NIKE, Inc. Consolidated Statements of Income (In millions, except per share data) Revenues Cost of sales Year Ended May 31, 2018 2017 2016 36,397 $ 34,350 $ 32.376 20.441 19.038 17,405 Gross profit 15.956 15,312 14,971 Demand creation expense 3,577 3.341 3.278 Operating overhead expense 7,934 7222 7,191 Total selling and administrative expense 11,511 10.563 10.409 Interest expense (income), net 54 59 19 Other expense (income), net 66 (196) (140) Income before income taxes Income tax expense NET INCOME Earnings per common share Basic Diluted 4,325 4,886 4.623 2.392 646 063 1,933 $ 4,240 $ 3,700 1.19 256 $ 2.21 1.17 251 $ 2.16 Dividends declared per common share The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement 0.78 $ 0.70 $ 0.62 NIKE, Inc. Consolidated Statements of Comprehensive Income Year Ended May 31, (in millions) Net income Other comprehensive income (loss), net of tax Change in net foreign currency translation adjustment Change in net gains posses) on cash flow hedges Change in net gains Bosses) on other Total other comprehensive income (loss), net of tax TOTAL COMPREHENSIVE INCOME 2018 1,9335 2017 2016 4,240 $ 3,700 10) 16 (170) 76 (515) (757) 34 (32) 104 (531) (926) 2,037 3.709 2,832 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Balance Sheets (in millions) ASSETS Current assets: Cash and equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Identifiable intangible assets, net Goodwill Deferred income taxes and other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Current portion of long-term debt Notes payable Accounts payable Accrued abilities Income taxes payable Total current labtes Long-term debt Deferred income taxes and other labies Commitments and contingencies (Note 15) Redeemable preferred stock Shareholders' equity Common stock at stated value Class A convertible-329 and 329 shares outstanding Class B-1272 and 1,314 shares outstanding Capital in excess of stated value Accumulated other comprehensive loss D May 31, 2018 2017 4,249 $ 3,808 990 2.371 3,490 3.677 5,261 5.055 1,130 1,150 15,134 16.061 4,454 3,909 285 283 154 139 2.509 2.787 22,536 $ 23,259 6 336 325 2,270 2.048 3,209 3,011 150 84 6.040 5474 3,468 3471 3,216 1.007 6.364 5.710 (92) (213) 3.517 6.907 Retained earnings Total shareholders' equity 0.012 12.407 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 22.536 $ 23.250 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Statements of Cash Flows millions) Cash provided by operations: Net income Adjustments to reconcile net income to net cash provided by operations Depreciation Deferred income taxes Stock-based compensation Amortization and other Net foreign currency adjustments Changes in certain working capital components and other assets and liabilities: 2018 Year Ended May 31, 2017 2016 1.933 $ 4,240 $ 3,760 747 706 649 647 (273) (80) 218 215 236 27 10 13 (99) (117) 90 Decrease (increase) in accounts receivable 187 (426) 60 (Increase) in inventories (255) (231) (500) Decrease (increase) in prepaid expenses and other current and non-current assets 35 (120) (161) Increase (decrease) in accounts payable, accrued labilites and other current and non-current liabilities 1.515 (158) (566) Cash provided by operations 4,955 3,846 3.399 Cash provided (used) by investing activities: Purchases of short-term investments (4.783) (5.926) (5.367) 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 Other investing activities Cash provided (used) by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion Increase (decrease) in notes payable 3.613 3,023 2.924 2.490 2423 2.306 150 (1,026) (1.105) (1,143) 3 13 10 (25) (34) 276 (1,008) (1,034) 1,482 981 (6) (44) (106) 13 327 (67) and other ancing stinations (231 (17) (7) Cash provided (used) by investing activities: Purchases of short-term investments (4,783) (5,928) (5,367) Maturities of short-term investments 3,613 3,623 2.924 Sales of short-term investments 2,496 2,423 2.386 Investments in reverse repurchase agreements 150 Additions to property, plant and equipment Disposals of property, plant and equipment Other investing activities Cash provided (used) by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance (1,028) (1,105) (1.143) 3 13 10 (25) (34) 276 (1,008) (1,034) 1,482 961 Long-term debt payments, including current portion (44) (106) Increase (decrease) in notes payable 13 327 (67) Payments on capital lease and other financing obligations (23) (17) Proceeds from exercise of stock options and other stock issuances 733 489 507 Repurchase of common stock (4,254) (3.223) (3.238) Dividends-common and preferred (1,243) (1,133) (1,022) Tax payments for net share settlement of equity awards (55) (29) (22) Cash used by financing activities (4,835) (2.148) (2.974) 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 45 (20) (106) 441 670 (714) 3.808 3,138 3.852 4,249 s 3,800 $ 3,138 125 20 529 Income taxes 703 748 Non-cash additions to property, plant and equipment 294 206 252 Dividends declared and not paid 320 300 271 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 Capital in Excess of Stated Accumulated Other (in millions, except per share data) Balance at May 31, 2015 Stock options exercised Shares Amount Shares Amount 355 $ 1,357 $ 22 Comprehensive Value Income Retained Earnings Total 4,165 $ 1,246 7,293 $ 12,707 680 680 Conversion to Class B Common Stock (2) 2 (55) (148) (3.090) (3.238) Repurchase of Class B Common Stock Dividends on common stock ($0.62 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Balance at May 31, 2016 Stock options exercised Conversion to Class B Common Stock (1,053) (1,063) 105 236 (11) 04 236 3,760 3,760 (928) (928) 353 1,329 $ 3 $ 5,038 $ 318 $ 6.899 12.258 17 525 525 (24) 24 (00) (189) Repurchase of Class B Common Stock Dividends on common stock ($0.70 per share) and preferred stock (50.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income (3,060) (3.249) (1,150) (1,150) 121 215 (13) 108 215 4,240 4.240 Other comprehensive income (loss) (531) (531) Balance at May 31, 2017 329 $ 1,314 $ 3 $ 5,710 $ (213) S 6.907 $ 12,407 Stock options exercised 24 600 600 Conversion to Class B Common Stock Recurate of Common Stock (201 22541 4.013) 14267) 3.760 3,760 Other comprehensive income (loss) (928) Balance at May 31, 2016 353 $ 1,329 $ 5.038 $ 318 $ Stock options exercised 17 525 Conversion to Class B Common Stock (24) 24 Repurchase of Class B Common Stock (60) (920) 12.258 525 (189) (3.060) (3240) Dividends on common stock ($0.70 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) (1.150) (1,150) 121 215 (13) 108 215 4,240 4.240 (531) (531) Balance at May 31, 2017 Stock options exercised 329 1,314 $ 3 $ 5,710 $ (213) $ 6,907 $ 12,407 24 600 600 Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock ($0.78 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation (70) (254) (4.013) (4.267) (1.265) (1,268) 110 218 12 218 Net income Other comprehensive income Doss) 1.933 1933 104 104 Reclassifications to retained eamings in accordance with ASU 2018-02 17 6 Balance at May 31, 2018 329 $ 1,272 $ $ 6.304 1 (92) 1 3.317 1 8.312 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement Ratio analysis 2 (15 points) Name: These are the three formulas you will use for the second financial statement analysis. You will use the NIKE financial statement located in appendix C. The information required for this ratio analysis is all found on the consolidated balance sheets. You will use the information from both years 5/31/18 and 5/31/17. Round the ratios to the nearest tenth Working capital: Current Assets - Current Liabilities 5/31/18 ratio: 5/31/17 ratio: 5/31/17 ratio: Current ratio = Current Assets / Current liabilities (Round to the nearest tenth) 5/31/18 ratio: 5/31/17 ratio: Quick Ratio Quick assets / current liabilities (Round to the nearest tenth) Note: the quick assets only include those current assets easily converted to cash, so inventories and prepaid expenses will not be included. 5/31/18 ratio: 5/31/17 ratio: These ratios measure a company's ability to pay its current liabilities. Ideally the current ratio should be 2 or above and the quick ratio should be 1 or above. Calculate the three ratios and comment on Nikes ability to pay its current liabilities