Financial Statement Analysis
The financial statements for Nike, Inc., are presented in Appendix E at the end of the text. The following additional information is available (in thousands):
| Accounts receivable at May 31, 2013 | $ 3,117 |
| Inventories at May 31, 2013 | 3,484 |
| Total assets at May 31, 2013 | 17,545 |
| Stockholders' equity at May 31, 2013 | 11,081 |
Instructions
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Determine the following measures for the fiscal years ended May 31, 2015, and May 31. (Round ratios and percentages to one decimal place.) Please show your work in Excel.
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Working capital
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Current ratio
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Quick ratio
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Accounts receivable turnover
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Number of days' sales in receivables
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Inventory turnover
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Number of days' sales in inventory
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Ratio of liabilities to stockholders' equity
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Asset turnover
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Return on total assets, assuming interest expense is $28 million for the year ending May 31, 2015, and $24 million for the year ending May 31, 2014
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Return on common stockholders' equity
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Price-earnings ratio, assuming that the market price was $101.67 per share on May 29, 2015, and $76.91 per share on May 30, 2014
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Percentage relationship of net income to sales
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What conclusions can be drawn from these analyses?
NIKE, Inc. Consolidated Balance Sheets May 31, 2015 2014 3,852 $ 2.072 3.358 4,337 389 1.968 15.976 3,011 281 131 2.201 21,600 S 2.220 2.922 3.434 3,947 355 818 13,696 2.834 282 131 1,651 18,594 107 $ An millions) ASSETS Current assets: Cash and equivalents (Note 6) Short-term investments (Note 6) Accounts receivable, net (Note 1) Inventories (Notes 1 and 2) Deferred income taxes (Note 9) Prepaid expenses and other current assets (Notes 6 and 17) Total current assets Property, plant and equipment, net (Note 3) Identifiable intangible assets, net (Note 4) Goodwill (Note 4) Deferred income taxes and other assets Notes 6, 9 and 17) TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 8) Notes payable Note 7) Accounts payable (Note 7) Accrued liabilities (Notes 5, 6 and 17) Income taxes payable Note 9) Total current liabilities Long-term debt (Note 8) Deferred income taxes and other liabilities (Notes 6, 9, 13 and 17) Commitments and contingencies (Note 16) Redeemable preferred stock (Note 10) Shareholders' equity: Common stock at stated value (Note 11): Class A convertible - 178 and 178 shares outstanding Class B - 679 and 692 shares outstanding Capital in excess of stated value Accumulated other comprehensive income (Note 14) Retained earings Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 74 2,131 3,951 167 1,930 2.491 432 5.027 1,199 1.544 6.334 1,079 1,480 6.773 1.246 4,685 12,707 21,600 5,865 85 4,871 10.824 18,594 $ S The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. Consolidated Statements of Comprehensive Income Year Ended May 31, 2015 2014 3,273 $ 2,693 $ $ 2013 2.472 (20) In millions) Net income Other comprehensive income (loss), net of tax Change in net foreign currency translation adjustment Change in net gains losses) on cash flow hedges Change in net gains (losses) on other Change in release of cumulative translation loss related to Umbro Total other comprehensive income (oss), net of tax TOTAL COMPREHENSIVE INCOME (32) (161) 38 12 1.188 83 1,161 4,434 (189) 2,504 $ 125 2,597 $ $ (1) Ner of tax benet expense of $0 million, 50 million and S113 million, respectively 2) Net of tax benefit fexpense of $(31) milion $18 milion and $122) Milion, respectively. 