UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K (Mark One)

Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2018

OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

Commission File No. 1-10635

NIKE, Inc. (Exact name of Registrant as specified in its charter)

OREGON 93-0584541 (State or other jurisdiction of incorporation) (IRS Employer Identification No.)

One Bowerman Drive, Beaverton, Oregon 97005-6453 (Address of principal executive offices) (Zip Code)

(503) 671-6453

(Registrant’s telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Class B Common Stock New York Stock Exchange (Title of each class) (Name of each exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark: YES NO • if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Í ‘ • if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ‘ Í • whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Í ‘

• whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Í ‘

• if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í

• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ Emerging growth company ‘ • if an emerging growth company, if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ • whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Í As of November 30, 2017, the aggregate market values of the Registrant’s Common Stock held by non-affiliates were:

Class A $ 4,475,052,736 Class B 78,093,099,655

$82,568,152,391

As of July 20, 2018, the number of shares of the Registrant’s Common Stock outstanding were: Class A 320,065,752 Class B 1,280,488,786

1,600,554,538

DOCUMENTS INCORPORATED BY REFERENCE: Parts of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on September 20, 2018 are incorporated by reference into Part III of this Report.

53

NIKE, INC. ANNUAL REPORT ON FORM 10-K Table of Contents

Page

PART I 55 ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 United States Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 International Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Significant Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Product Research, Design and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 International Operations and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Trademarks and Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ITEM 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

PART II 69

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

PART III 120

(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for the NIKE, Inc. 2018 Annual Meeting of Shareholders.)

ITEM 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 ITEM 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . .120 ITEM 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120

PART IV 121

ITEM 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121 ITEM 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

54

PART I

PART I

ITEM 1. Business

General

NIKE, Inc. was incorporated in 1967 under the laws of the State of Oregon. As used in this report, the terms “we,” “us,” “NIKE” and the “Company” refer to NIKE, Inc. and its predecessors, subsidiaries and affiliates, collectively, unless the context indicates otherwise. Our NIKE digital commerce website is located at www.nike.com. On our NIKE corporate website, located at investors.nike.com, we post the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the United States Securities and Exchange Commission (the “SEC”): our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended. Our definitive Proxy Statements are also posted on our corporate website. All such filings on our corporate website are available free of charge. Copies of these filings may also be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330 and are available on the SEC’s website (www.sec.gov). Also available on our corporate website are the charters of

the committees of our Board of Directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005- 6453.

Our principal business activity is the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. NIKE is the largest seller of athletic footwear and apparel in the world. We sell our products through NIKE-owned retail stores and through digital platforms (which we refer to collectively as our “NIKE Direct” operations), to retail accounts and a mix of independent distributors, licensees and sales representatives in virtually all countries around the world. Virtually all of our products are manufactured by independent contractors. Nearly all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad.

Products

We focus our NIKE Brand product offerings in six key categories: Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear (our sports-inspired lifestyle products). We also market products designed for kids, as well as for other athletic and recreational uses such as American football, baseball, cricket, lacrosse, skateboarding, tennis, volleyball, wrestling, walking and outdoor activities.

NIKE’s athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes. We place considerable emphasis on innovation and high-quality construction in the development and manufacturing of our products. Sportswear, Running and the Jordan Brand are currently our top-selling footwear categories and we expect them to continue to lead in footwear sales.

We also sell sports apparel covering the above-mentioned categories, which feature the same trademarks and are sold predominantly through the same marketing and distribution channels as athletic footwear. Our sports apparel, similar to our athletic footwear products, is designed primarily for athletic use and exemplifies our commitment to innovation and high-quality construction. Sportswear, Training and Running are currently our top-selling apparel categories and we expect them to continue to lead in apparel sales. We often market footwear, apparel and accessories in “collections” of similar use or by category. We also market apparel with licensed college and professional team and league logos.

We sell a line of performance equipment and accessories under the NIKE Brand name, including bags, socks, sport balls, eyewear, timepieces, digital

devices, bats, gloves, protective equipment and other equipment designed for sports activities. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary, NIKE IHM, Inc., doing business as Air Manufacturing Innovation.

Our Jordan Brand designs, distributes and licenses athletic and casual footwear, apparel and accessories predominantly focused on basketball using the Jumpman trademark. Sales and operating results for Jordan Brand products are reported within the respective NIKE Brand geographic operating segments.

One of our wholly-owned subsidiary brands, Converse, headquartered in Boston, Massachusetts, designs, distributes and licenses casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks. Operating results of the Converse brand are reported on a stand-alone basis.

Another of our wholly-owned subsidiary brands, Hurley, headquartered in Costa Mesa, California, designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley trademark. Sales and operating results for Hurley products are included within the NIKE Brand’s North America geographic operating segment.

In addition to the products we sell to our wholesale customers and directly to consumers through our NIKE Direct operations, we have also entered into license agreements that permit unaffiliated parties to manufacture and sell, using NIKE-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 55

F O

R M

1 0 -K

PART I

Sales and Marketing

Financial information about geographic and segment operations appears in Note 17 — Operating Segments and Related Information of the accompanying Notes to the Consolidated Financial Statements.

We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third quarters. However, the mix of product sales may vary considerably as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment, as well as other macroeconomic, operating and logistics-related factors.

Because NIKE is a consumer products company, the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories and influencing sports and fitness preferences through extensive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. Refer to Item 1A. Risk Factors.

We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. In June 2017, we announced a new company alignment designed to allow NIKE to better serve the consumer personally, at scale. As a result of this organizational realignment, the Company’s reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA), and include results for the NIKE, Jordan and Hurley brands. Sales through our NIKE Direct operations are managed within each geographic operating segment.

Converse is also a reportable segment and operates in one industry: the design, marketing, licensing and selling of casual sneakers, apparel and accessories. Converse direct to consumer operations, including digital commerce, are reported within the Converse operating segment results.

United States Market

For fiscal 2018, NIKE Brand and Converse sales in the United States accounted for approximately 42% of total revenues, compared to 46% and 47% for fiscal 2017 and fiscal 2016, respectively. We sell our NIKE Brand, Jordan Brand, Hurley and Converse products to thousands of retail accounts in the United States, including a mix of footwear stores, sporting goods

stores, athletic specialty stores, department stores, skate, tennis and golf shops and other retail accounts. In the United States, we utilize NIKE sales offices to solicit such sales. During fiscal 2018, our three largest customers accounted for approximately 21% of sales in the United States.

Our NIKE Direct and Converse direct to consumer operations sell NIKE Brand, Jordan Brand, Hurley and Converse products to consumers through various digital platforms. In addition, our NIKE Direct and Converse direct to consumer operations sell through the following number of retail stores in the United States:

U.S. Retail Stores Number NIKE Brand factory stores 220 NIKE Brand in-line stores (including employee-only stores) 31 Converse stores (including factory stores) 112 Hurley stores (including factory and employee stores) 29 TOTAL 392

In the United States, NIKE has seven significant distribution centers. Five are located in Memphis, Tennessee, two of which are owned and three of which are leased. Two other distribution centers, one located in Indianapolis, Indiana, and one located in Dayton, Tennessee, are leased and operated by

third-party logistics providers. NIKE Brand apparel and equipment are also shipped from our Foothill Ranch, California distribution center, which we lease. Smaller leased, and third-party leased and operated, distribution facilities are located in various parts of the United States.

International Markets

For fiscal 2018, non-U.S. NIKE Brand and Converse sales accounted for approximately 58% of total revenues, compared to 54% and 53% for fiscal 2017 and fiscal 2016, respectively. We sell our products to retail accounts, through our own NIKE Direct operations and through a mix of independent distributors, licensees and sales representatives around the world. We sell to

thousands of retail accounts and ship products from 62 distribution centers outside of the United States. During fiscal 2018, NIKE’s three largest customers outside of the United States accounted for approximately 13% of total non-U.S. sales.

In addition to NIKE and Converse owned digital commerce platforms in over 45 countries, our NIKE Direct and Converse direct to consumer businesses operate the following number of retail stores outside the United States:

Non-U.S. Retail Stores Number NIKE Brand factory stores 664 NIKE Brand in-line stores (including employee-only stores) 65 Converse stores (including factory stores) 61 TOTAL 790

International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Macau,

Malaysia, Mexico, the Netherlands, New Zealand, Norway, Panama, the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, Uruguay and Vietnam.

56

PART I

Significant Customer

No customer accounted for 10% or more of our worldwide net revenues during fiscal 2018.

Product Research, Design and Development

We believe our research, design and development efforts are key factors in our success. Technical innovation in the design and manufacturing process of footwear, apparel and athletic equipment receives continued emphasis as we strive to produce products that help to enhance athletic performance, reduce injury and maximize comfort, while reducing waste.

In addition to our own staff of specialists in the areas of biomechanics, chemistry, exercise physiology, engineering, industrial design, sustainability and related fields, we also utilize research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts who consult with us and review designs, materials, concepts for product and manufacturing process improvements and compliance with product safety regulations around the world. Employee

athletes, athletes engaged under sports marketing contracts and other athletes wear-test and evaluate products during the design and development process.

As we continue to develop new technologies, we are simultaneously focused on the design of innovative products incorporating such technologies throughout our product categories. Using market intelligence and research, our various design teams identify opportunities to leverage new technologies in existing categories responding to consumer preferences. The proliferation of NIKE Air, Lunar, Zoom, Free, Flywire, Dri-Fit, Flyknit, Flyweave, ZoomX, React and NIKE+ technologies throughout our Running, NIKE Basketball, Jordan Brand, Football (Soccer), Training and Sportswear categories, among others, typifies our dedication to designing innovative products.

Manufacturing

We are supplied by 124 footwear factories located in 13 countries. The largest single footwear factory accounted for approximately 9% of total fiscal 2018 NIKE Brand footwear production. Virtually all of our footwear is manufactured outside of the United States by independent contract manufacturers which often operate multiple factories. For fiscal 2018, contract factories in Vietnam, China and Indonesia manufactured approximately 47%, 26% and 21% of total NIKE Brand footwear, respectively. We also have manufacturing agreements with independent contract manufacturers in Argentina, India, Brazil, Mexico and Italy to manufacture footwear for sale primarily within those countries. For fiscal 2018, five footwear contract manufacturers each accounted for greater than 10% of footwear production and in the aggregate accounted for approximately 69% of NIKE Brand footwear production.

We are supplied by 328 apparel factories located in 37 countries. The largest single apparel factory accounted for approximately 13% of total fiscal 2018 NIKE Brand apparel production. Virtually all of our apparel is manufactured outside of the United States by independent contract manufacturers which often operate multiple factories. For fiscal 2018, contract factories in China, Vietnam and Thailand produced approximately 26%, 18% and 10% of total NIKE Brand apparel, respectively. For fiscal 2018, one apparel contract manufacturer accounted for more than 10% of apparel production, and the top five contract manufacturers in the aggregate accounted for approximately 47% of NIKE Brand apparel production.

The principal materials used in our footwear products are natural and synthetic rubber, plastic compounds, foam cushioning materials, natural and synthetic leather, nylon, polyester and canvas, as well as polyurethane films used to make NIKE Air-Sole cushioning components. During fiscal 2018, Air Manufacturing Innovation, with facilities near Beaverton, Oregon and in St.

Charles, Missouri, as well as independent contractors in China and Vietnam, were our suppliers of the Air-Sole cushioning components used in footwear. The principal materials used in our apparel products are natural and synthetic fabrics and threads (both virgin and recycled); specialized performance fabrics designed to efficiently wick moisture away from the body, retain heat and repel rain and/or snow; and plastic and metal hardware. NIKE’s independent contractors and suppliers buy raw materials for the manufacturing of our footwear, apparel and equipment products. Most raw materials are available and purchased by those independent contractors and suppliers in the countries where manufacturing takes place. NIKE’s independent contract manufacturers and suppliers have thus far experienced little difficulty in satisfying raw material requirements for the production of our products.

Since 1972, Sojitz Corporation of America (“Sojitz America”), a large Japanese trading company and the sole owner of our redeemable preferred stock, has performed significant import-export financing services for us. During fiscal 2018, Sojitz America provided financing and purchasing services for NIKE Brand products sold in certain NIKE markets including Argentina, Brazil, Canada, India, South Africa and Uruguay, excluding products produced and sold in the same country. Approximately 6% of NIKE Brand sales occurred in those countries. Any failure of Sojitz America to provide these services or any failure of Sojitz America’s banks could disrupt our ability to acquire products from our suppliers and to deliver products to our customers in those markets. Such a disruption could result in canceled orders that would adversely affect sales and profitability. However, we believe that any such disruption would be short-term in duration due to the ready availability of alternative sources of financing at competitive rates. Our current agreements with Sojitz America expire on May 31, 2019.

International Operations and Trade

Our international operations and sources of supply are subject to the usual risks of doing business abroad, such as the implementation of, or potential changes in, foreign and domestic trade policies, increases in import duties, anti-dumping measures, quotas, safeguard measures, trade restrictions, restrictions on the transfer of funds and, in certain parts of the world, political instability and terrorism. We have not, to date, been materially affected by any such risk, but cannot predict the likelihood of such material effects occurring in the future.

In recent years, uncertain global and regional economic and political conditions have affected international trade and increased protectionist actions around the world. These trends are affecting many global

manufacturing and service sectors, and the footwear and apparel industries, as a whole, are not immune. Companies in our industry are facing trade protectionism in many different regions, and in nearly all cases we are working together with industry groups to address trade issues and reduce the impact to the industry, while observing applicable competition laws. Notwithstanding our efforts, protectionist measures have resulted in increases in the cost of our products, and additional measures, if implemented, could adversely affect sales and/or profitability for NIKE, as well as the imported footwear and apparel industry as a whole.

We monitor protectionist trends and developments throughout the world that may materially impact our industry, and we engage in administrative and

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 57

F O

R M

1 0 -K

PART I

judicial processes to mitigate trade restrictions. We are actively monitoring actions that may result in additional anti-dumping measures and could affect our industry. We are also monitoring for and advocating against other impediments that may limit or delay customs clearance for imports of footwear, apparel and equipment. Changes in U.S. trade policies, including new and potential tariffs or penalties on imported goods, may negatively affect U.S. corporations with production activities outside the U.S., including NIKE. There have also been discussions and commentary regarding retaliatory actions by countries affected by the new tariffs and other changes in U.S. trade policy, and certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods, which could negatively affect U.S. corporations with business operations and/or consumer markets in those countries. Depending on the extent that certain new or proposed reforms are implemented by the U.S. government and the manner in which foreign governments respond to such reforms, it may become necessary for us to change the way we conduct business, which may adversely affect our results of operations. In addition, with respect to proposed trade restrictions targeting China, which represents an important sourcing country and consumer market for us, we are working with a broad coalition of global businesses and trade associations representing a wide variety of sectors to help ensure that any legislation enacted and implemented (i) addresses legitimate and core concerns, (ii) is consistent with international

trade rules and (iii) reflects and considers China’s domestic economy and the important role it has in the global economic community.

Where trade protection measures are implemented, we believe that we have the ability to develop, over a period of time, adequate alternative sources of supply for the products obtained from our present suppliers. If events prevented us from acquiring products from our suppliers in a particular country, our operations could be temporarily disrupted and we could experience an adverse financial impact. However, we believe we could abate any such disruption, and that much of the adverse impact on supply would, therefore, be of a short-term nature, although alternate sources of supply might not be as cost-effective and could have an ongoing adverse impact on profitability.

NIKE advocates for trade liberalization for footwear and apparel in a number of regional and bilateral free trade agreements.

Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws applicable to our operations. We source a significant portion of our products from, and have important consumer markets, outside of the United States, and we have policies and procedures to address compliance with the FCPA and similar laws by us, our employees, agents, suppliers and other partners.

Competition

The athletic footwear, apparel and equipment industry is highly competitive on a worldwide basis. We compete internationally with a significant number of athletic and leisure footwear companies, athletic and leisure apparel companies, sports equipment companies and large companies having diversified lines of athletic and leisure footwear, apparel and equipment, including adidas, Anta, ASICS, Li Ning, lululemon athletica, Puma, Under Armour and V.F. Corporation, among others. The intense competition and the rapid changes in technology and consumer preferences in the markets for athletic and leisure footwear and apparel and athletic equipment, constitute significant risk factors in our operations.

NIKE is the largest seller of athletic footwear and apparel in the world. Important aspects of competition in this industry are:

• Product attributes such as quality; performance and reliability; new product innovation and development and consumer price/value.

• Consumer connection and affinity for brands and products, developed through marketing and promotion; social media interaction; customer support and service; identification with prominent and influential athletes, public figures, coaches, teams, colleges and sports leagues who endorse our brands and use our products and active engagement through sponsored sporting events and clinics.

• Effective sourcing and distribution of products, with attractive merchandising and presentation at retail, both in-store and online.

We believe that we are competitive in all of these areas.

Trademarks and Patents

We believe that our intellectual property rights are important to our brand, our success and our competitive position. We pursue available protections of these rights and vigorously protect them against third-party theft and infringement.

We utilize trademarks on nearly all of our products and believe having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying our brands and the Company, and in distinguishing our goods from the goods of others. We consider our NIKE and Swoosh trademarks to be among our most valuable assets and we have registered these trademarks in almost 170 jurisdictions worldwide. In addition, we own many other trademarks that we utilize in marketing our products. We own common law rights in the trade dress of several significant shoe designs and elements. For certain trade dress, we have sought and obtained trademark registrations.

We have copyright protection in our design, graphics and other original works. In some instances, we also obtain registered copyrights.

We own patents and have a license under other patents, which facilitate our use of “Air” technologies.

We file for, own and maintain many U.S. and foreign utility patents, as well as many U.S. and foreign design patents protecting components, technologies, materials, manufacturing techniques, features, functionality, and industrial and aesthetic designs used in and for the manufacture of various athletic and leisure footwear and apparel, athletic equipment and digital devices and related software applications. These patents expire at various times.

We believe our success depends upon our capabilities in areas such as design, research and development, production and marketing rather than exclusively upon our patent and trade secret positions.

However, we have followed a policy of filing patent applications in the United States and select foreign countries on inventions, designs and improvements that we deem valuable. We also continue to vigorously protect our trademarks and patents against third-party infringement.

58

PART I

Employees

As of May 31, 2018, we had approximately 73,100 employees worldwide, including retail and part-time employees. Management is committed to maintaining an environment where all NIKE employees have the opportunity to reach their full potential. None of our employees are represented by a union, except for certain employees in the Asia Pacific & Latin America geography, where local law requires those employees to be represented by a trade union. Also, in some countries outside of the United States, local laws

require employee representation by works councils (which may be entitled to information and consultation on certain Company decisions) or by organizations similar to a union. In certain European countries, we are required by local law to enter into and/or comply with industry-wide or national collective bargaining agreements. NIKE has never experienced a material interruption of operations due to labor disagreements.

Executive Officers of the Registrant

The executive officers of NIKE, Inc. as of July 24, 2018 are as follows:

Mark G. Parker, Chairman, President and Chief Executive Officer — Mr. Parker, 62, was appointed President and Chief Executive Officer in January 2006 and named Chairman of the Board in June 2016. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing and brand management. Mr. Parker was appointed divisional Vice President in charge of product development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998 and President of the NIKE Brand in 2001.

Chris L. Abston, Vice President and Corporate Controller — Mr. Abston, 55, joined NIKE in 2015 from Wal-Mart Stores, Inc., where he served as Vice President, Global Controls and Governance since February 2015. Prior to that he was Vice President and Controller of Walmart International from February 2013 to January 2015, responsible for the oversight of international accounting and reporting, and Vice President and Assistant Controller of Wal-Mart Stores, Inc. from May 2011 to January 2013. Before joining Wal-Mart, Mr. Abston spent 25 years in public accounting with Ernst & Young LLP, most recently leading its Strategic Growth Markets practice as a Partner in the Dallas office.

Andrew Campion, Executive Vice President and Chief Financial Officer — Mr. Campion, 46, joined NIKE in 2007 as Vice President of Global Planning and Development, leading strategic and financial planning. He was appointed Chief Financial Officer of the NIKE Brand in 2010, responsible for leading all aspects of financial management for the Company’s flagship brand. In 2014, he was appointed Senior Vice President, Strategy, Finance and Investor Relations in addition to his role as Chief Financial Officer of NIKE Brand. Mr. Campion assumed the role of Executive Vice President and Chief Financial Officer in August 2015. Prior to joining NIKE, he held leadership roles in strategic planning, mergers and acquisitions, financial planning and analysis, operations and planning, investor relations and tax at The Walt Disney Company from 1996 to 2007.

Elliott J. Hill, President, Consumer and Marketplace — Mr. Hill, 54, joined NIKE in 1988, with primary responsibilities in sales and retail. He has served as Apparel Sales Director in Europe, Retail Development Director in Europe, Vice President of Sales and Retail in EMEA, General Manager of US Retail, Vice

President of US Sales, Retail and NIKE.com, and Vice President of Global Retail. Most recently, Mr. Hill served as President of Geographies and Sales and Vice President and General Manager of North America. Mr. Hill was appointed President, Consumer and Marketplace in March 2018.

Hilary K. Krane, Executive Vice President, Chief Administrative Officer and General Counsel — Ms. Krane, 54, joined NIKE as Vice President and General Counsel in April 2010. In 2011, her responsibilities expanded, and she became Vice President, General Counsel and Corporate Affairs. Ms. Krane was appointed Executive Vice President, Chief Administrative Officer and General Counsel in 2013. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a Partner and Assistant General Counsel at PricewaterhouseCoopers LLP.

Monique S. Matheson, Executive Vice President, Global Human Resources — Ms. Matheson, 51, joined NIKE in 1998, with primary responsibilities in the human resources function. She was appointed as Vice President and Senior Business Partner in 2011 and Vice President, Chief Talent and Diversity Officer in 2012. Ms. Matheson was appointed Executive Vice President, Global Human Resources in July 2017.

John F. Slusher, Executive Vice President, Global Sports Marketing — Mr. Slusher, 49, joined NIKE in 1998, with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for Asia Pacific and Americas in 2006, divisional Vice President of Asia Pacific & Americas Sports Marketing in September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998.

Eric D. Sprunk, Chief Operating Officer — Mr. Sprunk, 54, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director for NIKE Europe in 1995, Regional General Manager of NIKE Europe Footwear in 1998 and Vice President & General Manager of the Americas in 2000. Mr. Sprunk was appointed Vice President of Global Footwear in 2001, Vice President of Merchandising and Product in 2009 and Chief Operating Officer in 2013. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 59

F O

R M

1 0 -K

PART I

ITEM 1A. Risk Factors Special Note Regarding Forward-Looking Statements and Analyst Reports

Certain written and oral statements, other than purely historic information, including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives in this report, other reports, filings with the SEC, press releases, conferences or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result” or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the SEC, including reports filed on Forms 8-K, 10-Q and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products and the various market factors described above; difficulties in implementing, operating and maintaining NIKE’s increasingly complex information technology systems and controls, including, without limitation, the systems related to demand and supply planning and inventory control; interruptions in data and information technology systems; consumer data security; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance orders may not be indicative of future revenues due to changes in shipment timing, the changing mix of orders with shorter lead times, and discounts, order cancellations and returns; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials, labor and energy used to manufacture products; new product development and introduction; the ability to secure and protect trademarks, patents and other intellectual property; product performance and quality; customer service; adverse publicity, including without limitation, through social media or in connection with brand damaging events; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in NIKE’s debt ratings; changes in business strategy or development plans; general risks associated with doing business outside of the United States, including, without limitation, exchange rate fluctuations, inflation, import duties, tariffs, quotas, political and economic instability and terrorism; the impact of recent U.S. tax reform legislation on our results of operations; the potential impact of new laws, regulations or policy, including, without limitation, tariffs, import/export, trade and immigration regulations or policies; changes in government regulations; the impact of, including business and legal developments relating to, climate change and natural disasters; litigation, regulatory proceedings and other claims asserted against NIKE; the ability to attract and retain qualified employees, and any negative public perception with respect to key personnel; the effects of NIKE’s decision to invest in or divest of businesses and other factors referenced or incorporated by reference in this report and other reports.

The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for management to predict all such risks, nor can it assess the

impact of all such risks on NIKE’s business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of NIKE.

Our products face intense competition.

NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. The athletic footwear, apparel and equipment industry is highly competitive both in the United States and worldwide. We compete internationally with a significant number of athletic and leisure footwear companies, athletic and leisure apparel companies, sports equipment companies and large companies having diversified lines of athletic and leisure footwear, apparel and equipment. We also compete with other companies for the production capacity of independent manufacturers that produce our products. Our NIKE Direct operations, both through our digital commerce operations and retail stores, also compete with multi-brand retailers selling our products.

Product offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production, customer service, digital commerce platforms and social media presence are areas of intense competition. This, in addition to rapid changes in technology and consumer preferences in the markets for athletic and leisure footwear and apparel and athletic equipment, constitute significant risk factors in our operations. In addition, the competitive nature of retail including shifts in the ways in which consumers are shopping, and the rising trend of digital commerce, constitutes a risk factor implicating our NIKE Direct and wholesale operations. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products may decline significantly.

Failure to maintain our reputation and brand image could negatively impact our business.

Our iconic brands have worldwide recognition, and our success depends on our ability to maintain and enhance our brand image and reputation. Maintaining, promoting and growing our brands will depend on our design and marketing efforts, including advertising and consumer campaigns, product innovation and product quality. Our commitment to product innovation and quality and our continuing investment in design (including materials) and marketing may not have the desired impact on our brand image and reputation. In addition, our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and digital dissemination of advertising campaigns. We could be adversely impacted if we fail to achieve any of these objectives.

Our brand value also depends on our ability to maintain a positive consumer perception of our corporate integrity and brand culture. Negative claims or publicity involving us, our products or any of our key employees, endorsers, sponsors or suppliers could seriously damage our reputation and brand image, regardless of whether such claims are accurate. Social media, which accelerates and potentially amplifies the scope of negative publicity, can increase the challenges of responding to negative claims. Adverse publicity about regulatory or legal action against us, or by us, could also damage our

60

PART I

reputation and brand image, undermine consumer confidence in us and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. If the reputation or image of any of our brands is tarnished or if we receive negative publicity, then our product sales, financial condition and results of operations could be materially and adversely affected.

If we are unable to anticipate consumer preferences and develop new products, we may not be able to maintain or increase our revenues and profits.

Our success depends on our ability to identify, originate and define product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. However, lead times for many of our products may make it more difficult for us to respond rapidly to new or changing product trends or consumer preferences. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, and influencing sports and fitness preferences through extensive marketing, we could experience lower sales, excess inventories or lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. In addition, we market our products globally through a diverse spectrum of advertising and promotional programs and campaigns, including social media, mobile applications and online advertising. If we do not successfully market our products or if advertising and promotional costs increase, these factors could have an adverse effect on our business, financial condition and results of operations.

We rely on technical innovation and high-quality products to compete in the market for our products.

Technical innovation and quality control in the design and manufacturing process of footwear, apparel and athletic equipment is essential to the commercial success of our products. Research and development play a key role in technical innovation. We rely upon specialists in the fields of biomechanics, chemistry, exercise physiology, engineering, industrial design, sustainability and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to develop and test cutting-edge performance products. While we strive to produce products that help to enhance athletic performance, reduce injury and maximize comfort, if we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems.

Failure to continue to obtain or maintain high-quality endorsers of our products could harm our business.

We establish relationships with professional athletes, sports teams and leagues, as well as other public figures, to develop, evaluate and promote our products, as well as establish product authenticity with consumers. However, as competition in our industry has increased, the costs associated with establishing and retaining such sponsorships and other relationships have increased. If we are unable to maintain our current associations with professional athletes, sports teams and leagues, or other public figures, or to do so at a reasonable cost, we could lose the high visibility or on-field authenticity associated with our products, and we may be required to modify and substantially increase our marketing investments. As a result, our brands, net revenues, expenses and profitability could be harmed.

Furthermore, if certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues, or other endorsers, associated with our products that harm the reputations of those athletes, teams or leagues, or endorsers, could also seriously harm our brand image

with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to continue to correctly identify promising athletes, or public figures, to use and endorse our products or a failure to enter into cost-effective endorsement arrangements with prominent athletes, public figures, and sports organizations could adversely affect our brand, sales and profitability.

General economic factors beyond our control, and changes in the global economic environment, including fluctuations in inflation and currency exchange rates, could result in lower revenues, higher costs and decreased margins and earnings.

A majority of our products are manufactured and sold outside of the United States, and we conduct purchase and sale transactions in various currencies, which increases our exposure to the volatility of global economic conditions, including fluctuations in inflation and foreign currency exchange rates. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom’s impending exit from the European Union, commonly referred to as “Brexit” and new or proposed U.S. policy changes. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses could be affected by currency fluctuations, specifically amounts recorded in foreign currencies and translated into U.S. Dollars for consolidated financial reporting, as weakening of foreign currencies relative to the U.S. Dollar adversely affects the U.S. Dollar value of the Company’s foreign currency-denominated sales and earnings. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations have adversely affected and could continue to have an adverse effect on our results of operations and financial condition.

We may hedge certain foreign currency exposures to lessen and delay, but not to completely eliminate, the effects of foreign currency fluctuations on our financial results. Since the hedging activities are designed to lessen volatility, they not only reduce the negative impact of a stronger U.S. Dollar or other trading currency, but they also reduce the positive impact of a weaker U.S. Dollar or other trading currency. Our future financial results could be significantly affected by the value of the U.S. Dollar in relation to the foreign currencies in which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities.

Global economic conditions could have a material adverse effect on our business, operating results and financial condition.

The uncertain state of the global economy continues to impact businesses around the world, most acutely in emerging markets and developing economies. If global economic and financial market conditions do not improve or deteriorate, the following factors could have a material adverse effect on our business, operating results and financial condition:

• Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower revenues, higher discounts, increased inventories and lower gross margins.

• In the future, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so.

• We conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies, including in response to certain policies advocated or implemented by the U.S. presidential administration, could have a significant impact on our reported operating results and financial condition.

• Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain (such as cotton or

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 61

F O

R M

1 0 -K

PART I

petroleum derivatives) could have a material adverse effect on our costs, gross margins and profitability.

• If retailers of our products experience declining revenues or experience difficulty obtaining financing in the capital and credit markets to purchase our products, this could result in reduced orders for our products, order cancellations, late retailer payments, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense.

• If retailers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could negatively impact the sale of our products to consumers.

• If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to finance capital equipment and other general working capital needs, it may result in delays or non-delivery of shipments of our products.

Our business is affected by seasonality, which could result in fluctuations in our operating results.

We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment and in connection with the timing of significant sporting events, such as the NBA Finals, Olympics or the World Cup, among others. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability of import quotas, transportation disruptions and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of additional factors that are beyond our control, including manufacturing and transportation costs, shifts in product sales mix and geographic sales trends, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period.

We may be adversely affected by the financial health of our customers.

We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of our products, we offer certain customers the opportunity to place orders five to six months ahead of delivery under our futures ordering program. These advance orders may be canceled under certain conditions, and the risk of cancellation may increase when dealing with financially unstable retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties up to and including bankruptcies, which have had an adverse effect on our sales, our ability to collect on receivables and our financial condition. When the retail economy weakens or as consumer behavior shifts, retailers may be more cautious with orders. A slowing or changing economy in our key markets could adversely affect the financial health of our customers, which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing retail environment to attract consumers, which requires continuing investments by retailers. Retailers that experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products.

Failure to accurately forecast consumer demand could lead to excess inventories or inventory shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.

To meet anticipated demand for our products, we purchase products from manufacturers outside of our futures ordering program and in advance of customer orders, which we hold in inventory and resell to customers. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write- downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer, distributor and consumer relationships and diminish brand loyalty. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.

Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk and impair our ability to sell products.

The athletic footwear, apparel and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel and equipment retailers with many stores. These retailers have in the past increased their market share by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity or consumer behavior shifts away from traditional retail, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues.

Our NIKE Direct operations have required and will continue to require a substantial investment and commitment of resources and are subject to numerous risks and uncertainties.

Our NIKE Direct stores have required substantial fixed investment in equipment and leasehold improvements, information systems and personnel. We have entered into substantial operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and marketing activities. Because of their unique design elements, locations and size, these stores require substantially more investment than other stores. Due to the high fixed-cost structure associated with our NIKE Direct operations, a decline in sales, a shift in consumer behavior away from brick-and-mortar retail, or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs.

Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties. Risks include, but are not limited to: credit card fraud; mismanagement of existing retail channel partners; and inability to manage costs associated with store construction and operation. In addition, extreme weather conditions in the areas in which our stores are located could adversely affect our business.

62

PART I

If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our digital commerce business globally, could be materially adversely affected.

Many of our customers shop with us through our digital platforms. Increasingly, customers are using mobile-based devices and applications to shop online with us and with our competitors, and to do comparison shopping. We are increasingly using social media and proprietary mobile applications to interact with our customers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly digital commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of digital commerce and other sales, harm our reputation with customers, have a material adverse impact on the growth of our digital commerce business globally and could have a material adverse impact on our business and results of operations.

Risks specific to our digital commerce business also include diversion of sales from our and our retailers’ brick and mortar stores, difficulty in recreating the in-store experience through direct channels and liability for online content. Our failure to successfully respond to these risks might adversely affect sales in our digital commerce business, as well as damage our reputation and brands.

Failure to adequately protect or enforce our intellectual property rights could adversely affect our business.

We periodically discover counterfeit reproductions of our products or products that otherwise infringe our intellectual property rights. If we are unsuccessful in enforcing our intellectual property rights, continued sales of these products could adversely affect our sales and our brand and could result in a shift of consumer preference away from our products.

The actions we take to establish and protect our intellectual property rights may not be adequate to prevent imitation of our products by others. We also may be unable to prevent others from seeking to block sales of our products as violations of proprietary rights.

We may be subject to liability if third parties successfully claim we infringe on their intellectual property rights. Defending infringement claims could be expensive and time-consuming and might result in our entering into costly license agreements. We also may be subject to significant damages or injunctions against development, use, importation and/or sale of certain products.

We take various actions to prevent the unauthorized use and/or disclosure of our confidential information and intellectual property rights. These actions include contractual measures such as entering into non-disclosure and non-compete agreements and agreements relating to our collaborations with third parties and providing confidential information awareness training. Our controls and efforts to prevent unauthorized use and/or disclosure of confidential information and intellectual property rights might not always be effective. For example, confidential information related to business strategy, new technologies, mergers and acquisitions, unpublished financial results or personal data could be prematurely or inadvertently used and/or disclosed, resulting in a loss of reputation, a decline in our stock price and/or a negative impact on our market position, and could lead to damages, fines, penalties or injunctions.

In addition, the laws of certain countries may not protect or allow enforcement of intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liability in connection with the protection of our intellectual property rights, including outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected.

We are subject to the risk our licensees may not generate expected sales or maintain the value of our brands.

We currently license, and expect to continue licensing, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties.

If our licensees fail to successfully market and sell licensed products, or fail to obtain sufficient capital or effectively manage their business operations, customer relationships, labor relationships, supplier relationships or credit risks, it could adversely affect our revenues, both directly from reduced royalties received and indirectly from reduced sales of our other products.

We also rely on our licensees to help preserve the value of our brands. Although we attempt to protect our brands through approval rights over the design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of our licensed products, we cannot completely control the use of our licensed brands by our licensees. The misuse of a brand by or negative publicity involving a licensee could have a material adverse effect on that brand and on us.

We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.

In addition to our own sensitive and proprietary business information, we collect transactional and personal information about our customers and users of our digital experiences, which include online distribution channels and product engagement and personal fitness applications. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks. Any breach of our or our service providers’ network, or other vendor systems, may result in the loss of confidential business and financial data, misappropriation of our consumers’, users’ or employees’ personal information or a disruption of our business. Any of these outcomes could have a material adverse effect on our business, including unwanted media attention, impairment of our consumer and customer relationships, damage to our reputation; resulting in lost sales and consumers, fines, lawsuits, or significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or redress problems caused by any breach.

In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”), which became effective on May 25, 2018. The GDPR imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR) and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.

Failure of our contractors or our licensees’ contractors to comply with our code of conduct, local laws and other standards could harm our business.

We work with hundreds of contractors outside of the United States to manufacture our products, and we also have license agreements that permit unaffiliated parties to manufacture or contract for the manufacture of products using our intellectual property. We require the contractors that directly manufacture our products and our licensees that make products using our intellectual property (including, indirectly, their contract manufacturers) to comply with a code of conduct and other environmental, health and safety standards for the benefit of workers. We also require these contractors to comply with applicable standards for product safety. Notwithstanding their contractual obligations, from time to time contractors may not comply with such standards or applicable local law or our licensees may fail to enforce such standards or applicable local law on their contractors. Significant or continuing noncompliance with such standards and laws by one or more contractors could harm our reputation or result in a product recall and, as a result, could have an adverse effect on our sales and financial condition. Negative publicity regarding production methods, alleged practices or workplace or related conditions of any of our suppliers, manufacturers or licensees could adversely affect our brand image and sales and force us to locate alternative suppliers, manufacturers or licenses.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 63

F O

R M

1 0 -K

PART I

Our international operations involve inherent risks which could result in harm to our business.

Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which our products are manufactured or where we sell products. This includes, for example, the uncertainty surrounding the effect of Brexit, including changes to the legal and regulatory framework that apply to the United Kingdom and its relationship with the European Union, as well as new and proposed changes affecting tax laws and trade policy in the U.S. and elsewhere as further described below under “We could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities or increased volatility in our effective tax rate” and “Changes to U.S. trade policy, tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.” The U.S. presidential administration has indicated a focus on policy reforms that discourage U.S. corporations from outsourcing manufacturing and production activities to foreign jurisdictions, including through tariffs or penalties on goods manufactured outside the U.S., which may require us to change the way we conduct business and adversely affect our results of operations. The administration has also targeted the specific practices of certain U.S. multinational corporations in public statements which, if directed at us, could harm our reputation or otherwise negatively impact our business.

In addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets and our cost of doing business. If any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs or quotas that affect the cost and quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition.

We could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities or increased volatility in our effective tax rate.

We are subject to the tax laws in the United States and numerous foreign jurisdictions. Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to significant change. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which includes a number of significant changes to previous U.S. tax laws that impact us, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, and a reduction in the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, among other changes. The Tax Act also transitions U.S. international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation.

Implementation of the Tax Act required us to record incremental provisional tax expense in fiscal 2018, which increased our effective tax rate in fiscal 2018. Adjustments to the incremental provisional tax expense may be made in future periods as actual amounts may differ due to, among other factors, a change in interpretation of the applicable revisions to the U.S. tax code and related tax accounting guidance, changes in assumptions made in developing these estimates, regulatory guidance that may be issued with respect to the applicable revisions to the U.S. tax code, and state tax

implications. As we complete our analysis of the Tax Act, we may make adjustments to provisional amounts we have recorded, which could negatively impact our business, results of operations or financial condition. Changes or challenges to or the repeal of the Tax Act cannot be predicted with certainty and could have a material impact on our future tax expense.

We earn a substantial portion of our income in foreign countries and are subject to the tax laws of those jurisdictions. There have been proposals to reform foreign tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form these proposals will pass, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax expense and cash flows.

Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and rulings that expire in whole or in part from time to time. These tax holidays and rulings may be extended when certain conditions are met, or terminated if certain conditions are not met. If the tax holidays and rulings are not extended, or if we fail to satisfy the conditions of the reduced tax rate, our effective income tax rate would increase in the future.

We are also subject to the examination of our tax returns by the United States Internal Revenue Service (“IRS”) and other tax authorities. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for income taxes. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from our historical income tax provisions and accruals, particularly in light of the enactment of the Tax Act. The results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. For example, we and our subsidiaries are engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in place, tax authorities may propose and sustain adjustments that could result in changes that may impact our mix of earnings in countries with differing statutory tax rates.

Changes to U.S. trade policy, tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.

Changes in U.S. or international social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our business, as well as any negative sentiment toward the U.S. as a result of such changes, could adversely affect our business. The U.S. presidential administration has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the U.S. and other countries where we conduct our business. It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.

As a result of recent policy changes of the U.S. presidential administration and recent U.S. government proposals, there may be greater restrictions and economic disincentives on international trade. The new tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. The Company, similar to many other multinational corporations, does a significant amount of business that would be impacted by changes to the trade policies of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial condition and results of operations.

64

PART I

If one or more of our counterparty financial institutions default on their obligations to us or fail, we may incur significant losses.

As part of our hedging activities, we enter into transactions involving derivative financial instruments, which may include forward contracts, commodity futures contracts, option contracts, collars and swaps with various financial institutions. In addition, we have significant amounts of cash, cash equivalents and other investments on deposit or in accounts with banks or other financial institutions in the United States and abroad. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default, or our assets deposited or held in accounts with such counterparty, may be limited by the counterparty’s liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.

We rely on a concentrated source base of contract manufacturers to supply a significant portion of our footwear products.

NIKE is supplied by 124 footwear factories located in 13 countries. We do not own or operate any of the footwear manufacturing facilities and depend upon independent contract manufacturers to manufacture all of the footwear products we sell. In fiscal 2018, five footwear contract manufacturers each accounted for greater than 10% of fiscal 2018 footwear production and in aggregate accounted for approximately 69% of NIKE Brand footwear production in fiscal 2018. Our ability to meet our customers’ needs depends on our ability to maintain a steady supply of products from our independent contract manufacturers. If one or more of our significant suppliers were to sever their relationship with us or significantly alter the terms of our relationship, including due to changes in applicable trade policies, we may not be able to obtain replacement products in a timely manner, which could have a material adverse effect on our sales, financial condition or results of operations. Additionally, if any of our primary contract manufacturers fail to make timely shipments, do not meet our quality standards or otherwise fail to deliver us product in accordance with our plans, there could be a material adverse effect on our results of operations.

Our products are subject to risks associated with overseas sourcing, manufacturing and financing.

The principal materials used in our apparel products — natural and synthetic fabrics and threads, specialized performance fabrics designed to efficiently wick moisture away from the body, retain heat or repel rain and/or snow as well as plastic and metal hardware — are available in countries where our manufacturing takes place. The principal materials used in our footwear products — natural and synthetic rubber, plastic compounds, foam cushioning materials, natural and synthetic leather, natural and synthetic fabrics and threads, nylon, canvas and polyurethane films — are also locally available to manufacturers. Both our apparel and footwear products are dependent upon the ability of our unaffiliated contract manufacturers to locate, train, employ and retain adequate personnel. NIKE contractors and suppliers buy raw materials and are subject to wage rates that are oftentimes regulated by the governments of the countries in which our products are manufactured.

There could be a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, our contract manufacturers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or at all. Further, our unaffiliated contract manufacturers have experienced and may continue to experience in the future, unexpected increases in work wages, whether government mandated or otherwise and increases in compliance costs due to governmental regulation concerning certain metals used in the manufacturing of our products. In addition, we cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we

experience significant increases in demand, or reductions in the availability of materials, or need to replace an existing manufacturer, there can be no assurance additional supplies of fabrics or raw materials or additional manufacturing capacity will be available when required on terms acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards and labor, health and safety standards. Any delays, interruption or increased costs in labor or wages, or the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short- and long-term.

Because independent manufacturers make a majority of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which could adversely affect our profit margins. The cost of oil is a significant component in manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. Changes in U.S. trade policies, including new and potential changes to import tariffs and existing trade policies and agreements, could also have a significant impact on our activities in foreign jurisdictions, and could adversely affect our results of operations.

In addition, Sojitz America performs significant import-export financing services for the Company. During fiscal 2018, Sojitz America provided financing and purchasing services for NIKE Brand products sold in certain NIKE markets including Argentina, Brazil, Canada, India, South Africa and Uruguay (collectively the “Sojitz Markets”), excluding products produced and sold in the same country. Any failure of Sojitz America to provide these services or any failure of Sojitz America’s banks could disrupt our ability to acquire products from our suppliers and to deliver products to our customers in the Sojitz Markets. Such a disruption could result in canceled orders that would adversely affect sales and profitability.

Our success depends on our global distribution facilities.

We distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies and growth, particularly in emerging markets, depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities and the timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be interrupted by information technology problems and disasters such as earthquakes or fires. Any significant failure in our distribution facilities could result in an adverse effect on our business. We maintain business interruption insurance, but it may not adequately protect us from adverse effects caused by significant disruptions in our distribution facilities.

We rely significantly on information technology to operate our business, including our supply chain and retail operations, and any failure, inadequacy or interruption of that technology could harm our ability to effectively operate our business.

We are heavily dependent on information technology systems and networks, including the Internet and third-party services (“Information Technology Systems”), across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales and distribution, as well as for processing financial information for external and internal reporting purposes, retail operations and other business activities. Information

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 65

F O

R M

1 0 -K

PART I

Technology Systems are critical to many of our operating activities and our business processes and may be negatively impacted by any service interruption or shutdown. For example, our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these Information Technology Systems. Over a number of years, we have implemented Information Technology Systems in all of the geographical regions in which we operate. Our work to integrate, secure and enhance these systems and related processes in our global operations is ongoing and NIKE will continue to invest in these efforts. The failure of these systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes, or failure to properly maintain, protect, repair or upgrade systems, or problems with transitioning to upgraded or replacement systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant capital investments to remediate the problem, and may have an adverse effect on our reputation, results of operations and financial condition.

We also use Information Technology Systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. If Information Technology Systems suffer severe damage, disruption or shutdown and our business continuity plans, or those of our vendors, do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, which could result in lost revenues and profits, as well as reputational damage. Furthermore, we depend on Information Technology Systems and personal data collection for digital marketing, digital commerce, consumer engagement and the marketing and use of our digital products and services. We also rely on our ability to engage in electronic communications throughout the world between and among our employees as well as with other third parties, including customers, suppliers, vendors and consumers. Any interruption in Information Technology Systems may impede our ability to engage in the digital space and result in lost revenues, damage to our reputation, and loss of users.

The market for prime real estate is competitive.

Our ability to effectively obtain real estate to open new retail stores and otherwise conduct our operations, both domestically and internationally, depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics and other factors. We also must be able to effectively renew our existing real estate leases. In addition, from time to time, we seek to downsize, consolidate, reposition or close some of our real estate locations, which may require modification of an existing lease. Failure to secure adequate new locations or successfully modify leases for existing locations, or failure to effectively manage the profitability of our existing fleet of retail stores, could have an adverse effect on our operating results and financial condition.

Additionally, the economic environment may make it difficult to determine the fair market rent of real estate properties domestically and internationally. This could impact the quality of our decisions to exercise lease options at previously negotiated rents and to renew expiring leases at negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores, which could have an adverse effect on our operating results and financial condition.

Extreme weather conditions and natural disasters could negatively impact our operating results and financial condition.

Extreme weather conditions in the areas in which our retail stores, suppliers, customers, distribution centers and vendors are located could adversely affect our operating results and financial condition. Moreover, natural disasters such as earthquakes, hurricanes and tsunamis, whether occurring in the United States or abroad, and their related consequences and effects, including energy shortages and public health issues, could disrupt our operations, the operations of our vendors and other suppliers or result in economic instability that may negatively impact our operating results and financial condition.

Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.

From time to time, we may invest in technology, business infrastructure, new businesses, product offering and manufacturing innovation and expansion of existing businesses, such as our digital commerce operations, which require substantial cash investments and management attention. We believe cost- effective investments are essential to business growth and profitability; however, significant investments are subject to typical risks and uncertainties inherent in developing a new business or expanding an existing business. The failure of any significant investment to provide expected returns or profitability could have a material adverse effect on our financial results and divert management attention from more profitable business operations.

We are subject to litigation and other legal and regulatory proceedings, which could have an adverse effect on our business, financial condition and results of operations.

As a multinational corporation with operations and distribution channels throughout the world, we are subject to extensive laws and regulations in the U.S. and other jurisdictions in which we have operations and distribution channels. We are involved in various types of claims, lawsuits, regulatory proceedings and government investigations relating to our business, our products and the actions of our employees and representatives, including contractual and employment relationships, product liability, antitrust, trademark rights and a variety of other matters. It is not possible to predict with certainty the outcome of any such legal or regulatory proceedings or investigations, and we could in the future incur judgments, fines or penalties, or enter into settlements of lawsuits and claims that could have a material adverse effect on our business, financial condition and results of operations and negatively impact our reputation. The global nature of our business means legal and compliance risks will continue to exist and additional legal proceedings and other contingencies will arise from time to time, which could adversely affect us. In addition, the adoption of new laws or regulations, or changes in the interpretation of existing laws or regulations, may result in significant unanticipated legal and reputational risks. Any current or future legal or regulatory proceedings could divert management’s attention from our operations and result in substantial legal fees.

The success of our business depends, in part, on high- quality employees, including key personnel.

Our success depends in part on the continued service of high-quality employees, including key executive officers and personnel. The loss of the services of key individuals, or any negative perception with respect to these individuals, could harm our business. Our success also depends on our ability to recruit, retain and engage our personnel sufficiently, both to maintain our current business and to execute our strategic initiatives. Competition for employees in our industry is intense and we may not be successful in attracting and retaining such personnel. In addition, shifts in U.S. immigration policy could negatively impact our ability to attract, hire and retain highly skilled employees who are from outside the U.S.

The sale of a large number of shares of common stock by our principal stockholder could depress the market price of our common stock.

As of June 30, 2018, Swoosh, LLC beneficially owned more than 77% of our Class A Common Stock. If, on June 30, 2018, all of these shares were converted into Class B Common Stock, the commensurate ownership percentage of our Class B Common Stock would be approximately 17%. The shares are available for resale, subject to the requirements of the U.S. securities laws and the terms of the limited liability company agreement governing Swoosh, LLC. The sale or prospect of a sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. Swoosh, LLC was formed by Philip H. Knight, our Chairman Emeritus, to hold the majority of his shares of Class A Common Stock. Swoosh, LLC is controlled by Mr. Knight’s son and NIKE director, Travis Knight.

66

PART I

Changes in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options.

Our long-term debt is currently rated Investment Grade by Standard & Poor’s and Moody’s Investors Service. If our credit ratings are lowered, borrowing costs for future long-term debt or short-term credit facilities may increase and our financing options, including our access to the unsecured credit market, could be limited. We may also be subject to restrictive covenants that would reduce our flexibility to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. Failure to comply with such covenants could result in a default, and as a result, the commitments of our lenders under our credit agreements may be terminated and the maturity of amounts owed may be accelerated. In addition, macroeconomic conditions, such as increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt.

If our internal controls are ineffective, our operating results could be adversely affected.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from

other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, allowance for uncollectible accounts receivable, inventory reserves, contingent payments under endorsement contracts, accounting for property, plant and equipment and definite-lived assets, hedge accounting for derivatives, stock-based compensation, income taxes and other contingencies. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class B Common Stock.

Anti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock.

There are provisions within our articles of incorporation and Oregon law intended to protect shareholder interests by providing the Board of Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freeze-out statute, two classes of stock that vote separately on certain issues, and the fact that holders of Class A Common Stock elect three-quarters of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an unsolicited merger, acquisition or other change in control of our company that some shareholders might believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price. These provisions could also discourage proxy contests for control of the Company.

We may fail to meet market expectations, which could cause the price of our stock to decline.

Our Class B Common Stock is traded publicly, and at any given time various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as analysts’ estimates of our future performance. Analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been brought against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile for any reason, we may become involved in this type of litigation in the future. Any litigation could result in reputational damage, substantial costs and a diversion of management’s attention and resources needed to successfully run our business.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 67

F O

R M

1 0 -K

PART I

ITEM 1B. Unresolved Staff Comments None.

ITEM 2. Properties The following is a summary of principal properties owned or leased by NIKE:

The NIKE World Campus, owned by NIKE and located near Beaverton, Oregon, USA, is an approximately 400-acre site consisting of over 40 buildings which, together with adjacent leased properties, functions as our world headquarters and is occupied by approximately 11,200 employees engaged in management, research, design, development, marketing, finance and other administrative functions serving nearly all of our divisions. We also lease various office facilities in the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as the headquarters for the Europe, Middle East & Africa geography and management of certain brand functions for our non-U.S. operations. We also lease an office complex in Shanghai, China, our headquarters for Greater China, occupied by employees focused on implementing our wholesale, NIKE Direct and merchandising strategies in the region, among other functions.

In the United States, NIKE has seven significant distribution centers. Five are located in Memphis, Tennessee, two of which are owned and three of which are leased. Two other distribution centers, one located in Indianapolis, Indiana, and one located in Dayton, Tennessee, are leased and operated by

third-party logistics providers. NIKE Brand apparel and equipment are also shipped from our Foothill Ranch, California distribution center, which we lease. Smaller leased, and third-party leased and operated, distribution facilities are located in various parts of the United States. NIKE has several distribution facilities outside the United States, some of which are leased and operated by third-party logistics providers. The most significant distribution facilities outside the United States are located in Laakdal, Belgium; Taicang, China; Tomisato, Japan and Incheon, Korea, all of which we own.

Air Manufacturing Innovation manufactures Air-Sole cushioning components at NIKE-owned facilities and one leased facility located near Beaverton, Oregon and in St. Charles, Missouri. Air Manufacturing Innovation also manufactures and sells small amounts of various other plastic products to other manufacturers.

Aside from the principal properties described above, we lease many offices worldwide for sales and administrative purposes. We lease 1,181 retail stores worldwide, which primarily consist of factory stores. See “United States Market” and “International Markets” in Part I of this Report. Our leases expire at various dates through the year 2035.

ITEM 3. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject.

ITEM 4. Mine Safety Disclosures Not applicable.

68

PART II

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 20, 2018, there were 22,271 holders of record of our Class B Common Stock and 15 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not publicly traded, but each share is convertible upon request of the holder into one share of Class B Common Stock. Refer to Selected Quarterly Financial Data in Part II, Item 6 of this Report for information regarding quarterly high and low sales prices for the Class B Common Stock as reported on the New

York Stock Exchange Composite Tape, and for dividends declared on the Class A and Class B Common Stock.

In November 2015, the Board of Directors approved a four-year, $12 billion share repurchase program. As of May 31, 2018, the Company had repurchased 149.4 million shares at an average price of $58.25 per share for a total approximate cost of $8.7 billion under this program. The Company intends to use excess cash, future cash from operations and/or proceeds from debt to fund repurchases.

The following table presents a summary of share repurchases made by NIKE under this program during the quarter ended May 31, 2018:

Period Total Number of

Shares Purchased Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number (or Approximate Dollar Value) of Shares that May

Yet Be Purchased Under the Plans or Programs

(In millions)

March 1 — March 31, 2018 8,602,814 $ 65.94 8,602,814 $ 4,282 April 1 — April 30, 2018 7,823,991 $ 67.08 7,823,991 $ 3,757 May 1 — May 31, 2018 6,625,000 $ 69.63 6,625,000 $ 3,296

23,051,805 $ 67.39 23,051,805

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 69

F O

R M

1 0 -K

PART II

Performance Graph

The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock; the Standard & Poor’s 500 Stock Index; the Standard & Poor’s Apparel, Accessories & Luxury Goods Index; and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2013 in each of our Class B Common Stock and the stocks comprising the Standard & Poor’s 500 Stock Index; the Standard & Poor’s Apparel, Accessories & Luxury Goods Index; and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested on the day of issuance.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC.; S&P 500 INDEX; S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX; AND THE DOW JONES U.S. FOOTWEAR INDEX

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

$260

2013 2014 2015 2016 2017 2018

NIKE, Inc.

S&P 500 INDEX- TOTAL RETURNS

DOW JONES US FOOTWEAR INDEX

S&P 500 APPAREL, ACCESSORIES & LUXURY GOODS INDEX

The Dow Jones U.S. Footwear Index consists of NIKE, Deckers Outdoor Corporation, Skechers U.S.A., Inc., Steven Madden, Ltd. and Wolverine World Wide, Inc. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories & Luxury Goods Index consists of Michael Kors Holdings Limited, Ralph Lauren Corporation, Tapestry, Inc., Under Armour, Inc. and V.F. Corporation, among other companies. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories & Luxury Goods Index include companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged.

The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make or endorse any predictions as to future stock performance.

The performance graph above is being furnished solely to accompany this Report pursuant to Item 201(e) of Regulation S-K, is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

70

PART II

ITEM 6. Selected Financial Data All share and per share amounts are reflective of the two-for-one stock split that began trading at the split-adjusted price on December 24, 2015.

(In millions, except per share data and financial ratios)

Financial History 2018 2017 2016 2015 2014

Year Ended May 31, Revenues $ 36,397 $ 34,350 $ 32,376 $ 30,601 $ 27,799 Gross profit 15,956 15,312 14,971 14,067 12,446 Gross margin 43.8% 44.6% 46.2% 46.0% 44.8% Net income 1,933 4,240 3,760 3,273 2,693 Earnings per common share:

Basic 1.19 2.56 2.21 1.90 1.52 Diluted 1.17 2.51 2.16 1.85 1.49

Weighted average common shares outstanding 1,623.8 1,657.8 1,697.9 1,723.5 1,766.7 Diluted weighted average common shares outstanding 1,659.1 1,692.0 1,742.5 1,768.8 1,811.6 Cash dividends declared per common share 0.78 0.70 0.62 0.54 0.47 Cash flow from operations(1) 4,955 3,846 3,399 4,906 3,158 Price range of common stock:

High 73.49 60.33 68.19 52.75 40.13 Low 50.35 49.01 47.25 36.57 29.56

At May 31, Cash and equivalents $ 4,249 $ 3,808 $ 3,138 $ 3,852 $ 2,220 Short-term investments 996 2,371 2,319 2,072 2,922 Inventories 5,261 5,055 4,838 4,337 3,947 Working capital 9,094 10,587 9,667 9,225 8,319 Total assets 22,536 23,259 21,379 21,590 18,579 Long-term debt 3,468 3,471 1,993 1,072 1,191 Capital lease obligations 75 27 15 5 74 Redeemable preferred stock 0.3 0.3 0.3 0.3 0.3 Shareholders’ equity 9,812 12,407 12,258 12,707 10,824 Year-end stock price 71.80 52.99 55.22 50.84 38.46 Market capitalization 114,983 87,084 92,867 87,044 66,921 Financial Ratios: Return on equity(2) 17.4% 34.4% 30.1% 27.8% 24.6% Return on assets(2) 8.4% 19.0% 17.5% 16.3% 14.9% Inventory turns 4.0 3.8 3.8 4.0 4.1 Current ratio at May 31 2.5 2.9 2.8 2.5 2.7 Price/Earnings ratio at May 31(2) 61.4 21.1 25.6 27.5 25.9

(1) Prior year amounts have been updated to reflect the adoption of Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. As a result of adoption, the Company reclassified cash inflows of $177 million, $281 million, $218 million and $132 million for the years ended May 31, 2017, 2016, 2015 and 2014, respectively, related to excess tax benefits from share-based payment awards, from Cash used by financing activities to Cash provided by operations. Additionally, the Company reclassified cash outflows of $29 million, $22 million, $8 million and $13 million for the years ended May 31, 2017, 2016, 2015 and 2014, respectively, related to tax payments for the net settlement of share-based payment awards, from Cash provided by operations to Cash used by financing activities within the Consolidated Statements of Cash Flows. Refer to Note 1 — Summary of Significant Accounting Policies for additional information.

