NIKE, INC.

Description
NIKE, Inc. was incorporated in 1968 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 internet address is www.nike.com. On
our NIKE Corporate website, located at www.nikeinc.com, we post the
following filings as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission: 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. All such filings on our NIKE Corporate website are
available free of charge. Also available on the NIKE 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 documentswill be provided in print to any shareholder who submits a request in writing to
NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 970056453.

NIKE, INC.
ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
PART I 49
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
United States Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
International Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Significant Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Product Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
International Operations and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Trademarks and Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ITEM 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
PART II 61
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . 65
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
ITEM 8. Financial Statements and Supplemental Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .114
ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
PART III 115
(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. 2013
Annual Meeting of Shareholders.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
ITEM 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . .115
ITEM 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
PART IV 116
ITEM 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ÍANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2013
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 (§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). Í ‘
• if disclosure of delinquent filers pursuant to Item405 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 Form10-Kor any amendment to this Form10-K. ‘ Í
• whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large acceleratedfiler Í Acceleratedfiler ‘ Non-acceleratedfile ‘ Smaller ReportingCompany ‘
• whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Í
As of November 30, 2012, the aggregate market values of the Registrant’s Common Stock held by non-affiliates were:
Class A $ 2,206,464,966
Class B $34,773,165,371
$36,979,630,337
As of July 19, 2013, the number of shares of the Registrant’s Common Stock outstanding were:
Class A 177,957,876
Class B 712,394,590
890,352,466
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on September 19, 2013 are incorporated by
reference into Part III of this Report.
47
PART I
PART I
ITEM1. Business
General
NIKE, Inc. was incorporated in 1968 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 internet address is www.nike.com. On
our NIKE Corporate website, located at www.nikeinc.com, we post the
following filings as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission: 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. All such filings on our NIKE Corporate website are
available free of charge. Also available on the NIKE 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 athletic apparel
in the world. We sell our products to retail accounts, through NIKE-owned
retail stores and internet websites (which we refer to as our “Direct to
Consumer” operations) and through a mix of independent distributors and
licensees, in virtually all countries around the world. Virtually all of our products
are manufactured by independent contractors. Virtually 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 and Brand Jordan product offerings in seven key
categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s
Training, NIKE Sportswear (our sports-inspired lifestyle products), and Action
Sports. We also market products designed for kids, as well as for other
athletic and recreational uses such as baseball, cricket, golf, lacrosse,
outdoor activities, football, tennis, volleyball, walking, and wrestling.
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 high quality construction and
innovation in our products. NIKE Sportswear, Running, Basketball, Football
(Soccer), and kids’ shoes are currently our top-selling footwear categories
and we expect themto continue to lead in product sales in the near future.
We sell sports apparel and accessories covering most of the above-
mentioned categories, which feature the same trademarks and are sold
predominantly through the same marketing and distribution channels as
athletic footwear. We often market footwear, apparel and accessories in
“collections” of similar use or by category. We also market apparel with
licensed college and professional teamand league logos.
We sell a line of performance equipment under the NIKE Brand name,
including bags, socks, sport balls, eyewear, timepieces, digital devices, bats,
gloves, protective equipment, golf clubs, 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.
Our wholly-owned subsidiary, Converse Inc. (“Converse”), headquartered in
North Andover, Massachusetts, designs, distributes and licenses athletic and
casual footwear, apparel and accessories under the Converse
®
, Chuck
Taylor
®
, All Star
®
, One Star
®
, Star Chevron
®
and Jack Purcell
®
trademarks.
Our wholly-owned subsidiary, Hurley International LLC (“Hurley”),
headquartered in Costa Mesa, California, designs and distributes a line of
action sports and youth lifestyle apparel and accessories under the Hurley
®
trademark.
In addition to the products we sell to our wholesale customers and directly to
consumers through our Direct to Consumer operations, we have also entered
into license agreements that permit unaffiliated parties to manufacture and sell
certain apparel, digital devices and applications and other equipment
designed for sports activities.
As part of our long-term growth strategy, we continually evaluate our portfolio
of businesses to ensure we are investing in those businesses that are
accretive to the NIKE Brand with the largest growth potential and highest
returns. On February 1, 2013, and November 30, 2012, we completed the
divestitures of the Cole Haan and Umbro businesses, respectively, allowing
us to better focus our resources on driving growth in the NIKE, Jordan,
Converse and Hurley brands.
NIKE, INC. 2013 Annual Report and Notice of Annual Meeting 49
F
O
R
M
1
0
-
K
PART I
Sales and Marketing
Financial information about geographic and segment operations appears in
Note 18 — 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.
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.
We report our NIKE Brand operations based on our internal geographic
organization. Each NIKE Brand geography operates predominantly in one
industry: the design, development, marketing and selling of athletic footwear,
apparel, equipment, accessories, and services. Our reportable operating
segments for the NIKE Brand are: North America, Western Europe, Central &
Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE
Brand Direct to Consumer operations are managed within each geographic
segment.
United States Market
In fiscal 2013, sales in the United States, including U.S. sales of our Other
Businesses, accounted for approximately 45% of total revenues, compared
to 42% in both fiscal 2012 and fiscal 2011. Converse and Hurley, our affiliate
brands, and NIKE Golf comprise our Other Businesses. We sell 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. During fiscal 2013, our three
largest customers accounted for approximately 25% of sales in the United
States.
We make substantial use of our futures ordering program, which allows
retailers to order five to six months in advance of delivery with the commitment
that their orders will be delivered within a set time period at a fixed price. In
fiscal 2013, 87% of our U.S. wholesale footwear shipments (excluding our
Other Businesses) were made under the futures program, compared to 86%
in fiscal 2012 and 87% in fiscal 2011. In fiscal 2013, 67% of our U.S.
wholesale apparel shipments (excluding our Other Businesses) were made
under the futures program, compared to 64%in fiscal 2012 and 60%in fiscal
2011.
We utilize NIKE sales offices to solicit sales in the United States as well as
independent sales representatives to sell specialty products for golf,
skateboarding, and snowboarding. In addition, our Direct to Consumer
operations sell NIKE Brand products to consumers through our internet
website, www.nike.com, and through the following number of retail stores in
the United States:
U.S. Retail Stores Number
NIKE Brand factory stores 171
NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 33
Converse stores (including factory stores) 72
Hurley stores (including factory and employee stores) 27
TOTAL 303
NIKE has five primary distribution centers in the United States located in
Memphis, Tennessee, three of which are leased. NIKE Brand apparel and
equipment products are also shipped from our Foothill Ranch, California
distribution center. Converse and Hurley products are shipped primarily from
Ontario, California.
International Markets
In fiscal 2013, non-U.S. sales including non-U.S. sales of our Other
Businesses accounted for 55% of total revenues, compared to 58% in both
fiscal 2012 and fiscal 2011. We sell our products to retail accounts, through
our own Direct to Consumer operations, and through a mix of independent
distributors, licensees, and sales representatives around the world. We sell to
thousands of retail accounts and operate 16 distribution centers outside of
the United States. In many countries and regions, including Canada, Asia,
some Latin American countries, and Europe, we have a futures ordering
program for retailers similar to the United States futures ordering program
described above. During fiscal 2013, NIKE’s three largest customers outside
of the U.S. accounted for approximately 6%of total non-U.S. sales.
Our Direct to Consumer business operates the following number of retail stores outside the United States:
Non-U.S. Retail Stores Number
NIKE Brand factory stores 388
NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 59
Converse stores (including factory stores) 3
TOTAL 450
50
PART I
International branch offices and subsidiaries of NIKE are located in Argentina,
Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Costa
Rica, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France,
Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy,
Japan, Korea, Malaysia, Mexico, New Zealand, the Netherlands, Norway,
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.
Significant Customer
No customer accounted for 10%or more of our worldwide net sales during fiscal 2013.
Orders
Worldwide futures orders for NIKE Brand athletic footwear and apparel,
scheduled for delivery from June through November 2013, were $12.1 billion
compared to $11.2 billion for the same period last year. This futures orders
amount is calculated based upon our forecast of the actual exchange rates
under which our revenues will be translated during this period. Reported
futures orders are not necessarily indicative of our expectation of revenues for
this period. This is because the mix of orders can shift between futures and at-
once orders and the fulfillment of certain of these futures orders may fall
outside of the scheduled time period noted above. In addition, foreign
currency exchange rate fluctuations as well as differing levels of discounts,
order cancellations and returns can cause differences in the comparisons
between futures orders and actual revenues. Moreover, a significant portion
of our revenue is not derived fromfutures orders, including at-once and close-
out sales of NIKE Brand footwear and apparel, sales of NIKE Brand
equipment, sales fromour Direct to Consumer operations, and sales fromour
Other Businesses.
Product Research and Development
We believe our research and development efforts are a key factor in our
success. Technical innovation in the design and manufacturing process of
footwear, apparel, and athletic equipment receive continued emphasis as
NIKE strives to produce products that help to reduce injury, enhance athletic
performance and maximize comfort.
In addition to NIKE’s 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.
Manufacturing
Virtually all of our footwear is manufactured outside of the United States by
independent contract manufacturers. In fiscal 2013, contract factories in
Vietnam, China and Indonesia manufactured approximately 42%, 30%, and
26% of total NIKE Brand footwear, respectively. We also have manufacturing
agreements with independent factories in Argentina, Brazil, India, and Mexico
to manufacture footwear for sale primarily within those countries. The largest
single footwear factory with which we have contracted accounted for
approximately 6% of total fiscal 2013 NIKE Brand footwear production.
Almost all of NIKE Brand apparel is manufactured outside of the United States
by independent contract manufacturers located in 28 countries. Most of this
apparel production occurred in China, Vietnam, Thailand, Indonesia, Sri
Lanka, Pakistan, Malaysia, Turkey, Mexico, and Cambodia. The largest single
apparel factory that we have contracted with accounted for approximately
6%of total fiscal 2013 apparel production.
The principal materials used in our footwear products are natural and
synthetic rubber, plastic compounds, foam cushioning materials, nylon,
leather, canvas, and polyurethane films used to make Air-Sole cushioning
components. During fiscal 2013, NIKE IHM, Inc., a wholly-owned subsidiary
of NIKE, Inc., with facilities in Beaverton, Oregon and St. Louis, Missouri, as
well as independent contractors in China and Vietnam, were our largest
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, plastic and metal hardware, and specialized performance
fabrics designed to repel rain and snow, retain heat, or efficiently wick
moisture away from the body. NIKE’s independent contractors and suppliers
buy raw materials in bulk 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. We have thus far experienced little difficulty in
satisfying our rawmaterial requirements.
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 2013, Sojitz America provided financing and purchasing services
for NIKE Brand products sold in Argentina, Uruguay, Canada, Brazil, India,
Indonesia, the Philippines, Malaysia, South Africa, Korea, and Thailand,
excluding products produced and sold in the same country. Approximately
13% 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-termin duration due to the
ready availability of alternative sources of financing at competitive rates. Our
current agreements with Sojitz America expire on May 31, 2014.
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International Operations and Trade
Our international operations and sources of supply are subject to the usual
risks of doing business abroad, such as possible revaluation of currencies,
export and 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 conditions have
affected international trade and caused a rise in 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, such
protectionist measures, if implemented, could result in increases in the cost of
our products, which may in turn adversely affect our sales or profitability 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 engage in administrative and judicial
processes to mitigate trade restrictions. In Brazil, we are actively monitoring
for dumping investigations against products from China and other countries
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 increase customs clearance times for imports of
footwear, apparel and equipment. Moreover, with respect to trade restrictions
targeting China, which represents an important sourcing and consumer
marketing country 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.
Competition
The athletic footwear, apparel, and equipment industry is highly competitive in
the United States and 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, V.F. Corp., Puma, Li Ning and Under
Armour, among others. We also compete with a number of vertical retailers
such as Lululemon and Uniqlo. 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, apparel, and equipment in the
world. Important aspects of competition in this industry are:
• Product 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; customer support and service;
identification with prominent and influential athletes, coaches, teams,
colleges and sports leagues who endorse our brands and use our
products; and active engagement through sponsored sporting events and
clinics; and
• Effective distribution of products, with attractive merchandising and
presentation at retail, in store and online.
We believe that we are competitive in all of these areas.
Trademarks and Patents
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 Design
®
trademarks to be among our most valuable assets and
we have registered these trademarks in almost 170 jurisdictions. In addition,
we own many other trademarks that we utilize in marketing our products. We
continue to vigorously protect our trademarks against infringement.
NIKE has an exclusive, worldwide license to make and sell footwear using
patented “Air” technology. The process utilizes pressurized gas encapsulated
in polyurethane. Some of the early NIKE AIR
®
patents have expired, which
may enable competitors to use certain types of similar technology.
Subsequent NIKE AIR
®
patents will not expire for several years.
We also file and maintain many U.S. and foreign utility patents, as well as
many U.S. and foreign design patents covering components, manufacturing
techniques and features used in various athletic and leisure footwear, apparel,
athletic equipment, digital devices and golf products. These patents expire at
various times, and patents issued for applications filed this year in the U.S. will
last until 2027 for design patents and until 2033 for utility patents.
We believe our success depends primarily upon our capabilities in design,
research and development, production, and marketing rather than exclusively
upon our patent position. However, we have followed a policy of filing patent
applications for the United States and foreign patents on inventions, designs,
and improvements that we deemvaluable.
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Employees
As of May 31, 2013, we had approximately 48,000 employees worldwide,
including retail and part-time employees. Management considers its
relationship with employees to be excellent. None of our employees are
represented by a union, except for certain employees in the Emerging
Markets 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 19, 2013 are as follows:
Philip H. Knight, Chairman of the Board of Directors — Mr. Knight, 75, a
director since 1968, is a co-founder of NIKE and, except for the period from
June 1983 through September 1984, served as its President from 1968 to
1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was
a certified public accountant with Price Waterhouse and Coopers & Lybrand
and was an Assistant Professor of Business Administration at Portland State
University.
Mark G. Parker, President and Chief Executive Officer — Mr. Parker, 57,
was appointed President and Chief Executive Officer in January 2006. 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.
David J. Ayre, Executive Vice President, Global Human Resources —
Mr. Ayre, 53, joined NIKE as Vice President, Global Human Resources in
2007. Prior to joining NIKE, he held a number of senior human resource
positions with PepsiCo, Inc. since 1990, most recently as head of Talent and
Performance Rewards.
Donald W. Blair, Executive Vice President and Chief Financial Officer —
Mr. Blair, 55, joined NIKE in November 1999. Prior to joining NIKE, he held a
number of financial management positions with PepsiCo, Inc., including Vice
President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s
Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling
Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public
accountant with Deloitte, Haskins, and Sells.
Trevor A. Edwards, President, NIKE Brand — Mr. Edwards, 50, joined
NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts for
Foot Locker in 1993, Director of Marketing for the Americas Region in 1995,
Director of Marketing for Europe in 1997, Vice President, Marketing for the
Europe, Middle East and Africa Region in 1999, and Vice President, U.S.
Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice
President, Global Brand Management in 2002, Vice President, Global Brand
and Category Management in 2006 and President, NIKE Brand in 2013. Prior
to NIKE, Mr. Edwards was with the Colgate-Palmolive Company.
Jeanne P. Jackson, President, Product and Merchandising —
Ms. Jackson, 61, joined NIKE in 2009. She was appointed President, Direct
to Consumer in 2009 and President, Product and Merchandising in 2013.
Ms. Jackson also served as a member of the NIKE, Inc. Board of Directors
from 2001 through 2009. She founded and served as Chief Executive Officer
of MSP Capital, a private investment company, from 2002 to 2009.
Ms. Jackson was Chief Executive Officer of Walmart.comfromMarch 2000 to
January 2002. She was with Gap, Inc., as President and Chief Executive
Officer of Banana Republic from 1995 to 2000, also serving as Chief
Executive Officer of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has
held various retail management positions with Victoria’s Secret, The Walt
Disney Company, Saks Fifth Avenue, and Federated Department Stores.
Hilary K. Krane, Executive Vice President, Chief Administrative Officer and
General Counsel — Ms. Krane, 49, 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 to 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.
Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 51,
joined NIKE as Corporate Controller in 1995. He was appointed Vice
President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with
Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public
accountant.
John F. Slusher, Executive Vice President, Global Sports Marketing —
Mr. Slusher, 44, has been employed by NIKE since 1998 with primary
responsibilities in global sports marketing. Mr. Slusher was appointed Director
of Sports Marketing for the Asia Pacific and Americas Regions 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 from1995 to 1998.
Eric D. Sprunk, Chief Operating Officer — Mr. Sprunk, 49, joined NIKE in
1993. He was appointed Finance Director and General Manager of the
Americas Region 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 Region in 2000. Mr. Sprunk was appointed
corporate 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 from1987 to 1993.
