lower
advertising and marketing costs, as well as lower sports marketing expense.
Operating overhead expense increased slightly, primarily due to higher
wage-related costs partially offset by lower travel and related expenses.
CONVERSE
                                                                            

THREE MONTHS ENDED AUGUST 31,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2020           2019               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $         513    $     496                  3  %                4  %
Apparel                                                                  22           26                -15  %              -13  %
Equipment                                                                 9            9                  0  %               11  %
Other(1)                                                                 19           24                -21  %              -18  %
TOTAL REVENUES                                                $         563    $     555                  1  %                2  %
Revenues by:
Sales to Wholesale Customers                                  $         373    $     367                  2  %                2  %
Sales through Direct to Consumer                                        171          164                  4  %                5  %
Other(1)                                                                 19           24                -21  %              -18  %
TOTAL REVENUES                                                $         563    $     555                  1  %                2  %
EARNINGS BEFORE INTEREST AND TAXES                            $         168    $     138                 22  %


(1)  Other revenues consist of territories serviced by third-party licensees who
pay royalties to Converse for the use of its registered trademarks and other
intellectual property rights. We do not own the Converse trademarks in Japan and
accordingly do not earn revenues in Japan.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
On a currency-neutral basis, Converse revenues increased 2% for the first
quarter of fiscal 2021, driven by revenue growth in Asia and Europe, partially
offset by revenue declines in the United States. Direct to consumer revenues
increased 5% as strong digital sales growth across all geographies more than
offset declines from Converse owned stores reflecting the ongoing impact of
COVID-19. Combined unit sales within the wholesale and direct to consumer
channels increased 2%, while ASP remained flat.
Reported EBIT increased 22%, driven primarily by decreases in selling and
administrative expenses, partially offset by a decline in gross margin. Gross
margin decreased 210 basis points driven by higher promotions across our direct
to consumer and full-price wholesale channels, lower revenues in Converse's
licensing business, as well as unfavorable changes in standard foreign currency
exchange rates. Selling and administrative expense decreased due to lower
operating overhead and demand creation expense. Operating overhead decreased
primarily due to lower administrative expenses. Demand creation decreased as a
result of lower advertising and marketing costs, as well as lower retail brand
presentation costs.
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CORPORATE
                                                                   THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                                          2020            2019                 % CHANGE
Revenues                                                $            13    $        9                   -
Earnings (Loss) Before Interest and Taxes               $          (497)   $     (424)                -17  %


Corporate revenues primarily consist 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 our central foreign
exchange risk management program.
The Corporate loss before interest and taxes primarily consists of unallocated
general and administrative expenses, including expenses associated with
centrally managed departments; depreciation and amortization related to our
corporate headquarters; unallocated insurance, benefit and compensation
programs, including stock-based compensation; and certain foreign currency gains
and losses.
In addition to the foreign currency gains and losses recognized in Corporate
revenues, foreign currency results in Corporate include gains and losses
resulting from the difference between actual foreign currency exchange rates and
standard rates used to record non-functional currency denominated product
purchases within the NIKE Brand geographic operating segments and Converse;
related foreign currency hedge results; conversion gains and losses arising from
re-measurement of monetary assets and liabilities in non-functional currencies;
and certain other foreign currency derivative instruments.
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
Corporate's loss before interest and taxes increased $73 million for the first
quarter of fiscal 2021, primarily due to the following:
•an unfavorable change of $140 million in part due to restructuring costs
associated with changes to our organization model announced in July 2020, as
well as an incremental charge related to our planned, strategic distributor
partnership transition within APLA. For more information see Note 13 -
Acquisitions and Divestitures within the accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements;
•a favorable change of $76 million related to the difference between actual
foreign currency exchange rates and standard foreign currency exchange rates
assigned to the NIKE Brand geographic operating segments and Converse, net of
hedge gains and losses; these results are reported as a component of
consolidated gross margin; and
•an unfavorable change in net foreign currency gains and losses of $9 million
related to the re-measurement of monetary assets and liabilities denominated in
non-functional currencies and the impact of certain foreign currency derivative
instruments, reported as a component of consolidated Other (income) expense,
net.
FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outside the United States, in
the normal course of business we are exposed to risk arising from changes in
currency exchange rates. Our primary foreign currency exposures arise from the
recording of transactions denominated in non-functional currencies and the
translation of foreign currency denominated results of operations, financial
position and cash flows into U.S. Dollars.
Our foreign exchange risk management program is intended to lessen both the
positive and negative effects of currency fluctuations on our consolidated
results of operations, financial position and cash flows. We manage global
foreign exchange risk centrally on a portfolio basis to address those risks
material to NIKE, Inc. Our hedging policy is designed to partially or entirely
offset the impact of exchange rate changes on the underlying net exposures being
hedged. Where exposures are hedged, our program has the effect of delaying the
impact of exchange rate movements on our Unaudited Condensed Consolidated
Financial Statements; the length of the delay is dependent upon hedge horizons.
We do not hold or issue derivative instruments for trading or speculative
purposes. As of and for the three months ended August 31, 2020, there have been
no material changes to the Company's hedging program or strategy from what was
disclosed within the Annual Report on Form 10-K.
Refer to Note 4 - Fair Value Measurements and Note 9 - Risk Management and
Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements for additional description of outstanding derivatives at
each reported period end. For additional information about our Foreign Currency
Exposures and Hedging Practices refer to Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations of our
Annual Report on Form 10-K for the fiscal year ended May 31, 2020.
                                                                            

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TRANSACTIONAL EXPOSURES
We conduct business in various currencies and have transactions which subject us
to foreign currency risk. Our most significant transactional foreign currency
exposures are:
•Product Costs - Product purchases denominated in currencies other than the
functional currency of the transacting entity and factory input costs from the
foreign currency adjustments program with certain factories.
•Non-Functional Currency Denominated External Sales - A portion of our NIKE
Brand and Converse revenues associated with European operations are earned in
currencies other than the Euro (e.g., the British Pound) but are recognized at a
subsidiary that uses the Euro as its functional currency. These sales generate a
foreign currency exposure.
•Other Costs - Non-functional currency denominated costs, such as endorsement
contracts, also generate foreign currency risk, though to a lesser extent.
•Non-Functional Currency Denominated Monetary Assets and Liabilities - Our
global subsidiaries have various assets and liabilities, primarily receivables
and payables, including intercompany receivables and payables, denominated in
currencies other than their functional currencies. These balance sheet items are
subject to re-measurement which may create fluctuations in Other (income)
expense, net within our consolidated results of operations.
MANAGING TRANSACTIONAL EXPOSURES
Transactional exposures are managed on a portfolio basis within our foreign
currency risk management program. We manage these exposures by taking advantage
of natural offsets and currency correlations that exist within the portfolio and
may also elect to use currency forward and option contracts to hedge the
remaining effect of exchange rate fluctuations on probable forecasted future
cash flows, including certain product cost exposures, non-functional currency
denominated external sales and other costs described above.
Certain currency forward contracts used to manage the foreign exchange exposure
of non-functional currency denominated monetary assets and liabilities subject
to re-measurement and embedded derivative contracts are not formally designated
as hedging instruments and are recognized in Other (income) expense, net.
TRANSLATIONAL EXPOSURES
Many of our foreign subsidiaries operate in functional currencies other than the
U.S. Dollar. Fluctuations in currency exchange rates create volatility in our
reported results as we are required to translate the balance sheets, operational
results and cash flows of these subsidiaries into U.S. Dollars for consolidated
reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated
balance sheets into U.S. Dollars for consolidated reporting results in a
cumulative translation adjustment to Accumulated other comprehensive income
(loss) within Shareholders' equity. The impact of foreign exchange rate
fluctuations on the translation of our consolidated Revenues was a detriment of
approximately $111 million and $313 million for the three months ended August
31, 2020 and 2019, respectively. The impact of foreign exchange rate
fluctuations on the translation of our Income before income taxes was a
detriment of approximately $29 million and $86 million for the three months
ended August 31, 2020 and 2019, respectively.
