In most cases, this results in gains and losses on hedge derivatives being released from Other comprehensive income into Net income sometime after the maturity of the derivative. (In millions, except per share data and financial ratios), Weighted average common shares outstanding, Diluted weighted average common shares outstanding. (Exact name of Registrant as specified in its charter), (State or other jurisdiction of incorporation), (Registrant's telephone number, including area code). In territories we define as "direct distribution markets," Converse designs, markets and sells products directly to distributors and wholesale customers, and to consumers through direct to consumer operations. Any amounts of non-cash collateral received, such as securities, are not recorded on the Consolidated Balance Sheets pursuant to U.S. GAAP. Operating overhead also increased primarily due to continued investments in our growing NIKE Direct business and, to a lesser extent, higher administrative costs. Monique S. Matheson, Executive Vice President, Global Human Resources - Ms. Matheson, 51, joined NIKE in 1998, with primary responsibilities in the human resources function. John F. Slusher, Executive Vice President, Global Sports Marketing - Mr. Slusher, 49, joined NIKE in 1998, with primary responsibilities in global sports marketing. It would have been a sweep but for the full moon, which prompted a crazed spectator to jump from the crowd and mug race leader Vanderlei Lima. Comparable direct distribution market unit sales decreased 14%, while higher ASP per unit contributed approximately 2 percentage points of direct distribution markets revenue growth. In some cases, these cookies involve the processing of your personal data. NIKE Logistics YK assumed a total of Â¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. For fiscal 2017, our consolidated gross margin was 160 basis points lower than fiscal 2016, primarily driven by the following factors: Higher NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis (increasing gross margin approximately 70 basis points) aligned with our strategy to deliver innovative, premium products to the consumer; Higher NIKE Brand product costs (decreasing gross margin approximately 100 basis points) as an increase in the mix of higher cost products and labor input cost inflation more than offset lower material input costs; Unfavorable changes in net foreign currency exchange rates, including hedges (decreasing gross margin approximately 90 basis points); and. Gross margin decreased 370 basis points as higher full-price ASP was more than offset by unfavorable standard foreign currency exchange rates and higher product costs. Notes payable and interest-bearing accounts payable to Sojitz Corporation of America ("Sojitz America") as of May 31, 2018 and 2017 are summarized below: Weighted average interest rate includes non-interest bearing overdrafts. This includes reclassified operating segment data to reflect the changes in the Company. Sportswear, Training and Running are currently our top-selling apparel categories and we expect them to continue to lead in apparel sales. Two other distribution centers, one located in Indianapolis, Indiana, and one located in Dayton, Tennessee, are leased and operated by third-party logistics providers. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories and influencing sports and fitness preferences through extensive marketing. Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 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. The Company no longer has recorded deferred tax assets for foreign tax credit carry-forwards; the $208 million recorded at May 31, 2017 was fully utilized to offset the impacts of transition tax. The majority of derivatives outstanding as of May 31, 2018 are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Selling and administrative expense grew due to higher operating overhead expense resulting from continued investments in our growing NIKE Direct business. On December 22, 2017, the United States enacted the Tax Act, which significantly changes previous U.S. tax laws, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, a reduction in the corporate tax rate from 35% to 21%, as well as other changes. At May 31, 2018, there were no provisions for which the Company was unable to record a reasonable estimate of the impact. Due to the high fixed-cost structure associated with our NIKE Direct operations, a decline in sales, a shift in consumer behavior away from brick-and-mortar retail, or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs. Air Manufacturing Innovation also manufactures and sells small amounts of various other plastic products to other manufacturers. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. The information required by Item 403 of Regulation S-K is included under "Election of Directors - Stock Holdings of Certain Owners and Management" in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference. Accounts receivable, net , Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and, therefore, are provided below. Demand creation expense also increased as lower advertising costs were more than offset by increased marketing support for the Rio Olympics in the first quarter, as well as higher sports marketing costs. 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. Additionally, the Company reclassified cash outflows of $29 million, $22 million, $8 million and $13 million for the years ended May 31, 2017, 2016, 2015 and 2014, respectively, related to tax payments for the net settlement of share-based payment awards, from Cash provided by operations to Cash used by financing activities within the Consolidated Statements of Cash Flows. We also compete with other companies for the production capacity of independent manufacturers that produce our products. On August 28, 2015, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $2 billion of borrowings. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. These cookies allow us to improve the site’s functionality by tracking usage on the website. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. Accordingly, changes in the fair values of the interest rate swaps are considered to exactly offset changes in the fair value of the underlying long-term debt. Revenue growth was broad-based, as EMEA, Greater China, APLA and North America each contributed approximately 2 percentage points of the increase in NIKE, Inc. Download our training programme and start running today. In June 2018, our Board of Directors approved a new four-year, $15 billion program to repurchase shares of NIKE's Class B Common Stock, which we anticipate will commence at the completion of our current program. 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. The shares are available for resale, subject to the requirements of the U.S. securities laws and the terms of the limited liability company agreement governing Swoosh, LLC. The Company leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets under operating leases. 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 contracts the Company estimates will not meet the minimum guaranteed amount of royalty fees through sales of product, the Company records the amount of the guaranteed payment in excess of that earned through sales of product in Demand creation expense uniformly over the contract period. As we continue to develop new technologies, we are simultaneously focused on the design of innovative products incorporating such technologies throughout our product categories. Accounts receivable, net consist primarily of amounts receivable from customers. We have not, to date, been materially affected by any such risk, but cannot predict the likelihood of such material effects occurring in the future. The Company's bilateral credit-related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives per counterparty be greater than $50 million . As the holder of the redeemable preferred stock, Sojitz America does not have general voting rights, but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company, or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. Unit sales of footwear increased 9%. Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. The following table presents a summary of share repurchases made by NIKE under this program during the quarter ended May 31, 2018 : The following graph demonstrates a five-year comparison of cumulative total returns for NIKE's Class B Common Stock; the Standard & Poor's 500 Stock Index; the Standard & Poor's Apparel, Accessories & Luxury Goods Index; and the Dow Jones U.S. De-selecting these cookies may result in poorly-tailored recommendations and slow site performance. If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $182 million as of May 31, 2018 . This tax holiday may be extended when certain conditions are met or may be terminated early if certain conditions are not met. On a currency-neutral basis, NIKE Brand footwear and apparel revenues increased 8% and 9%, respectively, for fiscal 2017, while NIKE Brand equipment revenues decreased 3%. Sales and operating results for Jordan Brand products are reported within the respective NIKE Brand geographic operating segments. NIKE contractors and suppliers buy raw materials and are subject to wage rates that are oftentimes regulated by the governments of the countries in which our products are manufactured. Although the timing and number of shares purchased will be dictated by our capital needs and stock market conditions, we currently anticipate completing this program during fiscal 2019. On a territory basis, the increase in comparable direct distribution market revenues was primarily attributable to growth in the United States, partially offset by lower revenues in Europe. Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. The Company accounts for stock-based compensation by estimating the fair value of options and stock appreciation rights granted under the NIKE, Inc. Stock Incentive Plan and employees' purchase rights under the employee stock purchase plans (ESPPs) using the Black-Scholes option pricing model. Refer to Note 6 - Fair Value Measurements for additional information. In addition, embedded derivative contracts are created when the Company enters into certain other contractual agreements which have payments that are indexed to currencies that are not the functional currency of either substantial party to the contracts. Effective hedge results are classified within the Consolidated Statements of Income in the same manner as the underlying exposure. 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 expense (income), net . The remaining provisions of the Tax Act, which were a net benefit to the effective tax rate, did not have a material impact on the Company's Consolidated Financial Statements during fiscal 2018. NIKE, Inc. portfolio brands include the NIKE Brand, Jordan Brand, Hurley and Converse. Learn More . These undistributed foreign earnings were subject to the U.S. one-time mandatory transition tax and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act. Therefore, we consider the interest rate and foreign currency market risks associated with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows. Profit sharing contributions of $59 million , $68 million and $64 million were made to the plan and included in Cost of sales or Operating overhead expense , as applicable, for the years ended May 31, 2018 , 2017 and 2016 , respectively. The third quarter of fiscal 2018 reflects the impact from the enactment of the Tax Cuts and Jobs Act. Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value. Level 3 investments are valued using internally developed models with unobservable inputs and are an immaterial portion of our portfolio. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. At July 20, 2018, there were 22,271 holders of record of our Class B Common Stock and 15 holders of record of our Class A Common Stock. We have continued several transformation initiatives to centralize and simplify our business processes and systems. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the SEC, including reports filed on Forms 8-K, 10-Q and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products and the various market factors described above; difficulties in implementing, operating and maintaining NIKE's increasingly complex information technology systems and controls, including, without limitation, the systems related to demand and supply planning and inventory control; interruptions in data and information technology systems; consumer data security; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance orders may not be indicative of future revenues due to changes in shipment timing, the changing mix of orders with shorter lead times, and discounts, order cancellations and returns; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE's products; increases in the cost of materials, labor and energy used to manufacture products; new product development and introduction; the ability to secure and protect trademarks, patents and other intellectual property; product performance and quality; customer service; adverse publicity, including without limitation, through social media or in connection with brand damaging events; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in NIKE's debt ratings; changes in business strategy or development plans; general risks associated with doing business outside of the United States, including, without limitation, exchange rate fluctuations, inflation, import duties, tariffs, quotas, political and economic instability and terrorism; the impact of recent U.S. tax reform legislation on our results of operations; the potential impact of new laws, regulations or policy, including, without limitation, tariffs, import/export, trade and immigration regulations or policies; changes in government regulations; the impact of, including business and legal developments relating to, climate change and natural disasters; litigation, regulatory proceedings and other claims asserted against NIKE; the ability to attract and retain qualified employees, and any negative public perception with respect to key personnel; the effects of NIKE's decision to invest in or divest of businesses and other factors referenced or incorporated by reference in this report and other reports. On a reported basis, digital commerce sales, which are not included in comparable store sales, were $2.2 billion for fiscal 2017 compared to $1.7 billion for fiscal 2016 and represented approximately 24% of our total NIKE Direct revenues for fiscal 2017 compared to 22% for fiscal 2016. Our fiscal 2018 results demonstrated the power of the NIKE, Inc. portfolio to generate revenue growth, while investing in capabilities in support of our Triple Double strategy to fuel our next phase of long-term growth and profitability. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third quarters. While the Company cannot predict the outcome of its pending legal matters with certainty, the Company does not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material impact on the Company's results of operations, financial position or cash flows. Working with the Nike Training Club App is a great way to round off your fitness programme. Revenues . 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. Net of tax benefit (expense) of $ (24) million , $ (3) million , $ 0 million , $ (4) million and $ (31) million , respectively. We believe the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies and estimates. Law firm of O'Melveny & Myers from 1995 to 1998 affect sales and orders our... Including when making financial and operating results and financial condition 2020 10-K ( annual report and our are! Gaap, Accounting for the full fiscal year progresses, we own common law rights in the early. 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