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ITEM1A. Risk Factors
Special Note Regarding Forward-Looking Statements and
Analyst Reports
Certain written and oral statements, other than purely historical 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 Securities and Exchange Commission, 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
Securities and Exchange Commission, including 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 systems and controls,
including, without limitation, the systems related to demand and supply
planning, and inventory control; interruptions in data and information
technology systems; data security; fluctuations and difficulty in forecasting
operating results, including, without limitation, the fact that advance futures
orders may not be indicative of future revenues due to changes in shipment
timing, the changing mix of futures and at-once orders, 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, newproduct development and introduction; the ability
to secure and protect trademarks, patents, and other intellectual property;
product performance and quality; customer service; adverse publicity; 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
our debt ratings; changes in business strategy or development plans; general
risks associated with doing business outside the United States, including,
without limitation, exchange rate fluctuations, import duties, tariffs, quotas,
political and economic instability, and terrorism; changes in government
regulations; the impact of, including business and legal developments relating
to, climate change; natural disasters; liability and other claims asserted
against NIKE; the ability to attract and retain qualified personnel; the effects of
our 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. Newrisk factors emerge fromtime to time and
it is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on NIKE’s business or the extent to
which any factor, or combination of factors, 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 in the United States and 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. We also compete with other companies
for the production capacity of independent manufacturers that produce our
products and for import quota capacity.
Our competitors’ product offerings, technologies, marketing expenditures
(including expenditures for advertising and endorsements), pricing, costs of
production, and customer service 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. 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. We could be adversely impacted if we fail to achieve
any of these objectives or if the reputation or image of any of our brands is
tarnished or receives negative publicity. In addition, adverse publicity about
regulatory or legal action against us could damage our reputation and brand
image, undermine consumer confidence in us and reduce long-termdemand
for our products, even if the regulatory or legal action is unfounded or not
material to our operations.
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 online
dissemination of advertising campaigns. Negative posts or comments about
us on social networking websites could seriously damage our reputation and
brand image. If we do not maintain, extend and expand our brand image,
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 net 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, long 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
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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 aggressive marketing, we could
experience lower sales, excess inventories and 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
spectrumof advertising and promotional programs and campaigns, including
social media 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
operation.
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 plays a key
role in technical innovation. We rely upon specialists in the fields of
biomechanics, exercise physiology, engineering, industrial design 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 reduce injury, enhance
athletic performance 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 high quality endorsers of our
products could harm our business.
We establish relationships with professional athletes, sports teams and
leagues to evaluate, promote, and establish product authenticity with
consumers. 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 associated with our
products that harm the reputations of those athletes, teams or leagues, or
negative posts or comments about our sports marketing endorsements on
social networking websites, 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 to use and endorse our
products, or a failure to enter into cost effective endorsement arrangements
with prominent athletes and sports organizations could adversely affect our
brand and result in decreased sales of our products.
Global capital and credit market conditions, and resulting
declines in consumer confidence and spending, 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. Continuing volatility and disruption in the global capital and
credit markets have led to fluctuations in the availability of business credit and
capital liquidity, a contraction of consumer credit, business failures, higher
unemployment, and declines in consumer confidence and spending in many
parts of the world. If global economic and financial market conditions
deteriorate or remain weak for an extended period of time, 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.
• We may be unable to find suitable investments that are safe, liquid, and
provide a reasonable return. This could result in lower interest income or
longer investment horizons. Disruptions to capital markets or the banking
system may also impair the value of investments or bank deposits we
currently consider safe or liquid.
• 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.
• The failure of financial institution counterparties to honor their obligations to
us under credit and derivative instruments could jeopardize our ability to rely
on and benefit from those instruments. Our ability to replace those
instruments on the same or similar terms may be limited under poor market
conditions.
• We conduct transactions in various currencies, which increase 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 could have a
significant impact on our reported financial results and condition.
• Continued volatility and availability in the markets and prices for
commodities and raw materials we use in our products and in our supply
chain (such as cotton or petroleum derivatives) could have a material
adverse effect on our costs, gross margins, and profitability.
• If retailers of our products experience declining revenues, or retailers
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, inability of retailers to timely meet their payment
obligations to us, 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 reduce the
availability 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 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 and stock price.
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. 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 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 factors that are beyond our control, including manufacturing and
transportation costs, shifts in product sales mix, geographic sales trends, and
currency exchange rate fluctuations, 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.
Futures orders may not be an accurate indication of our
future revenues.
We make substantial use of our futures ordering program, which allows
retailers to order five to six months in advance of delivery with the commitment
that their orders will be delivered within a set period of time at a fixed price.
Our futures ordering program allows us to minimize the amount of products
we hold in inventory, purchasing costs, the time necessary to fill customer
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orders, and the risk of non-delivery. We report changes in futures orders in our
periodic financial reports. Although we believe futures orders are an important
indicator of our future revenues, reported futures orders are not necessarily
indicative of our expectation of changes in revenues for any future period. This
is because the mix of orders can shift between futures and at-once orders. In
addition, foreign currency exchange rate fluctuations, order cancellations,
shipping timing, returns, and discounts can cause differences in the
comparisons between futures orders and actual revenues. Moreover, a
significant portion of our revenue is not derived from futures orders, including
at-once and close-out sales of NIKE Brand footwear and apparel, sales of
NIKE brand equipment, sales from our Direct to Consumer operations, and
sales fromour Other Businesses.
Our futures ordering program does not prevent excess
inventories or inventory shortages, which could result in
decreased operating margins and harm to our business.
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 and financial condition. 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 and distributor relationships, and
diminish brand loyalty.
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 affect our net revenues and net income, and we are unlikely to
forecast such effects with any certainty in advance.
We may be adversely affected by the financial health of our
retailers.
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 seasonal products, we offer
customers the ability to place orders five to six months ahead of delivery
under our futures ordering program. These advance orders may be canceled,
and the risk of cancellation may increase when dealing with financially ailing
retailers or retailers struggling with economic uncertainty. In the past, some
customers have experienced financial difficulties, which have had an adverse
effect on our business. When the retail economy weakens, retailers may be
more cautious with orders. A slowing 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 store environment to attract consumers, which requires
continuing investments by retailers. Retailers who experience financial
difficulties may fail to make such investments or delay them, resulting in lower
sales and orders for our products.
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 our 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 and may continue to do so in the future 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, 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 Direct to Consumer operations have required and will
continue to require a substantial investment and
commitment of resources and are subject to numerous
risks and uncertainties.
Our Direct to Consumer locations have required substantial fixed investment
in equipment and leasehold improvements, information systems, inventory
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 certain of our other stores.
Due to the high fixed-cost structure associated with our Direct to Consumer
operations, a decline in sales 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. Risks specific to our e-commerce business also include
diversion of sales from our 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 e-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 utilize trademarks on nearly all of our products and believe that having
distinctive marks that are readily identifiable is an important factor in creating a
market for our goods, in identifying us, and in distinguishing our goods from
the goods of others. We consider our NIKE
®
and Swoosh Design
®
trademarks to be among our most valuable assets and we have registered
these trademarks in almost 170 jurisdictions. In addition, we own many other
trademarks that we utilize in marketing our products. In addition, we own
many other trademarks that we utilize on or in the marketing of our products.
We believe that our trademarks, patents, trade secrets and other intellectual
property rights are important to our brand, our success, and our competitive
position. We periodically discover products that are counterfeit reproductions
of our products or that otherwise infringe on our intellectual property rights. If
we are unsuccessful in challenging a party’s products on the basis of trade
secret misappropriation or trademark, copyright, design patent, utility patent,
or other intellectual property infringement, continued sales of these products
could adversely affect our sales and our brand and result in the shift of
consumer preference away fromour products.
The actions we take to establish and protect trademarks, copyrights, trade
secrets, patents, and other intellectual property rights may not be adequate to
prevent imitation of our products by others or 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 claimthat we infringe
on their trademarks, copyrights, patents, or other 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 confidential information fromunauthorized
use and/or disclosure. Such actions include contractual measures such as
entering into non-disclosure agreements and providing confidential
information awareness training. Our controls and efforts to prevent
unauthorized use and/or disclosure of confidential information might not
always be effective. Confidential information that is related to business
strategy, new technologies, mergers and acquisitions, unpublished financial
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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, a
negative impact on our market position, and could lead to damages, fines,
penalties, or injunctions.
In addition, the laws of certain foreign 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 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 periodic litigation and other regulatory
proceedings, which could result in unexpected expense of
time and resources.
From time to time we are called upon to defend ourselves against lawsuits
and regulatory actions relating to our business. Due to the inherent
uncertainties of litigation and regulatory proceedings, we cannot accurately
predict the ultimate outcome of any such proceedings. An unfavorable
outcome could have an adverse impact on our business, financial condition
and results of operations. In addition, any significant litigation in the future,
regardless of its merits, could divert management’s attention from our
operations and result in substantial legal fees.
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 trademarks. We impose, and require the contractors that directly
manufacture our products and our licensees the contract with manufacturers
to make products bearing our trademarks, 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.
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 we manufacture or sell products.
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.
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. Increases in income tax rates could reduce our after-tax income
from affected jurisdictions. We earn a substantial portion of our income in
foreign countries. If our capital or financing needs in the United States require
us to repatriate earnings from foreign jurisdictions above our current levels,
our effective income tax rates for the affected periods could be negatively
impacted. Current economic and political conditions make tax rules in any
jurisdiction, including the United States, subject to significant change. There
have been proposals to reform U.S. 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 being considered, if enacted into law, could have an adverse
impact on our income tax expense and cash flows.
Our effective income tax rate in the future could be adversely affected 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, the outcome of income tax audits in
various jurisdictions around the world, and any repatriation of non-U.S.
earnings for which we have not previously provided for U.S. taxes. The
Company is also subject to the examination of its tax returns by the Internal
Revenue Service and other tax authorities. We regularly assess all of these
matters to determine the adequacy of our tax provision, which is subject to
significant discretion. Although we believe our tax provisions are adequate,
the final determination of tax audits and any related disputes could be
materially different fromour historical income tax provisions and accruals. 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.
Currency exchange rate fluctuations could result in lower
revenues, higher costs and decreased margins and
earnings.
A majority of our products are sold outside of the United States. As a result,
we conduct transactions in various currencies, which increase our exposure
to fluctuations in foreign currency exchange rates relative to the U.S. Dollar.
Our international revenues and expenses generally are derived fromsales and
operations in foreign currencies, and these revenues and expenses could be
affected by currency fluctuations, including amounts recorded in foreign
currencies and translated into U.S. Dollars for consolidated financial reporting.
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 could 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, but they
also reduce the positive impact of a weaker U.S. Dollar. 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.
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
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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 that are 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.
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, plastic and metal hardware, and specialized performance
fabrics designed to repel rain or snow, retain heat, or efficiently wick moisture
away from the body — 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, nylon,
leather, 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 and
employ adequate personnel. NIKE contractors and suppliers buy raw
materials in bulk 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 rawmaterials
from current sources or, in the event of a disruption, we might not be able to
locate alternative suppliers of materials of comparable quality at an
acceptable price, or at all. Further, there may be wage increases, whether
government mandated or otherwise, that affect our unaffiliated contract
manufacturers. 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 that additional supplies of fabrics or raw materials or additional
manufacturing capacity will be available when required on terms that are
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 manufacture 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 petroleumproducts can adversely affect our profit margins.
In addition, Sojitz America performs significant import-export financing
services for most of the NIKE Brand products sold outside of the United
States, Europe, Middle East, Africa, and Japan, 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
outside of the United States, Europe, Middle East, Africa, and Japan. 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 fromthe 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 that could be 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, breach,
interruption or security failure of that technology or any
misappropriation of any data could harm our reputation or
our ability to effectively operate our business.
We are heavily dependent on information technology systems and networks,
including the Internet and third-party hosted 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. 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 and enhance these
systems and related processes in our global operations is ongoing. The failure
of these systems to operate effectively, problems with transitioning to
upgraded or replacement systems, or a breach in security of these 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 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 our information
technology systems suffer severe damage, disruption or shutdown and our
business continuity plans 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.
In addition, hackers and data thieves are increasingly sophisticated and
operate large scale and complex automated attacks. Any breach of our
network may result in the loss of valuable business data, our customers’ or
employees’ personal information or a disruption of our business, which could
give rise to unwanted media attention, damage our customer relationships
and reputation and result in lost sales, fines or lawsuits. In addition, we must
comply with increasingly complex regulatory standards enacted to protect
this business and personal data. An inability to maintain compliance with
these regulatory standards could subject us to legal risks.
Furthermore, we depend on information technology systems and personal
data collection and use for digital marketing, digital commerce and the
marketing and use of our Digital Sport products. We also 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. Our information 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. Misuse or leakage of
personal information could result in a violation of data privacy laws and
regulations and damage our reputation and credibility and have a negative
impact on revenues and profits.
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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 at times 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 the quality of our decisions to
renewexpiring 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 and could have an adverse effect on our operating
results and financial condition.
Natural disasters could negatively impact our operating
results and financial condition.
Natural disasters such as earthquakes, hurricanes, tsunamis or other adverse
weather and climate conditions, whether occurring in the U.S. or abroad, and
the consequences and effects thereof, including energy shortages and public
health issues, could disrupt our operations, or 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 business infrastructure, acquisitions of
new businesses, product offering and manufacturing innovation, and
expansion of existing businesses, such as our retail 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 acquiring or expanding a business. The failure of any significant
investment to provide their expected returns or profitability could have a
material adverse effect on our financial results and divert management
attention frommore profitable business operations.
We depend on key personnel, the loss of whom would
harm our business.
Our future success will depend in part on the continued service of key
executive officers and personnel. The loss of the services of any key individual
could harm our business. Our future success also depends on our ability to
recruit, retain and motivate 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.
The sale of a large number of shares held by our Chairman
could depress the market price of our common stock.
Philip H. Knight, Co-founder and Chairman of our Board of Directors,
beneficially owns over 75.6% of our Class A Common Stock. If all of his
Class A Common Stock were converted into Class B Common Stock,
Mr. Knight would own over 15.8% of our Class B Common Stock. These
shares are available for resale, subject to the requirements of the
U.S. securities laws. The sale or prospect of the sale of a substantial number
of these shares could have an adverse effect on the market price of our
common stock.
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-termdebt or short-termcredit 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. In addition, macroeconomic conditions, such as
increased volatility or disruption in the credit markets, could adversely affect
our ability to refinance existing debt or obtain additional financing to support
operations or to fund newinitiatives.
Anti-takeover provisions may impair an acquisition of the
Company or reduce the price of our common stock.
There are provisions of our articles of incorporation and Oregon law that are
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, we may become involved in this type of litigation in
the future. Any litigation could result in substantial costs and a diversion of
management’s attention and resources that are needed to successfully run
our business.
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ITEM1B. Unresolved Staff Comments
Not applicable.
ITEM2. 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 a 250-acre facility of 35 buildings which functions as our
world headquarters and is occupied by almost 8,000 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 Western Europe and Central & Eastern Europe
geographies. In the United States, there are five significant distribution centers
in Memphis, Tennessee; two are owned and three are leased. NIKE Brand
apparel and equipment are also shipped from our Foothill Ranch, California
distribution center, which we lease. Smaller leased distribution facilities for
non-NIKE Brand businesses are located in various parts of the United States.
We also own or lease distribution and customer service facilities outside the
United States. The most significant are the distribution facilities located in
Tomisato, Japan; Laakdal, Belgium; and Taicang, China; all of these facilities
are owned.
We manufacture Air-Sole cushioning materials and components at NIKE IHM,
Inc. manufacturing facilities located in Beaverton, Oregon and St. Charles,
Missouri; these facilities are owned. We also manufacture and sell small
amounts of various other plastic products to other manufacturers through
NIKE IHM, Inc.
Aside from the principal properties described above, we lease over 110 sales
offices and approximately 90 administrative offices worldwide. We lease more
than 750 retail stores worldwide, which consist primarily of factory outlet
stores. See “United States Market” and “International Markets” in Part 1 of this
Report. Our leases expire at various dates through the year 2033.
ITEM3. 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.
ITEM4. Mine Safety Disclosures
Not applicable.
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PART II
ITEM5. 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 19, 2013, there were 30,586
holders of record of our Class B Common Stock and 19 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. The following tables set forth, for each
of the quarterly periods indicated, the high and lowsales prices for the Class B
Common Stock as reported on the New York Stock Exchange Composite
Tape and dividends declared on the Class A and Class B Common Stock. All
share and per share amounts presented are reflective of the two-for-one
stock split that began trading at the split adjusted price on December 26,
2012.
Fiscal 2013 (June 1, 2012 — May 31, 2013) High Low
Dividends
Declared
First Quarter $ 54.32 $ 43.89 $ 0.18
Second Quarter 50.42 45.30 0.21
Third Quarter 55.55 48.46 0.21
Fourth Quarter 65.91 53.49 0.21
Fiscal 2012 (June 1, 2011 — May 31, 2012) High Low
Dividends
Declared
First Quarter $ 46.83 $ 39.29 $ 0.16
Second Quarter 48.38 41.25 0.18
Third Quarter 53.96 46.69 0.18
Fourth Quarter 57.20 52.17 0.18
The following table presents a summary of share repurchases made by NIKE during the quarter ended May 31, 2013. During the second quarter of fiscal 2013,
the Company completed the previous four-year, $5 billion share repurchase program approved by our Board of Directors in September 2008. During the prior
program, the Company purchased a total of 118.8 million shares at an average price of $42.08 per share. Following the completion of this program, the Company
began repurchases under the four-year, $8 billion share repurchase programapproved by the Board in September 2012.