(2) Certain fiscal 2018 financial ratios reflect the impact of the Tax Cuts and Jobs Act. Refer to Note 9 — Income Taxes for additional information.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 71

F O

R M

1 0 -K

PART II

Selected Quarterly Financial Data

(Unaudited) (In millions, except per share data)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2018 2017 2018 2017 2018(1) 2017 2018 2017

Revenues $ 9,070 $ 9,061 $ 8,554 $ 8,180 $ 8,984 $ 8,432 $ 9,789 $ 8,677 Gross profit 3,962 4,123 3,678 3,616 3,938 3,750 4,378 3,823 Gross margin 43.7% 45.5% 43.0% 44.2% 43.8% 44.5% 44.7% 44.1% Net income (loss) 950 1,249 767 842 (921) 1,141 1,137 1,008 Earnings (loss) per common share:

Basic 0.58 0.75 0.47 0.51 (0.57) 0.69 0.71 0.61 Diluted 0.57 0.73 0.46 0.50 (0.57) 0.68 0.69 0.60

Weighted average common shares outstanding 1,639.1 1,672.0 1,627.0 1,659.1 1,623.5 1,653.1 1,605.7 1,646.9 Diluted weighted average common shares outstanding 1,676.9 1,708.9 1,660.9 1,693.2 1,623.5 1,686.3 1,641.2 1,678.6 Cash dividends declared per common share 0.18 0.16 0.20 0.18 0.20 0.18 0.20 0.18 Price range of common stock:

High 60.53 60.33 61.21 59.18 70.25 58.42 73.49 59.00 Low 50.79 51.48 50.35 49.01 59.24 50.06 63.21 50.81

(1) The third quarter of fiscal 2018 reflects the impact from the enactment of the Tax Cuts and Jobs Act. Refer to Note 9 — Income Taxes for additional information.

72

PART II

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

NIKE designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products through NIKE-owned retail stores and through digital platforms (which we refer to collectively as our “NIKE Direct” operations), to retail accounts and a mix of independent distributors, licensees and sales representatives in virtually all countries around the world. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses. Our strategy is to achieve long-term revenue growth by creating innovative, “must have” products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail.

In June 2017, we announced the Consumer Direct Offense, a new company alignment designed to allow NIKE to better serve the consumer personally, at scale. Leveraging the power of digital, NIKE plans to drive growth — by accelerating innovation and product creation, moving even closer to the consumer through key cities, and deepening one-to-one connections. As a result of this organizational realignment, beginning in fiscal 2018, the Company’s reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA).

Through the Consumer Direct Offense, we are focusing on our Triple Double strategy, with the objective of doubling the impact of innovation, increasing our speed to market and growing our direct connections with consumers. As a result of the execution of this strategy, our long-term financial goals through fiscal 2023, on average, per year, are as follows:

• High single-digit revenue growth;

• Gross margin expansion of as much as 50 basis points;

• Slight selling and administrative expense leverage;

• Mid-teens earnings per share growth; and

• Low-thirties percentage rate of return on invested capital.

Over the past ten years, we have achieved strong growth in many of these metrics. During this time, revenues for NIKE, Inc. have grown 7% on an annual compounded basis, annual gross margin has ranged from 43.5% to 46.4%, diluted earnings per common share has grown steadily and our return on invested capital has been as high as 34.7%.

Our fiscal 2018 results demonstrated the power of the NIKE, Inc. portfolio to generate revenue growth, while investing in capabilities in support of our Triple Double strategy to fuel our next phase of long-term growth and profitability. We achieved record revenues for fiscal 2018, growing 6% to $36.4 billion. The NIKE Brand, which represents over 90% of NIKE, Inc. Revenues, delivered 7% revenue growth. On a currency-neutral basis, NIKE Brand revenues grew 5%, driven by strong revenue growth across all international geographies and NIKE Direct, as well as growth in footwear, apparel and most key categories. Revenues for Converse decreased 8% and 11% on a reported and currency-neutral basis, respectively, primarily driven by lower revenues in North America.

Income before income taxes decreased 11% for fiscal 2018, in part reflecting the negative impact of weakening foreign currency exchange rates. Revenue growth was more than offset by higher selling and administrative expense, gross margin contraction, and a shift to other expense, net from other income, net for fiscal 2017. NIKE, Inc. gross margin decreased 80 basis points primarily due to foreign currency exchange rate headwinds. Selling and administrative expense was higher as a percent of revenues, reflecting investments in digital capabilities, consumer experiences and product and brand marketing to drive long-term growth under the Consumer Direct Offense.

Diluted earnings per common share reflects a 2% decline in the weighted average diluted common shares outstanding, driven by our share repurchase program.

While foreign currency markets remain volatile, we continue to see opportunities to drive future growth and profitability, and remain committed to effectively managing our business to achieve our financial goals over the long- term by executing against the operational strategies outlined above.

Use of Non-GAAP Financial Measures

Throughout this Annual Report on Form 10-K, we discuss non-GAAP financial measures, including references to wholesale equivalent revenues and currency-neutral revenues, which should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our NIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers. Additionally, currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations.

Management uses these non-GAAP financial measures when evaluating the Company’s performance, including when making financial and operating decisions. Additionally, management believes these non-GAAP financial measures provide investors with additional financial information that should be considered when assessing our underlying business performance and trends. However, references to wholesale equivalent revenues and currency- neutral revenues should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S. GAAP and may not be comparable to similarly titled non-GAAP measures used by other companies.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 73

F O

R M

1 0 -K

PART II

Results of Operations

(Dollars in millions, except per share data) Fiscal 2018 Fiscal 2017 % Change Fiscal 2016 % Change Revenues $ 36,397 $ 34,350 6% $ 32,376 6% Cost of sales 20,441 19,038 7% 17,405 9% Gross profit 15,956 15,312 4% 14,971 2%

Gross margin 43.8% 44.6% 46.2% Demand creation expense 3,577 3,341 7% 3,278 2% Operating overhead expense 7,934 7,222 10% 7,191 0% Total selling and administrative expense 11,511 10,563 9% 10,469 1%

% of revenues 31.6% 30.8% 32.3% Interest expense (income), net 54 59 — 19 — Other expense (income), net 66 (196) — (140) — Income before income taxes 4,325 4,886 -11% 4,623 6% Income tax expense 2,392 646 270% 863 -25%

Effective tax rate 55.3% 13.2% 18.7% NET INCOME $ 1,933 $ 4,240 -54% $ 3,760 13% Diluted earnings per common share $ 1.17 $ 2.51 -53% $ 2.16 16%

74

PART II

Consolidated Operating Results

Revenues

(Dollars in millions) Fiscal 2018 Fiscal 2017(1) % Change

% Change Excluding Currency

Changes(2) Fiscal 2016(1) % Change

% Change Excluding Currency

Changes(2)

NIKE, Inc. Revenues: NIKE Brand Revenues by:

Footwear $ 22,268 $ 21,081 6% 4% $ 19,871 6% 8% Apparel 10,733 9,654 11% 9% 9,067 6% 9% Equipment 1,396 1,425 -2% -4% 1,496 -5% -3% Global Brand Divisions(3) 88 73 21% 12% 73 0% 2%

Total NIKE Brand Revenues 34,485 32,233 7% 5% 30,507 6% 8% Converse 1,886 2,042 -8% -11% 1,955 4% 6% Corporate(4) 26 75 — — (86) — —

TOTAL NIKE, INC. REVENUES $ 36,397 $ 34,350 6% 4% $ 32,376 6% 8% Supplemental NIKE Brand Revenues Details: NIKE Brand Revenues by:

Sales to Wholesale Customers $ 23,969 $ 23,078 4% 2% $ 22,577 2% 5% Sales through NIKE Direct 10,428 9,082 15% 12% 7,857 16% 18% Global Brand Divisions(3) 88 73 21% 12% 73 0% 2%

TOTAL NIKE BRAND REVENUES $ 34,485 $ 32,233 7% 5% $ 30,507 6% 8% NIKE Brand Revenues on a Wholesale Equivalent Basis:(5)

Sales to Wholesale Customers $ 23,969 $ 23,078 4% 2% $ 22,577 2% 5% Sales from our Wholesale Operations to NIKE Direct Operations 6,332 5,616 13% 10% 4,672 20% 22%

TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES $ 30,301 $ 28,694 6% 4% $ 27,249 5% 8% NIKE Brand Wholesale Equivalent Revenues by:(5)

Men’s $ 17,114 $ 16,041 7% 5% $ 15,410 4% 6% Women’s 6,915 6,644 4% 2% 6,296 6% 8% Young Athletes’ 4,906 4,838 1% -1% 4,560 6% 8% Others(6) 1,366 1,171 17% 13% 983 19% 21%

TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES $ 30,301 $ 28,694 6% 4% $ 27,249 5% 8% NIKE Brand Wholesale Equivalent Revenues by:(5)

Running $ 5,198 $ 4,860 7% 5% $ 4,401 10% 13% NIKE Basketball 1,494 1,292 16% 14% 1,378 -6% -5% Jordan Brand 2,856 3,098 -8% -9% 2,753 13% 13% Football (Soccer) 2,146 1,984 8% 5% 2,143 -7% -4% Training 3,126 3,080 1% 0% 3,150 -2% -1% Sportswear 10,018 8,988 11% 8% 8,129 11% 14% Others(7) 5,463 5,392 1% 0% 5,295 2% 3%

TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES $ 30,301 $ 28,694 6% 4% $ 27,249 5% 8%

(1) Certain prior year amounts have been reclassified to conform to fiscal 2018 presentation. These changes had no impact on previously reported consolidated results of operations or shareholders’ equity.

(2) The percent change has been calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations, which is considered a non-GAAP financial measure.

(3) Global Brand Divisions revenues are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment.

(4) Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.

(5) References to NIKE Brand wholesale equivalent revenues, which are considered non-GAAP financial measures, are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our NIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers.

(6) Others include all unisex products, equipment and other products not allocated to Men’s, Women’s and Young Athletes’, as well as certain adjustments that are not allocated to products designated by gender or age.

(7) Others include all other categories and certain adjustments that are not allocated at the category level.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 75

F O

R M

1 0 -K

PART II

Fiscal 2018 Compared to Fiscal 2017

On a currency-neutral basis, NIKE, Inc. Revenues grew 4% for fiscal 2018, driven by growth in the NIKE Brand. All international NIKE Brand geographies delivered higher revenues for fiscal 2018 as our Consumer Direct Offense delivered innovative products, deep brand connections and compelling retail experiences to consumers through digital platforms and at NIKE-owned and retail partner stores, driving demand for NIKE Brand products. Revenue growth was broad-based, as Greater China, EMEA and APLA each contributed approximately 2 percentage points of the increase in NIKE, Inc. Revenues. For fiscal 2018, lower revenues from North America and Converse each reduced NIKE, Inc. Revenues by approximately 1 percentage point.

On a currency-neutral basis, NIKE Brand footwear and apparel revenues increased 4% and 9%, respectively, for fiscal 2018, while NIKE Brand equipment revenues decreased 4%. On a category basis, the increase in NIKE Brand footwear revenues was due to strong growth in Sportswear and Running, which was partially offset by lower revenues in several other categories, most notably the Jordan Brand. Footwear unit sales for fiscal 2018 increased 2% and higher average selling price (ASP) per pair contributed approximately 2 percentage points of footwear revenue growth, primarily due to the favorable impact of growth in our NIKE Direct business.

The currency-neutral increase in NIKE Brand apparel revenues for fiscal 2018 was fueled by growth in nearly all key categories, most notably Sportswear, NIKE Basketball and Football (Soccer). Unit sales of apparel increased 4% and higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth, primarily due to higher ASPs from full-price, off-price and NIKE Direct sales.

For fiscal 2018, NIKE Direct revenues represented approximately 30% of our total NIKE Brand revenues compared to 28% for fiscal 2017. On a currency- neutral basis, NIKE Direct revenues increased 12% for fiscal 2018, driven by strong digital commerce sales growth of 25%, the addition of new stores and 4% comparable store sales growth. Comparable store sales include revenues from NIKE-owned in-line and factory stores for which all three of the following requirements have been met: (1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year and (3) the store has not been permanently repositioned within the past year. On a reported basis, digital commerce sales, which are not included in comparable store sales, were $2.8 billion for fiscal 2018 compared to $2.2 billion for fiscal 2017, and represented approximately 27% of our total NIKE Brand NIKE Direct revenues for fiscal 2018 compared to 24% for fiscal 2017.

On a wholesale equivalent and currency-neutral basis, fiscal 2018 NIKE Brand Men’s revenues increased 5%, as growth in Sportswear, Running and

NIKE Basketball more than offset lower Football (Soccer) and Jordan Brand revenues. Women’s revenues increased 2%, led by growth in Sportswear, partially offset by a decline in Training. Revenues for our Young Athletes’ business decreased 1%, as growth in Football (Soccer), was more than offset by lower revenues in the Jordan Brand.

Fiscal 2017 Compared to Fiscal 2016

On a currency-neutral basis, NIKE, Inc. Revenues grew 8% for fiscal 2017, driven by higher revenues for all NIKE Brand geographies and Converse. Revenue growth was broad-based, as EMEA, Greater China, APLA and North America each contributed approximately 2 percentage points of the increase in NIKE, Inc. Revenues.

On a currency-neutral basis, NIKE Brand footwear and apparel revenues increased 8% and 9%, respectively, for fiscal 2017, while NIKE Brand equipment revenues decreased 3%. On a category basis, the increase in NIKE Brand footwear revenues was driven by strong growth in Sportswear, Running and the Jordan Brand. Footwear unit sales for fiscal 2017 increased 7%, with higher ASP per pair contributing approximately 1 percentage point of footwear revenue growth, primarily driven by higher full-price and off-price ASPs, partially offset by the impact of higher off-price sales.

The currency-neutral increase in NIKE Brand apparel revenues for fiscal 2017 was fueled by growth in all key categories, led by Sportswear, Running and Training. Unit sales of apparel increased 6%, while higher ASP per unit contributed approximately 3 percentage points of apparel revenue growth, primarily due to higher full-price ASP and, to a lesser extent, growth in our higher-priced NIKE Direct business.

For fiscal 2017, NIKE Direct revenues represented approximately 28% of our total NIKE Brand revenues compared to 26% for fiscal 2016. On a currency- neutral basis, NIKE Direct revenues increased 18% for fiscal 2017, driven by strong digital commerce sales growth of 30%, the addition of new stores and 7% comparable store sales growth. On a reported basis, digital commerce sales, which are not included in comparable store sales, were $2.2 billion for fiscal 2017 compared to $1.7 billion for fiscal 2016 and represented approximately 24% of our total NIKE Direct revenues for fiscal 2017 compared to 22% for fiscal 2016.

On a wholesale equivalent and currency-neutral basis, fiscal 2017 NIKE Brand Men’s revenues increased 6%, driven by significant growth in Sportswear, Running and the Jordan Brand, while Women’s revenues increased 8%, led by growth in Sportswear and Running. Revenues for our Young Athletes’ business increased 8%, with growth across multiple categories, most notably the Jordan Brand.

Gross Margin (Dollars in millions) Fiscal 2018 Fiscal 2017 % Change Fiscal 2016 % Change Gross profit $ 15,956 $ 15,312 4% $ 14,971 2% Gross margin 43.8% 44.6% (80) bps 46.2% (160) bps

Fiscal 2018 Compared to Fiscal 2017

For fiscal 2018, our consolidated gross margin was 80 basis points lower than fiscal 2017, primarily reflecting the following factors:

• Unfavorable changes in net foreign currency exchange rates, including hedges (decreasing gross margin approximately 90 basis points);

• Lower NIKE Direct margin (decreasing gross margin approximately 10 basis points) reflecting higher mix of off-price sales in the first half of fiscal 2018, which was partially offset by margin expansion in the second half of fiscal 2018;

• NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis, which was flat for fiscal 2018 as higher discounts in the first half of fiscal 2018 were offset by higher full-price ASP in the second half of the year; and

• NIKE Brand product costs, on a wholesale equivalent basis, which were flat.

Fiscal 2017 Compared to Fiscal 2016

For fiscal 2017, our consolidated gross margin was 160 basis points lower than fiscal 2016, primarily driven by the following factors:

• Higher NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis (increasing gross margin approximately 70 basis points) aligned with our strategy to deliver innovative, premium products to the consumer;

• Higher NIKE Brand product costs (decreasing gross margin approximately 100 basis points) as an increase in the mix of higher cost products and labor input cost inflation more than offset lower material input costs;

• Unfavorable changes in net foreign currency exchange rates, including hedges (decreasing gross margin approximately 90 basis points); and

• Lower NIKE Direct margins (decreasing gross margin approximately 20 basis points) reflecting the impact of higher off-price sales.

76

PART II

Total Selling and Administrative Expense (Dollars in millions) Fiscal 2018 Fiscal 2017 % Change Fiscal 2016 % Change Demand creation expense(1) $ 3,577 $ 3,341 7% $ 3,278 2% Operating overhead expense 7,934 7,222 10% 7,191 0% Total selling and administrative expense $ 11,511 $ 10,563 9% $ 10,469 1%

% of revenues 31.6% 30.8% 80 bps 32.3% (150) bps

(1) Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation.

Fiscal 2018 Compared to Fiscal 2017

Demand creation expense increased 7% for fiscal 2018 compared to fiscal 2017, driven by higher sports marketing costs. Changes in foreign currency exchange rates increased Demand creation expense by approximately 3 percentage points for fiscal 2018.

Operating overhead expense increased 10% compared to fiscal 2017, due to higher administrative costs, continued investments in our growing NIKE Direct business and one-time wage-related costs associated with the Consumer Direct Offense organizational realignment. Changes in foreign currency exchange rates increased Operating overhead expense by approximately 2 percentage points for fiscal 2018.

Fiscal 2017 Compared to Fiscal 2016

Demand creation expense increased 2% for fiscal 2017 compared to fiscal 2016, driven by higher sports marketing costs, as well as higher marketing and advertising costs, primarily to support key sporting events including the Rio Olympics and European Football Championship. These increases were partially offset by lower retail brand presentation costs. Changes in foreign currency exchange rates reduced Demand creation expense by approximately 1 percentage point.

Operating overhead expense was flat compared to fiscal 2016 as continued investments in our growing NIKE Direct business were offset by administrative cost efficiencies and lower variable compensation. Changes in foreign currency exchange rates reduced Operating overhead expense by approximately 1 percentage point for fiscal 2017.

Other Expense (Income), Net (In millions) Fiscal 2018 Fiscal 2017 Fiscal 2016 Other expense (income), net $ 66 $ (196) $ (140)

Other expense (income), net comprises foreign currency conversion gains and losses from the re-measurement of monetary assets and liabilities denominated in non-functional currencies, and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions outside the normal course of business.

Fiscal 2018 Compared to Fiscal 2017

Other expense (income), net changed from $196 million of other income, net for fiscal 2017 to $66 million of other expense, net for fiscal 2018, primarily due to a $287 million net detrimental change in foreign currency conversion gains and losses, including hedges.

We estimate the combination of the translation of foreign currency- denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in Other

expense (income), net had an unfavorable impact on our Income before income taxes of $110 million for fiscal 2018.

Fiscal 2017 Compared to Fiscal 2016

Other expense (income), net increased from $140 million of other income, net for fiscal 2016 to $196 million of other income, net for fiscal 2017, primarily due to a $56 million net beneficial change in foreign currency conversion gains and losses.

We estimate the combination of the translation of foreign currency- denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in Other expense (income), net had an unfavorable impact on our Income before income taxes of $59 million for fiscal 2017.

Income Taxes Fiscal 2018 Fiscal 2017 % Change Fiscal 2016 % Change

Effective tax rate 55.3% 13.2% 4,210 bps 18.7% (550) bps

Fiscal 2018 Compared to Fiscal 2017

Our effective tax rate was 55.3% for fiscal 2018, reflecting the impact of the Tax Cuts and Jobs Act (the “Tax Act”). The impact of the Tax Act primarily reflects provisional expense of $1,875 million for the one-time transition tax on the deemed repatriation of undistributed foreign earnings and $158 million resulting from the remeasurement of deferred tax assets and liabilities. The remaining provisions of the Tax Act, which were a net benefit to the effective tax rate, did not have a material impact on our Consolidated Financial Statements during fiscal 2018. The increase in the effective tax rate resulting from the Tax Act was partially offset by the tax benefit from stock-based compensation in the current period as a result of the adoption of Accounting Standards Update (ASU) 2016-09 in the first quarter of fiscal 2018.

Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements for additional information on the impact of ASU 2016-09, and Note 9 — Income Taxes for additional information on the impact of the Tax Act.

Fiscal 2017 Compared to Fiscal 2016

The 550 basis point decrease in our effective tax rate for the fiscal year was primarily due to a one-time benefit in the first quarter of the fiscal year related to the resolution with the IRS of a foreign tax credit matter and a decrease in foreign earnings taxed in the United States.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 77

F O

R M

1 0 -K

PART II

Operating Segments

Our operating segments are evidence of the structure of the Company’s internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity.

Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company’s reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa; Greater China; and Asia Pacific & Latin America, and include results for the NIKE, Jordan and Hurley brands.

The Company’s NIKE Direct operations are managed within each geographic operating segment. Converse is also a reportable segment for the Company and operates in one industry: the design, marketing, licensing and selling of casual sneakers, apparel and accessories.

As part of our centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entity’s functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses.

The breakdown of revenues is as follows:

(Dollars in millions) Fiscal 2018 Fiscal 2017(1) % Change

% Change Excluding Currency

Changes(2) Fiscal 2016(1) % Change

% Change Excluding Currency

Changes(2)

North America $ 14,855 $ 15,216 -2% -2% $ 14,764 3% 3% Europe, Middle East & Africa 9,242 7,970 16% 9% 7,568 5% 10% Greater China 5,134 4,237 21% 18% 3,785 12% 17% Asia Pacific & Latin America 5,166 4,737 9% 10% 4,317 10% 13% Global Brand Divisions(3) 88 73 21% 12% 73 0% 2% TOTAL NIKE BRAND 34,485 32,233 7% 5% 30,507 6% 8% Converse 1,886 2,042 -8% -11% 1,955 4% 6% Corporate(4) 26 75 — — (86) — — TOTAL NIKE, INC. REVENUES $ 36,397 $ 34,350 6% 4% $ 32,376 6% 8%

(1) Certain prior year amounts have been reclassified to conform to fiscal 2018 presentation. This includes reclassified operating segment data to reflect the changes in the Company’s operating structure, which became effective June 1, 2017. These changes had no impact on previously reported consolidated results of operations or shareholders’ equity.

(2) The percent change has been calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations, which is considered a non-GAAP financial measure.

(3) Global Brand Divisions revenues are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment.

(4) Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.

The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (commonly referred to as “EBIT”), which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated

Statements of Income. As discussed in Note 17 — Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments.

The breakdown of earnings before interest and taxes is as follows:

(Dollars in millions) Fiscal 2018 Fiscal 2017(1) % Change Fiscal 2016(1) % Change

North America $ 3,600 $ 3,875 -7% $ 3,763 3% Europe, Middle East & Africa 1,587 1,507 5% 1,787 -16% Greater China 1,807 1,507 20% 1,372 10% Asia Pacific & Latin America 1,189 980 21% 1,002 -2% Global Brand Divisions (2,658) (2,677) 1% (2,596) -3% TOTAL NIKE BRAND 5,525 5,192 6% 5,328 -3% Converse 310 477 -35% 487 -2% Corporate (1,456) (724) -101% (1,173) 38% TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES 4,379 4,945 -11% 4,642 7% Interest expense (income), net 54 59 — 19 — TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 4,325 $ 4,886 -11% $ 4,623 6%

(1) Certain prior year amounts have been reclassified to conform to fiscal 2018 presentation. This includes reclassified operating segment data to reflect the changes in the Company’s operating structure, which became effective June 1, 2017. These changes had no impact on previously reported consolidated results of operations or shareholders’ equity.

78

PART II

North America

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change

% Change Excluding Currency Changes Fiscal 2016 % Change

% Change Excluding Currency Changes

Revenues by: Footwear $ 9,322 $ 9,684 -4% -4% $ 9,299 4% 4% Apparel 4,938 4,886 1% 1% 4,746 3% 3% Equipment 595 646 -8% -8% 719 -10% -10%

TOTAL REVENUES $ 14,855 $ 15,216 -2% -2% $ 14,764 3% 3% Revenues by:

Sales to Wholesale Customers $ 10,159 $ 10,756 -6% -6% $ 10,674 1% 1% Sales through NIKE Direct 4,696 4,460 5% 5% 4,090 9% 9%

TOTAL REVENUES $ 14,855 $ 15,216 -2% -2% $ 14,764 3% 3% EARNINGS BEFORE INTEREST AND TAXES $ 3,600 $ 3,875 -7% $ 3,763 3%

In the current marketplace environment, we believe there has been a meaningful shift in the way consumers shop for product and make purchasing decisions. Consumers are demanding a constant flow of fresh and innovative product, and have an expectation for superior service and real- time delivery, all fueled by the shift toward digital. Specifically, in North America we anticipate continued evolution within the retail landscape, driven by shifting consumer traffic patterns across digital and physical channels. The evolution of the North America marketplace has resulted in third-party retail store closures; however, we are currently seeing stabilization and momentum building in our business, fueled by innovative product and NIKE Brand consumer experiences, leveraging digital.

Fiscal 2018 Compared to Fiscal 2017

North America revenues decreased 2%, as growth in our Sportswear and NIKE Basketball categories was more than offset by declines in all other categories, most notably the Jordan Brand and Running. NIKE Direct revenues increased 5% for fiscal 2018 due to digital commerce sales growth and the addition of new stores.

Footwear revenues declined 4% for fiscal 2018, as lower revenues in nearly all categories, most notably the Jordan Brand, more than offset higher revenues in Sportswear. Unit sales of footwear decreased 5%, while ASP per pair contributed approximately 1 percentage point of footwear growth, driven by the favorable impact of growth in our NIKE Direct business.

Apparel revenue growth of 1% for fiscal 2018 was attributable to higher revenues in our Sportswear and NIKE Basketball categories, which was only partially offset by declines in nearly all other categories. Unit sales of apparel decreased 4%, while higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth, primarily due to the favorable impact of growth in our NIKE Direct business and, to a lesser extent, higher full-price ASP and favorable changes in off-price sales.

EBIT declined 7% for fiscal 2018, primarily reflecting lower revenues and higher selling and administrative expense. Gross margin declined 10 basis

points as lower full-price ASP more than offset the favorable impact of growth in our NIKE Direct business. Selling and administrative expense grew due to higher operating overhead expense resulting from continued investments in our growing NIKE Direct business. Demand creation expense also increased, as higher sports marketing costs were only partially offset by lower retail brand presentation costs.

Fiscal 2017 Compared to Fiscal 2016

North America revenues increased 3%, driven by growth in our Sportswear and Jordan Brand categories, partially offset by declines in other categories, including NIKE Basketball. NIKE Direct revenues increased 9% for fiscal 2017 due to digital commerce sales growth, the addition of new stores and comparable store sales growth of 3%.

Footwear revenue growth for fiscal 2017 was attributable to higher revenues in our Sportswear and Jordan Brand categories, partially offset by declines in other categories. Unit sales of footwear increased 4%, while ASP per pair was flat as higher off-price ASP was offset by unfavorable off-price mix.

The increase in apparel revenues for fiscal 2017 was due to growth concentrated in Sportswear, partially offset by declines in other categories. Unit sales of apparel grew 2% and higher ASP per unit contributed approximately 1 percentage point of apparel revenue growth, primarily due to higher full-price ASP.

EBIT grew 3% for fiscal 2017 as revenue growth and gross margin expansion were partially offset by higher selling and administrative expense as a percent of revenues. Gross margin increased 10 basis points as higher full-price ASP and favorable off-price margin more than offset higher product costs and increased off-price mix as a result of clearing excess inventories through off-price channels, including through our NIKE Direct business. Selling and administrative expense grew due to higher operating overhead as continued investments in our growing NIKE Direct business were partially offset by lower bad debt expense. Demand creation was flat as higher sports marketing and retail brand presentation costs offset lower marketing and advertising costs.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 79

F O

R M

1 0 -K

PART II

Europe, Middle East & Africa

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change

% Change Excluding Currency Changes Fiscal 2016 % Change

% Change Excluding Currency Changes

Revenues by: Footwear $ 5,875 $ 5,192 13% 6% $ 5,043 3% 8% Apparel 2,940 2,395 23% 16% 2,149 11% 17% Equipment 427 383 11% 6% 376 2% 7%

TOTAL REVENUES $ 9,242 $ 7,970 16% 9% $ 7,568 5% 10% Revenues by:

Sales to Wholesale Customers $ 6,765 $ 5,917 14% 8% $ 5,869 1% 5% Sales through NIKE Direct 2,477 2,053 21% 13% 1,699 21% 27%

TOTAL REVENUES $ 9,242 $ 7,970 16% 9% $ 7,568 5% 10% EARNINGS BEFORE INTEREST AND TAXES $ 1,587 $ 1,507 5% $ 1,787 -16%

Fiscal 2018 Compared to Fiscal 2017

On a currency-neutral basis, EMEA revenues for fiscal 2018 increased 9%, driven by higher revenues in every territory, most notably our UK & Ireland territory, which grew 21%. Revenues increased in nearly all key categories, led by Sportswear and Football (Soccer). NIKE Direct revenues grew 13% for fiscal 2018 due to strong digital commerce sales growth, comparable store sales growth of 6% and the addition of new stores.

The 6% increase in currency-neutral footwear revenues for fiscal 2018 was due to growth in most key categories, led by Sportswear. For fiscal 2018, unit sales of footwear increased 6% while ASP per pair was flat, as higher off-price ASP was offset by lower full-price ASP.

Currency-neutral apparel revenues grew 16% for fiscal 2018, driven by higher revenues in all key categories, most notably Sportswear and Football (Soccer). Unit sales of apparel increased 12% and higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth. The increase in ASP per unit was primarily attributable to higher full-price ASP.

Reported EBIT increased 5% for fiscal 2018 due to revenue growth and slight selling and administrative expense leverage, which was partially offset by gross margin contraction. Gross margin declined 180 basis points as lower product costs were more than offset by unfavorable standard foreign currency exchange rates, lower full-price ASP due to product mix, and lower NIKE Direct margin. Selling and administrative expense increased due to higher demand creation expense driven by sports marketing and advertising costs. Operating overhead also increased primarily due to continued investments in our growing NIKE Direct business and, to a lesser extent, higher administrative costs.

Fiscal 2017 Compared to Fiscal 2016

On a currency-neutral basis, EMEA revenues for fiscal 2017 increased 10%. Revenue growth was broad-based across all territories, led by the UK & Ireland, which grew 11%. On a category basis, revenues increased for nearly all key categories, led by Sportswear and, to a lesser extent, Running and the Jordan Brand. NIKE Direct revenues grew 27% for fiscal 2017 due to comparable store sales growth of 15%, strong digital commerce sales growth and the addition of new stores.

The currency-neutral increase in footwear revenues was led by Sportswear, Running and the Jordan Brand, partially offset by declines in Football (Soccer) and Training. For fiscal 2017, unit sales of footwear increased 5% and higher ASP per pair contributed approximately 3 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to the favorable impact of growth in our NIKE Direct business.

Currency-neutral apparel revenue growth was driven by higher revenues in all key categories, most notably Sportswear and, to a lesser extent, Training and Football (Soccer). Unit sales of apparel for fiscal 2017 increased 12%, while higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth. The increase in ASP per unit was primarily attributable to the favorable impact of growth in our NIKE Direct business and higher full-price ASP.

Reported EBIT decreased 16% for fiscal 2017, in part reflecting the negative impact of weakening foreign currency exchange rates. Higher revenues and selling and administrative expense leverage were more than offset by significant gross margin contraction. Gross margin declined 530 basis points primarily driven by the effects of significant unfavorable standard foreign currency exchange rates. Selling and administrative expense increased due to higher demand creation expense, as increased sports marketing and advertising expenses more than offset lower marketing costs. Operating overhead also increased due to continued investments in our growing NIKE Direct business, partially offset by administrative cost efficiencies and lower variable compensation costs.

80

PART II

Greater China

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change

% Change Excluding Currency Changes Fiscal 2016 % Change

% Change Excluding Currency Changes

Revenues by: Footwear $ 3,496 $ 2,920 20% 16% $ 2,599 12% 18% Apparel 1,508 1,188 27% 23% 1,055 13% 18% Equipment 130 129 1% -1% 131 -2% 3%

TOTAL REVENUES $ 5,134 $ 4,237 21% 18% $ 3,785 12% 17% Revenues by:

Sales to Wholesale Customers $ 3,216 $ 2,774 16% 13% $ 2,623 6% 11% Sales through NIKE Direct 1,918 1,463 31% 27% 1,162 26% 32%

TOTAL REVENUES $ 5,134 $ 4,237 21% 18% $ 3,785 12% 17% EARNINGS BEFORE INTEREST AND TAXES $ 1,807 $ 1,507 20% $ 1,372 10%

Fiscal 2018 Compared to Fiscal 2017

On a currency-neutral basis, Greater China revenues for fiscal 2018 increased 18%, driven by higher revenues in all key categories, led by Running, Sportswear and the Jordan Brand. NIKE Direct revenues increased 27%, driven by strong digital commerce sales growth, the addition of new stores and comparable store sales growth of 10%.

Currency-neutral footwear revenues increased 16% for fiscal 2018, driven by growth in nearly all key categories, most notably Running and the Jordan Brand. Unit sales of footwear increased 19%, while lower ASP per pair reduced footwear revenue growth by approximately 3 percentage points, driven by lower full-price ASP resulting from product mix, as well as unfavorable off-price mix.

The currency-neutral apparel revenue growth of 23% for fiscal 2018 was fueled by higher revenues in all key categories, most notably Sportswear and, to a lesser extent, NIKE Basketball, the Jordan Brand and Running. Unit sales of apparel increased 20% and higher ASP per unit increased apparel revenue growth by approximately 3 percentage points. The increase in ASP per unit was attributable to higher full-price, off-price and NIKE Direct ASPs.

Reported EBIT increased 20% for fiscal 2018, driven by higher revenues and selling and administrative expense leverage, partially offset by lower gross margin. Gross margin contracted 210 basis points primarily due to unfavorable standard foreign currency exchange rates and lower off-price margin, including through our NIKE Direct business. Selling and administrative expense increased due to growth in operating overhead expense, primarily reflecting ongoing investments in our NIKE Direct business. Demand creation expense also grew, primarily driven by higher retail brand presentation costs.

Fiscal 2017 Compared to Fiscal 2016

On a currency-neutral basis, Greater China revenues for fiscal 2017 increased 17%, driven by higher revenues in nearly all key categories, led by Running, Sportswear and the Jordan Brand. NIKE Direct revenues increased 32%, driven by strong digital commerce sales growth, the addition of new stores and comparable store sales growth of 9%.

The currency-neutral increase in footwear revenue for fiscal 2017 was driven by growth in nearly all key categories, most notably Running, Sportswear and the Jordan Brand. Unit sales of footwear increased 21%, while lower ASP per pair reduced footwear revenue growth by approximately 3 percentage points as higher off-price ASP was more than offset by lower NIKE Direct ASP and unfavorable off-price mix.

The currency-neutral apparel revenue growth for fiscal 2017 was due to higher revenues in nearly all key categories, led by Sportswear and Running. Unit sales of apparel increased 15% and higher ASP per unit increased apparel revenue growth by approximately 3 percentage points. The increase in ASP per unit was attributable to higher full-price ASP, partially offset by lower ASP in our NIKE Direct business and unfavorable off-price mix.

Despite the negative impact of translation, reported EBIT increased 10% for fiscal 2017 driven by higher revenues and selling and administrative expense leverage, partially offset by lower gross margin. Gross margin contracted 240 basis points primarily due to unfavorable standard foreign currency exchange rates and higher product costs. Selling and administrative expense increased due to higher operating overhead to support NIKE Direct growth. Demand creation expense also increased as higher marketing costs more than offset lower retail brand presentation and sports marketing expenses.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 81

F O

R M

1 0 -K

PART II

Asia Pacific & Latin America

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change

% Change Excluding Currency Changes Fiscal 2016 % Change

% Change Excluding Currency Changes

Revenues by: Footwear $ 3,575 $ 3,285 9% 9% $ 2,930 12% 16% Apparel 1,347 1,185 14% 15% 1,117 6% 9% Equipment 244 267 -9% -8% 270 -1% -1%

TOTAL REVENUES $ 5,166 $ 4,737 9% 10% $ 4,317 10% 13% Revenues by:

Sales to Wholesale Customers $ 3,829 $ 3,631 5% 6% $ 3,411 6% 10% Sales through NIKE Direct 1,337 1,106 21% 21% 906 22% 21%

TOTAL REVENUES $ 5,166 $ 4,737 9% 10% $ 4,317 10% 13% EARNINGS BEFORE INTEREST AND TAXES $ 1,189 $ 980 21% $ 1,002 -2%

Fiscal 2018 Compared to Fiscal 2017

On a currency-neutral basis, APLA revenues increased 10%, driven by higher revenues in every territory. Territory revenue growth was broad-based, led by SOCO (which comprises Argentina, Uruguay and Chile), which grew 19%. Revenues increased in all key categories, led by Sportswear and Running. NIKE Direct revenues increased 21%, fueled by comparable store sales growth of 11%, strong digital commerce sales growth and the addition of new stores.

The 9% increase in currency-neutral footwear revenues for fiscal 2018 was attributable to growth in every key category, led by Sportswear and Running. Unit sales of footwear increased 5% and higher ASP per pair contributed approximately 4 percentage points of footwear revenue growth, driven by higher full-price, off-price and NIKE Direct ASPs.

Currency-neutral apparel revenues grew 15% for fiscal 2018, driven by higher revenues in every key category, most notably Sportswear and, to a lesser extent, Football (Soccer), Training and NIKE Basketball. Unit sales of apparel increased 11% and higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth. The increase in ASP per unit was primarily driven by higher full-price ASP and, to a lesser extent, favorable off-price mix and higher off-price ASP.

Reported EBIT increased 21% due to revenue growth, strong selling and administrative expense leverage and gross margin expansion. Gross margin increased 90 basis points as higher full-price ASP and favorable standard foreign currency exchange rates more than offset higher product costs. Selling and administrative expense increased as higher operating overhead costs resulting from continued investments in our growing NIKE Direct business more than offset lower demand creation expense. The decrease in demand creation expense was primarily attributable to lower marketing costs as a result of prior year investments to support the Rio Olympics.

Fiscal 2017 Compared to Fiscal 2016

On a currency-neutral basis, APLA revenues for fiscal 2017 increased 13%. Revenue growth was broad-based across all territories, led by SOCO, Korea and Mexico, which grew 34%, 14% and 18%, respectively. Additionally, revenues increased in all key categories, led by Running and Sportswear. NIKE Direct revenues increased 21%, fueled by the addition of new stores, comparable store sales growth of 11% and higher digital commerce sales.

The increase in currency-neutral footwear revenue for fiscal 2017 was attributable to growth in all key categories, most notably Running and Sportswear. Unit sales of footwear increased 9%. Higher ASP per pair contributed approximately 7 percentage points of footwear revenue growth, primarily attributable to higher full-price ASP, in part reflecting inflationary conditions in certain territories.

Currency-neutral growth in apparel revenue was fueled by increases in all key categories, led by Sportswear and Running. For fiscal 2017, unit sales of apparel increased 3% and higher ASP per unit contributed approximately 6 percentage points of apparel revenue growth. The increase in ASP per unit was primarily driven by higher full-price ASP, in part reflecting inflationary conditions in certain territories.

Reported EBIT decreased 2%, in part reflecting the negative impact of changes in foreign currency exchange rates, primarily the Argentine Peso and Mexican Peso. Reported revenue growth and selling and administrative expense leverage were more than offset by lower gross margin. Gross margin decreased 370 basis points as higher full-price ASP was more than offset by unfavorable standard foreign currency exchange rates and higher product costs. Selling and administrative expense increased due to higher operating overhead costs primarily resulting from ongoing investments in our growing NIKE Direct business, partially offset by administrative cost efficiencies. Demand creation expense also increased as lower advertising costs were more than offset by increased marketing support for the Rio Olympics in the first quarter, as well as higher sports marketing costs.

82

PART II

Global Brand Divisions

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change

% Change Excluding Currency Changes Fiscal 2016 % Change

% Change Excluding Currency Changes

Revenues $ 88 $ 73 21% 12% $ 73 0% 2% (Loss) Before Interest and Taxes $ (2,658) $ (2,677) -1% $ (2,596) 3%

Global Brand Divisions primarily represent demand creation, operating overhead and product creation and design expenses that are centrally managed for the NIKE Brand. Revenues for Global Brand Divisions are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment.

Fiscal 2018 Compared to Fiscal 2017

Global Brand Divisions’ loss before interest and taxes decreased 1% for fiscal 2018 as total selling and administrative expense was largely unchanged compared to fiscal 2017. Operating overhead expense increased due to higher administrative costs, which more than offset lower wage-related expenses. Demand creation expense decreased driven by lower advertising and marketing costs, largely resulting from prior year investments to support

the Rio Olympics and the European Football Championship, which were only partially offset by higher sports marketing costs.

Fiscal 2017 Compared to Fiscal 2016

Global Brand Divisions’ loss before interest and taxes increased 3% for fiscal 2017 primarily due to higher demand creation expense, which was only partially offset by a decline in operating overhead expense. The increase in demand creation expense was due to higher marketing and advertising expenses for key brand and sporting events, including the Rio Olympics and the European Football Championship in the first quarter. Operating overhead expense decreased as higher wage-related expenses were more than offset by administrative cost efficiencies and lower variable compensation.

Converse

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change

% Change Excluding Currency Changes Fiscal 2016 % Change

% Change Excluding Currency Changes

Revenues $ 1,886 $ 2,042 -8% -11% $ 1,955 4% 6% Earnings Before Interest and Taxes $ 310 $ 477 -35% $ 487 -2%

In territories we define as “direct distribution markets,” Converse designs, markets and sells products directly to distributors and wholesale customers, and to consumers through direct to consumer operations. The largest direct distribution markets are the United States, the United Kingdom and China. We do not own the Converse trademarks in Japan and accordingly do not earn revenues in Japan. Territories other than direct distribution markets and Japan are serviced by third-party licensees who pay royalty revenues to Converse for the use of its registered trademarks and other intellectual property rights.

Fiscal 2018 Compared to Fiscal 2017 On a currency-neutral basis, revenues for Converse declined 11% for fiscal 2018. Comparable direct distribution markets (i.e., markets served under a direct distribution model for comparable periods in the current and prior fiscal years) declined 12%, reducing total Converse revenues by approximately 11 percentage points for fiscal 2018. Comparable direct distribution market unit sales decreased 14%, while higher ASP per unit contributed approximately 2 percentage points of direct distribution markets revenue growth. On a territory basis, the decrease in comparable direct distribution market revenues was primarily attributable to declines in both the United States and Europe, in part reflecting efforts to manage inventory levels in the marketplace, partially offset by revenue growth in Asia. Conversion of markets from licensed to direct distribution increased total Converse revenues by approximately 1 percentage point for fiscal 2018. Revenues from comparable licensed markets decreased 14%, reducing total Converse revenues by approximately 1 percentage point, driven by lower revenues in Latin America.

Reported EBIT declined 35% for fiscal 2018 driven by lower revenues, higher selling and administrative expense and, to a lesser extent, gross margin contraction. Gross margin decreased 100 basis points as higher full-price ASP was more than offset by higher product costs and the unfavorable impact of lower licensing revenues. Selling and administrative expense increased due to higher operating overhead and demand creation expense.

Higher operating overhead expense was due to continued investment in our direct to consumer business and, to a lesser extent, higher wage-related costs, while higher demand creation expense was due to increased marketing support for initiatives to drive growth.

Fiscal 2017 Compared to Fiscal 2016 On a currency-neutral basis, revenues for Converse increased 6% for fiscal 2017. Comparable direct distribution markets grew 4%, contributing approximately 4 percentage points of total Converse revenue growth for fiscal 2017. Comparable direct distribution market unit sales increased 2%, while higher ASP per unit contributed approximately 2 percentage points of direct distribution markets revenue growth. On a territory basis, the increase in comparable direct distribution market revenues was primarily attributable to growth in the United States, partially offset by lower revenues in Europe. Conversion of markets from licensed to direct distribution increased total Converse revenues by approximately 2 percentage points for fiscal 2017, primarily driven by the market transition in Italy. Revenues from comparable licensed markets decreased 5%, having an insignificant impact to total Converse revenue. The decrease in comparable licensed markets revenues is primarily due to lower revenues in Latin America.

Reported EBIT declined 2% for fiscal 2017 as revenue growth and lower selling and administrative expense were more than offset by gross margin contraction. Gross margin decreased 300 basis points as higher full-price ASP was more than offset by unfavorable standard foreign currency exchange rates and higher product costs, primarily due to a shift in mix to lower margin products. Gross margin also contracted due to the unfavorable impact of lower licensing revenues, primarily due to market transitions. Selling and administrative expense decreased due to lower demand creation expense, primarily as a result of lower retail brand presentation costs, partially offset by higher advertising expense. Operating overhead increased as higher wage-related expenses were only partially offset by lower administrative costs.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 83

F O

R M

1 0 -K

PART II

Corporate

(Dollars in millions) Fiscal 2018 Fiscal 2017 % Change Fiscal 2016 % Change Revenues $ 26 $ 75 — $ (86) — (Loss) Before Interest and Taxes $ (1,456) $ (724) 101% $ (1,173) -38%

Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.

The Corporate loss before interest and taxes largely consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses.

In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results in Corporate include gains and losses resulting from the difference between actual foreign currency rates and standard rates used to record non-functional currency denominated product purchases within the NIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from re-measurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency derivative instruments.

Fiscal 2018 Compared to Fiscal 2017

For fiscal 2018, Corporate’s loss before interest and taxes increased $732 million primarily due to the following:

• a detrimental change in net foreign currency gains and losses of $281 million related to the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other expense (income), net;

• an unfavorable change of $255 million, primarily due to higher operating overhead expense driven by higher wage-related costs, in part reflecting one-time costs associated with our organizational realignment in the first half of fiscal 2018, as well as higher administrative costs; and

• a detrimental change of $196 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin.

Fiscal 2017 Compared to Fiscal 2016

For fiscal 2017, Corporate’s loss before interest and taxes decreased $449 million primarily due to the following:

• a beneficial change of $280 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin;

• a beneficial change of $115 million, primarily driven by lower variable compensation and administrative costs in operating overhead expense; and

• an increase in net foreign currency gains of $54 million related to the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other expense (income), net.

Foreign Currency Exposures and Hedging Practices

Overview As a global company with significant operations outside the United States, in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows into U.S. Dollars.

Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks material to NIKE, Inc. We manage these exposures by taking advantage of natural offsets and currency correlations existing within the portfolio and, where practical and material, by hedging a portion of the remaining exposures using derivative instruments such as forward contracts and options. As described below, the implementation of the NIKE Trading Company (“NTC”) and our foreign currency adjustment program enhanced our ability to manage our foreign exchange risk by increasing the natural offsets and currency correlation benefits existing within our portfolio of foreign exchange exposures. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Consolidated Financial Statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes.

Refer to Note 6 — Fair Value Measurements and Note 16 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of how the above financial instruments are valued and recorded, as well as the fair value of outstanding derivatives at each reported period end.

Transactional Exposures We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are:

• Product Costs — NIKE’s product costs are exposed to fluctuations in foreign currencies in the following ways:

1. Product purchases denominated in currencies other than the functional currency of the transacting entity:

a. Certain NIKE entities purchase product from the NTC, a wholly- owned sourcing hub that buys NIKE branded products from third-party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the products to NIKE entities in their respective functional currencies. NTC sales to a NIKE entity with a different functional currency result in a foreign currency exposure for the NTC.

84

PART II

b. Other NIKE entities purchase product directly from third-party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar.

In both purchasing scenarios, a weaker U.S. Dollar decreases inventory costs incurred by NIKE whereas a stronger U.S. Dollar increases its cost.

2. Factory input costs: NIKE operates a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to our existing foreign currency exposures. Under this program, our payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated.

For the currency within the factory currency exposure indices that is the local or functional currency of the factory, the currency rate fluctuation affecting the product cost is recorded within Inventories and is recognized in Cost of sales when the related product is sold to a third-party. All currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory, are recognized as embedded derivative contracts and are recorded at fair value through Other expense (income), net. Refer to Note 16 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional detail.

As an offset to the impacts of the fluctuating U.S. Dollar on our non-functional currency denominated product purchases described above, a strengthening U.S. Dollar against the foreign currencies within the factory currency exposure indices decreases NIKE’s U.S. Dollar inventory cost. Conversely, a weakening U.S. Dollar against the indexed foreign currencies increases our inventory cost.

• Non-Functional Currency Denominated External Sales — A portion of our EMEA geography revenues, as well as a portion of our Converse European operations revenues, are earned in currencies other than the Euro (e.g., the British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.

• Other Costs — Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent. In certain cases, the Company has entered into contractual agreements which have payments indexed to foreign currencies that create embedded derivative contracts recorded at fair value through Other expense (income), net. Refer to Note 16 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional detail.

• Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to re-measurement which may create fluctuations in Other expense (income), net within our consolidated results of operations.

Managing Transactional Exposures

Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs

described above. Generally, these are accounted for as cash flow hedges in accordance with U.S. GAAP, except for hedges of the embedded derivatives components of the product cost exposures and other contractual agreements as discussed above.

Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to re-measurement and embedded derivative contracts are not formally designated as hedging instruments under U.S. GAAP. Accordingly, changes in fair value of these instruments are immediately recognized in Other expense (income), net and are intended to offset the foreign currency impact of the re-measurement of the related non-functional currency denominated asset or liability or the embedded derivative contract being hedged.

Translational Exposures Many of our foreign subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries’ non-U.S. Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Accumulated other comprehensive income within the Consolidated Statements of Shareholders’ Equity. In the translation of our Consolidated Statements of Income, a weaker U.S. Dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a stronger U.S. Dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a benefit of approximately $832 million and a detriment of approximately $542 million for the years ended May 31, 2018 and 2017, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a benefit of approximately $177 million and a detriment of approximately $115 million for the years ended May 31, 2018 and 2017, respectively.

Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Beginning in fiscal 2019, we anticipate the functional currency of our Argentina subsidiary within our APLA operating segment will change from the local currency to U.S. Dollars as the subsidiary will be operating in a hyper- inflationary market. As a result, its non-U.S. Dollar denominated monetary assets and liabilities will now be subject to re-measurement and recorded in Other expense (income), net, within the Consolidated Statements of Income beginning in fiscal 2019. Although we continue to evaluate the impact, at current rates, we do not anticipate the re-measurement to have a material impact on our results of operations or financial condition.

Managing Translational Exposures

To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated securities at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under the accounting standards for derivatives and hedging. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. The combination of the purchase and sale of the U.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of available-for-sale investments are accounted for as cash flow hedges.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 85

F O

R M

1 0 -K

PART II

We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other expense (income), net had an unfavorable impact of approximately $110 million and $59 million on our Income before income taxes for the years ended May 31, 2018 and 2017, respectively.

Net Investments in Foreign Subsidiaries We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated in a currency

other than the U.S. Dollar, which could adversely impact the U.S. Dollar value of these investments and therefore the value of future repatriated earnings. We have, in the past, hedged and may, in the future, hedge net investment positions in certain foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on these net investments. These hedges are accounted for in accordance with U.S. GAAP. There were no outstanding net investment hedges as of May 31, 2018 and 2017. There were no cash flows from net investment hedge settlements for the years ended May 31, 2018 and 2017.

Liquidity and Capital Resources

Cash Flow Activity Cash provided by operations was $4,955 million for fiscal 2018 compared to $3,846 million for fiscal 2017. Net income, adjusted for non-cash items, generated $3,473 million of operating cash flow for fiscal 2018 compared to $4,781 million for fiscal 2017. The net change in working capital and other assets and liabilities resulted in an increase of $1,482 million for fiscal 2018, compared to a decrease of $935 million for fiscal 2017. Impacting the change in working capital during fiscal 2018 was the accrual of $1,172 million for the transition tax under the Tax Act, which will be paid in cash over an eight-year period. Refer to Note 9 — Income Taxes for additional information on the Tax Act. Cash provided by operations was also impacted by the change in Accounts Receivable, net, which decreased $187 million, primarily due to improved collection timing, compared to an increase of $426 million in fiscal 2017.

Cash provided (used) by investing activities was an inflow of $276 million for fiscal 2018, compared to an outflow of $1,008 million for fiscal 2017, driven primarily by the net change in short-term investments. During fiscal 2018, the net change in investments (including sales, maturities and purchases) resulted in a cash inflow of $1,326 million compared to an inflow of $118 million in fiscal 2017.

In fiscal 2019, we plan to continue investing in our infrastructure to support future growth, including corporate facilities, expanding our digital capabilities and new NIKE Direct stores. We continue to expect such investments to approximate 3% to 4% of revenues, on average.

Cash used by financing activities was $4,835 million for fiscal 2018 compared to $2,148 million for fiscal 2017. The increase in Cash used by financing activities was primarily driven by $1,482 million of net proceeds from the issuance of long-term debt in fiscal 2017, which did not recur in fiscal 2018. The increase in Cash used by financing activities was also impacted by increased repurchases of common stock, which resulted in a cash outflow of $4,254 million for fiscal 2018 compared to an outflow of $3,223 million for fiscal 2017.

In fiscal 2018, we purchased 69.7 million shares of NIKE’s Class B Common Stock for $4,267 million (an average price of $61.25 per share) under the four- year, $12 billion program approved by the Board of Directors in November 2015. As of May 31, 2018, we had repurchased 149.4 million shares at a cost of $8,704 million (an average price of $58.25 per share) under this program. Although the timing and number of shares purchased will be dictated by our capital needs and stock market conditions, we currently anticipate completing this program during fiscal 2019. In June 2018, our Board of Directors approved a new four-year, $15 billion program to repurchase shares of NIKE’s Class B Common Stock, which we anticipate will commence at the completion of our current program. We continue to expect funding of share repurchases will come from operating cash flows, excess cash and/or proceeds from debt.

Capital Resources On July 21, 2016, we filed a shelf registration statement (the “Shelf”) with the SEC which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires on July 21, 2019. For additional detail refer to Note 8 — Long-Term Debt in the accompanying Notes to the Consolidated Financial Statements.

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. As of and for the periods ended May 31, 2018 and 2017, we had no amounts outstanding under the 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 ratings were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt ratings would not trigger acceleration of maturity of any then-outstanding borrowings or any future borrowings under the committed credit facility. Under this facility, we have agreed to various covenants. These covenants include limits on our disposal of fixed assets and 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, 2018, 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. During the year ended May 31, 2018, the maximum amount of commercial paper borrowings outstanding at any point was $1.4 billion. As of May 31, 2018, there were $325 million of outstanding borrowings under this program. We may continue to issue commercial paper or other debt securities during fiscal 2019 depending 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.

To date, in fiscal 2018, we have not experienced difficulty accessing the credit markets or incurred higher interest costs; however, future volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets.

As of May 31, 2018, we had cash, cash equivalents and short-term investments totaling $5.2 billion, primarily consisting 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, 2018, the weighted-average

86

PART II

days to maturity of our cash equivalents and short-term investments portfolio was 33 days.

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.

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. 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, 2018, 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) 2019 2020 2021 2022 2023 Thereafter Total Operating Leases $ 589 $ 523 $ 472 $ 412 $ 361 $ 1,608 $ 3,965 Capital Leases and Other Financing Obligations(1) 44 37 40 38 36 229 424 Long-Term Debt(2) 115 115 112 109 609 4,713 5,773 Endorsement Contracts(3) 1,391 1,306 1,158 1,266 942 4,438 10,501 Product Purchase Obligations(4) 4,566 — — — — — 4,566 Other Purchase Obligations(5) 1,437 512 281 92 70 254 2,646 Transition Tax Related to the Tax Act(6) 94 94 94 94 94 702 1,172 TOTAL $ 8,236 $ 2,587 $ 2,157 $ 2,011 $ 2,112 $ 11,944 $ 29,047

(1) Capital leases and other financing obligations include payments related to build-to-suit lease arrangements.

(2) 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, 2018 (if variable), timing of scheduled payments and the term of the debt obligations.

(3) The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete, public figure, sport team and league endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods.

In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we will spend on this product on an annual basis as the contracts generally do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors, including general playing conditions, the number of sporting events in which they participate and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers.

(4) We generally order product at least four to five months in advance of sale based primarily on advanced orders received from external wholesale customers and internal orders from our NIKE Direct in-line stores and digital commerce operations. The amounts listed for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business that are enforceable and legally binding and specify all significant terms. In some cases, prices are subject to change throughout the production process.

(5) Other purchase obligations primarily include construction, service and marketing commitments, including marketing commitments associated with endorsement contracts, made in the ordinary course of business. The amounts represent the minimum payments required by legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases.

(6) Represents a provisional estimate of the future cash payments due as part of the transition tax on deemed repatriation of undistributed earnings of foreign subsidiaries, which is reflected net of foreign tax credits we expect to utilize. Actual amounts could vary as we complete our analysis of the Tax Act. Refer to Note 9 — Income Taxes in the accompanying Notes to the Financial Statements for additional information.

In addition to the above, we have long-term obligations for uncertain tax positions and various post-retirement benefits for which we are not able to reasonably estimate when cash payments will occur. Refer to Note 9 — Income Taxes and Note 13 — Benefit Plans in the accompanying Notes to the Consolidated Financial Statements for further information related to uncertain tax positions and post-retirement benefits, respectively.

