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OFFON

NIKE, INC.

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

07/20/2021 | 04:14pm EDT
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 owned 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 is intended to allow 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 expect
to reinvest in our Women's and Kids' businesses and 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 such, our new
financial goals through fiscal 2025 are outlined below:
•High single-digit to low double-digit revenue growth;
•Gross margin rate in the high 40s by fiscal 2025;
•Earnings before interest and taxes as a percent of revenues ("EBIT Margin") in
the high teens by fiscal 2025;
•Mid to high teens diluted earnings per share growth;
•Exceeding low 30% range rate of return on invested capital (ROIC); and
•Annual capital expenditures at roughly 3% of Revenues.
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 resulted in a net reduction of our global
workforce and during fiscal 2021, we incurred pre-tax charges of $294 million,
which relate to employee termination costs and, to a lesser extent, stock-based
compensation expense. All related actions are now substantially complete, and we
expect future annual wage-related savings will be reinvested to execute against
this next phase of our strategy. For more information related to our
organizational realignment and related costs, see Note 21 - Restructuring within
the accompanying Notes to the Consolidated Financial Statements.
COVID-19 UPDATE
Throughout fiscal 2021, the COVID-19 pandemic impacted our business results and
operations globally. Our business and wholesale partners experienced temporary
store closures and stores operating on reduced hours, as a result of mandatory
lockdowns across our North America, EMEA and APLA geographies. Additionally,
disruption in the global supply chain due to container shortages, transportation
delays and U.S. port congestion interrupted the flow of our inventory. Despite
the disruption caused by the pandemic, we achieved record Revenues for fiscal
2021, which increased 19% to $44.5 billion, compared to the prior fiscal year,
with gross margin expansion of 140 basis points. We ended the fiscal year with
Inventories down 7% compared to May 31, 2020, and our liquidity position remains
strong with $13.5 billion of Cash and equivalents and Short-term investments, an
increase of $4.7 billion compared to May 31, 2020.
Our NIKE Direct business fueled our growth throughout the year as we navigated
the pandemic, leveraging our digital platforms with our store footprint to
connect directly with the consumer. NIKE Brand digital revenues grew 60% on a
currency-neutral basis, with strong double-digit growth across each of our
geographies. Despite temporary store closures throughout the year, due to
COVID-19 safety-related measures, we experienced a 4% increase in comparable
store sales, driven by growth in Greater China and North America, partially
offset by declines in EMEA and APLA. As of July 15, 2021, approximately 99% of
our owned stores were open with some operating on reduced hours.
2021 FORM 10-K 28

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We continue to monitor the rapidly 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. There remains risk that
COVID-19 could have 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, adverse impacts on the global supply chain, revised
payment terms with certain of our wholesale customers, higher sales-related
reserves, factory cancellation costs and a volatile effective tax rate driven by
changes in the mix of earnings across our jurisdictions.
FISCAL 2021 OVERVIEW
In fiscal 2021, NIKE, Inc. achieved record Revenues which increased 19% to $44.5
billion. The NIKE Brand, which represents over 90% of NIKE, Inc. Revenues,
experienced growth of 19%, up 17% on a currency-neutral basis, driven by
increases across all geographies. NIKE Direct grew 30% on a currency-neutral
basis, driven by 60% growth in digital, with all geographies growing strong
double digits, while wholesale revenues grew 10%. Revenues for Converse
increased 19% and 16%, on a reported and currency-neutral basis, respectively,
led by strong double-digit growth in digital.
Income (loss) before income taxes increased 131% for fiscal 2021, primarily due
to higher revenues, gross margin expansion and selling and administrative
expense leverage. NIKE, Inc. gross margin increased 140 basis points primarily
due to annualizing the impacts of COVID-19 including lower factory cancellation
charges, lower inventory obsolescence reserves as well as the favorable rate
impact of fixed supply chain costs on a higher volume of wholesale shipments.
The increase in gross margin also reflects higher full-price product margins
across wholesale and NIKE Direct. Selling and administrative expense decreased
due to lower Demand creation expense, partially offset by higher Operating
overhead expense. Demand creation expense decreased primarily due to lower
marketing and advertising expenses for our brand events and retail operations,
as well as lower sports marketing expenses as sporting events were postponed due
to COVID-19. These decreases were partially offset by higher digital marketing
investments. Operating overhead expense increased primarily due to an increase
in strategic technology investments, higher NIKE Direct variable costs and $255
million in restructuring-related costs, partially offset by lower bad debt
expense and travel and related expenses. ROIC as of May 31, 2021, was 48.8%
compared to 21.5% as of May 31, 2020. ROIC is considered a non-GAAP financial
measure, see "Use of Non-GAAP Financial Measures" for further information.
During fiscal 2020, we entered into definitive agreements to sell our NIKE Brand
businesses in Brazil, Argentina, Chile and Uruguay and to shift to a distributor
operating model. During fiscal 2021, the transaction with Grupo SBF S.A. to
purchase substantially all of our NIKE Brand operations in Brazil closed.
Additionally, during the third quarter of fiscal 2021, we mutually agreed with
Grupo Axo 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 we remain committed to selling the 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 our Consolidated Balance Sheets as of May 31, 2021. For more information
related to our planned distributor partnership transition within APLA, see
Note 20 - Acquisitions and Divestitures within the accompanying Notes to the
Consolidated Financial Statements. In future quarters, as we shift from a
wholesale and direct to consumer operating model to a distributor operating
model within these countries, we expect consolidated NIKE, Inc. and APLA revenue
growth will be reduced due to differences in commercial terms. However, we
expect the future operating model to have a favorable impact on our overall
profitability as we reduce selling and administrative expenses, as well as
lessen exposure to foreign exchange rate volatility.
While foreign currency markets remain volatile, in part due to geopolitical
dynamics which may lead to a stronger U.S. Dollar, we continue to see
opportunities to drive future growth and profitability. We remain committed to
effectively managing our business and mitigating financial market risks to
achieve our financial goals over the long-term by executing against the
operational strategies outlined above.
For discussion related to the results of operations and changes in financial
condition for fiscal 2020 compared to fiscal 2019 refer to Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our fiscal 2020 Form 10-K, which was filed with the United States
Securities and Exchange Commission on July 24, 2020.
USE OF NON-GAAP FINANCIAL MEASURES
Throughout this Annual Report on Form 10-K, we discuss non-GAAP financial
measures, including references to wholesale equivalent revenues,
currency-neutral revenues, Total NIKE Brand earnings before interest and taxes
(EBIT) and Total NIKE, Inc. EBIT, as well as EBIT Margin and ROIC, 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. Additionally, 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 Consolidated Statements of Income. EBIT Margin

                                                               2021 FORM 10-K 29

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is calculated as EBIT divided by total NIKE Inc. Revenues. ROIC represents a
performance measure that management believes is useful information in
understanding the Company's ability to effectively manage invested capital, see
the table below for how the Company calculates this measure.
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, ROIC 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.
Our ROIC calculation as of May 31, 2021 and 2020 is as follows:
                                                                       FOR THE TRAILING FOUR QUARTERS
                                                                                   ENDED
(Dollars in millions)                                                   MAY 31, 2021    MAY 31, 2020
Numerator
Net income                                                            $     5,727$     2,539
Add: Interest expense (income), net                                           262               89
Add: Income tax expense                                                       934              348
Earnings before interest and taxes                                          6,923            2,976
Income tax adjustment(1)                                                     (970)            (352)
Earnings before interest and after taxes                              $     

5,953 $ 2,624

AVERAGE FOR THE TRAILING FIVE

                                                                               QUARTERS ENDED
                                                                        MAY 31, 2021    MAY 31, 2020
Denominator
Total debt(2),(3)                                                     $    12,890$     8,022
Add: Shareholders' equity                                                  10,523            8,938
Less: Cash and equivalents and Short-term investments                      11,217            4,756
Total invested capital                                                $    12,196$    12,204

RETURN ON INVESTED CAPITAL                                                   48.8    %        21.5   %


(1)Equals Earnings before interest and taxes multiplied by the effective tax
rate as of the respective quarter end.
(2)Total debt includes the following: 1) Current portion of long-term debt, 2)
Notes Payable, 3) Current portion of operating lease liabilities, 4) Long-term
debt and 5) Operating lease liabilities.
(3)The Company adopted Accounting Standards Codification No. 842, Leases, on
June 1, 2019. For comparability, total debt for each quarter prior to adoption
includes approximately $3.2 billion, which represents the current and long-term
portion of the Company's operating lease liabilities as of June 1, 2019.
2021 FORM 10-K 30