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 Dollar Value of Shares
that May Yet Be Purchased
Under the Plans or Programs
(In millions)
March 1 — March 31, 2013 2,198,417 $ 54.51 2,198,417 $ 7,333
April 1 — April 30, 2013 1,573,111 $ 59.30 1,573,111 $ 7,239
May 1 — May 31, 2013 450,000 $ 63.18 450,000 $ 7,211
4,221,528 $ 57.22 4,221,528
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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, 2008 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 DowJones U.S.
Footwear Index. Each of the indices assumes that all dividends were
reinvested.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONGNIKE, INC.; S&P 500 INDEX; S&P APPAREL, ACCESSORIES &
LUXURY GOODS INDEX; AND THE DOWJONES U.S. FOOTWEAR INDEX
$240
$220
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
2008 2009 2010 2011 2012 2013
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
Corp., Wolverine World Wide, Inc., Iconix Brand Group, Inc., Crocs, Inc., and
Steven Madden, Ltd. 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 V.F. Corp., Coach, Inc., Polo Ralph Lauren Corporation, and
Fossil Group, Inc. The Dow Jones U.S. Footwear Index and the Standard &
Poor’s Apparel, Accessories, and 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 nor
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, and 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.
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ITEM6. Selected Financial Data
Unless otherwise indicated, the following disclosures reflect the Company’s continuing operations; refer to Note 15 — Discontinued Operations for additional
information regarding discontinued operations. All per share amounts are reflective of the two-for-one stock split that began trading at the split-adjusted price on
December 26, 2012.
(Dollars in millions, except per share data and financial ratios)
Financial History
2013 2012 2011 2010 2009
Year Ended May 31,
Revenues $ 25,313 $ 23,331 $ 20,117 $ 18,324 $ 18,528
Gross profit 11,034 10,148 9,202 8,498 8,324
Gross margin % 43.6% 43.5% 45.7% 46.4% 44.9%
Restructuring charges — — — — 195
Net income from continuing operations 2,464 2,269 2,172 1,923 1,754
Net income (loss) from discontinued operations 21 (46) (39) (16) (267)
Net income 2,485 2,223 2,133 1,907 1,487
Earnings per share from continuing operations:
Basic earnings per common share 2.75 2.47 2.28 1.98 1.81
Diluted earnings per common share 2.69 2.42 2.24 1.95 1.79
Earnings per share from discontinued operations:
Basic earnings per common share 0.02 (0.05) (0.04) (0.02) (0.28)
Diluted earnings per common share 0.02 (0.05) (0.04) (0.02) (0.27)
Weighted average common shares outstanding 897.3 920.0 951.1 971.0 969.8
Diluted weighted average common shares
outstanding 916.4 939.6 971.3 987.8 981.4
Cash dividends declared per common share 0.81 0.70 0.60 0.53 0.49
Cash flow from operations, inclusive of
discontinued operations 3,027 1,899 1,812 3,164 1,736
Price range of common stock:
High 65.91 57.20 46.15 39.28 35.14
Low 43.89 39.29 33.61 25.08 19.12
At May 31,
Cash and equivalents $ 3,337 $ 2,317 $ 1,955 $ 3,079 $ 2,291
Short-term investments 2,628 1,440 2,583 2,067 1,164
Inventories 3,434 3,222 2,611 1,942 2,254
Working capital, excluding assets and liabilities of
discontinued operations
(1)(2)
9,718 7,518 7,266 7,511 6,390
Total assets, excluding assets of discontinued
operations
(1)
17,584 14,850 14,438 13,889 12,716
Long-term debt 1,210 228 276 446 437
Capital Lease Obligations 81 — — — —
Redeemable Preferred Stock 0.3 0.3 0.3 0.3 0.3
Shareholders’ equity 11,156 10,381 9,843 9,754 8,693
Year-end stock price 61.66 54.09 42.23 36.19 28.53
Market capitalization 55,124 49,546 39,523 35,032 27,698
Financial Ratios:
Return on equity 22.9% 22.4% 22.2% 20.8% 21.2%
Return on assets 15.2% 15.5% 15.3% 14.5% 14.6%
Inventory turns 4.3 4.5 4.8 4.7 4.5
Current ratio at May 31 3.5 3.0 2.9 3.3 3.0
Price/Earnings ratio at May 31 22.9 22.4 18.9 18.6 15.9
(1) Assets of discontinued operations were $0 million, $615 million, $560 million, $530 million, and $534 million for the years ended May 31, 2013, 2012, 2011, 2010, and 2009, respectively.
(2) Liabilities of discontinued operations were $18 million, $170 million, $184 million, $182 million, and $176 million for the years ended May 31, 2013, 2012, 2011, 2010, and 2009,
respectively.
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Selected Quarterly Financial Data
(Unaudited)
(Dollars in millions, except per share data)
1st Quarter
(1)
2nd Quarter 3rd Quarter 4th Quarter
2013 2012 2013 2012 2013 2012 2013 2012
Revenues $ 6,474 $ 5,893 $ 5,955 $ 5,546 $ 6,187 $ 5,656 $ 6,697 $ 6,236
Gross profit 2,828 2,618 2,530 2,376 2,736 2,485 2,940 2,669
Gross margin % 43.7% 44.4% 42.5% 42.8% 44.2% 43.9% 43.9% 42.8%
Net income from continuing operations 585 661 521 480 662 569 696 559
Net income (loss) from discontinued
operations (18) (16) (137) (11) 204 (9) (28) (10)
Net income 567 645 384 469 866 560 668 549
Earnings per share from continuing
operations:
Basic earnings per common share 0.65 0.72 0.58 0.52 0.74 0.62 0.78 0.61
Diluted earnings per common share 0.63 0.70 0.57 0.51 0.73 0.61 0.76 0.60
Earnings per share from discontinued
operations:
Basic earnings per common share (0.03) (0.02) (0.15) (0.01) 0.23 (0.01) (0.03) (0.01)
Diluted earnings per common share (0.02) (0.02) (0.15) (0.01) 0.22 (0.01) (0.03) (0.01)
Weighted average common shares
outstanding 905.6 930.0 897.0 918.5 893.9 915.1 892.6 916.3
Diluted weighted average common
shares outstanding 922.8 948.6 913.1 936.9 911.7 934.6 913.4 936.3
Cash dividends declared per common
share 0.18 0.16 0.21 0.18 0.21 0.18 0.21 0.18
Price range of common stock
High 54.32 46.83 50.42 48.38 55.55 53.96 65.91 57.20
Low 43.89 39.29 45.30 41.25 48.46 46.69 53.49 52.17
(1) Amounts presented have been adjusted fromwhat was previously filed in our Form10-Qto exclude the results of discontinued operations.
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ITEM7. 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 to retail
accounts, through NIKE-owned retail stores and internet websites, which we
refer to as our “Direct to Consumer” operations, and through 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,
accessories and service 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 at retail and online.
In addition to achieving long-term, sustainable revenue growth, we continue
to strive to deliver shareholder value by driving operational excellence in
several key areas:
• Expanding gross margin by:
– Making our supply chain a competitive advantage;
– Reducing product costs through a continued focus on manufacturing
efficiency, product design and innovation; and
– Delivering innovative, premium products that command higher prices
while maintaining a strong consumer price-to-value proposition.
• Improving selling and administrative expense productivity by focusing on
investments that drive economic returns in the form of incremental revenue
and gross profit, and leveraging existing infrastructure across our portfolio of
businesses to eliminate duplicative costs;
• Improving working capital efficiency; and
• Deploying capital effectively.
Through execution of this strategy, our long-term financial goals continue to
be:
• High single-digit revenue growth,
• Mid-teens earnings per share growth,
• Increased return on invested capital and accelerated cash flows, and
• Consistent results through effective management of our diversified portfolio
of businesses.
Over the past ten years, we have achieved or exceeded all of these financial
goals. During this time, revenues and earnings per share for NIKE, Inc.,
inclusive of both continuing and discontinued operations, have grown 9%and
15%, respectively, on an annual compounded basis. Our return on invested
capital has increased from 18% to 24% and we expanded gross margins by
approximately 260 basis points.
On November 15, 2012, we announced a two-for-one stock split of both
Class A and Class BCommon shares. The stock split was in the formof a 100
percent stock dividend payable on December 24, 2012 to shareholders of
record at the close of business December 10, 2012. Common stock began
trading at the split-adjusted price on December 26, 2012. All share numbers
and per share amounts presented reflect the stock split.
Our fiscal 2013 results fromcontinuing operations demonstrated the power of
the NIKE, Inc. portfolio to deliver consistent growth in revenues, earnings, and
cash returns to shareholders, while investing for long-term growth. Despite
the ongoing challenges in the global economy, we delivered record revenues
and earnings per share in fiscal 2013. Our revenues grew 8%to $25.3 billion,
net income from continuing operations increased 9% to $2.5 billion, and we
delivered diluted earnings per share of $2.69, an 11% increase from fiscal
2012.
Earnings before interest and income taxes for continuing operations
increased 8% for fiscal 2013, driven by revenue growth and improved gross
margin, which more than offset higher selling and administrative expense as a
percentage of revenue. The increase in revenues was driven by growth
across most NIKE Brand geographies, key categories and product types.
This growth was primarily fueled by:
• Innovative performance and sportswear products, incorporating proprietary
technology platforms such as NIKE Air, Lunar, Shox, FREE, Flywire, Dri-
F.I.T, FlyKnit, NIKE +, and NIKE Fuel;
• Deep brand connections to consumers through a category lens, reinforced
by investments in endorsements by high profile athletes and teams (such as
the NFL, FC Barcelona, Michael Jordan), high impact marketing around
global sporting events (such as the Olympics, European Football
Championships and NBA Finals) and digital marketing; and
• Strong category retail presentation online and at NIKE owned and retail
partner stores.
Revenues also improved for each of our Other Businesses (Converse, NIKE
Golf and Hurley).
Our gross margins improved largely due to the positive impact of higher
average selling prices, partially offset by higher product input costs, primarily
labor cost inflation, and foreign currency headwinds.
For fiscal 2013, the growth of our net income from continuing operations was
positively affected by a year-over-year decrease in our effective tax rate. In
addition, diluted earnings per share grewat a higher rate than net income due
to a 2%decrease in the weighted average number of diluted common shares
outstanding, as a result of share repurchases during fiscal 2013.
On May 31, 2012, we announced our intention to divest of the Cole Haan and
Umbro businesses, which would allow us to better focus our resources on
driving growth in the NIKE, Jordan, Converse and Hurley brands. During the
second quarter of fiscal 2013 we completed the sale of certain assets of the
Umbro brand and recorded a loss on the sale of these assets of $107 million,
net of tax. During the third quarter of fiscal 2013 we completed the sale of
Cole Haan and recorded a gain on sale of $231 million, net of tax. As of
May 31, 2013 the Company had substantially completed all transition
services related to the sale of both businesses. Unless otherwise indicated,
the following disclosures reflect the Company’s continuing operations; refer to
our “Discontinued Operations” section for additional information regarding our
discontinued operations.
While we expect to face continued macroeconomic uncertainties in the global
economy, we continue to see opportunities to drive future growth 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.
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Results of Operations
Unless otherwise indicated, the following disclosures reflect the Company’s continuing operations.
(Dollars in millions, except per share data) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change Fiscal 2011
FY12 vs. FY11
% Change
Revenues $ 25,313 $ 23,331 8% $ 20,117 16%
Cost of sales 14,279 13,183 8% 10,915 21%
Gross profit 11,034 10,148 9% 9,202 10%
Gross margin % 43.6% 43.5% 45.7%
Demand creation expense 2,745 2,607 5% 2,344 11%
Operating overhead expense 5,035 4,458 13% 4,017 11%
Total selling and administrative expense 7,780 7,065 10% 6,361 11%
% of Revenues 30.7% 30.3% 31.6%
Interest (income) expense, net (3) 4 — 4 —
Other (income) expense, net (15) 54 — (25) —
Income before income taxes 3,272 3,025 8% 2,862 6%
Income tax expense 808 756 7% 690 10%
Effective tax rate 24.7% 25.0% 24.1%
Net income from continuing operations 2,464 2,269 9% 2,172 4%
Net income (loss) from discontinued operations 21 (46) — (39) —
Net income $ 2,485 $ 2,223 12% $ 2,133 4%
Diluted earnings per share — Continuing
Operations $ 2.69 $ 2.42 11% $ 2.24 8%
Diluted earnings per share — Discontinued
Operations $ 0.02 $ (0.05) — $ (0.04) —
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Consolidated Operating Results
Revenues
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes
(2)
Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
(2)
NIKE, Inc. Revenues
(1)
:
NIKE Brand Revenues by:
Footwear $ 14,539 $ 13,428 8% 11% $ 11,519 17% 15%
Apparel 6,820 6,336 8% 10% 5,516 15% 13%
Equipment 1,405 1,204 17% 20% 1,022 18% 16%
Global Brand Divisions 117 111 5% 8% 96 16% 13%
Total NIKE Brand 22,881 21,079 9% 11% 18,153 16% 15%
Other Businesses 2,500 2,298 9% 9% 2,041 13% 12%
Corporate
(3)
(68) (46) — — (77) — —
TOTAL NIKE, INC. REVENUES $ 25,313 $ 23,331 8% 11% $ 20,117 16% 15%
Supplemental NIKE Brand
Revenues Details:
NIKE Brand Revenues by:
Sales to Wholesale Customers $ 18,438 $ 17,438 6% 8% $ 15,181 15% 14%
Sales Direct to Consumer 4,326 3,530 23% 24% 2,876 23% 21%
Global Brand Divisions 117 111 5% 8% 96 16% 13%
TOTAL NIKE BRAND REVENUES $ 22,881 $ 21,079 9% 11% $ 18,153 16% 15%
NIKE Brand Revenues on a
Wholesale Equivalent Basis:
(4)
Sales to Wholesale Customers $ 18,438 $ 17,438 6% 8% $ 15,181 15% 14%
Sales from our Wholesale
Operations to Direct to Consumer
Operations 2,450 1,986 23% 25% 1,603 24% 22%
NIKE BRAND WHOLESALE
EQUIVALENT REVENUES $ 20,888 $ 19,424 8% 10% $ 16,784 16% 14%
NIKE Brand Wholesale
Equivalent Revenues by
Category:
(4)
Running $ 4,274 $ 3,696 16% 18% $ 2,789 33% 31%
Basketball 2,627 2,169 21% 22% 1,863 16% 16%
Football (Soccer) 1,931 1,862 4% 9% 1,667 12% 10%
Men’s Training 2,380 2,064 15% 17% 1,752 18% 17%
Women’s Training 1,067 1,011 6% 8% 840 20% 19%
Action Sports 495 497 0% 2% 446 11% 2%
Sportswear 5,637 5,741 -2% 1% 5,293 8% 7%
Others
(5)
2,477 2,384 4% 6% 2,134 12% 11%
TOTAL NIKE BRAND
WHOLESALE EQUIVALENT
REVENUES $ 20,888 $ 19,424 8% 10% $ 16,784 16% 14%
(1) Certain prior year amounts have been reclassified to conformto fiscal 2013 presentation.
(2) Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of
translation arising fromforeign currency exchange rate fluctuations.
(3) Corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand
geographic operating segments and certain Other Businesses through our centrally managed foreign exchange risk management program.
(4) References to NIKE Brand wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no Direct to Consumer
operations. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our Direct to Consumer
operations which are charged at prices that are comparable to prices charged to external wholesale customers.
(5) Others include all other categories and certain adjustments that are not allocated at the category level.
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Fiscal 2013 Compared to Fiscal 2012
On a currency neutral basis, revenues from our NIKE, Inc. continuing
operations grew11%for fiscal 2013, driven by increases in revenues for both
the NIKE Brand and our Other Businesses. Every NIKE Brand geography
except Greater China delivered higher revenues for fiscal 2013. North
America contributed 7 percentage points of the increase in NIKE, Inc.
revenues, while Emerging Markets contributed 2 percentage points and
Western and Central and Eastern Europe each contributed 1 percentage
point. Greater China’s results reduced NIKE, Inc. revenue growth by 1
percentage point. Revenues for our Other Businesses contributed 1
percentage point to our consolidated revenue growth.
Excluding the effects of changes in currency exchange rates, NIKE Brand
footwear and apparel revenue increased 11% and 10%, respectively, while
NIKE Brand equipment revenues increased 20% during fiscal 2013. The
increase in NIKE Brand footwear revenue for fiscal 2013 was attributable to
growth across our Running, Basketball, Football (Soccer), and Sportswear
categories. The growth of NIKE footwear revenues continued to be fueled by
increased demand for performance products, including Running models with
NIKE FREE and Lunar technologies, NIKE and Brand Jordan Basketball
styles, and performance Football (soccer) products. In fiscal 2013, unit sales
of footwear increased approximately 7%and the average selling price per pair
increased approximately 4%, driven equally by price increases and a shift in
mix to higher priced products.