Management generally identifies hyper-inflationary markets as those markets
whose cumulative inflation rate over a three-year period exceeds 100%.
Management has concluded our Argentina subsidiary within our APLA operating
segment is operating in a hyper-inflationary market. As a result, beginning in
the second quarter of fiscal 2019, the functional currency of our Argentina
subsidiary changed from the local currency to the U.S. Dollar. As of and for the
three months ended August 31, 2020, this change did not have a material impact
on our results of operations or financial condition and we do not anticipate it
will have a material impact in future periods based on current rates.
MANAGING TRANSLATIONAL EXPOSURES
To minimize the impact of translating foreign currency denominated revenues and
expenses into U.S. Dollars for consolidated reporting, certain foreign
subsidiaries use excess cash to purchase U.S. Dollar denominated
available-for-sale investments. The variable future cash flows associated with
the purchase and subsequent sale of these U.S. Dollar denominated investments at
non-U.S. Dollar functional currency subsidiaries creates a foreign currency
exposure that qualifies for hedge accounting under U.S. GAAP. We utilize forward
contracts and/or options to mitigate the variability of the forecasted future
purchases and sales of these U.S. Dollar investments. The combination of the
purchase and sale of the U.S. Dollar investment and the hedging instrument has
the effect of partially offsetting the year-over-year foreign currency
translation impact on net earnings in the period the investments are sold.
Hedges of the purchase of U.S. Dollar denominated available-for-sale investments
are accounted for as cash flow hedges.
We estimate the combination of translation of foreign currency-denominated
profits from our international businesses and the year-over-year change in
foreign currency related gains and losses included in Other (income) expense,
net had an unfavorable impact of approximately $38 million on our Income before
income taxes for the three months ended August 31, 2020.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of $882 million for the first
three months of fiscal 2021, compared to $394 million for the first three months
of fiscal 2020. Net income, adjusted for non-cash items, generated $1,606
million of operating cash inflow for the first three months of fiscal 2021,
compared to $1,629 million for the first three months of fiscal 2020. The net
change in working capital and other assets and liabilities resulted in a
decrease to Cash provided (used) by operations of $724 million for the first
three months of fiscal 2021 compared to a decrease of $1,235 million for the
first three months of fiscal 2020. This favorable impact on Cash provided (used)
by operations was largely the result of a $959 million decrease in inventories,
partially offset by a $534 million increase in Accounts receivables, both of
which reflect impacts of COVID-19 in the fourth quarter of fiscal 2020, as well
as the reopening of NIKE Direct stores and resumption of wholesale shipments in
the first three months of fiscal 2021.
Cash provided (used) by investing activities was an outflow of $889 million for
the first three months of fiscal 2021, compared to $348 million for the first
three months of fiscal 2020, driven by the net change in short-term investments.
For the first three months of fiscal 2021, the net change in short-term
investments (including sales, maturities and purchases) resulted in a cash
outflow of $715 million compared to an inflow of $45 million for the first three
months of fiscal 2020.
Cash provided (used) by financing activities was an outflow of $248 million for
the first three months of fiscal 2021 compared to $1,010 million for the first
three months of fiscal 2020, with the decrease from the prior period driven by
our election to temporarily suspend share repurchases, resulting in no share
repurchases for the first three months of fiscal 2021 compared to $999 million
in the first three months of fiscal 2020.
As of August 31, 2020, we had repurchased 45.2 million shares at a cost of
approximately $4.0 billion (an average price of $89.00 per share) under the
four-year, $15 billion share repurchase program approved by the Board of
Directors in June 2018. To enhance our liquidity position in response to
COVID-19, during the fourth quarter of fiscal 2020, we elected to temporarily
suspend share repurchases under our existing share repurchase program. As such,
there were no share repurchases made during the quarter ended August 31, 2020.