We also have the following outstanding short-term debt obligations as of May 31, 2018. Refer to Note 7 — Short-Term Borrowings and Credit Lines in the accompanying Notes to the Consolidated Financial Statements for further description and interest rates related to the short-term debt obligations listed below.

(In millions) Outstanding as of May 31, 2018

Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand $ 336 Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign port 61

As of May 31, 2018, the Company had letters of credit outstanding totaling $165 million. These letters of credit were issued primarily for the purchase of inventory and as guarantees of the Company’s performance under certain self-insurance and other programs.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 87

F O

R M

1 0 -K

PART II

New Accounting Pronouncements

Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements for recently adopted and recently issued accounting standards.

Critical Accounting Policies

Our previous discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements.

We believe the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies and estimates. Management has reviewed and discussed these critical accounting policies with the Audit & Finance Committee of the Board of Directors.

These policies require we make estimates in the preparation of our financial statements as of a given date. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Revenue Recognition We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title passes generally upon shipment or upon receipt 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 digital commerce revenues are recorded upon delivery to the customer.

In some instances, we ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods of up to several weeks.

In certain countries, precise information regarding the date of receipt by the customer is not readily available. In these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no indication these estimates have been materially inaccurate historically.

As part of our revenue recognition policy, we record estimated sales returns, discounts and miscellaneous claims from customers as reductions to revenues at the time revenues are recorded. Our post invoice sales discounts consist of contractual programs with certain customers or discretionary discounts expected to be granted to certain customers at a later date. We base our estimates on (1) historical rates of product returns, discounts and claims, (2) specific identification of outstanding claims and outstanding returns not yet received from customers and (3) estimated returns, discounts and claims expected but not yet finalized with our customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns, discounts and claims are significantly greater or lower than established reserves, we record a reduction or increase to net revenues in the period in which we make such determination.

Allowance for Uncollectible Accounts Receivable We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine a smaller or larger allowance is appropriate, we would record a credit or a charge to Operating overhead expense in the period in which such a determination is made.

Inventory Reserves We also make ongoing estimates relating to the net realizable value of inventories based upon our assumptions about future demand and market conditions. If we estimate the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This reserve is recorded as a charge to Cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination.

Contingent Payments under Endorsement Contracts A significant amount of our Demand creation expense relates to payments under endorsement contracts. In general, endorsement payments are expensed on a straight-line basis over the term of the contract. However, certain contract elements may be accounted for differently based upon the facts and circumstances of each individual contract.

Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). We record 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 (e.g., maintaining a specified ranking in a sport for a year). When we determine 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 actual payments to the endorser differ from our estimate due to changes in the endorser’s performance, adjustments to 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. We expense these payments in Cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty payments. For contracts for which we estimate we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of product in Demand creation expense uniformly over the contract term.

88

PART II

Property, Plant and Equipment and Definite- Lived Assets We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies that would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group’s carrying amount and its estimated fair value.

Hedge Accounting for Derivatives We use derivative contracts to hedge certain anticipated foreign currency and interest rate transactions as well as certain non-functional currency monetary assets and liabilities. When the specific criteria to qualify for hedge accounting has been met, changes in the fair value of contracts hedging probable forecasted future cash flows are recorded in Accumulated other comprehensive income, rather than Net income, until the underlying hedged transaction affects Net income. In most cases, this results in gains and losses on hedge derivatives being released from Other comprehensive income into Net income sometime after the maturity of the derivative. One of the criteria for this accounting treatment is that the notional value of these derivative contracts should not be in excess of specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual transaction amounts decline below hedged levels, or if it is no longer probable a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we are required to reclassify the cumulative change in fair value of the over-hedged portion of the related hedge contract from Other comprehensive income to Other expense (income), net during the quarter in which the decrease occurs.

Stock-based Compensation We account for stock-based compensation by estimating the fair value of stock-based compensation on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on our common stock with a term greater than one year, along with other factors. Our decision to use implied volatility was based on the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors change and we use different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period.

Income Taxes We are subject to taxation in the United States, as well as various state and foreign jurisdictions. The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. On an interim basis, we estimate what our

effective tax rate will be for the full fiscal year. This estimated annual effective tax rate is then applied to the year-to-date Income before income taxes excluding infrequently occurring or unusual items, to determine the year-to-date Income tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs.

We record valuation allowances against our deferred tax assets, when necessary. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our net deferred tax asset, which increases our Income tax expense in the period when such determination is made.

On a quarterly basis, we evaluate the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in Income tax expense.

On December 22, 2017, the United States enacted the Tax Act, which significantly changes previous U.S. tax laws, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, a reduction in the corporate tax rate from 35% to 21%, as well as other changes. In accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”), we recorded provisional amounts, which represent reasonable estimates of the effects of the Tax Act for which the analysis is not yet complete. As the Company completes its analysis of the Tax Act, including collecting, preparing and analyzing necessary information, performing and refining calculations and obtaining additional guidance from the U.S. Internal Revenue Services (IRS), U.S. Treasury Department, Financial Accounting Standards Board (FASB) or other standard setting and regulatory bodies on the Tax Act, it may record adjustments to the provisional amounts, which may be material. In accordance with SAB 118, the Company’s accounting for the tax effects of the Tax Act will be completed during the measurement period, which should not extend beyond one year from the enactment date.

Refer to Note 9 — Income Taxes in the accompanying Notes to the Consolidated Financial Statements for additional information.

Other Contingencies In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights and a variety of other matters. We record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third-party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges during the period in which the actual loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss will materially exceed the recorded liability. While we cannot predict the outcome of pending legal matters with certainty, we do not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material impact on our results of operations, financial position or cash flows.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 89

F O

R M

1 0 -K

PART II

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for trading or speculative purposes.

We are exposed to foreign currency fluctuations, primarily as a result of our international sales, product sourcing and funding activities. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We use forward and option contracts to hedge certain anticipated, but not yet firmly committed, transactions as well as certain firm commitments and the related receivables and payables, including third-party and intercompany transactions. We have, in the past, and may in the future, also use forward or options contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency translation adjustments related to our net investment in those subsidiaries. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Consolidated Financial Statements.

The timing for hedging exposures, as well as the type and duration of the hedge instruments employed, are guided by our hedging policies and determined based upon the nature of the exposure and prevailing market conditions. Typically, the Company may enter into hedge contracts starting up to 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. The majority of derivatives outstanding as of May 31, 2018 are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro and Japanese Yen/U.S. Dollar currency pairs. Refer to Note 16 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional information.

Our earnings are also exposed to movements in short- and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans, and fixed-rate debt of varying maturities.

Market Risk Measurement

We monitor foreign exchange risk, interest rate risk and related derivatives using a variety of techniques including a review of market value, sensitivity analysis and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts, interest rate swaps, intercompany loans denominated in non-functional currencies, fixed interest rate U.S. Dollar denominated debt and fixed interest rate Japanese Yen denominated debt.

We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign exchange currency market changes and interest rate changes over the preceding one-year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjust the potential loss in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only and does not include the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances and accounts and loans receivable and payable), including those which are hedged by these instruments.

The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value we will incur nor does it consider the potential effect of favorable changes in market rates. It also does not represent the full extent of

the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors.

The estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial instruments, derived using the VaR model, was $93 million and $97 million at May 31, 2018 and 2017, respectively. The VAR decreased year-over-year as a result of a decrease in foreign currency volatilities at May 31, 2018. Such a hypothetical loss in the fair value of our derivatives would be offset by increases in the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $260 million and $161 million during fiscal 2018 and fiscal 2017, respectively.

The instruments not included in the VaR are intercompany loans denominated in non-functional currencies, fixed interest rate Japanese Yen denominated debt, fixed interest rate U.S. Dollar denominated debt and interest rate swaps. Intercompany loans and related interest amounts are eliminated in consolidation. Furthermore, our non-functional currency intercompany loans are substantially hedged against foreign exchange risk through the use of forward contracts, which are included in the VaR calculation above. Therefore, we consider the interest rate and foreign currency market risks associated with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows.

Details of third-party debt are provided in the table below. The table presents principal cash flows and related weighted average interest rates by expected maturity dates.

90

PART II

Expected Maturity Date Year Ending May 31,

(Dollars in millions) 2019 2020 2021 2022 2023 Thereafter Total Fair Value Foreign Exchange Risk Japanese Yen Functional Currency Long-term Japanese Yen debt — Fixed rate Principal payments $ 6 $ 6 $ 3 $ — $ — $ — $ 15 $ 16 Average interest rate 2.4% 2.4% 2.4% 0.0% 0.0% 0.0% 2.4%

Interest Rate Risk Japanese Yen Functional Currency Long-term Japanese Yen debt — Fixed rate Principal payments $ 6 $ 6 $ 3 $ — $ — $ — $ 15 $ 16 Average interest rate 2.4% 2.4% 2.4% 0.0% 0.0% 0.0% 2.4%

U.S. Dollar Functional Currency Long-term U.S. Dollar debt — Fixed rate Principal payments $ — $ — $ — $ — $ 500 $3,000 $ 3,500 $ 3,279 Average interest rate 0.0% 0.0% 0.0% 0.0% 2.3% 3.3% 3.1%

The fixed interest rate Japanese Yen denominated debt instruments were issued by and are accounted for by one of our Japanese subsidiaries. Accordingly, the monthly translation of these instruments, which varies due to changes in foreign exchange rates, is recognized in Accumulated other comprehensive income upon consolidation of this subsidiary.

ITEM 8. Financial Statements and Supplementary Data Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include certain amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements.

Our accounting systems include controls designed to reasonably assure assets are safeguarded from unauthorized use or disposition and provide for the preparation of financial statements in conformity with U.S. GAAP. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties.

An internal corporate audit department reviews the results of its work with the Audit & Finance Committee of the Board of Directors, presently comprised of three outside, independent directors. The Audit & Finance Committee is responsible for the appointment of the independent registered public accounting firm and reviews, with the independent registered public accounting firm, management and the internal corporate audit staff, the scope and the results of the annual audit, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as the Audit & Finance Committee deems appropriate. The independent registered public accounting firm and the internal corporate auditors have full access to the Audit & Finance Committee, with and without the presence of management, to discuss any appropriate matters.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 91

F O

R M

1 0 -K

PART II

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13(a)—15(f) and Rule 15(d)—15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements.

While “reasonable assurance” is a high level of assurance, it does not mean absolute assurance. Because of its inherent limitations, internal control over

financial reporting may not prevent or detect every misstatement and instance of fraud. Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people, including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2018.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the Consolidated Financial Statements and (2) the effectiveness of our internal control over financial reporting as of May 31, 2018, as stated in their report herein.

Mark G. Parker Andrew Campion

Chairman, President and Chief Executive Officer Chief Financial Officer

92

PART II

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of NIKE, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of NIKE, Inc. and its subsidiaries as of May 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended May 31, 2018, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based payment awards to employees as of June 1, 2017.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/S/ PricewaterhouseCoopers LLP

Portland, Oregon

July 24, 2018

We have served as the Company’s auditor since 1974.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 93

F O

R M

1 0 -K

PART II

NIKE, Inc. Consolidated Statements of Income

Year Ended May 31, (In millions, except per share data) 2018 2017 2016 Revenues $ 36,397 $ 34,350 $ 32,376 Cost of sales 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 7,222 7,191 Total selling and administrative expense 11,511 10,563 10,469 Interest expense (income), net 54 59 19 Other expense (income), net 66 (196) (140) Income before income taxes 4,325 4,886 4,623 Income tax expense 2,392 646 863 NET INCOME $ 1,933 $ 4,240 $ 3,760

Earnings per common share: Basic $ 1.19 $ 2.56 $ 2.21 Diluted $ 1.17 $ 2.51 $ 2.16

Dividends declared per common share $ 0.78 $ 0.70 $ 0.62

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

94

PART II

NIKE, Inc. Consolidated Statements of Comprehensive Income

Year Ended May 31, (In millions) 2018 2017 2016

Net income $ 1,933 $ 4,240 $ 3,760 Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment (6) 16 (176) Change in net gains (losses) on cash flow hedges 76 (515) (757) Change in net gains (losses) on other 34 (32) 5

Total other comprehensive income (loss), net of tax 104 (531) (928) TOTAL COMPREHENSIVE INCOME $ 2,037 $ 3,709 $ 2,832

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 95

F O

R M

1 0 -K

PART II

NIKE, Inc. Consolidated Balance Sheets

May 31, (In millions) 2018 2017

ASSETS Current assets: Cash and equivalents $ 4,249 $ 3,808 Short-term investments 996 2,371 Accounts receivable, net 3,498 3,677 Inventories 5,261 5,055 Prepaid expenses and other current assets 1,130 1,150

Total current assets 15,134 16,061 Property, plant and equipment, net 4,454 3,989 Identifiable intangible assets, net 285 283 Goodwill 154 139 Deferred income taxes and other assets 2,509 2,787

TOTAL ASSETS $ 22,536 $ 23,259 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 6 $ 6 Notes payable 336 325 Accounts payable 2,279 2,048 Accrued liabilities 3,269 3,011 Income taxes payable 150 84

Total current liabilities 6,040 5,474 Long-term debt 3,468 3,471 Deferred income taxes and other liabilities 3,216 1,907 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 — 1,272 and 1,314 shares outstanding 3 3

Capital in excess of stated value 6,384 5,710 Accumulated other comprehensive loss (92) (213) Retained earnings 3,517 6,907

Total shareholders’ equity 9,812 12,407 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 22,536 $ 23,259

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

96

PART II

NIKE, Inc. Consolidated Statements of Cash Flows

Year Ended May 31, (In millions) 2018 2017 2016 Cash provided by operations: Net income $ 1,933 $ 4,240 $ 3,760 Adjustments to reconcile net income to net cash provided by operations: Depreciation 747 706 649 Deferred income taxes 647 (273) (80) Stock-based compensation 218 215 236 Amortization and other 27 10 13 Net foreign currency adjustments (99) (117) 98

Changes in certain working capital components and other assets and liabilities: Decrease (increase) in accounts receivable 187 (426) 60 (Increase) in inventories (255) (231) (590) Decrease (increase) in prepaid expenses and other current and non-current assets 35 (120) (161) Increase (decrease) in accounts payable, accrued liabilities and other current and non-current liabilities 1,515 (158) (586)

Cash provided by operations 4,955 3,846 3,399 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 (1,028) (1,105) (1,143) Disposals of property, plant and equipment 3 13 10 Other investing activities (25) (34) 6

Cash provided (used) by investing activities 276 (1,008) (1,034) Cash used by financing activities: Net proceeds from long-term debt issuance — 1,482 981 Long-term debt payments, including current portion (6) (44) (106) Increase (decrease) in notes payable 13 327 (67) Payments on capital lease and other financing obligations (23) (17) (7) 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 45 (20) (105) Net increase (decrease) in cash and equivalents 441 670 (714) Cash and equivalents, beginning of year 3,808 3,138 3,852 CASH AND EQUIVALENTS, END OF YEAR $ 4,249 $ 3,808 $ 3,138 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of capitalized interest $ 125 $ 98 $ 70 Income taxes 529 703 748

Non-cash additions to property, plant and equipment 294 266 252 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. 2018 Annual Report and Notice of Annual Meeting 97

F O

R M

1 0 -K

PART II

NIKE, Inc. Consolidated Statements of Shareholders’ Equity

Common Stock Capital in Excess

of Stated Value

Accumulated Other

Comprehensive Income

Retained Earnings Total

Class A Class B (In millions, except per share data) Shares Amount Shares Amount

Balance at May 31, 2015 355 $ — 1,357 $ 3 $ 4,165 $ 1,246 $ 7,293 $ 12,707 Stock options exercised 22 680 680 Conversion to Class B Common Stock (2) — 2 — — Repurchase of Class B Common Stock (55) (148) (3,090) (3,238) Dividends on common stock ($0.62 per share) and preferred stock ($0.10 per share) (1,053) (1,053) Issuance of shares to employees, net of shares withheld for employee taxes 3 105 (11) 94 Stock-based compensation 236 236 Net income 3,760 3,760 Other comprehensive income (loss) (928) (928) Balance at May 31, 2016 353 $ — 1,329 $ 3 $ 5,038 $ 318 $ 6,899 $ 12,258 Stock options exercised 17 525 525 Conversion to Class B Common Stock (24) — 24 — — Repurchase of Class B Common Stock (60) (189) (3,060) (3,249) Dividends on common stock ($0.70 per share) and preferred stock ($0.10 per share) (1,159) (1,159) Issuance of shares to employees, net of shares withheld for employee taxes 4 121 (13) 108 Stock-based compensation 215 215 Net income 4,240 4,240 Other comprehensive income (loss) (531) (531) Balance at May 31, 2017 329 $ — 1,314 $ 3 $ 5,710 $ (213) $ 6,907 $ 12,407 Stock options exercised 24 600 600 Conversion to Class B Common Stock — — — — — Repurchase of Class B Common Stock (70) (254) (4,013) (4,267) Dividends on common stock ($0.78 per share) and preferred stock ($0.10 per share) (1,265) (1,265) Issuance of shares to employees, net of shares withheld for employee taxes 4 110 (28) 82 Stock-based compensation 218 218 Net income 1,933 1,933 Other comprehensive income (loss) 104 104 Reclassifications to retained earnings in accordance with ASU 2018-02 17 (17) — Balance at May 31, 2018 329 $ — 1,272 $ 3 $ 6,384 $ (92) $ 3,517 $ 9,812

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

98

PART II

Notes to Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100 Note 2 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Note 3 Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Note 4 Identifiable Intangible Assets and Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Note 5 Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Note 6 Fair Value Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Note 7 Short-Term Borrowings and Credit Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Note 8 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Note 9 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Note 10 Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110 Note 11 Common Stock and Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110 Note 12 Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Note 13 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112 Note 14 Accumulated Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112 Note 15 Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113 Note 16 Risk Management and Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113 Note 17 Operating Segments and Related Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 99

F O

R M

1 0 -K

PART II

NOTE 1 — Summary of Significant Accounting Policies

Description of Business NIKE, Inc. is a worldwide leader in the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. NIKE, Inc. portfolio brands include the NIKE Brand, Jordan Brand, Hurley and Converse. The NIKE Brand is focused on performance athletic footwear, apparel, equipment, accessories and services across a wide range of sport categories, amplified with sport-inspired sportswear products carrying the Swoosh trademark, as well as other NIKE Brand trademarks. The Jordan Brand is focused on athletic and casual footwear, apparel and accessories using the Jumpman trademark. Sales and operating results of Jordan Brand products are reported within the respective NIKE Brand geographic operating segments. The Hurley brand is focused on surf and action sports and youth lifestyle footwear, apparel and accessories, using the Hurley trademark. Sales and operating results of Hurley brand products are reported within the NIKE Brand’s North America geographic operating segment. Converse designs, distributes, markets and sells casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks. In some markets outside the U.S., these trademarks are licensed to third parties who design, distribute, market and sell similar products. Operating results of the Converse brand are reported on a stand-alone basis.

Basis of Consolidation The Consolidated Financial Statements include the accounts of NIKE, Inc. and its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated.

On November 19, 2015, the Company announced a two-for-one split of both NIKE Class A and Class B Common Stock. The stock split was in the form of a 100 percent stock dividend payable on December 23, 2015 to shareholders of record at the close of business on December 9, 2015. Common stock began trading at the split-adjusted price on December 24, 2015. All share and per share amounts presented reflect the stock split.

Reclassifications Certain prior year amounts have been reclassified to conform to fiscal 2018 presentation, including reclassified geographic operating segment data to reflect the changes in the Company’s operating structure, which became effective on June 1, 2017. Refer to Note 17 — Operating Segments and Related Information for additional information.

During the fourth quarter of fiscal 2018, management identified a misstatement related to the historical allocation of repurchases of Class B Common stock between Capital in excess of stated value and Retained earnings. The Company assessed the materiality of these misstatements on prior period financial statements in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements, and concluded that these misstatements were not material to any prior annual or interim period. As such, the Company has revised the Consolidated Balance Sheets as of May 31, 2017, and has reduced Capital in excess of stated value by $2.9 billion and increased Retained earnings by the same amount. Within the Consolidated Statements of Shareholders’ Equity, the Company has made corresponding revisions of $2.6 billion, $0.1 billion and $0.2 billion for the periods ended May 31, 2015, 2016 and 2017, respectively.

Revenue Recognition 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 receipt 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 digital commerce revenues are recorded upon delivery to the customer. Amounts collected from customers for sales or value added tax are recorded on a net basis. Provisions for post-

invoice sales discounts, returns and miscellaneous 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 expected to be granted to certain customers at a later date. Estimates of discretionary discounts, returns and claims are based on (1) historical rates, (2) specific identification of outstanding claims and outstanding returns not yet received from customers and (3) estimated discounts, returns and claims expected, but not yet finalized with customers. As of May 31, 2018 and 2017, the Company’s reserve balances for post-invoice sales discounts, returns and miscellaneous claims were $675 million and $643 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 product design costs. Outbound shipping and handling costs are expensed as incurred and included in Cost of sales.

Demand Creation Expense Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation. Advertising production costs are expensed the first time an advertisement is run. Advertising media costs are expensed when the advertisement appears. Costs related to brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is complete and delivered.

A significant amount of the Company’s promotional expenses result from payments under endorsement contracts. In general, endorsement payments are expensed on a straight-line basis over the term of the contract. However, certain contract elements may be accounted for differently based upon the facts and circumstances of each individual contract. 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 (e.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 the Company’s best estimate of the endorser’s performance. In these instances, to the extent actual payments to the endorser differ from the Company’s estimate due to changes in the endorser’s performance, adjustments to 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 the Company estimates 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 contract period.

Through cooperative advertising programs, the Company reimburses 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.

100

PART II

Total advertising and promotion expenses, which the Company refers to as Demand creation expense, were $3,577 million, $3,341 million and $3,278 million for the years ended May 31, 2018, 2017 and 2016, respectively. Prepaid advertising and promotion expenses totaled $730 million and $558 million at May 31, 2018 and 2017, respectively, of which $359 million and $311 million, respectively, was recorded in Prepaid expenses and other current assets, and $371 million and $247 million, respectively, was recorded in Deferred income taxes and other assets, depending on the period to which the prepayment applies.

Operating Overhead Expense Operating overhead expense consists primarily of wage and benefit-related expenses, research and development costs, as well as other administrative expenses, such as rent, depreciation and amortization, professional services, meetings and travel.

Cash and Equivalents Cash and equivalents represent cash and short-term, highly liquid investments, that are both readily convertible to known amounts of cash, and so near their maturity they present insignificant risk of changes in value because of changes in interest rates, including commercial paper, U.S. Treasury, U.S. Agency, money market funds, time deposits and corporate debt securities with maturities of 90 days or less at the date of purchase.

Short-Term Investments Short-term investments consist of highly liquid investments, including commercial paper, U.S. Treasury, U.S. Agency, time deposits and corporate debt securities, with maturities over 90 days at the date of purchase. Debt securities the Company has the ability and positive intent to hold to maturity are carried at amortized cost. At May 31, 2018 and 2017, the Company did not hold any short-term investments classified as trading or held-to-maturity.

At May 31, 2018 and 2017, Short-term investments consisted of available-for-sale securities. Available-for-sale securities are recorded at fair value with unrealized gains and losses reported, net of tax, in Accumulated other comprehensive income, unless unrealized losses are determined to be other than temporary. Realized gains and losses on the sale of securities are determined by specific identification. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and, therefore, classifies all securities with maturity dates beyond 90 days at the date of purchase as current assets within Short-term investments on the Consolidated Balance Sheets.

Refer to Note 6 — Fair Value Measurements for more information on the Company’s short-term investments.

Allowance for Uncollectible Accounts Receivable Accounts receivable, net consist primarily of amounts receivable from customers. The Company makes ongoing estimates relating to the collectability of its accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In determining the amount of the allowance, the Company considers historical levels of credit losses and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet date and related allowances are considered non-current and recorded in Deferred income taxes and other assets. The allowance for uncollectible accounts receivable was $30 million and $19 million at May 31, 2018 and 2017, respectively.

Inventory Valuation Inventories are stated at lower of cost and net realizable value, and valued on either an average or a specific identification cost basis. In some instances, we ship product directly from our supplier to the customer, with the related inventory and cost of sales recognized on a specific identification basis. Inventory costs primarily consist of product cost from the Company’s suppliers, as well as inbound freight, import duties, taxes, insurance and logistics and other handling fees.

Property, Plant and Equipment and Depreciation Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for land improvements, buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years.

Depreciation and amortization of assets used in manufacturing, warehousing and product distribution are recorded in Cost of sales. Depreciation and amortization of all other assets are recorded in Operating overhead expense.

Software Development Costs Internal Use Software: Expenditures for major software purchases and software developed for internal use are capitalized and amortized over a 2 to 12-year period on a straight-line basis. The Company’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred.

Computer Software to be Sold, Leased or Otherwise Marketed: Development costs of computer software to be sold, leased or otherwise marketed as an integral part of a product are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, software development costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred.

Impairment of Long-Lived Assets The Company reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group’s carrying amount and its estimated fair value.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 101

F O

R M

1 0 -K

PART II

Goodwill and Indefinite-Lived Intangible Assets The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation the carrying amount may not be recoverable, among other factors. The Company may first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not the fair value of the reporting unit is greater than its carrying amount, the two-step impairment test is unnecessary. The two-step impairment test first requires the Company to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and the Company proceeds to step two of the impairment analysis. In step two of the analysis, the Company measures and records an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, if any.

Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. The Company may first perform a qualitative assessment to determine whether it is more likely than not an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for these intangible assets, the Company utilizes the relief-from-royalty method. This method assumes trade names and trademarks have value to the extent their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.

Operating Leases The Company leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets under operating leases. Operating lease agreements may contain rent escalation clauses, renewal options, rent holidays or certain landlord incentives, including tenant improvement allowances. Rent expense for non-cancelable operating leases with scheduled rent increases or landlord incentives are recognized on a straight-line basis over the lease term, beginning with the effective lease commencement date, which is generally the date in which the Company takes possession of or controls the physical use of the property. Certain leases also provide for contingent rent, which is generally determined as a percent of sales in excess of specified levels. A contingent rent liability is recognized together with the corresponding rent expense when specified levels have been achieved or when the Company determines that achieving the specified levels during the period is probable.

Fair Value Measurements The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale securities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the Financial Accounting Standards Board (FASB) that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach).

The levels of the fair value hierarchy are described below:

• Level 1: Quoted prices in active markets for identical assets or liabilities.

• Level 2: Inputs other than observable quoted prices for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or

liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement.

Pricing vendors are utilized for a majority of Level 1 and 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 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 its counterparties.

Level 1 investments include U.S. Treasury securities. Assets and liabilities included within Level 2 include commercial paper, U.S. Agency securities, money market funds, time deposits, corporate debt securities and derivative contracts. Level 3 investments are valued using internally developed models with unobservable inputs and are an immaterial portion of our portfolio.

The Company’s fair value measurement process includes comparing fair values to another independent pricing vendor to ensure appropriate fair values are recorded.

Refer to Note 6 — Fair Value Measurements for additional information.

Foreign Currency Translation and Foreign Currency Transactions Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of Accumulated other comprehensive income in Total shareholders’ equity.

The Company’s global subsidiaries have various assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in Other expense (income), net, within the Consolidated Statements of Income.

Accounting for Derivatives and Hedging Activities The Company uses derivative financial instruments to reduce its exposure to changes in foreign currency exchange rates and interest rates. All derivatives are recorded at fair value on the Consolidated Balance Sheets and changes in the fair value of derivative financial instruments are either recognized in Accumulated other comprehensive income (a component of Total shareholders’ equity), Long-term debt or Net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge and, if designated, the extent to which the hedge is effective. The Company classifies the cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items. For undesignated hedges and designated cash flow hedges, this is primarily within the Cash provided by operations component of the Consolidated Statements of Cash Flows. For designated net investment hedges, this is within the Cash used by investing activities component of the Consolidated Statements of Cash Flows. For the Company’s fair value hedges, which are interest rate swaps used to mitigate the change in fair value of its fixed-rate debt attributable to changes in interest rates, the related cash flows from periodic interest payments are reflected within the Cash provided by operations component of the Consolidated Statements of Cash Flows. Refer to Note 16 — Risk Management and Derivatives for additional information on the Company’s risk management program and derivatives.

102

PART II

Stock-Based Compensation The Company accounts for stock-based compensation by estimating the fair value of options and stock appreciation rights granted under the NIKE, Inc. Stock Incentive Plan and employees’ purchase rights under the employee stock purchase plans (ESPPs) using the Black-Scholes option pricing model. The Company recognizes this fair value as Cost of sales or Operating overhead expense, as applicable, in the Consolidated Statements of Income over the vesting period using the straight-line method.

Refer to Note 11 — Common Stock and Stock-Based Compensation for additional information on the Company’s stock-based compensation programs.

Income Taxes The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The Company records a valuation allowance to reduce deferred tax assets to the amount management believes is more likely than not to be realized.

The Company recognizes a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not the position will be sustained upon examination by relevant tax authorities. The Company recognizes interest and penalties related to income tax matters in Income tax expense.

Refer to Note 9 — Income Taxes for further discussion.

Earnings Per Share Basic earnings per common share is calculated by dividing Net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards.

Refer to Note 12 — Earnings Per Share for further discussion.

Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recently Adopted Accounting Standards In February 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows for reclassification of stranded tax effects on items resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from Accumulated other comprehensive income to Retained earnings. Tax effects unrelated to the Tax Act are released from Accumulated other comprehensive income using either the specific identification approach or the portfolio approach based on the nature of the underlying item.

The Company early adopted the ASU in the third quarter of fiscal 2018. As a result of the adoption, Retained earnings decreased by $17 million, with a corresponding increase to Accumulated other comprehensive income due to the reduction in the corporate tax rate from 35% to 21%. Refer to Note 9 — Income Taxes for additional information on the impact of the Tax Act.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payment awards to employees. The Company adopted the ASU in the first quarter of fiscal 2018. The updated guidance requires excess tax benefits and deficiencies from share-based payment awards to be recorded in income tax expense in the income statement. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity on the balance sheet. This change is required to be applied prospectively. As a result of the adoption, during fiscal 2018, the Company recognized $230 million of excess tax benefits related to share- based payment awards in Income tax expense in the Consolidated Statements of Income.

Additionally, ASU 2016-09 modified the classification of certain share-based payment activities within the statement of cash flows, which the Company applied retrospectively. As a result, for fiscal 2017 and fiscal 2016, the Company reclassified cash inflows of $177 million and $281 million, respectively, related to excess tax benefits from share-based payment awards, from Cash used by financing activities to Cash provided by operations, and reclassified cash outflows of $29 million and $22 million, for the respective periods, related to tax payments for the net settlement of share-based payment awards, from Cash provided by operations to Cash used by financing activities within the Consolidated Statements of Cash Flows.

Recently Issued Accounting Standards In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The update to the standard is effective for the Company on June 1, 2019, with early adoption permitted in any interim period. The Company is currently evaluating the updated guidance, but does not expect the adoption to have a material impact on the Consolidated Financial Statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The updated guidance requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Income tax effects of intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party. The Company will adopt the standard on June 1, 2018, using a modified retrospective approach, with the cumulative effect of applying the new standard recognized in retained earnings at the date of adoption. Upon adoption, the Company will record a cumulative effect adjustment reducing Retained earnings, Deferred income taxes and other assets, and Prepaid expenses and other current assets by $507 million, $422 million and $45 million, respectively, and increasing Deferred income taxes and other liabilities by $40 million.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which replaces existing lease accounting guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will require the Company to continue to classify leases as either operating or financing, with classification affecting the pattern of expense recognition in the income statement. The Company will adopt the standard on June 1, 2019. The ASU is required to be applied using a modified retrospective approach at the beginning of the earliest period presented, with optional practical expedients. The Company continues to assess the effect the guidance will have on its existing accounting policies and the Consolidated Financial Statements and expects there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which may be material. Refer to Note 15 — Commitments and Contingencies for information about the Company’s lease obligations.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 103

F O

R M

1 0 -K

PART II

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard is effective for the Company beginning June 1, 2018. The Company does not expect the adoption to have a material impact on the Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces existing revenue recognition guidance. The updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires reporting companies to disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company will adopt the standard on June 1, 2018 using a

modified retrospective approach with the cumulative effect of initially applying the new standard recognized in retained earnings at the date of adoption.

While the Company does not expect the adoption of this standard to have a material impact on the Company’s net Revenues in the Consolidated Statements of Income, revenues for certain wholesale transactions and substantially all digital commerce sales will be recognized upon shipment rather than upon delivery to the customer. Accordingly, the Company will record a cumulative effect adjustment increasing Retained earnings by approximately $23 million on June 1, 2018.

Additionally, provisions for post-invoice sales discounts, returns and miscellaneous claims will be recognized as accrued liabilities rather than as reductions to Accounts receivable, net; and the estimated cost of inventory associated with the provision for sales returns will be recorded within Prepaid expenses and other current assets on the Consolidated Balance Sheets. The remaining provisions of the standard are not expected to have a material impact on the Company’s Consolidated Financial Statements.

NOTE 2 — Inventories

Inventory balances of $5,261 million and $5,055 million at May 31, 2018 and 2017, respectively, were substantially all finished goods.

NOTE 3 — Property, Plant and Equipment

Property, plant and equipment, net included the following:

As of May 31, (In millions) 2018 2017

Land and improvements $ 331 $ 285 Buildings 2,195 1,564 Machinery, equipment and internal-use software 4,230 3,867 Leasehold improvements 1,494 1,484 Construction in process 641 758 Total property, plant and equipment, gross 8,891 7,958 Less accumulated depreciation 4,437 3,969 TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,454 $ 3,989

Capitalized interest was not material for the years ended May 31, 2018, 2017 and 2016.

NOTE 4 — Identifiable Intangible Assets and Goodwill

Identifiable intangible assets, net consist of indefinite-lived trademarks, which are not subject to amortization, and acquired trademarks and other intangible assets, which are subject to amortization.

The following table summarizes the Company’s Identifiable intangible assets, net balances as of May 31, 2018 and 2017:

As of May 31, 2018 2017

(In millions) Gross Carrying

Amount Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Acquired trademarks and other $ 22 $ 18 $ 4 $ 19 $ 17 $ 2 Indefinite-lived trademarks 281 — 281 281 — 281 IDENTIFIABLE INTANGIBLE ASSETS, NET $ 303 $ 18 $ 285 $ 300 $ 17 $ 283

Goodwill was $154 million and $139 million at May 31, 2018 and 2017, respectively, of which $65 million was included in the Converse segment for both periods. The remaining amounts were included in Global Brand Divisions for segment reporting purposes. There were no accumulated impairment balances for goodwill as of either period end.

104

PART II

NOTE 5 — Accrued Liabilities

Accrued liabilities included the following:

As of May 31, (In millions) 2018 2017

Compensation and benefits, excluding taxes $ 897 $ 871 Endorsement compensation 425 396 Dividends payable 320 300 Import and logistics costs 268 257 Taxes other than income taxes payable 224 196 Fair value of derivatives 184 168 Advertising and marketing 140 125 Collateral received from counterparties to hedging instruments 23 — Other(1) 788 698 TOTAL ACCRUED LIABILITIES $ 3,269 $ 3,011

(1) Other consists of various accrued expenses with no individual item accounting for more than 5% of the total Accrued liabilities balance at May 31, 2018 and 2017.

NOTE 6 — Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of May 31, 2018 and 2017, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. Refer to Note 1 — Summary of Significant Accounting Policies for additional detail regarding the Company’s fair value measurement methodology.

As of May 31, 2018

(In millions) Assets at Fair

Value Cash

Equivalents Short-term

Investments Other Long-term

Assets

Cash $ 415 $ 415 $ — $ — Level 1: U.S. Treasury securities 1,178 500 678 —

Level 2: Time deposits 925 907 18 — U.S. Agency securities 102 100 2 — Commercial paper and bonds 451 153 298 — Money market funds 2,174 2,174 — —

Total level 2 3,652 3,334 318 — Level 3: Non-marketable preferred stock 11 — — 11

TOTAL $ 5,256 $ 4,249 $ 996 $ 11

As of May 31, 2017

(In millions) Assets at Fair

Value Cash

Equivalents Short-term

Investments Other Long-term

Assets

Cash $ 505 $ 505 $ — $ — Level 1:

U.S. Treasury securities 1,545 159 1,386 — Level 2:

Time deposits 813 769 44 — U.S. Agency securities 522 150 372 — Commercial paper and bonds 820 251 569 — Money market funds 1,974 1,974 — —

Total level 2 4,129 3,144 985 — Level 3:

Non-marketable preferred stock 10 — — 10 TOTAL $ 6,189 $ 3,808 $ 2,371 $ 10

The Company elects to record the gross assets and liabilities of its derivative financial instruments on the Consolidated Balance Sheets. The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. Any amounts of cash collateral received related to these instruments associated with the Company’s credit-related contingent features are recorded in Cash and equivalents and Accrued liabilities, the

latter of which would further offset against the Company’s derivative asset balance (refer to Note 16 — Risk Management and Derivatives). Any amounts of cash collateral posted related to these instruments associated with the Company’s credit-related contingent features are recorded in Prepaid expenses and other current assets, which would further offset against the Company’s derivative liability balance (refer to Note 16 — Risk Management and Derivatives). Cash collateral received or posted related to the Company’s

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 105

F O

R M

1 0 -K

PART II

credit related contingent features is presented in the Cash provided by operations component of the Consolidated Statements of Cash Flows. Any amounts of non-cash collateral received, such as securities, are not recorded on the Consolidated Balance Sheets pursuant to U.S. GAAP.

The following tables present information about the Company’s derivative assets and liabilities measured at fair value on a recurring basis as of May 31, 2018 and 2017, and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement.

As of May 31, 2018 Derivative Assets Derivative Liabilities

(In millions)

Assets at Fair Value

Other Current Assets

Other Long- term

Assets

Liabilities at Fair Value

Accrued Liabilities

Other Long-term Liabilities

Level 2: Foreign exchange forwards and options(1) $ 389 $ 237 $ 152 $ 182 $ 182 $ — Embedded derivatives 11 3 8 8 2 6

TOTAL $ 400 $ 240 $ 160 $ 190 $ 184 $ 6

(1) If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $182 million as of May 31, 2018. As of that date, the Company had received $23 million of cash collateral from various counterparties related to these foreign exchange derivative instruments. No amount of collateral was posted on the Company’s derivative liability balance as of May 31, 2018.

As of May 31, 2017 Derivative Assets Derivative Liabilities

(In millions)

Assets at Fair Value

Other Current Assets

Other Long- term

Assets

Liabilities at Fair Value

Accrued Liabilities

Other Long-term Liabilities

Level 2: Foreign exchange forwards and options(1) $ 231 $ 216 $ 15 $ 246 $ 166 $ 80 Embedded derivatives 10 1 9 8 2 6

TOTAL $ 241 $ 217 $ 24 $ 254 $ 168 $ 86

(1) If the foreign exchange derivative instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $187 million as of May 31, 2017. As of that date, no amount of cash collateral had been received or posted on the derivative asset and liability balance related to these foreign exchange derivative instruments.

Available-for-sale securities comprise investments in U.S. Treasury and Agency securities, time deposits, 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). As of May 31, 2018, the Company held $960 million of available-for-sale securities with maturity dates within one year and $36 million with maturity dates over one year and less than five years within Short-term investments on the Consolidated Balance Sheets. The gross realized gains and losses on sales of available-for-sale securities were immaterial for the fiscal years ended May 31, 2018 and 2017. Unrealized gains and losses on available-for-sale securities included in Accumulated other comprehensive income were immaterial as of May 31, 2018 and 2017. The Company regularly reviews its available-for-sale securities for other-than-temporary impairment. For the years ended May 31, 2018 and 2017, the Company did not consider its securities to be other-than- temporarily impaired, and accordingly, did not recognize any impairment losses.

Included in Interest expense (income), net was interest income related to the Company’s available-for-sale securities of $70 million, $27 million and $12 million for the years ended May 31, 2018, 2017 and 2016, respectively.

The Company’s Level 3 assets comprise investments in certain non-marketable preferred stock. These Level 3 investments are an immaterial portion of the Company’s portfolio. Changes in Level 3 investment assets were immaterial during the years ended May 31, 2018 and 2017.

No transfers among the levels within the fair value hierarchy occurred during the years ended May 31, 2018 or 2017.

For additional information related to the Company’s derivative financial instruments, refer to Note 16 — Risk Management and Derivatives. 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, respectively. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value.

As of May 31, 2018 and 2017, assets or liabilities required to be measured at fair value on a non-recurring basis were immaterial.

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, 2018 and 2017 are summarized below:

As of May 31, 2018 2017

(Dollars in millions) Borrowings Interest Rate Borrowings Interest Rate Notes payable: Commercial paper $ 325 1.77% $ 325 0.86% U.S. operations 1 0.00%(1) — 0.00%(1) Non-U.S. operations 10 18.11%(1) — 0.00%(1)

TOTAL NOTES PAYABLE $ 336 $ 325 Interest-bearing accounts payable: Sojitz America $ 61 2.82% $ 51 1.78%

(1) Weighted average interest rate includes non-interest bearing overdrafts.

106

PART II

The carrying amounts reflected in the Consolidated Balance Sheets for Notes payable approximate fair value.

The Company purchases through Sojitz America certain NIKE Brand products it acquires from non-U.S. suppliers. These purchases are for products sold in certain countries in the Company’s Asia Pacific & Latin America geographic operating segment and Canada, excluding products produced and sold in the same country. 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, 2018 and 2017, the Company had $325 million outstanding under its $2 billion commercial paper program at weighted average interest rates of 1.77% and 0.86%, respectively.

On August 28, 2015, the Company 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. 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 the committed credit facility, the Company must maintain certain financial ratios, among other things, with which the Company was in compliance at May 31, 2018. No amounts were outstanding under the committed credit facility as of May 31, 2018 or 2017.

NOTE 8 — Long-Term Debt

Long-term debt, net of unamortized premiums, discounts and debt issuance costs, comprises the following:

Book Value Outstanding as of May 31,

Scheduled Maturity (Dollars and Yen in millions) Original Principal

Interest Rate

Interest Payments 2018 2017

Corporate Bond Payables:(1)(2)

May 1, 2023 $ 500 2.25% Semi-Annually $ 498 $ 497 November 1, 2026 $ 1,000 2.38% Semi-Annually 994 993 May 1, 2043 $ 500 3.63% Semi-Annually 495 495 November 1, 2045 $ 1,000 3.88% Semi-Annually 982 981 November 1, 2046 $ 500 3.38% Semi-Annually 490 490

Japanese Yen Notes:(3)

August 20, 2001 through November 20, 2020 ¥ 9,000 2.60% Quarterly 10 14 August 20, 2001 through November 20, 2020 ¥ 4,000 2.00% Quarterly 5 7

Total 3,474 3,477 Less current maturities 6 6 TOTAL LONG-TERM DEBT $ 3,468 $ 3,471

(1) These senior unsecured obligations rank equally with the Company’s other unsecured and unsubordinated indebtedness.

(2) The bonds are redeemable at the Company’s option up to three months prior to the scheduled maturity date for the bonds maturing in 2023 and 2026, and up to six months prior to the scheduled maturity date for the bonds maturing in 2043, 2045 and 2046, 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. Within three and six months to scheduled maturity, 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.

(3) 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, 2019 through 2023 are $6 million, $6 million, $3 million, $0 million and $500 million, respectively, at face value.

The Company’s Long-term debt is recorded at adjusted cost, net of unamortized premiums, discounts and debt issuance costs. 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 $3,294 million at May 31, 2018 and $3,401 million at May 31, 2017.

NOTE 9 — Income Taxes

Income before income taxes is as follows:

Year Ended May 31, (In millions) 2018 2017 2016 Income before income taxes: United States $ 744 $ 1,240 $ 956 Foreign 3,581 3,646 3,667

TOTAL INCOME BEFORE INCOME TAXES $ 4,325 $ 4,886 $ 4,623

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 107

F O

R M

1 0 -K

PART II

The provision for income taxes is as follows:

Year Ended May 31, (In millions) 2018 2017 2016 Current: United States Federal $ 1,167 $ 398 $ 304 State 45 82 71

Foreign 533 439 568 Total 1,745 919 943 Deferred: United States Federal 595 (279) (57) State 25 (9) (16)

Foreign 27 15 (7) Total 647 (273) (80) TOTAL INCOME TAX EXPENSE $ 2,392 $ 646 $ 863

On December 22, 2017, the United States enacted the Tax Act, which significantly changes previous U.S. tax laws, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, a reduction in the corporate tax rate from 35% to 21%, as well as other changes. Under U.S. GAAP, accounting for the effect of tax legislation is required in the period of enactment. For fiscal 2018, the change in the corporate tax rate, effective January 1, 2018, results in a blended U.S. federal

statutory rate for the Company of approximately 29%. The Tax Act also includes provisions not yet effective for the Company, including a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries, which will be effective for the Company beginning June 1, 2018. In accordance with U.S. GAAP, the Company has made an accounting policy election to treat taxes due under the GILTI provision as a current period expense.

A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:

Year Ended May 31, 2018 2017 2016

Federal income tax rate 29.2% 35.0% 35.0% State taxes, net of federal benefit 1.2% 1.1% 1.1% Foreign earnings -18.4% -20.7% -18.2% Transition tax related to the Tax Act 43.3% —% —% Remeasurement of deferred tax assets and liabilities related to the Tax Act 3.7% —% —% Excess tax benefits from share-based compensation -5.3% —% —% Resolution of a U.S. tax matter —% -3.2% —% Other, net 1.6% 1.0% 0.8% EFFECTIVE INCOME TAX RATE 55.3% 13.2% 18.7%

The effective tax rate for the year ended May 31, 2018 was higher than the effective tax rate for the year ended May 31, 2017 primarily due to the enactment of the Tax Act, which included provisional expense of $1,875 million for the one-time transition tax on the deemed repatriation of undistributed foreign earnings, and $158 million due to the remeasurement of deferred tax assets and liabilities. The remaining provisions of the Tax Act, which were a net benefit to the effective tax rate, did not have a material impact on the Company’s Consolidated Financial Statements during fiscal 2018. Additionally, the increase in the effective tax rate was partially offset by the tax benefit from share-based compensation in the current period as a result of the adoption of ASU 2016-09 in the first quarter of fiscal 2018. During the years ended May 31, 2017 and 2016, income tax benefits of $177 million and $281 million, respectively, attributable to employee share-based compensation were allocated to Total shareholders’ equity. As a result of the adoption of ASU 2016-09, beginning in fiscal 2018, income tax benefits from share-based compensation are reported in the Consolidated Statements of Income.

The effective tax rate for the year ended May 31, 2017 was 550 basis points lower than the effective tax rate for the year ended May 31, 2016 primarily due to a one-time benefit in the first quarter of the fiscal year related to the resolution with the U.S. Internal Revenue Service (IRS) of a foreign tax credit matter and a decrease in foreign earnings taxed in the United States.

In accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”), the provisional amounts recorded represent reasonable estimates of the effects of the Tax Act for which the

analysis is not yet complete. As the Company completes its analysis of the Tax Act, including collecting, preparing and analyzing necessary information, performing and refining calculations and obtaining additional guidance from the IRS, U.S. Treasury Department, FASB or other standard setting and regulatory bodies on the Tax Act, it may record adjustments to the provisional amounts, which may be material. In accordance with SAB 118, the Company’s accounting for the tax effects of the Tax Act will be completed during the measurement period, which should not extend beyond one year from the enactment date. At May 31, 2018, there were no provisions for which the Company was unable to record a reasonable estimate of the impact.

Transition Tax

During the third quarter of fiscal 2018, the Company recorded a provisional expense of $2,010 million related to the one-time transition tax on the deemed repatriation of undistributed foreign earnings. During the fourth quarter of fiscal 2018, as a result of further analysis of the provisions of the Tax Act and additional guidance, this provisional tax expense decreased by $135 million. The transition tax is based on the Company’s estimated total post-1986 undistributed foreign earnings at a tax rate of 15.5% for foreign cash and certain other specified assets, and 8% on the remaining earnings. The Company expects to pay the transition tax in installments over an eight- year period. Accordingly, the non-current portion of the provisional expense for the transition tax of $1,078 million, net of applicable foreign tax credits the Company expects to utilize, has been recorded in Deferred income taxes and other liabilities on the Consolidated Balance Sheets.

108

PART II

Impact of Changes in the Tax Rate

As a result of the reduction in the corporate tax rate from 35% to 21%, the Company remeasured certain deferred tax assets and liabilities based on the

rates at which they are expected to be realized. The total provisional expense recorded during the period for the remeasurement of deferred tax assets and liabilities was $158 million.

Deferred tax assets and liabilities comprise the following:

As of May 31, (In millions) 2018 2017

Deferred tax assets: Inventories $ 73 $ 90 Sales return reserves 104 130 Deferred compensation 250 348 Stock-based compensation 135 225 Reserves and accrued liabilities 102 88 Net operating loss carry-forwards 88 84 Foreign tax credit carry-forwards — 208 Undistributed earnings of foreign subsidiaries — 173 Other 106 106

Total deferred tax assets 858 1,452 Valuation allowance (95) (82) Total deferred tax assets after valuation allowance 763 1,370 Deferred tax liabilities: Foreign withholding tax on undistributed earnings of foreign subsidiaries (155) — Property, plant and equipment (167) (254) Intangibles (77) (90) Other (26) (2)

Total deferred tax liabilities (425) (346) NET DEFERRED TAX ASSET $ 338 $ 1,024

The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:

As of May 31, (In millions) 2018 2017 2016 Unrecognized tax benefits, beginning of the period $ 461 $ 506 $ 438 Gross increases related to prior period tax positions 19 31 49 Gross decreases related to prior period tax positions (12) (163) (20) Gross increases related to current period tax positions 249 115 81 Settlements — (12) (13) Lapse of statute of limitations (20) (21) (17) Changes due to currency translation 1 5 (12) UNRECOGNIZED TAX BENEFITS, END OF THE PERIOD $ 698 $ 461 $ 506

As of May 31, 2018, total gross unrecognized tax benefits, excluding related interest and penalties, were $698 million, $478 million of which would affect the Company’s effective tax rate if recognized in future periods.

The Company recognizes interest and penalties related to income tax matters in Income tax expense. The liability for payment of interest and penalties decreased by $14 million during the year ended May 31, 2018, decreased by $38 million during the year ended May 31, 2017 and increased by $45 million during the year ended May 31, 2016. As of May 31, 2018 and 2017, accrued interest and penalties related to uncertain tax positions were $157 million and $171 million, respectively (excluding federal benefit).

The Company is subject to taxation in the United States, as well as various state and foreign jurisdictions. The Company has closed all U.S. federal income tax matters through fiscal 2014, with the exception of certain transfer pricing adjustments. The Company is currently under audit by the IRS for fiscal years 2015 and 2016.

The Company’s major foreign jurisdictions, China and the Netherlands, have concluded substantially all income tax matters through calendar 2007 and fiscal 2012, respectively. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $163 million within the next 12 months.

The Company historically provided for U.S. income taxes on the undistributed earnings of foreign subsidiaries unless they were considered indefinitely reinvested outside the United States. At May 31, 2017, the indefinitely reinvested earnings in foreign subsidiaries upon which United States income taxes had not been provided were approximately $12.2 billion. These undistributed foreign earnings were subject to the U.S. one-time mandatory transition tax and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act. The Company has reevaluated its historic indefinite reinvestment assertion as a result of the enactment of the Tax Act and determined that any historical or future undistributed earnings of foreign subsidiaries are no longer considered to be indefinitely reinvested.

A portion of the Company’s foreign operations are benefiting from a tax holiday, which is set to expire in 2021. This tax holiday may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The tax benefit attributable to this tax holiday was $126 million, $187 million and $173 million for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. The benefit of the tax holiday on diluted earnings per common share was $0.08, $0.11 and $0.10 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively.

Deferred tax assets at May 31, 2018 and 2017 were reduced by a valuation allowance primarily relating to tax benefits of certain entities with operating losses. There was a $13 million net increase in the valuation allowance for the

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 109

F O

R M

1 0 -K

PART II

year ended May 31, 2018, compared to a $30 million net increase for the year ended May 31, 2017 and $43 million net increase for the year ended May 31, 2016.

The Company no longer has recorded deferred tax assets for foreign tax credit carry-forwards; the $208 million recorded at May 31, 2017 was fully utilized to offset the impacts of transition tax.

The Company has available domestic and foreign loss carry-forwards of $289 million at May 31, 2018. Such losses will expire as follows:

Year Ending May 31, (In millions) 2019 2020 2021 2022 2023-2039 Indefinite Total Net operating losses $ 1 $ 5 $ 2 $ 1 $ 91 $ 189 $ 289

NOTE 10 — Redeemable Preferred Stock

Sojitz America is the sole owner of the Company’s authorized redeemable preferred stock, $1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends on the redeemable preferred stock have been declared and paid in full. There have been no changes in the redeemable preferred stock in the three years ended May 31, 2018, 2017 and 2016. As the holder of the

redeemable preferred stock, Sojitz America does not have general voting rights, but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company, or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. The redeemable preferred stock has been fully issued to Sojitz America and is not blank check preferred stock. The Company’s articles of incorporation do not permit the issuance of additional preferred stock.

NOTE 11 — Common Stock and Stock-Based Compensation

The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 400 million and 2,400 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. There are no differences in the dividend and liquidation preferences or participation rights of the holders of Class A and Class B Common Stock. From time to time, the Company’s Board of Directors authorizes share repurchase programs for the repurchase of Class B Common Stock. The value of repurchased shares is deducted from Total shareholders‘ equity through allocation to Capital in excess of stated value and Retained earnings.

The NIKE, Inc. Stock Incentive Plan (the “Stock Incentive Plan”) provides for the issuance of up to 718 million previously unissued shares of Class B

Common Stock in connection with equity awards granted under the Stock Incentive Plan. The Stock Incentive Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance-based awards. The exercise price for stock options and stock appreciation rights may not be less than the fair market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the Stock Incentive Plan. The committee has the authority to determine the employees to whom awards will be made, the amount of the awards and the other terms and conditions of the awards. Substantially all stock option grants outstanding under the Stock Incentive Plan are granted in the first quarter of each fiscal year, vest ratably over four years and expire ten years from the date of grant.

The following table summarizes the Company’s total stock-based compensation expense recognized in Cost of sales or Operating overhead expense, as applicable:

Year Ended May 31, (In millions) 2018 2017 2016 Stock options(1) $ 149 $ 145 $ 171 ESPPs 34 36 31 Restricted stock 35 34 34 TOTAL STOCK-BASED COMPENSATION EXPENSE $ 218 $ 215 $ 236

(1) Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option expense was $18 million, $14 million and $30 million for the years ended May 31, 2018, 2017 and 2016, respectively.

As of May 31, 2018, the Company had $195 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.0 years.

The weighted average fair value per share of the options granted during the years ended May 31, 2018, 2017 and 2016, computed as of the grant date using the Black-Scholes pricing model, was $9.82, $9.38 and $12.66, respectively. The weighted average assumptions used to estimate these fair values are as follows:

Year Ended May 31, 2018 2017 2016

Dividend yield 1.2% 1.1% 1.0% Expected volatility 16.4% 17.4% 23.6% Weighted average expected life (in years) 6.0 6.0 5.8 Risk-free interest rate 2.0% 1.3% 1.7%

The Company estimates the expected volatility based on the implied volatility in market traded options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected

future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.

110

PART II

The following summarizes the stock option transactions under the plan discussed above:

Shares(1) Weighted Average

Option Price (In millions)

Options outstanding May 31, 2015 116.2 $ 23.50 Exercised (22.5) 17.75 Forfeited (2.3) 39.96 Granted 20.6 56.41

Options outstanding May 31, 2016 112.0 30.38 Exercised (17.1) 20.42 Forfeited (2.3) 49.47 Granted 12.2 57.81

Options outstanding May 31, 2017 104.8 34.79 Exercised (24.1) 25.07 Forfeited (4.3) 55.31 Granted 16.8 59.08

Options outstanding May 31, 2018 93.2 $ 40.73

Options exercisable at May 31, 2016 66.5 $ 21.48 2017 67.9 26.03 2018 58.5 31.60

(1) Includes stock appreciation rights transactions.

The weighted average contractual life remaining for options outstanding and options exercisable at May 31, 2018 was 5.7 years and 4.4 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2018 was $2,896 million and $2,352 million, respectively. The aggregate intrinsic value was the amount by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2018, 2017 and 2016 was $889 million, $594 million and $946 million, respectively.

In addition to the Stock Incentive Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans (ESPPs). Subject to the annual statutory limit, employees are eligible to participate through payroll deductions of up to 10% of their compensation. At the end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Employees purchased 3.1 million, 3.1 million and 2.5 million shares during each of the three years ended May 31, 2018, 2017 and 2016, respectively.

From time to time, the Company grants restricted stock and restricted stock units to key employees under the Stock Incentive Plan. The number of shares underlying such awards granted to employees during the years ended May 31, 2018, 2017 and 2016 were 1.8 million, 0.4 million and 1.0 million, respectively, with weighted average values per share of $62.51, $57.59 and $54.87, respectively. Recipients of restricted stock are entitled to cash dividends and to vote their respective shares throughout the period of restriction. Recipients of restricted stock units are entitled to dividend equivalent cash payments upon vesting. The value of all grants of restricted stock and restricted stock units was established by the market price on the date of grant. During the years ended May 31, 2018, 2017 and 2016, the aggregate fair value of restricted stock and restricted stock units vested was $113 million, $60 million and $49 million, respectively, determined as of the date of vesting. As of May 31, 2018, the Company had $104 million of unrecognized compensation costs from restricted stock and restricted stock units to be recognized in Operating overhead expense over a weighted average period of 2.4 years.

NOTE 12 — Earnings Per Share

The following is a reconciliation from basic earnings per common share to diluted earnings per common share. The computations of diluted earnings per common share excluded options, including shares under employee stock purchase plans, to purchase an additional 42.9 million, 30.5 million and 0.2 million shares of common stock outstanding for the years ended May 31, 2018, 2017 and 2016, respectively, because the options were anti-dilutive.

