NIKE, INC. 
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 throughNIKE Direct operations, which is comprised of bothNIKE -owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital"), 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. Through the Consumer Direct Acceleration, we are focusing on creating the marketplace of the future through more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners that share our marketplace vision. Over the last several years, as we have executed against the Consumer Direct Acceleration, we have grown ourNIKE Direct business to be approximately 42% of totalNIKE Brand revenues for fiscal 2022, and we have reduced the number of wholesale accounts globally. Additionally, we have aligned our product creation and category organizations around a new consumer construct focused on Men's, Women's and Kids' and continue to invest in data and analytics, demand sensing, insight gathering, inventory management and other areas to create an end-to-end technology foundation, which we expect will further 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. During fiscal 2021, we substantially completed a series of leadership and operating model changes to streamline and speed up the strategic execution of the Consumer Direct Acceleration. 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. For fiscal 2022, we recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense. 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 AND MARKET DYNAMICS UPDATE The COVID-19 pandemic and its impacts on the global supply chain created volatility in our fiscal 2022 business results and operations globally. Despite these challenges, we achieved record Revenues for fiscal 2022, which increased 5% compared to the prior fiscal year with gross margin expansion of 120 basis points. OurNIKE Direct business continued its momentum, growing 14% and 15% on a reported and currency-neutral basis, respectively, led byNorth America , APLA and EMEA, partially offset by declines inGreater China due to a COVID-19 resurgence in the third and fourth quarters of fiscal 2022 as well as marketplace dynamics. During fiscal 2022, nearly all of our owned stores remained open acrossNorth America , EMEA and APLA. InGreater China however, due to a COVID-19 resurgence, we experienced a higher level of temporary store closures, with some operating on reduced hours, as well as lower physical traffic compared to pre-pandemic levels. During the first quarter of fiscal 2022, the majority ofNIKE Brand and Converse contract manufacturers inVietnam andIndonesia were subject to government mandated shutdowns due to COVID-19. As a result of these closures, we lost approximately three months of production, impacting available product supply throughout fiscal 2022. Globally, nearly all of our supplier base is currently operational without restrictions and with factory production exceeding pre-closure production levels. In addition, our supply of available inventory continued to be impacted in the fourth quarter of fiscal 2022 as extended inventory transit times drove elevated levels of in-transit inventory. These supply chain impacts and a COVID-19 resurgence inGreater China , combined with other factors, caused Inventories to grow to$8.4 billion , an increase of 23% compared to fiscal 2021.
We also experienced elevated transportation, logistics and fulfillment costs as a result of this dynamic environment, which partially offset gross margin expansion in fiscal 2022.
Inventory transit times as well as logistics and fulfillment costs are expected to remain elevated. We also expect product costs to remain elevated due to higher input costs. In the first quarter of fiscal 2023, we expect gross margin could be negatively impacted by increased promotional activity to sell seasonal product arriving late due to the combination of temporary factory closures at the beginning of fiscal 2022 and continued elevated transit times. To mitigate the impact across our business, our teams are continuing to leverage our operational playbook and taking actions where we can, including balancing inventory across our geographies, pricing actions and employing a seasonless approach to products. Despite these short-term dynamics, we believe our Consumer Direct Acceleration strategy continues to drive our business towards our long-term financial goals. During fiscal 2022, we continued to invest in our digital transformation and brand campaigns as the world returned to sport, and we expect to maintain our multi-year investment plans in order to transform our business of the future. 2022 FORM 10-K 28
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We expect the operating environment could remain volatile in fiscal 2023 as there remains risk that COVID-19 variants may continue to cause disruption to our operations and could have a material adverse impact on future revenue growth as well as overall profitability.
For more information refer to Item 1A. Risk Factors, within Part I, Item 1. Business.
FISCAL 2022 OVERVIEW In fiscal 2022,NIKE, Inc. achieved record Revenues of$46.7 billion , which increased 5% and 6% on a reported and currency-neutral basis, respectively, driven by higher revenues in EMEA,North America and APLA, partially offset by declines inGreater China . TheNIKE Brand, which represents over 90% ofNIKE, Inc. Revenues, increased 5% and 6% on a reported and currency-neutral basis, respectively, compared to fiscal 2021.NIKE Direct grew 14% and 15%, on a reported and currency-neutral basis, respectively, driven by an increase of 18% inNIKE Brand Digital, as growth inNorth America , APLA and EMEA was partially offset by a decline inGreater China . Wholesale revenues declined 1% as declines inNorth America andGreater China were partially offset by growth in EMEA and APLA. Revenues for Converse increased 6% and 7%, on a reported and currency-neutral basis, respectively, led by double-digit growth in our direct to consumer business, partially offset by lower wholesale revenues. Income before income taxes remained flat for fiscal 2022, as higher revenues and gross margin expansion were offset by higher selling and administrative expense.NIKE, Inc. gross margin increased 120 basis points, led by margin expansion in ourNIKE Direct business, a higher mix of full-price sales and favorable changes in net foreign currency exchange rates, including hedges, partially offset by elevated freight and logistics costs and higher inventory obsolescence reserves primarily recognized inGreater China in the fourth quarter of fiscal 2022. Selling and administrative expense increased due to higher Operating overhead and Demand creation expense. Operating overhead expense increased primarily due to higher strategic technology investments as well as increases in wage-related expenses andNIKE Direct variable costs. This activity was partially offset by higher restructuring-related costs in the prior year related to our organizational realignment. For more information, see Note 21 - Restructuring within the accompanying Notes to the Consolidated Financial Statements. Demand creation expense increased primarily due to normalization of spend against brand campaigns and continued investments in digital marketing to support heightened digital demand. ROIC as ofMay 31, 2022 was 46.5% compared to 48.8% as ofMay 31, 2021 . ROIC is considered a non-GAAP financial measure, see "Use of Non-GAAP Financial Measures" for further information. During the fourth quarter of fiscal 2022, we entered into separate definitive agreements to sell our legal entities inArgentina andUruguay as well as our legal entity inChile to third-party distributors. The assets and liabilities of these entities will remain classified as held-for-sale on our Consolidated Balance Sheets until the transactions close, which is expected to occur prior to the end of the third quarter of fiscal 2023. 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 consolidatedNIKE, Inc. and APLA revenue growth will be reduced due to differences in commercial terms. However, over time 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. Economic sanctions imposed onRussia during the fourth quarter of fiscal 2022, impacted our local business and a reduction in the Ruble liquidity affected our ability to manage operational impact and related foreign currency risk. As a result, we deconsolidated our Russian legal entities, the net revenues of which were less than one percent of consolidated net Revenues for fiscal 2021. The deconsolidation of our Russian legal entities resulted in a one-time, pre-tax charge of$96 million recognized within Other (income) expense, net, classified within Corporate. Subsequent to the end of fiscal 2022, we made the decision to leave the Russian marketplace.
