Nike 2016 Annual Report Download - page 37

PART II
Capital Resources
On April 23, 2013, we filed a shelf registration statement (the “Shelf”) with the
SEC which permitted us to issue an unlimited amount of debt securities. On
April 23, 2013, we issued $1.0 billion of senior notes with tranches maturing in
2023 and 2043. The 2023 senior notes were issued in an initial aggregate
principal amount of $500 million at a 2.25% fixed, annual interest rate and will
mature on May 1, 2023. The 2043 senior notes were issued in an initial
aggregate principal amount of $500 million at a 3.625% fixed, annual interest
rate and will mature on May 1, 2043. Interest on the senior notes is payable
semi-annually on May 1 and November 1 of each year. The issuance resulted
in gross proceeds before expenses of $998 million. On October 29, 2015, we
issued an additional $1.0 billion of senior notes at a 3.875% fixed, annual
interest rate that will mature on November 1, 2045. Interest on the senior
notes is payable semi-annually on May 1 and November 1 of each year. The
issuance resulted in proceeds before expenses of $991 million. The Shelf
expired on April 23, 2016. We plan to file a new shelf registration statement
with the SEC in July 2016.
On August 28, 2015, we entered into a committed credit facility agreement
with a syndicate of banks, which provides for up to $2 billion of borrowings.
The facility matures August 28, 2020, with a one year extension option prior to
any anniversary of the closing date, provided that in no event shall it extend
beyond August 28, 2022. This facility replaces the prior $1 billion credit facility
agreement entered into on November 1, 2011, which would have matured
November 1, 2017. As of and for the periods ended May 31, 2016 and 2015,
we had no amounts outstanding under either committed credit facility.
We currently have long-term debt ratings of AA- and A1 from Standard and
Poor’s Corporation and Moody’s Investor Services, respectively. If our long-
term debt ratings 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 revolving credit facility, we
have agreed to various covenants. These covenants include limits on our
disposal of fixed assets, the amount of debt secured by liens we may incur, as
well as limits on the indebtedness we can incur relative to our net worth. In the
event we were to have any borrowings outstanding under this facility and
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 payable. As of May 31, 2016, 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 $2 billion commercial paper program, which
increased $1 billion during the second quarter of fiscal 2016. During the year
ended May 31, 2016, we did not issue commercial paper, and as of May 31,
2016, there were no outstanding borrowings under this program. Any future
issuance of commercial paper or other debt securities during fiscal 2017 will
depend 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.
As of May 31, 2016, we had cash, cash equivalents and short-term
investments totaling $5.5 billion, of which $4.6 billion was held by our foreign
subsidiaries. Included in Cash and equivalents as of May 31, 2016 was $105
million of cash collateral received from counterparties as a result of hedging
activity. Cash equivalents and Short-term investments consist primarily of
deposits held at major banks, money market funds, commercial paper,
corporate notes, U.S. Treasury obligations, U.S. government sponsored
enterprise 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 May 31,
2016, the weighted average remaining duration of our cash equivalents and
short-term investments portfolio was 91 days.
To date we have not experienced difficulty 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 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.
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
routinely repatriate a portion of our foreign earnings for which U.S. taxes have
previously been provided. We also 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 elect to repatriate indefinitely reinvested foreign funds or raise
capital in the United States through debt. If we were to repatriate indefinitely
reinvested foreign funds, we would be required to accrue and pay additional
U.S. taxes less applicable foreign tax credits. If we elect to raise capital in the
United States through debt, we would incur additional interest expense.
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. However,
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.
Contractual Obligations
Our significant long-term contractual obligations as of May 31, 2016 and significant endorsement contracts, including related marketing commitments, entered
into through the date of this report are as follows:
Description of Commitment Cash Payments Due During the Year Ending May 31,
(In millions) 2017 2018 2019 2020 2021 Thereafter Total
Operating Leases $ 491 $ 453 $ 395 $ 347 $ 301 $ 1,244 $ 3,231
Capital Leases 7521——15
Long-Term Debt(1) 115 75 74 74 71 3,365 3,774
Endorsement Contracts(2) 1,198 1,238 945 827 698 4,514 9,420
Product Purchase Obligations(3) 4,149 —————4,149
Other Purchase Obligations(4) 384 118 90 48 42 90 772
TOTAL $ 6,344 $ 1,889 $ 1,506 $ 1,297 $ 1,112 $ 9,213 $ 21,361
(1) The cash payments due for long-term debt include estimated interest payments. Estimates of interest payments are based on outstanding principal amounts, applicable fixed interest rates
or currently effective interest rates as of May 31, 2016 (if variable), timing of scheduled payments and the term of the debt obligations.
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