Nike 2015 Annual Report Download - page 66

PART II
Liabilities of discontinued operations line items on the Consolidated Balance
Sheets, respectively. Previously, these amounts were reported in the
Company’s operating segment presentation as “Other Businesses.”
Under the sale agreement, the Company agreed to provide certain transition
services to Cole Haan for an expected period of 3 to 9 months from the date
of sale. These services were essentially complete as of May 31, 2013 and the
Company has had no significant involvement with Cole Haan beyond the
transition services. The Company has also licensed NIKE proprietary Air and
Lunar technologies to Cole Haan for a transition period. The continuing cash
flows related to these items are not significant to Cole Haan. Additionally,
preexisting guarantees of certain Cole Haan lease payments remained in
place after the sale; the maximum exposure under the guarantees is
$23 million at May 31, 2015. The fair value of the guarantees is not material.
On November 30, 2012, the Company completed the sale of certain assets of
Umbro to Iconix Brand Group (“Iconix”) for $225 million. The Umbro disposal
group was classified as held-for-sale as of November 30, 2012 and the
results of Umbro’s operations are presented in the Net income from
discontinued operations line item on the Consolidated Statements of Income.
The liabilities of Umbro were recorded in the Liabilities of discontinued
operations line items on the Consolidated Balance Sheets. Previously, these
amounts were reported in the Company’s operating segment presentation as
“Other Businesses.” Upon meeting the held-for-sale criteria, the Company
recorded a loss of $107 million, net of tax, on the sale of Umbro and the loss is
included in the Net income from discontinued operations line item on the
Consolidated Statements of Income. The loss on sale was calculated as the
net sales price less Umbro assets of $248 million, including intangibles,
goodwill and fixed assets, other miscellaneous charges of $22 million and the
release of the associated cumulative translation adjustment of $129 million.
The tax benefit on the loss was $67 million. There were no adjustments to
these recorded amounts as of May 31, 2015.
Summarized results of the Company’s discontinued operations are as follows:
Year Ended May 31,
(In millions) 2015 2014 2013
Revenues $—$—$523
Income before income taxes — — 108
Income tax expense —— 87
NET INCOME FROM DISCONTINUED OPERATIONS $—$—$ 21
There were no assets or liabilities of discontinued operations as of May 31, 2015 and May 31, 2014.
NOTE 16 — Commitments and Contingencies
The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 19 years after May 31, 2015. Rent expense was
$594 million, $533 million and $482 million for the years ended May 31, 2015, 2014 and 2013, respectively. Amounts of minimum future annual commitments
under non-cancelable operating and capital leases are as follows (in millions):
2016 2017 2018 2019 2020 Thereafter Total
Operating leases $ 447 $ 423 $ 371 $ 311 $ 268 $ 1,154 $ 2,974
Capital leases $ 2 $ 2 $ 1 $ — $ — $ — $ 5
As of May 31, 2015 and 2014, the Company had letters of credit outstanding
totaling $165 million and $135 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 objectives and
strategies 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, 2015 are designated as
foreign currency cash flow hedges primarily for Euro/U.S. Dollar, British
Pound/Euro and Japanese Yen/U.S. Dollar currency pairs. All derivatives are
recognized on the Consolidated Balance Sheets at fair value and classified
based on the instrument’s maturity date.
NIKE, INC. 2015 Annual Report and Notice of Annual Meeting 127
FORM 10-K