While foreign currency markets remain volatile, in part due to geopolitical
dynamics which have led to a stronger
For discussion related to the results of operations and changes in financial condition for fiscal 2021 compared to fiscal 2020 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2021 Form 10-K, which was filed with theUnited States Securities and Exchange Commission onJuly 20, 2021 . 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, TotalNIKE Brand earnings before interest and taxes (EBIT) andTotal 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 inthe United States of America ("U.S. GAAP"). References to wholesale equivalent revenues are intended to provide context as to the total size of ourNIKE Brand market footprint if we had noNIKE Direct operations.NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to ourNIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers. Additionally, currency-neutral revenues are calculated 2022 FORM 10-K 29
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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 is calculated as EBIT divided by totalNIKE, 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, EBIT and EBIT margin should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance withU.S. GAAP and may not be comparable to similarly titled non-GAAP measures used by other companies.
Our ROIC calculation as of
FOR THE TRAILING FOUR QUARTERS
ENDED
(Dollars in millions) MAY 31, 2022 MAY 31, 2021
Numerator
Net income $ 6,046 $ 5,727
Add: Interest expense (income), net 205 262
Add: Income tax expense 605 934
Earnings before interest and taxes 6,856 6,923
Income tax adjustment(1) (624) (970)
Earnings before interest and after taxes $
6,232
AVERAGE FOR THE TRAILING FIVE
QUARTERS ENDED
MAY 31, 2022 MAY 31, 2021
Denominator
Total debt(2) $ 12,722 $ 12,890
Add: Shareholders' equity 14,425 10,523
Less: Cash and equivalents and Short-term investments 13,748 11,217
Total invested capital $ 13,399 $ 12,196
RETURN ON INVESTED CAPITAL 46.5 % 48.8 %
(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.
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RESULTS OF OPERATIONS
(Dollars in millions, except per share data) FISCAL 2022 FISCAL 2021
% CHANGE FISCAL 2020 % CHANGE
Revenues $ 46,710 $ 44,538 5 % $ 37,403 19 %
Cost of sales 25,231 24,576 3 % 21,162 16 %
Gross profit 21,479 19,962 8 % 16,241 23 %
Gross margin 46.0 % 44.8 % 43.4 %
Demand creation expense 3,850 3,114 24 % 3,592 -13 %
Operating overhead expense 10,954 9,911 11 % 9,534 4 %
Total selling and administrative expense 14,804 13,025 14 % 13,126 -1 %
% of revenues 31.7 % 29.2 % 35.1 %
Interest expense (income), net 205 262 - 89 -
Other (income) expense, net (181) 14 - 139 -
Income before income taxes 6,651 6,661 0 % 2,887 131 %
Income tax expense 605 934 -35 % 348 168 %
Effective tax rate 9.1 % 14.0 % 12.1 %
NET INCOME $ 6,046 $ 5,727 6 % $ 2,539 126 %
Diluted earnings per common share $ 3.75 $ 3.56 5 % $ 1.60 123 %
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CONSOLIDATED OPERATING RESULTS
REVENUES
% CHANGE EXCLUDING % CHANGE EXCLUDING
CURRENCY CURRENCY
(Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CHANGES(1) FISCAL 2020 % CHANGE CHANGES(1)
NIKE, Inc. Revenues:
NIKE Brand Revenues by:
Footwear $ 29,143 $ 28,021 4 % 4 % $ 23,305 20 % 18 %
Apparel 13,567 12,865 5 % 6 % 10,953 17 % 15 %
Equipment 1,624 1,382 18 % 18 % 1,280 8 % 7 %
Global Brand Divisions(2) 102 25 308 % 302 % 30 -17 % -17 %
Total NIKE Brand Revenues 44,436 42,293 5 % 6 % 35,568 19 % 17 %
Converse 2,346 2,205 6 % 7 % 1,846 19 % 16 %
Corporate(3) (72) 40 - - (11) - -
TOTAL NIKE , INC. REVENUES $ 46,710 $ 44,538 5 % 6 % $ 37,403 19 % 17 %
Supplemental NIKE Brand Revenues Details:
NIKE Brand Revenues by:
Sales to Wholesale Customers $ 25,608 $ 25,898 -1 % -1 % $ 23,156 12 % 10 %
Sales through NIKE Direct 18,726 16,370 14 % 15 % 12,382 32 % 30 %
Global Brand Divisions(2) 102 25 308 % 302 % 30 -17 % -17 %
TOTAL NIKE BRAND REVENUES $ 44,436 $ 42,293 5 % 6 % $ 35,568 19 % 17 %
NIKE Brand Revenues on a Wholesale
Equivalent Basis:(1)
Sales to Wholesale Customers $ 25,608 $ 25,898 -1 % -1 % $ 23,156 12 % 10 %
Sales from our Wholesale Operations to
NIKE Direct Operations 10,543 9,872 7 % 7 % 7,452 32 % 30 %
TOTAL NIKE BRAND WHOLESALE EQUIVALENT
REVENUES $ 36,151 $ 35,770 1 % 1 % $ 30,608 17 % 15 %
NIKE Brand Wholesale Equivalent Revenues
by:(1),(4)
Men's $ 18,797 $ 18,391 2 % 3 % $ 16,430 12 % 10 %
Women's 8,273 8,225 1 % 1 % 6,954 18 % 16 %
NIKE Kids' 4,874 4,882 0 % 0 % 4,199 16 % 14 %
Jordan Brand 5,122 4,780 7 % 7 % 3,687 30 % 27 %
Others(5) (915) (508) -80 % -79 % (662) 23 % 24 %
TOTAL NIKE BRAND WHOLESALE EQUIVALENT
REVENUES $ 36,151 $ 35,770 1 % 1 % $ 30,608 17 % 15 %
(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
(3)Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the
(4)As a result of the Consumer Direct Acceleration strategy, announced in fiscal 2021, the Company is now organized around a new consumer construct of Men's, Women's and Kids'. Beginning in the first quarter of fiscal 2022, unisex products are classified within Men's, andJordan Brand revenues are separately reported. Certain prior year amounts have been reclassified to conform to fiscal 2022 presentation. These changes had no impact on previously reported consolidated results of operations or shareholders' equity. For additional information about the Consumer Direct Acceleration refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations within the Company's Annual Report on Form 10-K for the fiscal year endedMay 31, 2021 .