Year Ended May 31, (In millions, except per share data) 2018 2017 2016 Determination of shares: Weighted average common shares outstanding 1,623.8 1,657.8 1,697.9 Assumed conversion of dilutive stock options and awards 35.3 34.2 44.6

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,659.1 1,692.0 1,742.5

Earnings per common share: Basic $ 1.19 $ 2.56 $ 2.21 Diluted $ 1.17 $ 2.51 $ 2.16

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 111

F O

R M

1 0 -K

PART II

NOTE 13 — Benefit Plans

The Company has a qualified 401(k) Savings and Profit Sharing Plan, in which all U.S. employees are able to participate. The Company matches a portion of employee contributions to the savings plan. Company contributions to the savings plan were $80 million, $75 million and $72 million and included in Cost of sales or Operating overhead expense, as applicable, for the years ended May 31, 2018, 2017 and 2016, respectively. The terms of the plan also allow for annual discretionary profit sharing contributions, as determined by the Board of Directors, to the accounts of eligible U.S. employees who work at least 1,000 hours in a year. Profit sharing contributions of $59 million, $68 million and $64 million were made to the plan and included in Cost of sales or Operating overhead expense, as applicable, for the years ended May 31, 2018, 2017 and 2016, respectively.

The Company also has a Long-Term Incentive Plan (LTIP) adopted by the Board of Directors and approved by shareholders in September 1997 and later amended and approved in fiscal 2007 and fiscal 2012. The Company recognized $33 million, $21 million and $85 million of Operating overhead

expense related to cash awards under the LTIP during the years ended May 31, 2018, 2017 and 2016, respectively.

The Company allows certain highly compensated employees and non-employee directors of the Company to defer compensation under a nonqualified deferred compensation plan. Deferred compensation plan liabilities were $641 million and $569 million at May 31, 2018 and 2017, respectively, and primarily classified as non-current in Deferred income taxes and other liabilities.

The Company has pension plans in various countries worldwide. The pension plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $70 million and $107 million at May 31, 2018 and 2017, respectively, and primarily classified as non-current in Deferred income taxes and other liabilities.

NOTE 14 — Accumulated Other Comprehensive Income

The changes in Accumulated other comprehensive income, net of tax, were as follows:

(In millions)

Foreign Currency

Translation Adjustment(1)

Cash Flow Hedges

Net Investment Hedges(1) Other Total

Balance at May 31, 2017 $ (191) $ (52) $ 115 $ (85) $ (213) Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications(2) (6) (52) — 2 (56) Reclassifications to net income of previously deferred (gains) losses(3) — 128 — 32 160

Total other comprehensive income (loss) (6) 76 — 34 104 Reclassifications to retained earnings in accordance with ASU 2018-02(4) 24 (7) — — 17

Balance at May 31, 2018 $ (173) $ 17 $ 115 $ (51) $ (92)

(1) The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity.

(2) Net of tax benefit (expense) of $(24) million, $(3) million, $0 million, $(4) million and $(31) million, respectively.

(3) Net of tax (benefit) expense of $0 million, $(3) million, $0 million, $0 million and $(3) million, respectively.

(4) Refer to Note 1 — Summary of Significant Accounting Policies for additional information on the adoption of ASU 2018-02 during the third quarter of fiscal 2018.

(In millions)

Foreign Currency

Translation Adjustment(1)

Cash Flow Hedges

Net Investment Hedges(1) Other Total

Balance at May 31, 2016 $ (207) $ 463 $ 115 $ (53) $ 318 Other comprehensive income (loss): Other comprehensive gains (losses) before reclassifications(2) 15 118 — (14) 119 Reclassifications to net income of previously deferred (gains) losses(3) 1 (633) — (18) (650)

Total other comprehensive income (loss) 16 (515) — (32) (531) Balance at May 31, 2017 $ (191) $ (52) $ 115 $ (85) $ (213)

(1) The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity.

(2) Net of tax benefit (expense) of $0 million, $24 million, $0 million, $3 million and $27 million, respectively.

(3) Net of tax (benefit) expense of $0 million, $(3) million, $0 million, $(3) million and $(6) million, respectively.

112

PART II

The following table summarizes the reclassifications from Accumulated other comprehensive income to the Consolidated Statements of Income:

Amount of Gain (Loss) Reclassified from

Accumulated Other Comprehensive Income into

Income Location of Gain (Loss) Reclassified from

Accumulated Other Comprehensive Income into Income

Year Ended May 31, (In millions) 2018 2017 Gains (losses) on foreign currency translation adjustment $ — $ (1) Other expense (income), net Total before tax — (1) Tax (expense) benefit — — Gain (loss) net of tax — (1) Gains (losses) on cash flow hedges: Foreign exchange forwards and options 34 96 Revenues Foreign exchange forwards and options (90) 339 Cost of sales Foreign exchange forwards and options 1 — Total selling and administrative expense Foreign exchange forwards and options (69) 199 Other expense (income), net Interest rate swaps (7) (4) Interest expense (income), net

Total before tax (131) 630 Tax (expense) benefit 3 3 Gain (loss) net of tax (128) 633 Gains (losses) on other (32) 15 Other expense (income), net Total before tax (32) 15 Tax (expense) benefit — 3 Gain (loss) net of tax (32) 18 Total net gain (loss) reclassified for the period $ (160) $ 650

Refer to Note 16 — Risk Management and Derivatives for more information on the Company’s risk management program and derivatives.

NOTE 15 — Commitments and Contingencies

The Company leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets under operating leases expiring from 1 to 17 years after May 31, 2018. Rent expense, excluding executory costs, was $820 million, $731 million and $661 million for the years ended May 31, 2018, 2017 and 2016, respectively. Amounts of minimum future annual commitments under non-cancelable operating and capital leases are as follows (in millions):

2019 2020 2021 2022 2023 Thereafter Total Operating leases $ 589 $ 523 $ 472 $ 412 $ 361 $ 1,608 $ 3,965 Capital leases and other financing obligations(1) $ 44 $ 37 $ 40 $ 38 $ 36 $ 229 $ 424

(1) Capital leases and other financing obligations include payments related to build-to-suit lease arrangements.

As of May 31, 2018 and 2017, the Company had letters of credit outstanding totaling $165 million and $152 million, respectively. These letters of credit were generally issued for the purchase of inventory and guarantees of the Company’s performance under certain self-insurance and other programs.

In connection with various contracts and agreements, the Company provides routine indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor. Currently, the Company has several such agreements in place. However, based on the Company’s historical experience and the estimated probability of future loss, the Company has

determined the fair value of such indemnification is not material to the Company’s financial position or results of operations.

In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights and a variety of other matters. While the Company cannot predict the outcome of its pending legal matters with certainty, the Company does not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material impact on the Company’s results of operations, financial position or cash flows.

NOTE 16 — Risk Management and Derivatives

The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes.

The Company may elect to designate certain derivatives as hedging instruments under the accounting standards for derivatives and hedging. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and

strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions.

The majority of derivatives outstanding as of May 31, 2018 are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro and Japanese Yen/U.S. Dollar currency pairs. All derivatives are recognized on the Consolidated Balance Sheets at fair value and classified based on the instrument’s maturity date.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 113

F O

R M

1 0 -K

PART II

The following table presents the fair values of derivative instruments included within the Consolidated Balance Sheets as of May 31, 2018 and 2017:

Derivative Assets Derivative Liabilities

(In millions) Balance Sheet

Location 2018 2017 Balance Sheet

Location 2018 2017

Derivatives formally designated as hedging instruments: Foreign exchange forwards and options

Prepaid expenses and other current assets $ 118 $ 113 Accrued liabilities $ 156 $ 59

Foreign exchange forwards and options

Deferred income taxes and other

assets 152 13

Deferred income taxes and other

liabilities — 73 Total derivatives formally designated as hedging instruments 270 126 156 132 Derivatives not designated as hedging instruments: Foreign exchange forwards and options

Prepaid expenses and other current assets 119 103 Accrued liabilities 26 107

Embedded derivatives Prepaid expenses and other current assets 3 1 Accrued liabilities 2 2

Foreign exchange forwards and options

Deferred income taxes and other

assets — 2

Deferred income taxes and other

liabilities — 7 Embedded derivatives Deferred income

taxes and other assets 8 9

Deferred income taxes and other

liabilities 6 6 Total derivatives not designated as hedging instruments 130 115 34 122 TOTAL DERIVATIVES $ 400 $ 241 $ 190 $ 254

The following tables present the amounts affecting the Consolidated Statements of Income for the years ended May 31, 2018, 2017 and 2016:

(In millions)

Amount of Gain (Loss) Recognized in Other

Comprehensive Income on Derivatives(1)

Amount of Gain (Loss) Reclassified from Accumulated

Other Comprehensive Income into Income(1)

Year Ended May 31, Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income

Year Ended May 31,

2018 2017 2016 2018 2017 2016 Derivatives designated as cash flow hedges: Foreign exchange forwards and options $ 19 $ 72 $ 90 Revenues $ 34 $ 96 $ (88) Foreign exchange forwards and options (50) 43 (57) Cost of sales (90) 339 586 Foreign exchange forwards and options 1 (4) — Total selling and administrative expense 1 — — Foreign exchange forwards and options (19) 37 (25) Other expense (income), net (69) 199 219 Interest rate swaps(2) — (54) (83) Interest expense (income), net (7) (4) —

Total designated cash flow hedges $ (49) $ 94 $ (75) $(131) $630 $717

(1) For the years ended May 31, 2018, 2017 and 2016, the amounts recorded in Other expense (income), net as a result of hedge ineffectiveness and the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

(2) Gains and losses associated with terminated interest rate swaps, which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income, will be released through Interest expense (income), net over the term of the issued debt.

Amount of Gain (Loss) Recognized in Income on Derivatives

Location of Gain (Loss) Recognized in Income on Derivatives

Year Ended May 31, (In millions) 2018 2017 2016

Derivatives designated as fair value hedges: Interest rate swaps(1) $ — $ — $ 2 Interest expense (income), net

Derivatives not designated as hedging instruments: Foreign exchange forwards and options (57) (44) (68) Other expense (income), net Embedded derivatives $ (4) $ (2) $ (2) Other expense (income), net

(1) All interest rate swaps designated as fair value hedges meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swaps are considered to exactly offset changes in the fair value of the underlying long-term debt. Refer to “Fair Value Hedges” in this note for additional detail.

114

PART II

Cash Flow Hedges All changes in fair value of derivatives designated as cash flow hedges, excluding any ineffective portion, are recorded in Accumulated other comprehensive income until Net income is affected by the variability of cash flows of the hedged transaction. Effective hedge results are classified within the Consolidated Statements of Income in the same manner as the underlying exposure. The ineffective portion of the unrealized gains and losses on these contracts, if any, is recorded immediately in earnings. Derivative instruments designated as cash flow hedges must be discontinued when it is no longer probable the forecasted hedged transaction will occur in the initially identified time period. The gains and losses associated with discontinued derivative instruments in Accumulated other comprehensive income will be recognized immediately in Other expense (income), net, if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-month period thereafter. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will account for the derivative as an undesignated instrument as discussed below.

The purpose of the Company’s foreign exchange risk management program is to lessen both the positive and negative effects of currency fluctuations on the Company’s consolidated results of operations, financial position and cash flows. Foreign currency exposures the Company may elect to hedge in this manner include product cost exposures, non-functional currency denominated external and intercompany revenues, selling and administrative expenses, investments in U.S. Dollar-denominated available-for-sale debt securities and certain other intercompany transactions.

Product cost exposures are primarily generated through non-functional currency denominated product purchases and the foreign currency adjustment program described below. NIKE entities primarily purchase products in two ways: (1) Certain NIKE entities purchase product from the NIKE Trading Company (NTC), a wholly owned sourcing hub that buys NIKE branded products from third party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the product to NIKE entities in their respective functional currencies. NTC sales to a NIKE entity with a different functional currency results in a foreign currency exposure for the NTC. (2) Other NIKE entities purchase product directly from third party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar.

The Company operates a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to the Company’s existing foreign currency exposures. Under this program, the Company’s payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated. For the portion of the indices denominated in the local or functional currency of the factory, the Company may elect to place formally designated cash flow hedges. For all currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory, an embedded derivative contract is created upon the factory’s acceptance of NIKE’s purchase order. Embedded derivative contracts are separated from the related purchase order, as further described within the Embedded Derivatives section below.

The Company’s policy permits the utilization of derivatives to reduce its foreign currency exposures where internal netting or other strategies cannot be effectively employed. Typically, the Company may enter into hedge contracts starting up to 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was $12.2 billion as of May 31, 2018.

As of May 31, 2018, $96 million of deferred net gains (net of tax) on both outstanding and matured derivatives in Accumulated other comprehensive

income are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature. As of May 31, 2018, the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted transactions was 24 months.

Fair Value Hedges The Company has, in the past, been exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. All interest rate swaps designated as fair value hedges of the related long-term debt meet the shortcut method requirements under U.S. GAAP. Accordingly, changes in the fair values of the interest rate swaps are considered to exactly offset changes in the fair value of the underlying long-term debt. The Company recorded no ineffectiveness from its interest rate swaps designated as fair value hedges for the years ended May 31, 2018, 2017 or 2016. The Company had no interest rate swaps designated as fair value hedges as of May 31, 2018.

Net Investment Hedges The Company has, in the past, hedged and may, in the future, hedge the risk of variability in foreign currency-denominated net investments in wholly- owned international operations. All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in Accumulated other comprehensive income along with the foreign currency translation adjustments on those investments. The ineffective portion of the unrealized gains and losses on these contracts, if any, are recorded immediately in earnings. The Company recorded no ineffectiveness from net investment hedges for the years ended May 31, 2018, 2017 or 2016. The Company had no outstanding net investment hedges as of May 31, 2018.

Undesignated Derivative Instruments The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Consolidated Balance Sheets and/or the embedded derivative contracts. These undesignated instruments are recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other expense (income), net, together with the re-measurement gain or loss from the hedged balance sheet position and/or embedded derivative contract. The total notional amount of outstanding undesignated derivative instruments was $6.1 billion as of May 31, 2018.

Embedded Derivatives As part of the foreign currency adjustment program described above, an embedded derivative contract is created upon the factory’s acceptance of NIKE’s purchase order for currencies within the factory currency exposure indices that are neither the U.S. Dollar nor the local or functional currency of the factory. In addition, embedded derivative contracts are created when the Company enters into certain other contractual agreements which have payments that are indexed to currencies that are not the functional currency of either substantial party to the contracts. Embedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related purchase order and recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other expense (income), net, through the date the foreign currency fluctuations cease to exist.

At May 31, 2018, the total notional amount of all embedded derivatives outstanding was approximately $260 million.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 115

F O

R M

1 0 -K

PART II

Credit Risk The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings; however, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored.

The Company’s derivative contracts contain credit risk-related contingent features designed to protect against significant deterioration in counterparties’ creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company’s bilateral credit- related contingent features generally require the owing entity, either the

Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives per counterparty be greater than $50 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could also trigger collateral requirements. As of May 31, 2018, the Company was in compliance with all credit risk-related contingent features and had no derivative instruments with credit risk-related contingent features in a net liability position. Accordingly, the Company was not required to post any collateral as a result of these contingent features. Further, as of May 31, 2018, the Company had received $23 million of cash collateral from various counterparties to its derivative contracts (refer to Note 6 — Fair Value Measurements). The Company considers the impact of the risk of counterparty default to be immaterial.

NOTE 17 — Operating Segments and Related Information

The Company’s operating segments are evidence of the structure of the Company’s internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity.

Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. In June 2017, NIKE, Inc. announced a new company alignment designed to allow NIKE to better serve the consumer personally, at scale. As a result of this organizational realignment, the Company’s reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa; Greater China; and Asia Pacific & Latin America, and include results for the NIKE, Jordan and Hurley brands. Certain prior year amounts have been reclassified to conform to fiscal 2018 presentation. This includes reclassified operating segment data to reflect the changes in the Company’s operating structure, which became effective June 1, 2017. These changes had no impact on previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of shareholders’ equity.

The Company’s NIKE Direct operations are managed within each NIKE Brand geographic operating segment. Converse is also a reportable segment for the Company, and operates in one industry: the design, marketing, licensing and selling of casual sneakers, apparel and accessories.

Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions primarily represents NIKE Brand licensing businesses that are not part of a geographic operating segment, and demand creation, operating overhead and product creation and design expenses that are centrally managed for the NIKE Brand.

Corporate consists largely of unallocated general and administrative expenses, including expenses associated with centrally managed

departments; depreciation and amortization related to the Company’s headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses.

The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (commonly referred to as “EBIT”), which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income.

As part of the Company’s centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in the Company’s geographic operating segments and to Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entity’s functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from the Company’s centrally managed foreign exchange risk management program and other conversion gains and losses.

Accounts receivable, net, Inventories and Property, plant and equipment, net for operating segments are regularly reviewed by management and, therefore, are provided below. Additions to long-lived assets as presented in the following table represent capital expenditures.

116

PART II

Year Ended May 31, (In millions) 2018 2017 2016 REVENUES North America $ 14,855 $ 15,216 $ 14,764 Europe, Middle East & Africa 9,242 7,970 7,568 Greater China 5,134 4,237 3,785 Asia Pacific & Latin America 5,166 4,737 4,317 Global Brand Divisions 88 73 73

Total NIKE Brand 34,485 32,233 30,507 Converse 1,886 2,042 1,955 Corporate 26 75 (86)

TOTAL NIKE, INC. REVENUES $ 36,397 $ 34,350 $ 32,376 EARNINGS BEFORE INTEREST AND TAXES North America $ 3,600 $ 3,875 $ 3,763 Europe, Middle East & Africa 1,587 1,507 1,787 Greater China 1,807 1,507 1,372 Asia Pacific & Latin America 1,189 980 1,002 Global Brand Divisions (2,658) (2,677) (2,596)

Total NIKE Brand 5,525 5,192 5,328 Converse 310 477 487 Corporate (1,456) (724) (1,173)

Total NIKE, Inc. Earnings Before Interest and Taxes 4,379 4,945 4,642 Interest expense (income), net 54 59 19

TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 4,325 $ 4,886 $ 4,623 ADDITIONS TO LONG-LIVED ASSETS North America $ 196 $ 223 $ 242 Europe, Middle East & Africa 240 173 234 Greater China 76 51 44 Asia Pacific & Latin America 49 59 62 Global Brand Divisions 286 278 258

Total NIKE Brand 847 784 840 Converse 22 30 39 Corporate 325 387 312

TOTAL ADDITIONS TO LONG-LIVED ASSETS $ 1,194 $ 1,201 $ 1,191 DEPRECIATION North America $ 160 $ 140 $ 133 Europe, Middle East & Africa 116 106 85 Greater China 56 54 48 Asia Pacific & Latin America 55 54 42 Global Brand Divisions 217 233 230

Total NIKE Brand 604 587 538 Converse 33 28 27 Corporate 110 91 84

TOTAL DEPRECIATION $ 747 $ 706 $ 649

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 117

F O

R M

1 0 -K

PART II

As of May 31, (In millions) 2018 2017

ACCOUNTS RECEIVABLE, NET North America $ 1,443 $ 1,798 Europe, Middle East & Africa 870 690 Greater China 101 102 Asia Pacific & Latin America 720 693 Global Brand Divisions 102 86

Total NIKE Brand 3,236 3,369 Converse 240 297 Corporate 22 11

TOTAL ACCOUNTS RECEIVABLE, NET $ 3,498 $ 3,677 INVENTORIES North America $ 2,270 $ 2,218 Europe, Middle East & Africa 1,433 1,327 Greater China 580 463 Asia Pacific & Latin America 687 694 Global Brand Divisions 91 68

Total NIKE Brand 5,061 4,770 Converse 268 286 Corporate (68) (1)

TOTAL INVENTORIES $ 5,261 $ 5,055 PROPERTY, PLANT AND EQUIPMENT, NET North America $ 848 $ 819 Europe, Middle East & Africa 849 709 Greater China 256 225 Asia Pacific & Latin America 339 340 Global Brand Divisions 597 533

Total NIKE Brand 2,889 2,626 Converse 115 125 Corporate 1,450 1,238

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 4,454 $ 3,989

Revenues by Major Product Lines Revenues from external customers for NIKE Brand products are attributable to sales of footwear, apparel and equipment. Other revenues from external customers consist primarily of sales by Converse.

Year Ended May 31, (In millions) 2018 2017 2016 Footwear $ 22,268 $ 21,081 $ 19,871 Apparel 10,733 9,654 9,067 Equipment 1,396 1,425 1,496 Other 2,000 2,190 1,942 TOTAL NIKE, INC. REVENUES $ 36,397 $ 34,350 $ 32,376

Revenues and Long-Lived Assets by Geographic Area After allocation of revenues for Global Brand Divisions, Converse and Corporate to geographical areas based on the location where the sales originated, revenues by geographical area are essentially the same as reported above for the NIKE Brand operating segments with the exception of the United States. Revenues derived in the United States were $15,314 million, $15,778 million and $15,304 million for the years ended May 31, 2018, 2017 and 2016, respectively. The Company’s largest concentrations of long-lived assets primarily consist of the Company’s world headquarters and distribution facilities in the United States and distribution facilities in Belgium, China and Japan. Long-lived assets attributable to operations in the United States, which are primarily composed of net

property, plant & equipment, were $2,930 million and $2,629 million at May 31, 2018 and 2017, respectively. Long-lived assets attributable to operations in Belgium were $534 million and $390 million at May 31, 2018 and 2017, respectively. Long-lived assets attributable to operations in China were $262 million and $232 million at May 31, 2018 and 2017, respectively. Long-lived assets attributable to operations in Japan were $237 million and $223 million at May 31, 2018 and 2017, respectively.

Major Customers No customer accounted for 10% or more of the Company’s net revenues during the years ended May 31, 2018, 2017 and 2016.

118

PART II

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or financial statement disclosure required to be reported under this Item.

ITEM 9A. Controls and Procedures We maintain disclosure controls and procedures designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carry out a variety of ongoing procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our

disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2018.

“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 of this Report.

We have continued several transformation initiatives to centralize and simplify our business processes and systems. These are long-term initiatives, which we believe will enhance our internal control over financial reporting due to increased automation and further integration of related processes. We will continue to monitor our internal control over financial reporting for effectiveness throughout the transformation.

There have not been any other changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. Other Information On July 20, 2018, the Compensation Committee (the “Committee”) of the Board of Directors of NIKE, Inc. (the “Company”), approved a form of discretionary performance award agreement (the “DPA”) to enable the Company to award cash incentives to employees in recognition of Company and individual performance. The form of DPA is intended to enhance the Company’s ability to pay for performance on a case-by-case basis by supplementing the Company’s existing performance-based compensation plans, including the Amended and Restated Long-Term Incentive Plan (“LTIP”) and the Executive Performance Sharing Plan. The foregoing is qualified in its entirety by reference to the form of DPA, which is filed as Exhibit 10.22 hereto and incorporated by reference herein.

Additionally, on July 20, 2018, the Committee approved awards under the form of DPA to the Company’s continuing named executive officers (collectively, the “Officers”) as follows: Mark G. Parker, $1,295,000; Andrew Campion, $277,500; Eric D. Sprunk, $277,500; Hilary K. Krane, $185,000; and John F. Slusher, $185,000. As further described in the Company’s 2018 Proxy Statement, the Committee adjusted the payouts for LTIP awards covering the fiscal 2016-2018 performance period to primarily account for the impact of the Tax Cuts and Jobs Act. Because the terms of the LTIP awards, as applicable to the Company’s named executive officers, did not contemplate the Tax Cuts and Jobs Act, the Committee determined to award these one-time DPA grants so as to put the Officers in the same position as the non-executive officer LTIP participants.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 119

F O

R M

1 0 -K

PART III

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is included under “Election of Directors — Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Corporate Governance — Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit & Finance Committee of the Board of Directors is included under “Corporate Governance — Board Committees” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 11. Executive Compensation The information required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K regarding executive compensation is included under “Election of Directors — Director Compensation for Fiscal 2018,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Election of Directors — Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 201(d) of Regulation S-K is included under “Executive Compensation — Equity Compensation Plans” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is included under “Election of Directors — Stock Holdings of Certain Owners and Management” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions and Director Independence

The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with Related Persons” and “Corporate Governance — Director Independence” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services The information required by Item 9(e) of Schedule 14A is included under “Ratification of Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and is incorporated herein by reference.

120

PART IV

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

Form 10-K Page No.

1. Financial Statements:

Report of Independent Registered Public Accounting Firm 93

Consolidated Statements of Income for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016

94

Consolidated Statements of Comprehensive Income for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016

95

Consolidated Balance Sheets at May 31, 2018 and May 31, 2017 96

Consolidated Statements of Cash Flows for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016

97

Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2018, May 31, 2017 and May 31, 2016

98

Notes to Consolidated Financial Statements 99

2. Financial Statement Schedule:

II — Valuation and Qualifying Accounts for the years ended May 31, 2018, 2017 and 2016 124

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 121

F O

R M

1 0 -K

PART IV

3. Exhibits:

3.1 Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2015).

3.2 Fifth Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed November 17, 2017).

4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1). 4.2 Fifth Restated Bylaws, as amended (see Exhibit 3.2). 4.3 Indenture dated as of April 26, 2013, by and between NIKE, Inc. and Deutsche Bank Trust Company Americas, as trustee

(incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed April 26, 2013). 4.4 Second Supplemental Indenture, dated as of October 29, 2015, by and between NIKE, Inc. and Deutsche Bank Trust Company

Americas, as trustee, including the form of 3.875% Notes due 2045 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed October 29, 2015).

4.5 Third Supplemental Indenture, dated as of October 21, 2016, by and between NIKE, Inc. and Deutsche Bank Trust Company Americas, as trustee, including the form of 2.375% Notes due 2026 and form of 3.375% Notes due 2046 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed October 21, 2016).

10.1 Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 21, 2005).*

10.2 Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010).*

10.3 Form of Non-Statutory Stock Option Agreement for options granted to executives prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).*

10.4 Form of Restricted Stock Agreement for non-employee directors under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014).*

10.5 Form of Non-Statutory Stock Option Agreement for options granted to executives after May 31, 2010 under the Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2018).*

10.6 Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008).*

10.7 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014).*

10.8 NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012).*

10.9 NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015).*

10.10 NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective April 1, 2013) (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2013).*

10.11 NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004).*

10.12 Amendment No. 1 effective January 1, 2008 to the NIKE, Inc. Deferred Compensation Plan (June 1, 2004 Restatement) (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).*

10.13 NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2008).*

10.14 Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 24, 2008).*

10.15 Form of Restricted Stock Agreement under the Stock Incentive Plan for awards after May 31, 2010 (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015).*

10.16 Form of Restricted Stock Unit Agreement under the Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2018).*

10.17 Form of Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and its executive officers (other than Mark G. Parker).*

10.18 Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 20, 2010).*

10.19 Credit Agreement dated as of August 28, 2015 among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citibank N.A., as Syndication Agent, Deutsche Bank A.G. New York Branch and HSBC Bank USA, National Association, as Co-Documentation Agents, and the other Banks named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 2, 2015).

10.20 Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 23, 2015).*

10.21 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 23, 2015).*

10.22 Form of Discretionary Performance Award Agreement.*

122

PART IV

12.1 Computation of Ratio of Earnings to Fixed Charges. 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (included within this Annual Report

on Form 10-K). 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 32 Section 1350 Certifications. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Document 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase

* Management contract or compensatory plan or arrangement.

The Exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request.

Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any Exhibit upon payment of $0.10 per page, which represents our reasonable expenses in furnishing Exhibits.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 123

F O

R M

1 0 -K

PART IV

SCHEDULE II — Valuation and Qualifying Accounts

(In millions) Balance at

Beginning of Period Charged to Costs

and Expenses Charged to

Other Accounts(1) Write-Offs, Net Balance at End

of Period Sales returns reserve For the year ended May 31, 2016 $ 379 $ 788 $ (15) $ (708) $ 444 For the year ended May 31, 2017 444 696 3 (800) 343 For the year ended May 31, 2018 343 640 5 (658) 330

Allowance for doubtful accounts(2)

For the year ended May 31, 2016 $ 78 $ 52 $ (2) $ (85) $ 43 For the year ended May 31, 2017 43 16 — (40) 19 For the year ended May 31, 2018 19 19 — (8) 30

(1) Amounts included in this column primarily relate to foreign currency translation.

(2) Includes both current and non-current portions of the allowance for doubtful accounts. The non-current portion is included in Deferred income taxes and other assets on the Consolidated Balance Sheets.

124

PART IV

ITEM 16. Form 10-K Summary None.

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 125

F O

R M

1 0 -K

PART IV

Consent of Independent Registered Public Accounting Firm We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-212617) and Form S-8 (Nos. 033-63995, 333-63581, 333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, 333-133360, 333-164248, 333-171647, 333-173727, 333-208900 and 333-215439) of NIKE, Inc. of our report dated July 24, 2018 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Portland, Oregon

July 24, 2018

126

PART IV

Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NIKE, INC.

By: /s/ MARK G. PARKER

Mark G. Parker Chairman, President and Chief Executive Officer

Date: July 24, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR: /s/ MARK G. PARKER Mark G. Parker Chairman, President and Chief Executive Officer July 24, 2018 PRINCIPAL FINANCIAL OFFICER: /s/ ANDREW CAMPION Andrew Campion Chief Financial Officer July 24, 2018 PRINCIPAL ACCOUNTING OFFICER: /s/ CHRIS L. ABSTON Chris L. Abston Corporate Controller July 24, 2018 DIRECTORS: /s/ CATHLEEN A. BENKO Cathleen A. Benko Director July 24, 2018

/s/ ELIZABETH J. COMSTOCK Elizabeth J. Comstock Director July 24, 2018

/s/ JOHN G. CONNORS John G. Connors Director July 24, 2018

/s/ TIMOTHY D. COOK Timothy D. Cook Director July 24, 2018

/s/ JOHN J. DONAHOE II John J. Donahoe II Director July 24, 2018

/s/ ALAN B. GRAF, JR. Alan B. Graf, Jr. Director July 24, 2018

/s/ PETER B. HENRY Peter B. Henry Director July 24, 2018

/s/ TRAVIS A. KNIGHT Travis A. Knight Director July 24, 2018

/s/ JOHN C. LECHLEITER John C. Lechleiter Director July 24, 2018

/s/ MICHELLE A. PELUSO Michelle A. Peluso Director July 24, 2018

/s/ JOHNATHAN A. RODGERS Johnathan A. Rodgers Director July 24, 2018 /s/ JOHN R. THOMPSON, JR. John R. Thompson, Jr. Director July 24, 2018

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 127

F O

R M

1 0 -K

PART IV

EXHIBIT 12.1 NIKE, Inc. Computation of Ratio of Earnings of Fixed Charges The following disclosure reflects the Company’s continuing operations:

Year Ended May 31, (In millions) 2018 2017 2016 2015 2014 Income before income taxes $ 4,325 $ 4,886 $ 4,623 $ 4,205 $ 3,544 Capitalized interest, net of amortization (10) (8) (3) — — Adjusted income before income taxes 4,315 4,878 4,620 4,205 3,544 Add fixed charges: Interest expense(1)(2) 149 121 74 60 58 Interest component of leases(3) 125 102 66 59 53 Total fixed charges 274 223 140 119 111 Earnings before income taxes and fixed charges $ 4,589 $ 5,101 $ 4,760 $ 4,324 $ 3,655 Ratio of earnings to total fixed charges 16.7 22.9 34.0 36.3 32.9

(1) Interest expense includes interest both expensed and capitalized and amortization of premiums, discounts and capitalized expenses related to indebtedness.

(2) Interest expense does not include interest related to uncertain tax positions.

(3) Represents the portion of rental expense which management believes approximates the interest component of operating leases.

128

PART IV

EXHIBIT 21 Subsidiaries of the Registrant

Entity Name Jurisdiction of Formation Accelerator Studio LLC Delaware Air Manufacturing Innovation Vietnam LLC Vietnam All Star C.V. Netherlands American Converse S.L.U. Spain American NIKE S.L.U. Spain A.S. Roma Merchandising S.R.L. Italy BRS NIKE Taiwan Inc . Taiwan Converse (Asia Pacific) Limited Hong Kong Converse Canada Corp. Canada Converse Canada Holding B.V. Netherlands Converse Deutschland GmbH Germany Converse do Brasil Ltda. Brazil Converse Europe Limited United Kingdom Converse Footwear Technical Service (Zhongshan) Co., Ltd . People’s Republic of China Converse France S.A.S. France Converse Hong Kong Holding Company Limited Hong Kong Converse Hong Kong Limited Hong Kong Converse Inc. Delaware Converse Korea LLC South Korea Converse Netherlands B.V. Netherlands Converse Retail B.V. Netherlands Converse Retail GmbH Austria Converse Retail Italy S.r.l. Italy Converse Retail (UK) Limited United Kingdom Converse Sporting Goods (China) Co., Ltd. People’s Republic of China Converse Trading Company B.V. Netherlands F.C. Intemazionale Merchandising s.r.l. Italy French Football Merchandising S.A.S. France Hurley 999, S.L.U. Spain Hurley Australia Pty. Ltd. Australia Hurley International LLC Oregon Hurley Phantom C.V. Netherlands LATAM Comercio de Productos Esportivos Ltda. Brazil NIKE 360 Holding B.V. Netherlands NIKE 360 Jordan with Limited Liability Jordan NIKE Air Ace B.V. Netherlands NIKE Amplify LLC Delaware NIKE Argentina S.R.L. Argentina NIKE Asia Holding B.V. Netherlands NIKE Australia Pty. Ltd. Australia NIKE Barcelona Merchandising S.L.U Spain NIKE Blazer LLC Delaware NIKE Canada Corp. Canada NIKE Canada Holding B.V. Netherlands NIKE Chelsea Merchandising Limited United Kingdom NIKE Chile B.V. Netherlands NIKE China Holding HK Limited Hong Kong NIKE Codrus Coöperatief U.A . Netherlands NIKE Commercial (China) Co., Ltd. People’s Republic of China NIKE CR d.o.o Croatia NIKE Czech s.r.o. Czech Republic NIKE de Chile Ltda. Chile NIKE de Mexico, S. de R.L. de C.V. Mexico NIKE Denmark ApS Denmark NIKE Deutschland GmbH Germany NIKE do Brasil Comercio e Participacoes Ltda. Brazil NIKE Europe Holding B.V. Netherlands NIKE European Operations Netherlands B.V. Netherlands

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 129

F O

R M

1 0 -K

PART IV

Entity Name Jurisdiction of Formation NIKE Finance Ltd. Bermuda NIKE Finland OY Finland NIKE France S.A.S. France NIKE Fuel B.V. Netherlands NIKE Fundamentals C.V. Netherlands NIKE Galaxy Holding B.V. Netherlands NIKE Gesellschaft m.b.H. Austria NIKE Glide C.V. Netherlands NIKE Global Holding B.V. Netherlands NIKE GLOBAL SERVICES PTE. LTD. Singapore NIKE Global Trading B.V. Netherlands NlKE GLOBAL TRADING PTE. LTD. Singapore NlKE Group Holding B.V. Netherlands NlKE Hellas EPE Greece NlKE Holding, LLC Delaware NlKE Hong Kong Limited Hong Kong NlKE Hungary LLC Hungary NlKE lHM, Inc. Missouri NlKE India Holding B.V. Netherlands NlKE India Private Limited India NlKE Innovate C.V. Netherlands NlKE International Holding B.V. Netherlands NlKE International Holding, Inc. Delaware NlKE International LLC Delaware NlKE International Ltd. Bermuda NlKE Israel Ltd. Israel NIKE Italy S.R.L. Italy NlKE Japan Corp. Japan NlKE Japan Group LLC Japan NlKE Korea LLC South Korea NlKE Laser Holding B .V. Netherlands NIKE Licenciamentos Ltda. Brazil NIKE Logistics Yugen Kaisha Japan NlKE Magista, Inc. Delaware NlKE Mercurial Corp. Delaware NlKE Mercurial Hong Kong Limited Hong Kong NIKE Mercurial I Limited United Kingdom NIKE Mexico Holdings, LLC Delaware NIKE New Zealand Company New Zealand NIKE Norway AS Norway NIKE NZ Holding B.V. Netherlands NIKE Offshore Holding B.V. Netherlands NIKE Quantum Force C.V. Netherlands NIKE Panama S. de R.L. Panama NIKE Philippines, Inc . Philippines NIKE Poland Sp. z o.o. Poland NIKE Retail B.V. Netherlands NIKE Retail Hellas Ltd. Greece NIKE Retail Israel Ltd. Israel NIKE Retail LLC Russia NIKE Retail Poland Sp . z o.o. Poland NIKE Retail Services, Inc. Oregon NIKE Retail Turkey Turkey NIKE Roshe, Inc. Delaware NIKE Russia LLC Russia NIKE SALES (MALAYSIA) SDN. BHD. Malaysia NIKE Shox Ltd. Israel NIKE SINGAPORE PTE. LTD. Singapore NIKE Slovakia s.r.o. Slovakia NIKE Sourcing India Private Limited India NIKE Sourcing (Guangzhou) Co., Ltd. People’s Republic of China NIKE South Africa (Proprietary) Limited South Africa

130

PART IV

Entity Name Jurisdiction of Formation NIKE South Africa Holdings LLC Delaware NIKE Sphere C.V. Netherlands NIKE Spiridon, Inc. Delaware NIKE Sports (China) Company, Ltd. People’s Republic of China NIKE Sweden AB Sweden NIKE Swift B.V. Netherlands NIKE (Switzerland) GmbH Switzerland NIKE Taiwan Limited Taiwan NIKE (Thailand) Limited Thailand NIKE TN, Inc. Oregon NIKE Trading Company B.V. Netherlands NIKE UK Holding B.V. Netherlands NIKE (UK) Limited United Kingdom NIKE Uptempo C.V. Netherlands NIKE USA, Inc. Oregon NIKE Vapor Jet LLC Delaware NIKE Vapor Ltd. United Kingdom NIKE Victory Cooperatief U.A. Netherlands NIKE Vietnam Limited Liability Company Vietnam NIKE Vision, Timing and Techlab, LP Texas NIKE Vomero Cooperatief U.A. Netherlands NIKE Wholesale LLC Slovenia North West Merchandising Limited United Kingdom PT Hurley Indonesia Indonesia PT NIKE Indonesia Indonesia Triax Insurance, Inc. Hawaii Twin Dragons Global Limited Hong Kong Twin Dragons Holding B .V. Netherlands Yugen Kaisha Hurley Japan Japan

NIKE, INC. 2018 Annual Report and Notice of Annual Meeting 131

F O

R M

1 0 -K

D I R E C T O R S C O R P O R A T E O F F I C E R S

Cathleen A. Benko Vice Chairman and Managing Principal Deloitte LLP Redwood City, California

Elizabeth J. Comstock(3) Vice Chair (Retired) General Electric Company Fairfield, Connecticut

John G. Connors(2) Partner Ignition Partners LLC Bellevue, Washington

Timothy D. Cook(3)(5) Chief Executive Officer Apple Inc. Cupertino, California

John J. Donahoe II(2) President and Chief Executive Officer ServiceNow, Inc. Santa Clara, California

Alan B. Graf, Jr.(2) Executive Vice President & Chief Financial Officer FedEx Corporation Memphis, Tennessee

Peter B. Henry(4) Dean Emeritus of New York University’s Leonard N. Stern School of Business and William R. Berkley Professor of Economics and Finance New York University New York, New York

Travis A. Knight(1) President & Chief Executive Officer LAIKA, LLC Hillsboro, Oregon

John C. Lechleiter(4) Chairman Emeritus Eli Lilly and Company Indianapolis, Indiana

Mark G. Parker(1) Chairman of the Board, President & Chief Executive Officer NIKE, Inc. Beaverton, Oregon

Michelle A. Peluso(4) Chief Marketing Officer IBM New York, New York

Johnathan A. Rodgers(3) President & Chief Executive Officer (Retired) TV One, LLC Silver Springs, Maryland

John R. Thompson, Jr. Assistant to the President of Georgetown University for Urban Affairs Georgetown University Washington, D.C.

Mark G. Parker Chairman of the Board of Directors, President & Chief Executive Officer

Andrew Campion Executive Vice President & Chief Financial Officer

Elliott J. Hill President, Consumer & Marketplace

Hilary K. Krane Executive Vice President, Chief Administrative Officer & General Counsel

Monique S. Matheson Executive Vice President, Global Human Resources

John F. Slusher Executive Vice President, Global Sports Marketing

Eric D. Sprunk Chief Operating Officer

Nitesh Sharan Vice President, Investor Relations & Treasurer

Ann M. Miller Vice President, Corporate Secretary & Chief Compliance Officer

Margo S. Fowler Vice President, Chief Intellectual Property Officer & Assistant Secretary

Adrian L. Bell Vice President, Corporate Governance & Securities Counsel, Assistant Secretary

(1) Member — Executive Committee (2) Member — Audit & Finance Committee (3) Member — Compensation Committee (4) Member — Corporate Responsibility, Sustainability & Governance Committee (5) Lead Independent Director

132

S U B S I D I A R Y B R A N D S L O C A T I O N S

160 North Washington St. Boston, Massachusetts 02114

1945 Placentia Avenue Costa Mesa,

California 92627

One Bowerman Drive Beaverton, Oregon 97005-6453

WORLD HEADQUARTERS

One Bowerman Drive Beaverton, Oregon 97005-6453

EUROPEAN HEADQUARTERS

Colosseum 1 1213 NL Hilversum The Netherlands

GREATER CHINA HEADQUARTERS

LiNa Building Tower 1, No. 99

Jiangwancheng Road Yangpu District

Shanghai, China 200438

S H A R E H O L D E R I N F O R M A T I O N

I N D E P E N D E N T A C C O U N T A N T S

PricewaterhouseCoopers LLP 805 SW Broadway, Suite 800 Portland, Oregon 97205

R E G I S T R A R A N D S T O C K T R A N S F E R A G E N T

Computershare Trust Company, N.A. P.O. Box 505000 Louisville, KY 40233 800-756-8200 Hearing Impaired # TDD: 800-952-9245 http://www.computershare.com

Shareholder Information

NIKE, Inc. common stock is listed on the New York Stock Exchange under trading symbol ‘NKE.’ Copies of the Company’s Form 10-K or Form 10-Q reports filed with the Securities and Exchange Commission are available from the Company without charge. To request a copy, please call 800-640-8007 or write to NIKE’s Investor Relations Department at NIKE World Headquarters, One Bowerman Drive, Beaverton, Oregon 97005- 6453. Copies are available on the investor relations website, http://investors.nike.com.

Dividend Payments

Quarterly dividends on NIKE common stock, when declared by the Board of Directors, are paid on or about July 5, October 5, January 5, and April 5. Additional financial information is available at http://investors.nike.com.

Other Shareholder Assistance

Communications concerning shareholder address changes, stock transfers, changes of ownership, lost stock certificates, payment of dividends, dividend check replacements, duplicate mailings, or other account services should be directed to the Company’s Registrar and Stock Transfer Agent at the address or telephone number above.

NIKE, the Swoosh Design, and Just Do It are registered trademarks of NIKE, Inc.

NIKE, INC. One Bowerman Drive Beaverton, OR 97005-6453 www.nike.com

3

QUESTION 1

Purple Logistics (Pty) Ltd (Purple), is a leading logistics

companies in South Africa, providing our clients to meet

their logistics needs. Since 2010. Purple offers a

comprehensive spread of products to their clients, such as

refrigerating, warehousing, courier services and truck

rentals.

Purple understands that in today’s volatile market,

companies’ successes are dependent on a robust supply

chain that is able to provide a framework to manage their

goods effectively. Our experience spans over a vast range of industries which enables us to

deliver customised solutions to our customers, ensuring their competitiveness.

The Purple Group (‘the Group’) consists of a number of subsidiaries and associate companies

that are strategically placed to add value to the business. The following is an illustration of the

group structure of the Group:

Purple Fridge (Pty) Ltd specializes in refrigerated transportation which is a vital link in the

distribution of Fast Moving Consumer Goods (FMCG). Purple Warehousing provides storage

services for interim transportation solutions. Purple-Leasing is a leader in truck leasing

solutions for short- and long-term contracts with customers. Purple Filming provides filming

production logistics for filming and production companies.

You are the financial accountant of the Group and you are currently busy with the preparation

of the financial reporting pack for the annual audit. The CFO, Mr Ken Adams, requested your

assistance on certain financial matters that will affect the financial statements for the reporting

period ended 30 September 2020. These matters are included in the mails below:

Email number Subject

Email 1 Revenue contract with Hollywood Hills Studios

Email 2 Lease agreements

Email 3 Lease income agreements

Email 4 BEE Share Schemes

Email 5 Financial Instruments

Purple Logistisc (Pty) Ltd

(Purple)

Purple Fridge (Pty) Ltd

100%

Purple Filming (Pty) Ltd 80%

Purple Warehousing (Pty) Ltd

45%

Purple-Leasing (Pty) Ltd

100%

About us:

Deliver. Fast

Purple Logistics

Deliver. Fast

4

EMAIL 1 27 MARKS

To: [email protected]

From: [email protected]

Date: 25 October 2020

Subject: Revenue contract - Speedy

Dear accountant

Please find below the summarised information regarding the revenue contract with Hollywood

Hill Studios, an American filming company. The contract is unique since it is our first

international contract. Will you please write a report on the treatment in terms of IFRS 15

Revenue from Contracts with Customers (‘IFRS 15’)?

Kind regards,

Ken

Purple Filming entered into a 12-month contract with Hollywood Hill Studios (‘the customer’)

on 1 December 2019 on a new unique contract that is denominated in US Dollars (USD). The

contract is to assist the customer with transport and installation services for the Netflix series

called “Poaching Uncovered”, a series about the crisis surrounding rhino poaching. The series

will be filmed in South Africa in different locations over the 12 months, which includes Cape

Town, Hermanus, Knysna, Johannesburg and, very interestingly, a bush lodge in

Mpumalanga. This contract is a valid contract in terms of IFRS 15. The summarised

information of the promises in the contract is provided below:

Promise Additional detail Stand-alone selling price (Excl. VAT)

Installation services The installation services entail for Purple Filming to assist with installation of filming equipment at filming locations based on the customer’s specifications in the contract. The installation is usually “sold” separately to customers who do not have their own installation crews on site.

R 2 000 per hour

Transport services

The transport services entail that Purple Filming transport the filming equipment safely from one filming location to another. The transport services are regularly “sold” separately and does not require installation on most contracts where the customer has their own installation crew on site.

R 95.00 per hour

Since the customer is based in the United States of America (USA) and that COVID 19

quarantine protocols will make it inefficient for the customer to bring along different installation

crew members over the filming period, the installation and transport services are highly

dependent on each other in the context of this contract.

The payment schedule is set out in the table below based on the agreement between the two

parties:

5

Stage Date Amount

Upfront 1 November 2019 USD50 000

Stage 1 – Cape Town & Hermanus 31 January 2020 USD100 000

Stage 2 - Knysna 28 February 2020 USD50 000

Stage 3 - Johannesburg 30 June 2020 USD100 000

Stage 4 – Bush Mpumalanga 31 October 2020 USD300 000

Total USD600 000

Purple Filming has created a budget in terms of hours that is expected to be spent on the

filming set over the 12-month period. The budget was approved by both parties. The details

of the budget are set out below:

Stage Amount of hours spent

Stage 1 – Cape Town & Hermanus 500

Stage 2 - Knysna 120

Stage 3 - Johannesburg 550

Stage 4 – Bush Mpumalanga 780

Total 1 950

On 30 September 2020, the actual hours spent on the series filming was 1 725. This included

90 hours lost due to COVID 19 quarantine protocols when some members of the crew were

infected by COVID 19. On 30 September 2020, the new budgeted hours (2 000) were

approved by both parties.

During 2020, the Rand was strengthening against the USD. Purple Filming was afraid that

they could lose money due to the strengthening of the Rand against the USD. Therefore,

Purple Filming entered into a foreign exchange contract with a local bank for the final payment

of the contract that is due on 31 October 2020. The exchange rate per the contract was

determined as R15.50:$1. At year end the spot rate was R15.33:$1. We know that this should

be recognised and measured in terms of IFRS 9, but not sure what the classification should

be for measurement purposes.

6

EMAIL 2 25 MARKS

To: [email protected]

From: [email protected]

Date: 26 October 2020

Subject: RE: Lease agreements in Purple Warehousing

Dear accountant

Please find below the summarised information regarding the lease agreement of one of our

packing warehouses that we have in Purple Warehousing. Please review it as soon as possible

and get back to me.

Kind regards,

Ken

Lease of Warehouse

On 1 October 2019, Purple Warehousing entered into a twenty-year agreement with Axel

Properties (Pty) Ltd (Axel) to lease a storage warehouse. The storage warehouse is situated

in the perfect location in Randburg to ensure efficient storage solutions for customers. The

terms of the lease agreement are as follows:

• Rental payments of R50 000 are made in arrears, on a monthly basis.

• In addition, Axel has a right to receive payment of 5% of total revenue made per

financial reporting period of Purple Warehousing. The payment is made yearly in

arrears on 30 September.

• Unguaranteed residual value is R80 000. Guaranteed residual value is R100 000.

• The interest rate implicit to the lease agreement is 11%.

• At the end of the lease period, Axel will still have legal title of the distribution facility

and therefore does not transfer the legal title to Purple Warehousing.

• There is no option to renew the arrangement after 20 years.

At inception of the lease, Purple Warehousing paid R20 000 to lawyers to finalise the

agreement. On 30 September 2020, the total revenue generated from use of the distribution

facility amounted to R15 425 250. The incremental borrowing rate of Purple Warehousing is

10.50% per annum.

Similar properties have a useful life of 25 years for depreciation purposes. SARS grants an

allowance of 10% per annum for warehouses. Ignore VAT implications.

7

EMAIL 3 25 MARKS

To: [email protected]

From: [email protected]

Date: 29 October 2020

Subject: Lease income agreements

Hi there,

Hope all is good on your side.

I have the following information relating to Purple Leasing’s lease income agreements below.

Purple’s motor vehicle retailing company, Purple Leasing, offers two types of leases on new

KIA vehicles to its customers. The summarised details of the two different types of contracts

are provided below:

Lease A Lease B

End-of-term purchase option price

10% of original purchase price

None

Implicit rate to the lease 11.5% Prime less 2%

Maintenance option 2% of original purchase price per annum

2% of original purchase price per annum

Term 48 months 24 months

Additional information:

 For both types of leases, the customer will have use of a specific KIA that will be provided to them. The KIA can only be replaced with another vehicle in the case when it is subject to major repairs.

 On both leases, the customer, have full control over the usage of the KIA (routes and km’s travelled). The customer also takes out specific insurance based on the details of each individual driver.

 Fixed monthly rentals, including maintenance payments, are payable monthly in arrears.

 The lessee is entitled, but not obligated, to buy the vehicle from the motor retailing division at the end of the lease term for the amount of the purchase option price.

 The maintenance option provides the customer with maintenance services for the period of the lease, but excludes fuel, oil and tyres which is for the lessee’s own account. The maintenance option is priced to earn an 15% margin on maintenance costs for Purple Leasing over the life of the contract.

We would like to get an understanding how these leases will be treated in terms of IFRS 16

or IFRS 15 based on the different components of the leases above.

Kind regards,

Ken

8

EMAIL 4 15 MARKS

To: [email protected]

From: [email protected]

Date: 28 October 2020

Subject: BEE Share Scheme

Dear accountant

I need you to assist me on the accounting treatment for our BEE share schemes. I have

included the details of the schemes below. We have 2 schemes, the Thuthuka Scheme and

the Purple Share Scheme. Both these schemes are equity settled in terms of IFRS 2, but the

accountants are unsure how to treat the vesting of these schemes. Will you please review the

terms and conditions below and reply to my email?

Kind regards,

Ken

Thuthuka Scheme

The board of directors of Purple decided to reward qualifying BEE employees through a BEE

share scheme. The incentive scheme was implemented to assist in retaining key staff in key

positions within the company’s operations.

Purple issued 1 000 share options to each of the 50 key BEE employees on 1 October 2019

to acquire ordinary shares when vesting conditions are satisfied. The strike price of these

options is R7.50 per share which is equal to the fair value of a Purple ordinary share on 1

October 2019. The employees will receive the benefit of future growth of the share price. The

share options vest on 30 September 2022 provided both of the following vesting conditions

are satisfied:

Condition A: The employee has remained in the employment of Purple throughout the vesting period.

Condition B: A revenue growth rate of 10% per year should be maintained throughout the vesting period. If the revenue growth rate is lower, the vesting period is extended with another two years.

Condition C: The market price of Purple ordinary shares maintain a 15% growth until 30 September 2022.

The following estimated information has been provided to by management to indicate the

number of BEE employees that are expected to leave during the vesting period.

Date of estimation Expected cumulative number of employees to remain at the end of

vesting period

30 September 2020 40 employees

In 2020, Purple managed to only obtain a 6% revenue growth rate due to the impact of the

nationwide lockdown of COVID 19.

9

The fair values of the options, calculated using the Black-Scholes Model, were determined

as follows:

Before adjusting for any of the vesting conditions

After adjusting for the market conditions only

Rand Rand

1 October 2019 11.35 12.10

30 September 2020 10.50 11.88

Purple Share Scheme

Purple issued another 1 000 share options to each of the 10 directors on 1 January 2020 to

acquire ordinary shares when vesting conditions are satisfied. The strike price of these options

is R7.50 per share which is equal to the fair value of a Purple ordinary share on 1 October

2019. The employees will receive benefit of future growth of the share price. There are no

service or performance vesting conditions attached to the options. However, there is a market

condition that the market price of Purple ordinary shares maintain a 15% growth until

30 December 2022. The fair value of the options on 1 October 2019 which incorporated the

market condition is estimated to be R9.20. The fair value without taking marking conditions

into account is estimated to be R10. On 30 September, none of the directors are expected to

leave in the near future.

EMAIL 5 33 MARKS

To: [email protected]

From: [email protected]

Date: 29 October 2020

Subject: Financial Instruments

Dear accountant

Please find below the information regarding the expected credit losses (ECL’s) on our accounts

receivables as well as the financing transaction with Coronation Equity Fund to expand to air

freight. Will you please assist us with the accounting treatment of both matters?

Kind regards,

Ken

Expected Credit Losses

Purple has a large and diversified customer base that includes customers from all segments on the Living Standards Measure (LSM) scale. The LSM scale ranks the South African population based on 29 variables that measure individuals’ living standards, based on a 10- point scale with 10 being the highest living standard and 1 the lowest. Purple has segmented its customer population into two categories, namely those falling in LSM 1–6 and those in LSM 7–10, for credit-risk evaluation purposes as part of their risk management policy. The default rates over the expected life of its trade receivables resulting from contracts with customers have been provided in the table below. These rates have been

10

historically evaluated and are expected to increase by 20% due to the COVID 19 impact on the South African economy:

LSM 1–6 LSM 7–10

12 month expected

credit losses

Lifetime expected

credit losses

12 month expected

credit losses

Lifetime expected

credit losses

Current 0,6% 1,1% 0,2% 0,4%

1–30 days past due 4,9% 8,4% 3,5% 5,9%

More than 30 days past due

14,5% 24,0% 10,6% 17,7%

The following financial data were extracted from Purple’s accounting system with regard to all open contracts with customers on 30 September 2020, the current financial year-end:

Gross carrying amount of trade receivables

R

Current 350 000 000

1-30 days past due 78 312 500

More than 30 days past due 9 187 500 Total 437 500 000

Purple estimates that 40% of its contract assets and trade receivables relating to contracts with customers come from LSM group 1–6 and 60% from LSM group 7–10. These are proportionately spread across the ageing categories above. The contract assets and trade receivables of Purple does not contain a significant financing component based on the nature of its contracts. Purple has not applied the portfolio approach as defined in par. 4 of IFRS 15; and elected to apply the simplified approach allowed in par. 5.5.15(a) (ii) of IFRS 9 when recognising expected credit losses on contract assets and trade receivables in the scope of IFRS 15. (SAICA ITC 2017 - Adapted) Expansion of business through preference shares.

On 1 October 2019 Purple issued 100 000 R20 par value 5% preference shares at a premium

of R2.50 per share. The preference shares are, at the option of Purple, convertible into

ordinary shares (1 ordinary share for every 2 preference shares) on

30 September 2022. If not converted, the preference shares will be redeemed at par on

30 September 2022. Legal costs of R120 000 were incurred to get the preferences shares

issued to the holders. The pre-tax market related discount rate is 11%. The post-tax rate is

7.92%. The interest (coupon) payments are made annually on 30 September.

In addition to the above stipulations, the holders also included a clause that state the following:

“In the event that Purple fails to have an EBITDA profit ratio of 10% over the contractual period,

the issuer has an obligation to make an additional payment of 50% of the par value of the

issued preference shares (excluding transaction costs).”

11

REQUIRED:

Email 1

a) Discuss the recognition and measurement of the contract with Hollywood Hills Studios in the accounting records of Purple Filming (Pty) Ltd in terms of IFRS 15 Revenue from Contracts with Customers (IFRS 15). As part of your discussion, please discuss any ethical considerations evident from the comments made by the CEO.

 You must use calculations to justify your arguments where applicable.

 Assume that the contract is a valid contract in terms of IFRS 15.10

 Ignore any deferred tax or VAT implications.

(22)

b) Discuss how the FEC contract should be measured in the accounting records of Purple Filming (Pty) Ltd for the reporting period ended 30 September 2020 in terms of IFRS 9 Financial Instruments. You are not required using the STATE,

DEFINE, APPLY and CONCLUDE method in your discussion. No calculations are necessary

(5)

Email 2

c) Provide the relevant journal entries to account for the lease of the Randburg Packaging Facility in the accounting records of Purple Warehousing Ltd for the reporting period ended 30 September 2020. Please note:

 Deferred taxation calculations should be based on the balance sheet method.

 Ignore VAT implications

 Show all calculations clearly and round of to the nearest Rand.

 Marks will be awarded for providing journal narrations, and the neatness and clarity of your answer.

(19)

d) Present the financial statement line items relevant to the lease in (c) on the statement of financial position of Purple Warehousing (Pty) Ltd as at 30 September 2020 in order to comply with the requirements of IAS 1 Presentation of Financial Statements.

(6)

Email 3

e) Discuss the accounting treatment (excluding presentation and disclosure) of both Lease A and Lease B types, including all relevant components of the leases. Your discussion should be based on principles contained in IFRS 16 Leases and IFRS 15 Revenue from Contracts with Customers.

Please note:

 You are not required using the STATE, DEFINE, APPLY and CONCLUDE

method in your discussion.