The existing program remains authorized by the Board of Directors and we may
resume share repurchases in the future at any time, depending upon market
conditions, our capital needs and other factors. We continue to expect funding
of share repurchases will come from operating cash flows, excess cash and/or
proceeds from debt.
CAPITAL RESOURCES
On July 23, 2019, we filed a shelf registration statement (the "Shelf") with the
U.S. Securities and Exchange Commission (SEC) which permits us to issue an
unlimited amount of debt securities from time to time. The Shelf expires on July
23, 2022.
Our committed credit facilities remain unchanged from the information previously
reported on Form 10-K for the fiscal year ended May 31, 2020. As of August 31,
2020 and May 31, 2020, no amounts were outstanding under our committed credit
facilities. We currently have long-term debt ratings of AA- and A1 from Standard
and Poor's Corporation and Moody's Investor Services, respectively. Any changes
to these ratings could result in interest rate and facility fee changes as
outlined in the most recent Form 10-K. As of August 31, 2020, we were in full
compliance of the covenants under our committed credit facilities and believe it
is unlikely we will fail to meet any of the covenants in the foreseeable future.
Liquidity is also provided by our $4 billion commercial paper program. During
the three months ended August 31, 2020, the maximum amount of commercial paper
borrowings outstanding at any point was $248 million. As of August 31, 2020 and
May 31, 2020, the Company had $112 million and $248 million of borrowings
outstanding at a weighted average interest rate of 1.72% and 1.65%,
respectively. We may continue to issue commercial paper or other debt securities
depending on general corporate needs. We currently have short-term debt ratings
of A1+ and P1 from Standard and Poor's Corporation and Moody's Investor
Services, respectively.
To date, in fiscal 2021, we have not experienced difficulty accessing the credit
markets; however, future volatility in the capital markets may increase costs
associated with issuing commercial paper or other debt instruments or affect our
ability to access those markets.
As of August 31, 2020, we had cash, cash equivalents and short-term investments
totaling $9.5 billion, primarily consisting of commercial paper, corporate
notes, deposits held at major banks, money market funds, U.S. government
sponsored enterprise obligations, U.S.Treasury obligations and other investment
grade fixed-income securities. Our fixed-income investments are exposed to both
credit and interest rate risk. All of our investments are investment grade to
minimize our credit risk. While individual securities have varying durations, as
of August 31, 2020, the weighted-average days to maturity of our cash
equivalents and short-term investments portfolio was 20 days.
                                                                            

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We believe that existing cash, cash equivalents, short-term investments and cash
generated by operations, together with access to external sources of funds as
described above, will be sufficient to meet our domestic and foreign capital
needs in the foreseeable future.
We utilize a variety of tax planning and financing strategies to manage our
worldwide cash and deploy funds to locations where they are needed. We
indefinitely reinvest a significant portion of our foreign earnings, and our
current plans do not demonstrate a need to repatriate these earnings. Should we
require additional capital in the United States, we may determine to repatriate
indefinitely reinvested foreign funds or raise capital in the United States
through debt. Given our existing structure, if we were to repatriate
indefinitely reinvested foreign earnings, we would be required to accrue and pay
withholding taxes in certain foreign jurisdictions.
OFF-BALANCE SHEET ARRANGEMENTS
As of August 31, 2020, we did not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a material current or future effect on
our financial condition, results of operations, liquidity, capital expenditures
or capital resources.
CONTRACTUAL OBLIGATIONS
There have been no significant changes to the contractual obligations reported
in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no material changes in recently issued or adopted accounting
standards from those disclosed in our Annual Report on Form 10-K for the fiscal
year ended May 31, 2020.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our Unaudited Condensed Consolidated Financial Statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the
accounting policies described in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our most recent Annual
Report on Form 10-K have the greatest potential impact on our financial
statements, so we consider these to be our critical accounting policies. Actual
results could differ from the estimates we use in applying our critical
accounting policies. We are not currently aware of any reasonably likely events
or circumstances that would result in materially different amounts being
reported.
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