NIKE: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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PREVIEW

NIKE designs, develops, markets and sells athletic footwear, apparel, equipment,
accessories and services worldwide. We are the largest seller of athletic
footwear and apparel in the world. We sell our products through NIKE-owned
retail stores and through digital platforms (which we refer to collectively as
our "NIKE Direct" operations), to retail accounts and to a mix of independent
distributors, licensees and sales representatives in virtually all countries
around the world. Our goal is to deliver value to our shareholders by building a
profitable global portfolio of branded footwear, apparel, equipment and
accessories businesses. Our strategy is to achieve long-term revenue growth by
creating innovative, "must-have" products, building deep personal consumer
connections with our brands and delivering compelling consumer experiences
through digital platforms and at retail.
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 NIKE Digital and our owned stores, as well as select
strategic partners who share our marketplace vision. We have aligned our product
creation and category organizations around a new consumer construct focused on
Men's, Women's, Kids' and the Jordan Brand 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 will further
accelerate our digital transformation.
During fiscal 2021, we substantially completed a series of leadership and
operating model changes to streamline and speed up strategic execution of the
Consumer Direct Acceleration. During the first quarter of fiscal 2022 and the
first quarter of fiscal 2021, the Company recognized an immaterial amount of
related employee termination costs and, to a lesser extent, stock-based
compensation expense.
COVID-19 UPDATE
The COVID-19 pandemic continues to create volatility in our business results and
operations globally, causing us to transform the way we operate in order to
better serve our consumers. During the first quarter of fiscal 2022, we
continued to experience strong consumer demand with Revenues growing 16% and
gross margin expanding 170 basis points compared to the prior year.
However, during the first quarter of fiscal 2022, the majority of NIKE Brand and
Converse contract manufacturers in Vietnam and Indonesia were subject to
government mandated shutdowns due to COVID-19. These closures have, and are
expected to continue to, significantly impact our previously planned inventory
production for our upcoming holiday and spring seasons. As a result of these
closures, we have lost approximately ten weeks of production. Although the
timing remains uncertain and is subject to factors outside of our control,
re-opening plans continue to be approved for factories in Vietnam and we
anticipate most factories will re-open in October. Currently, factories in
Indonesia are open and operational. Once factories re-open we expect it will
take several months for them to return to full production. For fiscal 2021, 51%
of NIKE Brand footwear and 30% of NIKE Brand apparel was manufactured in
Vietnam, and 24% of NIKE Brand footwear and less than 12% of NIKE Brand apparel
was manufactured in Indonesia.
Additionally, the extended inventory transit times we experienced in fiscal
2021, due primarily to port congestion, transportation delays as well as labor
and container shortages, worsened during the first quarter of fiscal 2022,
negatively impacting our product availability, most prominently in our wholesale
channel. We also experienced higher transportation and logistics costs as a
result of this dynamic environment, which negatively impacted gross margin
expansion in the first quarter of fiscal 2022.
We expect the combination of factory closures and elevated transit times will
continue to impact product availability leading to inventory shortages and will
negatively impact revenue growth for the remainder of the fiscal year. In
addition, we expect transportation and logistics costs will continue to be
elevated as we navigate these supply chain constraints throughout the fiscal
year. We expect all our geographies and Converse will continue to be impacted by
these factors throughout fiscal 2022 with countries in Asia expected to be more
significantly impacted in the second quarter of fiscal 2022 and others expected
to experience a greater impact in the second half of fiscal 2022 due to higher
levels of in-transit inventory at the end of the first quarter of fiscal 2022.
To mitigate the impact across our business, our teams are continuing to leverage
our operational playbook and taking actions where we can, including shifting
production capacity to other countries, strategic use of air freight and
employing a seasonless approach to products. Despite these short-term dynamics,
our Consumer Direct Acceleration strategy continues to drive our business
towards our long-term fiscal 2025 financial goals shared in our Annual Report on
Form 10-K for the fiscal year ended May 31, 2021.
Our NIKE Direct business has continued its momentum in the first quarter,
fueling our growth as we continue to navigate through the pandemic by leveraging
our digital platforms with our store footprint to connect directly with the
consumer. NIKE Brand Digital revenues grew 25% on a currency-neutral basis for
the first quarter of fiscal 2022, even with improved physical traffic levels in
most of our geographies compared to the prior year. During the quarter, we
experienced an increase in comparable store sales in
                                                                            