For NIKE Brand apparel, the increase in revenue for fiscal 2013 was driven by
our Men’s Training category (which includes the NFL licensed business), in
addition to strong demand for Running and Basketball products. Apparel unit
sales in fiscal 2013 increased approximately 7% and the average selling price
per unit increased approximately 3%, reflecting a favorable mix of higher
priced products, such as performance Running, Basketball, and NFL licensed
apparel, and to a lesser extent, higher selling prices.
While wholesale revenues remain the largest component of overall NIKE
Brand revenues, we continue to expand Direct to Consumer revenues. Our
NIKE Brand Direct to Consumer operations include NIKE owned in-line and
factory stores, as well as online sales through NIKE owned websites. For fiscal
2013, Direct to Consumer revenues represented approximately 19% of our
total NIKE Brand revenues compared to 17% in fiscal 2012. On a currency
neutral basis, Direct to Consumer revenues grew 24% for fiscal 2013, as
comparable store sales grew 14% and we continue to expand our store
network and e-commerce business. 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.
Revenues for our Other Businesses are comprised of results from Converse,
Hurley and NIKE Golf. Excluding the impact of currency changes, revenues
for these businesses increased 9% in fiscal 2013, reflecting growth across all
businesses.
Fiscal 2012 Compared to Fiscal 2011
On a currency neutral basis, revenues for NIKE, Inc.’s continuing operations
grew 15% for fiscal 2012, driven by increases in revenues for both the NIKE
Brand and our Other Businesses. Excluding the effects of changes in
currency exchange rates, revenues for the NIKE Brand increased 15%, as
every NIKE Brand geography delivered higher revenues for fiscal 2012. North
America contributed approximately 7 percentage points to the NIKE Brand
revenue increase, while the Emerging Markets and Greater China
geographies contributed approximately 4 and 2 percentage points to the
NIKE Brand revenue growth, respectively. Revenues for our Other
Businesses grew 12% during fiscal 2012, contributing 1 percentage point of
our consolidated revenue growth.
Excluding the effects of changes in currency exchange rates, NIKE Brand
footwear and apparel revenue increased 15% and 13%, respectively, while
NIKE Brand equipment revenues increased 16% during fiscal 2012.
Continuing to fuel the growth of our NIKE Brand footwear business was the
increased demand for performance products, including the NIKE Lunar and
FREE technologies. The increase in NIKE Brand footwear revenue for fiscal
2012 was attributable to double-digit percentage growth in unit sales along
with a low-single-digit percentage increase in average selling price per pair,
primarily reflecting the favorable impact from product price increases, partially
offset by higher discounts on close-out sales. The overall increase in footwear
sales was driven by growth across all key categories, notably Running,
Sportswear and Basketball. For NIKE Brand apparel, the increase in revenue
for fiscal 2012 was driven by mid-single-digit percentage increases in both
unit sales and average selling prices. The increase in average selling prices
was primarily driven by product price increases, partially offset by a higher mix
of close-out sales. The overall increase in apparel sales was reflective of
increased demand across most key categories.
For fiscal 2012, Direct to Consumer channels represented approximately
17% of our total NIKE Brand revenues compared to 16% in fiscal 2011. On a
currency neutral basis, Direct to Consumer revenues grew 21% for fiscal
2012, as comparable store sales grew 13% and we continue to expand our
store network and e-commerce business.
Revenues for our Other Businesses consisted of results from our affiliate
brands; Converse, Hurley and NIKE Golf. Excluding the impact of currency
changes, revenues for these businesses increased by 12% in fiscal 2012,
reflecting growth across all businesses except Hurley, which was down
slightly for the fiscal year.
Futures Orders
Futures orders for NIKE Brand footwear and apparel scheduled for delivery
from June through November 2013 were 8% higher than the orders reported
for the comparable prior year period. The U.S. Dollar futures order amount is
calculated based upon our internal forecast of the currency exchange rates
under which our revenues will be translated during this period. Excluding the
impact of currency changes, futures orders also increased 8%, as unit orders
contributed approximately 5 percentage points of growth and average selling
price per unit contributed approximately 3 percentage points of growth.
By geography, futures orders growth was as follows:
Reported Futures
Orders Growth
Futures Orders Excluding
Currency Changes
(1)
North America 12% 12%
Western Europe 2% 0%
Central & Eastern Europe 14% 12%
Greater China 3% 0%
Japan -17% 6%
Emerging Markets 12% 12%
Total NIKE Brand Futures Orders 8% 8%
(1) Growth rates have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign
currency exchange rate fluctuations.
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The reported futures orders growth is not necessarily indicative of our
expectation of revenue growth during this period. This is due to year-over-
year changes in shipment timing, because the mix of orders can shift between
futures and at-once orders, and the fulfillment of certain orders may fall
outside of the schedule noted above. In addition, exchange rate fluctuations
as well as differing levels of order cancellations and discounts can cause
differences in the comparisons between futures orders and actual revenues.
Moreover, a significant portion of our revenue is not derived from futures
orders, including at-once and close-out sales of NIKE Brand footwear and
apparel, sales of NIKE Brand equipment, sales from our Direct to Consumer
operations, and sales fromour Other Businesses.
Gross Margin
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change Fiscal 2011
FY12 vs. FY11
% Change
Gross Profit $ 11,034 $ 10,148 9% $ 9,202 10%
Gross Margin % 43.6% 43.5% 10 bps 45.7% (220) bps
Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, our consolidated gross margin was 10 basis points higher
than fiscal 2012, primarily driven by higher net average selling prices
(approximately 160 basis points) that were attributable to higher prices and a
favorable sales mix. The positive benefit of higher net average selling prices
was largely offset by higher product costs (approximately 110 basis points),
primarily due to higher factory labor costs, and unfavorable foreign currency
exchange rate movements (approximately 40 basis points).
In addition, we have seen significant shifts in the mix of revenues from higher
to lower margin segments of our business. While growth in these lower gross
margin segments delivers incremental revenue and profits, it has a negative
effect on our consolidated gross margin.
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, our consolidated gross margin was 220 basis points lower
than the prior year period, primarily driven by higher product input costs,
including materials and labor, across most businesses. Also contributing to
the decrease in gross margin were higher customs duty charges, discounts
on close-out sales and an increase in investments in our digital business and
infrastructure. Together, these factors decreased consolidated gross margin
by approximately 390 basis points. Partially offsetting this decrease were
positive impacts from product price increases, lower air freight costs, the
growth of our NIKE Brand Direct to Consumer business, and benefits from
our ongoing product cost reduction initiatives.
Selling and Administrative Expense
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change Fiscal 2011
FY12 vs. FY11
% Change
Demand creation expense
(1)
$ 2,745 $ 2,607 5% $ 2,344 11%
Operating overhead expense 5,035 4,458 13% 4,017 11%
Selling and administrative
expense $ 7,780 $ 7,065 10% $ 6,361 11%
% of Revenues 30.7% 30.3% 40 bps 31.6% (130) bps
(1) Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts.
Fiscal 2013 Compared to Fiscal 2012
Demand creation expense increased 5% compared to the prior year, mainly
driven by an increase in sports marketing expense, marketing support for key
product initiatives, including the NIKE Fuelband and NFL launch, as well as an
increased level of marketing spending around global sporting events such as
the European Football Championships and London Summer Olympics.
Excluding the effects of changes in foreign currency exchange rates, demand
creation expense increased 8%.
Compared to the prior year, operating overhead expense increased 13%,
primarily attributable to increased investments in our Direct to Consumer
operations, higher personnel costs, and corporate initiatives to support the
growth of our overall business. Excluding the effects of changes in foreign
currency exchange rates, the growth in operating overhead expense was
15%.
Fiscal 2012 Compared to Fiscal 2011
Overall, selling and administrative expense grew at a slower rate than
revenues for fiscal 2012.
Demand creation expense increased 11%compared to the prior year, mainly
driven by an increase in sports marketing expense, marketing support for key
product initiatives, including the NIKE Fuelband and NFL launch, as well as an
increased level of brand event spending in advance of the European Football
Championships and London Summer Olympics. For fiscal 2012, changes in
currency exchange rates increased the growth of demand creation expense
by 1 percentage point.
Compared to the prior year, operating overhead expense increased 11%,
primarily attributable to increased investments in our Direct to Consumer
operations, higher personnel costs as well as travel expenses to support the
growth of our overall business. For fiscal 2012, changes in currency exchange
rates increased the growth of operating overhead expense by 1 percentage
point.
Other (Income) Expense, net
(In millions) Fiscal 2013 Fiscal 2012 Fiscal 2011
Other (income) expense, net $ (15) $ 54 $ (25)
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Other (income) expense, net is comprised of foreign currency conversion
gains and losses from the re-measurement of monetary assets and liabilities
denominated in non-functional currencies, the impact of certain foreign
currency derivative instruments, as well as unusual or non-operating
transactions that are outside the normal course of business.
Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, other (income), net increased $69 million compared to the
prior year. This change was primarily driven by a $48 million decrease in
foreign currency net losses in the current year as well as the recognition of a
$24 million restructuring charge for NIKE Brand’s Western Europe operations
in the prior year. These positive impacts were partially offset by smaller net
gains fromnon-operating items.
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 (income)
expense, net had an unfavorable impact on our income before income taxes
of $56 million for fiscal 2013.
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, other expense, net increased $79 million compared to the
prior year. This change was primarily driven by a $77 million change in foreign
currency net gains in the prior year to net losses in the current year. These
impacts, together with a $24 million charge recognized during the fourth
quarter of fiscal 2012 for the restructuring of NIKE Brand’s Western Europe
operations, were partially offset by certain net gains related to non-operating
items.
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, net did
not have a significant impact on our income before income taxes for fiscal
2012.
Income Taxes
Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change Fiscal 2011
FY12 vs. FY11
% Change
Effective tax rate 24.7% 25.0% (30) bps 24.1% 90 bps
Fiscal 2013 Compared to Fiscal 2012
The 30 basis point decrease in our effective tax rate for the fiscal year was
primarily driven by the U.S. legislative retroactive reinstatement of the research
and development tax credit and a reduction of tax reserves on foreign
operations, partially offset by an increase in the percentage of earnings in
higher tax jurisdictions.
Fiscal 2012 Compared to Fiscal 2011
Our effective tax rate for fiscal 2012 was 90 basis points higher than the
effective tax rate for fiscal 2011 primarily due to changes in estimates of
uncertain tax positions. This impact was partially offset by a reduction in the
effective tax rate on operations outside of the United States as a result of
changes in geographical mix of foreign earnings.
Discontinued Operations
The Company continually evaluates its existing portfolio of businesses to
ensure resources are invested in those businesses that are accretive to the
NIKE Brand and represent the largest growth potential and highest returns.
On May 31, 2012, the Company announced its intention to divest of Umbro
and Cole Haan, allowing it to focus its resources on driving growth in the
NIKE, Jordan, Converse and Hurley brands.
On February 1, 2013, the Company completed the sale of Cole Haan to Apax
Partners for an agreed upon purchase price of $570 million and received at
closing $561 million, net of $9 million of purchase price adjustments. The
transaction resulted in a gain on sale of $231 million, net of $137 million in tax
expense; this gain is included in the net income (loss) from discontinued
operations line itemon the consolidated statements of income.
Beginning November 30, 2012, we classified the Cole Haan disposal group
as held-for-sale and presented the results of Cole Haan’s operations in the
net income (loss) from discontinued operations line item on the consolidated
statements of income. Fromthis date until the sale, the assets and liabilities of
Cole Haan were recorded as assets and liabilities of discontinued operations
on the consolidated balance sheets of NIKE, Inc. Previously, these amounts
were reported in our segment presentation as “Other Businesses.”
Under the sale agreement, we agreed to provide certain transition services to
Cole Haan for an expected period of 3 to 9 months from the date of sale. We
will also license NIKE proprietary Air and Lunar technologies to Cole Haan for
a transition period. The continuing cash flows related to these items are not
expected to be significant to Cole Haan and we will have no significant
continuing involvement with Cole Haan beyond the transition services.
Additionally, preexisting guarantees of certain Cole Haan lease payments
remain in place after the sale; the maximumexposure under the guarantees is
$44 million at May 31, 2013. The fair value of these guarantees is not material.
On November 30, 2012, we completed the sale of certain assets of Umbro to
Iconix Brand Group (“Iconix”) for $225 million. The results of Umbro’s
operations and Umbro’s financial position are presented as discontinued
operations on the consolidated statements of income and balance sheets,
respectively. Previously, these amounts were reported in our segment
presentation as “Other Businesses.” Upon meeting the held-for-sale criteria,
we recorded a loss of $107 million, net of tax, on the sale of Umbro. The loss
on sale was calculated as the net sales price less the Umbro assets of $248
million, including intangibles, goodwill, and fixed assets, other miscellaneous
charges of $22 million, and the release of the associated cumulative
translation adjustment of $129 million, offset by a $67 million tax benefit on the
loss.
Under the sale agreement, we provided transition services to Iconix while
certain markets were transitioned to Iconix-designated licensees. These
transition services are substantially complete and we have wound down the
remaining operations of Umbro.
For the year ended May 31, 2013, net income (loss) from discontinued
operations included, for both businesses, the net gain or loss on sale, net
operating losses, tax expenses, and approximately $20 million in wind down
costs.
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Operating Segments
The Company’s reportable operating segments are based on our internal
geographic organization. Each NIKE Brand geography operates
predominantly in one industry: the design, development, marketing and
selling of athletic footwear, apparel, and equipment. Our reportable operating
segments for the NIKE Brand are: North America, Western Europe, Central &
Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE
Brand Direct to Consumer operations are managed within each geographic
segment.
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 certain Other
Businesses. These rates are set approximately nine months in advance of the
future selling season 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 certain Other Businesses reflect 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.
Certain prior year amounts have been reclassified to conform to fiscal 2013
presentation.
The breakdown of revenues is as follows:
(Dollars in millions) Fiscal 2013 Fiscal 2012
(1)
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes
(2)
Fiscal 2011
(1)
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
(2)
North America $ 10,387 $ 8,839 18% 18% $ 7,579 17% 17%
Western Europe 4,128 4,144 0% 5% 3,868 7% 4%
Central & Eastern Europe 1,287 1,200 7% 12% 1,040 15% 17%
Greater China 2,453 2,539 -3% -5% 2,060 23% 18%
Japan 791 835 -5% 1% 773 8% 1%
Emerging Markets 3,718 3,411 9% 16% 2,737 25% 26%
Global Brand Divisions 117 111 5% 8% 96 16% 13%
Total NIKE Brand Revenues 22,881 21,079 9% 11% 18,153 16% 15%
Other Businesses 2,500 2,298 9% 9% 2,041 13% 12%
Corporate
(3)
(68) (46) — — (77) — —
TOTAL NIKE, INC. REVENUES $ 25,313 $ 23,331 8% 11% $ 20,117 16% 15%
(1) Certain prior year amounts have been reclassified to conform to fiscal 2013 presentation. These changes had no impact on previously reported results of operations or shareholders’
equity.
(2) Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of
translation arising fromforeign currency exchange rate fluctuations.
(3) Corporate revenues primarily consist of certain intercompany revenue eliminations and foreign currency hedge gains and losses related to revenues generated by entities within the NIKE
Brand geographic operating segments and certain Other Businesses 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
(income) expense, net and income taxes in the consolidated statements of
income. As discussed in Note 18 — 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 2013 Fiscal 2012
(1)
FY13 vs. FY12
% Change Fiscal 2011
(1)
FY12 vs. FY11
% Change
North America $ 2,534 $ 2,030 25% $ 1,736 17%
Western Europe 640 597 7% 730 -18%
Central & Eastern Europe 259 234 11% 244 -4%
Greater China 809 911 -11% 777 17%
Japan 133 136 -2% 114 19%
Emerging Markets 1,011 853 19% 688 24%
Global Brand Divisions (1,396) (1,200) -16% (971) -24%
Total NIKE Brand 3,990 3,561 12% 3,318 7%
Other Businesses 456 385 18% 353 9%
Corporate (1,177) (917) -28% (805) -14%
TOTAL CONSOLIDATED EARNINGS
BEFORE INTEREST AND TAXES $ 3,269 $ 3,029 8% $ 2,866 6%
Interest (income) expense, net (3) 4 — 4 —
TOTAL CONSOLIDATED INCOME
BEFORE INCOME TAXES $ 3,272 $ 3,025 8% $ 2,862 6%
(1) Certain prior year amounts have been reclassified to conformto fiscal 2013 presentation. These changes had no impact on previously reported results of operations or shareholders’ equity.
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North America
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues by:
Footwear $ 6,687 $ 5,887 14% 14% $ 5,111 15% 15%
Apparel 3,028 2,482 22% 22% 2,103 18% 18%
Equipment 672 470 43% 43% 365 29% 29%
TOTAL REVENUES $ 10,387 $ 8,839 18% 18% $ 7,579 17% 17%
Revenues by:
Sales to Wholesale Customers $ 7,838 $ 6,720 17% 17% $ 5,801 16% 16%
Sales Direct to Consumer 2,549 2,119 20% 20% 1,778 19% 19%
TOTAL REVENUES $ 10,387 $ 8,839 18% 18% $ 7,579 17% 17%
EARNINGSBEFOREINTEREST
ANDTAXES $ 2,534 $ 2,030 25% $ 1,736 17%
Fiscal 2013 Compared to Fiscal 2012
Our category offense continued to deliver innovative products, deep brand
connections, and compelling retail experiences to consumers in North
America, driving increased demand for NIKE Brand products across all key
categories except Action Sports. Our Basketball, Men’s Training, Running,
and Sportswear categories drove the revenue growth in fiscal 2013. North
America’s Direct to Consumer revenue growth for fiscal 2013 was fueled by
15% growth in comparable store sales as well as the addition of new stores
and rapid growth in online sales.
