Nike 2016 Annual Report Download - page 59

PART II
option prior to any anniversary of the closing date, provided that in no event
shall it extend beyond August 28, 2022. Based on the Company’s current
long-term senior unsecured debt ratings of AA- 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 LIBOR
plus 0.455%. The facility fee is 0.045% of the total commitment. Under this
committed credit facility, the Company must maintain certain financial ratios,
among other things, with which the Company was in compliance at May 31,
2016. This facility replaces the prior $1 billion credit facility agreement entered
into on November 1, 2011, which would have matured November 1, 2017.
No amounts were outstanding under either committed credit facility as of
May 31, 2016 or 2015.
NOTE 8 — Long-Term Debt
Long-term debt, net of unamortized premiums and discounts and swap fair value adjustments, comprises the following:
Book Value Outstanding
As of May 31,
Scheduled Maturity (Dollars and Yen in millions)
Original
Principal
Interest
Rate
Interest
Payments 2016 2015
Corporate Bond Payables:(1)
October 15, 2015(2) $ 100 5.15% Semi-Annually $ — $ 101
May 1, 2023(3) $ 500 2.25% Semi-Annually 499 499
May 1, 2043(3) $ 500 3.63% Semi-Annually 499 499
November 1, 2045(4) $ 1,000 3.88% Semi-Annually 991 —
Promissory Notes:
April 1, 2017(5) $ 40 6.20% Monthly 38 39
January 1, 2018(5) $ 19 6.79% Monthly — 19
Japanese Yen Notes:
August 20, 2001 through November 20, 2020(6) ¥ 9,000 2.60% Quarterly 18 20
August 20, 2001 through November 20, 2020(6) ¥ 4,000 2.00% Quarterly 9 9
Total 2,054 1,186
Less current maturities 44 107
TOTAL LONG-TERM DEBT $ 2,010 $ 1,079
(1) These senior unsecured obligations rank equally with the Company’s other unsecured and unsubordinated indebtedness.
(2) The Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the note and pays variable interest payments
based on the six-month LIBOR plus a spread. The swaps have the same notional amount and maturity date as the corresponding note. On October 15, 2015, the Company repaid the
long-term debt which had previously been hedged with these interest rate swaps. Accordingly, as of May 31, 2016, the Company had no interest rate swaps designated as fair value
hedges.
(3) The bonds are redeemable at the Company’s option prior to February 1, 2023 and November 1, 2042, respectively, at a price equal to the greater of (i) 100% of the aggregate principal
amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to February 1,
2023 and November 1, 2042, respectively, the bonds also feature a par call provision, which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal
amount of the notes being redeemed, plus accrued and unpaid interest.
(4) The bonds are redeemable at the Company’s option prior to May 1, 2045, at a price equal to the greater of (i) 100% of the aggregate principal amount of the notes to be redeemed or (ii) the
sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to May 1, 2045, the bonds also feature a par call provision,
which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest.
(5) The Company assumed a total of $59 million in bonds payable as part of its agreement to purchase certain Corporate properties; this was treated as a non-cash financing transaction. The
property serves as collateral for the debt. The purchase of these properties was accounted for as a business combination where the total consideration of $85 million was allocated to the
land and buildings acquired; no other tangible or intangible assets or liabilities resulted from the purchase. The bonds mature in 2017 and 2018 and the Company does not have the ability
to re-negotiate the terms of the debt agreements and would incur significant financial penalties if the notes were paid-off prior to maturity. During the year ended May 31, 2016, the notes
due January 1, 2018 were legally defeased and an insignificant loss on defeasance was recognized.
(6) NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. These loans mature in
equal quarterly installments during the period August 20, 2001 through November 20, 2020.
The scheduled maturity of Long-term debt in each of the years ending
May 31, 2017 through 2021 are $44 million, $6 million, $6 million, $6 million
and $3 million, respectively, at face value.
The Company’s Long-term debt is recorded at adjusted cost, net of
unamortized premiums and discounts and interest rate swap fair value
adjustments. The fair value of Long-term debt is estimated based upon
quoted prices for similar instruments or quoted prices for identical instruments
in inactive markets (Level 2). The fair value of the Company’s Long-term debt,
including the current portion, was approximately $2,125 million at May 31,
2016 and $1,160 million at May 31, 2015.
NOTE 9 — Income Taxes
Income before income taxes is as follows:
Year Ended May 31,
(In millions) 2016 2015 2014
Income before income taxes:
United States $ 956 $ 1,967 $ 3,066
Foreign 3,667 2,238 478
TOTAL INCOME BEFORE INCOME TAXES $ 4,623 $ 4,205 $ 3,544
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