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North America, EMEA and APLA primarily due to improved physical retail traffic,
partially offset by a decline in comparable store sales in Greater China, in
part due to ongoing marketplace dynamics and a COVID-19 resurgence during the
first quarter of fiscal 2022. As of October 1, 2021, approximately 99% of our
owned stores were open with some operating on reduced hours.
During the quarter, we continued to invest in our digital transformation and
brand campaigns as the world continues its return to sport. For the remainder of
fiscal 2022, we will maintain our multi-year investment plans in order to
transform our business for the future.
We continue to monitor the ongoing and dynamic impacts of COVID-19, as well as
guidance from international and domestic authorities, including federal, state
and local public health authorities and may take additional actions based on
their recommendations. There may be developments outside our control that
require us to adjust our operating plan, such as our assumption on the pace of
re-opening and return to full production of factories in Vietnam and the planned
shift of production capacity to other countries following factory closures in
Vietnam and Indonesia. Such developments and other potential impacts of
COVID-19, such as new or prolonged factory closures, higher inventory levels or
inventory shortages in various markets, other adverse impacts on the global
supply chain, revised payment terms with certain of our wholesale customers,
higher sales-related reserves, factory cancellation costs and a volatile
effective tax rate driven by changes in the mix of earnings across our
jurisdictions, among other factors, could have material adverse impacts on our
revenue growth as well as our overall profitability in future periods.
FIRST QUARTER OVERVIEW
For the first quarter of fiscal 2022, NIKE, Inc. Revenues increased 16% to $12.2
billion compared to the first quarter of fiscal 2021. On a currency-neutral
basis, Revenues increased 12%. Net income was $1,874 million and diluted
earnings per common share was $1.16 for the first quarter of fiscal 2022,
compared to Net income of $1,518 million and diluted earnings per common share
of $0.95 for the first quarter of fiscal 2021.
Income before income taxes increased 23% compared to the first quarter of fiscal
2021, due to higher revenues and gross margin expansion, partially offset by
higher selling and administrative expense. The NIKE Brand, which represents over
90% of NIKE, Inc. Revenues, increased 16% compared to the first quarter of
fiscal 2021. On a currency-neutral basis, NIKE Brand revenues increased 12%,
primarily driven by higher revenues in North America, APLA and EMEA.
Additionally, NIKE Brand currency-neutral revenues were higher across footwear
and apparel, as well as Men's, Women's, the Jordan Brand and Kids'. Revenues for
Converse increased 12% and 7% compared to the first quarter of fiscal 2021, on a
reported and currency-neutral basis, respectively, led by performance in Direct
to consumer in both North America and Western Europe.
Our effective tax rate was 11.0% for the first quarter of fiscal 2022, compared
to 11.5% for the first quarter of fiscal 2021, primarily due to a more favorable
impact from stock-based compensation and discrete items, such as the recognition
of a reserve in the first quarter of fiscal 2021 related to Altera Corp. v.
Commissioner, partially offset by a change in the proportion of earnings taxed
in the U.S.
During fiscal 2021, the transaction with Grupo SBF S.A. to purchase
substantially all of our NIKE Brand operations in Brazil closed. We remain
committed to selling our Argentina, Chile and Uruguay legal entities and
granting distribution rights to third-party distributors. As such, the assets
and liabilities of these entities have remained classified as held-for-sale on
the Unaudited Condensed Consolidated Balance Sheets. For more information see
Note 12 - Acquisitions and Divestitures within the accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.
USE OF NON-GAAP FINANCIAL MEASURES
Throughout this Quarterly Report on Form 10-Q, we discuss non-GAAP financial
measures, including references to wholesale equivalent revenues,
currency-neutral revenues, as well as Total NIKE Brand earnings before interest
and taxes (EBIT), Total NIKE, Inc. EBIT and EBIT Margin, which should be
considered in addition to, and not in lieu of, the financial measures calculated
and presented in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP"). References to wholesale equivalent
revenues are intended to provide context as to the total size of our NIKE Brand
market footprint if we had no NIKE Direct operations. NIKE Brand wholesale
equivalent revenues consist of (1) sales to external wholesale customers and (2)
internal sales from our wholesale operations to our NIKE Direct operations,
which are charged at prices comparable to those charged to external wholesale
customers. Additionally, currency-neutral revenues are calculated using actual
exchange rates in use during the comparative prior year period to enhance the
visibility of the underlying business trends excluding the impact of translation
arising from foreign currency exchange rate fluctuations. EBIT is calculated as
Net Income before Interest expense (income), net and Income tax expense in the
Unaudited Condensed Consolidated Statements of Income. EBIT Margin is calculated
as EBIT divided by total NIKE, Inc. Revenues.
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, EBIT and EBIT margin
should not be considered in isolation or as a substitute for other financial
measures calculated and presented in accordance with U.S. GAAP and may not be
comparable to similarly titled non-GAAP measures used by other companies.
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RESULTS OF OPERATIONS
                                                                        THREE MONTHS ENDED AUGUST 31,
(Dollars in millions, except per share data)                      2021              2020                  % CHANGE
Revenues                                                    $      12,248     $      10,594                  16  %
Cost of sales                                                       6,552             5,853                  12  %
Gross profit                                                        5,696             4,741                  20  %
Gross margin                                                         46.5   %          44.8  %
Demand creation expense                                               918               677                  36  %
Operating overhead expense                                          2,654             2,298                  15  %
Total selling and administrative expense                            3,572             2,975                  20  %
% of revenues                                                        29.2   %          28.1  %
Interest expense (income), net                                         57                65                   -
Other (income) expense, net                                           (39)              (14)                  -
Income before income taxes                                          2,106             1,715                  23  %
Income tax expense                                                    232               197                  18  %
Effective tax rate                                                   11.0   %          11.5  %
NET INCOME                                                  $       1,874     $       1,518                  23  %
Diluted earnings per common share                           $        1.16     $        0.95                  22  %


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CONSOLIDATED OPERATING RESULTS
REVENUES
                                                                      THREE MONTHS ENDED AUGUST 31,
                                                                                                      % CHANGE EXCLUDING
(Dollars in millions)                                   2021            2020               % CHANGE  CURRENCY CHANGES(1)
NIKE, Inc. Revenues:
NIKE Brand Revenues by:
Footwear                                          $        7,718    $   6,768                 14  %                10  %
Apparel                                                    3,450        2,875                 20  %                16  %
Equipment                                                    465          371                 25  %                22  %
Global Brand Divisions(2)                                      7            4                 75  %                38  %
Total NIKE Brand Revenues                                 11,640       10,018                 16  %                12  %
Converse                                                     629          563                 12  %                 7  %
Corporate(3)                                                 (21)          13                  -                    -
TOTAL NIKE, INC. REVENUES                         $       12,248    $  10,594                 16  %                12  %
Supplemental NIKE Brand Revenues Details:
NIKE Brand Revenues by:
Sales to Wholesale Customers                      $        6,943    $   6,364                  9  %                 5  %
Sales through NIKE Direct                                  4,690        3,650                 28  %                25  %
Global Brand Divisions(2)                                      7            4                 75  %                38  %
TOTAL NIKE BRAND REVENUES                         $       11,640    $  10,018                 16  %                12  %