North America footwear revenue growth was driven by higher demand in all
seven key categories, most notably Basketball, Running, and Sportswear.
Both unit sales and average selling price per pair increased 7%in fiscal 2013.
The increase in average selling price per pair was driven approximately equally
by price increases and a favorable mix of higher priced products.
Apparel revenue growth in North America was driven by higher demand in our
Men’s Training category, reflecting the addition of the NFL licensed business,
as well as Basketball, Women’s Training, and Running. Unit sales increased
10% while average selling price per unit increased 12%, largely driven by a
favorable mix of higher priced products.
North America EBIT increased faster than revenue due to gross margin
expansion and selling and administrative expense leverage. Gross margin
increased 50 basis points for fiscal 2013, reflecting the favorable impact of
selling price increases, partially offset by higher product costs, an unfavorable
mix of lower margin products and royalties for the NFL business. Selling and
administrative expenses increased versus fiscal 2012, though at a rate slower
than revenue; the growth was largely driven by higher demand creation
expense for the Olympics in the first quarter of fiscal 2013 as well as key
product initiatives, including the NFL launch, and higher operating overhead
costs to support the expansion of our Direct to Consumer business and
overall growth of the business.
Fiscal 2012 Compared to Fiscal 2011
Revenues for North America increased 17% for fiscal 2012, driven by growth
in both wholesale and Direct to Consumer revenues. Our category offense
continued to deliver innovative products, deep brand connections and
compelling retail experiences to consumers, driving demand for NIKE Brand
products across all seven key categories. North America’s Direct to
Consumer revenues grew 19% for fiscal 2012, driven by 15% growth in
comparable store sales.
For fiscal 2012, footwear revenue in North America increased 15%, driven by
an increase in both unit sales and average selling prices. Unit sales rose at a
double-digit rate while average selling price per pair grewat a mid-single-digit
rate, reflective of product price increases, partially offset by higher discounts
on close-out sales. The overall increase in footwear sales was driven by
growth in all key categories, most notably Running, Basketball, Women’s
Training and Sportswear.
Compared to the prior year, apparel revenue for North America increased
18%, primarily driven by a low-double-digit percentage growth in average
selling price per unit and a mid-single-digit percentage growth in unit sales.
The increase in average selling price per unit was reflective of product price
increases and a greater mix of higher price point products. The overall
increase in apparel sales was driven by double-digit percentage growth
across most key categories, including Men’s Training, Running and
Basketball.
For fiscal 2012, EBIT for North America increased 17% as revenue growth
and improved selling and administrative expense leverage more than offset a
decline in gross margin. Gross margin decreased 90 basis points during fiscal
2012, primarily due to higher product input costs and lower gross margins on
close-out sales, which more than offset the favorable impact of selling price
increases, lower air freight costs and the growth of our Direct to Consumer
business. Selling and administrative expense as a percentage of revenue
decreased by 70 basis points for fiscal 2012, as both demand creation and
operating overhead expense grewat a slower rate than revenues.
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Western Europe
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues by:
Footwear $ 2,646 $ 2,526 5% 10% $ 2,345 8% 5%
Apparel 1,261 1,377 -8% -4% 1,303 6% 2%
Equipment 221 241 -8% -3% 220 10% 5%
TOTAL REVENUES $ 4,128 $ 4,144 0% 5% $ 3,868 7% 4%
Revenues by:
Sales to Wholesale Customers $ 3,416 $ 3,556 -4% 1% $ 3,385 5% 2%
Sales Direct to Consumer 712 588 21% 27% 483 22% 18%
TOTAL REVENUES $ 4,128 $ 4,144 0% 5% $ 3,868 7% 4%
EARNINGS BEFORE INTEREST
AND TAXES $ 640 $ 597 7% $ 730 -18%
Fiscal 2013 Compared to Fiscal 2012
On a currency neutral basis, most territories in Western Europe reported
revenue growth for fiscal 2013, which more than offset revenue declines of
17% and 18% in Italy and Iberia, respectively, reflecting poor economic
conditions in Southern Europe. Revenues for the U.K. & Ireland and AGS
(Austria, Germany, and Switzerland) territories, the largest markets in Western
Europe, increased 8% and 12%, respectively. The growth in Direct to
Consumer revenues reflected 17% growth in comparable store sales, the
addition of 19 net new factory stores and strong growth in online sales. On a
category basis, Western Europe’s revenue growth was largely driven by
growth in our Running and Basketball categories.
Constant currency footwear revenue growth in Western Europe was primarily
driven by growth in Running, Sportswear, and Basketball. Unit sales
increased 7% and average selling price per pair increased 3%, the latter
primarily the result of price increases.
The constant currency decrease in Western Europe apparel revenues was
due to a decline in Sportswear, partially offset by growth in Running, Men’s
Training, and Basketball. Unit sales in fiscal 2013 decreased 1% while
average selling price per unit decreased 3%, as higher discounts on close-out
sales more than offset selling price increases.
The EBIT growth in fiscal 2013 was driven by a 200 basis point increase in
gross margin, partially offset by higher selling and administrative expenses.
The gross margin increase was primarily driven by favorable standard foreign
currency exchange rates; higher net average selling prices were mostly offset
by higher product costs. The increase in selling and administrative expense
was mainly driven by an increased level of demand creation spending around
the European Football Championships and Olympics in the first quarter of
fiscal 2013, as well as higher sports marketing expense. Additionally,
operating overhead costs increased to support the expansion of our Direct to
Consumer business and overall growth of the business. Fiscal 2013 EBIT
growth for Western Europe was also increased by a $24 million, one-time
restructuring charge that was recorded in other (income) expense, net, in the
fourth quarter of fiscal 2012.
Fiscal 2012 Compared to Fiscal 2011
On a currency neutral basis, revenues for Western Europe increased 4% for
fiscal 2012, as most territories reported revenue growth, which more than
offset revenue declines in the U.K. & Ireland and Italy. Revenues for the U.K. &
Ireland, the largest market in Western Europe, declined 3%for the fiscal 2012
period. Western Europe’s Direct to Consumer revenues grew 18% for fiscal
2012, including 8%growth in comparable store sales.
Excluding changes in currency exchange rates, footwear revenue in Western
Europe increased 5% for fiscal 2012, primarily driven by a low-single-digit
percentage growth in both unit sales and average selling price per pair,
primarily reflective of product price increases, partially offset by higher
discounts on in-line and close-out sales. The overall increase in footwear sales
was driven by growth in Running, Basketball and Football (Soccer), which
more than offset a decline in Action Sports.
Excluding changes in currency exchange rates, apparel revenue in Western
Europe increased 2% for fiscal 2012. The year-over-year change was
primarily driven by a mid-single-digit percentage increase in average selling
price per unit, reflective of higher product prices. Partially offsetting the
increase in average selling price per unit was a mid-single-digit percentage
decline in unit sales. The overall increase in apparel sales was driven by
growth in Football (Soccer) and Running, which more than offset a decline in
Sportswear.
On a reported basis, revenues for Western Europe increased 7% for fiscal
2012. However, EBIT fell 18%, primarily driven by a 350 basis point decline in
gross margin and higher selling and administrative expense as a percentage
of revenues. The decline in gross margin was driven by higher product input
costs and the negative impact from changes in standard currency rates,
which more than offset the favorable impact of product price increases and
the growth of our Direct to Consumer business. The increase in selling and
administrative expense as a percentage of revenues was mainly driven by an
increased level of demand creation spending around the European Football
Championships and London Summer Olympics. Also reflected in Western
Europe’s fiscal 2012 results was a $24 million charge relating to the
restructuring of its operations.
Central & Eastern Europe
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues by:
Footwear $ 714 $ 671 6% 11% $ 605 11% 13%
Apparel 483 441 10% 14% 359 23% 24%
Equipment 90 88 2% 9% 76 16% 17%
TOTAL REVENUES $ 1,287 $ 1,200 7% 12% $ 1,040 15% 17%
EARNINGS BEFORE INTEREST
AND TAXES $ 259 $ 234 11% $ 244 -4%
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Fiscal 2013 Compared to Fiscal 2012
On a currency neutral basis, Central & Eastern Europe revenues for fiscal
2013 were driven by growth across most territories, particularly Russia and
Turkey, which grew28%and 19%, respectively. Revenue growth in Central &
Eastern Europe was driven by growth in all key categories, most notably
Running, Football (Soccer), and Sportswear.
Constant currency footwear revenue growth in fiscal 2013 was primarily
driven by growth in Running, Football (Soccer), and Basketball, partially offset
by lower revenues in Sportswear. Unit sales increased 6% while average
selling price per pair increased 5%, primarily driven by price increases.
Constant currency apparel revenue growth in fiscal 2013 was driven by
growth in nearly all categories, most notably Sportswear, Football (Soccer),
and Running. Unit sales increased 16%, while average selling price per unit
decreased 2%, as an unfavorable mix of lower priced products more than off-
set higher selling prices.
EBIT for Central & Eastern Europe grew faster than revenue primarily due to
gross margin improvement and selling and administrative expense leverage.
Gross margin increased 30 basis points, largely driven by price increases and
the favorable impact of our higher margin Direct to Consumer business, more
than offsetting higher product costs and unfavorable standard foreign
currency exchange rates.
Fiscal 2012 Compared to Fiscal 2011
Excluding the changes in currency exchange rates, revenues for Central &
Eastern Europe increased 17% for fiscal 2012, driven by growth across most
territories, including double-digit growth in Russia and Turkey, which more
than offset lower revenues in Greece.
Excluding changes in currency exchange rates, Central & Eastern Europe’s
footwear revenue grew 13%, primarily driven by double-digit percentage
growth in unit sales and a low-single-digit percentage increase in average
selling price per pair. The increase in average selling price per pair was
reflective of product price increases which more than offset the negative
impact of higher discounts on in-line and close-out sales. The overall increase
in footwear sales was driven by growth across all key categories, most
notably Running, Sportswear and Football (Soccer).
Excluding changes in currency exchange rates, Central & Eastern Europe’s
apparel revenues grew 24%, mainly driven by double-digit percentage
growth in unit sales, offset by a slight decrease in average price per unit,
mainly due to less favorable product mix and higher discounts on in-line sales,
which more than offset the impact from product price increases. The overall
increase in apparel sales was primarily driven by growth in Football (Soccer),
Sportswear and Running.
On a reported basis, revenues for Central & Eastern Europe increased 15%
for fiscal 2012. However, EBIT fell 4%, primarily driven by a 420 basis point
decline in gross margin. The decline in gross margin was primarily due to
higher product input costs as well as higher discounts on in-line and close-out
products, which more than offset the favorable impact from product price
increases. Selling and administrative expense as a percentage of revenues
remained relatively flat compared to the prior period.
Greater China
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues by:
Footwear $ 1,493 $ 1,518 -2% -3% $ 1,164 30% 25%
Apparel 829 896 -7% -9% 789 14% 9%
Equipment 131 125 5% 3% 107 17% 12%
TOTAL REVENUES $ 2,453 $ 2,539 -3% -5% $ 2,060 23% 18%
EARNINGS BEFORE INTEREST
AND TAXES $ 809 $ 911 -11% $ 777 17%
Fiscal 2013 Compared to Fiscal 2012
On a currency neutral basis, Greater China revenue decreased in fiscal 2013,
driven by lower futures orders as well as increased discounts, product returns
and proactive cancellation of orders to manage inventory levels at retail. These
downsides were partially offset by 33% growth in our Direct to Consumer
business driven by comparable store sales growth of 13%and the addition of
29 net newfactory stores. Fiscal 2013 revenues for most key categories were
lower than in fiscal 2012.
For fiscal 2013, constant currency footwear revenue growth for Greater China
declined, driven by lower sales across most key categories, most notably
Sportswear and Men’s and Women’s Training, and increased reserves for
product discounts and returns. Unit sales decreased 1%, while average
selling price per pair decreased 2%, reflecting a higher mix of close-out sales
and higher discounts.
The decrease in constant currency apparel revenue for fiscal 2013 was driven
by lower revenues in Sportswear and Men’s and Women’s Training, partially
offset by higher revenues in Basketball. Apparel unit sales in fiscal 2013 were
3% lower than the prior year while average selling price per unit was down
6%, reflecting a higher mix of close-out sales and higher discounts.
Fiscal 2013 EBIT for Greater China decreased at a faster rate than revenue,
driven by lower gross margin and selling and administrative expense
deleverage. Fiscal 2013 gross margin decreased 50 basis points due to a
lower average selling price per unit driven by higher discounts and close-out
mix partially offset by favorable standard foreign currency exchange rates.
Selling and administrative expense increased as a percent of revenues, driven
primarily by the increased investment in our Direct to Consumer business and
the decrease in revenues.
Our results in Greater China have been adversely impacted by sluggish
macroeconomic growth and slow product sell-through at retail, leading to
high levels of inventory in the marketplace. Our strategy to return to sustained,
profitable growth in Greater China focuses on extending our brand leadership
position with consumers; expanding the offering of product styles and fits
designed for the Chinese consumer; and working with our retail partners to
create more differentiated, productive, and profitable retail stores.
Despite the challenges we have seen in China, there are indications that our
strategies are taking hold in the marketplace. Comparable store sales are
growing in our NIKE-owned Direct to Consumer doors and our wholesale
customers are reporting comparable store growth and declining inventory
levels. While we are making progress, we will continue to work with our
retailers to optimize inventory, accelerate sell-through, and improve retail
productivity. While China futures orders for the next six months are in line with
last year, we expect revenues for the first half of the fiscal year will be below
last year as we continue to manage the amount of product we ship into the
market. We believe our revenue in China will stabilize around prior year levels
in the second half of this fiscal year.
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Fiscal 2012 Compared to Fiscal 2011
Excluding changes in currency exchange rates, Greater China revenues
increased 18% for fiscal 2012, driven by continued expansion in the number
of both NIKE mono-branded stores owned by our wholesale customers and
NIKE owned stores, as well as higher comparable store sales.
Excluding changes in currency exchange rates, the growth in Greater China’s
footwear revenue for fiscal 2012 was primarily driven by double-digit
percentage growth in unit sales and a mid-single-digit growth in average unit
price per pair, reflective of product price increases. The overall increase in
footwear sales was driven by double-digit percentage growth across most
key categories, led by Running and Sportswear.
Excluding changes in currency exchange rates, the growth in Greater China’s
apparel revenues for fiscal 2012 was mainly driven by a high-single-digit
growth in the average selling price per unit and a low-single-digit percentage
increase in unit sales. The increase in average selling price was reflective of
product price increases, partially offset by higher discounts on in-line and
close-out products to accelerate the sales of slower moving apparel
inventories.
On a reported basis, revenues for Greater China increased 23% for fiscal
2012, while EBIT grew 17%, as revenue growth was partially offset by a
decline in gross margin and an increase in selling and administrative expense
as a percentage of revenues. Gross margin decreased 150 basis points for
fiscal 2012, primarily attributable to higher product input costs and discounts
on close-out products, which more than offset the favorable impact of
product price increases. Selling and administrative expense as a percentage
of revenues increased 50 basis points, driven by an increase in operating
overhead expense.
Japan
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues by:
Footwear $ 429 $ 439 -2% 5% $ 397 11% 3%
Apparel 301 325 -7% -1% 305 7% -1%
Equipment 61 71 -14% -9% 71 0% -5%
TOTAL REVENUES $ 791 $ 835 -5% 1% $ 773 8% 1%
EARNINGS BEFORE INTEREST
AND TAXES $ 133 $ 136 -2% $ 114 19%
Fiscal 2013 Compared to Fiscal 2012
Excluding changes in currency exchange rates, the revenue increase for
Japan was driven by higher revenues in Running, Football (Soccer) and
Basketball, partially offset by lower revenues in Sportswear and Men’s and
Women’s Training.
Fiscal 2013 EBIT for Japan decreased as a result of lower revenues, partially
offset by gross margin improvement and lower selling and administrative
expense. The decrease in selling and administrative expense in fiscal 2013
was attributable to lower operating overhead and demand creation spending.
Fiscal 2012 Compared to Fiscal 2011
During fiscal 2012, the macroeconomic environment in Japan remained
uncertain as the market continued to recover from the effects of the
earthquake and tsunami that occurred in March 2011. On a currency neutral
basis, footwear revenue in Japan increased 3% for fiscal 2012, as growth in
Running and Football (Soccer) more than offset a decline in Sportswear.
Excluding changes in currency exchange rates, apparel revenue decreased
1% for fiscal 2012, as the decline in Sportswear more than offset the growth
in Running and Football (Soccer).