 No calculations are needed

(25)

Email 4

f) Discuss the recognition and measurement of both the share incentive schemes in the accounting records of Purple Logistics (Pty) Ltd for the reporting period ended 30 September 2020. Please note:

 You are not required to use the STATE, DEFINE, APPLY and

CONCLUDE approach.

 Please support your argument with any relevant calculations.

(15)

12

Email 5

g) Discuss the appropriate initial classification of the convertible preference shares issued by the Purple Logistics (Pty) Ltd in the financial statements of Purple Logistics (Pty) Ltd and prepare the journal entries for the reporting period ended

30 September 2020.

(20)

h) Calculate and explain the amount of the loss allowance that should be recognised for the reporting period ended 30 September 2020 relating to Purple Logistics’ contracts with customers. You are not required using the STATE, DEFINE, APPLY and CONCLUDE method in your discussion.

(13)

13

QUESTION 2 25 MARKS

You are the consolidation accountant at the Hastings Group Limited (Hastings Group), a diversified group of companies engaged in the household and consumer goods industry. You are presented with the following information in respect of the Hastings Group:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 Hastings

Limited Bridgerton

Limited

R’000 R’000 Turnover 12 600 10 200 Operating profit 8 200 6 000 Finance costs 1 000 400 Profit before taxation 7 200 5 600 Taxation expense 2 000 1 600 Profit after taxation 5 200 4 000 Other comprehensive income - - Total comprehensive income 5 200 4 000

EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020

Hastings Limited

Bridgerton Limited

R’000 R’000

Retained earnings

Retained earnings

Balance 1/1/2020 8 600 4 800 Profit for the year to 31/12/2020 5 200 4 000 Dividends paid 30/11/2020 (800) (400) Balance 31/12/2020 13 000 8 400

Additional Information

1. On 1 January 2018, Hastings Group obtained significant influence over Bridgerton Limited

(Bridgerton) when it purchased 3 000 of Bridgerton’s 10 000 issued ordinary shares at a cost of R6 300 000. At that date, the retained earnings of Bridgerton amounted to R1 800 000 and the fair value of Bridgerton’s assets and liabilities were considered to be fairly valued.

2. On 30 June 2020, Hastings Group acquired a further 5 000 shares in Bridgerton for R18 000 000, which then gave Hastings Group control over Bridgerton. At that date, Hastings Group considered the fair value of the land of Bridgerton to be R2 400 000 greater than the recorded carrying amount.

3. On acquiring control of Bridgerton, Hastings Group measured the non-controlling interest

in Bridgerton at their proportionate share of identifiable fair net asset value. On 30 June 2020, the fair value of the previously-held 30% investment in Bridgerton was R10 200 000.

H

Hastings Group

14

4. During the course of the year ended 31 December 2019, Bridgerton commenced selling

goods to Hastings Group. These goods were sold at a mark-up of 50% above cost price. Inter-company sales figures were:

 Year to 31 December 2019 R6 500 000

 Year to 31 December 2020 R7 000 000

Hastings Group’s closing inventory of inter-company items purchased from Bridgerton were as follows:

Date Amount Notes

31 December 2019 R3 000 000 Inventory was sold externally before 30 June 2020

30 June 2020 R4 500 000 Inventory was sold externally before 31 December 2020

31 December 2020 R2 400 000 Purchased by Hastings Group after 30 June 2020.

5. All items of income and expense in the statement of profit or loss and other comprehensive

income have occurred at an even rate over the course of the year.

6. The taxation rate is 28% and the CGT inclusion rate is 80%. Deferred tax is provided in terms of IAS 12 Income Taxes.

7. All fair value adjustments to investments in equity are recorded in profit or loss in terms of

IFRS 9 Financial Instruments.

REQUIRED:

Prepare the consolidated statement of comprehensive income and statement of changes in equity for the year ended 31 December 2020.

 Notes to the financial statements and comparative figures are not required.

 Work to the nearest Rands in thousands (‘000).

 Show all calculations clearly.

(25)

JWI 530: Financial Management I Assignment 1: Annual Report

© Strayer University. All Rights Reserved. This document contains Strayer University confidential and proprietary information and may not be 530 – Assignment 1 (1184) Page 1 of 4

Assignment 1 – Due: Sunday, Midnight of Week 5 (22.5% of Final Grade) Overview

A critical financial-accounting skill is the ability to read, analyze, and make actionable determinations from any financial statement. Business leaders gain valuable information from the analysis of their direct competitors as well as organizations that operate in similar fields. Instructions You are the CFO of an up-and-coming athletic company, which desires to someday become the #1 athletic company in the world. Strategically, the company uses Nike and Under Armour as their key competitor benchmarks. Your CEO is a big believer in learning from the competition and is requesting two things from you regarding Nike and Under Armour’s most recent annual reports: An Executive Summary and a brief Video Presentation of your findings. NOTE: In order to complete this assignment, you will need to obtain each company’s MOST RECENT annual report. You should refer back to the “Finding Annual Reports on the Internet” video in Week #2 for guidance. Also, be sure to watch the two supporting videos to see a “message from your CEO” in the Assignment section of Week 5 in the Blackboard shell. Submission Requirements Part One: Executive Summary Create an executive summary you would feel comfortable turning in to your CEO or to Jack that is no more than 2 pages, single-spaced using 12-point Times New Roman font. You may also include an appendix with additional references, graphs, charts, and tables for additional support if needed.

1. Competitor Strategies • Identify and explain one key strategy from each company that the company explicitly

discussed in the annual report.

2. Net Income Margins • What are the after-tax net income margins (aka, net profit margin) for both companies? • How do they compare? • Who achieves the higher net income margin? Why?

Tip: Analyze the major cost structure line item in the income statement (COGS, SG&A, interest, other, and taxes) as a percentage of net sales to identify reasons for better net income margins. Identify and comment on the differences. You may not know why a particular cost item like COGS is higher or lower, but your CEO only wants to know which cost structure items are higher or lower for each company.

JWI 530: Financial Management I Assignment 1: Annual Report

© Strayer University. All Rights Reserved. This document contains Strayer University confidential and proprietary information and may not be 530 – Assignment 1 (1184) Page 2 of 4

3. Inventory Management

• Who has more inventory in terms of days of inventory last year? (Inventory Days on Hand ratio)

• What are their respective 3-year trends for days of inventory? • What accounting approach does each of the companies use to value their inventory? (The

accounting approach can be found in the Notes section)

4. Cash is King • How much net cash from operations did each company generate last year? • Which company has done a better job generating cash from operations? • In laymen's terms, how is each company spending their cash with respect to reinvestments in

the business, changes in debt, and returning money to shareholders?

5. Liquidity • How do the companies compare in terms of the current ratio, and what are their respective

3-year trends? • Does their current ratio indicate that either of these companies could go bankrupt soon?

Explain. Part Two: Financial Presentation and Slide Deck – 5-minute maximum ZOOM video and 5-slide maximum PowerPoint deck (not including Cover page or References, if desired)

1. Create a PowerPoint Deck in support of your financial presentation • Highlight some key findings from the executive summary. Focus on key insights that would

be helpful for the leadership team. • Your PowerPoint should be complementary to your Executive Summary. • Remember to keep your slides legible. Avoid small fonts, too much text, or distracting

graphics. • Maximum 5 slides.

2. Record your financial presentation using ZOOM

• Record both the PPT deck and your webcam feed simultaneously. • Remember to practice your presentation. You may record several times prior to submitting. • Maintain eye contact, speak conversationally, use an engaging tone, and dress

professionally. • Your video must be no longer than 5 minutes.

3. Video instructions and samples can be viewed at: https://www.kaltura.com/tiny/qpz1z

JWI 530: Financial Management I Assignment 1: Annual Report

© Strayer University. All Rights Reserved. This document contains Strayer University confidential and proprietary information and may not be 530 – Assignment 1 (1184) Page 3 of 4

RUBRIC: Assignment 1

CRITERIA

Unsatisfactory

Low Pass

Pass

High Pass

Honors

1. Describe one strategy specifically noted in each company’s annual report. Weight: 10%

Did not submit or unsatisfactorily identified and summarized a minimum of two key competitor strategies.

Partially identified and summarized a minimum of two key competitor strategies.

Satisfactorily identified and summarized a minimum of two key competitor strategies.

Completely identified and summarized a minimum of two key competitor strategies.

Exemplarily identified and summarized a minimum of two key competitor strategies.

2. Identify and assess the profit structure of both competitor organizations (Net Income Margins). Weight: 20%

Did not submit or unsatisfactorily identified and assessed the profit structure of both competitor organizations.

Partially identified and assessed the profit structure of both competitor organizations.

Satisfactorily identified and assessed the profit structure of both competitor organizations.

Completely identified and assessed the profit structure of both competitor organizations.

Exemplarily identified and assessed the profit structure of both competitor organizations.

3. Assess each competitor’s inventory management methods and identify their valuation method. Weight: 20%

Did not submit or unsatisfactorily assessed each competitor’s inventory management methods and identified their valuation method.

Partially assessed each competitor’s inventory management methods and identified their valuation method.

Satisfactorily assessed each competitor’s inventory management methods and identified their valuation method.

Completely assessed each competitor’s inventory management methods and identified their valuation method.

Exemplarily assessed each competitor’s inventory management methods and identified their valuation method.

4. Identify and assess each competitor’s cash flow situation and decisions. Weight: 20%

Did not submit or unsatisfactorily identified and assessed each competitor’s cash flow situation and decisions.

Partially identified and assessed each competitor’s cash flow situation and decisions.

Satisfactorily identified and assessed each competitor’s cash flow situation and decisions.

Completely identified and assessed each competitor’s cash flow situation and decisions.

Exemplarily identified and assessed each competitor’s cash flow situation and decisions.

JWI 530: Financial Management I Assignment 1: Annual Report

© Strayer University. All Rights Reserved. This document contains Strayer University confidential and proprietary information and may not be 530 – Assignment 1 (1184) Page 4 of 4

5. Identify and assess each competitor’s liquidity status. Weight: 10%

Did not submit or unsatisfactorily identified and assessed each competitor’s liquidity status.

Partially identified and assessed each competitor’s liquidity status.

Satisfactorily identified and assessed each competitor’s liquidity status.

Completely identified and assessed each competitor’s liquidity status.

Exemplarily identified and assessed each competitor’s liquidity status.

6. Professional Communication: (1) The executive summary was no more than two pages, clear, logically organized, and grammatically correct. (2) The PPT deck is no more than 5 slides (excluding the cover page), organized, easy to read, and free from grammatical errors. (3) The video presentation is succinct (5 minutes), clear, eye contact is made, voice is dynamic, and the presenter uses appropriate verbal cues, and is wearing professional attire.

Weight: 20%

Did not submit or unsatisfactorily communicated professionally in the executive summary, PPT deck, and presentation of material.

Partially communicated professionally in the executive summary, PPT deck, and presentation of material.

Satisfactorily communicated professionally in the executive summary, PPT deck, and presentation of material.

Completely communicated professionally in the executive summary, PPT deck, and presentation of material.

Exemplarily communicated professionally in the executive summary, PPT deck, and presentation of material.

2017 ANNUAL REPORT

20 17

U N

D ER

A RM

O U

R AN

N U

AL R

EP O

RT

JORDAN SPIETH

DWAYNE “THE ROCK” JOHNSON

STEPHEN CURRY

2 0 1 7 I C O N I C A T H L E T E C O L L E C T I O N S

LINLINDSEDSEY VY VONNONN

TOM BRADY

2017 U N

D ER ARM

O U

R AN N

U AL REPO

RT

FROM THE

CHAIRMAN AND CEO

To Our Shareholders,

2017 was one of the most challenging and opportunistic years in Under Armour’s history. It was a year that provided invaluable learning and will

success.

Following a sustained period

investments to gain global scale, a number of external and internal

in our strategy to better align our resources and operations into an organization capable of supporting the powerful brand that is Under Armour.

Externally, disruption in our North American business driven by retail consolidation, bankruptcies and shifts from physical to digital consumption placed a great deal of variability into the marketplace. These dynamics, along with changes in consumer preference

contributed to a highly promotional backdrop, putting pressure on our largest regional business throughout the year.

Internally, our quick pace at obtaining global scale in innovation, product, sport categories and a larger international footprint generated

associated with our shift toward

cost structure built to support the expectation of being a larger company by now.

The intersection of the external and internal factors provided an exceptional opportunity to transform our operations and further sharpen our strategy. In

and proactive decisions to advance our operating systems, reset our structure and recalibrate our leadership so that we

utilize the scale and infrastructure we’ve built to better serve our consumers and retail customers. Fundamental to this

design and storytelling, all while keeping our consumer athletes at the center of everything we do.

years of investing to scale within one

accelerating focus on discipline sets us up to more consistently deliver sustainable,

To empower this, Under Armour must ensure that we are constantly delighting our consumer athletes. Since the beginning, our promise has been to make athletes better. As we push ourselves to become a smarter, faster and stronger

athletic performance. And it’s precisely through this lens, that our new mission statement evolved – Under Armour Makes You Better. This means that in every way we connect – through the product we create, the experiences we deliver and the inspiration we provide – we will make you better.

We’re proud of the incredibly strong brand

leading innovation and a truly unique intimacy with Under Armour athletes. By building a stronger ecosystem with a

20 17

U N

D ER

A RM

O U

R AN

N U

AL R

EP O

RT

FROM THE

CHAIRMAN AND CEO

empowering our team to create and operate

drives an even deeper authenticity and connection with our consumers, inspiring them with incredible products they never knew they needed and wondered how they ever lived without.

In 2017, our revenue was up 3% to reach $5.0 billion. Throughout the year, we

leveraged our amazing roster of athletes

international business. In fact, our international business grew 46% to

consumer, women’s and footwear on the list of $1 billion businesses. Working as a counterbalance to a contraction in our North American business, the investments we have made across our regions – EMEA,

dividends, with their size and scale on the precipice of being able to deliver more meaningful returns in the years ahead.

In addition to diversifying our portfolio across regions and categories, we are optimizing and expanding our distribution

right experience wherever and whenever consumers choose to engage Under Armour. Within our global wholesale business, which declined 3% in 2017, we are focused on improving our segmentation and service levels to ensure we have the right product in the right place at the right

continued its strong momentum with a 14% increase in annual revenue, representing 35% of sales as our retail stores and

storytelling to deliver truly unique and premium experiences.

As we drive forward into 2018, Under Armour is a great brand and a good company. We must become a great company

positioned to execute against our strategies and new mission to become better. We are the best at getting better. It’s in our DNA. By building on the strategic decisions and actions we took in 2017 and ones thus far in 2018, we are heads down and focused on doing just that.

At Under Armour, we have the best team. I am so incredibly proud of the strength and resilience my teammates demonstrate each and every day, all around the world. With a high level of situational awareness, and the right strategy and leadership in place, we are

fuel and innovate – emerging as a stronger and better Under Armour for our consumers, customers, and shareholders.

Chairman and

2017 U N

D ER ARM

O U

R AN N

U AL REPO

RT

MMMISMISMISMISMISMISMMIMISSMIMM TY TYTY TY TYTYYYTYTY COLCOLCOLCOOLOLOOLOLCOCOLCOLCOLLOLC LLCOCO LECLECLECLECELELELLLECCTTTIOTTIOTIOTIOIOOTIOOONNNNNNNNNNNNNNN

#SHEPLAYSWEWIN CAMPAIGN CAL BERKELEY

HARPER 2

20 17

U N

D ER

A RM

O U

R AN

N U

AL R

EP O

RT

AMSTERDAM BRAND HOUSE

BEIJING BRAND HOUSE

AMSTERDAM BRAND HOUSE

(TTM)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017

or

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the transition period from to

Commission File No. 001-33202

UNDER ARMOUR, INC. (Exact name of registrant as specified in its charter)

Maryland 52-1990078 (State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.) 1020 Hull Street

Baltimore, Maryland 21230 (410) 454-6428 (Address of principal executive offices) (Zip Code) (Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock New York Stock Exchange Class C Common Stock New York Stock Exchange (Title of each class) (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Í No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No Í

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes Í No ‘

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ (Do not check if a smaller reporting company) Smaller reporting company ‘

Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended

transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í

As of June 30, 2017, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the registrant’s Class A Common Stock and Class C Common Stock held by non-affiliates was $4,001,622,620 and $3,838,231,258, respectively.

As of January 31, 2018, there were 185,279,913 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 222,442,673 shares of Class C Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE Portions of Under Armour, Inc.’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2018

are incorporated by reference in Part III of this Form 10-K.

UNDER ARMOUR, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I.

Item 1. Business General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Marketing and Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Sales and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Product Design and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Sourcing, Manufacturing and Quality Assurance . . . . . . . . . . . . . . . . . . . . . . . . . 6 Inventory Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Item 4 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

PART II.

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . 54

Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

PART III.

Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . 98

Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Item 13 Certain Relationships and Related Transactions, and Director Independence . . . . . 98

Item 14 Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

PART IV.

Item 15 Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Item 16 Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

PART I

ITEM 1. BUSINESS

General

Our principal business activities are the development, marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth. The brand’s performance apparel and footwear are engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles.

Our net revenues are generated primarily from the wholesale sales of our products to national, regional, independent and specialty retailers and distributors. We also generate net revenue from the sale of our products through our direct to consumer sales channel, which includes our brand and factory house stores and websites, from product licensing and from digital platform licensing and subscriptions and digital advertising through our Connected Fitness business. A large majority of our products are sold in North America; however we believe that our products appeal to athletes and consumers with active lifestyles around the globe. Internationally, our net revenues are generated from a mix of wholesale sales to retailers and distributors and sales through our direct to consumer sales channels, and license revenue from sales by our third party licensees.

We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution, growth in our direct to consumer sales channel and expansion in international markets. Our digital strategy is focused on supporting these long term objectives, emphasizing connecting and engaging with our consumers through multiple digital touch points, including through our Connected Fitness business.

We were incorporated as a Maryland corporation in 1996. As used in this report, the terms “we,” “our,” “us,” “Under Armour” and the “Company” refer to Under Armour, Inc. and its subsidiaries unless the context indicates otherwise. We have registered trademarks around the globe, including UNDER ARMOUR®, HEATGEAR®, COLDGEAR®, ALLSEASONGEAR® and the Under Armour UA Logo, and we have applied to register many other trademarks. This Annual Report on Form 10-K also contains additional trademarks and tradenames of our Company and our subsidiaries. All trademarks and tradenames appearing in this Annual Report on Form 10-K are the property of their respective holders.

Products

Our product offerings consist of apparel, footwear and accessories for men, women and youth. We market our products at multiple price levels and provide consumers with products that we believe are a superior alternative to traditional athletic products. In 2017, sales of apparel, footwear and accessories represented 66%, 21% and 9% of net revenues, respectively. Licensing arrangements, primarily for the sale of our products, and revenue from our Connected Fitness business represented the remaining 4% of net revenues. Refer to Note 16 to the Consolidated Financial Statements for net revenues by product.

Apparel

Our apparel is offered in a variety of styles and fits intended to enhance comfort and mobility, regulate body temperature and improve performance regardless of weather conditions. Our apparel is engineered to replace traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along gearlines. Our three gearlines are

1

marketed to tell a very simple story about our highly technical products and extend across the sporting goods, outdoor and active lifestyle markets. We market our apparel for consumers to choose HEATGEAR® when it is hot, COLDGEAR® when it is cold and ALLSEASONGEAR® between the extremes. Within each gearline our apparel comes in three primary fit types: compression (tight fit), fitted (athletic fit) and loose (relaxed).

HEATGEAR® is designed to be worn in warm to hot temperatures under equipment or as a single layer. While a sweat-soaked traditional non-performance T-shirt can weigh two to three pounds, HEATGEAR® is engineered with a microfiber blend designed to wick moisture from the body which helps the body stay cool, dry and light. We offer HEATGEAR® in a variety of tops and bottoms in a broad array of colors and styles for wear in the gym or outside in warm weather.

COLDGEAR® is designed to wick moisture from the body while circulating body heat from hot spots to help maintain core body temperature. Our COLDGEAR® apparel provides both dryness and warmth in a single light layer that can be worn beneath a jersey, uniform, protective gear or ski-vest, and our COLDGEAR® outerwear products protect the athlete, as well as the coach and the fan from the outside in. Our COLDGEAR® products generally sell at higher prices than our other gearlines.

ALLSEASONGEAR® is designed to be worn in between extreme temperatures and uses technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures.

Footwear

Our footwear offerings include running, basketball, cleated, slides and performance training, and outdoor footwear. Our footwear is light, breathable and built with performance attributes for athletes. Our footwear is designed with innovative technologies including UA HOVR™, Anafoam™, UA Clutch Fit® and Charged Cushioning®, which provide stabilization, directional cushioning and moisture management engineered to maximize the athlete’s comfort and control.

Accessories

Accessories primarily includes the sale of athletic performance gloves, bags and headwear. Our accessories include HEATGEAR® and COLDGEAR® technologies and are designed with advanced fabrications to provide the same level of performance as our other products.

Connected Fitness

We offer digital fitness subscriptions, along with digital advertising through our MapMyFitness, MyFitnessPal and Endomondo applications.

License

We have agreements with our licensees to develop Under Armour apparel, accessories and equipment. Our product, marketing and sales teams are involved in substantially all steps of the design and go to market process in order to maintain brand standards and consistency. During 2017, our licensees offered collegiate, National Football League (“NFL), Major League Baseball (“MLB”), and National Basketball Association (“NBA”) apparel and accessories, baby and kids’ apparel, team uniforms, socks, water bottles, eyewear, phone and golf accessories and other specific hard goods equipment that feature performance advantages and functionality similar to our other product offerings.

2

Marketing and Promotion

We currently focus on marketing and selling our products to consumers primarily for use in athletics, fitness, training, outdoor activities and as part of an active lifestyle. We seek to drive consumer demand by building brand equity and awareness that our products deliver advantages to help athletes perform better.

Sports Marketing

Our marketing and promotion strategy begins with providing and selling our products to high- performing athletes and teams on the high school, collegiate and professional levels. We execute this strategy through outfitting agreements, professional and collegiate sponsorships, individual athlete agreements and by providing and selling our products directly to team equipment managers and to individual athletes. We also seek to sponsor events to drive awareness and brand authenticity from a grassroots level by hosting combines, camps and clinics for young athletes in many sports at regional sites across the country. As a result, our products are seen on the field, giving them exposure to various consumer audiences through the internet, television, magazines and live at sporting events. This exposure to consumers helps us establish on-field authenticity as consumers can see our products being worn by high-performing athletes.

We are the official outfitter of athletic teams in several high-profile collegiate conferences. We are an official supplier of footwear and gloves to the NFL. We are the Official Performance Footwear Supplier of MLB and a partner with the NBA which allows us to market our NBA athletes in game uniforms in connection with our basketball footwear. We are the official headwear and performance apparel provider for the NFL Scouting Combine and the official partner and title sponsor of the NBA Draft Combine, in each case with the right to sell licensed combine training apparel and headwear. In 2016, we entered into an agreement to be the Official On-Field Uniform Supplier, Official Authentic Performance Apparel Partner, and Official Connected Fitness Partner of MLB, now beginning with the 2019 season, which will allow us to provide on-field uniforms, apparel, and accessories to all thirty MLB clubs on an exclusive basis, and, together with our manufacturing partner sell a broad range of MLB licensed merchandise. Internationally, we sponsor and sell our products to several European and Latin American soccer and rugby teams, which helps drive brand awareness in various countries and regions around the world.

Media

We feature our products in a variety of national digital, broadcast, and print media outlets. We also utilize social and mobile media to engage consumers and promote connectivity with our brand and our products, and plan to increase our use of social media promotion in the future. For example, in 2017, we launched our first entirely digital marketing campaign for our “Unlike Any” women’s campaign, which included a variety of content on various social media platforms.

Retail Presentation

The primary component of our retail marketing strategy is to increase brand floor space dedicated to our products within our major retail accounts. The design and funding of Under Armour concept shops within our major retail accounts has been a key initiative for securing prime floor space, educating the consumer and creating an exciting environment for the consumer to experience our brand. Under Armour concept shops enhance our brand’s presentation within our major retail accounts with a shop-in-shop approach, using dedicated floor space exclusively for our products, including flooring, lighting, walls, displays and images.

3

Sales and Distribution

The majority of our sales are generated through wholesale channels, which include national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments and leagues and teams. In addition, we sell our products to independent distributors in various countries where we generally do not have direct sales operations and through licensees.

We also sell our products directly to consumers through our own network of brand and factory house stores in our North America, Europe, the Middle East and Africa (“EMEA”), Latin America and Asia-Pacific operating segments, and through websites globally. Factory house stores serve an important role in our overall inventory management by allowing us to sell a significant portion of excess, discontinued and out-of-season products while maintaining the pricing integrity of our brand in our other distribution channels. Through our brand house stores, consumers experience our brand first-hand and have broader access to our performance products. In 2017, sales through our wholesale, direct to consumer, licensing and Connected Fitness channels represented 61%, 35%, 2% and 2% of net revenues, respectively.

We believe the trend toward performance products is global and plan to continue to introduce our products and simple merchandising story to athletes throughout the world. We are introducing our performance apparel, footwear and accessories outside of North America in a manner consistent with our past brand-building strategy, including selling our products directly to teams and individual athletes in these markets, thereby providing us with product exposure to broad audiences of potential consumers.

Our primary business operates in four geographic segments: (1) North America, comprising the United States and Canada, (2) EMEA, (3) Asia-Pacific, and (4) Latin America. Each of these geographic segments operate predominantly in one industry: the design, development, marketing and distribution of performance apparel, footwear and accessories. We also operate our Connected Fitness business as a separate segment. The following table presents net revenues by segment for each of the years ending December 31, 2017, 2016 and 2015:

Year ended December 31,

2017 2016 2015

(In thousands) Net Revenues % of

Net Revenues Net Revenues % of

Net Revenues Net Revenues % of

Net Revenues

North America $3,802,406 76.5% $4,005,314 83.0% $3,455,737 87.2% EMEA 469,997 9.4 330,584 6.9 203,109 5.1 Asia-Pacific 433,647 8.7 268,607 5.6 144,877 3.7 Latin America 181,324 3.6 141,793 2.9 106,175 2.7 Connected

Fitness 89,179 1.8 80,447 1.6 53,415 1.3 Intersegment

Eliminations — — (1,410) — — —

Total net revenues $4,976,553 100.0% $4,825,335 100.0% $3,963,313 100.0%

North America

Our North America segment accounted for approximately 76.5% of our net revenues for 2017. We sell our branded apparel, footwear and accessories in North America through our wholesale and direct to consumer channels. Net revenues generated from the sales of our products in the United States

4

were $3.6 billion, $3.8 billion and $3.3 billion for the years ended December 31, 2017, 2016 and 2015 respectively. See Note 16 to the Consolidated Financial Statements. No customers accounted for more than 10% of our net revenues in 2017.

Our direct to consumer sales are generated through our brand and factory house stores and internet websites. As of December 31, 2017, we had 162 factory house stores in North America primarily located in outlet centers throughout the United States. As of December 31, 2017, we had 19 brand house stores in North America. Consumers can purchase our products directly from our e-commerce website, www.underarmour.com.

In addition, we earn licensing revenue in North America based on our licensees’ sale of collegiate and league apparel and accessories, as well as sales of other licensed products. In order to maintain consistent quality and performance, we pre-approve all products manufactured and sold by our licensees, and our quality assurance team strives to ensure that the products meet the same quality and compliance standards as the products that we sell directly.

We distribute the majority of our products sold to our North American wholesale customers and our brand and factory house stores from distribution facilities we lease and operate in California, Maryland and Tennessee. In addition, we distribute our products in North America through third-party logistics providers with primary locations in Canada, New Jersey and Florida. In some instances, we arrange to have products shipped from the factories that manufacture our products directly to customer-designated facilities.

International

Approximately 21.7% of our net revenues were generated from our international segments in 2017. We plan to continue to grow our business over the long term in part through expansion in international markets.

EMEA

We sell our apparel, footwear and accessories primarily through wholesale customers, website operations, independent distributors and a limited number of stores we operate in certain European countries. We also sell our branded products to various sports clubs and teams in Europe. We generally distribute our products to our retail customers and e-commerce consumers in Europe through a third-party logistics provider. We sell our apparel, footwear and accessories through independent distributors in the Middle East and Africa. In 2017 we began selling our products to wholesale customers in Russia.

Asia-Pacific

We sell our apparel, footwear and accessories products in China, South Korea and Australia through stores operated by our distribution and wholesale partners, along with website operations and stores we operate. We also sell our products to distributors in New Zealand, Taiwan, Hong Kong and other countries in Southeast Asia where we do not have direct sales operations. We distribute our products in Asia-Pacific primarily through a third-party logistics provider based out of Hong Kong.

We have a license agreement with Dome Corporation, which produces, markets and sells our branded apparel, footwear and accessories in Japan. Our branded products are sold in Japan to large sporting goods retailers, independent specialty stores and professional sports teams, and through licensee-owned retail stores. We hold a cost-based minority investment in Dome.

5

Latin America

We sell our products in Mexico, Chile, Brazil and Argentina through wholesale customers, website operations and brand and factory house stores. In these countries we operate through third-party distribution facilities. In other Latin American countries we distribute our products through independent distributors which are sourced through our international distribution hubs in Hong Kong, Jordan and Panama.

Connected Fitness

In 2013, we began offering digital fitness subscriptions and licenses, along with digital advertising through our MapMyFitness platform. In 2015, we acquired the Endomondo and MyFitnessPal platforms to create our Connected Fitness business. Approximately 1.8% of our net revenues were generated from our Connected Fitness business in 2017. We plan to engage and grow this community by developing innovative services and other digital solutions to impact how athletes and fitness-minded individuals train, perform and live.

Seasonality

Historically, we have recognized a majority of our net revenues and a significant portion of our income from operations in the last two quarters of the year, driven primarily by increased sales volume of our products during the fall selling season, including our higher priced cold weather products, along with a larger proportion of higher margin direct to consumer sales. The level of our working capital generally reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and certain accrued expenses to be higher in the second and third quarters in preparation for the fall selling season.

Product Design and Development

Our products are manufactured with technical fabrications produced by third parties and developed in collaboration with our product development teams. This approach enables us to select and create superior, technically advanced fabrics, produced to our specifications, while focusing our product development efforts on design, fit, climate and product end use.

We seek to regularly upgrade and improve our products with the latest in innovative technology while broadening our product offerings. Our goal, to deliver superior performance in all our products, provides our developers and licensees with a clear, overarching direction for the brand and helps them identify new opportunities to create performance products that meet the changing needs of athletes. We design products with “visible technology,” utilizing color, texture and fabrication to enhance our customers’ perception and understanding of product use and benefits.

Our product development team works closely with our sports marketing and sales teams as well as professional and collegiate athletes to identify product trends and determine market needs. For example, these teams worked closely to identify the opportunity and market for our COLDGEAR®

Infrared product, which is a ceramic print technology on the inside of our garments that provides athletes with lightweight warmth, and Speedform®, a proprietary 3-dimensional molding technology for footwear which delivers superior fit and feel. In 2017 we also opened our newest center for footwear performance innovation located in Portland, Oregon, bringing together footwear design and development teams into a centralized location.

Sourcing, Manufacturing and Quality Assurance

Many of the specialty fabrics and other raw materials used in our apparel products are technically advanced products developed by third parties and may be available, in the short term, from a limited

6

number of sources. The fabric and other raw materials used to manufacture our apparel products are sourced by our contracted manufacturers from a limited number of suppliers pre-approved by us. In 2017, approximately 53% of the fabric used in our apparel products came from five suppliers. These fabric suppliers have primary locations in Taiwan, Malaysia and Mexico. The fabrics used by our suppliers and manufacturers are primarily synthetic fabrics and involve raw materials, including petroleum based products that may be subject to price fluctuations and shortages. We also use cotton in our apparel products, as blended fabric and also in our CHARGED COTTON® line. Cotton is a commodity that is subject to price fluctuations and supply shortages. Additionally, our footwear uses raw materials that are sourced from a diverse base of third party suppliers. This includes chemicals and petroleum-based components such as rubber that are also subject to price fluctuations and supply shortages.

Substantially all of our products are manufactured by unaffiliated manufacturers. In 2017, our apparel and accessories products were manufactured by 39 primary contract manufacturers, operating in 17 countries, with approximately 61% of our apparel and accessories products manufactured in Jordan, Vietnam, China and Malaysia. Of our 39 primary contract manufacturers, 10 produced approximately 57% of our apparel and accessories products. In 2017, our footwear products were manufactured by seven primary contract manufacturers, operating primarily in Vietnam, China and Indonesia. Of our seven primary contract manufacturers, five produced approximately 83% of our footwear products.

All manufacturers across all product divisions are evaluated for quality systems, social compliance and financial strength by our internal teams prior to being selected and on an ongoing basis. Where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications. We also seek out vendors that can perform multiple manufacturing stages, such as procuring raw materials and providing finished products, which helps us to control our cost of goods sold. We enter into a variety of agreements with our contract manufacturers, including non-disclosure and confidentiality agreements, and we require that all of our manufacturers adhere to a code of conduct regarding quality of manufacturing and working conditions and other social concerns. We do not, however, have any long term agreements requiring us to utilize any manufacturer, and no manufacturer is required to produce our products in the long term. We have subsidiaries strategically located near our key partners to support our manufacturing, quality assurance and sourcing efforts for our products. We also manufacture a limited number of products primarily for high-profile athletes and teams, on-premises in our quick turn, Special Make-Up Shop located at one of our facilities in Maryland.

Inventory Management

Inventory management is important to the financial condition and operating results of our business. We manage our inventory levels based on existing orders, anticipated sales and the rapid- delivery requirements of our customers. Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and processes in place to improve our inventory management. These systems and processes, including our new global operating and financial reporting information technology system, are designed to improve our forecasting and supply planning capabilities. In addition to systems and processes, key areas of focus that we believe will enhance inventory performance are added discipline around the purchasing of product, production lead time reduction, and better planning and execution in selling of excess inventory through our factory house stores and other liquidation channels.

Our practice, and the general practice in the apparel, footwear and accessory industries, is to offer retail customers the right to return defective or improperly shipped merchandise. As it relates to new product introductions, which can often require large initial launch shipments, we commence production

7

before receiving orders for those products from time to time. This can affect our inventory levels as we build pre-launch quantities.

Intellectual Property

We believe we own the material trademarks used in connection with the marketing, distribution and sale of our products, both domestically and internationally, where our products are currently sold or manufactured. Our major trademarks include the UA Logo and UNDER ARMOUR®, both of which are registered in the United States, Canada, Mexico, the European Union, Japan, China and numerous other countries. We also own trademark registrations for other trademarks including, among others, UA®, ARMOUR®, HEATGEAR®, COLDGEAR®, ALLSEASONGEAR®, PROTECT THIS HOUSE®, I WILL®, and many trademarks that incorporate the term ARMOUR such as, ARMOURSTORM®, ARMOUR® FLEECE, and ARMOUR BRA®. We also own applications to protect connected fitness branding such as UNDER ARMOUR CONNECTED FITNESS™. We own domain names for our primary trademarks (most notably underarmour.com and ua.com) and hold copyright registrations for several commercials, as well as for certain artwork. We intend to continue to strategically register, both domestically and internationally, trademarks and copyrights we utilize today and those we develop in the future. We will continue to aggressively enforce our trademarks and pursue those who infringe, both domestically and internationally.

We believe the distinctive trademarks we use in connection with our products are important in building our brand image and distinguishing our products from those of others. These trademarks are among our most valuable assets. In addition to our distinctive trademarks, we also place significant value on our trade dress, which is the overall image and appearance of our products, and we believe our trade dress helps to distinguish our products in the marketplace.

We traditionally have had limited patent protection on much of the technology, materials and processes used in the manufacture of our products. In addition, patents are increasingly important with respect to our innovative products and new businesses and investments, particularly in our Connected Fitness business. As we continue to expand and drive innovation in our products, we expect to seek patent protection on products, features and concepts we believe to be strategic and important to our business. We will continue to strategically file patent applications where we deem appropriate to protect our new products, innovations and designs. We expect the number of applications to increase as our business grows and as we continue to expand our products and innovate.

Competition

The market for performance apparel, footwear and accessories is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. Many of the fabrics and technology used in manufacturing our products are not unique to us, and we own a limited number of fabric or process patents. Many of our competitors are large apparel and footwear companies with strong worldwide brand recognition and significantly greater resources than us, such as Nike and Adidas. We also compete with other manufacturers, including those specializing in performance apparel and footwear, and private label offerings of certain retailers, including some of our retail customers.

In addition, we must compete with others for purchasing decisions, as well as limited floor space at retailers. We believe we have been successful in this area because of the relationships we have developed and as a result of the strong sales of our products. However, if retailers earn higher margins from our competitors’ products, they may favor the display and sale of those products.

We believe we have been able to compete successfully because of our brand image and recognition, the performance and quality of our products and our selective distribution policies. We also

8

believe our focused gearline merchandising story differentiates us from our competition. In the future we expect to compete for consumer preferences and expect that we may face greater competition on pricing. This may favor larger competitors with lower production costs per unit that can spread the effect of price discounts across a larger array of products and across a larger customer base than ours. The purchasing decisions of consumers for our products often reflect highly subjective preferences that can be influenced by many factors, including advertising, media, product sponsorships, product improvements and changing styles.

Employees

As of December 31, 2017, we had approximately 15,800 employees, including approximately 9,900 in our brand and factory house stores and approximately 1,500 at our distribution facilities. Approximately 6,900 of our employees were full-time. Most of our employees are located in the United States. None of our employees in the United States are currently covered by a collective bargaining agreement and there are no material collective bargaining agreements in effect in any of our international locations. We have had no labor-related work stoppages, and we believe our relations with our employees are good.

Available Information

We will make available free of charge on or through our website at www.underarmour.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file these materials with the Securities and Exchange Commission. We also post on this website our key corporate governance documents, including our board committee charters, our corporate governance guidelines and our code of conduct and ethics.

9

ITEM 1A. RISK FACTORS

Forward-Looking Statements

Some of the statements contained in this Form 10-K and the documents incorporated herein by reference constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, our anticipated charges and restructuring costs and the timing of these measures, the impact of recent tax reform legislation on our results of operations, the development and introduction of new products and the implementation of our marketing and branding strategies. In many cases, you can identify forward- looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “outlook,” “potential” or the negative of these terms or other comparable terminology.

The forward-looking statements contained in this Form 10-K and the documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by these forward-looking statements, including, but not limited to, those factors described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These factors include without limitation:

• changes in general economic or market conditions that could affect overall consumer spending or our industry;

• changes to the financial health of our customers;

• our ability to successfully execute our long-term strategies;

• our ability to successfully execute any restructuring plans and realize expected benefits;

• our ability to effectively drive operational efficiency in our business;

• our ability to manage the increasingly complex operations of our global business;

• our ability to comply with existing trade and other regulations, and the potential impact of new trade and tax regulations on our profitability;

• our ability to effectively develop and launch new, innovative and updated products;

• our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands;

• any disruptions, delays or deficiencies in the design, implementation or application of our new global operating and financial reporting information technology system;

• increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts;

• fluctuations in the costs of our products;

• loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner, including due to port disruptions;

• our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries;

10

• our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results;

• our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures;

• risks related to foreign currency exchange rate fluctuations;

• our ability to effectively market and maintain a positive brand image;

• the availability, integration and effective operation of information systems and other technology, as well as any potential interruption of such systems or technology;

• risks related to data security or privacy breaches;

• our ability to raise additional capital required to grow our business on terms acceptable to us;

• our potential exposure to litigation and other proceedings; and

• our ability to attract key talent and retain the services of our senior management and key employees.

The forward-looking statements contained in this Form 10-K reflect our views and assumptions only as of the date of this Form 10-K. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Our results of operations and financial condition could be adversely affected by numerous risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this Form 10-K. Should any of these risks actually materialize, our business, financial condition and future prospects could be negatively impacted.

During a downturn in the economy, consumer purchases of discretionary items are affected,

which could materially harm our sales, profitability and financial condition.

Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, the availability of consumer credit and consumer confidence in future economic conditions. Uncertainty in global economic conditions continues, and trends in consumer discretionary spending remain unpredictable. However, consumer purchases of discretionary items tend to decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty, which may slow our growth more than we anticipate. A downturn in the economies in markets in which we sell our products, particularly in North America, may materially harm our sales, profitability and financial condition.

We derive a substantial portion of our sales from large wholesale customers. If the financial

condition of our customers declines, our financial condition and results of operations could be

adversely impacted.

In 2017, sales through our wholesale channel represented approximately 61% of our net revenues. We extend credit to our wholesale customers based on an assessment of a customer’s financial condition, generally without requiring collateral. We face increased risk of order reduction or cancellation when dealing with financially ailing customers or customers struggling with economic uncertainty. During weak economic conditions, customers may be more cautious with orders or may slow investments necessary to maintain a high quality in-store experience for consumers, which may result in lower sales of our products. In addition, a slowing economy in our key markets or a continued

11

decline in consumer purchases of sporting goods generally could have an adverse effect on the financial health of our customers. From time to time certain of our customers have experienced financial difficulties. To the extent one or more of our customers experience significant financial difficulty, bankruptcy, insolvency or cease operations, this could have a material adverse effect on our sales, our ability to collect on receivables and our financial condition and results of operations.

A decline in sales to, or the loss of, one or more of our key customers could result in a material

loss of net revenues and negatively impact our prospects for growth.

We generate a significant portion of our wholesale revenues from sales to our largest customers. We currently do not enter into long term sales contracts with our key customers, relying instead on our relationships with these customers and on our position in the marketplace. As a result, we face the risk that these key customers may not increase their business with us as we expect, or may significantly decrease their business with us or terminate their relationship with us. The failure to increase our sales to these customers as much as we anticipate would have a negative impact on our growth prospects and any decrease or loss of these key customers’ business could result in a material decrease in our net revenues and net income. In addition, our customers continue to experience ongoing industry consolidation, particularly in the sports specialty sector. As this consolidation continues, it increases the risk that if any one customer significantly reduces their purchases of our products, we may be unable to find sufficient alternative customers to continue to grow our net revenues, or our net revenues may decline.

We may not successfully execute our long-term strategies, which may negatively impact our

results of operations.

Our ability to execute on our long-term strategies depends, in part, on successfully executing on strategic growth initiatives in key areas, such as our international business, footwear and our global direct to consumer sales channel. Our growth in these areas depends on our ability to continue to successfully expand our global network of brand and factory house stores, grow our e-commerce and mobile application offerings throughout the world and continue to successfully increase our product offerings and market share in footwear. Our ability to continue to invest in these growth initiatives in the near-term may be negatively impacted by the performance of our North America business, which represented 77% of our total net revenues in 2017 but declined by 5% over 2016, and in particular the performance of our wholesale channel in North America. Our ability to execute on our long-term strategy also depends on our ability to successfully manage our cost structure and drive return on our investments. If we cannot effectively execute our long-term growth strategies while managing costs effectively, our business and results of operations could be negatively impacted.

We may not fully realize the expected benefits of any restructuring plans or other operating or

cost-saving initiatives, which may negatively impact our profitability.

We have recently announced restructuring plans designed to more closely align our financial resources against the critical priorities of our business. These plans have included initiatives to improve operational efficiencies, and our 2017 restructuring plan included a reduction in our global workforce. We may not achieve our targeted operational improvements and efficiencies, which could adversely impact our results of operations and financial condition. In addition, implementing any restructuring plan presents significant potential risks that may impair our ability to achieve anticipated operating improvements and/or cost reductions. These risks include, among others, higher than anticipated costs in implementing our restructuring plans, management distraction from ongoing business activities, failure to maintain adequate controls and procedures while executing our restructuring plans, damage to our reputation and brand image and workforce attrition beyond planned reductions. If we fail to achieve targeted operating improvements and/or cost reductions, our profitability and results of

12

operations could be negatively impacted and we may be required to implement additional restructuring- related activities, which may be dilutive to our earnings in the short term.

We must successfully manage the increasingly complex operations of our global business, or

our business and results of operations may be negatively impacted.

We have expanded our business and operations rapidly since our inception and our net revenues have increased to $4,976.6 million in 2017 from $2,332.1 million in 2013. We must continue to successfully manage the operational difficulties associated with expanding our business to meet increased consumer demand throughout the world. We may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We must also continually evaluate the need to expand critical functions in our business, including sales and marketing, product development and distribution functions, our management information systems and other processes and technology. To support these functions, we must hire, train and manage an increasing number of employees, and obtain more space to support our expanding workforce. We may not be successful in undertaking these types of initiatives cost effectively or at all, and could experience serious operating difficulties if we fail to do so. These growth efforts could also increase the strain on our existing resources. If we experience difficulties in supporting the growth of our business, we could experience an erosion of our brand image and a decrease in net revenues and net income.

If we are unable to anticipate consumer preferences, successfully develop and introduce new,

innovative and updated products or engage our consumers, our net revenues and profitability

may be negatively impacted.

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. In addition, long lead times for certain of our products may make it hard for us to quickly respond to changes in consumer demands. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance or other sports products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes.

Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. If we fail to introduce technical innovation in our products or design products in the categories and styles that consumers want, demand for our products could decline and our brand image could be negatively impacted. Our failure to anticipate and respond timely to changing consumer preferences or to effectively introduce new products and enter into new product categories that are accepted by consumers could result in a decrease in net revenues and excess inventory levels, which could have a material adverse effect on our financial condition. In addition, if we experience problems with the quality of our products, our brand reputation may be negatively impacted and we may incur substantial expense to remedy the problems, which could negatively impact our results of operations.

In addition, consumer preferences regarding the shopping experience continue to rapidly evolve. If we or our wholesale customers do not provide consumers with an attractive in-store experience, or if we do not continue to provide an engaging and user-friendly digital commerce platform that attracts consumers, our brand image and results of operations could be negatively impacted.

13

Our results of operations could be materially harmed if we are unable to accurately forecast

demand for our products.

To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers before firm orders are placed by our customers. In addition, a significant portion of our net revenues are generated by at-once orders for immediate delivery to customers, particularly during the last two quarters of the year, which historically has been our peak season. If we fail to accurately forecast customer demand we may experience excess inventory levels or a shortage of product to deliver to our customers.

Factors that could affect our ability to accurately forecast demand for our products include:

• an increase or decrease in consumer demand for our products;

• our failure to accurately forecast consumer acceptance for our new products;

• product introductions by competitors;

• unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction or increase in the rate of reorders or at-once orders placed by retailers;

• the impact on consumer demand due to unseasonable weather conditions;

• weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and

• terrorism or acts of war, or the threat thereof, or political or labor instability or unrest which could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices or in less preferred distribution channels, which could impair our brand image and have an adverse effect on gross margin. In addition, if we underestimate the demand for our products, our manufacturers may not be able to produce products to meet our customer requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, lost sales, as well as damage to our reputation and retailer and distributor relationships.

The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely impact our profitability or cause us not to achieve our expected financial results.

Sales of performance products may not continue to grow or may decline, which could

negatively impact our sales and our ability to grow our business.

We believe continued growth in industry-wide sales of performance apparel, footwear and accessories will be largely dependent on consumers continuing to transition from traditional alternatives to performance products. If consumers are not convinced these products are a better choice than traditional alternatives, growth in the industry and our business could be adversely affected. In addition, because performance products are often more expensive than traditional alternatives, consumers who are convinced these products provide a better alternative may still not be convinced they are worth the extra cost. If industry-wide sales of performance products do not continue to grow or rather decline, our sales could be negatively impacted and we may not achieve our expected financial results. In addition, our ability to continue to grow our business in line with our expectations could be adversely impacted.

14

We operate in highly competitive markets and the size and resources of some of our

competitors may allow them to compete more effectively than we can, resulting in a loss of our

market share and a decrease in our net revenues and gross profit.

The market for performance apparel, footwear and accessories is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. Because we own a limited number of fabric or process patents, our current and future competitors are able to manufacture and sell products with performance characteristics and fabrications similar to certain of our products. Many of our competitors are large apparel and footwear companies with strong worldwide brand recognition. Due to the fragmented nature of the industry, we also compete with other manufacturers, including those specializing in products similar to ours and private label offerings of certain retailers, including some of our retail customers. Many of our competitors have significant competitive advantages, including greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition among consumers, more experience in global markets and greater economies of scale. In addition, our competitors have long term relationships with our key retail customers that are potentially more important to those customers because of the significantly larger volume and product mix that our competitors sell to them. As a result, these competitors may be better equipped than we are to influence consumer preferences or otherwise increase their market share by:

• quickly adapting to changes in customer requirements or consumer preferences;

• readily taking advantage of acquisition and other opportunities;

• discounting excess inventory that has been written down or written off;

• devoting resources to the marketing and sale of their products, including significant advertising, media placement, partnerships and product endorsement;

• adopting aggressive pricing policies; and

• engaging in lengthy and costly intellectual property and other disputes.

In addition, while one of our growth strategies has been to increase floor space for our products in retail stores and generally expand our distribution to other retailers, retailers have limited resources and floor space, and we must compete with others to develop relationships with them. Increased competition by existing and future competitors could result in reductions in floor space in retail locations, reductions in sales or reductions in the prices of our products, and if retailers have better sell through or earn greater margins from our competitors’ products, they may favor the display and sale of those products. Our inability to compete successfully against our competitors and maintain our gross margin could have a material adverse effect on our business, financial condition and results of operations.

Our profitability may decline as a result of increasing pressure on pricing.

Our industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer demand. These factors may cause us to reduce our prices to retailers and consumers or engage in more promotional activity than we anticipate, which could negatively impact our margins and cause our profitability to decline if we are unable to offset price reductions with comparable reductions in our operating costs. This could have a material adverse effect on our results of operations and financial condition. In addition, ongoing and sustained promotional activities could negatively impact our brand image.

15

Fluctuations in the cost of products could negatively affect our operating results.

The fabrics used by our suppliers and manufacturers are made of raw materials including petroleum-based products and cotton. Significant price fluctuations or shortages in petroleum or other raw materials can materially adversely affect our cost of goods sold. In addition, certain of our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate. The cost of transporting our products for distribution and sale is also subject to fluctuation due in large part to the price of oil. Because most of our products are manufactured abroad, our products must be transported by third parties over large geographical distances and an increase in the price of oil can significantly increase costs. Manufacturing delays or unexpected transportation delays can also cause us to rely more heavily on airfreight to achieve timely delivery to our customers, which significantly increases freight costs. Any of these fluctuations may increase our cost of products and have an adverse effect on our profit margins, results of operations and financial condition.

We rely on third-party suppliers and manufacturers to provide raw materials for and to produce

our products, and we have limited control over these suppliers and manufacturers and may not

be able to obtain quality products on a timely basis or in sufficient quantity.

Many of the materials used in our products are technically advanced products developed by third parties and may be available, in the short-term, from a very limited number of sources. Substantially all of our products are manufactured by unaffiliated manufacturers, and, in 2017, 10 manufacturers produced approximately 57% of our apparel and accessories products, and five produced approximately 83% of our footwear products. We have no long term contracts with our suppliers or manufacturing sources, and we compete with other companies for fabrics, raw materials, production and import quota capacity.

We may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, our unaffiliated manufacturers may not be able to fill our orders in a timely manner. If we experience significant increased demand, or we lose or need to replace an existing manufacturer or supplier as a result of adverse economic conditions or other reasons, additional supplies of fabrics or raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers or manufacturers may not be able to allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers on our methods, products and quality control standards. Any delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower net revenues and net income both in the short and long term.

We have occasionally received, and may in the future continue to receive, shipments of product that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenues resulting from the inability to sell those products and related increased administrative and shipping costs. In addition, because we do not control our manufacturers, products that fail to meet our standards or other unauthorized products could end up in the marketplace without our knowledge, which could harm our brand and our reputation in the marketplace.

16

Labor disruptions at ports or our suppliers or manufacturers may adversely affect our

business.

Our business depends on our ability to source and distribute products in a timely manner. As a result, we rely on the free flow of goods through open and operational ports worldwide and on a consistent basis from our suppliers and manufacturers. Labor disputes at various ports or at our suppliers or manufacturers create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions during our peak importing or manufacturing seasons, and could have an adverse effect on our business, potentially resulting in canceled orders by customers, unanticipated inventory accumulation or shortages and reduced net revenues and net income.

Our limited operating experience and limited brand recognition in new markets may limit our

expansion strategy and cause our business and growth to suffer.

Our future growth depends in part on our expansion efforts outside of North America. During the year ended December 31, 2017, 77% of our net revenues were earned in our North America segment. We have limited experience with regulatory environments and market practices in certain regions outside of North America, and may face difficulties in expanding to and successfully operating in those markets. International expansion may place increased demands on our operational, managerial and administrative resources and may be more costly than we expect. In addition, in connection with expansion efforts outside of North America, we may face cultural and linguistic differences, differences in regulatory environments, labor practices and market practices and difficulties in keeping abreast of market, business and technical developments and customers’ tastes and preferences. We may also encounter difficulty expanding into new markets because of more limited brand recognition leading to delayed acceptance of our products. Failure to develop new markets outside of North America will limit our opportunities for growth.

The operations of many of our manufacturers are subject to additional risks that are beyond

our control and that could harm our business.

In 2017, our products were manufactured by 39 primary manufacturers, operating in 17 countries, with 10 manufacturers accounting for approximately 57% of our apparel and accessories products, and five produced approximately 83% of our footwear products. Approximately 61% of our apparel and accessories products were manufactured in Jordan, Vietnam, China and Malaysia. As a result of our international manufacturing, we are subject to risks associated with doing business abroad, including:

• political or labor unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured;

• currency exchange fluctuations;

• the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, trade restrictions and restrictions on the transfer of funds, as well as rules and regulations regarding climate change;

• reduced protection for intellectual property rights in some countries;

• disruptions or delays in shipments; and

• changes in local economic conditions in countries where our manufacturers and suppliers are located.

These risks could negatively affect the ability of our manufacturers to produce or deliver our products or procure materials, hamper our ability to sell products in international markets and increase

17

our cost of doing business generally. In the event that one or more of these factors make it undesirable or impractical for us to conduct business in a particular country, our business could be adversely affected.

In addition, many of our imported products are subject to duties, tariffs or other import limitations that affect the cost and quantity of various types of goods imported into the United States and other markets. Any country in which our products are produced or sold may eliminate, adjust or impose new import limitations, duties, anti-dumping penalties or other charges or restrictions, any of which could have an adverse effect on our results of operations, cash flows and financial condition.

If we fail to successfully manage or realize expected results from acquisitions and other

significant investments, it may have a material adverse effect on our results of operations and

financial position.

From time to time we may engage in acquisition opportunities we believe are complementary to our business and brand. Integrating acquisitions can also require significant efforts and resources, which could divert management attention from more profitable business operations. Failing to successfully integrate acquired entities and businesses or to produce results consistent with financial models used in the analysis of our acquisitions could potentially result in an impairment of goodwill and intangible assets, which could have a material adverse effect on our results of operations and financial position.

Our credit agreement contains financial covenants, and both our credit agreement and debt

securities contain other restrictions on our actions, which could limit our operational flexibility

or otherwise adversely affect our financial condition.

We have, from time to time, financed our liquidity needs in part from borrowings made under our credit facility and the issuance of debt securities. Our debt securities limit our ability to, subject to certain significant exceptions, incur secured debt and engage in sale leaseback transactions. Our credit agreement contains negative covenants that, subject to significant exceptions limit our ability, among other things to incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. In addition, we must maintain a certain leverage ratio and interest coverage ratio as defined in the credit agreement. In February 2018, we amended our credit agreement to increase our permitted leverage ratio during certain quarters in 2018. Failure to comply with these operating or financial covenants could result from, among other things, changes in our results of operations or general economic conditions. These covenants may restrict our ability to engage in transactions that would otherwise be in our best interests. Failure to comply with any of the covenants under the credit agreement or our debt securities could result in a default. In addition, the credit agreement includes a cross default provision whereby an event of default under certain other debt obligations (including our debt securities) will be considered an event of default under the credit agreement. If an event of default occurs, the commitments of the lenders under the credit agreement may be terminated and the maturity of amounts owed may be accelerated. Our debt securities include a cross acceleration provision which provides that the acceleration of certain other debt obligations (including our credit agreement) will be considered an event of default under our debt securities and, subject to certain time and notice periods, give bondholders the right to accelerate our debt securities.

We may need to raise additional capital required to grow our business, and we may not be able

to raise capital on terms acceptable to us or at all.

Growing and operating our business will require significant cash outlays and capital expenditures and commitments. We have utilized cash on hand and cash generated from operations, accessed our

18

credit facility and issued debt securities as sources of liquidity. If cash on hand and cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financing, to fund our growth. Our ability to access the credit and capital markets in the future as a source of liquidity, and the borrowing costs associated with such financing, are dependent upon market conditions and our credit rating and outlook. Our credit ratings have been downgraded previously, and we cannot assure that we will be able to maintain our current ratings, which could increase our cost of borrowing in the future. In addition, equity financing may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price per share of our common stock. The holders of new securities may also have rights, preferences or privileges which are senior to those of existing holders of common stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.

Our operating results are subject to seasonal and quarterly variations in our net revenues and

income from operations, which could adversely affect the price of our publicly traded common

stock.

We have experienced, and expect to continue to experience, seasonal and quarterly variations in our net revenues and income from operations. These variations are primarily related to increased sales volume of our products during the fall selling season, including our higher price cold weather products, along with a larger proportion of higher margin direct to consumer sales. The majority of our net revenues were generated during the last two quarters in each of 2017, 2016 and 2015, respectively.

Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including, among other things, the timing of marketing expenses and changes in our product mix. Variations in weather conditions may also have an adverse effect on our quarterly results of operations. For example, warmer than normal weather conditions throughout the fall or winter may reduce sales of our COLDGEAR® line, leaving us with excess inventory and operating results below our expectations.

As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our operating results between different quarters within a single year are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance. Any seasonal or quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors. This could cause the price of our publicly traded stock to fluctuate significantly.

Our financial results could be adversely impacted by currency exchange rate fluctuations.

We generated approximately 27% of our consolidated net revenues outside the United States. As our international business grows, our results of operations could be adversely impacted by changes in foreign currency exchange rates. Revenues and certain expenses in markets outside of the United States are recognized in local foreign currencies, and we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our financial statements. Similarly, we are exposed to gains and losses resulting from currency exchange rate fluctuations on transactions generated by our foreign subsidiaries in currencies other than their local currencies. In addition, the business of our independent manufacturers may also be disrupted by currency exchange rate fluctuations by making their purchases of raw materials more expensive and more difficult to finance. As a result, foreign currency exchange rate fluctuations may adversely impact our results of operations.