(5)Others include products not allocated to Men's, Women's,
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FISCAL 2022NIKE BRAND REVENUE HIGHLIGHTS The following tables presentNIKE Brand revenues disaggregated by reportable operating segment, distribution channel and major product line:
[[Image Removed: nke-20220531_g10.jpg]] [[Image Removed: nke-20220531_g11.jpg]] [[Image Removed: nke-20220531_g12.jpg]]
FISCAL 2022 COMPARED TO FISCAL 2021 On a currency-neutral basis,NIKE, Inc. Revenues increased 6% for fiscal 2022, driven by higher revenues in EMEA,North America and APLA, partially offset by lower revenues inGreater China . Higher revenues in EMEA andNorth America each contributed approximately 3 percentage points toNIKE, Inc. Revenues, and APLA contributed approximately 2 percentage points, while lower revenues inGreater China reducedNIKE, Inc. Revenues by approximately 2 percentage points. On a currency-neutral basis,NIKE Brand footwear revenues increased 4% for fiscal 2022, driven by growth inNIKE Direct, partially offset by a decline in our wholesale business. Unit sales of footwear decreased 3%, while higher average selling price (ASP) per pair contributed approximately 7 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higherNIKE Direct ASP, the favorable impact of growth in ourNIKE Direct business, higher full-price ASP, net of discounts, on a wholesale equivalent basis, and a higher mix of full-price sales. Currency-neutralNIKE Brand apparel revenues increased 6% for fiscal 2022, driven primarily by growth in Men's. Unit sales of apparel remained flat, and higher ASP per unit contributed approximately 6 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price andNIKE Direct ASPs. On a reported basis,NIKE Direct revenues represented approximately 42% of our totalNIKE Brand revenues for fiscal 2022 compared to 39% for fiscal 2021.NIKE Brand Digital sales were$10.7 billion for fiscal 2022 compared to$9.1 billion for fiscal 2021. On a currency-neutral basis,NIKE Direct revenues increased 15% for fiscal 2022, driven byNIKE Brand Digital sales growth of 18%, comparable store sales growth of 10%, in part due to improved physical retail traffic, and the addition of new stores. Comparable store sales, which excludeNIKE Brand Digital sales, comprises revenues fromNIKE -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 establishedNIKE -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 2022NIKE Brand revenue growth of 6% was primarily driven by increases in Men's and the Jordan Brand, which grew 3% and 7%, respectively. 2022 FORM 10-K 33
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GROSS MARGIN
FISCAL 2022 COMPARED TO FISCAL 2021 For fiscal 2022, our consolidated gross profit increased 8% to$21,479 million compared to$19,962 million for fiscal 2021. Gross margin increased 120 basis points to 46.0% for fiscal 2022 compared to 44.8% for fiscal 2021 due to the following: [[Image Removed: nke-20220531_g13.jpg]] *Wholesale equivalent The increase in gross margin for fiscal 2022 was primarily due to higher margin in ourNIKE Direct business, a higher mix of full-price sales on a wholesale equivalent basis and favorable changes in net foreign currency exchange rates, including hedges. This activity was partially offset by higher product costs on a wholesale equivalent basis, largely due to elevated freight and logistics costs as well as an increase in other costs primarily due to higher inventory obsolescence reserves recognized inGreater China in the fourth quarter of fiscal 2022.
