Common Stock and Stock-Based Compensation

12 Months Ended

May 31, 2020

Share-based Payment Arrangement, Noncash Expense [Abstract]

Common Stock and Stock-Based Compensation

NOTE 11 — COMMON STOCK AND STOCK-BASED COMPENSATION

COMMON STOCK

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.

STOCK-BASED COMPENSATION

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. The Company generally grants stock options and restricted stock on an annual basis. Substantially all awards under the Stock Incentive Plan vest ratably over 4 years of continued employment, with stock options expiring 10 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,
(Dollars in millions)	2020		2019		2018
Stock options(1)	$	237	$	207	$	149
ESPPs	53		40		34
Restricted stock	139		78		35
TOTAL STOCK-BASED COMPENSATION EXPENSE	$	429	$	325	$	218

(1) Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees meeting certain retirement eligibility requirements. Accelerated stock option expense was $53 million, $41 million and $18 million for the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

The income tax benefit related to stock-based compensation expense was $207 million, $175 million and $230 million for the fiscal years ended May 31, 2020, 2019 and 2018, respectively, and reported within Income tax expense.

STOCK OPTIONS

The weighted average fair value per share of the options granted during the years ended May 31, 2020, 2019 and 2018, computed as of the grant date using the Black-Scholes pricing model, was $18.71, $22.78 and $9.82, respectively. The weighted average assumptions used to estimate these fair values were as follows:

	YEAR ENDED MAY 31,
	2020		2019		2018
Dividend yield	1.0	%	1.0	%	1.2	%
Expected volatility	23.0	%	26.6	%	16.4	%
Weighted average expected life (in years)	6.0		6.0		6.0
Risk-free interest rate	1.5	%	2.8	%	2.0	%

Expected volatilities are based on the historical volatility of the Company's common stock, the implied volatility in market traded options on the Company's common stock with a term greater than one year, as well as 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.

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

	SHARES(1)		WEIGHTED AVERAGE OPTION PRICE
	(In millions)
Options outstanding as of May 31, 2019	91.3		$	50.59
Exercised	(20.1	)	35.26
Forfeited	(2.2	)	75.74
Granted	19.1		85.29
Options outstanding as of May 31, 2020	88.1		$	60.98

(1) Includes stock appreciation rights transactions.

Options exercisable as of May 31, 2020 were 48.5 million and had a weighted average option price of $46.91 per share. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2020 was $3,316 million and $2,506 million, respectively. The total intrinsic value of the options exercised during the years ended May 31, 2020, 2019 and 2018 was $1,161 million, $938 million and $889 million, respectively. The intrinsic value is the amount by which the market value of the underlying stock exceeds the exercise price of the options. The weighted average contractual life remaining for options outstanding and options exercisable at May 31, 2020 was 6.2 years and 4.5 years, respectively. As of May 31, 2020, the Company had $411 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 2.6 years.

EMPLOYEE STOCK PURCHASE PLANS

In addition to the Stock Incentive Plan, the Company gives employees the right to purchase shares at a discount from 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 2.7 million, 2.5 million and 3.1 million shares during each of the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

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 number of restricted stock and restricted stock units vested includes shares of common stock withheld by the Company on behalf of employees to satisfy the minimum statutory tax withholding requirements.

The following summarizes the restricted stock and restricted stock unit activity under the plan discussed above: 

	SHARES		WEIGHTED AVERAGE GRANT DATE FAIR VALUE
	(In millions)
Nonvested as of May 31, 2019	4.4		$	70.93
Vested	(1.1	)	72.64
Forfeited	(0.3	)	79.62
Granted	3.8		88.26
Nonvested as of May 31, 2020	6.8		$	79.84

The weighted average fair value per share of restricted stock and restricted stock units granted for the years ended May 31, 2020, 2019 and 2018, computed as of the grant date, was $88.26, $80.95, and $62.51, respectively. During the years ended May 31, 2020, 2019 and 2018, the aggregate fair value of restricted stock and restricted stock units vested was $98 million, $44 million and $113 million, respectively, computed as of the date of vesting. As of May 31, 2020, the Company had $342 million of unrecognized compensation costs from restricted stock and restricted stock units, net of estimated forfeitures, to be recognized in Cost of sales or Operating overhead expense, as applicable, over a weighted average remaining period of 2.7 years.