19

The value of our brand and sales of our products could be diminished if we are associated with

negative publicity.

Our business could be negatively impacted if publicity diminishes the appeal of our brand to consumers. For example, while we require our suppliers, manufacturers and licensees of our products to operate their businesses in compliance with applicable laws and regulations as well as the social and other standards and policies we impose on them, including our code of conduct, we do not control their practices. A violation, or alleged violation of our policies, labor laws or other laws could interrupt or otherwise disrupt our sourcing or damage our brand image. Negative publicity regarding production methods, alleged practices or workplace or related conditions of any of our suppliers, manufacturers or licensees could adversely affect our reputation and sales and force us to locate alternative suppliers, manufacturers or licensees.

In addition, we have sponsorship contracts with a variety of athletes and feature those athletes in our advertising and marketing efforts, and many athletes and teams use our products, including those teams or leagues for which we are an official supplier. Actions taken by athletes, teams or leagues associated with our products could harm the reputations of those athletes, teams or leagues. These and other types of negative publicity, especially through social media which potentially accelerates and increases the scope of negative publicity, could negatively impact our brand image and result in diminished loyalty to our brand. This could have a negative effect on our sales and results of operations.

Sponsorships and designations as an official supplier may become more expensive and this

could impact the value of our brand image.

A key element of our marketing strategy has been to create a link in the consumer market between our products and professional and collegiate athletes. We have developed licensing agreements to be the official supplier of performance apparel and footwear to a variety of sports teams and leagues at the collegiate and professional level and sponsorship agreements with athletes. However, as competition in the performance apparel and footwear industry has increased, the costs associated with athlete sponsorships and official supplier licensing agreements have increased, including the costs associated with obtaining and retaining these sponsorships and agreements. If we are unable to maintain our current association with professional and collegiate athletes, teams and leagues, or to do so at a reasonable cost, we could lose the on-field authenticity associated with our products, and we may be required to modify and substantially increase our marketing investments. As a result, our brand image, net revenues, expenses and profitability could be materially adversely affected.

Our failure to comply with trade and other regulations could lead to investigations or actions by

government regulators and negative publicity.

The labeling, distribution, importation, marketing and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the U.S., as well as by various other federal, state, provincial, local and international regulatory authorities in the locations in which our products are distributed or sold. If we fail to comply with those regulations, we could become subject to significant penalties or claims or be required to recall products, which could negatively impact our results of operations and disrupt our ability to conduct our business, as well as damage our brand image with consumers. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant unanticipated compliance costs or discontinuation of product sales and may impair the marketing of our products, resulting in significant loss of net revenues.

Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws applicable to our operations. Although we have

20

policies and procedures to address compliance with the FCPA and similar laws, there can be no assurance that all of our employees, agents and other partners will not take actions in violations of our policies. Any such violation could subject us to sanctions or other penalties that could negatively affect our reputation, business and operating results.

If we encounter problems with our distribution system, our ability to deliver our products to the

market could be adversely affected.

We rely on a limited number of distribution facilities for our product distribution. Our distribution facilities utilize computer controlled and automated equipment, which means the operations are complicated and may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. In addition, because many of our products are distributed from a limited number of locations, our operations could also be interrupted by severe weather conditions, floods, fires or other natural disasters in these locations, as well as labor or other operational difficulties or interruptions. We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could be caused by significant disruptions in our distribution facilities, such as the long term loss of customers or an erosion of our brand image. In addition, our distribution capacity is dependent on the timely performance of services by third parties, including the shipping of product to and from our distribution facilities. If we encounter problems with our distribution facilities, our results of operations, as well as our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be materially adversely affected.

We rely significantly on information technology and any failure, inadequacy or interruption of

that technology could harm our ability to effectively operate our business.

Our business relies on information technology. Our ability to effectively manage and maintain our inventory and internal reports, and to ship products to customers and invoice them on a timely basis depends significantly on our enterprise resource planning, warehouse management, and other information systems. We also heavily rely on information systems to process financial and accounting information for financial reporting purposes. Any of these information systems could fail or experience a service interruption for a number of reasons, including computer viruses, programming errors, hacking or other unlawful activities, disasters or our failure to properly maintain system redundancy or protect, repair, maintain or upgrade our systems. The failure of our information systems to operate effectively or to integrate with other systems, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, which could negatively impact our financial results. If we experienced any significant disruption to our financial information systems that we are unable to mitigate, our ability to timely report our financial results could be impacted, which could negatively impact our stock price. We also communicate electronically throughout the world with our employees and with third parties, such as customers, suppliers, vendors and consumers. A service interruption or shutdown could have a materially adverse impact on our operating activities. Remediation and repair of any failure, problem or breach of our key information systems could require significant capital investments.

In addition, we interact with many of our consumers through both our e-commerce website and our mobile applications, and these systems face similar risk of interruption or attack. Consumers increasingly utilize these services to purchase our products and to engage with our Connected Fitness community. If we are unable to continue to provide consumers a user-friendly experience and evolve our platform to satisfy consumer preferences, the growth of our e-commerce business and our net revenues may be negatively impacted. The performance of our Connected Fitness business is dependent on reliable performance of its products, applications and services and the underlying technical infrastructure, which incorporate complex software. If this software contains errors, bugs or

21

other vulnerabilities which impede or halt service, this could result in damage to our reputation and brand, loss of users or loss of revenue.

Data security or privacy breaches could damage our reputation, cause us to incur additional

expense, expose us to litigation and adversely affect our business and results of operations.

We collect sensitive and proprietary business information as well as personally identifiable information in connection with digital marketing, digital commerce, our in-store payment processing systems and our Connected Fitness business. In particular, in our Connected Fitness business we collect and store a variety of information regarding our users, and allow users to share their personal information with each other and with third parties. We also rely on third parties for the operation of certain of our e-commerce websites, and do not control these service providers. Hackers and data thieves are increasingly sophisticated and operate large scale and complex automated attacks. Any breach of our data security or that of our service providers could result in an unauthorized release or transfer of customer, consumer, user or employee information, or the loss of valuable business data or cause a disruption in our business. These events could give rise to unwanted media attention, damage our reputation, damage our customer, consumer or user relationships and result in lost sales, fines or lawsuits. We may also be required to expend significant capital and other resources to protect against or respond to or alleviate problems caused by a security breach, which could negatively impact our results of operations.

We must also comply with increasingly complex regulatory standards throughout the world enacted to protect personal information and other data. Compliance with existing, proposed and forthcoming laws and regulations can be costly and could negatively impact our profitability. In addition, an inability to maintain compliance with these regulatory standards could result in a violation of data privacy laws and regulations and subject us to litigation or other regulatory proceedings. This could negatively impact our profitability, result in negative publicity and damage our brand image or cause the size of our Connected Fitness community to decline.

We are in the process of implementing a new operating and information system, which involves

risks and uncertainties that could adversely affect our business.

We are in the process of implementing a global operating and financial reporting information technology system as part of a multi-year plan to integrate and upgrade our systems and processes, which began in 2015 and will continue in phases over the next several years. The first phase of this implementation became operational during 2017 in our North America, EMEA and Connected Fitness operations, and we are in the process of developing an implementation strategy and roll-out plan for our Asia-Pacific and Latin American regions. Implementation of new information systems involves risks and uncertainties. Any disruptions, delays, or deficiencies in the design, implementation or application of these systems could result in increased costs, disruptions in our ability to effectively source, sell or ship our products, delays in the collection of payment from our customers or adversely affect our ability to timely report our financial results, all of which could materially adversely affect our business, results of operations, and financial condition.

Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income

tax rate and profitability.

We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate could be adversely affected in the future by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and regulations or their interpretations and application, the outcome of income tax audits in various jurisdictions around the world, and any

22

repatriation of non-U.S. earnings for which we have not previously provided for applicable withholding tax, U.S. state income taxes, or foreign exchange rate impacts. Many of the countries in which we do business have or are expected to adopt changes to tax laws as result of the Base Erosion and Profit Shifting final proposals from the Organization for Economic Co-operation and Development and specific country anti-avoidance initiatives. We regularly assess all of these matters to determine the adequacy of our tax provision, which is subject to significant judgment.

The United States enacted the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017, which had a significant impact to our provision for income taxes as of December 31, 2017. The Tax Act includes a number of changes to existing U.S. tax laws that impact us, including the reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The Tax Act also provides for a one-time transition tax on indefinitely reinvested foreign earnings and the acceleration of depreciation for certain assets, as well as prospective changes beginning in 2018, including the elimination of certain domestic deductions and credits, capitalization of research and development expenditures, and limitations on the deductibility of executive compensation and interest. The Tax Act transitions U.S. international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation.

The Tax Act requires complex computations to be performed that were not previously required under U.S. tax law, significant judgments to be made in interpretation of the provisions of the Tax Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the Tax Act, review all information, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded, which could have a material adverse effect on our business, results of operations or financial condition.

Our financial results may be adversely affected if substantial investments in businesses and

operations fail to produce expected returns.

From time to time, we may invest in business infrastructure, new businesses, and expansion of existing businesses, such as the ongoing expansion of our network of brand and factory house stores and our distribution facilities, the expansion of our corporate headquarters, investments to implement our global operating and financial reporting information technology system, or investments to support our digital strategy. These investments require substantial cash investments and management attention. We believe cost effective investments are essential to business growth and profitability. The failure of any significant investment to provide the returns or synergies we expect could adversely affect our financial results. Infrastructure investments may also divert funds from other potential business opportunities.

Our future success is substantially dependent on the continued service of our senior

management and other key employees.

Our future success is substantially dependent on the continued service of our senior management and other key employees, particularly Kevin A. Plank, our founder, Chairman and Chief Executive Officer. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and achieve our business goals.

We also may be unable to retain existing management, product creation, innovation, sales, marketing, operational and other support personnel that are critical to our success, which could result

23

in harm to key customer relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs.

If we are unable to attract and retain new team members, including senior management, we

may not be able to achieve our business objectives.

Our growth has largely been the result of significant contributions by our current senior management, product design teams and other key employees. However, to be successful in continuing to profitably grow our business and manage our operations, we will need to continue to attract, retain and motivate highly talented management and other employees with a range of skills and experience. Competition for employees in our industry is intense and we have experienced difficulty from time to time in attracting the personnel necessary to support the growth of our business, and we may experience similar difficulties in the future. If we are unable to attract, assimilate and retain management and other employees with the necessary skills, we may not be able to grow or successfully operate our business and achieve our long term objectives.

A number of our fabrics and manufacturing technology are not patented and can be imitated by

our competitors.

The intellectual property rights in the technology, fabrics and processes used to manufacture our products are generally owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain patent protection for our products is limited and we currently own a limited number of fabric or process patents. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics and fabrications similar to certain of our products. Because many of our competitors have significantly greater financial, distribution, marketing and other resources than we do, they may be able to manufacture and sell products based on certain of our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenues and profitability could be materially adversely affected.

Our intellectual property rights could potentially conflict with the rights of others and we may

be prevented from selling or providing some of our products.

Our success depends in large part on our brand image. We believe our registered and common law trademarks have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products. In addition, patents are increasingly important with respect to our innovative products and new businesses and investments, including our digital business. From time to time, we have received or brought claims relating to intellectual property rights of others, and we expect such claims will continue or increase, particularly as we expand our business and the number of products we offer. Any such claim, regardless of its merit, could be expensive and time consuming to defend or prosecute. Successful infringement claims against us could result in significant monetary liability or prevent us from selling or providing some of our products. In addition, resolution of claims may require us to redesign our products, license rights belonging to third parties or cease using those rights altogether. Any of these events could harm our business and have a material adverse effect on our results of operations and financial condition.

Our failure to protect our intellectual property rights could diminish the value of our brand,

weaken our competitive position and reduce our net revenues.

We currently rely on a combination of copyright, trademark and trade dress laws, patent laws, unfair competition laws, confidentiality procedures and licensing arrangements to establish and protect

24

our intellectual property rights. The steps taken by us to protect our proprietary rights may not be adequate to prevent infringement of our trademarks and proprietary rights by others, including imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished and our competitive position may suffer.

From time to time, we discover unauthorized products in the marketplace that are either counterfeit reproductions of our products or unauthorized irregulars that do not meet our quality control standards. If we are unsuccessful in challenging a third party’s products on the basis of trademark infringement, continued sales of their products could adversely impact our brand, result in the shift of consumer preferences away from our products and adversely affect our business.

We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation.

We are subject to periodic claims, litigation and investigations that could result in unexpected

expenses and have an adverse effect on our business, financial condition and results of

operations.

Given the size and extent of our global operations, we are involved in a variety of litigation, arbitration and other legal proceedings and subject to investigations, audits, inquiries and similar actions, including matters related to commercial disputes, intellectual property, employment, securities, class action and product liability, as well as trade, regulatory and other claims related to our business and our industry. These matters include those contained in Note 7 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Legal proceedings in general, and securities and class action litigation and investigations in particular, can be expensive and disruptive. Any of our legal proceedings could result in damages, fines or other penalties, divert financial and management resources and result in significant legal fees. We cannot predict the outcome of any particular proceeding, and the costs incurred in these matters can be substantial, regardless of the outcome. An unfavorable outcome may have an adverse impact on our business, financial condition and results of operations. In addition, any proceeding could negatively impact our reputation among our customers and our brand image.

The trading prices for our Class A and Class C common stock may differ and fluctuate from

time to time.

The trading prices of our Class A and Class C common stock may differ and fluctuate from time to time in response to various factors, some of which are beyond our control. These factors may include, among others, overall performance of the equity markets and the economy as a whole, variations in our quarterly results of operations or those of our competitors, our ability to meet our published guidance and securities analyst expectations, or recommendations by securities analysts. In addition, our non-voting Class C common stock has traded at a discount to our Class A common stock, and there can be no assurance that this will not continue.

Kevin Plank, our Chairman and Chief Executive Officer controls the majority of the voting

power of our common stock.

Our Class A common stock has one vote per share, our Class B common stock has 10 votes per share and our Class C common stock has no voting rights (except in limited circumstances). Our

25

Chairman and Chief Executive Officer, Kevin A. Plank, beneficially owns all outstanding shares of Class B common stock. As a result, Mr. Plank has the majority voting control and is able to direct the election of all of the members of our Board of Directors and other matters we submit to a vote of our stockholders. The Class B common stock automatically converts to Class A common stock when Mr. Plank beneficially owns less than 15.0% of the total number of shares of Class A and Class B common stock outstanding and in other limited circumstances. This concentration of voting control may have various effects including, but not limited to, delaying or preventing a change of control or allowing us to take action that the majority of our shareholders do not otherwise support. In addition, we utilize shares of our Class C common stock to fund employee equity incentive programs and may do so in connection with future stock-based acquisition transactions, which could prolong the duration of Mr. Plank’s voting control.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

26

ITEM 2. PROPERTIES

The following includes a summary of the principal properties that we own or lease as of December 31, 2017.

Our principal executive and administrative offices are located at an office complex in Baltimore, Maryland, which includes 400 thousand square feet of office space that we own and 126 thousand square feet that we are leasing. In 2016, we purchased buildings and parcels of land, including approximately 58 acres of land and 130 thousand square feet of office space located close to our corporate office complex, to be utilized to expand our corporate headquarters to accommodate our future growth needs. For our European headquarters, we lease an office in Amsterdam, the Netherlands, and we maintain an international management office in Panama. For our Greater China headquarters, we lease an office in Shanghai, China. Additionally, we lease space in Austin, Texas, Denver, Colorado, San Francisco, California and Copenhagen, Denmark for our Connected Fitness businesses.

We lease our primary distribution facilities, which are located in Glen Burnie, Maryland, Mount Juliet, Tennessee and Rialto, California. Our Glen Burnie facilities include a total of 830 thousand square feet, with options to renew various portions of the facilities through September 2021. Our Mount Juliet facility is a 1.0 million square foot facility, with options to renew the lease term through December 2041. Our Rialto facility is a 1.2 million square foot facility with a lease term through May 2023. In 2016 we entered into a lease for a new 1.3 million square foot distribution facility being developed for us in Baltimore, Maryland, which we expect to utilize beginning in 2019. The lease for this property includes options to renew through 2053. We believe our distribution facilities and space available through our third-party logistics providers will be adequate to meet our short term needs.

In addition, as of December 31, 2017, we leased 295 brand and factory house stores located primarily in the United States, Brazil, Canada, China, Chile and Mexico with lease end dates in 2018 through 2033. We also lease additional office space for sales, quality assurance and sourcing, marketing, and administrative functions. We anticipate that we will be able to extend these leases that expire in the near future on satisfactory terms or relocate to other locations.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we have been involved in litigation and other proceedings, including matters related to commercial disputes and intellectual property, as well as trade, regulatory and other claims related to our business. See Note 7 to our Consolidated Financial Statements for information on certain legal proceedings, which is incorporated by reference herein.

27

Executive Officers of the Registrant

Our executive officers are:

Name Age Position

Kevin A. Plank . . . . . . . . . . . . . . . . 45 Chief Executive Officer and Chairman of the Board

David E. Bergman . . . . . . . . . . . . . 45 Chief Financial Officer

Colin Browne . . . . . . . . . . . . . . . . . 54 Chief Supply Chain Officer

Kerry D. Chandler . . . . . . . . . . . . . 53 Chief Human Resources Officer

Kevin Eskridge . . . . . . . . . . . . . . . 41 Chief Product Officer

Paul Fipps . . . . . . . . . . . . . . . . . . . 45 Chief Technology Officer

Patrik Frisk . . . . . . . . . . . . . . . . . . 55 President and Chief Operating Officer

Jason LaRose . . . . . . . . . . . . . . . . 44 President of North America

Karl-Heinz Maurath . . . . . . . . . . . . 56 Chief Revenue Officer

John Stanton . . . . . . . . . . . . . . . . . 57 General Counsel and Corporate Secretary

Kevin A. Plank has served as our Chief Executive Officer and Chairman of the Board of Directors since 1996. Mr. Plank also serves on the Board of Directors of the National Football Foundation and College Hall of Fame, Inc. and is a member of the Board of Trustees of the University of Maryland College Park Foundation.

David E. Bergman was appointed as the Chief Financial Officer in November 2017. Mr. Bergman joined the Company in 2005 and has served in various Finance and Accounting leadership roles for the Company, including Corporate Controller from early 2006 to October 2014, Vice President of Finance and Corporate Controller from November 2014 to January 2016, Senior Vice President, Corporate Finance from February 2016 to January 2017, and acting Chief Financial Officer from February 2017 to November 2017. Prior to joining the Company, Mr. Bergman worked as a C.P.A. within the audit and assurance practices at Ernst & Young LLP and Arthur Andersen LLP.

Colin Browne has been the Chief Supply Chain Officer since July 2017. Prior to that, he served as President of Global Sourcing from September 2016 to June 2017. Prior to joining our Company, he served as Vice President and Managing Director for VF Corporation, leading its sourcing and product supply organization in Asia and Africa from November 2013 to August 2016 and as Vice President of Footwear Sourcing from November 2011 to October 2013. Prior thereto, Mr. Browne served as Executive Vice President of Footwear and Accessories for Li and Fung Group LTD from September 2010 to November 2011 and Chief Executive Officer, Asia for Pentland Brands PLC from April 2006 to January 2010. Mr. Browne has over 25 years of experience leading sourcing efforts for large brands.

Kerry D. Chandler has been Chief Human Resources Officer since January 2015. Prior to joining our Company, she served as Global Head of Human Resources for Christie’s International from February 2014 to November 2014. Prior thereto, Ms. Chandler served as the Executive Vice President of Human Resources for the National Basketball Association from January 2011 to January 2014 and Senior Vice President of Human Resources from October 2007 to December 2010. Ms. Chandler also held executive positions in human resources for the Walt Disney Company, including Senior Vice President of Human Resources for ESPN. Prior to that, Ms. Chandler also held various senior management positions in Human Resources for IBM, and Motorola, Inc. and she began her career at the McDonnell Douglas Corporation.

28

Kevin Eskridge has been Chief Product Officer since May 2017, with oversight of the Company’s category management model, product, merchandising and design functions. Mr. Eskridge joined our Company in 2009 and has served in various leadership roles including Senior Director, Outdoor from September 2009 to September 2012, Vice President, China from October 2012 to April 2015, Senior Vice President, Global Merchandising from May 2015 to June 2016 and President, Sports Performance from July 2016 to April 2017. Prior to joining our Company, he served as Vice President, Merchandising of Armani Exchange from 2006 to 2009.

Paul Fipps has been Chief Technology Officer since July 2017. Prior to that, he served as Chief Information Officer from March 2015 and Executive Vice President of Global Operations from September 2016 to June 2017 and as Senior Vice President of Global Operations from January 2014 to February 2015. Prior to joining our Company, he served as Chief Information Officer and Corporate Vice President of Business Services at The Charmer Sunbelt Group (CSG), a leading distributor of fine wines, spirits, beer, bottled water and other beverages from May 2009 to December 2013, as Vice President of Business Services from January 2007 to April 2009 and in other leadership positions for CSG from 1998 to 2007.

Patrik Frisk has been President and Chief Operating Officer since July 2017. Prior to joining our Company, he served as Chief Executive Officer for The ALDO Group from November 2014 to April 2017. Prior thereto, he spent 10 years with VF Corporation where he served as Coalition President of Outdoor Americas with responsibility for The North Face®, Timberland®, JanSport®, lucy® and SmartWool® brands from April 2014 to November 2014, President of Timberland from September 2011 to March 2014, President of Outdoor and Action Sports, EMEA with responsibility for The North Face®, Vans®, JanSport® and Reef® brands from August 2009 to August 2011 and other leadership positions from 2004 to 2009. Before VF Corporation, he ran his own retail business in Scandinavia and held senior positions with Peak Performance and W.L. Gore & Associates.

Jason LaRose has been President of North America since October 2016. Prior to that, he served as Senior Vice President of Digital Revenue from April 2015 to September 2016 and Senior Vice President of Global E-Commerce from October 2013 to March 2015. Prior to joining our Company, he served as Senior Vice President of E-Commerce for Express, Inc. from September 2011 to September 2013. Prior thereto, Mr. LaRose served as Vice President of Multi-Channel and International Business for Sears Holding Corporation from January 2007 to September 2011. Mr. LaRose also spent five years at McKinsey & Company where he was an Associate Principal in both the Retail and Consumer Goods practices.

Karl-Heinz (Charlie) Maurath has been Chief Revenue Officer since November 2015. Prior thereto he served as President of International from September 2012 to October 2015. Prior to joining our Company, he served for 22 years in various leadership positions with Adidas, including Senior Vice President, Adidas Group Latin America, from 2003 to 2012 with overall responsibility for Latin America including the Reebok and Taylor Made businesses and Vice President, Adidas Nordic, from 2000 to 2003 responsible for its business in the Nordic region and the Baltic states. Prior thereto, Mr. Maurath served in other management positions for Adidas, including Managing Director of its business in Sweden and Thailand and Area Manger of sales and marketing for its distributor and licensee businesses in Scandinavia and Latin America. Mr. Maurath, in his capacity a former director of a subsidiary of Adidas, is currently named as a defendant in a criminal tax investigation by regulatory authorities in Argentina related to certain tax matters of the Adidas subsidiary in 2006. In November 2013, the trial court ruled that there were currently no grounds upon which to indict Mr. Maurath, and in December 2016, the case was dismissed. The dismissal has been appealed. The Company believes this in no way impacts Mr. Maurath’s integrity or ability to serve as an executive officer. On February 28, 2018, we announced Mr. Maurath plans to retire effective March 31, 2018.

29

John Stanton has been General Counsel since March 2013, and Corporate Secretary since February 2008. Prior thereto, he served as Vice President, Corporate Governance and Compliance from October 2007 to February 2013 and Deputy General Counsel from February 2006 to September 2007. Prior to joining our Company, he served in various legal roles at MBNA Corporation from 1993 to 2005, including as Senior Executive Vice President, Corporate Governance and Assistant Secretary. He began his legal career at the law firm Venable, LLP.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

30

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Under Armour’s Class A Common Stock and Class C Common Stock are traded on the New York Stock Exchange (“NYSE”) under the symbols “UAA” and “UA”, respectively. As of January 31, 2018, there were 1,524 record holders of our Class A Common Stock, 4 record holders of Class B Convertible Common Stock which are beneficially owned by our Chief Executive Officer and Chairman of the Board Kevin A. Plank, and 1,208 record holders of our Class C Common Stock.

Our Class A Common Stock was listed on the NYSE under the symbol “UA” until December 6, 2016 and under the symbol “UAA” since December 7, 2016. The following table sets forth by quarter the high and low sale prices of our Class A Common Stock on the NYSE during 2017 and 2016.

High Low

2017

First Quarter (January 1 – March 31) $31.06 $18.40 Second Quarter (April 1 – June 30) 23.46 18.35 Third Quarter (July 1 – September 30) 22.37 15.92 Fourth Quarter (October 1 – December 31) 17.61 11.40

2016

First Quarter (January 1 – March 31) $43.42 $31.62 Second Quarter (April 1 – June 30) 47.95 35.35 Third Quarter (July 1 – September 30) 44.68 37.23 Fourth Quarter (October 1 – December 31) 39.20 29.00

Our Class C Common Stock was listed on the NYSE under the symbol “UA.C” since its initial issuance on April 8, 2016 and until December 6, 2016 and under the symbol “UA” since December 7, 2016. The following table sets forth by quarter the high and low sale prices of our Class C Common Stock on the NYSE during 2017 and 2016.

High Low

2017

First Quarter (January 1 – March 31) $27.64 $17.05 Second Quarter (April 1 – June 30) 21.81 17.21 Third Quarter (July 1 – September 30) 20.60 14.80 Fourth Quarter (October 1 – December 31) 16.02 10.36

2016

First Quarter (January 1 – March 31) — — Second Quarter (April 1 – June 30) 46.20 31.31 Third Quarter (July 1 – September 30) 42.94 33.16 Fourth Quarter (October 1 – December 31) 34.29 23.51

Stock Split

On March 16, 2016, the Board of Directors approved the issuance of the Company’s new Class C non-voting common stock, referred to as the Class C stock. The Class C stock was issued through a stock dividend on a one-for-one basis to all existing holders of the Company’s Class A and Class B common stock. The shares of Class C stock were distributed on April 7, 2016, to stockholders of

31

record of Class A and Class B common stock as of March 28, 2016. Stockholders’ equity and all references to share and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to reflect this one-for-one stock dividend.

Dividends

No cash dividends were declared or paid during 2017 or 2016 on any class of our common stock. We currently anticipate we will retain any future earnings for use in our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. In addition, we may be limited in our ability to pay dividends to our stockholders under our credit facility. Refer to “Financial Position, Capital Resources and Liquidity” within Management’s Discussion and Analysis and Note 6 to the Consolidated Financial Statements for further discussion of our credit facility.

Stock Compensation Plans

The following table contains certain information regarding our equity compensation plans.

Plan Category

Class of Common

Stock

Number of securities to be

issued upon exercise of outstanding options,

warrants and rights (a)

Weighted-average exercise price of

outstanding options, warrants and rights

(b)

Number of securities remaining available for

future issuance under equity compensation plans (excluding securities

reflected in column (a)) (c)

Equity compensation plans approved by security holders Class A 3,240,620 $11.09 10,593,082

Equity compensation plans approved by security holders Class C 11,270,848 $13.86 16,724,610

Equity compensation plans not approved by security holders Class A 2,079,385 $ 4.66 —

Equity compensation plans not approved by security holders Class C 2,394,352 $ 4.59 —

The number of securities to be issued upon exercise of outstanding options, warrants and rights issued under equity compensation plans approved by security holders includes 3.3 million Class A and 5.0 million Class C restricted stock units and deferred stock units issued to employees, non-employees and directors of Under Armour; these restricted stock units and deferred stock units are not included in the weighted average exercise price calculation above. The number of securities remaining available for future issuance includes 7.9 million shares of our Class A Common Stock and 15.5 million shares of our Class C Common Stock under our Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (“2005 Stock Plan”). The number of securities remaining available for future issuance under our Employee Stock Purchase Plan includes 2.7 million of our Class A Common Stock and 1.2 million shares of our Class C Common Stock. In addition to securities issued upon the exercise of stock options, warrants and rights, the 2005 Stock Plan authorizes the issuance of restricted and unrestricted shares of our Class A and C Common Stock and other equity awards. Refer to Note 12 to the Consolidated Financial Statements for information required by this Item regarding the material features of each plan.

The number of securities issued upon exercise of outstanding options, warrants and rights issued under equity compensation plans not approved by security holders includes 1.92 million Class A and 1.93 million Class C fully vested and non-forfeitable warrants granted in 2006 to NFL Properties LLC

32

as partial consideration for footwear promotional rights, and 159.4 thousand shares of our Class A Common Stock and 460.3 thousand shares of our Class C Common Stock issued in connection with the delivery of shares pursuant to deferred stock units granted to certain of our marketing partners. These deferred stock units are not included in the weighted average exercise price calculation above.

Refer to Note 12 to the Consolidated Financial Statements for a further discussion on the warrants. The deferred stock units are issued to certain of our marketing partners in connection with their entering into endorsement and other marketing services agreements with us. The terms of each agreement set forth the number of deferred stock units to be granted and the delivery dates for the shares, which range from a 1 to 10 year period, depending on the contract. The deferred stock units are non-forfeitable.

Stock Performance Graph

The stock performance graph below compares cumulative total return on Under Armour, Inc. Class A Common Stock to the cumulative total return of the S&P 500 Index and S&P 500 Apparel, Accessories and Luxury Goods Index from December 31, 2012 through December 31, 2017. The graph assumes an initial investment of $100 in Under Armour and each index as of December 31, 2012 and reinvestment of any dividends. The performance shown on the graph below is not intended to forecast or be indicative of possible future performance of our common stock.

Comparison of 5 Year Cumulative Total Return

Assumes Initial Investment of $100

December 2017

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

D O

L L

A R

S

UNDER ARMOUR, INC. CLASS A

S&P 500 INDEX

S&P 500 APPAREL, ACCESSORIES & LUXURY GOODS

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017

Under Armour, Inc. $100.00 $179.97 $279.97 $332.32 $231.84 $115.16 S&P 500 $100.00 $132.39 $150.51 $152.59 $170.84 $208.14 S&P 500 Apparel, Accessories &

Luxury Goods $100.00 $124.93 $126.16 $ 96.17 $ 85.31 $102.77

33

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

Year Ended December 31,

(In thousands, except per share amounts) 2017 2016 2015 2014 2013

Net revenues $4,976,553 $4,825,335 $3,963,313 $3,084,370 $2,332,051 Cost of goods sold 2,737,830 2,584,724 2,057,766 1,572,164 1,195,381

Gross profit 2,238,723 2,240,611 1,905,547 1,512,206 1,136,670 Selling, general and administrative

expenses 2,086,831 1,823,140 1,497,000 1,158,251 871,572 Restructuring and impairment charges 124,049 — — — —

Income from operations 27,843 417,471 408,547 353,955 265,098 Interest expense, net (34,538) (26,434) (14,628) (5,335) (2,933) Other expense, net (3,614) (2,755) (7,234) (6,410) (1,172)

Income (loss) before income taxes (10,309) 388,282 386,685 342,210 260,993 Provision for income taxes 37,951 131,303 154,112 134,168 98,663

Net income (loss) (48,260) 256,979 232,573 208,042 162,330

Adjustment payment to Class C — 59,000 — — —

Net income (loss) available to all stockholders $ (48,260) $ 197,979 $ 232,573 $ 208,042 $ 162,330

Net income available per common share

Basic net income (loss) per share of Class A and B common stock $ (0.11) $ 0.45 $ 0.54 $ 0.49 $ 0.39

Basic net income (loss) per share of Class C common stock $ (0.11) $ 0.72 $ 0.54 $ 0.49 $ 0.39

Diluted net income (loss) per share of Class A and B common stock $ (0.11) $ 0.45 $ 0.53 $ 0.47 $ 0.38

Diluted net income (loss) per share of Class C common stock $ (0.11) $ 0.71 $ 0.53 $ 0.47 $ 0.38

Weighted average common shares outstanding Class A and B common stock

Basic 219,254 217,707 215,498 213,227 210,696 Diluted 219,254 221,944 220,868 219,380 215,958

Weighted average common shares outstanding Class C common stock

Basic 221,475 218,623 215,498 213,227 210,686 Diluted 221,475 222,904 220,868 219,380 215,958 Dividends declared $ — $ 59,000 $ — $ — $ —

At December 31,

(In thousands) 2017 2016 2015 2014 2013

Cash and cash equivalents $ 312,483 $ 250,470 $ 129,852 $ 593,175 $ 347,489 Working capital (1) 1,277,304 1,279,337 1,019,953 1,127,772 702,181 Inventories 1,158,548 917,491 783,031 536,714 469,006 Total assets 4,006,367 3,644,331 2,865,970 2,092,428 1,576,369 Total debt, including current

maturities 917,046 817,388 666,070 281,546 151,551 Total stockholders’ equity $2,018,642 $2,030,900 $1,668,222 $1,350,300 $1,053,354

(1) Working capital is defined as current assets minus current liabilities.

34

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The information contained in this section should be read in conjunction with our Consolidated Financial Statements and related notes and the information contained elsewhere in this Form 10-K under the captions “Risk Factors,” “Selected Financial Data,” and “Business.”

Overview

We are a leading developer, marketer and distributor of branded performance apparel, footwear and accessories. The brand’s moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles. The Under Armour Connected Fitness platform powers the world’s largest digital health and fitness community and our strategy is focused on engaging with these consumers and increasing awareness and sales of our products.

Our net revenues grew to $4,976.6 million in 2017 from $2,332.1 million in 2013. We believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the Under Armour brand in the marketplace. Our long-term growth strategy is focused on increased sales of our products through ongoing product innovation, investment in our distribution channels and international expansion. While we plan to continue to invest in growth, we also plan to improve efficiencies throughout our business as we seek to gain scale through our operations and return on our investments.

Financial highlights for full year 2017 as compared to the prior year period include:

• Net revenues increased 3%.

• Wholesale revenue decreased 3% and Direct-to-Consumer revenues increased 14%.

• Apparel, footwear and accessories revenue increased 2%, 3% and 10%, respectively.

• Revenue in our North America segment decreased 5%. Revenue in our Asia-Pacific, EMEA and Latin America segments grew 61%, 42% and 28%, respectively, with 11% growth in our Connected Fitness segment.

• Selling, general and administrative expense increased 14%.

• Gross margin decreased 140 basis points.

A large majority of our products are sold in North America; however, we believe our products appeal to athletes and consumers with active lifestyles around the globe. Internationally, our net revenues are generated from a mix of wholesale sales to retailers, sales to distributors and sales through our direct to consumer sales channels in Europe, Latin America, and Asia-Pacific. In addition, a third party licensee sells our products in Japan.

We believe there is an increasing recognition of the health benefits of an active lifestyle. We believe this trend provides us with an expanding consumer base for our products. We also believe there is a continuing shift in consumer demand from traditional non-performance products to performance products, which are intended to provide better performance by wicking perspiration away from the skin, helping to regulate body temperature and enhancing comfort. We believe that these shifts in consumer preferences and lifestyles are not unique to the United States, but are occurring in a number of markets globally, thereby increasing our opportunities to introduce our performance products to new consumers. We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution, growth in our direct to consumer sales channel and expansion in international markets.

35

Although we believe these trends will facilitate our growth, we also face potential challenges that could limit our ability to take advantage of these opportunities or negatively impact our financial results, including, among others, the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers. Additionally, we may not be able to successfully execute on our long-term strategies, or successfully manage the increasingly complex operations of our global business effectively. Although we have announced restructuring plans, we may not fully realize the expected benefits of these plans or other operating or cost-saving initiatives. In addition, we may not consistently be able to anticipate consumer preferences and develop new and innovative products that meet changing preferences in a timely manner. Furthermore, our industry is very competitive, and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability. We also rely on third-party suppliers and manufacturers outside the U.S. to provide fabrics and to produce our products, and disruptions to our supply chain could harm our business. For a more complete discussion of the risks facing our business, refer to the “Risk Factors” section included in Item 1A.

Recent Developments

On July 27, 2017, our Board of Directors approved a restructuring plan (the “2017 restructuring plan”) to more closely align our financial resources with the critical priorities of our business. After completion of the 2017 restructuring plan, we recognized approximately $100.4 million of pre-tax charges in connection with this plan. In addition to these charges, we also recognized restructuring related goodwill impairment charges of approximately $28.7 million for our Connected Fitness business.

On February 9, 2018, our Board of Directors approved an additional restructuring plan (the “2018 restructuring plan”) identifying further opportunities to optimize operations. In conjunction with the 2018 restructuring plan, approximately $110 to $130 million of pre-tax restructuring and related charges are expected to be incurred during our 2018 fiscal year, including:

• Up to $105.0 million in cash charges, consisting of up to: $55.0 million in facility and lease terminations and $50.0 million in contract termination and other restructuring charges; and

• Up to $25.0 million in non-cash charges comprised of approximately $10.0 million of inventory related charges and approximately $15.0 million of intangibles and other asset related impairments.

The United States enacted the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017. The new legislation contains several key tax provisions that affect us and, as required, we have included reasonable estimates of the income tax effects of the changes in tax law and tax rate in our 2017 financial results. These changes include a one-time mandatory transition tax on indefinitely reinvested foreign earnings and a re-measuring of deferred tax assets, resulting in an increase to our provision for income taxes of $38.8 million. Since the Tax Act was passed late in the fourth quarter of 2017, we consider the accounting for the transition tax, deferred tax re-measurements, and other items to be provisional as the charge may be adjusted due to changes in interpretations and assumptions we have made, guidance that may be issued, and actions we may take as a result of the tax legislation. We expect to finalize our estimates within the one-year measurement period allowed by the SEC.

General

Net revenues comprise net sales, license revenues and Connected Fitness revenues. Net sales comprise sales from our primary product categories, which are apparel, footwear and accessories. Our license revenues primarily consist of fees paid to us by our licensees in exchange for the use of our trademarks on their products. Our Connected Fitness revenues consist of digital advertising, digital fitness platform licenses and subscriptions from our Connected Fitness business.

Cost of goods sold consists primarily of product costs, inbound freight and duty costs, outbound freight costs, handling costs to make products floor-ready to customer specifications, royalty payments

36

to endorsers based on a predetermined percentage of sales of selected products and write downs for inventory obsolescence. The fabrics in many of our products are made primarily of petroleum-based synthetic materials. Therefore our product costs, as well as our inbound and outbound freight costs, could be affected by long term pricing trends of oil. In general, as a percentage of net revenues, we expect cost of goods sold associated with our apparel and accessories to be lower than that of our footwear. A limited portion of cost of goods sold is associated with license and Connected Fitness revenues, primarily website hosting costs.

We include outbound freight costs associated with shipping goods to customers as cost of goods sold; however, we include the majority of outbound handling costs as a component of selling, general and administrative expenses. As a result, our gross profit may not be comparable to that of other companies that include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were $101.5 million, $89.9 million and $63.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation and supply chain and corporate services. We consolidate our selling, general and administrative expenses into two primary categories: marketing and other, which includes our selling, product innovation and supply chain and corporate services categories. Personnel costs are included in these categories based on the employees’ function. Personnel costs include salaries, benefits, incentives and stock-based compensation related to our employees. Our marketing costs are an important driver of our growth. Marketing costs consist primarily of commercials, print ads, league, team, player and event sponsorships and depreciation expense specific to our in-store fixture program.

Other expense, net consists of unrealized and realized gains and losses on our foreign currency derivative financial instruments and unrealized and realized gains and losses on adjustments that arise from fluctuations in foreign currency exchange rates relating to transactions generated by our international subsidiaries.

Results of Operations

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:

Year Ended December 31,

(In thousands) 2017 2016 2015

Net revenues $4,976,553 $4,825,335 $3,963,313 Cost of goods sold 2,737,830 2,584,724 2,057,766

Gross profit 2,238,723 2,240,611 1,905,547 Selling, general and administrative expenses 2,086,831 1,823,140 1,497,000 Restructuring and impairment charges 124,049 — —

Income from operations 27,843 417,471 408,547 Interest expense, net (34,538) (26,434) (14,628) Other expense, net (3,614) (2,755) (7,234)

Income (loss) before income taxes (10,309) 388,282 386,685 Provision for income taxes 37,951 131,303 154,112

Net income (loss) $ (48,260) $ 256,979 $ 232,573 Adjustment payment to Class C capital

stockholders $ — $ 59,000 $ —

Net income (loss) available to all stockholders $ (48,260) $ 197,979 $ 232,573

37

Year Ended December 31,

(As a percentage of net revenues) 2017 2016 2015

Net revenues 100.0% 100.0% 100.0% Cost of goods sold 55.0 53.6 51.9

Gross profit 45.0 46.4 48.1 Selling, general and administrative expenses 41.9 37.8 37.8 Restructuring and impairment charges 2.5 — —

Income from operations 0.6 8.6 10.3 Interest expense, net (0.7) (0.5) (0.4) Other expense, net (0.1) (0.1) (0.2)

Income (loss) before income taxes (0.2) 8.0 9.7 Provision for income taxes 0.8 2.7 3.8

Net income (loss) (1.0) 5.3 5.9 Adjustment payment to Class C capital

stockholders — 1.2 —

Net income (loss) available to all stockholders (1.0)% 4.1% 5.9%

Consolidated Results of Operations

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Net revenues increased $151.2 million, or 3.1%, to $4,976.6 million in 2017 from $4,825.3 million in 2016. Net revenues by product category are summarized below:

Year Ended December 31,

(In thousands) 2017 2016 $ Change % Change

Apparel $3,287,121 $3,229,142 $ 57,979 1.8% Footwear 1,037,840 1,010,693 27,147 2.7 Accessories 445,838 406,614 39,224 9.6

Total net sales 4,770,799 4,646,449 124,350 2.7 License 116,575 99,849 16,726 16.8 Connected Fitness 89,179 80,447 8,732 10.9 Intersegment Eliminations — (1,410) 1,410 (100.0)

Total net revenues $4,976,553 $4,825,335 $151,218 3.1%

The increase in net sales was driven primarily by:

• Apparel unit sales growth in multiple categories led by men’s and women’s training and golf; and

• Accessories unit sales growth in multiple categories led by men’s training; and

• Footwear unit sales growth in multiple categories led by running.

License revenues increased $16.7 million, or 16.8%, to $116.6 million in 2017 from $99.8 million in 2016. This increase in license revenues was driven primarily by increased distribution of our licensed products in North America .

Connected Fitness revenue increased $8.8 million, or 10.9%, to $89.2 million in 2017 from $80.4 million in 2016 primarily driven by increased subscribers on our fitness applications and higher licensing revenue.

38

Gross profit decreased $1.9 million to $2,238.7 million in 2017 from $2,240.6 million in 2016. Gross profit as a percentage of net revenues, or gross margin, decreased 140 basis points to 45.0% in 2017 compared to 46.4% in 2016. The decrease in gross margin percentage was primarily driven by the following:

• an approximate 190 basis point decrease due to inventory management efforts including higher promotions and increased air freight; and

• an approximate 20 basis point decrease due to our international business representing a higher percentage of sales;

The above decreases were partially offset by:

• an approximate 50 basis point increase driven primarily by favorable product input costs; and

• an approximate 30 basis point increase driven primarily by favorable channel mix with increased sales in our direct-to-consumer channel.

With the exception of favorable product input costs and channel mix, we do not expect these trends to have a material impact on 2018.

Selling, general and administrative expenses increased $263.7 million to $2,086.8 million in 2017 from $1,823.1 million in 2016. As a percentage of net revenues, selling, general and administrative expenses increased to 41.9% in 2017 from 37.8% in 2016. Selling, general and administrative expense was impacted by the following:

• Marketing costs increased $87.6 million to $565.1 million in 2017 from $477.5 million in 2016. This increase was primarily due to increased marketing spend in connection with the growth of our international business and in connection with our collegiate and professional athlete sponsorships. As a percentage of net revenues, marketing costs increased to 11.4% in 2017 from 9.9% in 2016.

• Other costs increased $176.1 million to $1,521.7 million in 2017 from $1,345.6 million in 2016. This increase was primarily driven by higher costs incurred for the continued expansion of our direct to consumer distribution channel and international business. This increase was partially offset by savings from our 2017 restructuring plan. As a percentage of net revenues, other costs increased to 30.6% in 2017 from 27.9% in 2016.

Income from operations decreased $389.6 million, or 93.3%, to $27.8 million in 2017 from $417.5 million in 2016. Income from operations as a percentage of net revenues decreased to 0.6% in 2017 from 8.6% in 2016. Income from operations for the year ended December 31, 2017 was negatively impacted by $124.0 million of restructuring and impairment charges in connection with the 2017 restructuring plan.

Interest expense, net increased $8.1 million to $34.5 million in 2017 from $26.4 million in 2016. This increase was primarily due to interest on the net increase of $99.7 million in total debt outstanding.

Other expense, net increased $0.9 million to $3.6 million in 2017 from $2.8 million in 2016. This increase was due to lower net gains on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our derivative financial instruments as compared to the prior period.

Provision for income taxes decreased $93.3 million to $38.0 million in 2017 from $131.3 million in 2016. Our effective tax rate was (368.2)% in 2017 compared to 33.8% in 2016. Our effective tax rate

39

for 2017 was lower than the effective tax rate for 2016 primarily due to the significant decrease in income before taxes, the impact of tax benefits recorded on losses in the United States, and reductions in our total liability for unrecognized tax benefits as a result of a lapse in the statute of limitations during the current period. These benefits were offset by the impact of the Tax Act, non-deductible goodwill impairment charges, and the recording of certain valuation allowances.

Our provision for income taxes in 2017 included $38.8 million of income tax expense as a result of the Tax Act, including a $13.9 million charge for our provisional estimate of the transition tax and $24.9 million for the provisional re-measurement of our deferred tax assets for the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Net revenues increased $862.0 million, or 21.8%, to $4,825.3 million in 2016 from $3,963.3 million in 2015. Net revenues by product category are summarized below:

Year Ended December 31,

(In thousands) 2016 2015 $ Change % Change

Apparel $3,229,142 $2,801,062 $428,080 15.3% Footwear 1,010,693 677,744 332,949 49.1 Accessories 406,614 346,885 59,729 17.2

Total net sales 4,646,449 3,825,691 820,758 21.5 License revenues 99,849 84,207 15,642 18.6 Connected Fitness 80,447 53,415 27,032 50.6 Intersegment Eliminations (1,410) — (1,410) (100.0)

Total net revenues $4,825,335 $3,963,313 $862,022 21.8%

The increase in net sales was driven primarily by:

• Apparel unit sales growth in multiple categories led by training, golf and basketball; and

• Footwear unit sales growth, led by running and basketball.

License revenues increased $15.6 million, or 18.6%, to $99.8 million in 2016 from $84.2 million in 2015. This increase in license revenues was driven primarily by increased distribution of our licensed products in North America and Japan.

Connected Fitness revenue increased $27.0 million, or 50.6%, to $80.4 million in 2016 from $53.4 million in 2015 primarily driven by increased advertising and subscribers on our fitness applications.

Gross profit increased $335.1 million to $2,240.6 million in 2016 from $1,905.5 million in 2015. Gross profit as a percentage of net revenues, or gross margin, decreased 170 basis points to 46.4% in 2016 compared to 48.1% in 2015. The decrease in gross margin percentage was primarily driven by the following:

• approximate 120 basis point decrease due to increased liquidation and discounting;

• approximate 70 basis point decrease driven by negative sales mix primarily driven by the continued strength of our accelerated footwear growth; and

• approximate 40 basis point decrease due to strengthening of the U.S. dollar negatively impacting our gross margins within our business outside the United States.

40

The above decreases were partially offset by:

• approximate 30 basis point increase driven primarily by favorable product input costs in our North America and international businesses; and

• approximate 40 basis point increase driven primarily by lower air freight costs.

Selling, general and administrative expenses increased $326.1 million to $1,823.1 million in 2016 from $1,497.0 million in 2015. As a percentage of net revenues, selling, general and administrative expenses remained consistent at 37.8% in 2016 and in 2015. Selling, general and administrative expense was impacted by the following:

• Marketing costs increased $59.7 million to $477.5 million in 2016 from $417.8 million in 2015. This increase was primarily due to key North American retail marketing campaigns, our investments in sponsorships and increased marketing in connection with the growth of our international business. This increase was offset by lower incentive compensation expense for marketing employees. As a percentage of net revenues, marketing costs decreased to 9.9% in 2016 from 10.5% in 2015.

• Other costs increased $266.4 million to $1,345.6 million in 2016 from $1,079.2 million in 2015. This increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel, including increased investment for our factory house and brand house stores. Additionally, we incurred $17.0 million in expenses related to the liquidation of The Sports Authority, comprised of $15.2 million in bad debt expense and $1.8 million of in-store fixture impairment. This increase was offset by lower incentive compensation expense. As a percentage of net revenues, other costs increased to 27.9% in 2016 from 27.2% in 2015.

Income from operations increased $8.9 million, or 2.2%, to $417.5 million in 2016 from $408.5 million in 2015. Income from operations as a percentage of net revenues decreased to 8.6% in 2016 from 10.3% in 2015.

Interest expense, net increased $11.8 million to $26.4 million in 2016 from $14.6 million in 2015. This increase was primarily due to interest on the net increase of $284.2 million in total debt outstanding.

Other expense, net decreased $4.4 million to $2.8 million in 2016 from $7.2 million in 2015. This decrease was due to higher net gains on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our derivative financial instruments as compared to the prior period.

Provision for income taxes decreased $22.8 million to $131.3 million in 2016 from $154.1 million in 2015. Our effective tax rate was 33.8% in 2016 compared to 39.9% in 2015. Our effective tax rate for 2016 was lower than the effective tax rate for 2015 primarily due to increased international profitability and a tax benefit related to our prior period acquisitions.

Segment Results of Operations

The net revenues and operating income (loss) associated with our segments are summarized in the following tables. Intersegment revenue is generated by Connected Fitness which runs advertising campaigns for other segments.

41

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Net revenues by segment are summarized below:

Year Ended December 31,

(In thousands) 2017 2016 $ Change % Change

North America $3,802,406 $4,005,314 $(202,908) (5.1)% EMEA 469,997 330,584 139,413 42.2 Asia-Pacific 433,647 268,607 165,040 61.4 Latin America 181,324 141,793 39,531 27.9 Connected Fitness 89,179 80,447 8,732 10.9 Intersegment Eliminations — (1,410) 1,410 100.0

Total net revenues $4,976,553 $4,825,335 $ 151,218 3.1%

The increase in total net revenues was driven by the following:

• Net revenues in our North America operating segment decreased $202.9 million to $3,802.4 million in 2017 from $4,005.3 million in 2016 primarily due to lower sales in our wholesale channel driven by lower demand.

• Net revenues in our EMEA operating segment increased $139.4 million to $470.0 million in 2017 from $330.6 million in 2016 primarily due to unit sales growth to wholesale partners in Germany and the United Kingdom and our our first full year of sales in Russia.

• Net revenues in our Asia-Pacific operating segment increased $165.0 million to $433.6 million in 2017 from $268.6 million in 2016 primarily due to growth in our direct-to-consumer channel.

• Net revenues in our Latin America operating segment increased $39.5 million to $181.3 million in 2017 from $141.8 million in 2016 primarily due to unit sales growth to wholesale partners and through our direct to consumer channels in Mexico, Chile, and Brazil.

• Net revenues in our Connected Fitness operating segment increased $8.7 million to $89.2 million in 2017 from $80.4 million in 2016 primarily driven by increased subscribers on our fitness applications and higher licensing revenue.

Operating income (loss) by segment is summarized below. The majority of corporate expenses within North America have not been allocated to our other segments.

Year Ended December 31,

(In thousands) 2017 2016 $ Change % Change

North America $ 20,179 $408,424 $(388,245) (95.1)% EMEA 17,976 11,420 6,556 57.4 Asia-Pacific 82,039 68,338 13,701 20.0 Latin America (37,085) (33,891) (3,194) (9.4) Connected Fitness (55,266) (36,820) (18,446) (50.1)

Total operating income $ 27,843 $417,471 $(389,628) (93.3)%

The decrease in total operating income was driven by the following:

• Operating income in our North America operating segment decreased $388.2 million to $20.2 million in 2017 from $408.4 million in 2016 primarily due to the decreases in net sales and gross margins discussed above and $63.2 million in restructuring and impairment charges.

42

• Operating income in our EMEA operating segment increased $6.6 million to $18.0 million in 2017 from $11.4 million in 2016 primarily due to sales growth discussed above, which was partially offset by continued investment in operations.

• Operating income in our Asia-Pacific operating segment increased $13.7 million to $82.0 million in 2017 from $68.3 million in 2016 primarily due to sales growth discussed above. This increase was offset by investments in our direct to consumer business and entry into new territories.

• Operating loss in our Latin America operating segment increased $3.2 million to $37.1 million in 2017 from $33.9 million in 2016 primarily due to $11.5 million in restructuring and impairment charges. This increase in operating loss was offset by sales growth discussed above.

• Operating loss in our Connected Fitness segment increased $18.4 million to $55.3 million in 2017 from $36.8 million in 2016 primarily due to $47.8 million in restructuring and impairment charges. This increase in operating loss was offset by sales growth discussed above and savings from our 2017 restructuring plan.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Net revenues by segment are summarized below:

Year Ended December 31,

(In thousands) 2016 2015 $ Change % Change

North America $4,005,314 $3,455,737 $549,577 15.9% EMEA 330,584 203,109 127,475 62.8 Asia-Pacific 268,607 144,877 123,730 85.4 Latin America 141,793 106,175 35,618 33.5 Connected Fitness 80,447 53,415 27,032 50.6 Intersegment Eliminations (1,410) — (1,410) (100.0)

Total net revenues $4,825,335 $3,963,313 $862,022 21.8%

The increase in total net revenues was driven by the following:

• Net revenues in our North America operating segment increased $549.6 million to $4,005.3 million in 2016 from $3,455.7 million in 2015 primarily due to the items discussed above in the Consolidated Results of Operations.

• Net revenues in our EMEA operating segment increased $127.5 million to $330.6 million in 2016 from $203.1 million in 2015 primarily due to unit sales growth to wholesale partners in Germany and the United Kingdom.

• Net revenues in our Asia-Pacific operating segment increased $123.7 million to $268.6 million in 2016 from $144.9 million in 2015 primarily due to our first e-commerce site in our direct to consumer channel and an increase in mono-branded partner stores which are included in our wholesale channel.

• Net revenues in our Latin America operating segment increased $35.6 million to $141.8 million in 2016 from $106.2 million in 2015 primarily due an increase in company operated stores in our direct to consumer channel and partner doors in our wholesale channel.

• Net revenues in our Connected Fitness operating segment increased $27.0 million to $80.4 million in 2016 from $53.4 million in 2015 primarily driven by increased advertising and subscribers on our fitness applications.

43

Operating income (loss) by segment is summarized below:

Year Ended December 31,

(In thousands) 2016 2015 $ Change % Change

North America $408,424 $460,961 $(52,537) (11.4)% EMEA 11,420 3,122 8,298 265.8 Asia-Pacific 68,338 36,358 31,980 88.0 Latin America (33,891) (30,593) (3,298) 10.8 Connected Fitness (36,820) (61,301) 24,481 39.9

Total operating income $417,471 $408,547 $ 8,924 2.2%

The increase in total operating income was driven by the following:

• Operating income in our North America operating segment decreased $52.5 million to $408.4 million in 2016 from $461.0 million in 2015 primarily due to decreases in gross margin discussed above in the Consolidated Results of Operations and $17.0 million in expenses related to the liquidation of The Sports Authority, comprised of $15.2 million in bad debt expense and $1.8 million of in-store fixture impairment. In addition, this decrease reflects the movement of $11.1 million in expenses resulting from a strategic shift in headcount supporting our global business from our Connected Fitness operating segment to North America. This decrease is partially offset by the increases in revenue discussed above in the Consolidated Results of Operations.

• Operating income in our EMEA operating segment increased $8.3 million to $11.4 million in 2016 from $3.1 million in 2015 primarily due to sales growth discussed above and reductions in incentive compensation. This increase was offset by investments in sports marketing and infrastructure for future growth.

• Operating income in our Asia-Pacific operating segment increased $31.9 million to $68.3 million in 2016 from $36.4 million in 2015 primarily due to sales growth discussed above and reductions in incentive compensation. This increase was offset by investments in our direct-to-consumer business and entry into new territories.

• Operating loss in our Latin America operating segment increased $3.3 million to $33.9 million in 2016 from $30.6 million in 2015 primarily due to increased investments to support growth in the region and the economic challenges in Brazil during the period. This increase in operating loss was offset by sales growth discussed above and reductions in incentive compensation.

• Operating loss in our Connected Fitness segment decreased $24.5 million to $36.8 million in 2016 from $61.3 million in 2015 primarily driven by sales growth discussed above.

Seasonality

Historically, we have recognized a majority of our net revenues and a significant portion of our income from operations in the last two quarters of the year, driven primarily by increased sales volume of our products during the fall selling season, including our higher priced cold weather products, along with a larger proportion of higher margin direct to consumer sales. The level of our working capital generally reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and certain accrued expenses to be higher in the second and third quarters in preparation for the fall selling season.

44

The following table sets forth certain financial information for the periods indicated. The data is prepared on the same basis as the audited consolidated financial statements included elsewhere in this Form 10-K. All recurring, necessary adjustments are reflected in the data below:

Quarter Ended (unaudited)

(In thousands) 3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017

Net revenues $1,047,702 $1,000,783 $1,471,573 $1,305,277 $1,117,331 $1,088,245 $1,405,615 $1,365,362 Gross profit 480,636 477,647 698,624 583,704 505,423 498,246 645,350 589,704 Marketing SG&A

expenses 122,483 107,835 139,517 107,665 128,336 136,071 143,919 156,800 Other SG&A

expenses 323,270 350,434 359,797 312,139 369,552 363,860 354,254 434,039 Restructuring and

impairment charges — — — — — 3,100 84,997 35,952

Income (loss) from operations $ 34,883 $ 19,378 $ 199,310 $ 163,900 $ 7,536 $ (4,785) $ 62,180 $ (37,088)

(As a percentage of annual totals)

Net revenues 21.7% 20.7% 30.5% 27.1% 22.5% 21.9% 28.2% 27.4% Gross profit 21.5% 21.3% 31.2% 26.1% 22.6% 22.3% 28.8% 26.3% Marketing SG&A

expenses 25.7% 22.6% 29.2% 22.5% 22.7% 24.1% 25.5% 27.7% Other SG&A

expenses 24.0% 26.0% 26.7% 23.2% 24.3% 23.9% 23.3% 28.5% Restructuring and

impairment charges — % — % — % — % — % 2.5% 68.5% 29.0%

Income (loss) from operations 8.4% 4.6% 47.7% 39.3% 27.1% (17.2)% 223.3% (133.2)%

Financial Position, Capital Resources and Liquidity

Our cash requirements have principally been for working capital and capital expenditures. We fund our working capital, primarily inventory, and capital investments from cash flows from operating activities, cash and cash equivalents on hand, borrowings available under our credit and long term debt facilities and the issuance of debt securities. Our working capital requirements generally reflect the seasonality and growth in our business as we recognize the majority of our net revenues in the back half of the year. Our capital investments have included expanding our in-store fixture and branded concept shop program, improvements and expansion of our distribution and corporate facilities to support our growth, leasehold improvements to our new brand and factory house stores, and investment and improvements in information technology systems.

Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and processes in place to improve our inventory management. These systems and processes, including our new global operating and financial reporting information technology system, are designed to improve our forecasting and supply planning capabilities. In addition to systems and processes, key areas of focus that we believe will enhance inventory performance are added discipline around the purchasing of product, production lead time reduction, and better planning and execution in selling of excess inventory through our factory house stores and other liquidation channels.

We believe our cash and cash equivalents on hand, cash from operations, borrowings available to us under our credit agreement and other financing instruments and our ability to access the capital markets are adequate to meet our liquidity needs and capital expenditure requirements for at least the

45

next twelve months. Although we believe we have adequate sources of liquidity over the long term, an economic recession or a slow recovery could adversely affect our business and liquidity (refer to the “Risk Factors” section included in Item 1A). In addition, instability in or tightening of the capital markets could adversely affect our ability to obtain additional capital to grow our business on terms acceptable to us or at all.

At December 31, 2017, $158.7 million, or approximately 50.8%, of cash and cash equivalents was held by our foreign subsidiaries. Based on the capital and liquidity needs of our foreign operations, we intend to indefinitely reinvest these funds outside the United States. In addition, our United States operations do not require the repatriation of these funds to meet our currently projected liquidity needs. 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.

The Tax Act provided for a one-time transition tax on indefinitely reinvested foreign earnings to transition U.S. international taxation from a worldwide system to a modified territorial system. We recorded a provisional tax liability of $13.9 million relating to the one-time transition tax on our indefinitely reinvested foreign earnings. If we were to repatriate indefinitely reinvested foreign funds, we would not be subject to additional U.S. federal income tax, however, we would be required to accrue and pay any applicable withholding tax and U.S. state income tax liabilities and record foreign exchange rate impacts.

Cash Flows

The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:

Year Ended December 31,

(In thousands) 2017 2016 2015

Net cash provided by (used in): Operating activities $ 234,063 $ 364,368 $ 14,541 Investing activities (282,987) (381,139) (847,475) Financing activities 106,759 146,114 381,433 Effect of exchange rate changes on cash and

cash equivalents 4,178 (8,725) (11,822)

Net increase (decrease) in cash and cash equivalents $ 62,013 $ 120,618 $(463,323)

Operating Activities

Operating activities consist primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, unrealized foreign currency exchange rate gains and losses, losses on disposals of property and equipment, stock-based compensation, deferred income taxes and changes in reserves and allowances. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally inventories, accounts receivable, income taxes payable and receivable, prepaid expenses and other assets, accounts payable and accrued expenses.

Cash flows provided by operating activities decreased $130.3 million to $234.1 million in 2017 from $364.4 million in 2016. The decrease in cash from operating activities was primarily due to a decrease in net income of $305.2 million. This decrease was partially offset by a smaller decrease in accounts receivable of $170.1 million.

46

Cash flows provided by operating activities increased $349.8 million to $364.4 million in 2016 from $14.6 million in 2015. The increase in cash from operating activities was due to increased net cash flows from operating assets and liabilities of $325.4 million, an increase in net income of $24.4 million year over year and an increase in adjustments to net income for non-cash items of $1.1 million year over year. The increase in cash outflows related to changes in operating assets and liabilities period over period was primarily driven by the following:

• an increase in accounts payable of $225.0 million in 2016 as compared to 2015, primarily due to the timing of inventory payments as well as significant increases in inventory in-transit in the current period, and

• a decrease in inventory investments of $130.5 million in 2016 as compared to 2015, primarily due to early deliveries of product to meet key seasonal floor set dates in the prior period, as well as strategic investments in auto-replenishment products in 2015; partially offset by

• a larger increase in accounts receivable of $58.0 million in 2016 as compared to 2015, primarily due to the timing of shipments and a higher proportion of sales to our international customers with longer payment terms compared to the prior year.

Investing Activities

Cash used in investing activities decreased $98.2 million to $283.0 million in 2017 from $381.1 million in 2016, primarily due lower capital expenditures in 2017.

Cash used in investing activities decreased $466.4 million to $381.1 million in 2016 from $847.5 million in 2015, primarily due to the impact of our Connected Fitness acquisitions of MyFitnessPal and Endomondo which occurred during the first quarter of 2015.

Total capital expenditures were $274.9 million, $405.5 million, and $325.5 in 2017, 2016 and 2015, respectively. Capital expenditures for 2018 are expected to be approximately $225.0 million.

Financing Activities

Cash provided by financing activities decreased $39.4 million to $106.8 million in 2017 from $146.1 million in 2016. This decrease was primarily due to lower borrowing on our revolving credit facility.

Cash provided by financing activities decreased $235.3 million to $146.1 million in 2016 from $381.4 million in 2015. This decrease was primarily due to higher repayments on our revolving credit facility, partially offset by the issuance of senior notes in 2016.

Credit Facility

We are party to a credit agreement that provides revolving commitments for up to $1.25 billion of borrowings, as well as term loan commitments, in each case maturing in January 2021. As of December 31, 2017 the outstanding balance under the revolving credit facility was $125.0 million and $161.3 million of term loan borrowings remained outstanding.

At our request and the lender’s consent, revolving and or term loan borrowings may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the credit agreement, as amended. Incremental borrowings are uncommitted and the availability thereof, will depend on market conditions at the time we seek to incur such borrowings.

47

The borrowings under the revolving credit facility have maturities of less than one year. Up to $50.0 million of the facility may be used for the issuance of letters of credit. There were $4.5 million of letters of credit outstanding as of December 31, 2017.

The credit agreement contains negative covenants that, subject to significant exceptions, limit our ability to, among other things, incur additional indebtedness, make restricted payments, pledge our assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. We are also required to maintain a ratio of consolidated EBITDA, as defined in the credit agreement, to consolidated interest expense of not less than 3.50 to 1.00 and are not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.00 (“consolidated leverage ratio”). As of December 31, 2017, we were in compliance with these ratios. In February 2018, we amended the credit agreement to amend the definition of consolidated EBITDA, and to provide that our trailing four- quarter consolidated leverage ratio may not exceed 3.75 to 1.00 for the four quarters ended June 30, 2018, and 4.00 to 1.00 for the four quarters ended September 30, 3018. Beginning with the four quarters ended December 31, 2018 and thereafter, the consolidated leverage ratio requirement will return to 3.25 to 1.00. In addition, the credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the credit agreement, will be considered an event of default under the credit agreement.

Borrowings under the credit agreement bear interest at a rate per annum equal to, at our option, either (a) an alternate base rate, or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made (“adjusted LIBOR”), plus in each case an applicable margin. The applicable margin for loans will be adjusted by reference to a grid (the “Pricing Grid”) based on the consolidated leverage ratio and ranges between 1.00% to 1.25% for adjusted LIBOR loans and 0.00% to 0.25% for alternate base rate loans. The weighted average interest rate under the outstanding term loans and revolving credit facility borrowings was 2.2% and 1.6% during the years ended December 31, 2017 and 2016, respectively. We pay a commitment fee on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of December 31, 2017, the commitment fee was 17.5 basis points. Since inception, we have incurred and deferred $3.9 million in financing costs in connection with the credit agreement.

3.250% Senior Notes

In June 2016, we issued $600.0 million aggregate principal amount of 3.250% senior unsecured notes due June 15, 2026 (the “Notes”). The proceeds were used to pay down amounts outstanding under the revolving credit facility. Interest is payable semi-annually on June 15 and December 15 beginning December 15, 2016. Prior to March 15, 2026 (three months prior to the maturity date of the Notes), we may redeem some or all of the Notes at any time or from time to time at a redemption price equal to the greater of 100% of the principal amount of the Notes to be redeemed or a “make-whole” amount applicable to such Notes as described in the indenture governing the Notes, plus accrued and unpaid interest to, but excluding, the redemption date. On or after March 15, 2026 (three months prior to the maturity date of the Notes), we may redeem some or all of the Notes at any time or from time to time at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The indenture governing the Notes contains covenants, including limitations that restrict our ability and the ability of certain of our subsidiaries to create or incur secured indebtedness and enter into sale and leaseback transactions and our ability to consolidate, merge or transfer all or substantially all of our properties or assets to another person, in each case subject to material exceptions described in the indenture. We incurred and deferred $5.3 million in financing costs in connection with the Notes.

48

Other Long Term Debt

In December 2012, we entered into a $50.0 million recourse loan collateralized by the land, buildings and tenant improvements comprising our corporate headquarters. The loan has a seven year term and maturity date of December 2019. The loan bears interest at one month LIBOR plus a margin of 1.50%, and allows for prepayment without penalty. The loan includes covenants and events of default substantially consistent with our credit agreement discussed above. The loan also requires prior approval of the lender for certain matters related to the property, including transfers of any interest in the property. As of December 31, 2017 and 2016, the outstanding balance on the loan was $40.0 million and $42.0 million, respectively. The weighted average interest rate on the loan was 2.5% and 2.0% for the years ended December 31, 2017 and 2016, respectively.

Interest expense, net was $34.5 million, $26.4 million, and $14.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Interest expense includes the amortization of deferred financing costs, bank fees, capital and built-to-suit lease interest and interest expense under the credit and other long term debt facilities. Amortization of deferred financing costs was $1.3 million, $1.2 million, and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

We monitor the financial health and stability of our lenders under the credit and other long term debt facilities, however during any period of significant instability in the credit markets lenders could be negatively impacted in their ability to perform under these facilities.

Contractual Commitments and Contingencies

We lease warehouse space, office facilities, space for our brand and factory house stores and certain equipment under non-cancelable operating leases. The leases expire at various dates through 2033, excluding extensions at our option, and include provisions for rental adjustments. In addition, this table includes executed lease agreements for brand and factory house stores that we did not yet occupy as of December 31, 2017. The operating leases generally contain renewal provisions for varying periods of time. Our significant contractual obligations and commitments as of December 31, 2017 as well as significant agreements entered into during the period after December 31, 2017 through the date of this report are summarized in the following table:

Payments Due by Period

(in thousands) Total Less Than

1 Year 1 to 3 Years 3 to 5 Years More Than

5 Years

Contractual obligations

Long term debt obligations (1) $ 980,585 $ 51,925 $134,932 $125,478 $ 668,250 Lease obligations (2) 1,489,469 140,257 297,759 279,406 772,047 Product purchase obligations (3) 1,093,665 1,093,665 — — — Sponsorships and other (4) 1,170,848 150,428 261,191 241,493 517,736

Total $4,734,567 $1,436,275 $693,882 $646,377 $1,958,033

(1) Includes estimated interest payments based on applicable fixed and currently effective floating interest rates as of December 31, 2017, timing of scheduled payments, and the term of the debt obligations.

(2) Includes the minimum payments for lease obligations. The lease obligations do not include any contingent rent expense we may incur at our brand and factory house stores based on future sales above a specified minimum or payments made for maintenance, insurance and real estate taxes. Contingent rent expense was $15.5 million for the year ended December 31, 2017.

(3) We generally place orders with our manufacturers at least three to four months in advance of expected future sales. The amounts listed for product purchase obligations primarily represent our

49

open production purchase orders with our manufacturers for our apparel, footwear and accessories, including expected inbound freight, duties and other costs. These open purchase orders specify fixed or minimum quantities of products at determinable prices. The product purchase obligations also includes fabric commitments with our suppliers, which secure a portion of our material needs for future seasons. The reported amounts exclude product purchase liabilities included in accounts payable as of December 31, 2017.

(4) Includes sponsorships with professional teams, professional leagues, colleges and universities, individual athletes, athletic events and other marketing commitments in order to promote our brand. Some of these sponsorship agreements provide for additional performance incentives and product supply obligations. It is not possible to determine how much we will spend on product supply obligations on an annual basis as contracts generally do not stipulate specific cash amounts to be spent on products. The amount of product provided to these sponsorships depends on many factors including general playing conditions, the number of sporting events in which they participate and our decisions regarding product and marketing initiatives. In addition, it is not possible to determine the performance incentive amounts we may be required to pay under these agreements as they are primarily subject to certain performance based and other variables. The amounts listed above are the fixed minimum amounts required to be paid under these sponsorship agreements. Additionally, these amounts include minimum guaranteed royalty payments to endorsers and licensors based upon a predetermined percent of sales of particular products.

The table above excludes a liability of $54.4 million for uncertain tax positions, including the related interest and penalties, recorded in accordance with applicable accounting guidance, as we are unable to reasonably estimate the timing of settlement. Refer to Note 10 to the Consolidated Financial Statements for a further discussion of our uncertain tax positions.

Off-Balance Sheet Arrangements

In connection with various contracts and agreements, we have agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which our counterparties are grossly negligent, engage in willful misconduct, or act in bad faith. Based on our historical experience and the estimated probability of future loss, we have determined the fair value of such indemnifications is not material to our financial position or results of operations.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Actual results could be significantly different from these estimates. We believe the following discussion addresses the critical accounting policies that are necessary to understand and evaluate our reported financial results.

Our significant accounting policies are described in Note 2 of the audited consolidated financial statements. The SEC suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its application. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated

50

amounts. There were no significant changes to our critical accounting policies during the year ended December 31, 2017.

Revenue Recognition

Net revenues consist of both net sales and license and other revenues. Net sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer of title and risk of loss are based upon shipment under free on board shipping point for most goods or upon receipt by the customer depending on the country of the sale and the agreement with the customer. In some instances, transfer of title and risk of loss take place at the point of sale, for example at our brand and factory house stores. We may also ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. License revenues are primarily recognized based upon shipment of licensed products sold by our licensees. Sales taxes imposed on our revenues from product sales are presented on a net basis on the consolidated statements of income and therefore do not impact net revenues or costs of goods sold.

We record reductions to revenue for estimated customer returns, allowances, markdowns and discounts. We base our estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by us. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from our estimates. If we determine that actual or expected returns or allowances are significantly higher or lower than the reserves we established, we would record a reduction or increase, as appropriate, to net sales in the period in which we make such a determination. Provisions for customer specific discounts are based on contractual obligations with certain major customers. Reserves for returns, allowances, markdowns and discounts are recorded as an offset to accounts receivable as settlements are made through offsets to outstanding customer invoices. As of December 31, 2017 and 2016, there were $246.6 million and $146.2 million, respectively, in reserves for customer returns, allowances, markdowns and discounts.

Allowance for Doubtful Accounts

We make ongoing estimates relating to the collectability of accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the reserve, we consider historical levels of credit losses and significant economic developments within the retail environment that could impact the ability of our customers to pay outstanding balances and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determine a smaller or larger reserve is appropriate, we would record a benefit or charge to selling, general and administrative expense in the period in which such a determination was made. As of December 31, 2017 and 2016, the allowance for doubtful accounts was $19.7 million and $11.3 million, respectively.

Inventory Valuation and Reserves

Inventories consist primarily of finished goods. Costs of finished goods inventories include all costs incurred to bring inventory to its current condition, including inbound freight, duties and other costs. We value our inventory at standard cost which approximates landed cost, using the first-in, first-out method of cost determination. Market value is estimated based upon assumptions made about future demand and retail market conditions. If we determine that the estimated market value of our inventory is less

51

than the carrying value of such inventory, we record a charge to cost of goods sold to reflect the lower of cost or market. If actual market conditions are less favorable than those that we projected, further adjustments may be required that would increase the cost of goods sold in the period in which such a determination was made.

Goodwill, Intangible Assets and Long-Lived Assets

Goodwill and intangible assets are recorded at their estimated fair values at the date of acquisition and are allocated to the reporting units that are expected to receive the related benefits. Goodwill and indefinite lived intangible assets are not amortized and are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. In conducting an annual impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that is the case, we perform the goodwill impairment test. We compare the fair value of the reporting unit with its carrying amount. We calculate fair value using the discounted cash flows model, which indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital, long-term rate of growth and profitability of the reporting unit’s business, and working capital effects. If the carrying amount exceeds its fair value, goodwill is impaired to the extent that the carrying value exceeds the fair value of the reporting unit. We perform our annual impairment tests in the fourth quarter of each fiscal year.

We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. When factors indicate that an asset should be evaluated for possible impairment, We review long-lived assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

Assessing whether deferred tax assets are realizable requires significant judgment. We consider all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent we believe it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against our deferred tax assets, which increase income tax expense in the period when such a determination is made.

A significant portion of our deferred tax assets relate to U.S. federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future U.S. pre-tax earnings. Due to our challenged U.S. results we incurred significant net operating losses (“NOLs”) in these jurisdictions in 2017. Based on these factors, we have evaluated our ability to utilize these deferred tax assets in future years. In evaluating the recoverability of these deferred tax assets at December 31, 2017, we

52

have considered all available evidence, both positive and negative, including but not limited to the following:

Positive

• Availability of taxable income in the U.S. federal and certain state NOL carryback periods;

• U.S. federal NOLs have an indefinite carryforward period, beginning in 2018 pursuant to the Tax Act;

• Definite lived tax attributes with relatively long carryforward periods; a majority from 10 to 20 years;

• No history of U.S. federal and state tax attributes expiring unused;

• Three year cumulative U.S. federal and state pre-tax income;

• Relative low values of pre-tax income required to realized deferred tax assets relative to historic income levels;

• Restructuring plans being undertaken to improve profitability;

• Availability of prudent and feasible tax planning strategies.

Negative

• Inherent challenges in forecasting future pre-tax earnings which rely on improved profitability from our restructuring efforts;

• The continuing challenge of changes in the U.S. consumer retail business environment;

• While relatively long, existence of definite lived tax attributes of certain U.S. federal tax credits and state NOLs;

As of December 31, 2017, we believe that the weight of the positive evidence outweighs the negative evidence regarding the realization of the majority of the net deferred tax assets. We will continue to evaluate our ability to realize our net deferred tax assets on a quarterly basis.

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. We recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.

Stock-Based Compensation

We account for stock-based compensation in accordance with accounting guidance that requires all stock-based compensation awards granted to employees and directors to be measured at fair value and recognized as an expense in the financial statements. As of December 31, 2017, we had $87.7 million of unrecognized compensation expense expected to be recognized over a weighted average period of 3.2 years. This unrecognized compensation expense does not include any expense related to performance-based restricted stock units and stock options for which the performance targets have not been achieved as of December 31, 2017.

The assumptions used in calculating the fair value of stock-based compensation awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of

53

management judgment. In addition, compensation expense for performance-based awards is recorded over the related service period when achievement of the performance targets are deemed probable, which requires management judgment. The achievement of certain revenue and operating income targets related to the performance-based restricted stock units and stock options granted in 2017 were not deemed probable as of December 31, 2017. Additional stock-based compensation expense of up to $5.7 million would have been recorded from grant date through 2017 for these performance-based restricted stock units and stock options had the full achievement of all operating targets been deemed probable; however, currently we do not believe that these targets will be met. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. Refer to Note 2 and Note 12 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

Recently Issued Accounting Standards

Refer to Note 2 to the notes to our financial statements included in this Form 10-K for our assessment of recently issued accounting standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign Currency Risk

We currently generate a majority of our consolidated net revenues in the United States, and the reporting currency for our consolidated financial statements is the U.S. dollar. As our net revenues and expenses generated outside of the United States increase, our results of operations could be adversely impacted by changes in foreign currency exchange rates. For example, as we recognize foreign revenues in local foreign currencies and if the U.S. dollar strengthens, it could have a negative impact on our foreign revenues upon translation of those results into the U.S. dollar during the consolidation of our financial statements. In addition, we are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates on transactions generated by our foreign subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. These exposures are included in other expense, net on the consolidated statements of income.

From time to time, we may elect to use foreign currency contracts to reduce the risk from exchange rate fluctuations primarily on intercompany transactions and projected inventory purchases for our international subsidiaries. As we expand our international business, we anticipate expanding our current hedging program to include additional currency pairs and instruments. We do not enter into derivative financial instruments for speculative or trading purposes.

As of December 31, 2017, the aggregate notional value of our outstanding foreign currency contracts was $601.0 million, which was comprised of Canadian Dollar/U.S. Dollar, Euro/U.S. Dollar, Mexican Peso/U.S. Dollar, Yen/U.S. Dollar, Mexican Peso/Euro and South Korean Won/U.S. Dollar. currency pairs with contract maturities of one to eleven months. The majority of our foreign currency contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in earnings. We enter into foreign currency contracts designated as cash flow hedges. For foreign currency contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, is recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure. During the years ended December 31, 2017 and 2016, we reclassified $0.4 million and $0.3 million, respectively, from other comprehensive income to cost of goods sold

54

related to foreign currency contracts designated as cash flow hedges. The fair value of our foreign currency contracts was a liability of $6.8 million as of December 31, 2017 and was included in other current liabilities on the consolidated balance sheet. The fair value of our foreign currency contracts was an asset of $15.2 million as of December 31, 2016 and was included in prepaid expenses and other current assets on the consolidated balance sheet. Refer to Note 9 to the Consolidated Financial Statements for a discussion of the fair value measurements. Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency contracts:

Year Ended December 31,

(In thousands) 2017 2016 2015

Unrealized foreign currency exchange rate gains (losses) $ 29,246 $(12,627) $(33,359)

Realized foreign currency exchange rate gains (losses) 611 (6,906) 7,643 Unrealized derivative gains (losses) (1,217) 729 388 Realized derivative gains (losses) (26,537) 15,192 16,404

We enter into foreign currency contracts with major financial institutions with investment grade credit ratings and are exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the foreign currency contracts. However, we monitor the credit quality of these financial institutions and consider the risk of counterparty default to be minimal. Although we have entered into foreign currency contracts to minimize some of the impact of foreign currency exchange rate fluctuations on future cash flows, we cannot be assured that foreign currency exchange rate fluctuations will not have a material adverse impact on our financial condition and results of operations.

Interest Rate Risk

In order to maintain liquidity and fund business operations, we enter into long term debt arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations. We utilize interest rate swap contracts to convert a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest. The interest rate swap contracts are accounted for as cash flow hedges and accordingly, the effective portion of the changes in fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation.

As of December 31, 2017, the aggregate notional value of our outstanding interest rate swap contracts was $135.6 million. During the years ended December 31, 2017 and 2016, we recorded a $0.9 million and $2.0 million increase in interest expense, respectively, representing the effective portion of the contracts reclassified from accumulated other comprehensive income. The fair value of the interest rate swap contracts was an asset of $1.1 million as of December 31, 2017 and was included in other long term assets on the consolidated balance sheet. The fair value of the interest rate swap contracts was a liability of $0.4 million as of December 31, 2016 and was included in other long term liabilities on the consolidated balance sheet.

Credit Risk

We are exposed to credit risk primarily on our accounts receivable. We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. We believe that our

55

exposure to concentrations of credit risk with respect to trade receivables is largely mitigated by our customer base. We believe that our allowance for doubtful accounts is sufficient to cover customer credit risks as of December 31, 2017. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates—Allowance for Doubtful Accounts.”

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations in recent periods, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

56

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Management on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on our evaluation, we have concluded that our internal control over financial reporting was effective as of December 31, 2017.

The effectiveness of our internal control over financial reporting as of December 31, 2017, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

/S/ KEVIN A. PLANK Kevin A. Plank

Chairman of the Board of Directors and Chief Executive Officer

/S/ DAVID E. BERGMAN David E. Bergman Chief Financial Officer

Dated: February 28, 2018

57

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Under Armour, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Under Armour, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based payment awards in 2017.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

58

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Baltimore, Maryland February 28, 2018

We have served as the Company’s auditor since 2003.

59

Under Armour, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

December 31, 2017

December 31, 2016

Assets Current assets

Cash and cash equivalents $ 312,483 $ 250,470 Accounts receivable, net 609,670 622,685 Inventories 1,158,548 917,491 Prepaid expenses and other current assets 256,978 174,507

Total current assets 2,337,679 1,965,153 Property and equipment, net 885,774 804,211 Goodwill 555,674 563,591 Intangible assets, net 46,995 64,310 Deferred income taxes 82,801 136,862 Other long term assets 97,444 110,204

Total assets $4,006,367 $3,644,331

Liabilities and Stockholders’ Equity Current liabilities

Revolving credit facility, current $ 125,000 $ — Accounts payable 561,108 409,679 Accrued expenses 296,841 208,750 Current maturities of long term debt 27,000 27,000 Other current liabilities 50,426 40,387

Total current liabilities 1,060,375 685,816 Long term debt, net of current maturities 765,046 790,388 Other long term liabilities 162,304 137,227

Total liabilities 1,987,725 1,613,431

Commitments and contingencies (see Note 6) Stockholders’ equity

Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of December 31, 2017, and 2016; 185,257,423 shares issued and outstanding as of December 31, 2017, and 183,814,911 shares issued and outstanding as of December 31, 2016. 61 61

Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of December 31, 2017, and December 31, 2016. 11 11

Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of December 31, 2017, and 2016; 222,375,079 shares issued and outstanding as of December 31, 2017, and 220,174,048 shares issued and outstanding as of December 31, 2016. 74 73

Additional paid-in capital 872,266 823,484 Retained earnings 1,184,441 1,259,414 Accumulated other comprehensive loss (38,211) (52,143)

Total stockholders’ equity 2,018,642 2,030,900

Total liabilities and stockholders’ equity $4,006,367 $3,644,331

See accompanying notes.

60

Under Armour, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)

Year Ended December 31,

2017 2016 2015

Net revenues $4,976,553 $4,825,335 $3,963,313 Cost of goods sold 2,737,830 2,584,724 2,057,766

Gross profit 2,238,723 2,240,611 1,905,547 Selling, general and administrative expenses 2,086,831 1,823,140 1,497,000 Restructuring and impairment charges 124,049 — —

Income from operations 27,843 417,471 408,547 Interest expense, net (34,538) (26,434) (14,628) Other expense, net (3,614) (2,755) (7,234)

Income (loss) before income taxes (10,309) 388,282 386,685 Income tax expense 37,951 131,303 154,112

Net income (loss) (48,260) 256,979 232,573

Adjustment payment to Class C capital stockholders — 59,000 —

Net income (loss) available to all stockholders (48,260) 197,979 232,573

Basic net income (loss) per share of Class A and B common stock $ (0.11) $ 0.45 $ 0.54

Basic net income (loss) per share of Class C common stock $ (0.11) $ 0.72 $ 0.54 Diluted net income (loss) per share of Class A and B common

stock $ (0.11) $ 0.45 $ 0.53 Diluted net income (loss) per share of Class C common stock $ (0.11) $ 0.71 $ 0.53 Weighted average common shares outstanding Class A

and B common stock

Basic 219,254 217,707 215,498 Diluted 219,254 221,944 220,868

Weighted average common shares outstanding Class C

common stock

Basic 221,475 218,623 215,498 Diluted 221,475 222,904 220,868

See accompanying notes.

61

Under Armour, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (loss)

(In thousands)

Year Ended December 31,

2017 2016 2015

Net income (loss) $(48,260) $256,979 $232,573 Other comprehensive income (loss):

Foreign currency translation adjustment 23,357 (13,798) (31,816) Unrealized gain (loss) on cash flow hedge, net of tax of

$(5,668), $3,346 and $415 for the years ended December 31, 2017, 2016, and 2015 respectively. (16,624) 9,084 1,611

Gain (loss) on intra-entity foreign currency transactions 7,199 (2,416) —

Total other comprehensive income (loss) 13,932 (7,130) (30,205)

Comprehensive income (loss) $(34,328) $249,849 $202,368

See accompanying notes.

62

Under Armour, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(In thousands)

Class A Common Stock

Class B Convertible

Common Stock Class C

Common Stock Additional

Paid-in- Capital

Retained Earnings

Accumulated Other

Comprehensive Income (loss)

Total EquityShares Amount Shares Amount Shares Amount

Balance as of December 31, 2014 177,296 $ 59 36,600 $ 12 213,896 71 $508,279 $ 856,687 $(14,808) $1,350,300

Exercise of stock options 360 — — — 360 — 2,852 — — 2,852 Shares withheld in

consideration of employee tax obligations relative to stock-based compensation arrangements (172) — — — (172) — — (12,727) — (12,727)

Issuance of Class A Common Stock, net of forfeitures 1,996 1 — — 1,996 1 19,134 — — 19,136

Class B Convertible Common Stock converted to Class A Common Stock 2,150 1 (2,150) (1) — — — — — —

Stock-based compensation expense — — — — — — 60,376 — — 60,376

Net excess tax benefits from stock-based compensation arrangements — — — — — — 45,917 — — 45,917

Comprehensive income — — — — — — — 232,573 (30,205) 202,368

Balance as of December 31, 2015 181,630 61 34,450 11 216,080 72 636,558 1,076,533 (45,013) 1,668,222

Exercise of stock options 792 — — — 971 — 6,203 — — 6,203 Shares withheld in

consideration of employee tax obligations relative to stock-based compensation arrangements (199) — — — (276) — — (15,098) — (15,098)

Issuance of Class A Common Stock, net of forfeitures 1,592 — — — — — 7,884 — — 7,884

Issuance of Class C Common Stock, net of forfeitures — — — — 1,852 1 25,834 — — 25,835

Issuance of Class C dividend — — — — 1,547 — 56,073 (59,000) — (2,927) Stock-based compensation

expense — — — — — — 46,149 — — 46,149 Net excess tax benefits from

stock-based compensation arrangements — — — — — — 44,783 — — 44,783

Comprehensive income — — — — — — — 256,979 (7,130) 249,849

Balance as of December 31, 2016 183,815 61 34,450 11 220,174 73 823,484 1,259,414 (52,143) 2,030,900

Exercise of stock options 609 — — — 556 — 3,664 — — 3,664 Shares withheld in

consideration of employee tax obligations relative to stock-based compensation arrangements (65) — — — (78) — — (2,781) — (2,781)

Issuance of Class A Common Stock, net of forfeitures 898 — — — — — — — —

Issuance of Class C Common Stock, net of forfeitures — — — — 1,723 1 7,852 — — 7,853

Impact of adoption of accounting standard updates — — — — — — (2,666) (23,932) — (26,598)

Stock-based compensation expense — — — — — — 39,932 — — 39,932

Comprehensive income (loss) — — — — — — — (48,260) 13,932 (34,328)

Balance as of December 31, 2017 185,257 61 34,450 11 222,375 74 872,266 1,184,441 (38,211) 2,018,642

See accompanying notes.

63

Under Armour, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

2017 2016 2015

Cash flows from operating activities Net income (loss) $ (48,260) $ 256,979 $ 232,573 Adjustments to reconcile net income (loss) to net cash used in

operating activities Depreciation and amortization 173,747 144,770 100,940 Unrealized foreign currency exchange rate loss (gains) (29,247) 12,627 33,359 Impairment charges 71,378 — — Amortization of bond premium 254 — — Loss on disposal of property and equipment 2,313 1,580 549 Stock-based compensation 39,932 46,149 60,376 Excess tax benefit (loss) from stock-based compensation

arrangements (75) 44,783 45,917 Deferred income taxes 55,910 (43,004) (4,426) Changes in reserves and allowances 108,757 70,188 40,391 Changes in operating assets and liabilities (net of acquisitions):

Accounts receivable (79,106) (249,853) (191,876) Inventories (222,391) (148,055) (278,524) Prepaid expenses and other assets (55,503) (25,284) (76,476) Accounts payable 145,695 202,446 (22,583) Accrued expenses and other liabilities 109,823 67,754 76,854 Income taxes payable and receivable (39,164) (16,712) (2,533)

Net cash provided by operating activities 234,063 364,368 14,541

Cash flows from investing activities Purchases of property and equipment (281,339) (316,458) (298,928) Purchases of property and equipment from related parties — (70,288) — Purchase of businesses, net of cash acquired — — (539,460) Purchases of available-for-sale securities — (24,230) (103,144) Sales of available-for-sale securities — 30,712 96,610 Purchases of other assets (1,648) (875) (2,553)

Net cash used in investing activities (282,987) (381,139) (847,475)

Cash flows from financing activities Proceeds from long term debt and revolving credit facility 763,000 1,327,601 650,000 Payments on long term debt and revolving credit facility (665,000) (1,170,750) (265,202) Employee taxes paid for shares withheld for income taxes (2,781) (15,098) (12,728) Proceeds from exercise of stock options and other stock issuances 11,540 15,485 10,310 Payments of debt financing costs — (6,692) (947) Cash dividends paid — (2,927) — Contingent consideration payments for acquisitions — (1,505)

Net cash provided by financing activities 106,759 146,114 381,433 Effect of exchange rate changes on cash and cash equivalents 4,178 (8,725) (11,822)

Net increase (decrease) in cash and cash equivalents 62,013 120,618 (463,323) Cash and cash equivalents Beginning of period 250,470 129,852 593,175

End of period $ 312,483 $ 250,470 $ 129,852

Non-cash investing and financing activities Change in accrual for property and equipment $ 10,580 $ 16,973 $ 17,758 Non-cash dividends — (56,073) Property and equipment acquired under build-to-suit leases — — 5,631

Other supplemental information Cash paid for income taxes 36,921 135,959 99,708 Cash paid for interest, net of capitalized interest 29,750 21,412 11,176

See accompanying notes.

64

Under Armour, Inc. and Subsidiaries

Notes to the Audited Consolidated Financial Statements

1. Description of the Business

Under Armour, Inc. is a developer, marketer and distributor of branded performance apparel, footwear and accessories. These products are sold worldwide and worn by athletes at all levels, from youth to professional on playing fields around the globe, as well as by consumers with active lifestyles. The Under Armour Connected FitnessTM platform powers the world’s largest digital health and fitness community. The Company uses this platform to engage its consumers and increase awareness and sales of its products.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Under Armour, Inc. and its wholly owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated. The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.

On June 3, 2016, the Board of Directors approved the payment of a $59.0 million dividend to the holders of the Company’s Class C stock in connection with shareholder litigation related to the creation of the Class C stock. The Company’s Board of Directors approved the payment of this dividend in the form of additional shares of Class C stock, with cash in lieu of any fractional shares. This dividend was distributed on June 29, 2016, in the form of 1,470,256 shares of Class C stock and $2.9 million in cash.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at date of inception to be cash and cash equivalents. Included in interest expense, net for the years ended December 31, 2017, 2016 and 2015 was interest income of $0.4 million, $0.3 million and $0.2 million, respectively, related to cash and cash equivalents.

Concentration of Credit Risk

Financial instruments that subject the Company to significant concentration of credit risk consist primarily of accounts receivable. The majority of the Company’s accounts receivable is due from large sporting goods retailers. Credit is extended based on an evaluation of the customer’s financial condition and collateral is not required. The Company’s largest customer in North America accounted for 12% and 16% of accounts receivable as of December 31, 2017 and December 31, 2016, respectively. The Company’s largest customer accounted for 10% and 12% of net revenues for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2017, no customer accounted for more than 10% of net revenues.

Allowance for Doubtful Accounts

The Company makes ongoing estimates relating to the collectability of accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In determining the amount of the reserve, the Company considers historical levels of credit losses and significant economic developments within the retail environment that could impact the ability of its customers to pay outstanding balances and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because the Company

65

cannot predict future changes in the financial stability of its customers, actual future losses from uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event the Company determines a smaller or larger reserve is appropriate, it would record a benefit or charge to selling, general and administrative expense in the period in which such a determination was made. As of December 31, 2017 and 2016, the allowance for doubtful accounts was $19.7 million and $11.3 million, respectively.

Inventories

Inventories consist primarily of finished goods. Costs of finished goods inventories include all costs incurred to bring inventory to its current condition, including inbound freight, duties and other costs. The Company values its inventory at standard cost which approximates landed cost, using the first-in, first-out method of cost determination. Market value is estimated based upon assumptions made about future demand and retail market conditions. If the Company determines that the estimated market value of its inventory is less than the carrying value of such inventory, it records a charge to cost of goods sold to reflect the lower of cost or market. If actual market conditions are less favorable than those projected by the Company, further adjustments may be required that would increase the cost of goods sold in the period in which such a determination was made.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.

Property and Equipment

Property and equipment are stated at cost, including the cost of internal labor for software customized for internal use, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets: 3 to 10 years for furniture, office equipment, software and plant equipment and 10 to 35 years for site improvements, buildings and building equipment. Leasehold and tenant improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. The cost of in-store apparel and footwear fixtures and displays are capitalized, included in furniture, fixtures and displays,

66

and depreciated over 3 years. The Company periodically reviews assets’ estimated useful lives based upon actual experience and expected future utilization. A change in useful life is treated as a change in accounting estimate and is applied prospectively.

The Company capitalizes the cost of interest for long term property and equipment projects based on the Company’s weighted average borrowing rates in place while the projects are in progress. Capitalized interest was $2.1 million and $1.8 million as of December 31, 2017 and 2016, respectively.

Upon retirement or disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in selling, general and administrative expenses for that period. Major additions and betterments are capitalized to the asset accounts while maintenance and repairs, which do not improve or extend the lives of assets, are expensed as incurred.

As a part of the Company’s 2017 restructuring plan, the Company abandoned the use of several assets included within Property and Equipment, resulting in an impairment charge of $30.7 million, reducing the carrying value of these assets to their estimated fair values.

Goodwill, Intangible Assets and Long-Lived Assets

Goodwill and intangible assets are recorded at their estimated fair values at the date of acquisition and are allocated to the reporting units that are expected to receive the related benefits. Goodwill and indefinite lived intangible assets are not amortized and are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. In conducting an annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that is the case, the Company performs the goodwill impairment test. The Company compares the fair value of the reporting unit with its carrying amount. The Company calculates fair value using the discounted cash flows model, which indicates the fair value of the reporting unit based on the present value of the cash flows that the Company expects the reporting unit to generate in the future. The Company’s significant estimates in the discounted cash flows model include: the Company’s weighted average cost of capital, long-term rate of growth and profitability of the reporting unit’s business, and working capital effects. If the carrying amount exceeds its fair value, goodwill is impaired to the extent that the carrying value exceeds the fair value of the reporting unit.

During the third quarter of 2017, the Company made the strategic decision to not pursue certain planned future revenue streams in its Connected Fitness business in connection with the 2017 Restructuring Plan. The Company determined sufficient indication existed to trigger the performance of an interim impairment for the Company’s Connected Fitness reporting unit resulting in goodwill impairment of $28.6 million, which represents all goodwill allocated to this reporting unit. The Company performs its annual impairment tests in the fourth quarter of each fiscal year. As of December 31, 2017, no impairment of goodwill was identified and the fair value of each reporting unit substantially exceeded its carrying value.

The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. When factors indicate that an asset should be evaluated for possible impairment, the Company reviews long-lived assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value. In connection with the Company’s 2017

67

Restructuring Plan, strategic decisions were made during the third quarter in 2017 to abandon the use of certain intangible assets in the Company’s Connected Fitness reporting unit. These intangible assets included technology and brand names, resulting in total intangible asset impairment charges of $12.1 million

Accrued Expenses

At December 31, 2017, accrued expenses primarily included $92.7 million and $47.0 million of accrued compensation and benefits and marketing expenses, respectively. At December 31, 2016, accrued expenses primarily included $60.8 million and $24.7 million of accrued compensation and benefits and marketing expenses, respectively.

Foreign Currency Translation and Transactions

The functional currency for each of the Company’s wholly owned foreign subsidiaries is generally the applicable local currency. The translation of foreign currencies into U.S. dollars is performed for assets and liabilities using current foreign currency exchange rates in effect at the balance sheet date and for revenue and expense accounts using average foreign currency exchange rates during the period. Capital accounts are translated at historical foreign currency exchange rates. Translation gains and losses are included in stockholders’ equity as a component of accumulated other comprehensive income. Adjustments that arise from foreign currency exchange rate changes on transactions, primarily driven by intercompany transactions, denominated in a currency other than the functional currency are included in other expense, net on the consolidated statements of income.

Derivatives and Hedging Activities

The Company uses derivative financial instruments in the form of foreign currency and interest rate swap contracts to minimize the risk associated with foreign currency exchange rate and interest rate fluctuations. The Company accounts for derivative financial instruments pursuant to applicable accounting guidance. This guidance establishes accounting and reporting standards for derivative financial instruments and requires all derivatives to be recognized as either assets or liabilities on the balance sheet and to be measured at fair value. Unrealized derivative gain positions are recorded as other current assets or other long term assets, and unrealized derivative loss positions are recorded as other current liabilities or other long term liabilities, depending on the derivative financial instrument’s maturity date.

Currently, the majority of the Company’s foreign currency contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are included in other expense, net on the consolidated statements of income. During 2014, the Company began entering into foreign currency contracts designated as cash flow hedges, and consequently, changes in fair value, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure. Additionally, the Company has designated its interest rate swap contract as a cash flow hedge and accordingly, the effective portion of changes in fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation. The ineffective portion, if any, is recognized in current period earnings. The Company does not enter into derivative financial instruments for speculative or trading purposes.

Revenue Recognition

The Company recognizes revenue pursuant to applicable accounting standards. Net revenues consist of both net sales and license and other revenues. Net sales are recognized upon transfer of

68

ownership, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer of title and risk of loss is based upon shipment under free on board shipping point for most goods or upon receipt by the customer depending on the country of the sale and the agreement with the customer. In some instances, transfer of title and risk of loss takes place at the point of sale, for example, at the Company’s brand and factory house stores. The Company may also ship product directly from its supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. License and other revenues are primarily recognized based upon shipment of licensed products sold by the Company’s licensees. Sales taxes imposed on the Company’s revenues from product sales are presented on a net basis on the consolidated statements of income and therefore do not impact net revenues or costs of goods sold.

The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Provisions for customer specific discounts are based on contractual obligations with certain major customers. Reserves for returns, allowances, markdowns and discounts are recorded as an offset to accounts receivable as settlements are made through offsets to outstanding customer invoices. As of December 31, 2017 and 2016, there were $246.6 million and $146.2 million, respectively, in reserves for customer returns, allowances, markdowns and discounts.

Advertising Costs

Advertising costs are charged to selling, general and administrative expenses. Advertising production costs are expensed the first time an advertisement related to such production costs is run. Media (television, print and radio) placement costs are expensed in the month during which the advertisement appears, and costs related to event sponsorships are expensed when the event occurs. In addition, advertising costs include sponsorship expenses. Accounting for sponsorship payments is based upon specific contract provisions and the payments are generally expensed uniformly over the term of the contract after recording expense related to specific performance incentives once they are deemed probable. Advertising expense, including amortization of in-store marketing fixtures and displays, was $565.1 million, $477.5 million and $417.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017 and 2016, prepaid advertising costs were $41.2 million and $32.0 million, respectively.

Shipping and Handling Costs

The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company includes the majority of outbound handling costs as a component of selling, general and administrative expenses. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs, included within selling, general and administrative expenses, were $101.5 million, $89.9 million and $63.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company includes outbound freight costs associated with shipping goods to customers as a component of cost of goods sold.

69

Minority Investment

The Company holds a minority investment in Dome Corporation (“Dome”), the Company’s Japanese licensee. The Company invested ¥1,140.0 million, or $15.5 million, in exchange for 19.5% common stock ownership in Dome. As of December 31, 2017 and 2016, the carrying value of the Company’s investment was $12.7 million and $11.7 million, respectively, and was included in other long term assets on the consolidated balance sheets. The investment is subject to foreign currency translation rate fluctuations as it is held by the Company’s European subsidiary.

The Company accounts for its investment in Dome under the cost method given that it does not have the ability to exercise significant influence. Additionally, the Company concluded that no event or change in circumstances occurred during the year ended December 31, 2017 that may have a significant adverse effect on the fair value of the investment.

Earnings per Share

Basic earnings per common share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Any stock-based compensation awards that are determined to be participating securities, which are stock-based compensation awards that entitle the holders to receive dividends prior to vesting, are included in the calculation of basic earnings per share using the two class method. Diluted earnings per common share is computed by dividing net income available to common stockholders for the period by the diluted weighted average common shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, warrants, restricted stock units and other equity awards. Refer to Note 11 for further discussion of earnings per share.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with accounting guidance that requires all stock-based compensation awards granted to employees and directors to be measured at fair value and recognized as an expense in the financial statements. In addition, this guidance requires that excess tax benefits related to stock-based compensation awards be reflected as operating cash flows.

The Company uses the Black-Scholes option-pricing model to estimate the fair market value of stock-based compensation awards. The Company uses the “simplified method” to estimate the expected life of options, as permitted by accounting guidance. The “simplified method” calculates the expected life of a stock option equal to the time from grant to the midpoint between the vesting date and contractual term, taking into account all vesting tranches. The risk free interest rate is based on the yield for the U.S. Treasury bill with a maturity equal to the expected life of the stock option. Expected volatility is based on the Company’s historical average. Compensation expense is recognized net of forfeitures on a straight-line basis over the total vesting period, which is the implied requisite service period. Compensation expense for performance-based awards is recorded over the implied requisite service period when achievement of the performance target is deemed probable.

The Company issues new shares of Class A Common Stock and Class C Common Stock upon exercise of stock options, grant of restricted stock or share unit conversion. Refer to Note 12 for further details on stock-based compensation.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect

70

the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The carrying amounts shown for the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short term maturity of those instruments. The fair value of the Company’s Senior Notes was $526.3 million and $568.1 million as of December 31, 2017 and 2016, respectively. The fair value of the Company’s other long term debt approximates its carrying value based on the variable nature of interest rates and current market rates available to the Company. The fair value of foreign currency contracts is based on the net difference between the U.S. dollars to be received or paid at the contracts’ settlement date and the U.S. dollar value of the foreign currency to be sold or purchased at the current exchange rate. The fair value of the interest rate swap contract is based on the net difference between the fixed interest to be paid and variable interest to be received over the term of the contract based on current market rates.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which supersedes the most current revenue recognition requirements. This ASU requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. This ASU will be effective for annual and interim periods beginning after December 15, 2017, with early adoption for annual and interim periods beginning after December 15, 2016 permitted.

The Company’s initial assessment of the guidance in this ASU has identified wholesale customer support costs, direct to consumer incentive programs and customer related returns as transactions potentially affected by this guidance. On the Consolidated Balance Sheet, reserves for returns, allowances, discounts and markdowns will be included as other current liabilities rather than accounts receivable, net and the value of inventory associated with reserves for sales returns will be included within prepaid expenses and other current assets. While the Company has not completed its evaluation, it expects the impact of the adoption of this ASU would primarily change presentation within its consolidated financial statements but is currently not expected to have a material effect on income from operations.

The Company will adopt the guidance in this new ASU effective January 1, 2018, and plans to use the modified retrospective transition approach, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying this guidance to contracts in effect as of the adoption date. Under this approach, the Company would not restate the prior financial statements presented. The guidance in this ASU requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018 as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.

In January of 2016, the FASB issued ASU 2016-01 which simplifies the impairment assessment of equity investments. This ASU requires equity investments to be measured at fair value with changes recognized in net income. This ASU eliminates the requirement to disclose the methods and assumptions to estimate fair value for financial instruments, requires the use of the exit price for disclosure purposes, requires the change in liability due to a change in credit risk to be presented in other comprehensive income, requires separate presentation of financial assets and liabilities by

71

measurement category and form of asset (securities and loans) and clarifies the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU becomes effective for fiscal periods beginning January 1, 2018 using a cumulative-effect adjustment to the balance sheet. The guidance related to equity securities without readily determinable fair values (including disclosure requirements) shall be applied prospectively to equity investments that exist as of the date of adoption of this update. The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, which amends the existing guidance for leases and will require recognition of operating leases with lease terms of more than twelve months and all financing leases on the balance sheet. For these leases, companies will record assets for the rights and liabilities for the obligations that are created by the leases. This ASU will require disclosures that provide qualitative and quantitative information for the lease assets and liabilities recorded in the financial statements. This ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating this ASU to determine the impact of its adoption on its consolidated financial statements. The Company currently anticipates adopting the new standard effective January 1, 2019. The Company has formed a committee and initiated the review process for adoption of this ASU. While the Company is still in the process of completing its analysis on the complete impact this ASU will have on its consolidated financial statements and related disclosures, it expects the ASU to have a material impact on its consolidated balance sheet for recognition of lease-related assets and liabilities.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. The Company has not yet made an accounting policy election in regards to the GILTI provisions under the Tax Act. The Company will make its GILTI accounting policy election during the one-year measurement period as allowed by the SEC. No amounts have been recorded in the Company’s 2017 financial statements for the impact of GILTI provisions.

Recently Adopted Accounting Standards

In March 2016, the FASB issued ASU 2016-09, which affects all entities that issue share-based payment awards to their employees. The amendments in this ASU cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures and the classification of those taxes paid on the statement of cash flows. The Company adopted the provisions of this ASU on January 1, 2017 on a prospective basis and recorded an excess tax deficiency of $1.3 million as an increase in income tax expense related to share-based compensation for vested awards. Additionally, the Company made a policy election under the provisions of this ASU to account for forfeitures when they occur rather than estimating the number of awards that are expected to vest. As a result of this election, upon adoption of the guidance in this ASU, the Company recorded a $1.9 million cumulative-effect benefit to retained earnings as of the date of adoption. The Company adopted the provisions of this ASU related to changes on the Consolidated Statement of Cash Flows on a retrospective basis. Excess tax benefits and deficiencies have been classified within cash flows from operating activities and employee taxes paid for shares withheld for income taxes have been classified within cash flows from financing activities on the Consolidated Statement of Cash Flows. This resulted in increases of $44.8 million and $45.9 million to cash flows from operating activities for the years ended December 31, 2016 and 2015, respectively. This also resulted in decreases of $15.1 million and $12.7 million to cash flows from financing activities for the year ended December 31, 2015 and 2016, respectively.

72

In October 2016, the FASB issued ASU 2016-16, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted the provisions of this ASU on a modified retrospective basis on January 1, 2017, resulting in a cumulative-effect benefit to retained earnings of $26.0 million as of the date of adoption.

In January 2017, the FASB issued ASU 2017-04, which simplifies how an entity is required to test goodwill for impairment by eliminating step two of the test. The Company adopted the provisions of this ASU on July 1, 2017, and recorded an impairment charge of $28.6 million during its interim goodwill impairment test for the Connected Fitness reporting unit.

3. Restructuring and Impairment

A description of significant restructuring and related impairment charges is included below:

2017 Restructuring Plan

On July 27, 2017, the Company’s Board of Directors approved a restructuring plan (the “2017 restructuring plan”) to more closely align its financial resources with the critical priorities of the business. After completion of the 2017 restructuring plan, the Company recognized approximately $100.4 million of pre-tax charges in connection with this restructuring plan. In addition to these charges, the Company also recognized restructuring related goodwill impairment charges of approximately $28.6 million for its Connected Fitness business.

Impairment

As a part of the 2017 restructuring plan, the Company abandoned the use of several assets included within Property and Equipment, resulting in an impairment charge of $30.7 million, reducing the carrying value of these assets to their estimated fair values. Fair value was estimated using an income-approach based on management’s forecast of future cash flows expected to be derived from the assets’ use.

Additionally, in connection with the 2017 restructuring plan, strategic decisions were made during the third quarter of 2017 to abandon the use of certain intangible assets in the Company’s Connected Fitness reporting unit. These intangible assets included technology and brand names, resulting in total intangible asset impairment charges of $12.1 million, reducing the carrying value of these assets to their estimated fair values. Fair value was estimated using an income-approach based on management’s forecast of future cash flows expected to be derived from the assets use. In addition, the Company also made the strategic decision to not pursue certain other planned future revenue streams in connection with the 2017 restructuring plan.

The Company determined sufficient indication existed to trigger the performance of an interim goodwill impairment for the Company’s Connected Fitness reporting unit. Using updated cash flow projections, the Company calculated the fair value of the Connected Fitness reporting unit based on the discounted cash flows model. The carrying value exceeded the fair value, resulting in an impairment of goodwill. As the excess of the carrying value for the Connected Fitness reporting unit was greater than the goodwill for this reporting unit, all of the goodwill was impaired.

73

The summary of the costs incurred during the year ended December 31, 2017 in connection with the 2017 restructuring plan are as follows:

Year Ended December 31,

(In thousands) 2017

Costs recorded in cost of goods sold: Inventory write-offs (1) $ 5,077

Total costs recorded in cost of goods sold 5,077

Costs recorded in restructuring and impairment charges: Goodwill impairment 28,647 Property and equipment impairment 30,677 Employee related costs 14,572 Intangible asset impairment 12,054 Contract exit costs 12,029 Other restructuring costs 26,070

Total costs recorded in restructuring and impairment charges 124,049

Total restructuring, impairment and restructuring related costs $129,126

(1) This table includes an additional non-cash charge of $5.1 million for the year ended December 31, 2017 associated with the disposition of inventory outside of current liquidation channels in line with the 2017 restructuring plan.

A summary of the activity in the restructuring reserve related to the 2017 Restructuring Plan is as follows:

Employee Related costs

Contract Exit Costs

Other Restructuring Related Costs

Balance at January 1, 2017 $ — $ — $ — Additions charged to expense 14,572 12,029 13,070 Cash payments charged against reserve (10,017) (9,181) (10,070)

Balance at December 31, 2017 $ 4,555 $ 2,848 $ 3,000

2018 Restructuring Plan

On February 9, 2018, the Company’s Board of Directors approved an additional restructuring plan (the “2018 restructuring plan”) identifying further opportunities to optimize operations. In conjunction with this plan, approximately $110 to $130 million of pre-tax restructuring and related charges are expected to be incurred during the Company’s 2018 fiscal year, including:

• Up to $105.0 million in cash charges, consisting of up to: $55.0 million in facility and lease terminations and $50.0 million in contract termination and other restructuring charges; and,

• Up to $25.0 million in non-cash charges comprised of approximately $10.0 million of inventory related charges and approximately $15.0 million of intangibles and other asset related impairments.

74

4. Property and Equipment, Net

Property and equipment consisted of the following:

December 31,

(In thousands) 2017 2016

Leasehold and tenant improvements $ 431,761 $ 326,617 Furniture, fixtures and displays 204,926 168,720 Buildings 47,625 47,216 Software 232,660 151,059 Office equipment 98,802 75,196 Plant equipment 144,484 124,140 Land 83,574 83,574 Construction in progress 148,488 204,362 Other 20,438 20,383

Subtotal property and equipment 1,412,758 1,201,267 Accumulated depreciation (526,984) (397,056)

Property and equipment, net $ 885,774 $ 804,211

Construction in progress primarily includes costs incurred for software systems, leasehold improvements and in-store fixtures and displays not yet placed in use.

Depreciation expense related to property and equipment was $164.3 million, $130.7 million and $86.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.

5. Goodwill and Intangible Assets, Net

The following table summarizes changes in the carrying amount of the Company’s goodwill by reportable segment as of the periods indicated:

North America EMEA Asia-

Pacific Latin

America Connected

Fitness Total

Balance as of December 31, 2016 $317,323 $ 99,245 $77,586 $42,436 $ 27,001 $563,591

Effect of currency translation adjustment 1,132 11,910 3,737 2,305 1,646 20,730

Impairment — — — — (28,647) (28,647)

Balance as of December 31, 2017 $318,455 $111,155 $81,323 $44,741 $ — $555,674

75

The following table summarizes the Company’s intangible assets as of the periods indicated:

December 31, 2017 December 31, 2016

(In thousands)

Useful Lives from Date of Acquisitions

(in years)

Gross Carrying Amount

Accumulated Amortization Impairment

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Intangible assets subject to amortization:

User base 10 $48,561 $(13,499) $ — $35,062 $47,653 $ (8,733) $38,920 Technology 5-7 19,611 (9,524) (10,087) — 19,612 (8,221) 11,391 Customer

relationships 2-3 9,527 (9,527) — — 9,527 (9,527) — Trade name 4-5 7,653 (5,686) (1,967) — 7,653 (4,816) 2,837 Nutrition database 10 4,500 (1,256) — 3,244 4,500 (806) 3,694 Lease-related

intangible assets 1-15 3,896 (3,232) — 664 3,896 (3,075) 821 Other 5-10 1,353 (892) — 461 1,373 (666) 707

Total $95,101 $(43,616) $(12,054) $39,431 $94,214 $(35,844) $58,370

Indefinite-lived intangible assets 7,564 5,940

Intangible assets, net $46,995 $64,310

Amortization expense, which is included in selling, general and administrative expenses, was $8.2 million, $13.0 million and $13.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. The following is the estimated amortization expense for the Company’s intangible assets as of December 31, 2017:

(In thousands)

2018 $ 5,715 2019 5,608 2020 5,536 2021 5,447 2022 5,428 2023 and thereafter 11,697

Amortization expense of intangible assets $39,431

6. Credit Facility and Other Long Term Debt

Credit Facility

The Company is party to a credit agreement that provides revolving commitments for up to $1.25 billion of borrowings, as well as term loan commitments, in each case maturing in January 2021. As of December 31, 2017 the outstanding balance under the revolving credit facility was $125.0 million and $161.3 million of term loan borrowings remained outstanding.

At the Company’s request and the lender’s consent, revolving and or term loan borrowings may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the credit agreement, as amended. Incremental borrowings are uncommitted and the availability thereof, will depend on market conditions at the time the Company seeks to incur such borrowings.

The borrowings under the revolving credit facility have maturities of less than one year. Up to $50.0 million of the facility may be used for the issuance of letters of credit. There were $4.5 million of letters of credit outstanding as of December 31, 2017.