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
(Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE FISCAL 2020 % CHANGE Demand creation expense(1)$ 3,850 $ 3,114 24 %$ 3,592 -13 % Operating overhead expense 10,954 9,911 11 % 9,534 4 %
Total selling and administrative expense
14 %$ 13,126 -1 % % of revenues 31.7 % 29.2 % 250 bps 35.1 % (590) 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 2022 COMPARED TO FISCAL 2021 Demand creation expense increased 24% for fiscal 2022, primarily due to higher advertising and marketing spend against brand campaigns as we experienced marketplace closures in the prior year due to COVID-19, as well as continued investments in digital marketing to support heightened digital demand. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 1 percentage point. Operating overhead expense increased 11% for fiscal 2022, primarily due to higher strategic technology investments and increases in wage-related expenses andNIKE Direct variable costs. This activity was partially offset by higher restructuring-related costs in the prior year related to our organizational realignment. For more information, see Note 21 - Restructuring within the accompanying Notes to the Consolidated Financial Statements. Changes in foreign currency exchange rates had an insignificant impact on Operating overhead expense. OTHER (INCOME) EXPENSE, NET (Dollars in millions) FISCAL 2022 FISCAL 2021 FISCAL 2020 Other (income) expense, net$ (181) $ 14$ 139 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. FISCAL 2022 COMPARED TO FISCAL 2021 Other (income) expense, net changed from$14 million of other expense, net in fiscal 2021 to$181 million of other income, net in the current year, primarily due to a$219 million net favorable change in foreign currency conversion gains and losses, including hedges, as well as a net favorable impact related to our strategic distributor partnership transition within APLA, partially offset by the one-time charge related to the deconsolidation of our Russian operations. 2022 FORM 10-K 34
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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$132 million for fiscal 2022. INCOME TAXES FISCAL 2022 FISCAL 2021 % CHANGE FISCAL 2020 % CHANGE Effective tax rate 9.1 % 14.0 % (490) bps 12.1 % 190 bps FISCAL 2022 COMPARED TO FISCAL 2021 Our effective tax rate was 9.1% for fiscal 2022, compared to 14.0% for fiscal 2021, primarily due to a shift in our earnings mix and recognition of a non-cash, one-time benefit related to the onshoring of certain non-U.S. intangible property ownership rights in the fourth quarter of fiscal 2022.
OPERATING SEGMENTS
Our operating segments are evidence of the structure of the Company's internal
organization. The
EachNIKE 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 theNIKE Brand are:North America ;Europe ,Middle East &Africa (EMEA);Greater China ; andAsia Pacific &Latin America (APLA), and include results for theNIKE and Jordan brands. The Company'sNIKE 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 eachNIKE 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. 2022 FORM 10-K 35
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The breakdown of Revenues is as follows:
% CHANGE EXCLUDING % CHANGE EXCLUDING
CURRENCY CURRENCY
(Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CHANGES(1) FISCAL 2020 % CHANGE CHANGES(1)
North America $ 18,353 $ 17,179 7 % 7 % $ 14,484 19 % 19 %
Europe, Middle East & Africa 12,479 11,456 9 % 12 % 9,347 23 % 17 %
Greater China 7,547 8,290 -9 % -13 % 6,679 24 % 19 %
Asia Pacific & Latin America(2) 5,955 5,343 11 % 16 % 5,028 6 % 8 %
Global Brand Divisions(3) 102 25 308 % 302 % 30 -17 % -17 %
TOTAL NIKE BRAND 44,436 42,293 5 % 6 % 35,568 19 % 17 %
Converse 2,346 2,205 6 % 7 % 1,846 19 % 16 %
Corporate(4) (72) 40 - - (11) - -
TOTAL NIKE, INC. REVENUES $ 46,710 $ 44,538 5 % 6 % $ 37,403 19 % 17 %
(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 ourNIKE Brand business inBrazil to a third-party distributor.
(3) Global Brand Divisions revenues include
(4) Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the
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 2022 FISCAL 2021 % CHANGE FISCAL 2020 % CHANGE North America$ 5,114 $ 5,089 0 %$ 2,899 76 % Europe, Middle East & Africa 3,293 2,435 35 % 1,541 58 % Greater China 2,365 3,243 -27 % 2,490 30 % Asia Pacific & Latin America 1,896 1,530 24 % 1,184 29 % Global Brand Divisions (4,262) (3,656) -17 % (3,468) -5 % TOTALNIKE BRAND (1)$ 8,406 $ 8,641 -3 %$ 4,646 86 % Converse 669 543 23 % 297 83 % Corporate (2,219) (2,261) 2 % (1,967) -15 % TOTALNIKE, INC. EARNINGS BEFORE INTEREST AND TAXES(1)$ 6,856 $ 6,923 -1 %$ 2,976 133 % EBIT margin(1) 14.7 % 15.5 % 8.0 % Interest expense (income), net 205 262 - 89 - TOTALNIKE, INC. INCOME BEFORE INCOME TAXES$ 6,651 $ 6,661 0 %$ 2,887 131 %
(1) Total
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Table of ContentsNORTH AMERICA % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CURRENCY CHANGES FISCAL 2020 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 12,228 $ 11,644 5 % 5 %$ 9,329 25 % 25 % Apparel 5,492 5,028 9 % 9 % 4,639 8 % 8 % Equipment 633 507 25 % 25 % 516 -2 % -2 % TOTAL REVENUES$ 18,353 $ 17,179 7 % 7 %$ 14,484 19 % 19 % Revenues by: Sales to Wholesale Customers$ 9,621 $ 10,186 -6 % -6 %$ 9,371 9 % 9 % Sales through NIKE Direct 8,732 6,993 25 % 25 % 5,113 37 % 37 % TOTAL REVENUES$ 18,353 $ 17,179 7 % 7 %$ 14,484 19 % 19 % EARNINGS BEFORE INTEREST AND TAXES$ 5,114 $ 5,089 0 %$ 2,899 76 % FISCAL 2022 COMPARED TO FISCAL 2021 On a currency-neutral basis,North America revenues increased 7%, due primarily to higher revenues in Men's and the Jordan Brand.NIKE Direct revenues increased 25%, driven by strong digital sales growth of 30%, comparable store sales growth of 17% and the addition of new stores. Footwear revenues increased 5% on a currency-neutral basis, driven by growth inNIKE Direct, partially offset by a decline in our wholesale business. Unit sales of footwear decreased 4%, while higher ASP per pair contributed approximately 9 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higherNIKE Direct ASP, the favorable impact of growth in ourNIKE Direct business and a higher mix of full-price sales. On a currency-neutral basis, apparel revenues increased 9%, driven primarily by higher revenues in Men's. Unit sales of apparel decreased 2%, while higher