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RESULTS OF OPERATIONS
(Dollars in millions, except per share data)    FISCAL 2021    FISCAL 2020       % CHANGE      FISCAL 2019       % CHANGE
Revenues                                       $    44,538$    37,403               19  % $    39,117               -4  %
Cost of sales                                       24,576         21,162               16  %      21,643               -2  %
Gross profit                                        19,962         16,241               23  %      17,474               -7  %
Gross margin                                          44.8  %        43.4  %                         44.7  %
Demand creation expense                              3,114          3,592              -13  %       3,753               -4  %
Operating overhead expense                           9,911          9,534                4  %       8,949                7  %
Total selling and administrative expense            13,025         13,126               -1  %      12,702                3  %
% of revenues                                         29.2  %        35.1  %                         32.5  %
Interest expense (income), net                         262             89                -             49                -
Other (income) expense, net                             14            139                -            (78)               -
Income before income taxes                           6,661          2,887              131  %       4,801              -40  %
Income tax expense                                     934            348              168  %         772              -55  %
Effective tax rate                                    14.0  %        12.1  %                         16.1  %
NET INCOME                                     $     5,727$     2,539              126  % $     4,029              -37  %
Diluted earnings per common share              $      3.56$      1.60              123  % $      2.49              -36  %



                                                               2021 FORM 10-K 31

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CONSOLIDATED OPERATING RESULTS
REVENUES
                                                                                         % CHANGE EXCLUDING                                % CHANGE EXCLUDING
                                                                                                   CURRENCY                                          CURRENCY
(Dollars in millions)                       FISCAL 2021     FISCAL 2020         % CHANGE         CHANGES(1)   FISCAL 2019         % CHANGE         CHANGES(1)
NIKE, Inc. Revenues:
NIKE Brand Revenues by:
Footwear                                  $     28,021$     23,305             20  %              18  % $     24,222             -4  %              -2  %
Apparel                                         12,865          10,953             17  %              15  %       11,550             -5  %              -3  %
Equipment                                        1,382           1,280              8  %               7  %        1,404             -9  %              -6  %
Global Brand Divisions(2)                           25              30            -17  %             -17  %           42            -29  %             -26  %
Total NIKE Brand Revenues                       42,293          35,568             19  %              17  %       37,218             -4  %              -2  %
Converse                                         2,205           1,846             19  %              16  %        1,906             -3  %              -1  %
Corporate(3)                                        40             (11)             -                  -              (7)             -                  -
TOTAL NIKE, INC. REVENUES                 $     44,538$     37,403             19  %              17  % $     39,117             -4  %              -2  %
Supplemental NIKE Brand Revenues Details:
NIKE Brand Revenues by:
Sales to Wholesale Customers              $     25,898$     23,156             12  %              10  % $     25,423             -9  %              -7  %
Sales through NIKE Direct                       16,370          12,382             32  %              30  %       11,753              5  %               8  %
Global Brand Divisions(2)                           25              30            -17  %             -17  %           42            -29  %             -26  %
TOTAL NIKE BRAND REVENUES                 $     42,293$     35,568             19  %              17  % $     37,218             -4  %              -2  %
NIKE Brand Revenues on a Wholesale
Equivalent Basis:(1)
Sales to Wholesale Customers              $     25,898$     23,156             12  %              10  % $     25,423             -9  %              -7  %
Sales from our Wholesale Operations to
NIKE Direct Operations                           9,872           7,452             32  %              30  %        7,127              5  %               7  %
TOTAL NIKE BRAND WHOLESALE EQUIVALENT
REVENUES                                  $     35,770$     30,608             17  %              15  % $     32,550             -6  %              -4  %
NIKE Brand Wholesale Equivalent Revenues
by:(1)
Men's                                     $     18,883$     16,694             13  %              11  % $     17,737             -6  %              -4  %
Women's                                          8,555           6,999             22  %              20  %        7,380             -5  %              -3  %
NIKE Kids'                                       5,884           5,033             17  %              15  %        5,283             -5  %              -3  %
Others(4)                                        2,448           1,882             30  %              26  %        2,150            -12  %             -10  %
TOTAL NIKE BRAND WHOLESALE EQUIVALENT
REVENUES                                  $     35,770$     30,608             17  %              15  % $     32,550             -6  %              -4  %
NIKE Brand Wholesale Equivalent Revenues
by:(1)
Running                                   $      3,987$      3,830              4  %               3  % $      4,488            -15  %             -12  %
NIKE Basketball                                  1,692           1,508             12  %              10  %        1,597             -6  %              -4  %
Jordan Brand                                     4,711           3,609             31  %              28  %        3,138             15  %              16  %
Football (Soccer)                                1,682           1,575              7  %               4  %        1,894            -17  %             -14  %
Training                                         2,907           2,688              8  %               7  %        3,137            -14  %             -13  %
Sportswear                                      15,053          12,285             23  %              20  %       12,442             -1  %               1  %
Others(5)                                        5,738           5,113             12  %              11  %        5,854            -13  %             -10  %
TOTAL NIKE BRAND WHOLESALE EQUIVALENT
REVENUES                                  $     35,770$     30,608             17  %              15  % $     32,550             -6  %              -4  %


(1)The percent change excluding currency changes and the presentation of
wholesale equivalent revenues represent non-GAAP financial measures. See "Use of
Non-GAAP Financial Measures" for further information.
(2)Global Brand Divisions revenues include NIKE Brand licensing and other
miscellaneous revenues 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.
(4)Others include all unisex products, equipment and other products not
allocated to Men's, Women's and NIKE Kids', as well as certain adjustments that
are not allocated to products designated by gender or age.
(5)Others include all other categories and certain adjustments that are not
allocated at the category level.
2021 FORM 10-K 32

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FISCAL 2021 NIKE BRAND REVENUE HIGHLIGHTS
The following tables present NIKE Brand revenues disaggregated by reportable
operating segment, distribution channel and major product line:

[[Image Removed: nke-20210531_g10.jpg]] [[Image Removed: nke-20210531_g11.jpg]] [[Image Removed: nke-20210531_g12.jpg]]



FISCAL 2021 COMPARED TO FISCAL 2020
On a currency-neutral basis, NIKE, Inc. Revenues increased 17% for fiscal 2021,
driven by growth in both the NIKE Brand and Converse. Higher revenues in North
America contributed approximately 7 percentage points to NIKE, Inc. Revenues,
with EMEA and Greater China each contributing approximately 4 percentage points
of growth and APLA and Converse each contributing approximately 1 percentage
point of growth.
On a currency-neutral basis, NIKE Brand footwear revenues increased 18% for
fiscal 2021, driven by growth in nearly all key categories, primarily Sportswear
and the Jordan Brand. Unit sales of footwear increased 11%, while higher average
selling price (ASP), on a wholesale equivalent basis, per pair contributed
approximately 7 percentage points of footwear revenue growth. The increase in
ASP was primarily due to higher full-price ASP, in part reflecting lower
discounts, as well as higher NIKE Direct ASP and the favorable impact of growth
in our NIKE Direct business.
Currency-neutral NIKE Brand apparel revenues increased 15% for fiscal 2021, due
to growth in all key categories, primarily Sportswear, Football (Soccer) and the
Jordan Brand. Unit sales of apparel increased 14%, while higher ASP per unit
contributed approximately 1 percentage point of apparel revenue growth. The
increase in ASP was primarily due to the favorable impact of growth in our NIKE
Direct business, as well as higher NIKE Direct ASP, partially offset by lower
full-price ASP.
On a reported basis, NIKE Direct revenues represented approximately 39% of our
total NIKE Brand revenues for fiscal 2021 compared to 35% for fiscal 2020.
Digital commerce sales were $9.1 billion for fiscal 2021 compared to $5.5
billion for fiscal 2020. On a currency-neutral basis, NIKE Direct revenues
increased 30% for fiscal 2021, driven by strong digital commerce sales growth of
60%, comparable store sales growth of 4% and the addition of new stores.
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
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.
On a currency-neutral basis, fiscal 2021 NIKE Brand Men's and Women's revenues
increased 11% and 20%, respectively. Higher NIKE Brand Men's revenues were
driven by growth in nearly all key categories, primarily Sportswear, the Jordan
Brand and Football (Soccer). Higher NIKE Brand Women's revenues were driven by
growth in all key categories, primarily Sportswear, the Jordan Brand, Training
and Running. Revenues for our NIKE Kids' business increased 15%, due to growth
primarily in the Jordan Brand and Football (Soccer).