On a reported basis, EBIT for Japan grew at a faster rate than revenue as a
result of improved gross margin and leverage of selling and administrative
expenses. The increase in Japan’s gross margin was mainly driven by the
favorable impact from the year-over-year change in standard currency rates,
a decrease in inventory obsolescence expense as well as a lower mix of
close-out sales. These favorable impacts were partially offset by higher
product input costs.
Emerging Markets
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues by:
Footwear $ 2,570 $ 2,387 8% 15% $ 1,897 26% 27%
Apparel 918 815 13% 19% 657 24% 25%
Equipment 230 209 10% 17% 183 14% 15%
TOTAL REVENUES $ 3,718 $ 3,411 9% 16% $ 2,737 25% 26%
EARNINGS BEFORE INTEREST
AND TAXES $ 1,011 $ 853 19% $ 688 24%
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Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, constant currency revenue growth for the Emerging Markets
geography was driven by growth in every key category and every territory, led
by Argentina, Brazil, and Mexico.
Constant currency footwear revenue growth for fiscal 2013 was driven by
growth in most key categories, most notably Running, Football (Soccer), and
Women’s Training. Unit sales increased approximately 9% and average
selling price per pair increased 6%, primarily driven by selling price increases.
Fiscal 2013 constant currency apparel revenue was driven by growth in every
key category, led by Football (Soccer), Running, Sportswear, and Men’s
Training. Unit sales increased approximately 10% and average selling price
per unit increased 9%, largely attributable to price increases.
Fiscal 2013 Emerging Markets EBIT grew faster than revenue primarily driven
by gross margin improvement, partially offset by higher selling and
administrative expense as a percent of revenue. Gross margin increased 260
basis points due largely to the favorable impact of price increases, the
anniversary of a one-time custom duty charge in fiscal 2012, and favorable
standard foreign currency exchange rates, which more than offset the
unfavorable impact of higher product costs. As a percent of revenue, selling
and administrative expense was higher due to higher operating overhead
costs to support the expansion of our Direct to Consumer business and
overall growth of the business.
Fiscal 2012 Compared to Fiscal 2011
Excluding the changes in currency exchange rates, revenues for the
Emerging Markets increased 26% for fiscal 2012 as all territories in the
geography reported double-digit revenue growth, led by Argentina, Brazil,
Mexico and Korea.
For fiscal 2012, revenue growth for both footwear and apparel in the
Emerging Markets was driven by double-digit percentage growth in unit sales
and mid-single-digit percentage growth in average selling price per unit,
primarily reflective of product price increases. The overall increase in
Emerging Markets’ footwear and apparel sales was driven by strong demand
in nearly all key categories, led by Running and Sportswear.
The increase in Emerging Markets’ EBIT for fiscal 2012 was primarily the
result of revenue growth and selling and administrative expense leverage,
which more than offset a lower gross margin. Gross margin declined 150
basis points for the fiscal year, primarily due to higher product input costs,
customs duty charges and inventory obsolescence expense. These factors
were partially offset by the favorable impact of changes in standard currency
exchange rates and product price increases. Selling and administrative
expense as a percentage of revenues decreased 140 basis points, as both
demand creation expense and operating overhead grewat a slower rate than
revenues.
Global Brand Divisions
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues $ 117 $ 111 5% 8% $ 96 16% 13%
(Loss) Before Interest and Taxes (1,396) (1,200) 16% (971) 24%
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 the Global Brand Divisions are
primarily attributable to NIKE Brand licensing businesses that are not part of a
geographic operating segment.
Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, Global Brand Divisions’ loss before interest and taxes
increased $196 million, primarily driven by increased investments and
marketing support for our digital business, product creation and design
initiatives and higher demand creation spending in the first quarter of fiscal
2013 around the Olympics and European Football Championships.
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, Global Brand Divisions’ loss before interest and taxes
increased $229 million, primarily driven by increased investments in our digital
business and infrastructure for our Direct to Consumer operations, higher
sports marketing expense as well as higher personnel costs to support our
global brand functions.
Other Businesses
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change
FY13 vs. FY12
% Change
Excluding
Currency
Changes Fiscal 2011
FY12 vs. FY11
% Change
FY12 vs. FY11
% Change
Excluding
Currency
Changes
Revenues
Converse $ 1,449 $ 1,324 9% 9% $ 1,131 17% 17%
NIKE Golf 791 726 9% 10% 658 10% 9%
Hurley 260 248 5% 5% 252 -2% -1%
TOTAL REVENUES $ 2,500 $ 2,298 9% 9% $ 2,041 13% 12%
EARNINGS BEFORE
INTEREST AND TAXES $ 456 $ 385 18% $ 353 9%
Fiscal 2013 Compared to Fiscal 2012
Our Other Businesses are comprised of Converse, NIKE Golf, and Hurley.
Other Businesses revenue growth in fiscal 2013 reflects growth in each of our
Other Businesses. Revenue growth at Converse was primarily driven by
increased sales in the UK as well as in China, as we transitioned that market to
direct distribution in the second half of fiscal 2012. The increase in fiscal 2013
revenue for NIKE Golf was driven by double-digit growth in each of our
apparel, footwear, and club businesses.
The fiscal 2013 increase in EBIT for our Other Businesses was driven by
improved profits for all of our Other Businesses.
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Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, revenues for our Other Businesses increased 12%, reflecting
growth across most businesses, led by Converse. The revenue growth at
Converse was primarily driven by increased sales in North America and China,
as well as increased revenues in the U.K. as we transitioned that market to
direct distribution in the second half of fiscal 2011. Excluding changes in
currency exchange rates, revenues for NIKE Golf increased 9% for fiscal
2012, driven by double-digit percentage growth in our apparel business,
partially offset by a single-digit percentage decline in our club business.
On a reported basis, revenues for our Other Businesses increased 13% for
fiscal 2012, while EBIT grew 9%, as earnings growth at Converse was
partially off-set by losses at Hurley. Higher selling and administrative expense
as a percentage of revenues negatively affected profitability and lower gross
margins contributed to the decline in Hurley’s earnings.
Corporate
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change Fiscal 2011
FY12 vs. FY11
% Change
Revenues $ (68) $ (46) — $ (77) —
(Loss) Before Interest and Taxes (1,177) (917) 28% (805) 14%
Corporate revenues primarily consist of certain intercompany revenue
eliminations and foreign currency hedge gains and losses related to revenues
generated by entities within the NIKE Brand geographic operating segments
and certain Other Businesses but managed through our central foreign
exchange risk management program.
Corporate loss before interest and taxes consists largely 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; certain foreign currency
gains and losses, including certain hedge gains and losses; certain
intercompany eliminations and other items.
In addition to the foreign currency gains and losses recognized in Corporate
revenues, foreign currency results included in gross margin are gains and
losses resulting fromthe 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 certain
Other Businesses and related foreign currency hedge results. All other foreign
currency related results, including conversion gains and losses arising from
re-measurement of monetary assets and liabilities in non-functional
currencies and certain foreign currency derivative instruments, are included in
other (income) expense, net.
Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, Corporate’s loss before interest and taxes increased by $260
million primarily due to the following:
• A $165 million increase in foreign exchange losses 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 certain Other Businesses, net of hedge gains; these losses
are reported as a component of consolidated gross margin.
• A $48 million decrease in foreign currency net losses, reported as a
component of consolidated other (income) expense, net.
• A $143 million increase in corporate overhead expense related to corporate
initiatives to support the growth of the business and performance-based
compensation.
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, Corporate’s loss before interest and taxes grew $112 million,
mainly due to an increase of $49 million in performance-based compensation
and a year-over-year net increase of $73 million from foreign currency
impacts. These foreign currency impacts were driven by a year-over-year
increase in foreign currency net losses, arising from certain Euro/U.S. Dollar
foreign currency hedges and the re-measurement of monetary assets and
liabilities in various non-functional currencies, net of related undesignated
forward instruments, as a variety of foreign currencies weakened against the
U.S. Dollar year-over-year. The above impacts were partially offset by a slight
decrease in centrally managed operating overhead expenses.
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 fromchanges 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 that
are material to NIKE, Inc. We manage these exposures by taking advantage
of natural offsets and currency correlations that exist 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 programenhanced our ability to manage
our foreign exchange risk by increasing the natural offsets and currency
correlation benefits that exist 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.
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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 fromthird
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. When the
NTC sells to a NIKE entity with a different functional currency, the
result is a foreign currency exposure for the NTC.
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 reduces the
inventory cost incurred by NIKE whereas a stronger U.S. Dollar
increases its cost.
2. Factory input costs: In January 2012, NIKE implemented 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 (income) expense, net. Refer to Note 17 — Risk Management
and Derivatives 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
Western Europe and Central & Eastern Europe geography revenues are
earned in currencies other than the Euro (e.g. 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, intercompany royalties and other intercompany
charges, also generate foreign currency risk though to a lesser extent.
• Non-Functional Currency Denominated Monetary Assets and Liabilities —
Our global subsidiaries have various assets and liabilities, primarily
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 (income) expense, 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 flowhedges in accordance
with the accounting standards for derivatives and hedging, except for hedges
of the embedded derivatives component of the product cost exposures as
discussed below.
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 the embedded derivative contracts
discussed above are not formally designated as hedging instruments under
the accounting standards for derivatives and hedging. Accordingly, changes
in fair value of these instruments are immediately recognized in other (income)
expense, 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.
Refer to Note 6 — Fair Value Measurements and Note 17 — 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 period end.
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 OCI within 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 (detriment) of approximately $(605)
million and $268 million for the years ended May 31, 2013 and 2012,
respectively. The impact of foreign exchange rate fluctuations on the
translation of our income before income taxes was a benefit (detriment) of
approximately $(104) million and $74 million for the years ended May 31,
2013 and 2012, respectively.
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 flowhedges.
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Refer to Note 6 — Fair Value Measurements and Note 17 — 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 period end.
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 (income) expense,
net had an unfavorable impact of approximately $56 million on our income
before income taxes for the year ended May 31, 2013 and had an insignificant
impact for the year ended May 31, 2012.
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 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. In accordance with the accounting
standards for derivatives and hedging, the effective portion of the change in
fair value of the forward contracts designated as net investment hedges is
recorded in the cumulative translation adjustment component of accumulated
other comprehensive income. Any ineffective portion is immediately
recognized in earnings as a component of other (income) expense, net. The
impact of ineffective hedges was not material for any period presented. To
minimize credit risk, we have structured these net investment hedges to be
generally less than six months in duration. Upon maturity, the hedges are
settled based on the current fair value of the forward contracts with the
realized gain or loss remaining in OCI. There were no outstanding net
investment hedges as of May 31, 2013 and 2012. Cash flows from net
investment hedge settlements totaled $22 million for the year ended May 31,
2012.
Liquidity and Capital Resources
Cash Flow Activity
Cash provided by operations was $3.0 billion for fiscal 2013 compared to
$1.9 billion for fiscal 2012. Our primary source of operating cash flowfor fiscal
2013 was net income of $2.5 billion. Our fiscal 2013 change in working capital
was a net cash outflow of $42 million, which is exclusive of working capital
amounts sold as part of the divestitures of Umbro and Cole Haan, as
compared to a net cash outflow of $799 million for fiscal 2012. Our
investments in working capital decreased due to slowing growth in inventory
and reductions in accounts receivable compared to the prior year. During
fiscal 2013, inventory for continuing operations increased 7% compared to a
23%increase for fiscal 2012; the slowing growth was driven by our continued
focus on increasing inventory productivity. The reduction in accounts
receivable was primarily driven by the collection of receivables related to
discontinued operations.
Cash used by investing activities was $1,067 million during fiscal 2013,
compared to a $514 million source of cash for fiscal 2012. A major driver of
the change was the swing fromnet sales/maturities of short-terminvestments
in fiscal 2012 to net purchases of short-term investments in fiscal 2013,
reflective of the additional purchases of short-terminvestments made with the
proceeds from the issuance of long term debt in April 2013. In fiscal 2012,
there were $1,124 million of net sales/maturities of short-term investments
(net of purchases), while in fiscal 2013 we made $1,203 million in net
purchases of short-term investments (net of sales/maturities). This impact
was partially offset by $786 million in proceeds from the sale of Umbro and
Cole Haan in fiscal 2013.
Cash used by financing activities was $1,040 million for fiscal 2013 compared
to $2,118 million for fiscal 2012. The decrease in cash used by financing
activities was primarily due to $986 million in proceeds from the issuance of
long-term debt in April 2013. Also contributing to the decrease were lower
payments of long-term debt and notes payable and lower repurchases of
common stock, which were partially offset by a reduction in the proceeds
fromthe exercise of stock options.
In fiscal 2013, we purchased 33.5 million shares of NIKE’s class B common
stock for $1.7 billion, an average price of $49.50. During the year, we
completed the four-year, $5 billion share repurchase program approved by
our Board of Directors in September 2008. Under that program, we
purchased a total of 118.8 million shares at an average price of $42.08.
Subsequently, we began repurchases under a four-year, $8 billion program
approved by the Board in September 2012. As of the end of fiscal 2013, we
had repurchased 15.3 million shares at a cost of $789 million under this
current program. We continue to expect funding of share repurchases will
come fromoperating cash flow, excess cash, and/or debt. The timing and the
amount of shares purchased will be dictated by our capital needs and stock
market conditions.
Capital Resources
On April 23, 2013, we filed a shelf registration statement (the “Shelf”) with the
SEC which permits us to issue an unlimited amount of debt securities. The
Shelf expires on April 23, 2017. On April 23, 2013, we issued $1.0 billion of
senior notes with tranches maturing in 2023 and 2043. The 2023 senior notes
were issued in an initial aggregate principal amount of $500 million at a 2.25%
fixed, annual interest rate and will mature on May 1, 2023. The 2043 senior
notes were issued in an initial aggregate principal amount of $500 million at a
3.625%fixed, annual interest rate and will mature on May 1, 2043. Interest on
the senior notes is payable semi-annually on May 1 and November 1 of each
year. The issuance resulted in gross proceeds before expenses of $998
million. We will use the net proceeds for general corporate purposes, which
may include, but are not limited to, discharging or refinancing debt, working
capital, capital expenditures, share repurchases, as yet unplanned
acquisitions of assets or businesses and investments in subsidiaries.
On November 1, 2011, we entered into a committed credit facility agreement
with a syndicate of banks which provides for up to $1 billion of borrowings
with the option to increase borrowings to $1.5 billion with lender approval. The
facility matures November 1, 2016, with a one-year extension option prior to
both the second and third anniversary of the closing date, provided that
extensions shall not extend beyond November 1, 2018. As of and for the year
ended May 31, 2013, we had no amounts outstanding under our committed
credit facility.
We currently have long-term debt ratings of A+ and A1 from Standard and
Poor’s Corporation and Moody’s Investor Services, respectively. If our long-
term debt rating were to decline, the facility fee and interest rate under our
committed credit facility would increase. Conversely, if our long-term debt
rating were to improve, the facility fee and interest rate would decrease.
Changes in our long-term debt rating would not trigger acceleration of
maturity of any then-outstanding borrowings or any future borrowings under
the committed credit facility. Under this committed revolving credit facility, we
have agreed to various covenants. These covenants include limits on our
disposal of fixed assets, the amount of debt secured by liens we may incur, as
well as a minimum capitalization ratio. 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, 2013, 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 $1 billion commercial paper program. During
the year ended May 31, 2013, we issued and subsequently repaid
commercial paper borrowings of $505 million. As of May 31, 2013, there
were no outstanding borrowings under this program. We may continue to
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issue commercial paper or other debt securities during fiscal 2014 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.
As of May 31, 2013, we had cash, cash equivalents and short-term
investments totaling $6.0 billion, of which $3.5 billion was held by our foreign
subsidiaries. Cash equivalents and short-terminvestments consist primarily of
deposits held at major banks, money market funds, Tier-1 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,
2013 the average duration of our short-term investments and cash
equivalents portfolio is 98 days.
Despite recent uncertainties in the financial markets, to date we have not
experienced difficulty accessing the credit markets or incurred higher interest
costs. Future volatility in the capital markets, however, may increase costs
associated with issuing commercial paper or other debt instruments or affect
our ability to access those markets. 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.
We utilize a variety of tax planning and financing strategies to manage our
worldwide cash and deploy funds to locations where they are needed. We
routinely repatriate a portion of our foreign earnings for which U.S. taxes have
previously been provided. We also indefinitely reinvest a significant portion of
our foreign earnings, and our current plans do not demonstrate a need to
repatriate these earnings. Should we require additional capital in the U.S., we
may elect to repatriate indefinitely reinvested foreign funds or raise capital in
the U.S. through debt. If we were to repatriate indefinitely reinvested foreign
funds, we would be required to accrue and pay additional U.S. taxes less
applicable foreign tax credits. If we elect to raise capital in the U.S. through
debt, we would incur additional interest expense.
Off-Balance Sheet Arrangements
In connection with various contracts and agreements, we routinely provide
indemnifications 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. However,
based on our historical experience and the estimated probability of future loss,
we have determined that the fair value of such indemnifications is not material
to our financial position or results of operations.
