Nike 2014 Annual Report Download - page 66

PART II
Summarized results of the Company’s discontinued operations are as follows:
Year Ended May 31,
(In millions) 2014 2013 2012
Revenues $ — $ 523 $ 796
Income (loss) before income taxes — 108 (43)
Income tax expense —87 3
Net income (loss) from discontinued operations $ — $ 21 $ (46)
As of May 31, 2014 and 2013, the aggregate components of liabilities classified as discontinued operations and included in Total current liabilities consisted of the
following:
As of May 31,
(In millions) 2014 2013
Accounts payable $—$1
Accrued liabilities —17
TOTAL LIABILITIES $—$18
There were no assets of discontinued operations as of May 31, 2014 and May 31, 2013.
NOTE 16 — Commitments and Contingencies
The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 20 years after May 31, 2014. Rent expense was
$533 million, $482 million, and $431 million for the years ended May 31, 2014, 2013 and 2012, respectively. Amounts of minimum future annual commitments
under non-cancelable operating and capital leases are as follows (in millions):
2015 2016 2017 2018 2019 Thereafter Total
Operating leases $ 427 $ 399 $ 366 $ 311 $ 251 $ 1,050 $ 2,804
Capital leases $ 36 $ 35 $ 1 $ 1 $ 1 $ — $ 74
As of May 31, 2014 and 2013, the Company had letters of credit outstanding
totaling $135 million and $149 million, respectively. These letters of credit
were generally issued for the purchase of inventory and guarantees of the
Company’s performance under certain self-insurance and other programs.
In connection with various contracts and agreements, the Company provides
routine indemnification relating to the enforceability of intellectual property
rights, coverage for legal issues that arise and other items where the
Company is acting as the guarantor. Currently, the Company has several
such agreements in place. However, based on the Company’s historical
experience and the estimated probability of future loss, the Company has
determined that the fair value of such indemnification is not material to the
Company’s financial position or results of operations.
In the ordinary course of its business, the Company is involved in various legal
proceedings involving contractual and employment relationships, product
liability claims, trademark rights, and a variety of other matters. While the
Company cannot predict the outcome of its pending legal matters with
certainty, the Company does not believe any currently identified claim,
proceeding or litigation, either individually or in aggregate, will have a material
impact on the Company’s results of operations, financial position or cash
flows.
NOTE 17 — Risk Management and Derivatives
The Company is exposed to global market risks, including the effect of
changes in foreign currency exchange rates and interest rates, and uses
derivatives to manage financial exposures that occur in the normal course of
business. The Company does not hold or issue derivatives for trading or
speculative purposes.
The Company may elect to designate certain derivatives as hedging
instruments under the accounting standards for derivatives and hedging. The
Company formally documents all relationships between designated hedging
instruments and hedged items as well as its risk management objective and
strategy for undertaking hedge transactions. This process includes linking all
derivatives designated as hedges to either recognized assets or liabilities or
forecasted transactions.
The majority of derivatives outstanding as of May 31, 2014 are designated as
cash flow or fair value hedges. All derivatives are recognized on the balance
sheet at fair value and classified based on the instrument’s maturity date. The
total notional amount of outstanding derivatives as of May 31, 2014 was
approximately $12 billion, which primarily comprises cash flow hedges for
Euro/U.S. Dollar, British Pound/Euro, and Japanese Yen/U.S. Dollar currency
pairs. As of May 31, 2014, there were outstanding currency forward contracts
with maturities up to 24 months.
NIKE, INC. 2014 Annual Report and Notice of Annual Meeting 109
FORM 10-K