                                                               2021 FORM 

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GROSS MARGIN
FISCAL 2021 COMPARED TO FISCAL 2020
For fiscal 2021, our consolidated gross profit increased 23% to $19,962 million
compared to $16,241 million for fiscal 2020, as the prior fiscal year was
significantly impacted by lower shipments to our wholesale customers and store
closures within our NIKE Direct operations due to COVID-19. Gross margin
increased 140 basis points to 44.8% for fiscal 2021 compared to 43.4% for fiscal
2020 due to the following:
[[Image Removed: nke-20210531_g13.jpg]]
*Wholesale equivalent


Favorable NIKE Brand full-price product margins across both our wholesale and
NIKE Direct businesses primarily reflect higher full-price ASP, net of
discounts. Additionally, the favorable impact of growth in our higher margin
NIKE Direct business, led by NIKE owned Digital, was more than offset by higher
promotions in our factory stores during the first half of fiscal 2021 to reduce
excess inventory as a result of COVID-19. Lower other costs are due to
annualizing certain impacts of COVID-19 from fiscal 2020, including lower
factory cancellation charges, lower inventory obsolescence reserves as well as
the favorable rate impact of fixed supply chain costs on a higher volume of
wholesale shipments.
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
(Dollars in millions)                        FISCAL 2021    FISCAL 2020             % CHANGE  FISCAL 2019            % CHANGE
Demand creation expense(1)                  $     3,114$     3,592             -13  %    $     3,753              -4  %
Operating overhead expense                        9,911          9,534               4  %          8,949               7  %

Total selling and administrative expense $ 13,025$ 13,126

        -1  %    $    12,702               3  %
% of revenues                                      29.2  %        35.1  %         (590)  bps        32.5  %          260  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.
FISCAL 2021 COMPARED TO FISCAL 2020
Demand creation expense decreased 13% for fiscal 2021, due to lower marketing
and advertising expenses for our brand events and retail operations, as well as
lower sports marketing expense as sporting events were postponed due to
COVID-19. This activity was partially offset by higher digital marketing
investments. Changes in foreign currency exchange rates increased Demand
creation expense by approximately 2 percentage points for fiscal 2021.
Operating overhead expense increased 4% for fiscal 2021, due to an increase in
strategic technology investments, higher NIKE Direct variable costs, and
approximately $255 million in restructuring-related costs, partially offset by
lower bad debt expense and lower travel and related expenses. Changes in foreign
currency exchange rates increased Operating overhead expense by approximately 1
percentage point for fiscal 2021.
OTHER (INCOME) EXPENSE, NET
(Dollars in millions)             FISCAL 2021       FISCAL 2020       FISCAL 2019
Other (income) expense, net      $         14      $        139$        (78)


Other (income) expense, net comprises foreign currency conversion gains and
losses from the remeasurement 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.
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FISCAL 2021 COMPARED TO FISCAL 2020
Other (income) expense, net decreased from $139 million of other expense, net in
fiscal 2020 to $14 million of other expense, net in the current year, primarily
due to the non-recurring impairment charge of $405 million incurred in the prior
year associated with our planned, strategic distributor partnership transition
within APLA, partially offset by a $241 million net detrimental change in
foreign currency conversion gains and losses, including hedges.
For more information related to our distributor partnership transition within
APLA, see Note 20 - Acquisitions and Divestitures within the accompanying Notes
to the Consolidated Financial Statements.
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 a favorable impact on our Income before income taxes of $19 million for
fiscal 2021.
INCOME TAXES
                      FISCAL 2021   FISCAL 2020     % CHANGE  FISCAL 2019     % CHANGE
Effective tax rate         14.0  %       12.1  %     190 bps       16.1  %   (400) bps


FISCAL 2021 COMPARED TO FISCAL 2020
Our effective tax rate was 14.0% for fiscal 2021, compared to 12.1% for fiscal
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.
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, with results for the Hurley brand, prior to its divestiture in fiscal
2020, included in North America. Refer to Note 20 - Acquisitions and
Divestitures within the accompanying Notes to the Consolidated Financial
Statements for additional information. 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.

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The breakdown of Revenues is as follows:

                                                                                                  % CHANGE EXCLUDING                                  % CHANGE EXCLUDING
                                                                                                            CURRENCY                                            CURRENCY
(Dollars in millions)                              FISCAL 2021     FISCAL 2020           % CHANGE         CHANGES(1)   FISCAL 2019           % CHANGE         CHANGES(1)
North America                                    $     17,179$     14,484               19  %              19  % $     15,902               -9  %              -9  %
Europe, Middle East & Africa                           11,456           9,347               23  %              17  %        9,812               -5  %              -1  %
Greater China                                           8,290           6,679               24  %              19  %        6,208                8  %              11  %
Asia Pacific & Latin America(2)                         5,343           5,028                6  %               8  %        5,254               -4  %               1  %
Global Brand Divisions(3)                                  25              30              -17  %             -17  %           42              -29  %             -26  %
TOTAL NIKE BRAND                                       42,293          35,568               19  %              17  %       37,218               -4  %              -2  %
Converse                                                2,205           1,846               19  %              16  %        1,906               -3  %              -1  %
Corporate(4)                                               40             (11)               -                  -              (7)               -                  -
TOTAL NIKE, INC. REVENUES                        $     44,538$     37,403               19  %              17  % $     39,117               -4  %              -2  %


(1)  The percent change excluding currency changes represents a non-GAAP
financial measure. See "Use of Non-GAAP Financial Measures" for further
information.
(2)  Refer to Note 20 - Acquisitions and Divestitures within the accompanying
Notes to the Consolidated Financial Statements for additional information on the
transition of our NIKE Brand business in Brazil to a third-party distributor.
(3)  Global Brand Divisions revenues include NIKE Brand licensing and other
miscellaneous revenues that are not part of a geographic operating segment.
(4)  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 Consolidated
Statements of Income. As discussed in Note 17 - Operating Segments and Related
Information in the accompanying Notes to the Consolidated Financial Statements,
certain corporate costs are not included in EBIT of our operating segments.
The breakdown of earnings before interest and taxes is as follows:
(Dollars in millions)                   FISCAL 2021          FISCAL 2020                  % CHANGE        FISCAL 2019                  % CHANGE
North America                          $     5,089$     2,899                      76  %       $     3,925                     -26  %
Europe, Middle East & Africa                 2,435                1,541                      58  %             1,995                     -23  %
Greater China                                3,243                2,490                      30  %             2,376                       5  %
Asia Pacific & Latin America                 1,530                1,184                      29  %             1,323                     -11  %
Global Brand Divisions                      (3,656)              (3,468)                     -5  %            (3,262)                     -6  %
TOTAL NIKE BRAND(1)                    $     8,641$     4,646                      86  %       $     6,357                     -27  %
Converse                                       543                  297                      83  %               303                      -2  %
Corporate                                   (2,261)              (1,967)                    -15  %            (1,810)                     -9  %
TOTAL NIKE, INC. EARNINGS BEFORE
INTEREST AND TAXES(1)                  $     6,923$     2,976                     133  %       $     4,850                     -39  %
EBIT margin(1)                                15.5  %               8.0  %                                      12.4  %
Interest expense (income), net                 262                   89                       -                   49                       -
TOTAL NIKE, INC. INCOME BEFORE INCOME
TAXES                                  $     6,661$     2,887                     131  %       $     4,801                     -40  %