3 Net of tax benefit (expense of $0 milion $0 million and ST million, respectively 4 Net of tax benefit fxpense of $0 milion 30 million and $47 million, respectively The accompanying Notes to the Consolidatedral Su its are an integral part of this statement NIKE, Inc. Consolidated Statements of Cash Flows Year Ended May 31, 2014 2015 2013 3.273 $ 2.693 $ 2,472 518 438 20 606 (113) 191 43 424 177 68 64 56 66 (124) 142 (216) (621) (144) 1.237 4.680 (298) 1506) (210) 525 3,013 (219) (28) 27 3,032 (4.936) 3.655 2.216 (150 (963) (5.386) 3.932 1.126 (4.133) 1.663 1,330 (880) (598) An millions) Cash provided by operations: Net income Income charges (credits) not affecting cash: Depreciation Deferred income taxes Stock-based compensation (Note 11) Amortization and other Net foreign currency adjustments Net gain on divestitures Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable Increase) in inventories (Increase) in prepaid expenses and other current assets Increase in accounts payable, accrued liabilities and income taxes payable Cash provided by operations Cash used by investing activities: Purchases of short-term investments Maturities of short-term investments Sales of short-term investments Investments in reverse repurchase agreements Additions to property, plant and equipment Disposals of property, plant and equipment Proceeds from divestitures (Increase) in other assets. net of other labilities Cash used by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion (Decrease) increase in notes payable Payments on capital lease obligations Proceeds from exercise of stock options and other stock issuances Excess tax benefits from share-based payment arrangements Repurchase of common stock Dividends - common and preferred Cash used by financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of capitalized interest Income taxes Non-cash additions to property, plant and equipment Dividends declared and not paid 14 786 SRI (175) (1,207) (940) 986 17 (60) (49) (63) 10 (19 514 218 (2,534) 1999) (2.790) (83) 1.632 2.220 3,852 $ (17) 383 132 2,628) (799) (2.914) 313 72 (1.674) 703) (1.045) 36 1.083 2.254 3,337 9 (1.117) 3.337 2,220 $ $ 53 $ 1.262 206 240 53 $ 856 167 209 20 702 137 188 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Statements of Shareholders' Equity Common Stock Class A Class B - Shares Amount Shares Amount 180 $ - 736 $ 3 10 Capital in Accumulated Excess Other of Stated Comprehensive Value Income $ 4,641 S 149 322 Retained Earnings $ 5,526 S Total 10,319 322 (10) (1.657) (1.647) (727) (727) 65 2,472 125 74 178 $ - 3 2 S 5.620 S 716 S 11 in millions, except per share data) Balance at May 31, 2012 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock (90.81 per share) Issuance of shares to employees Stock-based compensation (Note 11) Forfeiture of shares from employees Net income Other comprehensive income loss) Balance at May 31, 2013 Stock options exercised Repurchase of Class B Common Stock Dividends on common stock ($0.93 per share) Issuance of shares to employees Stock-based compensation (Note 11) Forfeiture of shares from employees Net income Other comprehensive income loss) Balance at May 31, 2014 Stock options exercised Repurchase of Class B Common Stock Dividends on common stock ($1.08 per share) Issuance of shares to employees Stock-based compensation (Note 11) Forfeiture of shares from employees Net income Other comprehensive income loss) Balance at May 31, 2015 S5 .184 S 445 (11) 174 (12) 2,472 125 11.081 445 (2.628) (821) 78 177 (37) (2.617) (821) 78 177 (8) (12) 2.693 (189 85 2.693 (189) 10,824 178 S - 692 S 3 S5 .865 S $ 4.871 $ 639 639 19) (2.534) (2.525) (931) 92 191 (5) 3) 3.273 92 191 (8) 3.273 1,161 S 12,707 178 $ - 679 $ 3 $ 6,773 S 1.161 1,246 $ 4,685 The accompanying Notes to the Consolidated Fnancial Statements are an integral part of this statement. The following are selected line items from the Company's Consolidated Statements of Cash Flows illustrating the effect of these corrections on the amounts previously reported in the Company's fiscal 2014 Annual Report on Form 10-K NIKE, Inc. Consolidated Statements of Cash Flows Year Ended May 31, 2014 Year Ended May 31, 2013 Reported Adjustment Revised Reported Adjustment Revised $ 2,693 $ - $ 2,693 $ 2,472 $ - $ 2,472 114 66 in millions Cash provided by operations: Net income Income charges (credits) not affecting cash: Amortization and other Net foreign currency adjustments Cash provided by operations Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR 3.003 (46) 68 56 56 103.013 (10) (9) - (1.117) - 3.337 - $ 2,220 2.968 100 1,083 2.254 3,337 (1.117) 3.337 2,220 64 66 3.032 36 1.083 2.254 $ 3,337 64 (64) - - - $ S $ $ Recognition of Revenues Wholesale revenues are recognized when title and the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon recept by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale and online store revenues are recorded upon delivery to the customer. Provisions for post-invoice sales discounts, returns and miscelaneous claims from customers are estimated and recorded as a reduction to revenue at the time of sale. Post-invoice sales discounts consist of contractual programs