(1)The percent change excluding currency changes represents a non-GAAP financial
measure. See "Use of Non-GAAP Financial Measures" for further information.
(2)Global Brand Divisions revenues are primarily attributable to NIKE Brand
licensing businesses that are not part of a geographic operating segment.
(3)Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the NIKE Brand
geographic operating segments and Converse, but managed through our central
foreign exchange risk management program.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
On a currency-neutral basis, NIKE, Inc. Revenues increased 12% for the first
quarter of fiscal 2022, driven by higher revenues in both the NIKE Brand and
Converse. Higher revenues in North America, APLA, EMEA and Converse contributed
approximately 6, 3, 2 and 1 percentage points to NIKE, Inc. Revenues,
respectively.
On a currency-neutral basis, NIKE Brand footwear revenues increased 10% in the
first quarter of fiscal 2022, driven by higher revenues in the Jordan Brand,
Women's, Men's and Kids'. Unit sales of footwear increased 5%, while higher
average selling price (ASP) per pair contributed approximately 5 percentage
points of footwear revenue growth, primarily due to higher NIKE Direct ASP, on a
wholesale equivalent basis, as well as the favorable impact of growth in our
NIKE Direct business.
Currency-neutral NIKE Brand apparel revenues, for the first quarter of fiscal
2022, increased 16%, driven by higher revenues in Men's, Women's and the Jordan
Brand. Unit sales of apparel increased 8% and higher ASP per unit contributed
approximately 8 percentage points of apparel revenue growth. Higher ASP per unit
was primarily due to higher full-price and NIKE Direct ASPs.
On a reported basis, NIKE Direct revenues represented approximately 40% of our
total NIKE Brand revenues for the first quarter of fiscal 2022 compared to 36%
for the first quarter of fiscal 2021. Digital commerce sales were $2.5 billion
for the first quarter of fiscal 2022 compared to $1.9 billion for the first
quarter of fiscal 2021. On a currency-neutral basis, NIKE Direct revenues
increased 25%, driven by digital commerce sales growth of 25%, comparable store
sales growth of 22%, in part due to improved physical retail traffic, and the
addition of new stores. Comparable store sales, which exclude digital commerce
sales, comprises revenues from NIKE-owned in-line and factory stores for which
all three of the following requirements have been met: (1) the store has been
open at least one year, (2) square footage has not changed by more than 15%
within the past year and (3) the store has not been permanently repositioned
within the past year. Comparable store sales includes revenues from stores that
were temporarily closed during the period as a result of COVID-19. Comparable
store sales represents a performance measure that we believe is useful
information for management and investors in understanding the performance of our
established NIKE-owned in-line and factory stores. Management considers this
metric when making financial and operating decisions. The method of calculating
comparable
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store sales varies across the retail industry. As a result, our calculation of
this metric may not be comparable to similarly titled measures used by other
companies.
GROSS MARGIN
                                           THREE MONTHS ENDED AUGUST 31,
           (Dollars in millions)         2021              2020         % CHANGE
           Gross profit            $       5,696     $       4,741         20  %
           Gross margin                     46.5   %          44.8  %    170 bps


For the first quarter of fiscal 2022, our consolidated gross margin was 170
basis points higher than the prior year period and primarily reflected the
following factors:
•Higher margin in our NIKE Direct business, as we experienced higher promotional
activity in the prior year due to COVID-19 (increasing gross margin
approximately 160 basis points);
•Higher mix of full-price sales, on a wholesale equivalent basis, (increasing
gross margin approximately 60 basis points);
•Favorable changes in net foreign currency exchange rates, including hedges,
(increasing gross margin approximately 20 basis points);
•Higher NIKE Brand product costs, on a wholesale equivalent basis, primarily due
to increased freight costs (decreasing gross margin approximately 120 basis
points); and
•Lower other costs, in part due to the release of factory cancellation cost
accruals occurring in the prior year, which was more than offset by lower
storage costs and reduced inventory obsolescence in the first quarter of fiscal
2022, among other things, (increasing gross margin approximately 50 basis
points).
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
                                                     THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                              2021              2020         % CHANGE
Demand creation expense(1)                   $         918     $         677         36  %
Operating overhead expense                           2,654             2,298         15  %
Total selling and administrative expense     $       3,572     $       2,975         20  %
% of revenues                                         29.2   %          28.1  %    110 bps


(1)Demand creation expense consists of advertising and promotion costs,
including costs of endorsement contracts, complimentary products, television,
digital and print advertising and media costs, brand events and retail brand
presentation.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
Demand creation expense increased 36% for the first quarter of fiscal 2022
primarily due to higher 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 increased Demand creation expense by
approximately 3 percentage points.
Operating overhead expense increased 15% primarily due to an increase in
wage-related expenses, higher strategic technology investments and NIKE Direct
variable costs. Changes in foreign currency exchange rates increased Operating
overhead expense by approximately 2 percentage points.
OTHER (INCOME) EXPENSE, NET
                                     THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                         2021                  2020
Other (income) expense, net   $           (39)                     $ (14)


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.
For the first quarter of fiscal 2022, Other (income) expense, net was relatively
flat compared to the prior year.
                                                                            

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We estimate the combination of the translation of foreign currency-denominated
profits from our international businesses and the year-over-year change in
foreign currency-related gains and losses included in Other (income) expense,
net had favorable impacts of approximately $104 million on our Income before
income taxes for the first quarter of fiscal 2022.
INCOME TAXES
                                THREE MONTHS ENDED AUGUST 31,
                                  2021                2020      % CHANGE
Effective tax rate                          11.0  %  11.5  %    (50) bps