ASP per unit contributed approximately 11 percentage points of apparel revenue growth. The increase in ASP per unit was primarily driven by higher full-price andNIKE Direct ASPs as well as a higher mix of full-price sales. Reported EBIT remained flat as higher revenues were offset by higher selling and administrative expense and gross margin contraction. Gross margin decreased approximately 10 basis points, largely due to higher product and other costs, partially offset by higher margins and the favorable impact of growth in ourNIKE Direct business, a higher mix of full-price sales and higher full-price ASP, net of discounts, primarily due to strategic pricing actions. Higher product and other costs were primarily due to increased freight, logistics and warehousing costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Demand creation expense increased primarily as a result of higher advertising and marketing expense, as well as higher digital marketing investments. The increase in operating overhead expense reflected higher wage-related costs as well as an increase inNIKE Direct variable costs. 2022 FORM 10-K 37
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Table of ContentsEUROPE ,MIDDLE EAST &AFRICA % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CURRENCY CHANGES FISCAL 2020 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 7,388 $ 6,970 6 % 9 %$ 5,892 18 % 13 % Apparel 4,527 3,996 13 % 16 % 3,053 31 % 25 % Equipment 564 490 15 % 17 % 402 22 % 19 % TOTAL REVENUES$ 12,479 $ 11,456 9 % 12 %$ 9,347 23 % 17 % Revenues by: Sales to Wholesale Customers$ 8,377 $ 7,812 7 % 10 %$ 6,574 19 % 14 % Sales through NIKE Direct 4,102 3,644 13 % 15 % 2,773 31 % 25 % TOTAL REVENUES$ 12,479 $ 11,456 9 % 12 %$ 9,347 23 % 17 % EARNINGS BEFORE INTEREST AND TAXES$ 3,293 $ 2,435 35 %$ 1,541 58 % FISCAL 2022 COMPARED TO FISCAL 2021 On a currency-neutral basis, EMEA revenues for fiscal 2022 grew 12%, due primarily to higher revenues in Men's, the Jordan Brand and Women's.NIKE Direct revenues increased 15%, primarily due to comparable store sales growth of 30% due to improved physical retail traffic, in part resulting from temporary store closures and safety-related measures in response to COVID-19 in the prior year, as well as digital sales growth of 8%. Currency-neutral footwear revenues increased 9%, driven by higher revenues in the Jordan Brand and Men's. Unit sales of footwear decreased 1%, while higher ASP per pair contributed approximately 10 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higherNIKE Direct and full-price ASPs as well as a higher mix of full-price sales. Currency-neutral apparel revenues increased 16% due primarily to higher revenues in Men's and Women's. Unit sales of apparel increased 9%, while higher ASP per unit contributed approximately 7 percentage points of apparel revenue growth, primarily due to higher full-price andNIKE Direct ASPs. Reported EBIT increased 35% as gross margin expansion and higher revenues more than offset higher selling and administrative expense. Gross margin increased approximately 570 basis points primarily due to higherNIKE Direct margins, favorable changes in standard foreign currency exchange rates, a higher mix of full-price sales and higher full-price ASP, net of discounts, partially offset by higher product costs. Higher full-price ASP, net of discounts, was largely due to strategic pricing actions, while higher product costs were primarily due to increased freight and logistics costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Higher demand creation expense was driven by higher advertising and marketing expense. Higher operating overhead expense was primarily due to increases in wage-related expenses and professional services.
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Table of ContentsGREATER CHINA % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CURRENCY CHANGES FISCAL 2020 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 5,416 $ 5,748 -6 % -10 %$ 4,635 24 % 19 % Apparel 1,938 2,347 -17 % -21 % 1,896 24 % 19 % Equipment 193 195 -1 % -6 % 148 32 % 26 % TOTAL REVENUES$ 7,547 $ 8,290 -9 % -13 %$ 6,679 24 % 19 % Revenues by: Sales to Wholesale Customers$ 4,081 $ 4,513 -10 % -14 %$ 3,803 19 % 14 % Sales through NIKE Direct 3,466 3,777 -8 % -12 % 2,876 31 % 26 % TOTAL REVENUES$ 7,547 $ 8,290 -9 % -13 %$ 6,679 24 % 19 % EARNINGS BEFORE INTEREST AND TAXES$ 2,365 $ 3,243 -27 %$ 2,490 30 % FISCAL 2022 COMPARED TO FISCAL 2021 On a currency-neutral basis,Greater China revenues for fiscal 2022 decreased 13%, reflecting impacts from supply chain constraints, government restrictions due to COVID-19 as well as marketplace dynamics. The decrease in revenues was primarily due to lower revenues in Men's and Women's.NIKE Direct revenues decreased 12% due to digital sales declines of 15% and comparable store sales declines of 14%, in part due to reduced physical retail traffic as a result of government restrictions due to COVID-19 as well as ongoing marketplace dynamics, partially offset by the addition of new stores. Currency-neutral footwear revenues decreased 10%, driven primarily by lower revenues in Men's and Women's. Unit sales of footwear decreased 7%, while lower ASP per pair reduced footwear revenues by approximately 3 percentage points, driven by lowerNIKE Direct and full-price ASPs, reflecting higher discounts. Currency-neutral apparel revenues decreased 21%, due primarily to lower revenues in Men's and Women's. Unit sales of apparel decreased 15%, while lower ASP per unit reduced apparel revenues by approximately 6 percentage points, primarily due to lowerNIKE Direct and full-price ASPs, reflecting higher discounts. Reported EBIT decreased 27% due to lower revenues, gross margin contraction and higher selling and administrative expense. Gross margin decreased approximately 390 basis points, reflecting impacts from COVID-19 related government restrictions which reduced physical retail traffic and led to higher inventory obsolescence reserves recognized primarily in the fourth quarter of fiscal 2022. The decrease in gross margin was also largely due to higher product costs and lowerNIKE Direct margins. This activity was partially offset by favorable changes in standard foreign currency exchange rates. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Growth in demand creation expense was primarily due to higher advertising and marketing expense. Operating overhead expense increased largely due to higher wage-related costs and higher strategic technology investments. 2022 FORM 10-K 39