with certain customers or discretionary discounts that are expected to be granted to certain customers at a later date. Estimates of discretionary discounts, retums and claims are based on historical rates. Specific identification of outstanding daims and outstanding returns not yet received from customers and estimated discounts, returns and daims expected, but not yet finalized with customers. As of May 31, 2015 and 2014, the Company's reserve balances for post-invoice sales discounts, returns and miscellaneous claims were $724 milion and $610 million, respectively, Cost of Sales Cost of sales consists primarily of inventory costs, as well as warehousing costs including the cost of warehouse labor), third-party royalties, certain foreign currency hedge gains and losses and research, design and development costs. appears. Costs related to brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is completed and delivered A significant amount of the Company's promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight line basis over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Prepayments made under contracts are included in Prepaid expenses and other current assets or Deferred income taxes and other assets depending on the period to which the prepayment applies. Certain contracts provide for contingent payments to endorsers based upon Specific achievements in their sports (e.g., winning a championship The Company records demand creation expense for these amounts when the endorser achieves the specific goal. Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time le.g. maintaining a specified ranking in a sport for a year). When the Company determines payments are probable, the amounts are reported in demand creation expense ratably over the contract period based on our best estimate of the endorser's performance. In these instances, to the extent that actual payments to the endorser differ from the Company's estimate due to changes in the endorser's performance, increased or decreased demand creation expense may be recorded in a future period Certain contracts provide for royalty payments to endorsers based upon a predetermined percent of sales of particular products. The Company expenses these payments in Cost of sales as the related sales occur. In certain contracts, the Company offers minimum guaranteed royalty payments. For contracts for which the Company estimates it will not meet the minimum guaranteed amount of royalty fees through sales of product, the Company records the amount of the guaranteed payment in excess of that earned through sales of product in Demand creation expense uniformly over the guarantee period. Through cooperative advertising programs, the Company reimburses retail customers for certain costs of advertising the Company's products. The Company records these costs in Demand creation expense at the point in time when it is obligated to its customers for the costs. This obligation may arise prior to the related advertisement being run. Total advertising and promotion expenses were $3.213 million, $3,031 milion and $2,745 million for the years ended May 31, 2015, 2014 and 2013, respectively. Prepaid advertising and promotion expenses totaled $455 million and $516 million at May 31, 2015 and 2014, respectively, and were recorded in Prepaid expenses and other current assets and Deferred income taxes and other assets depending on the period to which the prepayment applies Shipping and Handling Costs Outbound shipping and handling costs are expensed as incurred and included in Cost of sales. Operating Overhead Expense Operating overhead expense consists primarily of payroll and benefit related costs, rent, depreciation and amortization, professional services and meetings and travel. Demand Creation Expense Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, television, digital and print advertising, brand events and retail brand presentation Advertising production costs are expensed the first time an advertisement is run. Advertising communication costs are expensed when the advertisement As of November 30, 2014, the aggregate market values of the Registrant's Common Stock held by non-affiliates were: Class A $ 4394 312.083 Class B 67.997.995.244 $72,392,307,327 As of July 17, 2015, the number of shares of the Registrant's Common Stock outstanding were: Class A 177.457.876 Class B 677.893.713 855,351,589 DOCUMENTS INCORPORATED BY REFERENCE: Parts of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on September 17, 2015 are incorporated by reference into Partill of this Report. NIKE, Inc. Consolidated Statements of Income Year Ended May 31, 2014 2015 2013 30,601 $ 16.534 