Our effective tax rate was 11.0% for the first quarter of fiscal 2022, compared
to 11.5% for the first quarter of fiscal 2021, primarily due to a more favorable
impact from stock-based compensation and discrete items, such as the recognition
of a reserve in the first quarter of fiscal 2021 related to Altera Corp. v.
Commissioner, partially offset by a change in the proportion of earnings taxed
in the U.S.
Refer to Note 5 - Income Taxes within the accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements for additional information.
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OPERATING SEGMENTS
Our operating segments are evidence of the structure of the Company's internal
organization. The NIKE Brand segments are defined by geographic regions for
operations participating in NIKE Brand sales activity.
Each NIKE Brand geographic segment operates predominantly in one industry: the
design, development, marketing and selling of athletic footwear, apparel and
equipment. The Company's reportable operating segments for the NIKE Brand are:
North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia
Pacific & Latin America (APLA), and include results for the NIKE and Jordan
brands. The Company's NIKE Direct operations are managed within each geographic
operating segment. Converse is also a reportable operating segment for the
Company, and operates predominately in one industry: the design, marketing,
licensing and selling of athletic lifestyle sneakers, apparel and accessories.
As part of our centrally managed foreign exchange risk management program,
standard foreign currency exchange rates are assigned twice per year to each
NIKE Brand entity in our geographic operating segments and Converse. These rates
are set approximately nine and twelve months in advance of the future selling
seasons to which they relate (specifically, for each currency, one standard rate
applies to the fall and holiday selling seasons and one standard rate applies to
the spring and summer selling seasons) based on average market spot rates in the
calendar month preceding the date they are established. Inventories and Cost of
sales for geographic operating segments and Converse reflect the use of these
standard rates to record non-functional currency product purchases into the
entity's functional currency. Differences between assigned standard foreign
currency exchange rates and actual market rates are included in Corporate,
together with foreign currency hedge gains and losses generated from our
centrally managed foreign exchange risk management program and other conversion
gains and losses.
The breakdown of Revenues is as follows:
                                                                            

THREE MONTHS ENDED 31 AUG,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                             2021            2020               % CHANGE  CURRENCY CHANGES(1)
North America                                               $        4,879    $   4,225                 15  %                15  %
Europe, Middle East & Africa                                         3,307        2,910                 14  %                 8  %
Greater China                                                        1,982        1,780                 11  %                 1  %
Asia Pacific & Latin America                                         1,465        1,099                 33  %                31  %
Global Brand Divisions(2)                                                7            4                 75  %                38  %
TOTAL NIKE BRAND                                                    11,640       10,018                 16  %                12  %
Converse                                                               629          563                 12  %                 7  %
Corporate(3)                                                           (21)          13                  -                    -
TOTAL NIKE, INC. REVENUES                                   $       12,248    $  10,594                 16  %                12  %


(1)  The percent change excluding currency changes represents a non-GAAP
financial measure. See "Use of Non-GAAP Financial Measures" for further
information.
(2)  Global Brand Divisions revenues include NIKE Brand licensing and other
miscellaneous revenues that are not part of a geographic operating segment.
(3)  Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the NIKE Brand
geographic operating segments and Converse, but managed through our central
foreign exchange risk management program.
The primary financial measure used by the Company to evaluate performance of
individual operating segments is EBIT, which represents Net income before
Interest expense (income), net and Income tax expense in the Unaudited Condensed
Consolidated Statements of Income. As discussed in Note 11 - Operating Segments
in the accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements, certain corporate costs are not included in EBIT of our operating
segments.
                                                                            

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

                                                                    THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                                         2021              2020                  % CHANGE
North America                                           $       1,434     $       1,302                  10  %
Europe, Middle East & Africa                                      875               692                  26  %
Greater China                                                     701               688                   2  %
Asia Pacific & Latin America                                      481               280                  72  %
Global Brand Divisions                                           (987)             (853)                -16  %
TOTAL NIKE BRAND(1)                                             2,504             2,109                  19  %
Converse                                                          204               168                  21  %
Corporate                                                        (545)             (497)                -10  %

TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAX (1) 2,163

       1,780                  22  %
EBIT margin(1)                                                   17.7   %          16.8  %
Interest expense (income), net                                     57                65                   -
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES             $       2,106     $       1,715                  23  %


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

THREE MONTHS ENDED 31 AUG,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2021           2020               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $       3,264    $   2,957                 10  %               10  %
Apparel                                                               1,430        1,125                 27  %               27  %
Equipment                                                               185          143                 29  %               29  %
TOTAL REVENUES                                                $       4,879    $   4,225                 15  %               15  %
Revenues by:
Sales to Wholesale Customers                                  $       2,678    $   2,719                 -2  %               -2  %
Sales through NIKE Direct                                             2,201        1,506                 46  %               46  %
TOTAL REVENUES                                                $       4,879    $   4,225                 15  %               15  %
EARNINGS BEFORE INTEREST AND TAXES                            $       1,434    $   1,302                 10  %


We believe there continues to be a meaningful shift in the way consumers shop
for product and make purchasing decisions across each of our geographies.
Consumers are demanding a constant flow of fresh and innovative product, and
have an expectation for superior service and rapid delivery, all fueled by the
shift toward digital and mono-brand experiences in NIKE Direct. We anticipate
continued evolution within the retail landscape, driven by shifting consumer
traffic patterns across digital and physical channels. Specifically in North
America, we remain focused on building long-term momentum with our strategic
wholesale customers, which offer a differentiated retail experience.
Additionally, over the last three years we have significantly reduced the number
of undifferentiated wholesale accounts. During fiscal 2021 and the first quarter
of fiscal 2022, we took further steps towards account and channel consolidation
by reprioritizing product allocation to benefit NIKE Direct and our
differentiated strategic wholesale customers. We expect over the next two fiscal
years, we will more aggressively accelerate these changes as we work to
reprofile the shape of the marketplace and recapture wholesale revenue declines
over time.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
On a currency-neutral basis, North America revenues for the first quarter of
fiscal 2022 increased 15%, due primarily to higher revenues in Women's, Men's,
the Jordan Brand and Kids'. NIKE Direct revenues increased 46%, driven by strong
digital sales growth of 43%, comparable store sales growth of 49%, in part due
to improved physical retail traffic and the addition of new stores.
Footwear revenues increased 10% on a currency-neutral basis, largely driven by
significant growth in digital. Unit sales of footwear increased 4%, while higher
ASP per pair contributed approximately 6 percentage points. Higher ASP per pair
was primarily due to the favorable impact of growth in our NIKE Direct business,
as well as higher NIKE Direct ASPs, partially offset by lower full-price ASP.
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On a currency-neutral basis, apparel revenues increased 27%, driven primarily by
higher revenues in Men's and Women's. Unit sales of apparel increased 13%, while
higher ASP per unit contributed approximately 14 percentage points. The increase
in ASP per unit was primarily driven by higher full-price and NIKE Direct ASPs,
as well as the favorable impact of growth in our NIKE Direct business.
Reported EBIT increased 10% as higher revenues and gross margin expansion more
than offset higher selling and administrative expense. Gross margin increased
approximately 60 basis points primarily due to the favorable impact of growth in
our NIKE Direct business, as well as higher margins in NIKE Direct and a higher
mix of full-price sales. This activity was partially offset by higher product
costs as favorable impacts from product mix were more than offset by increased
freight charges, as well as lower full-price ASP, net of discounts primarily due
to shifts in product mix compared to the prior year. 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 digital marketing investments and sports
marketing costs. The increase in operating overhead expense reflected higher
wage-related costs, as well as an increase in strategic technology investments.
EUROPE, MIDDLE EAST & AFRICA
                                                                            