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Table of ContentsASIA PACIFIC &LATIN AMERICA % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CURRENCY CHANGES FISCAL 2020 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 4,111 $ 3,659 12 % 17 %$ 3,449 6 % 8 % Apparel 1,610 1,494 8 % 12 % 1,365 9 % 10 % Equipment 234 190 23 % 28 % 214 -11 % -9 % TOTAL REVENUES$ 5,955 $ 5,343 11 % 16 %$ 5,028 6 % 8 % Revenues by: Sales to Wholesale Customers$ 3,529 $ 3,387 4 % 8 %$ 3,408 -1 % 2 % Sales through NIKE Direct 2,426 1,956 24 % 30 % 1,620 21 % 22 % TOTAL REVENUES$ 5,955 $ 5,343 11 % 16 %$ 5,028 6 % 8 % EARNINGS BEFORE INTEREST AND TAXES$ 1,896 $ 1,530 24 %$ 1,184 29 % As discussed previously, ourNIKE Brand business inBrazil transitioned to a distributor operating model during fiscal 2021. During the fourth quarter of fiscal 2022, we signed separate definitive agreements to sell our legal entities inArgentina andUruguay as well as our legal entity inChile to third-party distributors. The assets and liabilities of our legal entities inArgentina ,Chile andUruguay will remain classified as held-for-sale on the Consolidated Balance Sheets until the transactions close, which is expected to occur prior to the end of the third quarter of fiscal 2023. The impacts of closing theBrazil transaction as well as classifying theArgentina ,Chile , andUruguay entities as held-for-sale in fiscal 2020 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 2022 COMPARED TO FISCAL 2021 On a currency-neutral basis, APLA revenues increased 16% for fiscal 2022. The increase was due to higher revenues across nearly all territories, driven by SOCO (which comprisesArgentina ,Chile andUruguay ),Mexico andKorea , which increased 58%, 35% and 16%, respectively. Revenues increased primarily due to higher revenues in Men's and Women's.NIKE Direct revenues increased 30%, primarily due to digital sales growth of 51% and comparable store sales growth of 13%, in part due to improved physical retail traffic, partially offset by store closures. Currency-neutral footwear revenues increased 17% for fiscal 2022 in part due to higher revenues in Women's and Men's. Unit sales of footwear increased 2%, while higher ASP per pair contributed approximately 15 percentage points of footwear revenue growth. Higher ASP per pair was driven by higherNIKE Direct ASP, higher full-price ASP, reflecting lower discounts, higher off-price ASP and a higher mix of full-price sales. Higher ASPs, in part, reflect inflationary conditions in our SOCO territory. Currency-neutral apparel revenues increased 12% for fiscal 2022 due primarily to higher revenues in Men's. Unit sales of apparel increased 3%, while higher ASP per unit contributed approximately 9 percentage points of apparel revenue growth, driven by higher full-price ASP, reflecting lower discounts, as well as higherNIKE Direct and off-price ASPs. Higher ASPs, in part, reflect inflationary conditions in our SOCO territory. Reported EBIT increased 24% for fiscal 2022, as higher revenues and gross margin expansion more than offset higher selling and administrative expense. Gross margin increased approximately 400 basis points primarily due to higher margins and the favorable impact of growth in ourNIKE Direct business, higher full-price ASP largely due to lower discounts, favorable changes in standard foreign currency exchange rates, lower other costs as well as a higher mix of full-price sales. The decrease in other costs was primarily due to lower warehousing costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Higher demand creation expense was primarily due to higher digital marketing investments to support heightened digital demand. The increase in operating overhead expense was primarily due to an increase inNIKE Direct variable expenses as well as higher bad debt expense. 2022 FORM 10-K 40
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GLOBAL BRAND DIVISIONS
% CHANGE % CHANGE
EXCLUDING EXCLUDING
(Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CURRENCY CHANGES FISCAL 2020 % CHANGE CURRENCY CHANGES
Revenues $ 102 $ 25 308 % 302 % $ 30 -17 % -17 %
Earnings (Loss) Before Interest
and Taxes $ (4,262) $ (3,656) -17 % $ (3,468) -5 %
Global Brand Divisions primarily represent demand creation and operating
overhead expense, including product creation and design expenses that are
centrally managed for the
FISCAL 2022 COMPARED TO FISCAL 2021
Global Brand Divisions' loss before interest and taxes increased 17% for fiscal
2022 due to higher total selling and administrative expense, driven by higher
operating overhead and demand creation expense. Higher operating overhead
expense was primarily due to an increase in strategic technology investments,
continued investment in digital capabilities and higher wage-related expenses.
Higher demand creation expense was primarily due to higher advertising and
marketing expense and higher sports marketing costs.
CONVERSE
% CHANGE % CHANGE
EXCLUDING EXCLUDING
(Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE CURRENCY CHANGES FISCAL 2020 % CHANGE CURRENCY CHANGES
Revenues by:
Footwear $ 2,094 $ 1,986 5 % 6 % $ 1,642 21 % 17 %
Apparel 103 104 -1 % -3 % 89 17 % 13 %
Equipment 26 29 -10 % -16 % 25 16 % 14 %
Other(1) 123 86 43 % 42 % 90 -4 % -1 %
TOTAL REVENUES $ 2,346 $ 2,205 6 % 7 % $ 1,846 19 % 16 %
Revenues by:
Sales to Wholesale Customers $ 1,292 $ 1,353 -5 % -4 % $ 1,154 17 % 13 %
Sales through Direct to Consumer 931 766 22 % 22 % 602 27 % 24 %
Other(1) 123 86 43 % 42 % 90 -4 % -1 %
TOTAL REVENUES $ 2,346 $ 2,205 6 % 7 % $ 1,846 19 % 16 %
EARNINGS BEFORE INTEREST AND TAXES $ 669 $ 543 23 % $ 297 83 %
(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 2022 COMPARED TO FISCAL 2021
On a currency-neutral basis, Converse revenues increased 7% for fiscal 2022 due
to revenue growth in North America , Western Europe and licensee markets,
partially offset by declines in Asia . Direct to consumer revenues increased 22%,
led by strong digital demand. Wholesale revenues decreased 4%, primarily due to
ongoing marketplace dynamics in China as well as global supply chain
constraints. Combined unit sales within the wholesale and direct to consumer
channels decreased 6%, while ASP increased 12%, driven by growth in direct to
consumer.
