Nike 2011 Annual Report Download - page 28

28 NIKE,INC.-Form10-K
PARTII
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations
Our signifi cant long-term contractual obligations as of May31,2011, and signifi cant endorsement contracts entered into through the date of this report are as follows:
Description of Commitment
(Inmillions)
Cash Payments Due During the Year Ending May31,
2012 2013 2014 2015 2016 Thereafter Total
Operating Leases $ 374 $ 310 $ 253 $ 198 $ 174 $ 535 $ 1,844
Long-term Debt 200 48 58 8 109 37 460
Endorsement Contracts
(1) 800 806 742 615 463 1,018 4,444
Product Purchase Obligations
(2) 3,175 — — — — — 3,175
Other
(3) 277 137 22 4 1 — 441
TOTAL $ 4,826 $ 1,301 $ 1,075 $ 825 $ 747 $ 1,590 $ 10,364
(1) The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete and sport
team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based
upon athletic achievements and/or royalties on product sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced
payments if athletic performance declines in future periods.
In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we will spend on this product on an
annual basis as the contracts generally do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors
including general playing conditions, the number of sporting events in which they participate, and our own decisions regarding product and marketing initiatives. In addition, the costs to
design, develop, source, and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for
products sold to customers.
(2) We generally order product at least 4 to 5months in advance of sale based primarily on advanced futures orders received from customers. The amounts listed for product purchase
obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business, that are enforceable and legally binding and that specify all
significant terms. In some cases, prices are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable
on the consolidated balance sheet as of May31,2011.
(3) Other amounts primarily include service and marketing commitments 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, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in accounts
payable or accrued liabilities on the consolidated balance sheet as of May31,2011.
The total liability for uncertain tax positions was $212million, excluding related interest and penalties, at May31,2011. We are not able to reasonably estimate
when or if cash payments of the long-term liability for uncertain tax positions will occur.
We also have the following outstanding short-term debt obligations as of May31,2011. Please refer to the accompanying Notes to the Consolidated Financial
Statements (Note7— Short-Term Borrowings and Credit Lines) for further description and interest rates related to the short-term debt obligations listed below.
(Inmillions)
Outstandingas
ofMay31,2011
Notes payable, due at mutually agreed-upon dates within oneyear of issuance or on demand $ 187
Payable to Sojitz America for the purchase of inventories, generally due 60days after shipment of goods from a foreign port $ 111
As of May31,2011, letters of credit of $99million were outstanding, generally for the purchase of inventory.
Capital Resources
In December2008, we fi led a shelf registration statement with the Securities
and Exchange Commission under which $760million in debt securities may
be issued. As of May31,2011, no debt securities had been issued under
this shelf registration.
As of and for theyear ended May31,2011, we had no amounts outstanding
under our multi-year, $1billion revolving credit facility in place with a group of
banks. The facility matures in December2012. Based on our current long-
term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s
Corporation and Moody’s Investor Services, respectively, the interest rate charged
on any outstanding borrowings would be the prevailing London Interbank Offer
Rate (“LIBOR”) plus 0.15%. The facility fee is 0.05% of thetotalcommitment.
If our long-term debt rating were to decline, the facility fee and interest rate
under our committed credit facility would increase. Conversely, if our long-term
debt rating were to improve, the facility fee and interest rate would decrease.
Changes in our long-term debt rating would not trigger acceleration of maturity
of any then outstanding borrowings or any future borrowings under the
committed credit facility. Under this committed credit facility, we have agreed
to various covenants. These covenants include limits on our disposal of fi xed
assets and the amount of debt secured by liens we may incur as well as a
minimum capitalization ratio. In the event we were to have any borrowings
outstanding under this facility, failed to meet any covenant, and were unable
to obtain a waiver from a majority of the banks, any borrowings would become
immediately due and payable. As of May31,2011, we were in full compliance
with each of these covenants and believe it is unlikely we will fail to meet any
of these covenants in the foreseeable future.
Liquidity is also provided by our $1billion commercial paper program. As of
and for theyear ended May31,2011, no amounts were outstanding under
this program. We currently have short-term debt ratings of A1 and P1 from
Standard and Poor’s Corporation and Moody’s Investor Services, respectively.
As of May31,2011, we had cash, cash equivalents and short term investments
totaling $4.5billion,including amounts held in the U.S. and foreign jurisdictions.
Cash equivalents and short term investments consist primarily of deposits
held at major banks, money market funds, Tier-1 commercial paper, corporate
notes, U.S. Treasury obligations, U.S. government agency obligations and
government sponsored enterprise obligations, and other investment grade
fi xed income securities.Our fi xed 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,
theaverage duration of our entire cash equivalents and short term investment
portfolio is less than 120days as of May31,2011.
Despite recent uncertainties in the fi nancial markets, to date we have not
experienced diffi culty accessing the credit markets or incurred higher interest
costs. Future volatility in the capital markets, however, may increase costs
associated with issuing commercial paper or other debt instruments or affect
our ability to access those markets.We utilize a variety of tax planning and
fi nancing strategies in an effort to manage our worldwide cash and deploy
funds to locations where it is needed.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 suffi cient
to meet ourdomestic and foreigncapital needs in the foreseeable future.