THREE MONTHS ENDED 31 AUG,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2021           2020               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $       1,983    $   1,802                 10  %                4  %
Apparel                                                               1,159          971                 19  %               13  %
Equipment                                                               165          137                 20  %               15  %
TOTAL REVENUES                                                $       3,307    $   2,910                 14  %                8  %
Revenues by:
Sales to Wholesale Customers                                  $       2,224    $   1,973                 13  %                7  %
Sales through NIKE Direct                                             1,083          937                 16  %               10  %
TOTAL REVENUES                                                $       3,307    $   2,910                 14  %                8  %
EARNINGS BEFORE INTEREST AND TAXES                            $         875    $     692                 26  %


FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
On a currency-neutral basis, EMEA revenues for the first quarter of fiscal
2022 increased 8%, due primarily to higher revenues in Men's, Women's and the
Jordan Brand. NIKE Direct revenues increased 10% primarily due to comparable
store sales growth of 16%, in part due to improved physical retail traffic, the
addition of new stores and digital sales growth of 2%.
Currency-neutral footwear revenues increased 4%, driven primarily by higher
revenues in the Jordan Brand and Men's, partially offset by a decline in
Women's. Unit sales of footwear increased 2%, while higher ASP per pair
contributed approximately 2 percentage points. Higher ASP per pair was primarily
due to lower off-price ASP, which was more than offset by higher full-price and
NIKE Direct ASPs.
Currency-neutral apparel revenues increased 13% due primarily to higher revenues
in Men's and Women's. Unit sales of apparel increased 7%, while higher ASP per
unit contributed approximately 6 percentage points, primarily due to higher
full-price and NIKE Direct ASPs.
Reported EBIT increased 26% due to higher revenues, gross margin expansion and
lower selling and administrative expense as a percent of revenues. Gross margin
increased approximately 260 basis points primarily due to higher NIKE Direct
margins, favorable changes in standard foreign currency exchange rates and a
higher mix of full-price sales, partially offset by higher product costs
primarily due to increased freight charges. Selling and administrative expense
increased due to higher operating overhead and demand creation expense. Higher
operating overhead expense was primarily due to higher wage-related expenses.
Higher demand creation expense was driven by higher advertising and marketing
expenses.
                                                                            

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GREATER CHINA

THREE MONTHS ENDED 31 AUG,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2021           2020               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $       1,449    $   1,251                 16  %                6  %
Apparel                                                                 476          478                  0  %               -9  %
Equipment                                                                57           51                 12  %                3  %
TOTAL REVENUES                                                $       1,982    $   1,780                 11  %                1  %
Revenues by:
Sales to Wholesale Customers                                  $       1,114    $     964                 16  %                5  %
Sales through NIKE Direct                                               868          816                  6  %               -3  %
TOTAL REVENUES                                                $       1,982    $   1,780                 11  %                1  %
EARNINGS BEFORE INTEREST AND TAXES                            $         701    $     688                  2  %


FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
On a currency-neutral basis, Greater China revenues for the first quarter of
fiscal 2022 increased 1%, reflecting impacts from a COVID-19 resurgence and
ongoing marketplace dynamics. The increase in revenues was primarily due to
higher revenues in the Jordan Brand and Men's, partially offset by declines in
Women's and Kids'. NIKE Direct revenues decreased 3% due to comparable store
sales declines of 6% in part due to reduced physical retail traffic, as well as
digital sales declines of 6%, partially offset by the addition of new stores.
Currency-neutral footwear revenues increased 6% for the first quarter of fiscal
2022, driven primarily by higher revenues in Men's and the Jordan Brand. Unit
sales of footwear increased 5%, while higher ASP per pair contributed
approximately 1 percentage point of footwear revenue growth, driven by higher
full-price ASP.
Currency-neutral apparel revenues decreased 9% for the first quarter of fiscal
2022 due primarily to lower revenues in Women's. Unit sales of apparel decreased
4%, while lower ASP per unit reduced apparel revenues by approximately 5
percentage points, primarily due to lower NIKE Direct ASP.
Reported EBIT increased 2% as higher revenues more than offset gross margin
contraction and higher selling and administrative expense. Gross margin
decreased approximately 150 basis points reflecting higher product costs and
lower off-price margin, which more than offset higher full-price ASP, net of
discounts. Selling and administrative expense increased due to higher operating
overhead and demand creation expense. Growth in operating overhead expense was
primarily driven by higher wage-related and other administrative costs. Demand
creation expense increased primarily due to higher advertising and marketing
expense.
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ASIA PACIFIC & LATIN AMERICA

THREE MONTHS ENDED 31 AUG,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2021           2020               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $       1,022    $     758                 35  %               33  %
Apparel                                                                 385          301                 28  %               26  %
Equipment                                                                58           40                 45  %               44  %
TOTAL REVENUES                                                $       1,465    $   1,099                 33  %               31  %
Revenues by:
Sales to Wholesale Customers                                  $         927    $     708                 31  %               28  %
Sales through NIKE Direct                                               538          391                 38  %               36  %
TOTAL REVENUES                                                $       1,465    $   1,099                 33  %               31  %
EARNINGS BEFORE INTEREST AND TAXES                            $         481    $     280                 72  %