(1)  Total NIKE Brand EBIT, Total NIKE, Inc. EBIT and EBIT Margin, represent
non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" for
further information.
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NORTH AMERICA
                                                                                                            % CHANGE                                           % CHANGE
                                                                                                           EXCLUDING                                          EXCLUDING
(Dollars in millions)                               FISCAL 2021     FISCAL 2020           % CHANGE  CURRENCY CHANGES   FISCAL 2019           % CHANGE  CURRENCY CHANGES
Revenues by:
Footwear                                          $     11,644$      9,329               25  %             25  % $     10,045               -7  %             -7  %
Apparel                                                  5,028           4,639                8  %              8  %        5,260              -12  %            -12  %
Equipment                                                  507             516               -2  %             -2  %          597              -14  %            -14  %
TOTAL REVENUES                                    $     17,179$     14,484               19  %             19  % $     15,902               -9  %             -9  %
Revenues by:
Sales to Wholesale Customers                      $     10,186$      9,371                9  %              9  % $     10,875              -14  %            -14  %
Sales through NIKE Direct                                6,993           5,113               37  %             37  %        5,027                2  %              2  %
TOTAL REVENUES                                    $     17,179$     14,484               19  %             19  % $     15,902               -9  %             -9  %
EARNINGS BEFORE INTEREST AND TAXES                $      5,089$      2,899               76  %                   $      3,925              -26  %


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 in North
America, we remain focused on building long-term momentum with our strategic
wholesale customers, which offer a differentiated retail experience.
Additionally, over the last three years we have significantly reduced the number
of undifferentiated wholesale accounts. During fiscal 2021, we took further
steps towards account and channel consolidation by reprioritizing product
allocation to benefit NIKE Direct and our differentiated strategic wholesale
customers. We expect that over the next two fiscal years, we will more
aggressively accelerate these changes as we work to reprofile the shape of the
marketplace and recapture wholesale revenue declines over time.
FISCAL 2021 COMPARED TO FISCAL 2020
On a currency-neutral basis, North America revenues increased 19%, driven by
growth in nearly all key categories, led by Sportswear and the Jordan Brand.
NIKE Direct revenues increased 37%, driven by strong digital sales growth of
73%, comparable store sales growth of 5% and the addition of new stores.
Footwear revenues increased 25% on a currency-neutral basis due to higher
revenues in several key categories, led by Sportswear and the Jordan Brand. Unit
sales of footwear increased 17%, while higher ASP per pair contributed
approximately 8 percentage points of footwear revenue growth. Higher ASP per
pair was primarily due to higher NIKE Direct and full-price ASPs, in part
reflecting lower-discounts, as well as the favorable impact of growth in our
NIKE Direct business.
On a currency-neutral basis, apparel revenues increased 8% for fiscal 2021
driven by growth in all key categories, led by Sportswear. Unit sales of apparel
increased 8%, while ASP per unit was flat, as the favorable impact of growth in
our NIKE Direct business was offset by lower full-price ASP.
Reported EBIT increased 76% driven by higher revenues, lower selling and
administrative expense as a percent of revenues and gross margin expansion.
Gross margin increased approximately 430 basis points, primarily due to lower
other costs, higher full-price ASP, reflecting lower discounts, the favorable
impact of growth in our NIKE Direct business and lower product costs. The
decrease in other costs was primarily due to annualizing the impacts of COVID-19
from fiscal 2020, including lower factory cancellation charges, lower inventory
obsolescence reserves and the favorable rate impact of fixed supply chain costs
on a higher volume of wholesale shipments. Selling and administrative expense
decreased due to lower operating overhead and demand creation expense. Operating
overhead expense decreased primarily as a result of lower bad debt and
wage-related expenses, partially offset by higher NIKE Direct variable costs.
The decrease in demand creation expense was primarily due to lower advertising
and marketing expense for brand events and our retail operations, as well as
lower sports marketing expense, partially offset by continued investments in
digital marketing to support heightened digital demand.

                                                               2021 FORM 

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EUROPE, MIDDLE EAST & AFRICA
                                                                                                            % CHANGE                                           % CHANGE
                                                                                                           EXCLUDING                                          EXCLUDING
(Dollars in millions)                               FISCAL 2021     FISCAL 2020           % CHANGE  CURRENCY CHANGES   FISCAL 2019           % CHANGE  CURRENCY CHANGES
Revenues by:
Footwear                                          $      6,970$      5,892               18  %             13  % $      6,293               -6  %             -3  %
Apparel                                                  3,996           3,053               31  %             25  %        3,087               -1  %              2  %
Equipment                                                  490             402               22  %             19  %          432               -7  %             -3  %
TOTAL REVENUES                                    $     11,456$      9,347               23  %             17  % $      9,812               -5  %             -1  %
Revenues by:
Sales to Wholesale Customers                      $      7,812$      6,574               19  %             14  % $      7,076               -7  %             -4  %
Sales through NIKE Direct                                3,644           2,773               31  %             25  %        2,736                1  %              5  %
TOTAL REVENUES                                    $     11,456$      9,347               23  %             17  % $      9,812               -5  %             -1  %
EARNINGS BEFORE INTEREST AND TAXES                $      2,435$      1,541               58  %                   $      1,995              -23  %


FISCAL 2021 COMPARED TO FISCAL 2020
On a currency-neutral basis, EMEA revenues for fiscal 2021 grew 17%, driven by
higher revenues across nearly all territories, led by UK & Ireland and Central
Europe, which grew 34% and 20%, respectively. Revenues increased in all key
categories, led by Sportswear and the Jordan Brand. NIKE Direct revenues
increased 25%, driven by strong digital sales growth of 67%, partially offset by
a 10% decline in comparable store sales, primarily due to reduced physical
retail traffic, in part resulting from temporary store closures and
safety-related measures in response to COVID-19.
Currency-neutral footwear revenues increased 13%, driven by higher revenues in
nearly all key categories, led by Sportswear and the Jordan Brand. Unit sales of
footwear increased 9% and higher ASP per pair contributed approximately 4
percentage points, resulting from higher full-price ASP and the favorable impact
of growth in our NIKE Direct business.
Currency-neutral apparel revenues increased 25% due to growth in all key
categories, led by Sportswear and Football (Soccer). Unit sales of apparel
increased 26%, while lower ASP per unit reduced apparel revenues by
approximately 1 percentage point. Lower ASP per unit was primarily due to a
lower mix of NIKE Direct sales, partially offset by higher full-price ASP, in
part reflecting lower discounts.
Reported EBIT increased 58% as higher revenues and lower selling and
administrative expense more than offset a decline in gross margin. Gross margin
decreased approximately 110 basis points primarily due to lower NIKE Direct
margins and unfavorable changes in standard foreign currency exchange rates,
which more than offset lower product costs and lower other costs. The decrease
in other costs was primarily due to annualizing the impacts of COVID-19,
including lower inventory obsolescence reserves, as well as the favorable rate
impact of fixed supply chain costs on a higher volume of wholesale shipments.
Selling and administrative expense decreased due to lower demand creation and
operating overhead expense. The decrease in demand creation expense was
primarily driven by lower retail brand presentation costs and lower sports
marketing expense. Lower operating overhead expense was primarily due to lower
bad debt and travel and related expenses, partially offset by higher NIKE Direct
variable costs.
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GREATER CHINA
                                                                                                            % CHANGE                                           % CHANGE
                                                                                                           EXCLUDING                                          EXCLUDING
(Dollars in millions)                               FISCAL 2021     FISCAL 2020           % CHANGE  CURRENCY CHANGES   FISCAL 2019           % CHANGE  CURRENCY CHANGES
Revenues by:
Footwear                                          $      5,748$      4,635               24  %             19  % $      4,262                9  %             12  %
Apparel                                                  2,347           1,896               24  %             19  %        1,808                5  %              8  %
Equipment                                                  195             148               32  %             26  %          138                7  %             11  %
TOTAL REVENUES                                    $      8,290$      6,679               24  %             19  % $      6,208                8  %             11  %
Revenues by:
Sales to Wholesale Customers                      $      4,513$      3,803               19  %             14  % $      3,726                2  %              6  %
Sales through NIKE Direct                                3,777           2,876               31  %             26  %        2,482               16  %             20  %
TOTAL REVENUES                                    $      8,290$      6,679               24  %             19  % $      6,208                8  %             11  %
EARNINGS BEFORE INTEREST AND TAXES                $      3,243$      2,490               30  %                   $      2,376                5  %


