Nike 2013 Annual Report Download - page 56

PART II
Derivative financial instruments include foreign exchange forwards and
options, embedded derivatives and interest rate swap contracts. The fair
value of derivative contracts is determined using observable market inputs
such as the daily market foreign currency rates, forward pricing curves,
currency volatilities, currency correlations and interest rates, and considers
nonperformance risk of the Company and that of its counterparties.
Adjustments relating to these nonperformance risks were not material at
May 31, 2013 or 2012. Refer to Note 17 — Risk Management and Derivatives
for additional detail.
Available-for-sale securities comprise investments in U.S. Treasury and
Agency securities, money market funds, corporate commercial paper and
bonds. These securities are valued using market prices on both active
markets (Level 1) and less active markets (Level 2). Pricing vendors are utilized
for certain Level 1 or Level 2 investments. These vendors either provide a
quoted market price in an active market or use observable inputs without
applying significant adjustments in their pricing. Observable inputs include
broker quotes, interest rates and yield curves observable at commonly
quoted intervals, volatilities and credit risks. The carrying amounts reflected in
the consolidated balance sheets for short-term investments and cash and
equivalents approximate fair value.
The Company’s Level 3 assets comprise investments in certain non-
marketable preferred stock. These investments are valued using internally
developed models with unobservable inputs. These Level 3 investments are
an immaterial portion of our portfolio. Changes in Level 3 investment assets
were immaterial during the years ended May 31, 2013 and 2012.
No transfers among the levels within the fair value hierarchy occurred during
the years ended May 31, 2013 or 2012.
As of May 31, 2013 and 2012, the Company had no assets or liabilities that
were required to be measured at fair value on a non-recurring basis.
Short-Term Investments
As of May 31, 2013 and 2012, short-term investments consisted of available-
for-sale securities. As of May 31, 2013, the Company held $2,229 million of
available-for-sale securities with maturity dates within one year from the
purchase date and $399 million with maturity dates over one year and less
than five years from the purchase date within short-term investments. As of
May 31, 2012, the Company held $1,129 million of available-for-sale
securities with maturity dates within one year from purchase date and $311
million with maturity dates over one year and less than five years from
purchase date within short-term investments.
Short-term investments classified as available-for-sale consist of the following at fair value:
As of May 31,
(In millions) 2013 2012
Available-for-sale investments:
U.S. treasury and agencies $ 1,984 $ 1,157
Commercial paper and bonds 644 283
TOTAL AVAILABLE-FOR-SALE INVESTMENTS $ 2,628 $ 1,440
Included in interest (income) expense, net was interest income related to cash
and equivalents and short-term investments of $26 million, $27 million, and
$28 million for the years ended May 31, 2013, 2012, and 2011, respectively.
For fair value information regarding notes payable and long-term debt, refer to
Note 7 — Short-Term Borrowings and Credit Lines and Note 8 — Long-Term
Debt.
NOTE 7 — Short-Term Borrowings and Credit Lines
Notes payable and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz America”) as of May 31, 2013 and 2012, are summarized below:
As of May 31,
2013 2012
(In millions) Borrowings Interest Rate Borrowings Interest Rate
Notes payable:
U.S. operations $ 20 0.00%(1) $ 30 5.50%(1)
Non-U.S. operations 101 4.77%(1) 78 9.46%(1)
TOTAL NOTES PAYABLE $ 121 $ 108
Interest-Bearing Accounts Payable:
Sojitz America $ 55 0.99% $ 75 1.10%
(1) Weighted average interest rate includes non-interest bearing overdrafts.
The carrying amounts reflected in the consolidated balance sheets for notes
payable approximate fair value.
The Company purchases through Sojitz America certain athletic footwear,
apparel and equipment it acquires from non-U.S. suppliers. These purchases
are for the Company’s operations outside of the United States, Europe and
Japan. Accounts payable to Sojitz America are generally due up to 60 days
after shipment of goods from the foreign port. The interest rate on such
accounts payable is the 60-day London Interbank Offered Rate (“LIBOR”) as
of the beginning of the month of the invoice date, plus 0.75%.
As of May 31, 2013 and 2012, the Company had no amounts outstanding
under its commercial paper program.
In November 2011, the Company entered into a committed credit facility
agreement with a syndicate of banks which provides for up to $1 billion of
borrowings pursuant to a revolving credit facility with the option to increase
borrowings to $1.5 billion with lender approval. The facility matures on
November 1, 2016, with a one-year extension option prior to both the second
and third anniversary of the closing date, provided that extensions shall not
extend beyond November 1, 2018. Based on the Company’s current long-
term senior unsecured debt ratings of A+ 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
0.56%. The facility fee is 0.065% of the total commitment. Under this
committed credit facility, the Company must maintain, among other things,
certain minimum specified financial ratios with which the Company was in
compliance at May 31, 2013. No amounts were outstanding under this facility
as of May 31, 2013 or 2012.
NIKE, INC. 2013 Annual Report and Notice of Annual Meeting 101
FORM 10-K