As discussed previously, our NIKE Brand business in Brazil transitioned to a
distributor operating model during fiscal 2021 and our NIKE Brand businesses in
Argentina, Chile and Uruguay have remained classified as held-for-sale. The
impacts of closing the Brazil transaction as well as classifying the Argentina,
Chile, and Uruguay 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 12 - Acquisitions and Divestitures within the accompanying
Notes to the Unaudited Condensed Consolidated Financial Statements.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
On a currency-neutral basis, APLA revenues increased 31% for the first quarter
of fiscal 2022. Territory revenue growth was led by a 144% increase in SOCO
(which comprises Argentina, Chile and Uruguay), a 24% increase in Japan, a 86%
increase in Mexico and a 26% increase in Korea. Revenues increased primarily due
to higher revenues in Men's and Women's. NIKE Direct revenues increased 36%,
primarily due to digital sales growth of 62% and comparable store sales growth
of 18%, in part due to improved physical retail traffic.
Currency-neutral footwear revenues increased 33% for the first quarter of fiscal
2022 due primarily to higher revenues in Men's and Women's. Unit sales of
footwear increased 19%, while higher ASP per pair contributed approximately 14
percentage points. Higher ASP per pair was driven by higher NIKE Direct ASP as
well as higher full-price ASPs, due to lower discounts, and a higher mix of
full-price sales. Higher ASPs, in part, reflect inflationary conditions in our
SOCO territory.
Currency-neutral apparel revenues increased 26% for the first quarter of fiscal
2022 due primarily to higher revenues in Men's and Women's. Unit sales of
apparel increased 12%, and higher ASP per unit contributed approximately 14
percentage points, driven by higher full-price ASP, reflecting lower discounts,
and higher NIKE Direct ASP partially offset by a lower mix of NIKE Direct sales.
Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.
Reported EBIT increased 72% for the first quarter of fiscal 2022 due to higher
revenues, gross margin expansion and lower selling and administrative expense as
a percent of revenues. Gross margin increased approximately 560 basis points
primarily due to lower other costs, higher NIKE Direct margins, higher
full-price ASP, primarily due to lower discounts, and a higher mix of full-price
sales. The decrease in other costs was primarily due to the favorable rate
impact of fixed supply chain costs on a higher volume of wholesale shipments, as
well as lower inventory obsolescence. 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 in NIKE Direct strategic
technology investments, as well as higher wage-related expenses.
GLOBAL BRAND DIVISIONS
                                                                          

THREE MONTHS ENDED 31 AUG,

                                                                                                         % CHANGE EXCLUDING
(Dollars in millions)                                       2021            2020               % CHANGE    CURRENCY CHANGES
Revenues                                              $            7    $       4                 75  %               38  %
Earnings (Loss) Before Interest and Taxes             $         (987)   $    (853)               -16  %


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Global Brand Divisions primarily represent demand creation and operating
overhead expense, including product creation and design expenses that are
centrally managed for the NIKE Brand, as well as costs associated with NIKE
Direct global digital operations and enterprise technology. Global Brand
Divisions revenues include NIKE Brand licensing and other miscellaneous revenues
that are not part of a geographic operating segment.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
Global Brand Divisions' loss before interest and taxes increased 16% for the
first quarter of fiscal 2022 driven by higher operating overhead and higher
demand creation expense. Higher operating overhead expense was primarily due to
an increase in strategic technology investments. Higher demand creation expense
was primarily due to higher advertising and marketing expense.
CONVERSE
                                                                            

THREE MONTHS ENDED 31 AUG,

                                                                                                                % CHANGE EXCLUDING
(Dollars in millions)                                               2021           2020               % CHANGE    CURRENCY CHANGES
Revenues by:
Footwear                                                      $         567    $     513                 11  %                6  %
Apparel                                                                  24           22                  9  %               -1  %
Equipment                                                                 9            9                  0  %               -6  %
Other(1)                                                                 29           19                 53  %               55  %
TOTAL REVENUES                                                $         629    $     563                 12  %                7  %
Revenues by:
Sales to Wholesale Customers                                  $         369    $     373                 -1  %               -6  %
Sales through Direct to Consumer                                        231          171                 35  %               32  %
Other(1)                                                                 29           19                 53  %               55  %
TOTAL REVENUES                                                $         629    $     563                 12  %                7  %
EARNINGS BEFORE INTEREST AND TAXES                            $         204    $     168                 21  %


(1)Other revenues consist of territories serviced by third-party licensees who
pay royalties to Converse for the use of its registered trademarks and other
intellectual property rights. We do not own the Converse trademarks in Japan and
accordingly do not earn revenues in Japan.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
On a currency-neutral basis, Converse revenues increased 7% for the first
quarter of fiscal 2022 driven by revenue growth in North America and licensee
markets, partially offset by declines in Asia and Western Europe. Wholesale
revenues decreased 6%, in part due to supply chain constraints, while Direct to
consumer revenues increased 32%, as strong direct to consumer sales growth
across North America and Western Europe more than offset declines in Asia.
Combined unit sales within the wholesale and direct to consumer channels
decreased 8%, while ASP increased 14%, primarily due to higher full-price ASP,
due to lower discounts and growth in direct to consumer.
Reported EBIT increased 21%, driven by higher revenues and gross margin
expansion, partially offset by higher selling and administrative expense. Gross
margin increased approximately 340 basis points as higher product costs due to
increased duty and freight charges were more than offset by higher margins in
our direct to consumer business, lower other costs and growth in licensee
revenues. 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. Operating overhead
expense increased primarily due to higher administrative expenses.
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CORPORATE
                                                                   THREE MONTHS ENDED AUGUST 31,
(Dollars in millions)                                          2021            2020                 % CHANGE
Revenues                                                $           (21)   $       13                   -
Earnings (Loss) Before Interest and Taxes               $          (545)   $     (497)                -10  %