FISCAL 2021 COMPARED TO FISCAL 2020
On a currency-neutral basis, Greater China revenues for fiscal 2021 increased
19%, driven by higher revenues in all key categories, led by Sportswear, the
Jordan Brand and NIKE Basketball. NIKE Direct revenues increased 26%, driven by
digital sales growth of 26%, comparable store sales growth of 22% and the
addition of new stores.
Currency-neutral footwear revenues increased 19%, driven by growth in all key
categories, led by Sportswear, the Jordan Brand and NIKE Basketball. Unit sales
of footwear increased 20%, while lower ASP per pair reduced footwear revenues by
approximately 1 percentage point, driven by an unfavorable full-price mix,
partially offset by higher full-price ASP, due to lower discounts.
Currency-neutral apparel revenue growth of 19% was fueled by higher revenues in
nearly all key categories, most notably Sportswear. Unit sales of apparel
increased 18%, while higher ASP per unit contributed approximately 1 percentage
point of apparel revenue growth. Higher ASP was driven by higher off-price ASP,
partially offset by lower NIKE Direct ASP due to higher levels of promotion to
liquidate excess inventory through our factory stores.
Reported EBIT increased 30% as higher revenues and lower selling and
administrative expense more than offset a decline in gross margin. Gross margin
decreased approximately 200 basis points primarily due to unfavorable changes in
standard foreign currency exchange rates and higher product costs. Selling and
administrative expense decreased due to lower demand creation expense, partially
offset by higher operating overhead expense. Demand creation expense decreased
primarily due to lower advertising and marketing, as well as digital marketing
expenses. Growth in operating overhead expense was driven by higher investments
within our NIKE Direct operations.

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ASIA PACIFIC & LATIN AMERICA
                                                                                                            % CHANGE                                           % CHANGE
                                                                                                           EXCLUDING                                          EXCLUDING
(Dollars in millions)                               FISCAL 2021     FISCAL 2020           % CHANGE  CURRENCY CHANGES   FISCAL 2019           % CHANGE  CURRENCY CHANGES
Revenues by:
Footwear                                          $      3,659$      3,449                6  %              8  % $      3,622               -5  %              0  %
Apparel                                                  1,494           1,365                9  %             10  %        1,395               -2  %              3  %
Equipment                                                  190             214              -11  %             -9  %          237              -10  %             -4  %
TOTAL REVENUES                                    $      5,343$      5,028                6  %              8  % $      5,254               -4  %              1  %
Revenues by:
Sales to Wholesale Customers                      $      3,387$      3,408               -1  %              2  % $      3,746               -9  %             -4  %
Sales through NIKE Direct                                1,956           1,620               21  %             22  %        1,508                7  %             12  %
TOTAL REVENUES                                    $      5,343$      5,028                6  %              8  % $      5,254               -4  %              1  %
EARNINGS BEFORE INTEREST AND TAXES                $      1,530$      1,184               29  %                   $      1,323              -11  %


As discussed previously, our NIKE Brand business in Brazil transitioned to a
distributor operating model during the third quarter of fiscal 2021 and our NIKE
Brand businesses in Argentina, Chile and Uruguay have remained classified as
held-for-sale. The impacts of closing the Brazil transaction as well as entering
into agreements to transition these entities in the prior year are included
within Corporate and are not reflected in the APLA operating segment results.
For more information see Note 20 - Acquisitions and Divestitures within the
accompanying Notes to the Consolidated Financial Statements.
FISCAL 2021 COMPARED TO FISCAL 2020
On a currency-neutral basis, APLA revenues increased 8% for fiscal 2021. The
increase was due to higher revenues across most territories, led by a 15%
increase in Japan, a 37% increase in Pacific, which includes Australia and New
Zealand, and a 12% increase in Korea, partially offset by a decline in Latin
Distributors of 48%. Additionally, the transition of our NIKE Brand business in
Brazil to a third-party distributor operating model reduced APLA revenue growth
by approximately 2 percentage points. Revenues increased in most key categories,
led by Sportswear and the Jordan Brand. NIKE Direct revenues increased 22%,
primarily fueled by strong digital sales growth of 73%, partially offset by
comparable store sales declines of 4%, largely due to reduced physical retail
traffic, in part resulting from safety-related measures in response to COVID-19.
Currency-neutral footwear revenues increased 8% for fiscal 2021 due to higher
revenues in several key categories, primarily the Jordan Brand and Sportswear.
Unit sales of footwear decreased 5%, while higher ASP per pair contributed
approximately 13 percentage points of footwear revenue growth, driven by higher
full-price and NIKE Direct ASPs, in part reflecting inflationary conditions in
our SOCO territory, which includes Argentina, Chile and Uruguay, as well as the
favorable impact of growth in our NIKE Direct business.
Currency-neutral apparel revenues increased 10% for fiscal 2021 due to higher
revenues in most key categories, led by Sportswear. Unit sales of apparel
increased 5%, while higher ASP per unit contributed approximately 5 percentage
points of apparel revenue growth. Higher ASP per unit was primarily driven by
higher full-price ASP, in part reflecting inflationary conditions in our SOCO
territory.
Reported EBIT increased 29% for fiscal 2021 driven by higher revenues, lower
selling and administrative expense and gross margin expansion. Gross margin
increased approximately 130 basis points as higher full-price ASP, net of
discounts, in part reflecting inflationary conditions in our SOCO territory, and
lower other costs, were partially offset by higher product costs, unfavorable
standard foreign currency exchange rates and lower margin in our NIKE Direct
business. The decrease in other costs was primarily due to annualizing the
impacts of COVID-19, including lower factory cancellation charges and lower
inventory obsolescence reserves. Selling and administrative expense decreased
due to lower demand creation and operating overhead expense. The decrease in
demand creation expense was primarily due to lower advertising and marketing
expense, as well as a decline in sports marketing costs. Lower operating
overhead expense was primarily due to lower bad debt and travel and related
costs, partially offset by higher NIKE Direct variable costs.
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GLOBAL BRAND DIVISIONS
                                                                                            % CHANGE                                           % CHANGE
                                                                                           EXCLUDING                                          EXCLUDING
(Dollars in millions)               FISCAL 2021     FISCAL 2020           % CHANGE  CURRENCY CHANGES   FISCAL 2019           % CHANGE  CURRENCY CHANGES
Revenues                          $         25    $         30              -17  %            -17  % $         42              -29  %            -26  %
Earnings (Loss) Before Interest
and Taxes                         $     (3,656)$     (3,468)              -5  %                   $     (3,262)              -6  %


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 operations and enterprise technology. Global Brand
Divisions revenues include NIKE Brand licensing and other miscellaneous revenues
that are not part of a geographic operating segment.
FISCAL 2021 COMPARED TO FISCAL 2020
Global Brand Divisions' loss before interest and taxes increased 5% for fiscal
2021 due to higher total selling and administrative expense, driven by higher
operating overhead expense, partially offset by lower demand creation expense.
The increase in operating overhead expense was primarily due to continued
investments in digital capabilities, partially offset by lower travel and
related expenses. Lower demand creation expense was primarily due to lower
sports marketing costs.
CONVERSE
                                                                                                            % CHANGE                                           % CHANGE
                                                                                                           EXCLUDING                                          EXCLUDING
(Dollars in millions)                               FISCAL 2021     FISCAL 2020           % CHANGE  CURRENCY CHANGES   FISCAL 2019           % CHANGE  CURRENCY CHANGES
Revenues by:
Footwear                                          $      1,986$      1,642               21  %             17  % $      1,658               -1  %              1  %
Apparel                                                    104              89               17  %             13  %          118              -25  %            -22  %
Equipment                                                   29              25               16  %             14  %           24                4  %              8  %
Other(1)                                                    86              90               -4  %             -1  %          106              -15  %            -14  %
TOTAL REVENUES                                    $      2,205$      1,846               19  %             16  % $      1,906               -3  %             -1  %
Revenues by:
Sales to Wholesale Customers                      $      1,353$      1,154               17  %             13  % $      1,247               -7  %             -5  %
Sales through Direct to Consumer                           766             602               27  %             24  %          553                9  %             11  %
Other(1)                                                    86              90               -4  %             -1  %          106              -15  %            -14  %
TOTAL REVENUES                                    $      2,205$      1,846               19  %             16  % $      1,906               -3  %             -1  %
EARNINGS BEFORE INTEREST AND TAXES                $        543$        297               83  %                   $        303               -2  %


(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.
FISCAL 2021 COMPARED TO FISCAL 2020
On a currency-neutral basis, Converse revenues increased 16% for fiscal 2021.
The increase in revenues was driven by revenue growth across Western Europe,
North America and Asia. Wholesale revenues increased 13%, driven primarily by
growth in Western Europe and Asia, in part due to the impacts of COVID-19 in the
prior year. Direct to consumer revenues increased 24%, driven by strong digital
sales growth across North America and Western Europe. Combined unit sales within
the wholesale and direct to consumer channels increased 9%, while ASP increased
8%, primarily due to growth in full-price sales, including through our digital
channel.
Reported EBIT increased 83%, driven by higher revenues and lower selling and
administrative expense. Gross margin was flat, as higher full-price ASP, net of
discounts, and the favorable rate impact of fixed supply chain costs on a higher
volume of wholesale shipments was offset by higher product costs and unfavorable
changes in standard foreign currency exchange rates. Selling and administrative
expense decreased due to lower operating overhead and demand creation expense.
Operating overhead expense decreased primarily due to lower bad debt, travel and
related costs and other administrative costs. Demand creation expense decreased
as a result of lower advertising and marketing, as well as digital marketing
expenses.