Reported EBIT increased 23%, driven by gross margin expansion and higher
revenues, partially offset by higher selling and administrative expense. Gross
margin increased approximately 360 basis points as higher margins in direct to
consumer, growth in licensee revenues, favorable changes in standard foreign
currency exchange rates, and higher full-price ASP, net of discounts, were
partially offset by higher product costs due to increased freight, duty and
logistics costs. Selling and administrative expense increased due to higher
demand creation and operating overhead expense. Demand creation expense
increased primarily due to higher advertising and marketing expense, while
operating overhead increased primarily due to higher professional services
costs.
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Table of Contents CORPORATE (Dollars in millions) FISCAL 2022 FISCAL 2021 % CHANGE FISCAL 2020 % CHANGE Revenues$ (72) $ 40 -$ (11) -
Earnings (Loss) Before Interest and Taxes
2 %$ (1,967) -15 %
Corporate revenues primarily consist of foreign currency hedge gains and losses
related to revenues generated by entities within the
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 theNIKE 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 2022 COMPARED TO FISCAL 2021 Corporate's loss before interest and taxes decreased$42 million during fiscal 2022, primarily due to the following: •a favorable change in net foreign currency gains and losses of$219 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; •an unfavorable change of$190 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to theNIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin; and •a favorable change of$13 million largely due to higher restructuring-related costs associated with our organizational realignment in the prior year and, to a lesser extent, a net favorable impact related to our strategic distributor partnership transition within APLA in the current year, partially offset by the one-time charge related to the deconsolidation of our Russian operations and higher administrative and wage-related expenses in fiscal 2022.
FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outsidethe 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 intoU.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 toNIKE, 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 theNIKE 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. 2022 FORM 10-K 42
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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 -
1.Product purchases denominated in currencies other than the functional currency of the transacting entity:
a.CertainNIKE entities purchase product from the NTC, a wholly-owned sourcing hub that buysNIKE branded products from third-party factories, predominantly inU.S. Dollars. The NTC, whose functional currency is theU.S. Dollar, then sells the products toNIKE entities in their respective functional currencies. NTC sales to aNIKE entity with a different functional currency results in a foreign currency exposure for the NTC. b.OtherNIKE entities purchase product directly from third-party factories inU.S. Dollars. These purchases generate a foreign currency exposure for thoseNIKE entities with a functional currency other than theU.S. Dollar.
In both purchasing scenarios, a weaker
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 ofNIKE 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 theU.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 fluctuatingU.S. Dollar on our non-functional currency denominated product purchases described above, a strengtheningU.S. Dollar against the foreign currencies within the factory currency exposure indices reducesNIKE 'sU.S. Dollar inventory cost. Conversely, a weakeningU.S. Dollar against the indexed foreign currencies increases our inventory cost. •Non-Functional Currency Denominated External Sales - A portion of ourNIKE 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. 2022 FORM 10-K 43
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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 theU.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 intoU.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated balance sheets intoU.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 weakerU.S. Dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a strongerU.S. Dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately$295 million , a benefit of approximately$893 million and a detriment of approximately$867 million for the years endedMay 31, 2022 , 2021 and 2020, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately$87 million , a benefit of approximately$260 million and a detriment of approximately$212 million for the years endedMay 31, 2022 , 2021 and 2020, respectively. Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Management has concluded ourArgentina 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 ourArgentina subsidiary changed from the local currency to theU.S. Dollar. As of and for the period endedMay 31, 2022 , 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 intoU.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchaseU.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of theseU.S. Dollar denominated investments at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting underU.S. GAAP. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of theseU.S. Dollar investments. The combination of the purchase and sale of theU.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 ofU.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 favorable impacts of approximately$132 million and$19 million and an unfavorable impact of approximately$91 million on our Income before income taxes for the years endedMay 31, 2022 , 2021 and 2020, 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 theU.S. Dollar, which could adversely impact theU.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 withU.S. GAAP. There were no outstanding net investment hedges as ofMay 31, 2022 and 2021. There were no cash flows from net investment hedge settlements for the years endedMay 31, 2022 , 2021 and 2020. 2022 FORM 10-K 44
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of$5,188 million for fiscal 2022 compared to$6,657 million for fiscal 2021. Net income, adjusted for non-cash items, generated$6,848 million of operating cash inflow for fiscal 2022 compared to$6,612 million for fiscal 2021. The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of$1,660 million for fiscal 2022, compared to an increase of$45 million for fiscal 2021. The net change in working capital was unfavorably impacted by a$2,183 million increase in Inventories, partially offset by a favorable impact from a$1,102 million decrease in Accounts receivable. These changes were, in part, due to supply chain constraints, which caused higher levels of in-transit inventory and therefore a lower supply of available inventory to meet consumer demand. Cash provided (used) by investing activities was an outflow of$1,524 million for fiscal 2022, compared to an outflow of$3,800 million for fiscal 2021, primarily driven by the net change in short-term investments. During fiscal 2022, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash outflow of$747 million compared to a cash outflow of$3,276 million in fiscal 2021. Additionally, during fiscal 2022, 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$4,836 million for fiscal 2022 compared to an outflow of$1,459 million for fiscal 2021. This change was driven by our resumption of the share repurchase program in the fourth quarter of fiscal 2021, resulting in$4,014 million of share repurchases during fiscal 2022 compared to$608 million during fiscal 2021. In fiscal 2022, we purchased 27.3 million shares ofNIKE 's Class B Common Stock for$3,994 million (an average price of$146.11 per share) under the four-year,$15 billion share repurchase program approved by the Board of Directors inJune 2018 . As ofMay 31, 2022 , we had repurchased 77.4 million shares at a cost of$8,663 million (an average price of$111.98 per share) under this program. InJune 2022 , the Board of Directors authorized a new four-year,$18 billion program to repurchase shares of the Company's Class B common stock. The new program will replace the current$15 billion share repurchase program, which will be terminated in fiscal 2023. Repurchases under the new program will be made in open market or privately negotiated transactions in compliance with the Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other relevant factors. The new share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended at any time at our discretion. 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