Contractual Obligations
Our significant long-term contractual obligations as of May 31, 2013 and significant endorsement contracts 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) 2014 2015 2016 2017 2018 Thereafter Total
Operating Leases $ 403 $ 340 $ 304 $ 272 $ 225 $ 816 $ 2,360
Capital Leases 23 28 21 9 — — 81
Long-term Debt 98 46 145 79 56 1,525 1,949
Endorsement Contracts
(1)
909 790 586 450 309 559 3,603
Product Purchase Obligations
(2)
3,273 — — — — — 3,273
Other
(3)
304 89 52 82 4 18 549
TOTAL $ 5,010 $ 1,293 $ 1,108 $ 892 $ 594 $ 2,918 $ 11,815
(1) The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete and sport
team 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.
(2) We generally order product at least 4 to 5 months in advance of sale based primarily on futures orders received from customers. 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 that specify all significant
terms. In some cases, prices are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable on the
consolidated balance sheet as of May 31, 2013.
(3) Other amounts primarily include service and marketing commitments 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. The reported amounts exclude those liabilities included in accounts
payable or accrued liabilities on the consolidated balance sheet as of May 31, 2013.
The total liability for uncertain tax positions was $447 million, excluding related interest and penalties, at May 31, 2013. We are not able to reasonably estimate
when or if cash payments of the long-termliability for uncertain tax positions will occur.
We also have the following outstanding short-term debt obligations as of May 31, 2013. Refer to Note 7 — Short-Term Borrowings and Credit Lines for further
description and interest rates related to the short-termdebt obligations listed below.
(In millions)
Outstanding as
of May 31, 2013
Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand $ 121
Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign port 55
As of May 31, 2013, letters of credit of $149 million were outstanding, which were generally issued for the purchase of inventory and as guarantees of the
Company’s performance under certain self-insurance and other programs.
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Recently Adopted Accounting Standards
In July 2012, the Financial Accounting Standards Board (“FASB”) issued an
accounting standards update intended to simplify how an entity tests
indefinite-lived intangible assets other than goodwill for impairment by
providing entities with an option to perform a qualitative assessment to
determine whether further impairment testing is necessary. This accounting
standard update will be effective for us beginning June 1, 2013, and early
adoption is permitted. We early adopted this standard and the adoption did
not have a material impact on our consolidated financial position or results of
operations.
In September 2011, the FASB issued updated guidance on the periodic
testing of goodwill for impairment. This guidance will allow companies to
assess qualitative factors to determine if it is more-likely-than-not that goodwill
might be impaired and whether it is necessary to perform the two-step
goodwill impairment test required under current accounting standards. This
new guidance was effective for us beginning June 1, 2012. The adoption did
not have a material effect on our consolidated financial position or results of
operations.
In June 2011, the FASB issued guidance on the presentation of
comprehensive income. This new guidance eliminates the current option to
report other comprehensive income and its components in the statement of
shareholders’ equity. Companies are now required to present the
components of net income and other comprehensive income in either one
continuous statement, referred to as the statement of comprehensive
income, or in two separate, but consecutive statements. This requirement
was effective for us beginning June 1, 2012. As this guidance only amended
the presentation of the components of comprehensive income, the adoption
did not have an impact on our consolidated financial position or results of
operations. Further, this guidance required companies to present
reclassification adjustments out of accumulated other comprehensive income
by component in both the statement in which net income is presented and
the statement in which other comprehensive income is presented. This
requirement will be effective for us beginning June 1, 2013. As this guidance
only amends the presentation of the components of comprehensive income,
we do not anticipate the adoption will have an impact on our consolidated
financial position or results of operations.
Recently Issued Accounting Standards
In December 2011, the FASB issued guidance enhancing disclosure
requirements surrounding the nature of an entity’s right to offset and related
arrangements associated with its financial instruments and derivative
instruments. This new guidance requires companies to disclose both gross
and net information about instruments and transactions eligible for offset in
the statement of financial position and instruments and transactions subject
to master netting arrangements. This new guidance is effective for us
beginning June 1, 2013. As this guidance only requires expanded
disclosures, we do not anticipate the adoption will have an impact on our
consolidated financial position or results of operations.
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.
We believe that 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. Because of the uncertainty inherent in these matters, actual results
could differ from the estimates we use in applying the critical accounting
policies. Certain of these critical accounting policies affect working capital
account balances, including the policies for revenue recognition, the
allowance for uncollectible accounts receivable, inventory reserves, and
contingent payments under endorsement contracts. These policies require
that we make estimates in the preparation of our financial statements as of a
given date. However, since our business cycle is relatively short, actual results
related to these estimates are generally known within the six-month period
following the financial statement date. Thus, these policies generally affect
only the timing of reported amounts across two to three fiscal quarters.
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.
In some instances, we ship product directly fromour 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 outside of the U.S., 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 that 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 that are expected to be granted to certain customers at a later date.
We base our estimates on historical rates of product returns, discounts and
claims, specific identification of outstanding claims and outstanding returns
not yet received from customers, and 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 were significantly greater or lower than the reserves we had
established, we would record a reduction or increase to net revenues in the
period in which we made 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
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larger allowance might be required. In the event we determine that a smaller
or larger allowance is appropriate, we would record a credit or a charge to
selling and administrative 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 that 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 and
record a charge to cost of sales.
Contingent Payments under Endorsement
Contracts
A significant portion of our demand creation expense relates to payments
under endorsement contracts. In general, endorsement payments are
expensed uniformly 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.
Some of the contracts provide for contingent payments to endorsers based
upon specific achievements in their sports (e.g., winning a championship). We
record selling and administrative expense for these amounts when the
endorser achieves the specific goal.
Some of the contracts provide for payments based upon endorsers
maintaining a level of performance in their sport over an extended period of
time (e.g., maintaining a top ranking in a sport for a year). These amounts are
reported in selling and administrative expense when we determine that it is
probable that the specified level of performance will be maintained throughout
the period. In these instances, to the extent that actual payments to the
endorser differ from our estimate due to changes in the endorser’s athletic
performance, increased or decreased selling and administrative expense may
be reported in a future period.
Some of the contracts provide for royalty payments to endorsers based upon
a predetermined percentage 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 contractual
obligations 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
selling and administrative expense uniformly over the remaining guarantee
period.
Property, Plant and Equipment and Definite-
Lived Assets
Property, plant and equipment, including buildings, equipment, and
computer hardware and software are recorded at cost (including, in some
cases, the cost of internal labor) and are depreciated over the estimated
useful life. Changes in circumstances (such as technological advances or
changes to our business operations) can result in differences between the
actual and estimated useful lives. In those cases where we determine that the
useful life of a long-lived asset should be shortened, we increase depreciation
expense over the remaining useful life to depreciate the asset’s net book value
to its salvage value.
We review the carrying value of long-lived assets or asset groups to be used
in operations whenever events or changes in circumstances indicate that 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 fromthe 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, 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.
Goodwill and Indefinite-Lived Intangible Assets
We perform 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 belowits 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 that the carrying amount may not be recoverable, among other
factors. We may first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying
amount. If, after assessing the totality of events and circumstances, we
determine that it is more likely than not that 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 requires us to estimate the fair
value of our reporting units. If the carrying value of a reporting unit exceeds its
fair value, the goodwill of that reporting unit is potentially impaired and we
proceed to step two of the impairment analysis. In step two of the analysis, we
measure and record an impairment loss equal to the excess of the carrying
value of the reporting unit’s goodwill over its implied fair value, if any.
We generally base our measurement of the fair value of a reporting unit on a
blended analysis of the present value of future discounted cash flows and the
market valuation approach. The discounted cash flows model 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. The market valuation approach
indicates the fair value of the business based on a comparison of the reporting
unit to comparable publicly traded companies in similar lines of business.
Significant estimates in the market valuation approach model include
identifying similar companies with comparable business factors such as size,
growth, profitability, risk and return on investment, and assessing comparable
revenue and operating income multiples in estimating the fair value of the
reporting unit.
Indefinite-lived intangible assets primarily consist of acquired trade names and
trademarks. We may first perform a qualitative assessment to determine
whether it is more likely than not that an indefinite-lived intangible asset is
impaired. If, after assessing the totality of events and circumstances, we
determine that 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, we utilize the relief-from-royalty method. This method assumes that
trade names and trademarks have value to the extent that their owner is
relieved of the obligation to pay royalties for the benefits received from them.
This method requires us to estimate the future revenue for the related brands,
the appropriate royalty rate and the weighted average cost of capital.
Fair Value Measurements
For financial assets and liabilities measured at fair value on a recurring basis,
fair value is the price we would receive to sell an asset or pay to transfer a
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liability in an orderly transaction with a market participant at the measurement
date. In general, and where applicable, we use quoted prices in active
markets for identical assets or liabilities to determine the fair values of our
financial instruments. This pricing methodology applies to our Level 1
investments, including U.S. Treasury securities.
In the absence of active markets for identical assets or liabilities, such
measurements involve developing assumptions based on market observable
data, including 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. This pricing methodology applies to our Level 2 investments such
as commercial paper and bonds, U.S. agency securities and money market
funds. Level 3 investments are valued using internally developed models with
unobservable inputs. Assets and liabilities measured using unobservable
inputs are an immaterial portion of our portfolio.
A majority of our available-for-sale securities are priced by pricing vendors and
are generally Level 1 or Level 2 investments, as 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. Our fair value processes include
controls that are designed to ensure appropriate fair values are
recorded. These controls include an analysis of period-over-period
fluctuations and comparison to another independent pricing vendor.
Hedge Accounting for Derivatives
We use forward and option contracts to hedge certain anticipated foreign
currency exchange 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 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
some time after the maturity of the derivative. One of the criteria for this
accounting treatment is that the forward and option contracts amount 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 belowhedged levels, or if it is
no longer probable that 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 changes in fair
values of the over-hedged portion of the related hedge contract from other
comprehensive income to other (income) expense, net during the quarter in
which such changes occur.
We have used and may, in the future, use forward contracts to hedge our
investment in the net assets of certain international subsidiaries to offset
foreign currency translation related to our net investment in those subsidiaries.
The change in fair value of the forward contracts hedging our net investments
is reported in the cumulative translation adjustment component of
accumulated other comprehensive income within shareholders’ equity, to the
extent effective, to offset the foreign currency translation adjustments on
those investments. As the value of our underlying net investments in wholly-
owned international subsidiaries is known at the time a hedge is placed, the
designated hedge is matched to the portion of our net investment at risk.
Accordingly, the variability involved in net investment hedges is substantially
less than that of other types of hedge transactions and we do not expect any
material ineffectiveness. We consider, on a quarterly basis, the need to
redesignate existing hedge relationships based on changes in the underlying
net investment. Should the level of our net investment decrease below
hedged levels, the cumulative change in fair value of the over-hedged portion
of the related hedge contract would be reported directly to earnings in the
period in which changes occur.
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 termgreater 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.
Taxes
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.
In addition, we have not recorded U.S. income tax expense for foreign
earnings that we have determined to be indefinitely reinvested outside the
U.S., thus reducing our overall income tax expense. The amount of earnings
designated as indefinitely reinvested offshore is based upon the actual
deployment of such earnings in our offshore assets and our expectations of
the future cash needs of our U.S. and foreign entities. Income tax
considerations are also a factor in determining the amount of foreign earnings
to be indefinitely reinvested offshore.
We carefully review all factors that drive the ultimate disposition of foreign
earnings determined to be reinvested offshore and apply stringent standards
to overcome the presumption of repatriation. Despite this approach, because
the determination involves our future plans and expectations of future events,
the possibility exists that amounts declared as indefinitely reinvested offshore
may ultimately be repatriated. For instance, the actual cash needs of our U.S.
entities may exceed our current expectations, or the actual cash needs of our
foreign entities may be less than our current expectations. This would result in
additional income tax expense in the year we determined that amounts were
no longer indefinitely reinvested offshore. Conversely, our approach may also
result in a determination that accumulated foreign earnings (for which U.S.
income taxes have been provided) will be indefinitely reinvested offshore. In
this case, our income tax expense would be reduced in the year of such
determination.
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 pre-tax income excluding infrequently occurring or unusual items, to
determine the year-to-date 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.
On a quarterly basis, we reevaluate the probability that 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 newaudit 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.
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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 fromclaims against us, including related legal costs, 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 as other (income) expense, net
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 that 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.
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ITEM7A. 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 exchange
contracts and options 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, and may in the future, also use forward 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. Generally, hedged transactions are expected to be recognized
within 12 to 18 months. When intercompany loans are hedged, it is typically
for their expected duration. Hedged transactions are principally denominated
in Euros, British Pounds and Japanese Yen. See section “Foreign Currency
Exposures and Hedging Practices” under Item7 for additional detail.
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 and
have entered into receive-fixed, pay-variable interest rate swaps for a portion
of our fixed rate debt.
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 that 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
$34 million and $21 million at May 31, 2013 and 2012, respectively. The VaR
increased year-over-year as a result of an increase in the total notional value of
our foreign currency derivative portfolio combined with a longer average
duration on our outstanding trades at May 31, 2013. 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 $49 million and $87 million during fiscal 2013 and fiscal
2012, 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 fromoperations and cash flows.
Details of third-party debt and interest rate swaps are provided in the table
below. The table presents principal cash flows and related weighted average
interest rates by expected maturity dates. Weighted average interest rates for
the fixed rate swapped to floating rate debt reflect the effective interest rates at
May 31, 2013.
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Expected Maturity Date
Year Ending May 31,
(Dollars in millions) 2014 2015 2016 2017 2018 Thereafter Total Fair Value
Foreign Exchange Risk
Japanese Yen Functional Currency
Long-term Japanese Yen debt — Fixed rate
Principal payments $ 7 $ 7 $ 7 $ 7 $ 7 $ 14 $ 49 $ 52
Average interest rate 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4%
Interest Rate Risk
Japanese Yen Functional Currency
Long-term Japanese Yen debt — Fixed rate
Principal payments $ 7 $ 7 $ 7 $ 7 $ 7 $ 14 $ 49 $ 52
Average interest rate 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4%
U.S. Dollar Functional Currency
Long-term U.S. Dollar debt — Fixed rate
swapped to Floating rate
Principal payments $ — $ — $ 100 $ — $ — $ — $ 100 $ 110
Average interest rate 0.0% 0.0% 0.4% 0.0% 0.0% 0.0% 0.4%
Long-term U.S. Dollar debt — Fixed rate
Principal payments $ 51 $ 1 $ 1 $ 38 $ 18 $ 1,000 $ 1,109 $ 1,057
Average interest rate 4.7% 6.4% 6.4% 6.2% 6.8% 2.9% 3.2%
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
the consolidation of this subsidiary.
ITEM8. Financial Statements and Supplemental 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 the generally accepted accounting principles we
considered appropriate in the circumstances and include some 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 generally accepted
accounting principles. 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 Audit department reviews the results of its work with the Audit
Committee of the Board of Directors, presently consisting of three outside
directors. The Audit 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
audit staff, the scope and the results of the annual examination, the
effectiveness of the accounting control system and other matters relating to
the financial affairs of NIKE as the Audit Committee deems appropriate. The
independent registered public accounting firm and the internal auditors have
full access to the Committee, with and without the presence of management,
to discuss any appropriate matters.
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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 13a-15(f) and
Rule 15d-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 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,
2013.
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,
2013, as stated in their report herein.
Mark G. Parker Donald W. Blair
President and Chief Executive Officer Chief Financial Officer
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of NIKE, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of NIKE, Inc. and its subsidiaries at May 31, 2013 and 2012,
and the results of their operations and their cash flows for each of the three
years in the period ended May 31, 2013 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the appendix appearing
under Item 15(a)(2) presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of May 31, 2013,
based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for these
financial statements and financial statement schedule, 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 these
financial statements, on the financial statement schedule, and on the
Company’s internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the
overall financial statement presentation. 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.
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 23, 2013
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NIKE, Inc. Consolidated Statements Of Income
Year Ended May 31,
(In millions, except per share data) 2013 2012 2011
Income from continuing operations:
Revenues $ 25,313 $ 23,331 $ 20,117
Cost of sales 14,279 13,183 10,915
Gross profit 11,034 10,148 9,202
Demand creation expense 2,745 2,607 2,344
Operating overhead expense 5,035 4,458 4,017
Total selling and administrative expense 7,780 7,065 6,361
Interest (income) expense, net (Notes 6, 7 and 8) (3) 4 4
Other (income) expense, net (Note 17) (15) 54 (25)
Income before income taxes 3,272 3,025 2,862
Income tax expense (Note 9) 808 756 690
NET INCOME FROM CONTINUING OPERATIONS 2,464 2,269 2,172
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS 21 (46) (39)
NET INCOME $ 2,485 $ 2,223 $ 2,133
Earnings per share from continuing operations:
Basic earnings per common share (Notes 1 and 12) $ 2.75 $ 2.47 $ 2.28
Diluted earnings per common share (Notes 1 and 12) $ 2.69 $ 2.42 $ 2.24
Earnings per share from discontinued operations:
Basic earnings per common share (Notes 1 and 12) $ 0.02 $ (0.05) $ (0.04)
Diluted earnings per common share (Notes 1 and 12) $ 0.02 $ (0.05) $ (0.04)
Dividends declared per common share $ 0.81 $ 0.70 $ 0.60
The accompanying notes to consolidated financial statements are an integral part of this statement.