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CORPORATE

(Dollars in millions)                         FISCAL 2021     FISCAL 2020            % CHANGE   FISCAL 2019            % CHANGE
Revenues                                    $         40    $        (11)                -    $         (7)                -

Earnings (Loss) Before Interest and Taxes $ (2,261)$ (1,967)

            -15  % $     (1,810)               -9  %


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
remeasurement of monetary assets and liabilities in non-functional currencies;
and certain other foreign currency derivative instruments.
FISCAL 2021 COMPARED TO FISCAL 2020
Corporate's loss before interest and taxes increased $294 million during fiscal
2021, primarily due to the following:
•an unfavorable change in net foreign currency gains and losses of $241 million
related to the remeasurement 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;
•a favorable change of $132 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 of $185 million in part due to restructuring-related
costs of $294 million associated with changes to our organizational model
announced in July 2020, partially offset by the $405 million charge in the prior
year related to our planned distributor transition within APLA.
For more information related to our distributor partnership transition within
APLA, as well as more information related to our organizational realignment and
related costs, refer to Note 20 - Acquisitions and Divestitures and Note 21 -
Restructuring, respectively, within the accompanying Notes to the Consolidated
Financial Statements.
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. We manage these exposures by taking advantage of natural
offsets and currency correlations existing within the portfolio and, where
practical and material, by hedging a portion of the remaining exposures using
derivative instruments such as forward contracts and options. As described
below, the implementation of the NIKE Trading Company (NTC) and our foreign
currency adjustment program enhanced our ability to manage our foreign exchange
risk by increasing the natural offsets and currency correlation benefits
existing within our portfolio of foreign exchange exposures. 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
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.
Refer to Note 6 - Fair Value Measurements and Note 14 - Risk Management and
Derivatives in the accompanying Notes to the Consolidated Financial Statements
for additional description of outstanding derivatives at each reported period
end.
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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 - NIKE's product costs are exposed to fluctuations in foreign
currencies in the following ways:
1.Product purchases denominated in currencies other than the functional currency
of the transacting entity:
a.Certain NIKE entities purchase product from the 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 products to NIKE entities in their respective functional currencies. NTC
sales to a NIKE entity with a different functional currency results in a foreign
currency exposure for the NTC.
b.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.
In both purchasing scenarios, a weaker U.S. Dollar reduces inventory costs
incurred by NIKE whereas a stronger U.S. Dollar increases its cost.
2.Factory input costs: NIKE 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 our existing foreign currency exposures.
Under this program, our 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 currency within the factory currency exposure indices that is the local
or functional currency of the factory, the currency rate fluctuation affecting
the product cost is recorded within Inventories and is recognized in Cost of
sales when the related product is sold to a third-party. All currencies within
the indices, excluding the U.S. Dollar and the local or functional currency of
the factory, are recognized as embedded derivative contracts and are recorded at
fair value through Other (income) expense, net. Refer to Note 14 - Risk
Management and Derivatives in the accompanying Notes to the Consolidated
Financial Statements for additional detail.
As an offset to the impacts of the fluctuating U.S. Dollar on our non-functional
currency denominated product purchases described above, a strengthening
U.S. Dollar against the foreign currencies within the factory currency exposure
indices reduces NIKE's U.S. Dollar inventory cost. Conversely, a weakening
U.S. Dollar against the indexed foreign currencies increases our inventory cost.
•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. In
certain cases, the Company has entered into contractual agreements which have
payments indexed to foreign currencies that create embedded derivative contracts
recorded at fair value through Other (income) expense, net. Refer to Note 14 -
Risk Management and Derivatives in the accompanying Notes to the Consolidated
Financial Statements for additional detail.
•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 remeasurement 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. Generally, these are
accounted for as cash flow hedges, except for hedges of the embedded derivative
components of the product cost exposures and other contractual agreements.

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Certain currency forward contracts used to manage the foreign exchange exposure
of non-functional currency denominated monetary assets and liabilities subject
to remeasurement, and embedded derivative contracts are not formally designated
as hedging instruments. Accordingly, changes in fair value of these instruments
are recognized in Other (income) expense, net and are intended to offset the
foreign currency impact of the remeasurement of the related non-functional
currency denominated asset or liability or the embedded derivative contract
being hedged.
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. In the translation of our Consolidated
Statements of Income, a weaker U.S. Dollar in relation to foreign functional
currencies benefits our consolidated earnings whereas a stronger U.S. Dollar
reduces our consolidated earnings. The impact of foreign exchange rate
fluctuations on the translation of our consolidated Revenues was a benefit of
approximately $893 million, a detriment of approximately $867 million and a
detriment of approximately $1,236 million for the years ended May 31, 2021, 2020
and 2019, respectively. The impact of foreign exchange rate fluctuations on the
translation of our Income before income taxes was a benefit of approximately
$260 million, a detriment of approximately $212 million and a detriment of
approximately $233 million for the years ended May 31, 2021, 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
period ended May 31, 2021, 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 a favorable impact of approximately $19 million and unfavorable impacts
of $91 million and $97 million on our Income before income taxes for the years
ended May 31, 2021, 2020 and 2019, respectively.
NET INVESTMENTS IN FOREIGN SUBSIDIARIES
We are also exposed to the impact of foreign exchange fluctuations on our
investments in wholly-owned foreign subsidiaries denominated in a currency other
than the U.S. Dollar, which could adversely impact the U.S. Dollar value of
these investments and therefore the value of future repatriated earnings. We
have, in the past, hedged and may, in the future, hedge net investment positions
in certain foreign subsidiaries to mitigate the effects of foreign exchange
fluctuations on these net investments. These hedges are accounted for as net
investment hedges in accordance with U.S. GAAP. There were no outstanding net
investment hedges as of May 31, 2021 and 2020. There were no cash flows from net
investment hedge settlements for the years ended May 31, 2021, 2020 and 2019.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of $6,657 million for fiscal
2021 compared to $2,485 million for fiscal 2020. Net income, adjusted for
non-cash items, generated $6,612 million of operating cash inflow for fiscal
2021 compared to $3,730 million for fiscal 2020. The increase primarily reflects
the recovery of our business operations from the impact of COVID-19. The net
change in working capital and other assets and liabilities resulted in an
increase to Cash provided (used) by operations of $45 million for fiscal 2021,
compared to a decrease of $1,245 million for fiscal 2020. The net change in
working capital was impacted by a $2,361 million decrease in Inventories, driven
by strong consumer demand as we return to healthy inventory levels across
markets closed in the prior year due to COVID-19. An increase in Accounts
Payable and Accrued Liabilities also contributed to the net change in working
capital, primarily due to reduced spending in fiscal 2020 as a result of
COVID-19. In addition, the net change in working capital was impacted by a
$2,845 million increase in Accounts receivable, net, primarily driven by higher
revenues in the fourth quarter of fiscal 2021.
Cash provided (used) by investing activities was an outflow of $3,800 million
for fiscal 2021, compared to an outflow of $1,028 million for fiscal 2020,
primarily driven by higher purchases of short-term investments. During fiscal
2021, the net change in investments (including sales, maturities and purchases)
resulted in a cash outflow of $3,276 million compared to a cash inflow of $27
million in fiscal 2020. Additionally, during fiscal 2021, we continued investing
in our infrastructure to support future growth, specifically focused around
digital capabilities, our end-to-end technology foundation, our corporate
facilities and improvements across our supply chain. In future periods, we
expect to make annual capital expenditures of approximately 3% of annual
revenues.
Cash provided (used) by financing activities was an outflow of $1,459 million
for fiscal 2021 compared to an inflow of $2,491 million for fiscal 2020. This
change was primarily due to the net proceeds from a $5,942 million corporate
bond issuance in the fourth quarter of fiscal 2020, partially offset by lower
share repurchases during fiscal 2021.
During the fourth quarter of fiscal 2020, to enhance our liquidity position in
response to COVID-19, we elected to temporarily suspend share repurchases under
our existing share repurchase program. The existing program remained authorized
by the Board of Directors and during the fourth quarter of fiscal 2021, we began
repurchasing shares under the program. In fiscal 2021, we purchased 4.9 million
shares of NIKE's Class B Common Stock for $650 million (an average price of
$133.54 per share) under the four-year, $15 billion share repurchase program
approved by the Board of Directors in June 2018. As of May 31, 2021, we had
repurchased 50.0 million shares at a cost of $4,669 million (an average price of
$93.33 per share) under this program. We continue to expect funding of share
repurchases will come from operating cash flows and excess cash. The timing and
the amount of share repurchases will be dictated by our capital needs and stock
market conditions.
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.
On August 16, 2019, we entered into a committed credit facility agreement with a
syndicate of banks which provides for up to $2 billion of borrowings, with the
option to increase borrowings up to $3 billion in total upon lender approval.
The facility matures on August 16, 2024, with a one-year extension option prior
to any anniversary of the closing date, provided that in no event shall the
facility extend beyond August 16, 2026. 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, we entered into a committed
credit facility agreement with a syndicate of banks which provides for 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. As of May 31,
2021 and 2020, no amounts were outstanding under our committed credit
facilities. Refer to Note 7 - Short-Term Borrowings and Credit Lines for
additional information.
We currently have long-term debt ratings of AA- and A1 from Standard and Poor's
Corporation and Moody's Investor Services, respectively. As it relates to our
committed credit facilities entered into on August 16, 2019 and March 15, 2021,
if our long-term debt ratings were to decline, the facility fees and interest
rates would increase. Conversely, if our long-term debt ratings were to improve,
the facility fees and interest rates would decrease. Changes in our long-term
debt ratings would not trigger acceleration of maturity of any then-outstanding
borrowings or any future borrowings under the committed credit facilities. Under
these facilities, we have agreed to various covenants. These covenants include
limits on our disposal of assets and the amount of debt secured by liens we may
incur. In the event we were to have any borrowings outstanding under these
facilities, failed to meet any covenant and were unable to obtain a waiver from
a majority of the banks in the syndicate, any borrowings would become