OnJuly 23, 2019 , we filed a shelf registration statement (the "Shelf") with theU.S. Securities and Exchange Commission (SEC) which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires onJuly 23, 2022 , and we plan to file a new shelf registration statement with theSEC inJuly 2022 . OnMarch 11, 2022 , we entered into a 364-day 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 with lender approval. The facility matures onMarch 10, 2023 , with an option to extend the maturity date an additional 364 days. This facility replaces the prior$1 billion 364-day credit facility agreement entered into onMarch 15, 2021 , which would have matured onMarch 14, 2022 . Refer to Note 7 - Short-Term Borrowings and Credit Lines for additional information. OnMarch 11, 2022 , we also entered into a five-year 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 with lender approval. The facility matures onMarch 11, 2027 , with options to extend the maturity date up to an additional two years. This facility replaces the prior$2 billion five-year credit facility agreement entered into onAugust 16, 2019 , which would have matured onAugust 16, 2024 . 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 andMoody's Investor Services , respectively. As it relates to our committed credit facilities entered into onMarch 11, 2022 , 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 immediately due and 2022 FORM 10-K 45
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payable. As of
Liquidity is also provided by our
We may continue to issue commercial paper or other debt securities depending on general corporate needs.
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 ofMay 31, 2022 , we had cash, cash equivalents and short-term investments totaling$13.0 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 ofMay 31, 2022 , the weighted-average days to maturity of our cash equivalents and short-term investments portfolio was 113 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.
Our material cash requirements as of
•Debt Obligations - Refer to Note 7 - Short-Term Borrowings and Credit Lines and Note 8 - Long-Term Debt in the accompanying Notes to the Consolidated Financial Statements for further information.
•Operating Leases - Refer to Note 19 - Leases in the accompanying Notes to the Consolidated Financial Statements for further information.
•Endorsement Contracts - As ofMay 31, 2022 , we had endorsement contract obligations of$7.6 billion , with$1.3 billion payable within 12 months, representing 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 these amounts 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. In addition to the cash payments, we are obligated to furnish our endorsers withNIKE product for their use. It is not possible to determine how much we will spend on this product on an annual basis as the amount of product provided to the endorsers will depend on many factors and the contracts generally do not stipulate a minimum amount of cash to be spent on the product. •Product Purchase Obligations - As ofMay 31, 2022 , we had product purchase obligations of$6.6 billion , all of which are payable within the next 12 months. 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. 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. In some cases, prices are subject to change throughout the production process. •Other Purchase Obligations - As ofMay 31, 2022 , we had$3.1 billion of other purchase obligations, with$1.7 billion payable within the next 12 months. Other purchase obligations primarily include technology investments, 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. 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. As a part of the transition tax related to the Tax Cuts and Jobs Act, as ofMay 31, 2022 , we had$730 million in estimated future cash payments, with$86 million payable within the next 12 months. These amounts represent the transition tax on deemed repatriation of undistributed earnings of foreign subsidiaries, which are 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 theUnited States Securities and Exchange Commission onJuly 24, 2020 , for additional information. 2022 FORM 10-K 46
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Refer to Note 18 - Commitments and Contingencies in the accompanying Notes to the Consolidated Financial Statements for further information related to our off-balance sheet arrangements, bank guarantees and letters of credit.
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.
NEW ACCOUNTING PRONOUNCEMENTS
We do not expect that any recently issued accounting pronouncements will have a material effect on our Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
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 inthe 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 assumptions and judgments involved in the accounting estimates described below have the greatest potential impact on our Consolidated Financial Statements, so we consider these to be our critical accounting estimates. Management has reviewed and discussed these critical accounting estimates with theAudit & 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 estimates. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. REVENUE RECOGNITION Revenue is recognized when transfer of control to the customer has occurred, which is either upon shipment or upon receipt, depending on the terms of sale. The transaction price is determined based upon the invoiced sales price, less anticipated sales returns, discounts and miscellaneous claims from customers. 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 in the accompanying Notes to the Consolidated Financial Statements for additional information. 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. 2022 FORM 10-K 47
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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 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 inthe 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.
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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 historically had not provided for deferred income taxes on the undistributed earnings of certain foreign subsidiaries as they were considered indefinitely reinvested outside theU.S. During the fourth quarter of fiscal 2022, in connection with a change in our legal entity structure that reduced the withholding tax consequences of a decision to remit undistributed earnings inthe Netherlands , we changed our assertion regarding our ability and intent to indefinitely reinvest undistributed earnings of certain foreign subsidiaries. We have evaluated our historic indefinite reinvestment assertion as a result of the legal entity restructuring and determined that any historical or future undistributed earnings of foreign subsidiaries are no longer considered to be indefinitely reinvested. There is no deferred tax liability associated with those earnings. 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.
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.
Refer to Note 18 - Commitments and Contingencies in the accompanying Notes to the Consolidated Financial Statements for additional information.
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