14,067 3,213 6,679 9,892 27.799 $ 15.353 12.446 3.031 5,735 8.766 25,313 14.279 11,034 2.745 5.051 7.796 28 103 (15) 3,256 (in millions, except per share data) Income from continuing operations: Revenues Cost of sales Gross profit Demand creation expense Operating overhead expense Total selling and administrative expense Interest expense (ncome). net (Notes 6, 7 and 8) Other (income) expense, net (Note 17) Income before income taxes Income tax expense (Note 9) NET INCOME FROM CONTINUING OPERATIONS NET INCOME FROM DISCONTINUED OPERATIONS NET INCOME Earnings per common share from continuing operations: Basic (Notes 1 and 12) Diluted (Notes 1 and 12) Earings per common share from discontinued operations: Basic (Notes 1 and 12) Diluted (Notes 1 and 12) Dividends declared per common share (58) 4,205 932 3,273 3.544 851 2,693 905 2,451 21 2,472 $ 3,273 $ 2,693 $ 3.80 3.70 $ $ 3.05 2.97 S $ 2.74 2.68 S - $ - S S $ 0.02 0.02 0.81 $ 1.08 $ 0.93 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Balance Sheets May 31, 2015 2014 3,852 $ 2.072 3.358 4,337 389 1.968 15.976 3,011 281 131 2.201 21,600 S 2.220 2.922 3.434 3,947 355 818 13,696 2.834 282 131 1,651 18,594 107 $ An millions) ASSETS Current assets: Cash and equivalents (Note 6) Short-term investments (Note 6) Accounts receivable, net (Note 1) Inventories (Notes 1 and 2) Deferred income taxes (Note 9) Prepaid expenses and other current assets (Notes 6 and 17) Total current assets Property, plant and equipment, net (Note 3) Identifiable intangible assets, net (Note 4) Goodwill (Note 4) Deferred income taxes and other assets Notes 6, 9 and 17) TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 8) Notes payable Note 7) Accounts payable (Note 7) Accrued liabilities (Notes 5, 6 and 17) Income taxes payable Note 9) Total current liabilities Long-term debt (Note 8) Deferred income taxes and other liabilities (Notes 6, 9, 13 and 17) Commitments and contingencies (Note 16) Redeemable preferred stock (Note 10) Shareholders' equity: Common stock at stated value (Note 11): Class A convertible - 178 and 178 shares outstanding Class B - 679 and 692 shares outstanding Capital in excess of stated value Accumulated other comprehensive income (Note 14) Retained earings Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 74 2,131 3,951 167 1,930 2.491 432 5.027 1,199 1.544 6.334 1,079 1,480 6.773 1.246 4,685 12,707 21,600 5,865 85 4,871 10.824 18,594 $ S The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. Consolidated Statements of Comprehensive Income Year Ended May 31, 2015 2014 3,273 $ 2,693 $ $ 2013 2.472 (20) In millions) Net income Other comprehensive income (loss), net of tax Change in net foreign currency translation adjustment Change in net gains losses) on cash flow hedges Change in net gains (losses) on other Change in release of cumulative translation loss related to Umbro Total other comprehensive income (oss), net of tax TOTAL COMPREHENSIVE INCOME (32) (161) 38 12 1.188 83 1,161 4,434 (189) 2,504 $ 125 2,597 $ $ (1) Ner of tax benet expense of $0 million, 50 million and S113 million, respectively 2) Net of tax benefit fexpense of $(31) milion $18 milion and $122) Milion, respectively. 3 Net of tax benefit (expense of $0 milion $0 million and ST million, respectively 4 Net of tax benefit fxpense of $0 milion 30 million and $47 million, respectively The accompanying Notes to the Consolidatedral Su its are an integral part of this statement NIKE, Inc. Consolidated Statements of Cash Flows Year Ended May 31, 2014 2015 2013 3.273 $ 2.693 $ 2,472 518 438 20 606 (113) 191 43 424 177 68 64 56 66 (124) 142 (216) (621) (144) 1.237 4.680 (298) 1506) (210) 525 3,013 (219) (28) 27 3,032 (4.936) 3.655 2.216 (150 (963) (5.386) 3.932 1.126 (4.133) 1.663 1,330 (880) (598) An millions) Cash provided by operations: Net income Income charges (credits) not affecting cash: Depreciation Deferred income taxes Stock-based compensation (Note 11) Amortization and other Net foreign currency adjustments Net gain on divestitures Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable Increase) in inventories (Increase) in prepaid expenses and other current assets Increase in accounts payable, accrued liabilities and income taxes payable Cash provided by operations Cash used by investing activities: Purchases of short-term investments Maturities of short-term investments Sales of short-term investments Investments in reverse repurchase agreements Additions to property, plant and equipment Disposals of property, plant and equipment Proceeds from divestitures (Increase) in other assets. net of other labilities Cash used by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion (Decrease) increase