Corporate revenues primarily consist of foreign currency hedge gains and losses
related to revenues generated by entities within the NIKE Brand geographic
operating segments and Converse, but managed through our central foreign
exchange risk management program.
The Corporate loss before interest and taxes primarily consists of unallocated
general and administrative expenses, including expenses associated with
centrally managed departments; depreciation and amortization related to our
corporate headquarters; unallocated insurance, benefit and compensation
programs, including stock-based compensation; and certain foreign currency gains
and losses.
In addition to the foreign currency gains and losses recognized in Corporate
revenues, foreign currency results in Corporate include gains and losses
resulting from the difference between actual foreign currency exchange rates and
standard rates used to record non-functional currency denominated product
purchases within the NIKE Brand geographic operating segments and Converse;
related foreign currency hedge results; conversion gains and losses arising from
remeasurement of monetary assets and liabilities in non-functional currencies;
and certain other foreign currency derivative instruments.
FIRST QUARTER OF FISCAL 2022 COMPARED TO FIRST QUARTER OF FISCAL 2021
Corporate's loss before interest and taxes increased $48 million for the first
quarter of fiscal 2022, primarily due to the following:
•an unfavorable change of $33 million, primarily due to higher operating
overhead expense driven by higher wage-related costs;
•an unfavorable change in net foreign currency gains and losses of $13 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; and
•an unfavorable change of $2 million related to the difference between actual
foreign currency exchange rates and standard foreign currency exchange rates
assigned to the NIKE Brand geographic operating segments and Converse, net of
hedge gains and losses; these results are reported as a component of
consolidated gross margin.
FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outside the United States, in
the normal course of business we are exposed to risk arising from changes in
currency exchange rates. Our primary foreign currency exposures arise from the
recording of transactions denominated in non-functional currencies and the
translation of foreign currency denominated results of operations, financial
position and cash flows into U.S. Dollars.
Our foreign exchange risk management program is intended to lessen both the
positive and negative effects of currency fluctuations on our consolidated
results of operations, financial position and cash flows. We manage global
foreign exchange risk centrally on a portfolio basis to address those risks
material to NIKE, Inc. Our hedging policy is designed to partially or entirely
offset the impact of exchange rate changes on the underlying net exposures being
hedged. Where exposures are hedged, our program has the effect of delaying the
impact of exchange rate movements on our Unaudited Condensed Consolidated
Financial Statements; the length of the delay is dependent upon hedge horizons.
We do not hold or issue derivative instruments for trading or speculative
purposes. As of and for the three months ended August 31, 2021, there have been
no material changes to the Company's hedging program or strategy from what was
disclosed within the Annual Report on Form 10-K.
Refer to Note 4 - Fair Value Measurements and Note 8 - Risk Management and
Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements for additional description of outstanding derivatives at
each reported period end. For additional information about our Foreign Currency
Exposures and Hedging Practices refer to Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations of our
Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
                                                                            