76

The credit agreement contains negative covenants that, subject to significant exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. The Company is also required to maintain a ratio of consolidated EBITDA, as defined in the credit agreement, to consolidated interest expense of not less than 3.50 to 1.00 and is not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.00 (“consolidated leverage ratio”). As of December 31, 2017, the Company was in compliance with these ratios. In February 2018, the Company amended the credit agreement to amend the definition of consolidated EBITDA, and to provide that the Company’s trailing four-quarter consolidated leverage ratio may not exceed 3.75 to 1.00 for the four quarters ended June 30, 2018, and 4.00 to 1.00 for the four quarters ended September 30, 3018. Beginning with the four quarters ended December 31, 2018 and thereafter, the consolidated leverage ratio requirement will return to 3.25 to 1.00. In addition, the credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the credit agreement, will be considered an event of default under the credit agreement.

Borrowings under the credit agreement bear interest at a rate per annum equal to, at the Company’s option, either (a) an alternate base rate, or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made (“adjusted LIBOR”), plus in each case an applicable margin. The applicable margin for loans will be adjusted by reference to a grid (the “Pricing Grid”) based on the consolidated leverage ratio and ranges between 1.00% to 1.25% for adjusted LIBOR loans and 0.00% to 0.25% for alternate base rate loans. The weighted average interest rate under the outstanding term loans and revolving credit facility borrowings was 2.2% and 1.6% during the years ended December 31, 2017 and 2016, respectively. The Company pays a commitment fee on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of December 31, 2017, the commitment fee was 17.5 basis points. Since inception, the Company incurred and deferred $3.9 million in financing costs in connection with the credit agreement.

3.250% Senior Notes

In June 2016, the Company issued $600.0 million aggregate principal amount of 3.250% senior unsecured notes due June 15, 2026 (the “Notes”). The proceeds were used to pay down amounts outstanding under the revolving credit facility. Interest is payable semi-annually on June 15 and December 15 beginning December 15, 2016. Prior to March 15, 2026 (three months prior to the maturity date of the Notes), the Company may redeem some or all of the Notes at any time or from time to time at a redemption price equal to the greater of 100% of the principal amount of the Notes to be redeemed or a “make-whole” amount applicable to such Notes as described in the indenture governing the Notes, plus accrued and unpaid interest to, but excluding, the redemption date. On or after March 15, 2026 (three months prior to the maturity date of the Notes), the Company may redeem some or all of the Notes at any time or from time to time at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The indenture governing the Notes contains covenants, including limitations that restrict the Company’s ability and the ability of certain of its subsidiaries to create or incur secured indebtedness and enter into sale and leaseback transactions and the Company’s ability to consolidate, merge or transfer all or substantially all of its properties or assets to another person, in each case subject to material exceptions described in the indenture. The Company incurred and deferred $5.3 million in financing costs in connection with the Notes.

77

Other Long Term Debt

In December 2012, the Company entered into a $50.0 million recourse loan collateralized by the land, buildings and tenant improvements comprising the Company’s corporate headquarters. The loan has a seven year term and maturity date of December 2019. The loan bears interest at one month LIBOR plus a margin of 1.50%, and allows for prepayment without penalty. The loan includes covenants and events of default substantially consistent with the Company’s credit agreement discussed above. The loan also requires prior approval of the lender for certain matters related to the property, including transfers of any interest in the property. As of December 31, 2017 and 2016, the outstanding balance on the loan was $40.0 million and $42.0 million, respectively. The weighted average interest rate on the loan was 2.5% and 2.0% for the years ended December 31, 2017 and 2016, respectively.

The following are the scheduled maturities of long term debt as of December 31, 2017:

(In thousands)

2018 $ 27,000 2019 63,000 2020 25,000 2021 86,250 2022 — 2023 and thereafter 600,000

Total scheduled maturities of long term debt $801,250 Current maturities of long term debt $ 27,000

Interest expense, net was $34.5 million, $26.4 million, and $14.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Interest expense includes the amortization of deferred financing costs, bank fees, capital and built-to-suit lease interest and interest expense under the credit and other long term debt facilities. Amortization of deferred financing costs was $1.3 million, $1.2 million, and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The Company monitors the financial health and stability of its lenders under the credit and other long term debt facilities, however during any period of significant instability in the credit markets lenders could be negatively impacted in their ability to perform under these facilities.

7. Commitments and Contingencies

Obligations Under Operating Leases

The Company leases warehouse space, office facilities, space for its brand and factory house stores and certain equipment under non-cancelable operating leases. The leases expire at various dates through 2033, excluding extensions at the Company’s option, and include provisions for rental adjustments. The table below includes executed lease agreements for brand and factory house stores that the Company did not yet occupy as of December 31, 2017 and does not include contingent rent the Company may incur at its stores based on future sales above a specified minimum or payments made for maintenance, insurance and real estate taxes. The following is a schedule of future minimum lease payments for non-cancelable real property operating leases as of December 31, 2017 as well as

78

significant operating lease agreements entered into during the period after December 31, 2017 through the date of this report:

(In thousands)

2018 140,257 2019 139,304 2020 158,455 2021 147,094 2022 132,312 2023 and thereafter 772,047

Total future minimum lease payments $1,489,469

Included in selling, general and administrative expense was rent expense of $141.2 million, $109.0 million and $83.0 million for the years ended December 31, 2017, 2016 and 2015, respectively, under non-cancelable operating lease agreements. Included in these amounts was contingent rent expense of $15.5 million, $13.0 million and $11.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Sports Marketing and Other Commitments

Within the normal course of business, the Company enters into contractual commitments in order to promote the Company’s brand and products. These commitments include sponsorship agreements with teams and athletes on the collegiate and professional levels, official supplier agreements, athletic event sponsorships and other marketing commitments. The following is a schedule of the Company’s future minimum payments under its sponsorship and other marketing agreements as of December 31, 2017, as well as significant sponsorship and other marketing agreements entered into during the period after December 31, 2017 through the date of this report:

(In thousands)

2018 150,428 2019 135,165 2020 126,026 2021 121,710 2022 119,783 2023 and thereafter 517,736

Total future minimum sponsorship and other payments $1,170,848

The amounts listed above are the minimum compensation obligations and guaranteed royalty fees required to be paid under the Company’s sponsorship and other marketing agreements. The amounts listed above do not include additional performance incentives and product supply obligations provided under certain agreements. It is not possible to determine how much the Company will spend on product supply obligations on an annual basis as contracts generally do not stipulate specific cash amounts to be spent on products. The amount of product provided to the sponsorships depends on many factors including general playing conditions, the number of sporting events in which they participate and the Company’s decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers.

79

Other

In connection with various contracts and agreements, the Company has agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which the counterparties are grossly negligent, engage in willful misconduct, or act in bad faith. Based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to its consolidated financial position or results of operations.

From time to time, the Company is involved in litigation and other proceedings, including matters related to commercial and intellectual property disputes, as well as trade, regulatory and other claims related to its business. Other than as described below, the Company believes that all current proceedings are routine in nature and incidental to the conduct of its business, and that the ultimate resolution of any such proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

On March 23, 2017, three separate securities cases previously filed against the Company in the United States District Court for the District of Maryland (the “Court”) were consolidated under the caption In re Under Armour Securities Litigation, Case No. 17-cv-00388-RDB (the “Consolidated Action”). On August 4, 2017, the lead plaintiff in the Consolidated Action, North East Scotland Pension Fund, joined by named plaintiff Bucks County Employees Retirement Fund, filed a consolidated amended complaint (the “Amended Complaint”) against the Company, the Company’s Chief Executive Officer and former Chief Financial Officers, Lawrence Molloy and Brad Dickerson. The Amended Complaint alleges violations of Section 10(b) (and Rule 10b-5) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 20(a) control person liability under the Exchange Act against the officers named in the Amended Complaint, claiming that the defendants made material misstatements and omissions regarding, among other things, the Company’s growth and consumer demand for certain of the Company’s products. The class period identified in the Amended Complaint is September 16, 2015 through January 30, 2017. The Amended Complaint also asserts claims under Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), in connection with the Company’s public offering of senior unsecured notes in June 2016. The Securities Act claims are asserted against the Company, the Company’s Chief Executive Officer, Mr. Molloy, the Company’s directors who signed the registration statement pursuant to which the offering was made and the underwriters that participated in the offering. The Amended Complaint alleges that the offering materials utilized in connection with the offering contained false and/or misleading statements and omissions regarding, among other things, the Company’s growth and consumer demand for certain of the Company’s products. On November 9, 2017, the Company and the other defendants filed a motion to dismiss the Amended Complaint, which is still pending with the Court. The Company believes that the claims asserted in the Consolidated Action are without merit and intends to defend the lawsuit vigorously. However, because of the inherent uncertainty as to the outcome of this proceeding, the Company is unable at this time to estimate the possible impact of the outcome of this matter.

8. Stockholders’ Equity

The Company’s Class A Common Stock and Class B Convertible Common Stock have an authorized number of shares at December 31, 2017 of 400.0 million shares and 34.5 million shares, respectively, and each have a par value of $0.0003 1/3 per share. Holders of Class A Common Stock and Class B Convertible Common Stock have identical rights, including liquidation preferences, except that the holders of Class A Common Stock are entitled to one vote per share and holders of Class B Convertible Common Stock are entitled to 10 votes per share on all matters submitted to a stockholder vote. Class B Convertible Common Stock may only be held by Kevin Plank, the Company’s founder

80

and Chief Executive Officer, or a related party of Mr. Plank, as specified in the Company’s charter. As a result, Mr. Plank has a majority voting control over the Company. Upon the transfer of shares of Class B Convertible Stock to a person other than Mr. Plank or a related party of Mr. Plank, the shares automatically convert into shares of Class A Common Stock on a one-for-one basis. In addition, all of the outstanding shares of Class B Convertible Common Stock will automatically convert into shares of Class A Common Stock on a one-for-one basis upon the death or disability of Mr. Plank or on the record date for any stockholders’ meeting upon which the shares of Class A Common Stock and Class B Convertible Common Stock beneficially owned by Mr. Plank is less than 15% of the total shares of Class A Common Stock and Class B Convertible Common Stock outstanding or upon the other events specified in the Class C Charter. Holders of the Company’s common stock are entitled to receive dividends when and if authorized and declared out of assets legally available for the payment of dividends.

In June 2015, the Company’s Board of Directors (the “Board”) approved Articles Supplementary to the Company’s charter which designated 400.0 million shares of common stock as a new class of common stock, referred to as the Class C common stock, par value $0.0003 1/3 per share. The Articles Supplementary became effective on June 15, 2015. In April 2016, the Company issued shares of Class C common stock as a dividend to the Company’s holders of Class A and Class B common stock on a one-for-one basis. The terms of the Class C common stock are substantially identical to those of the Company’s Class A common stock, except that the Class C common stock has no voting rights (except in limited circumstances), will automatically convert into Class A common stock under certain circumstances and includes provisions intended to ensure equal treatment of Class C common stock and Class B common stock in certain corporate transactions, such as mergers, consolidations, statutory share exchanges, conversions or negotiated tender offers, and including consideration incidental to these transactions.

9. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value accounting guidance outlines a valuation framework, creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures, and prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial assets and (liabilities) measured at fair value are set forth in the table below:

December 31, 2017 December 31, 2016

(In thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Derivative foreign currency contracts (see Note 8) $— $(6,818) $— $— $15,238 $—

Interest rate swap contracts (see Note 8) — 1,088 — — (420) — TOLI policies held by the Rabbi Trust — 5,756 — — 4,880 — Deferred Compensation Plan obligations — (7,971) — — (7,023) —

Fair values of the financial assets and liabilities listed above are determined using inputs that use as their basis readily observable market data that are actively quoted and are validated through

81

external sources, including third-party pricing services and brokers. The Company purchases marketable securities that are designated as available-for-sale. The foreign currency contracts represent gains and losses on derivative contracts, which is the net difference between the U.S. dollar value to be received or paid at the contracts’ settlement date and the U.S. dollar value of the foreign currency to be sold or purchased at the current market exchange rate. The interest rate swap contracts represent gains and losses on the derivative contracts, which is the net difference between the fixed interest to be paid and variable interest to be received over the term of the contract based on current market rates. The fair value of the trust owned life insurance (“TOLI”) policies held by the Rabbi Trust is based on the cash-surrender value of the life insurance policies, which are invested primarily in mutual funds and a separately managed fixed income fund. These investments are initially made in the same funds and purchased in substantially the same amounts as the selected investments of participants in the Under Armour, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), which represent the underlying liabilities to participants in the Deferred Compensation Plan. Liabilities under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments.

As of the fair value of the Company’s Senior Notes was $526.3 million and $568.1 million as of December 31, 2017 and 2016, respectively. The carrying value of the Company’s other long term debt approximated its fair value as of December 31, 2017 and 2016. 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).

10. Provision for Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the United States. The Tax Act includes a number of changes to existing U.S. tax laws that impact the Company including the reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The Tax Act also provides for a one-time transition tax on indefinitely reinvested foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017, as well as prospective change beginning in 2018, including the elimination of certain domestic deductions and credits, capitalization of research and development expenditures, and additional limitations on the deductibility of executive compensation and interest.

The Company recognized the income tax effects of the Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the Tax Act for which accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The Company did not identify items for which the income tax effects of the Tax Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017.

The changes to existing U.S. tax laws as a result of the Tax Act, which have the most significant impact on the company’s provision for income taxes as of December 31, 2017 are as follows:

Reduction of the U.S. Corporate Income Tax Rate

The company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the company’s deferred tax assets and liabilities were adjusted to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a $24.9 million increase in income tax expense for the year ended December 31, 2017 and a corresponding $24.9 million decrease in net deferred tax assets as of December 31, 2017.

82

Transition Tax on Foreign Earnings

The company recognized a provisional income tax expense of $13.9 million for the year ended December 31, 2017 related to the one-time transition tax on indefinitely reinvested foreign earnings. The determination of the transition tax requires further analysis regarding the amount and composition of the company’s historical foreign earnings, the amount of foreign tax credits available, and the ability to utilize certain foreign tax credits, which is expected to be completed in 2018.

The adjustments to the deferred tax assets and liabilities and the liability for the transition tax on indefinitely reinvested foreign earnings, including the analysis of our ability to fully utilize foreign tax credits associated with the transition tax, are provisional amounts estimated based on information reviewed as of December 31, 2017. As we complete our analysis of the Tax Act, review all information, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to the provisional amounts that we have recorded as of December 31, 2017 that may materially impact our provision for income taxes. Any subsequent adjustment will be recorded to current income tax expense in the quarter of 2018 when the analysis is completed.

Income (loss) before income taxes is as follows:

Year Ended December 31,

(In thousands) 2017 2016 2015

Income (loss) before income taxes: United States $(131,475) $ 251,321 $272,739 Foreign 121,166 136,961 113,946

Total $ (10,309) $ 388,282 $386,685

The components of the provision for income taxes consisted of the following:

Year Ended December 31,

(In thousands) 2017 2016 2015

Current

Federal $(46,931) $ 116,637 $102,317 State (8,336) 29,989 27,500 Other foreign countries 34,005 32,394 28,336

(21,262) 179,020 158,153 Deferred

Federal 51,447 (35,748) 707 State 12,080 (10,658) (5,703) Other foreign countries (4,314) (1,311) 955

59,213 (47,717) (4,041)

Provision for income taxes $ 37,951 $ 131,303 $154,112

83

A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:

Year Ended December 31,

2017 2016 2015

U.S. federal statutory income tax rate $ (3,608) 35.0% $135,899 35.0% $135,340 35.0% State taxes, net of federal tax impact (9,537) 92.5 9,447 2.4 12,252 3.2 Unrecognized tax benefits 1,178 (11.4) 4,377 1.1 12,931 3.4 Permanent tax benefits/nondeductible expenses 2,246 (21.8) (5,177) (1.3) 8,475 2.2 Goodwill impairment 8,522 (82.7) — — — — Foreign rate differential (25,563) 248.0 (25,768) (6.6) (21,262) (5.5) Valuation allowance 29,563 (290.3) 8,798 2.3 10,504 2.7 Impacts related to Tax Act 38,833 (376.7) — — — — Other (3,683) 39.2 3,727 0.9 (4,128) (1.1)

Effective income tax rate $ 37,951 (368.2)% $131,303 33.8% $154,112 39.9%

The decrease in the 2017 full year effective income tax rate, as compared to 2016, is primarily attributable to the significant decrease in pre-tax earnings. In 2017, the Company recorded tax benefits for losses in the United States and reductions in the Company’s total liability for unrecognized tax benefits as a result of a lapse in the statute of limitations during the current period. These benefits were offset by the impact of the Tax Act, non-deductible goodwill impairment charges and the recording of certain valuation allowances.

Deferred tax assets and liabilities consisted of the following:

December 31,

(In thousands) 2017 2016

Deferred tax asset

Allowance for doubtful accounts and sales return reserves $ 52,745 $ 53,811

Foreign net operating loss carry-forwards 34,542 26,964 Tax basis inventory adjustment 30,531 25,776 Reserves and accrued liabilities 20,500 38,819 Stock-based compensation 19,002 32,910 Deferred rent 18,735 21,168 U.S. net operating loss carryforward 13,382 3,032 Foreign tax credit carry-forwards 11,918 8,664 State tax credits, net of federal impact 8,555 7,408 Inventory obsolescence reserves 5,241 15,479 Other 4,340 3,107

Total deferred tax assets 219,491 237,138 Less: valuation allowance (73,544) (37,969)

Total net deferred tax assets 145,947 199,169

Deferred tax liability

Property, plant and equipment (43,924) (45,178) Prepaid expenses (18,336) (8,628) Intangible assets — (6,815) Other (1,218) (2,506)

Total deferred tax liabilities (63,478) (63,127)

Total deferred tax assets, net $ 82,469 $136,042

84

All deferred tax assets and liabilities are classified in non-current on the Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and actual operating results in future years could differ from our current assumptions, judgments and estimates.

A significant portion of the Company’s deferred tax assets relate to U.S. federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future U.S. pre-tax earnings. Due to the Company’s losses in the United States, the Company incurred significant net operating losses (“NOLs”) in these jurisdictions in 2017. Based on these factors, the Company has evaluated its ability to utilize these deferred tax assets in future years. In evaluating the recoverability of these deferred tax assets at December 31, 2017, the Company has considered all available evidence, both positive and negative, including but not limited to the following:

Positive

• Availability of taxable income in the U.S. federal and certain state NOL carryback periods;

• U.S. federal NOLs have an indefinite carryforward period beginning in 2018, pursuant to the Tax Act.

• Definite lived tax attributes with relatively long carryforward periods; a majority from 10 to 20 years;

• No history of U.S. federal and state tax attributes expiring unused;

• Three year cumulative U.S. federal and state pre-tax income;

• Relatively low values of pre-tax income required to realized deferred tax assets relative to historic income levels;

• Restructuring plans being undertaken to improve profitability; and

• Availability of prudent and feasible tax planning strategies.

Negative

• Inherent challenges in forecasting future pre-tax earnings which rely on improved profitability from our restructuring efforts;

• The continuing challenge of changes in the U.S. consumer retail business environment; and

• While relatively long, existence of definite lived tax attributes of certain U.S. federal tax credits and state NOLs.

Based on all available evidence considered, the Company believes it is more likely than not, that most of the U.S. federal and state deferred tax assets recorded will ultimately be realized. However, as of December 31, 2017, a valuation allowance of $15.9 million has been recorded against certain state deferred tax assets where the Company has determined realization is not more likely than not. Additionally, valuation allowances have been recorded against certain deferred tax assets associated with foreign and state net operating loss carryforwards and foreign and state tax credit carryforwards as discussed further below.

As of December 31, 2017, the Company had $34.5 million in deferred tax assets associated with approximately $116.0 million in foreign net operating loss carryforwards, the majority of which have an

85

indefinite carryforward period. As of December 31, 2017, the Company is not able to forecast the utilization of the majority of the deferred tax assets associated with foreign net operating loss carryforwards. Therefore, a valuation allowance of $32.8 million was recorded against the Company’s net deferred tax assets in 2017.

As of December 31, 2017 the Company had $13.4 million in deferred tax assets associated with $207.5 million in state net operating loss carryforwards, which will begin to expire in 3 to 20 years. As of December 31, 2017 the Company believes certain deferred tax assets associated with state net operating loss carryforwards will expire unused based on the Company’s projections. Therefore, a valuation allowance of $11.7 million is recorded against these net deferred tax assets as of December 31, 2017.

As of December 31, 2017, the Company had $11.9 million in deferred tax assets associated with foreign tax credits. As of December 31, 2017 the Company believes that a portion of the foreign taxes paid would not be creditable against its future income taxes. Therefore, a valuation allowance of $9.9 million was recorded against the Company’s net deferred tax assets as of December 31, 2017.

As of December 31, 2017, the Company had $8.6 million in deferred tax assets associated with state tax credits, net of federal impact, which will begin to expire in 5 to 20 years. As of December 31, 2017, the Company is not able to forecast the utilization of certain deferred tax assets associated with state tax credits. Therefore a valuation allowance of $3.2 million is recorded against these net deferred tax assets as of December 31, 2017.

As of December 31, 2017, approximately $158.7 million of cash and cash equivalents was held by the Company’s non-U.S. subsidiaries whose cumulative undistributed earnings total $488.4 million. These earnings were subject to the one-time transition tax on indefinitely reinvested foreign earnings required by the Tax Act. The Company will continue to permanently reinvest these earnings, as well as future earnings from our foreign subsidiaries, to fund international growth and operations.

As of December 31, 2017 and 2016, the total liability for unrecognized tax benefits, including related interest and penalties, was approximately $55.3 million and $70.4 million, respectively. The following table represents a reconciliation of the Company’s total unrecognized tax benefits balances, excluding interest and penalties, for the years ended December 31, 2017, 2016 and 2015.

Year Ended December 31,

(In thousands) 2017 2016 2015

Beginning of year $ 64,359 $42,611 $28,353 Increases as a result of tax positions taken in a prior period 457 661 203 Decreases as a result of tax positions taken in a prior period (40) — — Increases as a result of tax positions taken during the current period 14,580 26,482 14,382 Decreases as a result of tax positions taken during the current period — — — Decreases as a result of settlements during the current period (13,885) — — Reductions as a result of a lapse of statute of limitations during the

current period (13,656) (5,395) (327)

End of year $ 51,815 $64,359 $42,611

As of December 31, 2017, $46.2 million of unrecognized tax benefits, excluding interest and penalties, would impact the Company’s effective tax rate if recognized.

As of December 31, 2017 and 2016, the liability for unrecognized tax benefits included $3.5 million and $6.1 million, respectively, for the accrual of interest and penalties. For each of the years ended

86

December 31, 2017, 2016 and 2015, the Company recorded $1.6 million, $3.1 million and $1.7 million, respectively, for the accrual of interest and penalties in its consolidated statements of operations. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of operations.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is currently under audit by the Internal Revenue Service for the 2015 and 2016 tax years. The majority of the Company’s returns for years before 2014 are no longer subject to U.S. federal, state and local or foreign income tax examinations by tax authorities.

The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company’s current estimate to change materially in the future.

11. Earnings per Share

The calculation of earnings per share for common stock shown below excludes the income attributable to outstanding restricted stock awards from the numerator and excludes the impact of these awards from the denominator. The following is a reconciliation of basic earnings per share to diluted earnings per share:

Year Ended December 31,

(In thousands, except per share amounts) 2017 2016 2015

Numerator

Net income (loss) $ (48,260) $256,979 $232,573 Adjustment payment to Class C capital stockholders — 59,000 —

Net income (loss) available to all stockholders $ (48,260) $197,979 $232,573

Denominator—Class A and B shares

Weighted average common shares outstanding 219,254 217,707 215,498 Effect of dilutive securities — 4,237 5,370

Weighted average common shares and dilutive securities outstanding 219,254 221,944 220,868

Earnings per share Class A and B—basic $ (0.11) $ 0.45 $ 0.54 Earnings per share Class A and B—diluted $ (0.11) $ 0.45 $ 0.53

Denominator—Class C shares

Weighted average common shares outstanding 221,475 218,623 215,498 Effect of dilutive securities — 4,281 5,370

Weighted average common shares and dilutive securities outstanding 221,475 222,904 220,868

Earnings (loss) per share Class C—basic $ (0.11) $ 0.72 $ 0.54 Earnings (loss) per share Class C—diluted $ (0.11) $ 0.71 $ 0.53

Effects of potentially dilutive securities are presented only in periods in which they are dilutive. Stock options, restricted stock units and warrants representing 256.0 thousand, 114.0 thousand and

87

770.0 thousand shares of Class A common stock outstanding for the years ended December 31, 2017, 2016 and 2015, respectively, were excluded from the computation of diluted earnings per share because their effect would be anti-dilutive. Stock options, restricted stock units and warrants representing 4.7 million, 691.6 thousand and 770.0 thousand shares of Class C common stock outstanding for the years ended December 31, 2017, 2016 and 2015, respectively, were excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

12. Stock-Based Compensation

Stock Compensation Plans

The Under Armour, Inc. Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan as amended (the “2005 Plan”) provides for the issuance of stock options, restricted stock, restricted stock units and other equity awards to officers, directors, key employees and other persons. Stock options and restricted stock and restricted stock unit awards under the 2005 Plan generally vest ratably over a two to five year period. The contractual term for stock options is generally ten years from the date of grant. The Company generally receives a tax deduction for any ordinary income recognized by a participant in respect to an award under the 2005 Plan. The 2005 Plan terminates in 2025. As of December 31, 2017, 7.9 million Class A shares and 15.5 million Class C shares are available for future grants of awards under the 2005 Plan.

Total stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015 was $39.9 million, $46.1 million and $60.4 million, respectively. As of December 31, 2017, the Company had $87.7 million of unrecognized compensation expense expected to be recognized over a weighted average period of 3.2 years. This unrecognized compensation expense does not include any expense related to performance-based restricted stock units and stock options for which the performance targets have not been deemed probable as of December 31, 2017. Refer to “Stock Options” and “Restricted Stock and Restricted Stock Units” below for further information on these awards.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (the “ESPP”) allows for the purchase of Class A Common Stock and Class C Common Stock by all eligible employees at a 15% discount from fair market value subject to certain limits as defined in the ESPP. As of December 31, 2017, 2.7 million Class A shares and 1.2 million Class C shares are available for future purchases under the ESPP. During the years ended December 31, 2017, 2016 and 2015, 563.9 thousand, 290.8 thousand and 103.3 thousand shares were purchased under the ESPP, respectively.

Non-Employee Director Compensation Plan and Deferred Stock Unit Plan

The Company’s Non-Employee Director Compensation Plan (the “Director Compensation Plan”) provides for cash compensation and equity awards to non-employee directors of the Company under the 2005 Plan. Non-employee directors have the option to defer the value of their annual cash retainers as deferred stock units in accordance with the Under Armour, Inc. Non-Employee Deferred Stock Unit Plan (the “DSU Plan”). Each new non-employee director receives an award of restricted stock units upon the initial election to the Board of Directors, with the units covering stock valued at $100.0 thousand on the grant date and vesting in three equal annual installments. In addition, each non-employee director receives, following each annual stockholders’ meeting, a grant under the 2005 Plan of restricted stock units covering stock valued at $150.0 thousand on the grant date. Each award vests 100% on the date of the next annual stockholders’ meeting following the grant date.

The receipt of the shares otherwise deliverable upon vesting of the restricted stock units automatically defers into deferred stock units under the DSU Plan. Under the DSU Plan each deferred

88

stock unit represents the Company’s obligation to issue one share of the Company’s Class C Common Stock with the shares delivered six months following the termination of the director’s service.

Stock Options

The weighted average fair value of a stock option granted for the years ended December 31, 2017, 2016, and 2015 was $19.04, $14.87, and $27.21 respectively. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Year Ended December 31,

2017 2016 2015

Risk-free interest rate 2.1% 1.4% 1.8% Average expected life in years 6.50 6.50 6.00 Expected volatility 39.6% 39.5% 44.3% Expected dividend yield — % — % — %

A summary of the Company’s stock options as of December 31, 2017, 2016 and 2015, and changes during the years then ended is presented below:

Year Ended December 31,

(In thousands, except per share amounts) 2017 2016 2015

Number of

Stock Options

Weighted Average Exercise

Price

Number of

Stock Options

Weighted Average Exercise

Price

Number of

Stock Options

Weighted Average Exercise

Price

Outstanding, beginning of year 4,265 $ 9.63 6,008 $ 7.26 5,622 $ 4.14 Granted, at fair market value 734 19.04 335 36.05 1,158 20.15 Exercised (1,046) 3.72 (1,763) 3.52 (720) 3.96 Expired — — — — — — Forfeited (171) 17.59 (315) 26.26 (52) 2.27

Outstanding, end of year 3,782 $12.71 4,265 $ 9.63 6,008 $ 7.26

Options exercisable, end of year 2,512 $ 5.85 3,385 $ 4.30 4,892 $ 4.13

Included in the table above are 0.5 million and 0.3 million performance-based stock options awarded to certain executives and key employees under the 2005 Plan during the years ended December 31, 2017 and 2016, respectively. The performance-based stock options awarded in 2017 and 2016 have weighted average grant date fair values of $19.04 and $14.87, respectively, and have vesting that is tied to the achievement of certain combined annual operating income targets.

The intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $16.3 million, $63.9 million and $27.5 million, respectively.

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2017:

(In thousands, except per share amounts)

Options Outstanding Options Exercisable

Number of Underlying

Shares

Weighted Average Exercise Price Per

Share

Weighted Average

Remaining Contractual Life (Years)

Total Intrinsic

Value

Number of Underlying

Shares

Weighted Average Exercise Price Per

Share

Weighted Average

Remaining Contractual Life (Years)

Total Intrinsic

Value

3,782 $12.71 4.55 $22,679 2,512 $5.85 2.52 $22,553

89

Restricted Stock and Restricted Stock Units

A summary of the Company’s restricted stock and restricted stock units as of December 31, 2017, 2016 and 2015, and changes during the years then ended is presented below:

Year Ended December 31,

(In thousands, except per share amounts) 2017 2016 2015

Number of

Restricted Shares

Weighted Average

Grant Date Fair Value

Number of

Restricted Shares

Weighted Average

Fair Value

Number of

Restricted Shares

Weighted Average

Fair Value

Outstanding, beginning of year 6,771 $19.68 6,760 $23.23 9,020 $15.21 Granted 7,630 18.84 4,002 35.20 2,030 38.36 Forfeited (2,290) 28.71 (935) 30.35 (652) 24.29 Vested (2,188) 24.78 (3,056) 16.25 (3,638) 11.61

Outstanding, end of year 9,923 24.41 6,771 19.68 6,760 23.23

Included in the table above are 1.9 million, 2.5 million and 1.7 million performance-based restricted stock units awarded to certain executives and key employees under the 2005 Plan during the years ended December 31, 2017, 2016 and 2015, respectively. The performance-based restricted stock units awarded in 2017, 2016 and 2015 have weighted average grant date fair values of $18.76, $35.71 and $37.87, respectively, and have vesting that is tied to the achievement of certain combined annual operating income targets.

During the year ended December 31, 2017, the Company deemed the achievement of certain revenue and operating income targets improbable for the performance-based stock options and restricted stock units granted in 2017, and recorded a reversal of expense of $4.2 million for the three months ended December 31, 2017. During the year ended December 31, 2016, the Company deemed the achievement of certain operating income targets improbable for the performance-based stock options and restricted stock units granted in 2015 and 2016, and recorded reversals of expense of $3.6 million and $8.0 million, respectively, for the three months ended December 31, 2016. During the year ended December 31, 2015, the Company deemed the achievement of certain operating income targets probable for the performance-based stock options and restricted stock units granted in 2015 and 2014, and recorded $33.2 million for these awards, including a cumulative adjustment of $10.0 million during the three months ended September 30, 2015. The Company will assess the probability of the achievement of the operating income targets at the end of each reporting period. If it becomes probable that any remaining performance targets related to these performance-based stock options and restricted stock units will be achieved, a cumulative adjustment will be recorded as if ratable stock-based compensation expense had been recorded since the grant date. Additional stock based compensation of up to $5.7 million would have been recorded through December 31, 2017 for all performance-based stock options and restricted stock units granted in 2017 had the full achievement of these operating income targets been deemed probable.

Warrants

In 2006, the Company issued fully vested and non-forfeitable warrants to purchase 1.92 million shares of the Company’s Class A Common Stock and 1.93 million shares of the Company’s Class C Common Stock to NFL Properties as partial consideration for footwear promotional rights which were recorded as an intangible asset. The warrants have a term of 12 years from the date of issuance and an exercise price of $4.66 per Class A share and $4.59 per Class C share. As of December 31, 2017, all outstanding warrants were exercisable, and no warrants were exercised.

90

13. Other Employee Benefits

The Company offers a 401(k) Deferred Compensation Plan for the benefit of eligible employees. Employee contributions are voluntary and subject to Internal Revenue Service limitations. The Company matches a portion of the participant’s contribution and recorded expense of $7.4 million, $9.0 million and $7.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. Shares of the Company’s Class A Common Stock and Class C common stock are not investment options in this plan.

In addition, the Company offers the Under Armour, Inc. Deferred Compensation Plan which allows a select group of management or highly compensated employees, as approved by the Compensation Committee, to make an annual base salary and/or bonus deferral for each year. As of December 31, 2017 and 2016, the Deferred Compensation Plan obligations were $8.0 million and $7.0 million, respectively, and were included in other long term liabilities on the consolidated balance sheets.

The Company established the Rabbi Trust to fund obligations to participants in the Deferred Compensation Plan. As of December 31, 2017 and 2016, the assets held in the Rabbi Trust were TOLI policies with cash-surrender values of $5.8 million and $4.9 million, respectively. These assets are consolidated and are included in other long term assets on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair value measurements of the assets held in the Rabbi Trust and the Deferred Compensation Plan obligations.

14. Risk Management and Derivatives

Foreign Currency Risk Management

The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. From time to time, the Company may elect to enter into foreign currency contracts to reduce the risk associated with foreign currency exchange rate fluctuations on intercompany transactions and projected inventory purchases for its international subsidiaries.

As of December 31, 2017, the aggregate notional value of the Company’s outstanding foreign currency contracts was $601.0 million, which had contract maturities ranging from one to eleven months. A portion of the Company’s foreign currency contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in earnings. The Company enters into foreign currency contracts designated as cash flow hedges. For foreign currency contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure. During the years ended December 31, 2017 and 2016, the Company reclassified $0.4 million and $0.3 million from other comprehensive income to cost of goods sold related to foreign currency contracts designated as cash flow hedges, respectively. The fair value of the Company’s foreign currency contracts was a liability of $6.8 million as of December 31, 2017 and was included in other current liabilities on the consolidated balance sheet. The fair value of the Company’s foreign currency contracts was an asset of $15.2 million as of December 31, 2016 and was included in prepaid expenses and other current assets on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair value measurements.

91

Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency contracts:

Year Ended December 31,

(In thousands) 2017 2016 2015

Unrealized foreign currency exchange rate gains (losses) $ 29,246 $(12,627) $(33,359)

Realized foreign currency exchange rate gains (losses) 611 (6,906) 7,643

Unrealized derivative gains (losses) (1,217) 729 388 Realized derivative gains (losses) (26,537) 15,192 16,404

Interest Rate Risk Management

In order to maintain liquidity and fund business operations, the Company enters into long term debt arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and amount of the Company’s long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations. The Company utilizes interest rate swap contracts to convert a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest. The interest rate swap contracts are accounted for as cash flow hedges and accordingly, the effective portion of the changes in their fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation. Refer to Note 6 for a discussion of long term debt.

As of December 31, 2017, the notional value of the Company’s outstanding interest rate swap contracts was $135.6 million . During the years ended December 31, 2017 and 2016, the Company recorded a $0.9 million and $2.0 million increase in interest expense, respectively, representing the effective portion of the contracts reclassified from accumulated other comprehensive income. The fair value of the interest rate swap contracts was an asset of $1.1 million as of December 31, 2017 and was included in other long term assets on the consolidated balance sheet. The fair value of the interest rate swap contracts was a liability of $0.4 million as of December 31, 2016 and was included in other long term liabilities on the consolidated balance sheet.

The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.

15. Related Party Transactions

The Company has an operating lease agreement with an entity controlled by the Company’s Chief Executive Officer to lease an aircraft for business purposes. The Company paid $2.0 million, $2.0 million, and $2.0 million in lease payments to the entity for its use of the aircraft during the years ended December 31, 2017, 2016 and 2015, respectively. No amounts were payable to this related party as of December 31, 2017 and 2016. The Company determined the lease payments were at fair market lease rates.

In June 2016, the Company purchased parcels of land from an entity controlled by the Company’s CEO, to be utilized to expand the Company’s corporate headquarters to accommodate its growth needs. The purchase price for these parcels totaled $70.3 million. The Company determined that the

92

purchase price for the land represented the fair market value of the parcels and approximated the cost to the seller to purchase and develop the parcels, including costs related to the termination of a lease encumbering the parcels.

In connection with the purchase of these parcels, in September 2016, the parties entered into an agreement pursuant to which the parties will share the burden of any special taxes arising due to infrastructure projects in the surrounding area. The allocation to the Company is based on the expected benefits to the Company’s parcels from these projects. No obligations were owed by either party under this agreement as of December 31, 2017.

16. Segment Data and Related Information

The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. As such, the CODM receives discrete financial information for the Company’s principal business by geographic region based on the Company’s strategy to become a global brand. These geographic regions include North America; Latin America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific. Each geographic segment operates exclusively in one industry: the development, marketing and distribution of branded performance apparel, footwear and accessories. The CODM also receives discrete financial information for the Company’s Connected Fitness business.

The net revenues and operating income (loss) associated with the Company’s segments are summarized in the following tables. Net revenues represent sales to external customers for each segment. Intercompany balances were eliminated for separate disclosure. The majority of corporate service costs within North America have not been allocated to the Company’s other segments. As the Company continues to grow its business outside of North America, a larger portion of its corporate overhead costs have begun to support global functions. Total expenditures for additions to long-lived assets are not disclosed as this information is not regularly provided to the CODM.

Year Ended December 31,

(In thousands) 2017 2016 2015

Net revenues

North America $3,802,406 $4,005,314 $3,455,737 EMEA 469,997 330,584 203,109 Asia-Pacific 433,647 268,607 144,877 Latin America 181,324 141,793 106,175 Connected Fitness 89,179 80,447 53,415 Intersegment Eliminations — (1,410) —

Total net revenues $4,976,553 $4,825,335 $3,963,313

93

Net revenues in the United States were $3,626.6 million, $3,843.7 million, and $3,317.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Year Ended December 31,

(In thousands) 2017 2016 2015

Operating income (loss)

North America $ 20,179 $408,424 $460,961 EMEA 17,976 11,420 3,122 Asia-Pacific 82,039 68,338 36,358 Latin America (37,085) (33,891) (30,593) Connected Fitness (55,266) (36,820) (61,301)

Total operating income 27,843 417,471 408,547 Interest expense, net (34,538) (26,434) (14,628) Other expense, net (3,614) (2,755) (7,234)

Income (loss) before income taxes $(10,309) $388,282 $386,685

The operating income information presented above includes the impact of restructuring and impairment charges related to each of the Company’s 2017 restructuring plan and 2018 restructuring plan. Charges incurred and expected to be incurred by segment in connection with each of the respective restructuring plans are as follows:

(In thousands)

Costs Incurred During the Year Ended

December 31, 2017 (1)

Costs to be Incurred During the Year Ending

December 31, 2018

Costs recorded in restructuring and impairment charges:

North America $ 63,170 $109,000 EMEA 1,525 6,000 Asia-Pacific 38 — Latin America 11,506 18,000 Connected Fitness 47,810 —

Total costs recorded in restructuring and impairment charges $124,049 $133,000

(1) This table excludes additional non-cash charges of $5.1 million associated with the reduction of inventory outside of current liquidation channels in line with the 2017 restructuring plan.

Long-lived assets are primarily composed of Property and equipment, net. The Company’s long- lived assets by geographic area were as follows:

Year Ended December 31,

(In thousands) 2017 2016

Long-lived assets

United States $763,477 $728,841 Canada 14,077 11,126

Total North America 777,554 739,967 Other foreign countries 108,220 64,244

Total long lived assets $885,774 $804,211

94

Net revenues by product category are as follows:

Year Ended December 31,

(In thousands) 2017 2016 2015

Apparel $3,287,121 $3,229,142 $2,801,062 Footwear 1,037,840 1,010,693 677,744 Accessories 445,838 406,614 346,885

Total net sales 4,770,799 4,646,449 3,825,691 Licensing revenues 116,575 99,849 84,207 Connected Fitness 89,179 80,447 53,415 Intersegment Eliminations — (1,410) —

Total net revenues $4,976,553 $4,825,335 $3,963,313

Net revenues in the United States were $3,626.6 million, $3,843.7 million, and $3,317.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.

17. Unaudited Quarterly Financial Data

Quarter Ended (unaudited) Year Ended

December 31,(In thousands) March 31, June 30, September 30, December 31,

2017

Net revenues $1,117,331 $1,088,245 $1,405,615 $1,365,362 $4,976,553 Gross profit 505,423 498,246 645,350 589,704 2,238,723 Income (loss) from operations 7,536 (4,785) 62,180 (37,088) 27,843 Net income (loss) (2,272) (12,308) 54,242 (87,922) (48,260) Net income (loss) available to all

stockholders $ (2,272) $ (12,308) $ 54,242 $ (87,922) $ (48,260) Basic net income (loss) per share

of Class A and B common stock $ (0.01) $ (0.03) $ 0.12 $ (0.20) $ (0.11) Basic net income (loss) per share

of Class C common stock $ (0.01) $ (0.03) $ 0.12 $ (0.20) $ (0.11) Diluted net income (loss) per share

of Class A and B common stock $ (0.01) $ (0.03) $ 0.12 $ (0.20) $ (0.11) Diluted net income (loss) per share

of Class C common stock $ (0.01) $ (0.03) $ 0.12 $ (0.20) $ (0.11)

2016

Net revenues $1,047,702 $1,000,783 $1,471,573 $1,305,277 $4,825,335 Gross profit 480,636 477,647 698,624 583,704 2,240,611 Income from operations 34,883 19,378 199,310 163,900 417,471 Net income 19,180 6,344 128,225 103,230 256,979

Adjustment payment to Class C capital stockholders — 59,000 — — 59,000

Net income (loss) available to all stockholders 19,180 (52,656) 128,225 103,230 197,979

Basic net income (loss) per share of Class A and B common stock $ 0.04 $ (0.12) $ 0.29 $ 0.24 $ 0.45

Basic net income (loss) per share of Class C common stock $ 0.04 $ 0.15 $ 0.29 $ 0.24 $ 0.72

Diluted net income (loss) per share of Class A and B common stock $ 0.04 $ (0.12) $ 0.29 $ 0.23 $ 0.45

Diluted net income (loss) per share of Class C common stock $ 0.04 $ 0.15 $ 0.29 $ 0.23 $ 0.71

Basic and diluted net income (loss) per share are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the year.

95

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

In 2015, we began the process of implementing a global operating and financial reporting information technology system, SAP Fashion Management Solution (“FMS”), as part of a multi-year plan to integrate and upgrade our systems and processes. The first phase of this implementation became operational on July 5, 2017, in our North America, EMEA, and Connected Fitness operations. We believe the implementation of the systems and related changes to internal controls will enhance our internal controls over financial reporting. We also believe the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period of change and will continue to evaluate the operating effectiveness of related key controls during subsequent periods.

We are currently in the process of developing an implementation strategy and roll-out plan for FMS in our Asia-Pacific and Latin America operations over the next several years.

As the phased implementation of this system occurs, we will experience certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect FMS to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolve. For a discussion of risks related to the implementation of new systems, see Item 1A—“Risk Factors—Risks Related to Our Business—Risks and uncertainties associated with the implementation of information systems may negatively impact our business.”

There have been no changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the most recent fiscal quarter that have materially affected, or that are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Executive Retirement

On February 26, 2018, Karl-Heinz (Charlie) Maurath, our Chief Revenue Officer, notified us of his decision to retire, effective March 31, 2018.

96

Amendment to Material Contract

On February 22, 2018, we entered into Amendment No. 4 to our existing Credit Agreement, originally dated May 29, 2014, by and among Under Armour, Inc. as borrower, JPMorgan Chase Bank, N.A., as administrative agent and the other lenders party thereto, as amended (the “Credit Agreement”). The fourth amendment to the Credit Agreement (the “Amendment”) modified the definitions of “consolidated EBITDA” and “consolidated total indebtedness” used in the Credit Agreement, which are utilized to calculate our compliance with certain covenants set forth set forth in the Credit Agreement, including our consolidated leverage ratio covenant. The Credit Agreement requires that the ratio of our trailing four-quarter consolidated total indebtedness to consolidated EBITDA be no greater than 3.25 to 1.00. The Amendment further provides that for the four quarters ended June 30, 2018, our consolidated leverage ratio will not exceed 3.75 to 1.00, and for the four quarters ended September 30, 2018, 4.00 to 1.00. Beginning with the four quarters ended December 31, 2018 and thereafter, the consolidated leverage ratio requirement will return to 3.25 to 1.00. The other material terms of the Credit Agreement, as amended, remain unchanged.

In the ordinary course of their business, the financial institutions party to the Amendment and certain of their affiliates have in the past and/or may in the future engage in investment and commercial banking or other transactions of a financial nature with us or our affiliates, including the provision of certain advisory services and the making of loans to the Company and its affiliates in the ordinary course of their business for which they will receive customary fees or expenses.

The foregoing does not constitute a complete summary of the terms of the Amendment or the Credit Agreement and reference is made to the complete text of the Amendment, which is filed as Exhibit 10.05 to this Annual Report on Form 10-K and incorporated by reference herein, as well as the text of the Credit Agreement and other amendments thereto, which are also filed as Exhibits to this Annual Report on Form 10-K.

97

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item regarding directors is incorporated herein by reference from the 2018 Proxy Statement, under the headings “NOMINEES FOR ELECTION AT THE ANNUAL MEETING,” “CORPORATE GOVERNANCE AND RELATED MATTERS: Audit Committee” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.” Information required by this Item regarding executive officers is included under “Executive Officers of the Registrant” in Part 1 of this Form 10-K.

Code of Ethics

We have a written code of ethics and business conduct in place that applies to all our employees, including our principal executive officer, principal financial officer, and principal accounting officer and controller. A copy of our code of ethics and business conduct is available on our website: www.uabiz.com/investors.cfm. We are required to disclose any change to, or waiver from, our code of ethics and business policy for our senior financial officers. We intend to use our website as a method of disseminating this disclosure as permitted by applicable SEC rules.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference herein from the 2018 Proxy Statement under the headings “CORPORATE GOVERNANCE AND RELATED MATTERS: Compensation of Directors,” and “EXECUTIVE COMPENSATION.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference herein from the 2018 Proxy Statement under the heading “SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF SHARES.” Also refer to Item 5 of this Annual Report on Form 10-K, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by this Item is incorporated by reference herein from the 2018 Proxy Statement under the heading “TRANSACTIONS WITH RELATED PERSONS” and “CORPORATE GOVERNANCE AND RELATED MATTERS—Independence of Directors.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference herein from the 2018 Proxy Statement under the heading “INDEPENDENT AUDITORS.”

98

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. The following documents are filed as part of this Form 10-K:

1. Financial Statements:

Report of Independent Registered Public Accounting Firm 57

Consolidated Balance Sheets as of December 31, 2017 and 2016 60

Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015 61

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015 62

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015 63

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 64

Notes to the Audited Consolidated Financial Statements 65

2. Financial Statement Schedule

Schedule II—Valuation and Qualifying Accounts 105

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

99

3. Exhibits

The following exhibits are incorporated by reference or filed herewith. References to any Form 10-K of the Company below are to the Annual Report on Form 10-K for the related fiscal year. For example, references to the Company’s 2016 Form 10-K are to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Exhibit No.

3.01 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.01 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2016).

3.02 Articles Supplementary setting forth the terms of the Class C Common Stock, dated June 15, 2015 (incorporated by reference to Appendix F to the Preliminary Proxy Statement filed by the Company on June 15, 2015).

3.03 Third Amended and Restated By-Laws (incorporated by reference to Exhibit 3.01 of the Company’s Current Report on Form 8-K filed June 27, 2017).

4.01 Warrant Agreement between the Company and NFL Properties LLC dated as of August 3, 2006 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed August 7, 2006).

4.02 Indenture, dated as of June 13, 2016, between the Company and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on June 13, 2016).

4.03 First Supplemental Indenture, dated as of June 13, 2016, relating to the 3.250% Senior Notes due 2026, between the Company and Wilmington Trust, National Association, as trustee, and the Form of 3.250% Senior Notes due 2026 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on June 13, 2016).

4.04 Terms of Settlement of In re: Under Armour Shareholder Litigation, Case No, 24-C-15-00324 (incorporated by reference from Exhibit 4.2 of the Company’s Registration Statement on Form 8-A filed on March 21, 2016).

10.01 Credit Agreement, dated May 29, 2014, by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, PNC Bank, National Association, as Syndication Agent, Bank of America, N.A. SunTrust Bank and Wells Fargo Bank, National Association as Co-Documentation Agents and the other lenders and arrangers party thereto (the “Credit Agreement”) (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed June 2, 2014).

10.02 Amendment No. 1 to the Credit Agreement, dated as of March 17, 2015 (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed March 17, 2015).

10.03 Amendment No. 2 to the Credit Agreement, dated as of January 22, 2016 (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed January 22, 2016).

10.04 Amendment No. 3 to the Credit Agreement, dated as of June 7, 2016 (incorporated by reference to Exhibit 10.01 of the Company’s Quarterly Report on Form 10-Q filed on August 3, 2016).

10.05 Amendment No. 4 to the Credit Agreement, dated as of February 22, 2018.

100

Exhibit No.

10.06 Under Armour, Inc. Executive Incentive Plan (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed on May 6, 2013).*

10.07 Under Armour, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”) (incorporated by reference to Exhibit 10.15 of the Company’s 2007 Form 10-K).*

10.08 Amendment One to the Deferred Compensation Plan (incorporated by reference to Exhibit 10.14 of the Company’s 2010 Form 10-K).*

10.09 Amendment Two to the Deferred Compensation Plan (incorporated by reference to Exhibit 10.03 of the Company’s 2016 Form 10-K).*

10.10 Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.04 of the Company’s 2016 Form 10-K).*

10.11 Under Armour, Inc. Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan, as amended (the “2005 Plan”) (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-8 (Registration No. 333-210844) filed on April 20, 2016).*

10.12 Form of Non-Qualified Stock Option Grant Agreement under the 2005 Plan between the Company and Kevin Plank.*

10.13 Form of Non-Qualified Stock Option Grant Agreement under the 2005 Plan between the Company and Kevin Plank (incorporated by reference to Exhibit 10.06 of the Company’s 2016 Form 10-K).*

10.14 Form of Restricted Stock Unit Grant Agreement under the 2005 Plan.*

10.15 Form of Restricted Stock Unit Grant Agreement under the 2005 Plan (incorporated by reference to Exhibit 10.07 of the Company’s 2016 Form 10-K).*

10.16 Form of Performance-Based Stock Option Grant Agreement under the 2005 Plan between the Company and Kevin Plank.*

10.17 Form of Performance-Based Stock Option Grant Agreement under the 2005 Plan (incorporated by reference to Exhibit 10.08 of the Company’s 2016 Form 10-K).*

10.18 Form of Performance-Based Stock Option Grant Agreement under the 2005 Plan (incorporated by reference to Exhibit 10.09 of the Company’s 2014 Form 10-K).*

10.19 Form of Performance-Based Restricted Stock Unit Grant Agreement under the 2005 Plan.*

10.20 Form of Performance-Based Restricted Stock Unit Grant Agreement under the 2005 Plan (incorporated by reference to Exhibit 10.09 of the Company’s 2016 Form 10-K).*

10.21 Form of Performance-Based Restricted Stock Unit Grant Agreement under the 2005 Plan (incorporated by reference to Exhibit 10.11 of the Company’s 2014 Form 10-K).*

10.22 Form of Performance-Based Restricted Stock Unit Grant Agreement under the 2005 Plan (incorporated by reference to Exhibit 10.12 of the Company’s 2013 Form 10-K).*

10.23 Supplement to Restricted Stock Unit Grant Agreements (incorporated by reference to Exhibit 10.01 of the Company’s Form 10-Q for the quarterly period ended September 30, 2014).*

10.24 Form of Performance-Based Restricted Stock Unit Grant Agreement for International Employees under the 2005 Plan (incorporated by reference to Exhibit 10.12 of the Company’s 2014 Form 10-K).*

101

Exhibit No.

10.25 Form of Performance-Based Restricted Stock Unit Grant Agreement for International Employees under the 2005 Plan (incorporated by reference to Exhibit 10.13 of the Company’s 2013 Form 10-K).*

10.26 Form of Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between certain executives and the Company (incorporated by reference to Exhibit 10.11 of the Company’s 2016 Form 10-K).*

10.27 Under Armour, Inc. 2017 Non-Employee Director Compensation Plan (the “Director Compensation Plan”) (incorporated by reference to Exhibit 10.01 of the Company’s Form 10-Q for the quarterly period ended March 31, 2017).*

10.28 Form of Initial Restricted Stock Unit Grant under the Director Compensation Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed June 6, 2006).*

10.29 Form of Annual Stock Option Award under the Director Compensation Plan (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed June 6, 2006).*

10.30 Form of Annual Restricted Stock Unit Grant under the Director Compensation Plan (incorporated by reference to Exhibit 10.6 of the Company’s Form 10-Q for the quarterly period ended June 30, 2011).*

10.31 Under Armour, Inc. 2006 Non-Employee Director Deferred Stock Unit Plan (the “Director DSU Plan”) (incorporated by reference to Exhibit 10.02 of the Company’s Form 10-Q for the quarterly period ended March 31, 2010).*

10.32 Amendment One to the Director DSU Plan (incorporated by reference to Exhibit 10.23 of the Company’s 2010 Form 10-K).*

10.33 Amendment Two to the Director DSU Plan (incorporated by reference to Exhibit 10.02 of the Company’s Form 10-Q for the quarterly period ended June 30, 2016).*

10.34 Confidentiality, Non-Competition and Non-Solicitation Agreement, dated June 15, 2015, between the Company and Kevin Plank (the “Plank Non-Compete Agreement”) (incorporated by reference to Appendix E to the Preliminary Proxy Statement filed by Under Armour, Inc. on June 15, 2015).

10.35 First Amendment to the Plank Non-Compete Agreement, dated April 7, 2016 (incorporated by reference to Exhibit 10.03 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016).

12.01 Statement re: computation of ratio of earnings to fixed charges.

21.01 List of Subsidiaries.

23.01 Consent of PricewaterhouseCoopers LLP.

31.01 Section 302 Chief Executive Officer Certification.

31.02 Section 302 Chief Financial Officer Certification.

32.01 Section 906 Chief Executive Officer Certification.

32.02 Section 906 Chief Financial Officer Certification.

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

102

Exhibit No.

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or a compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 15(b) of Form 10-K.

103

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNDER ARMOUR, INC.

By: /s/ KEVIN A. PLANK

Kevin A. Plank Chairman of the Board of Directors and Chief Executive Officer

Dated: February 28, 2018

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

/S/ KEVIN A. PLANK

Kevin A. Plank

Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)

/s/ DAVID E. BERGMAN

David E. Bergman

Chief Financial Officer (principal accounting and financial officer)

/s/ GEORGE W. BODENHEIMER

George W. Bodenheimer

Director

/s/ DOUGLAS E. COLTHARP

Douglas E. Coltharp

Director

/s/ JERRI L. DEVARD

Jerri L. DeVard

Director

/s/ KAREN W. KATZ

Karen W. Katz

Director

/s/ A.B. KRONGARD

A.B. Krongard

Director

/s/ WILLIAM R. MCDERMOTT

William R. McDermott

Director

/s/ ERIC T. OLSON

Eric T. Olson

Director

/s/ HARVEY L. SANDERS

Harvey L. Sanders

Director

Dated: February 28, 2018

104

Schedule II

Valuation and Qualifying Accounts

(In thousands)

Description

Balance at Beginning

of Year

Charged to Costs and Expenses

Write-Offs Net of

Recoveries

Balance at End of Year

Allowance for doubtful accounts

For the year ended December 31, 2017 $ 11,341 $ 9,520 $ (1,149) $ 19,712 For the year ended December 31, 2016 5,930 23,575 (18,164) 11,341 For the year ended December 31, 2015 3,693 2,951 (714) 5,930

Sales returns and allowances

For the year ended December 31, 2017 $121,286 $285,474 $(215,966) $190,794 For the year ended December 31, 2016 72,615 179,445 (130,774) 121,286 For the year ended December 31, 2015 52,973 145,828 (126,186) 72,615

Deferred tax asset valuation allowance

For the year ended December 31, 2017 $ 37,969 $ 40,282 $ (4,707) $ 73,544 For the year ended December 31, 2016 24,043 13,951 (25) 37,969 For the year ended December 31, 2015 15,550 8,493 — 24,043

105

[THIS PAGE INTENTIONALLY LEFT BLANK]

2 0

17 U

N D

E R

A R

M O

U R

A N

N U

A L

R E

P O

R T

BOARD OF DIRECTORS

K E V I N A . P L A N K Chairman of the Board

G E O R G E W . B O D E N H E I M E R Former President, ESPN, Inc. and ABC Sports

D O U G L A S E . C O L T H A R P Executive Vice President and

J E R R I L . D E V A R D Executive Vice President,

A N T H O N Y W . D E E R I N G * In memoriam of Tony – a valued advisor and loyal friend.

K A R E N W . K A T Z

A . B . K R O N G A R D

Chairman, Alex.Brown, Incorporated

W I L L I A M R . M C D E R M O T T

Executive Board Member, SAP SE

E R I C T. O L S O N Admiral, U.S. Navy (Retired) and

Former Commander, U.S. Special Operations Command

H A R V E Y L . S A N D E R S Former Chairman and

Nautica Enterprises, Inc.

OARD

RECTORS

I N A . P L A N K man of the Board

R G E W . B O D E N H E I M E R r President, ESPN, Inc.

BC Sports

G L A S E . C O L T H A R P tive Vice President and

R I L . D E V A R D tive Vice President,

H O N Y W . D E E R I N G emoriam of Tony – ed advisor and loyal friend.

K A R E N W . K

A . B . K R O N G

Chairman, Alex.Brown, Incorp

W I L L I A M R . M C D E R M

Executive Board Member, S

E R I C T. O L Admiral, U.S. Navy (Retire

Former Commander, U.S. S Operations Com

H A R V E Y L . S A N D Former Chairma

Nautica Enterprise