in notes payable Payments on capital lease obligations Proceeds from exercise of stock options and other stock issuances Excess tax benefits from share-based payment arrangements Repurchase of common stock Dividends - common and preferred Cash used by financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of capitalized interest Income taxes Non-cash additions to property, plant and equipment Dividends declared and not paid 14 786 SRI (175) (1,207) (940) 986 17 (60) (49) (63) 10 (19 514 218 (2,534) 1999) (2.790) (83) 1.632 2.220 3,852 $ (17) 383 132 2,628) (799) (2.914) 313 72 (1.674) 703) (1.045) 36 1.083 2.254 3,337 9 (1.117) 3.337 2,220 $ $ 53 $ 1.262 206 240 53 $ 856 167 209 20 702 137 188 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Statements of Shareholders' Equity Common Stock Class A Class B - Shares Amount Shares Amount 180 $ - 736 $ 3 10 Capital in Accumulated Excess Other of Stated Comprehensive Value Income $ 4,641 S 149 322 Retained Earnings $ 5,526 S Total 10,319 322 (10) (1.657) (1.647) (727) (727) 65 2,472 125 74 178 $ - 3 2 S 5.620 S 716 S 11 in millions, except per share data) Balance at May 31, 2012 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock (90.81 per share) Issuance of shares to employees Stock-based compensation (Note 11) Forfeiture of shares from employees Net income Other comprehensive income loss) Balance at May 31, 2013 Stock options exercised Repurchase of Class B Common Stock Dividends on common stock ($0.93 per share) Issuance of shares to employees Stock-based compensation (Note 11) Forfeiture of shares from employees Net income Other comprehensive income loss) Balance at May 31, 2014 Stock options exercised Repurchase of Class B Common Stock Dividends on common stock ($1.08 per share) Issuance of shares to employees Stock-based compensation (Note 11) Forfeiture of shares from employees Net income Other comprehensive income loss) Balance at May 31, 2015 S5 .184 S 445 (11) 174 (12) 2,472 125 11.081 445 (2.628) (821) 78 177 (37) (2.617) (821) 78 177 (8) (12) 2.693 (189 85 2.693 (189) 10,824 178 S - 692 S 3 S5 .865 S $ 4.871 $ 639 639 19) (2.534) (2.525) (931) 92 191 (5) 3) 3.273 92 191 (8) 3.273 1,161 S 12,707 178 $ - 679 $ 3 $ 6,773 S 1.161 1,246 $ 4,685 The accompanying Notes to the Consolidated Fnancial Statements are an integral part of this statement. The following are selected line items from the Company's Consolidated Statements of Cash Flows illustrating the effect of these corrections on the amounts previously reported in the Company's fiscal 2014 Annual Report on Form 10-K NIKE, Inc. Consolidated Statements of Cash Flows Year Ended May 31, 2014 Year Ended May 31, 2013 Reported Adjustment Revised Reported Adjustment Revised $ 2,693 $ - $ 2,693 $ 2,472 $ - $ 2,472 114 66 in millions Cash provided by operations: Net income Income charges (credits) not affecting cash: Amortization and other Net foreign currency adjustments Cash provided by operations Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR 3.003 (46) 68 56 56 103.013 (10) (9) - (1.117) - 3.337 - $ 2,220 2.968 100 1,083 2.254 3,337 (1.117) 3.337 2,220 64 66 3.032 36 1.083 2.254 $ 3,337 64 (64) - - - $ S $ $ Recognition of Revenues Wholesale revenues are recognized when title and the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon recept by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale and online store revenues are recorded upon delivery to the customer. Provisions for post-invoice sales discounts, returns and miscelaneous claims from customers are estimated and recorded as a reduction to revenue at the time of sale. Post-invoice sales discounts consist of contractual programs with certain customers or discretionary discounts that are expected to be granted to certain customers at a later date. Estimates of discretionary discounts, retums and claims are based on historical rates. Specific identification of outstanding daims and outstanding returns not yet received from customers and estimated discounts, returns and daims expected, but not yet finalized with customers. As of May 31, 2015 and 2014, the Company's reserve balances for post-invoice sales discounts, returns and miscellaneous claims were $724 milion and $610 million, respectively, Cost of Sales Cost of sales consists primarily of inventory costs, as well as warehousing costs including the cost of warehouse labor), third-party royalties, certain foreign currency hedge gains and losses and research, design and development costs. appears. Costs related to brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is completed and delivered A significant amount of the Company's promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight line basis over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Prepayments made under contracts are included in Prepaid expenses and other current assets or Deferred income taxes and other assets depending on the period to which the prepayment applies. Certain contracts provide for contingent payments to endorsers based upon Specific achievements in their sports (e.g., winning a championship The Company records demand creation expense for these amounts when the endorser achieves the specific goal. Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time le.g. maintaining a specified ranking in a sport for a year). When the Company determines payments are probable, the amounts are reported in demand creation expense ratably over the contract period based on our best estimate of the endorser's performance. In these instances, to the extent that actual payments to the endorser differ from the Company's estimate due to changes in the endorser's performance, increased or decreased demand creation expense may be recorded in a future period Certain contracts provide for royalty payments to endorsers based upon a predetermined percent of sales of particular products. The Company expenses these payments in Cost of sales as the related sales occur. In certain contracts, the Company offers minimum guaranteed royalty payments. For contracts for which the Company estimates it will not meet the minimum guaranteed amount of royalty fees through sales of product, the Company records the amount of the guaranteed payment in excess of that earned through sales of product in Demand creation expense uniformly over the guarantee period. Through cooperative advertising programs, the Company reimburses retail customers for certain costs of advertising the Company's products. The Company records these costs in Demand creation expense at the point in time when it is obligated to its customers for the costs. This obligation may arise prior to the related advertisement being run. Total advertising and promotion expenses were $3.213 million, $3,031 milion and $2,745 million for the years ended May 31, 2015, 2014 and 2013, respectively. Prepaid advertising and promotion expenses totaled $455 million and $516 million at May 31, 2015 and 2014, respectively, and were recorded in Prepaid expenses and other current assets and Deferred income taxes and other assets depending on the period to which the prepayment applies Shipping and Handling Costs Outbound shipping and handling costs are expensed as incurred and included in Cost of sales. Operating Overhead Expense Operating overhead expense consists primarily of payroll and benefit related costs, rent, depreciation and amortization, professional services and meetings and travel. Demand Creation Expense Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, television, digital and print advertising, brand events and retail brand presentation Advertising production costs are expensed the first time an advertisement is run. Advertising communication costs are expensed when the advertisement As of November 30, 2014, the aggregate market values of the Registrant's Common Stock held by non-affiliates were: Class A $ 4394 312.083 Class B 67.997.995.244 $72,392,307,327 As of July 17, 2015, the number of shares of the Registrant's Common Stock outstanding were: Class A 177.457.876 Class B 677.893.713 855,351,589 DOCUMENTS INCORPORATED BY REFERENCE: Parts of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on September 17, 2015 are incorporated by reference into Partill of this Report. NIKE, Inc. Consolidated Statements of Income Year Ended May 31, 2014 2015 2013 30,601 $ 16.534 14,067 3,213 6,679 9,892 27.799 $ 15.353 12.446 3.031 5,735 8.766 25,313 14.279 11,034 2.745 5.051 7.796 28 103 (15) 3,256 (in millions, except per share data) Income from continuing operations: Revenues Cost of sales Gross profit Demand creation expense Operating overhead expense Total selling and administrative expense Interest expense (ncome). net (Notes 6, 7 and 8) Other (income) expense, net (Note 17) Income before income taxes Income tax expense (Note 9) NET INCOME FROM CONTINUING OPERATIONS NET INCOME FROM DISCONTINUED OPERATIONS NET INCOME Earnings per common share from continuing operations: Basic (Notes 1 and 12) Diluted (Notes 1 and 12) Earings per common share from discontinued operations: Basic (Notes 1 and 12) Diluted (Notes 1 and 12) Dividends declared per common share (58) 4,205 932 3,273 3.544 851 2,693 905 2,451 21 2,472 $ 3,273 $ 2,693 $ 3.80 3.70 $ $ 3.05 2.97 S $ 2.74 2.68 S - $ - S S $ 0.02 0.02 0.81 $ 1.08 $ 0.93 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement