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TRANSACTIONAL EXPOSURES
We conduct business in various currencies and have transactions which subject us
to foreign currency risk. Our most significant transactional foreign currency
exposures are:
•Product Costs - Product purchases denominated in currencies other than the
functional currency of the transacting entity and factory input costs from the
foreign currency adjustments program with certain factories.
•Non-Functional Currency Denominated External Sales - A portion of our NIKE
Brand and Converse revenues associated with European operations are earned in
currencies other than the Euro (e.g., the British Pound) but are recognized at a
subsidiary that uses the Euro as its functional currency. These sales generate a
foreign currency exposure.
•Other Costs - Non-functional currency denominated costs, such as endorsement
contracts, also generate foreign currency risk, though to a lesser extent.
•Non-Functional Currency Denominated Monetary Assets and Liabilities - Our
global subsidiaries have various monetary 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.
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 and are recognized in Other (income) expense, net.
TRANSLATIONAL EXPOSURES
Many of our foreign subsidiaries operate in functional currencies other than the
U.S. Dollar. Fluctuations in currency exchange rates create volatility in our
reported results as we are required to translate the balance sheets, operational
results and cash flows of these subsidiaries into U.S. Dollars for consolidated
reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated
balance sheets into U.S. Dollars for consolidated reporting results in a
cumulative translation adjustment to Accumulated other comprehensive income
(loss) within Shareholders' equity. The impact of foreign exchange rate
fluctuations on the translation of our consolidated Revenues was a benefit of
approximately $382 million for the three months ended August 31, 2021 and a
detriment of approximately $111 million for the three months ended August 31,
2020. The impact of foreign exchange rate fluctuations on the translation of our
Income before income taxes was a benefit of approximately $117 million for the
three months ended August 31, 2021 and a detriment of approximately $29 million
for the three months ended August 31, 2020.
Management generally identifies hyper-inflationary markets as those markets
whose cumulative inflation rate over a three-year period exceeds 100%.
Management has concluded our Argentina subsidiary within our APLA operating
segment is operating in a hyper-inflationary market. As a result, beginning in
the second quarter of fiscal 2019, the functional currency of our Argentina
subsidiary changed from the local currency to the U.S. Dollar. As of and for the
three months ended August 31, 2021, this change did not have a material impact
on our results of operations or financial condition and we do not anticipate it
will have a material impact in future periods based on current rates.
MANAGING TRANSLATIONAL EXPOSURES
To minimize the impact of translating foreign currency denominated revenues and
expenses into U.S. Dollars for consolidated reporting, certain foreign
subsidiaries use excess cash to purchase U.S. Dollar denominated
available-for-sale investments. The variable future cash flows associated with
the purchase and subsequent sale of these U.S. Dollar denominated investments at
non-U.S. Dollar functional currency subsidiaries creates a foreign currency
exposure that qualifies for hedge accounting under U.S. GAAP. We utilize forward
contracts and/or options to mitigate the variability of the forecasted future
purchases and sales of these U.S. Dollar investments. The combination of the
purchase and sale of the U.S. Dollar investment and the hedging instrument has
the effect of partially offsetting the year-over-year foreign currency
translation impact on net earnings in the period the investments are sold.
Hedges of the purchase of U.S. Dollar denominated available-for-sale investments
are accounted for as cash flow hedges.
We estimate the combination of translation of foreign currency-denominated
profits from our international businesses and the year-over-year change in
foreign currency related gains and losses included in Other (income) expense,
net had a favorable impact of approximately $104 million on our Income before
income taxes for the three months ended August 31, 2021.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of $1,111 million for the first
three months of fiscal 2022, compared to $882 million for the first three months
of fiscal 2021. Net income, adjusted for non-cash items, generated $2,076
million of operating cash inflow for the first three months of fiscal 2022,
compared to $1,606 million for the first three months of fiscal 2021. The net
change in working capital and other assets and liabilities resulted in a
decrease to Cash provided (used) by operations of $965 million for the first
three months of fiscal 2022 compared to a decrease of $724 million for the first
three months of fiscal 2021. The net change in working capital compared to the
prior year was driven by changes in Accounts payable and Inventories for the
first three months of fiscal 2022, in part due to supply chain constraints which
caused higher levels of in-transit inventory. This activity was partially offset
by a $1,026 million change in Accounts receivable, primarily due to the timing
of marketplace recovery from store closures and resumption of wholesale
shipments in the prior year due to COVID-19.
Cash provided (used) by investing activities was an inflow of $501 million for
the first three months of fiscal 2022, compared to an outflow of $889 million
for the first three months of fiscal 2021, primarily driven by the net change in
short-term investments. For the first three months of fiscal 2022, the net
change in short-term investments (including sales, maturities and purchases)
resulted in a cash inflow of $583 million compared to a cash outflow of $715
million for the first three months of fiscal 2021.
Cash provided (used) by financing activities was an outflow of $743 million for
the first three months of fiscal 2022 compared to $248 million for the first
three months of fiscal 2021. The increased outflow in the first three months of
fiscal 2022 was driven by our resumption of the share repurchase program in the
fourth quarter of fiscal 2021, resulting in $752 million share repurchases for
the first three months of fiscal 2022 compared to no share repurchases in the
first three months of fiscal 2021.
During the first three months of fiscal 2022, we repurchased 4.8 million shares
of NIKE's Class B Common Stock for $742.3 million (an average price of $155.30
per share) under the four-year, $15 billion share repurchase program approved by
the Board of Directors in June 2018. As of August 31, 2021, we had repurchased
54.8 million shares at a cost of approximately $5.4 billion (an average price of
$98.74 per share) under this program. We continue to expect funding of share
repurchases will come from operating cash flows and excess cash. The timing and
the amount of share repurchases will be dictated by our capital needs and stock
market conditions.
CAPITAL RESOURCES
On July 23, 2019, we filed a shelf registration statement (the "Shelf") with the
U.S. Securities and Exchange Commission (SEC) which permits us to issue an
unlimited amount of debt securities from time to time. The Shelf expires on July
23, 2022.
As of August 31, 2021, our committed credit facilities were unchanged from the
information previously reported on Form 10-K for the fiscal year ended May 31,
2021. We currently have long-term debt ratings of AA- and A1 from Standard and
Poor's Corporation and Moody's Investor Services, respectively. Any changes to
these ratings could result in interest rate and facility fee changes. As of
August 31, 2021, we were in full compliance with the covenants under our
facilities and believe it is unlikely we will fail to meet any of the covenants
in the foreseeable future. As of August 31, 2021 and May 31, 2021, no amounts
were outstanding under our committed credit facilities.
Liquidity was also provided by our $3 billion commercial paper program. As of
and for the three months ended August 31, 2021, we did not have any borrowings
outstanding under our $3 billion program. We may continue to issue commercial
paper or other debt securities depending on general corporate needs. We
currently have short-term debt ratings of A1+ and P1 from Standard and Poor's
Corporation and Moody's Investor Services, respectively.
To date, in fiscal 2022, we have not experienced difficulty accessing the credit
markets; however, future volatility in the capital markets may increase costs
associated with issuing commercial paper or other debt instruments or affect our
ability to access those markets.
As of August 31, 2021, we had cash, cash equivalents and short-term investments
totaling $13.7 billion, primarily consisting of commercial paper, corporate
notes, deposits held at major banks, money market funds, U.S. government
sponsored enterprise obligations, U.S. Treasury obligations and other investment
grade fixed-income securities. Our fixed-income investments are exposed to both
credit and interest rate risk. All of our investments are investment grade to
minimize our credit risk. While individual securities have varying durations, as
of August 31, 2021, the weighted average days to maturity of our cash
equivalents and short-term investments portfolio was 55 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.
                                                                            

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We utilize a variety of tax planning and financing strategies to manage our
worldwide cash and deploy funds to locations where they are needed. We
indefinitely reinvest a significant portion of our foreign earnings, and our
current plans do not demonstrate a need to repatriate these earnings. Should we
require additional capital in the United States, we may determine to repatriate
indefinitely reinvested foreign funds or raise capital in the United States
through debt. Given our existing structure, if we were to repatriate
indefinitely reinvested foreign earnings, we would be required to accrue and pay
withholding taxes in certain foreign jurisdictions.
OFF-BALANCE SHEET ARRANGEMENTS
As of August 31, 2021, we did not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a material current or future effect on
our financial condition, results of operations, liquidity, capital expenditures
or capital resources.
CONTRACTUAL OBLIGATIONS
There have been no significant changes to the contractual obligations reported
in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no material changes in recently issued or adopted accounting
standards from those disclosed in our Annual Report on Form 10-K for the fiscal
year ended May 31, 2021.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our Unaudited Condensed Consolidated Financial Statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the
accounting policies described in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our most recent Annual
Report on Form 10-K have the greatest potential impact on our financial
statements, so we consider these to be our critical accounting policies. Actual
results could differ from the estimates we use in applying our critical
accounting policies. We are not currently aware of any reasonably likely events
or circumstances that would result in materially different amounts being
reported.
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