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immediately due and payable. As of May 31, 2021, we were in full compliance with
each of these covenants and believe it is unlikely we will fail to meet any of
these covenants in the foreseeable future.
Liquidity was also provided by our $3 billion commercial paper program, which we
decreased from $4 billion in connection with the new credit facility agreement,
entered into on March 15, 2021, as described above. During the fiscal year ended
May 31, 2021, the maximum amount of commercial paper borrowings outstanding at
any point was $248 million. No commercial paper was outstanding as of May 31,
2021. As of May 31, 2020, we had $248 million of commercial paper outstanding at
a weighted average interest rate of 1.65%.
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, 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 May 31, 2021, we had cash, cash equivalents and short-term investments
totaling $13.5 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 May 31, 2021, the weighted-average days to maturity of our cash equivalents
and short-term investments portfolio was 54 days.
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
In connection with various contracts and agreements, we routinely provide
indemnification relating to the enforceability of intellectual property rights,
coverage for legal issues that arise and other items where we are acting as the
guarantor. Currently, we have several such agreements in place. Based on our
historical experience and the estimated probability of future loss, we have
determined that the fair value of such indemnification is not material to our
financial position or results of operations.
CONTRACTUAL OBLIGATIONS
Our significant long-term contractual obligations as of May 31, 2021, and
significant endorsement contracts, including related marketing commitments,
entered into through the date of this report are as follows:
DESCRIPTION OF COMMITMENT                                   CASH PAYMENTS DUE DURING THE YEAR ENDING MAY 31,
(Dollars in millions)                         2022        2023       2024       2025       2026      THEREAFTER      TOTAL
Operating Leases                           $    534$   530$   490$   437$   357$     1,397$  3,745
Long-Term Debt(1)                               286        786        275      1,275        251         11,290      14,163
Endorsement Contracts(2)                      1,502      1,244      1,091        966        726          2,863       8,392
Product Purchase Obligations(3)               6,448          -          -          -          -              -       6,448
Other Purchase Obligations(4)                 1,347        541        331        191         96            230       2,736
Transition Tax Related to the Tax Cuts and
Jobs Act(5)                                      86         86        161        215        268              -         816
TOTAL                                      $ 10,203$ 3,187$ 2,348$ 3,084$ 1,698$    15,780$ 36,300


(1)The cash payments due for long-term debt include estimated interest payments.
Estimates of interest payments are based on outstanding principal amounts,
applicable fixed interest rates or currently effective interest rates as of
May 31, 2021 (if variable), timing of scheduled payments and the term of the
debt obligations.
(2)The amounts listed for endorsement contracts represent approximate amounts of
base compensation and minimum guaranteed royalty fees we are obligated to pay
athlete, public figure, sport team and league endorsers of our products. Actual
payments under some contracts may be higher than the amounts listed as these
contracts provide for bonuses to be paid to the endorsers based upon athletic
achievements and/or royalties on product sales in future periods. Actual
payments under some contracts may also be lower as these contracts include
provisions for reduced payments if athletic performance declines in future
periods.
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In addition to the cash payments, we are obligated to furnish our endorsers with
NIKE product for their use. It is not possible to determine how much we will
spend on this product on an annual basis as the contracts generally do not
stipulate a specific amount of cash to be spent on the product. The amount of
product provided to the endorsers will depend on many factors, including general
playing conditions, the number of sporting events in which they participate and
our own decisions regarding product and marketing initiatives. In addition, the
costs to design, develop, source and purchase the products furnished to the
endorsers are incurred over a period of time and are not necessarily tracked
separately from similar costs incurred for products sold to customers.
(3)We generally order product at least four to five months in advance of sale
based primarily on advanced orders received from external wholesale customers
and internal orders from our direct to consumer operations. The amounts listed
for product purchase obligations represent agreements (including open purchase
orders) to purchase products in the ordinary course of business that are
enforceable and legally binding and specify all significant terms. In some
cases, prices are subject to change throughout the production process.
(4)Other purchase obligations primarily include construction, service and
marketing commitments, including marketing commitments associated with
endorsement contracts, made in the ordinary course of business. The amounts
represent the minimum payments required by legally binding contracts and
agreements that specify all significant terms, and may include open purchase
orders for non-product purchases.
(5)Represents the future cash payments due as part of the transition tax on
deemed repatriation of undistributed earnings of foreign subsidiaries, which is
reflected net of foreign tax credits we utilized. Refer to Part II, Item 8.
Financial Statements and Supplementary Data, Note 9 - Income Taxes, in our
fiscal 2020 Form 10-K, which was filed with the United States Securities and
Exchange Commission on July 24, 2020 for additional information.
In addition to the above, we have long-term obligations for uncertain tax
positions and various post-retirement benefits for which we are not able to
reasonably estimate when cash payments will occur. Refer to Note 9 - Income
Taxes and Note 13 - Benefit Plans in the accompanying Notes to the Consolidated
Financial Statements for further information related to uncertain tax positions
and post-retirement benefits, respectively.
We also have the following outstanding short-term debt obligations as of May 31,
2021. Refer to Note 7 - Short-Term Borrowings and Credit Lines in the
accompanying Notes to the Consolidated Financial Statements for further
description and interest rates related to the short-term debt obligations listed
below.
(Dollars in millions)                                                       

MAY 31, 2021 Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand

                                                      $             2


As of May 31, 2021, we had bank guarantees and letters of credit outstanding
totaling $275 million, issued primarily for real estate agreements,
self-insurance programs and other general business obligations.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 - Summary of Significant Accounting Policies in the accompanying
Notes to the Consolidated Financial Statements for recently adopted accounting
standards.
CRITICAL ACCOUNTING POLICIES
Our previous discussion and analysis of our financial condition and results of
operations are based upon our 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. Note 1 - Summary of Significant Accounting Policies in the
accompanying Notes to the Consolidated Financial Statements describes the
significant accounting policies and methods used in the preparation of our
Consolidated Financial Statements.
We believe the estimates, assumptions and judgments involved in the accounting
policies described below have the greatest potential impact on our Consolidated
Financial Statements, so we consider these to be our critical accounting
policies and estimates. Management has reviewed and discussed these critical
accounting policies with the Audit & Finance Committee of the Board of
Directors.
These policies require that we make estimates in the preparation of our
Consolidated Financial Statements as of a given date. Because of the uncertainty
inherent in these matters, actual results could differ from the estimates we use
in applying the critical accounting policies. Within the context of these
critical accounting policies, we are not currently aware of any reasonably
likely events or circumstances that would result in materially different amounts
being reported.
REVENUE RECOGNITION
Beginning in fiscal 2019, we adopted Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with Customers (Topic 606). Our 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. We satisfy the performance
obligation and record 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

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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.
As part of our revenue recognition policy, consideration promised in our
contracts with customers is variable due to anticipated reductions, such as
sales returns, discounts and miscellaneous claims from customers. We estimate
the most likely amount we will be entitled to receive and record 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.
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 may differ from estimates recorded. If actual or expected future
returns, discounts or claims were significantly different than reserves
established, a reduction or increase to net revenues would be recorded in the
period in which such determination was made.
Refer also to Note 1 - Summary of Significant Accounting Policies and Note 16 -
Revenues for additional information in the accompanying Notes to the
Consolidated Financial Statements.
INVENTORY RESERVES
We make ongoing estimates relating to the net realizable value of inventories
based upon our assumptions about future demand and market conditions. If we
estimate the net realizable value of our inventory is less than the cost of the
inventory recorded on our books, we record a reserve equal to the difference
between the cost of the inventory and the estimated net realizable value. This
reserve is recorded as a charge to Cost of sales. If changes in market
conditions result in reductions to the estimated net realizable value of our
inventory below our previous estimate, we would increase our reserve in the
period in which we made such a determination.
CONTINGENT PAYMENTS UNDER ENDORSEMENT CONTRACTS
A significant amount of our Demand creation expense relates to payments under
endorsement contracts. In general, endorsement payments are expensed on a
straight-line basis over the term of the contract. However, certain contract
elements may be accounted for differently based upon the facts and circumstances
of each individual contract.
Certain contracts provide for contingent payments to endorsers based upon
specific achievements in their sports (e.g., winning a championship). We record
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 we determine
payments are probable, the amounts are reported in Demand creation expense
ratably over the contract period based on our best estimate of the endorser's
performance. In these instances, to the extent actual payments to the endorser
differ from our 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 we record in Cost
of sales as the related sales occur. For contracts containing minimum guaranteed
royalty payments, we record the amount of any guaranteed payment in excess of
that earned through sales of product within Demand creation expense.
PROPERTY, PLANT AND EQUIPMENT AND DEFINITE-LIVED ASSETS
We review 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, we would assess the recoverability
of an asset
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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 the
carrying value of the asset group is not recoverable, we will estimate the fair
value of the asset group using appropriate valuation methodologies that 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.
HEDGE ACCOUNTING FOR DERIVATIVES
We use derivative contracts to hedge certain anticipated foreign currency and
interest rate transactions as well as certain non-functional currency monetary
assets and liabilities. When the specific criteria to qualify for hedge
accounting has been met, changes in the fair value of contracts hedging probable
forecasted future cash flows are recorded in Accumulated other comprehensive
income (loss), rather than Net income, until the underlying hedged transaction
affects Net income. In most cases, this results in gains and losses on hedge
derivatives being released from Accumulated other comprehensive income (loss)
into Net income sometime after the maturity of the derivative. One of the
criteria for this accounting treatment is that the notional value of these
derivative contracts should not be in excess of the designated amount of
anticipated transactions. By their very nature, our estimates of anticipated
transactions may fluctuate over time and may ultimately vary from actual
transactions. When the designated amount of anticipated or actual transactions
decline below hedged levels, or if it is no longer probable a forecasted
transaction will occur by the end of the originally specified time period or
within an additional two-month period of time thereafter, we are required to
reclassify the cumulative change in fair value of the over-hedged portion of the
related hedge contract from Accumulated other comprehensive income (loss) to
Other (income) expense, net during the quarter in which the decrease occurs. 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 our control or influence.
INCOME TAXES
We are subject to taxation in the United States, as well as various state and
foreign jurisdictions. The determination of our provision for income taxes
requires significant judgment, the use of estimates and the interpretation and
application of complex tax laws. On an interim basis, we estimate our effective
tax rate for the full fiscal year. This estimated annual effective tax rate is
then applied to the year-to-date Income before income taxes excluding
infrequently occurring or unusual items, to determine the year-to-date Income
tax expense. The income tax effects of infrequent or unusual items are
recognized in the interim period in which they occur. As the fiscal year
progresses, we continually refine our estimate based upon actual events and
earnings by jurisdiction during the year. This continual estimation process
periodically results in a change to our expected effective tax rate for the
fiscal year. When this occurs, we adjust the income tax provision during the
quarter in which the change in estimate occurs.
We record valuation allowances against our deferred tax assets, when necessary.
Realization of deferred tax assets (such as net operating loss carry-forwards)
is dependent on future taxable earnings and is therefore uncertain. At least
quarterly, we assess the likelihood that our deferred tax asset balance will be
recovered from future taxable income. To the extent we believe that recovery is
not likely, we establish a valuation allowance against our net deferred tax
asset, which increases our Income tax expense in the period when such
determination is made.
We have not recorded withholding tax expense for foreign earnings we have
determined to be indefinitely reinvested within certain of our foreign
jurisdictions. The amount of earnings indefinitely reinvested offshore is due to
the actual deployment of such earnings in our offshore operations and our
expectations of the future cash needs of our U.S. and foreign entities.
Withholding tax consequences are also a factor in determining the amount of
foreign earnings to be indefinitely reinvested offshore.
We carefully review all factors that drive the ultimate disposition of foreign
earnings determined to be reinvested offshore and apply stringent standards to
overcome the presumption of repatriation. Despite this approach, because the
determination is based on expected working capital and other capital needs in
jurisdictions where the earnings are generated, the possibility exists that
foreign earnings declared as indefinitely reinvested may be repatriated. For
instance, the actual cash needs of our U.S. operations may exceed our current
expectations, or the actual cash needs of our foreign entities may be less than
our current expectations. This would result in additional withholding tax
expense in the year we determined amounts were no longer indefinitely reinvested
offshore.
On a quarterly basis, we evaluate the probability a tax position will be
effectively sustained and the appropriateness of the amount recognized for
uncertain tax positions based on factors including changes in facts or
circumstances, changes in tax law, settled audit issues and new audit activity.
Changes in our assessment may result in the recognition of a tax benefit or an
additional charge to the tax provision in the period our assessment changes. We
recognize interest and penalties related to income tax matters in Income tax
expense.
Refer to Note 9 - Income Taxes in the accompanying Notes to the Consolidated
Financial Statements for additional information.

                                                               2021 FORM 

10-K 49

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OTHER CONTINGENCIES
In the ordinary course of business, we are involved in legal proceedings
regarding contractual and employment relationships, product liability claims,
trademark rights and a variety of other matters. We record contingent
liabilities resulting from claims against us when a loss is assessed to be
probable and the amount of the loss is reasonably estimable. Assessing
probability of loss and estimating probable losses requires analysis of multiple
factors, including in some cases judgments about the potential actions of
third-party claimants and courts. Recorded contingent liabilities are based on
the best information available and actual losses in any future period are
inherently uncertain. If future adjustments to estimated probable future losses
or actual losses exceed our recorded liability for such claims, we would record
additional charges during the period in which the actual loss or change in
estimate occurred. In addition to contingent liabilities recorded for probable
losses, we disclose contingent liabilities when there is a reasonable
possibility the ultimate loss will materially exceed the recorded liability.
While we cannot predict the outcome of pending legal matters with certainty, we
do not believe any currently identified claim, proceeding or litigation, either
individually or in aggregate, will have a material impact on our results of
operations, financial position or cash flows.
2021 FORM 10-K 50

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