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NIKE, Inc. Consolidated Statements of Comprehensive
Income
Year Ended May 31,
(In millions) 2013 2012 2011
Net income $ 2,485 $ 2,223 $ 2,133
Other comprehensive income (loss), net of tax:
Foreign currency translation and other
(1)
30 (295) 263
Net gain (loss) on cash flow hedges
(2)
117 255 (242)
Net gain (loss) on net investment hedges
(3)
— 45 (57)
Reclassification to net income of previously deferred (gains) losses related to hedge
derivative instruments
(4)
(105) 49 (84)
Release of cumulative translation loss related to Umbro
(5)
(Notes 14 and 15) 83 — —
Total other comprehensive income, net of tax 125 54 (120)
TOTAL COMPREHENSIVE INCOME $ 2,610 $ 2,277 $ 2,013
(1) Net of tax (expense) benefit of $(12) million, $0 million, and $(121) million, respectively.
(2) Net of tax (expense) benefit of $(22) million, $(8) million, and $66 million, respectively.
(3) Net of tax benefit of $0 million, $0 million, and $28 million, respectively.
(4) Net of tax (benefit) expense of $0 million, $(14) million, and $24 million, respectively.
(5) Net of tax (benefit) of $(47) million, $0 million, and $0 million, respectively.
The accompanying notes to consolidated financial statements are an integral part of this statement.
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NIKE, Inc. Consolidated Balance Sheets
May 31,
(In millions) 2013 2012
ASSETS
Current assets:
Cash and equivalents $ 3,337 $ 2,317
Short-term investments (Note 6) 2,628 1,440
Accounts receivable, net (Note 1) 3,117 3,132
Inventories (Notes 1 and 2) 3,434 3,222
Deferred income taxes (Note 9) 308 262
Prepaid expenses and other current assets (Notes 6 and 17) 802 857
Assets of discontinued operations (Note 15) — 615
Total current assets 13,626 11,845
Property, plant and equipment, net (Note 3) 2,452 2,209
Identifiable intangible assets, net (Note 4) 382 370
Goodwill (Note 4) 131 131
Deferred income taxes and other assets (Notes 6, 9 and 17) 993 910
TOTAL ASSETS $ 17,584 $ 15,465
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt (Note 8) $ 57 $ 49
Notes payable (Note 7) 121 108
Accounts payable (Note 7) 1,646 1,549
Accrued liabilities (Notes 5, 6 and 17) 1,986 1,941
Income taxes payable (Note 9) 98 65
Liabilities of discontinued operations (Note 15) 18 170
Total current liabilities 3,926 3,882
Long-term debt (Note 8) 1,210 228
Deferred income taxes and other liabilities (Notes 6, 9 and 17) 1,292 974
Commitments and contingencies (Note 16) — —
Redeemable Preferred Stock (Note 10) — —
Shareholders’ equity:
Common stock at stated value (Note 11):
Class A convertible — 178 and 180 shares outstanding — —
Class B — 716 and 736 shares outstanding 3 3
Capital in excess of stated value 5,184 4,641
Accumulated other comprehensive income (Note 14) 274 149
Retained earnings 5,695 5,588
Total shareholders’ equity 11,156 10,381
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 17,584 $ 15,465
The accompanying notes to consolidated financial statements are an integral part of this statement.
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NIKE, Inc. Consolidated Statements of Cash Flows
Year Ended May 31,
(In millions) 2013 2012 2011
Cash provided by operations:
Net income $ 2,485 $ 2,223 $ 2,133
Income charges (credits) not affecting cash:
Depreciation 438 373 335
Deferred income taxes 21 (60) (76)
Stock-based compensation (Note 11) 174 130 105
Amortization and other 75 32 23
Net gain on divestitures (124) — —
Changes in certain working capital components and other assets and liabilities:
Decrease (increase) in accounts receivable 142 (323) (273)
(Increase) in inventories (197) (805) (551)
(Increase) in prepaid expenses and other current assets (28) (141) (35)
Increase in accounts payable, accrued liabilities and income taxes payable 41 470 151
Cash provided by operations 3,027 1,899 1,812
Cash (used) provided by investing activities:
Purchases of short-term investments (3,702) (2,705) (7,616)
Maturities of short-term investments 1,501 2,585 4,313
Sales of short-term investments 998 1,244 2,766
Additions to property, plant and equipment (636) (597) (432)
Disposals of property, plant and equipment 14 2 1
Proceeds from divestitures 786 — —
Increase in other assets, net of other liabilities (28) (37) (30)
Settlement of net investment hedges — 22 (23)
Cash (used) provided by investing activities (1,067) 514 (1,021)
Cash used by financing activities:
Net proceeds from long-term debt issuance 986 — —
Long-term debt payments, including current portion (49) (203) (8)
Increase (decrease) in notes payable 15 (65) 41
Proceeds from exercise of stock options and other stock issuances 313 468 345
Excess tax benefits from share-based payment arrangements 72 115 64
Repurchase of common stock (1,674) (1,814) (1,859)
Dividends — common and preferred (703) (619) (555)
Cash used by financing activities (1,040) (2,118) (1,972)
Effect of exchange rate changes 100 67 57
Net increase (decrease) in cash and equivalents 1,020 362 (1,124)
Cash and equivalents, beginning of year 2,317 1,955 3,079
CASH AND EQUIVALENTS, END OF YEAR $ 3,337 $ 2,317 $ 1,955
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest $ 20 $ 29 $ 32
Income taxes 702 638 736
Dividends declared and not paid 188 165 145
The accompanying notes to consolidated financial statements are an integral part of this statement.
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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, 2010 180 $ — 788 $ 3 $ 3,441 $ 215 $ 6,095 $ 9,754
Stock options exercised 14 368 368
Repurchase of Class B
Common Stock (48) (14) (1,857) (1,871)
Dividends on Common stock
($0.60 per share) (569) (569)
Issuance of shares to employees 2 49 49
Stock-based compensation (Note 11) 105 105
Forfeiture of shares from employees — (5) (1) (6)
Net income 2,133 2,133
Other Comprehensive Income (120) (120)
Balance at May 31, 2011 180 $ — 756 $ 3 $ 3,944 $ 95 $ 5,801 $ 9,843
Stock options exercised 18 528 528
Repurchase of Class B Common Stock (40) (12) (1,793) (1,805)
Dividends on Common stock ($0.70 per share) (639) (639)
Issuance of shares to employees 2 57 57
Stock-based compensation (Note 11) 130 130
Forfeiture of shares from employees — (6) (4) (10)
Net income 2,223 2,223
Other comprehensive income 54 54
Balance at May 31, 2012 180 $ — 736 $ 3 $ 4,641 $ 149 $ 5,588 $ 10,381
Stock options exercised 10 322 322
Conversion to Class B Common Stock (2) 2 —
Repurchase of Class B Common Stock (34) (10) (1,647) (1,657)
Dividends on Common stock ($0.81 per share) (727) (727)
Issuance of shares to employees 2 65 65
Stock-based compensation (Note 11) 174 174
Forfeiture of shares from employees — (8) (4) (12)
Net income 2,485 2,485
Other comprehensive income 125 125
Balance at May 31, 2013 178 $ — 716 $ 3 $ 5,184 $ 274 $ 5,695 $ 11,156
The accompanying notes to consolidated financial statements are an integral part of this statement.
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Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Note 2 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Note 3 Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Note 4 Identifiable Intangible Assets and Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Note 5 Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Note 6 Fair Value Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Note 7 Short-Term Borrowings and Credit Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Note 8 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Note 9 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Note 10 Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Note 11 Common Stock and Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
Note 12 Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Note 13 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Note 14 Accumulated Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Note 15 Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Note 16 Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
Note 17 Risk Management and Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
Note 18 Operating Segments and Related Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
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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. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc.,
which designs, markets and distributes casual footwear, apparel and
accessories and Hurley International LLC, which designs, markets and
distributes action sports and youth lifestyle footwear, apparel and
accessories.
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.
The Company completed the sale of Cole Haan during the third quarter
ended February 28, 2013 and completed the sale of Umbro during the
second quarter ended November 30, 2012. As a result, the Company reports
the operating results of Cole Haan and Umbro in the net income (loss) from
discontinued operations line in the consolidated statements of income for all
periods presented. In addition, the assets and liabilities associated with these
businesses are reported as assets of discontinued operations and liabilities
of discontinued operations, as appropriate, in the consolidated balance
sheets (refer to Note 15 — Discontinued Operations). Unless otherwise
indicated, the disclosures accompanying the consolidated financial
statements reflect the Company’s continuing operations.
On November 15, 2012, the Company announced a two-for-one split of both
NIKE Class A and Class B Common shares. The stock split was a 100
percent stock dividend payable on December 24, 2012 to shareholders of
record at the close of business December 10, 2012. Common stock began
trading at the split-adjusted price on December 26, 2012. All share numbers
and per share amounts presented reflect the stock split.
Recognition of Revenues
Wholesale revenues are recognized when title and the risks and rewards of
ownership have passed to the customer, based on the terms of sale. This
occurs upon shipment or upon 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. 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 that are expected to be granted to certain customers
at a later date. Estimates of discretionary discounts, returns and claims are
based on historical rates, specific identification of outstanding claims and
outstanding returns not yet received from customers, and estimated
discounts, returns and claims expected but not yet finalized with
customers. As of May 31, 2013 and 2012, the Company’s reserve balances
for post-invoice sales discounts, returns and miscellaneous claims were $531
million and $455 million, respectively.
Cost of Sales
Cost of sales consists primarily of inventory costs, as well as warehousing
costs (including the cost of warehouse labor), third party royalties, certain
foreign currency hedge gains and losses, and research, design and
development costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of
sales.
Operating Overhead Expense
Operating overhead expense consists primarily of payroll and benefit related
costs, rent, depreciation and amortization, professional services, and
meetings and travel.
Demand Creation Expense
Demand creation expense consists of advertising and promotion costs,
including costs of endorsement contracts, television, digital and print
advertising, brand events, and retail brand presentation. Advertising
production costs are expensed the first time an advertisement is run.
Advertising placement costs are expensed in the month the advertising
appears, while costs related to brand events are expensed when the event
occurs. Costs related to retail brand presentation are expensed when the
presentation is completed and delivered.
A significant amount of the Company’s promotional expenses result from
payments under endorsement contracts. Accounting for endorsement
payments is based upon specific contract provisions. Generally,
endorsement payments are expensed on a straight-line basis over the termof
the contract after giving recognition to periodic performance compliance
provisions of the contracts. Prepayments made under contracts are included
in prepaid expenses or other assets depending on the period to which the
prepayment applies.
Some of the contracts provide for contingent payments to endorsers based
upon specific achievements in their sports (e.g., winning a championship).
The Company records selling and administrative expense for these amounts
when the endorser achieves the specific goal.
Some of the contracts provide for payments based upon endorsers
maintaining a level of performance in their sport over an extended period of
time (e.g., maintaining a top ranking in a sport for a year). These amounts are
recorded in selling and administrative expense when the Company
determines that it is probable that the specified level of performance will be
maintained throughout the period. In these instances, to the extent that actual
payments to the endorser differ from our estimate due to changes in the
endorser’s athletic performance, increased or decreased selling and
administrative expense may be recorded in a future period.
Some of the contracts provide for royalty payments to endorsers based upon
a predetermined percentage 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 contractual obligations for which the Company estimates it will
not meet the minimum guaranteed amount of royalty fees through sales of
product, the Company records the amount of the guaranteed payment in
excess of that earned through sales of product in selling and administrative
expense uniformly over the remaining guarantee period.
Through cooperative advertising programs, the Company reimburses retail
customers for certain costs of advertising the Company’s products. The
Company records these costs in selling and administrative expense at the
point in time when it is obligated to its customers for the costs, which is when
the related revenues are recognized. This obligation may arise prior to the
related advertisement being run.
Total advertising and promotion expenses were $2,745 million, $2,607
million, and $2,344 million for the years ended May 31, 2013, 2012 and 2011,
respectively. Prepaid advertising and promotion expenses recorded in
prepaid expenses and other current assets totaled $386 million and $281
million at May 31, 2013 and 2012, respectively.
Cash and Equivalents
Cash and equivalents represent cash and short-term, highly liquid investments,
including commercial paper, U.S. treasury, U.S. agency, and corporate debt
securities with maturities of three months or less at date of purchase.
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Short-Term Investments
Short-term investments consist of highly liquid investments, including
commercial paper, U.S. treasury, U.S. agency, and corporate debt securities,
with maturities over three months from the date of purchase. Debt securities
that the Company has the ability and positive intent to hold to maturity are
carried at amortized cost. At May 31, 2013 and 2012, the Company did not
hold any short-term investments that were classified as trading or held-to-
maturity.
At May 31, 2013 and 2012, 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 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 three months 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-terminvestments.
Allowance for Uncollectible Accounts
Receivable
Accounts receivable consists 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 other assets. The allowance for
uncollectible accounts receivable was $104 million and $91 million at May 31,
2013 and 2012, respectively, of which $54 million and $45 million,
respectively, was classified as long-termand recorded in other assets.
Inventory Valuation
Inventories are stated at lower of cost or market and valued primarily on an
average cost basis. Inventory costs primarily consist of product cost from our
suppliers, as well as 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 for financial
reporting purposes is determined on a straight-line basis for 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 other assets are recorded in selling and administrative
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
10 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, 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 that 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.
Identifiable Intangible Assets and Goodwill
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 that 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 that 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 that it is more likely than
not that 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.
The Company generally bases its measurement of the fair value of a reporting
unit on a blended analysis of the present value of future discounted cash flows
and the market valuation approach. The discounted cash flows model
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: its weighted average cost of capital; long-term rate of growth
and profitability of the reporting unit’s business; and working capital effects.
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The market valuation approach indicates the fair value of the business based
on a comparison of the reporting unit to comparable publicly traded
companies in similar lines of business. Significant estimates in the market
valuation approach model include identifying similar companies with
comparable business factors such as size, growth, profitability, risk and return
on investment, and assessing comparable revenue and operating income
multiples in estimating the fair value of the reporting unit.
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 that an indefinite-lived intangible
asset is impaired. If, after assessing the totality of events and circumstances,
the Company determines that 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 that trade names and trademarks have value to the
extent that 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, and other non-real estate assets under operating
leases. Operating lease agreements may contain rent escalation clauses, 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 rents, which are determined as a
percentage 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 hierarchy are described below:
• Level 1: Observable inputs such as quoted prices in active markets for
identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are observable 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 for which there is 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 certain 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
Company’s fair value processes include controls that are designed to ensure
appropriate fair values are recorded. These controls include an analysis of
period-over-period fluctuations and comparison to another independent
pricing vendor.
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
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
remeasurement, the impact of which is recorded in other (income) expense,
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 balance sheet and changes in the fair value of
derivative financial instruments are either recognized in other comprehensive
income (a component of shareholders’ equity), 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
within the cash provided by operations component of the consolidated
statements of cash flows. For designated net investment hedges, this is
generally within the cash provided or used by investing activities component
of the cash flow statement. As our fair value hedges are receive-fixed, pay-
variable interest rate swaps, the cash flows associated with these derivative
instruments are periodic interest payments while the swaps are outstanding.
These cash flows are reflected within the cash provided by operations
component of the cash flowstatement.
Refer to Note 17 — Risk Management and Derivatives for more information
on the Company’s risk management programand derivatives.
Stock-Based Compensation
The Company estimates the fair value of options and stock appreciation rights
granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 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, net of estimated forfeitures, as selling and
administrative expense 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
more information on the Company’s stock 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
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management believes is more likely than not to be realized. United States
income taxes are provided currently on financial statement earnings of non-
U.S. subsidiaries that are expected to be repatriated. The Company
determines annually the amount of undistributed non-U.S. earnings to invest
indefinitely in its non-U.S. operations.
The Company recognizes a tax benefit from uncertain tax positions in the
financial statements only when it is more likely than not that 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 fromthese estimates.
Recently Adopted Accounting Standards
In July 2012, the FASB issued an accounting standards update intended to
simplify how an entity tests indefinite-lived intangible assets other than
goodwill for impairment by providing entities with an option to perform a
qualitative assessment to determine whether further impairment testing is
necessary. This accounting standard update will be effective for the Company
beginning June 1, 2013, and early adoption is permitted. The Company early
adopted this standard and the adoption did not have a material impact on its
consolidated financial position or results of operations.
In September 2011, the FASB issued updated guidance on the periodic
testing of goodwill for impairment. This guidance will allow companies to
assess qualitative factors to determine if it is more-likely-than-not that goodwill
might be impaired and whether it is necessary to perform the two-step
goodwill impairment test required under current accounting standards. This
newguidance was effective for the Company beginning June 1, 2012 and the
adoption did not have a material effect on its consolidated financial position or
results of operations.
In June 2011, the FASB issued guidance on the presentation of
comprehensive income. This new guidance eliminates the current option to
report other comprehensive income and its components in the statement of
shareholders’ equity. Companies are now required to present the
components of net income and other comprehensive income in either one
continuous statement, referred to as the statement of comprehensive
income, or in two separate, but consecutive statements. This requirement
was effective for the Company beginning June 1, 2012. As this guidance only
amended the presentation of the components of comprehensive income, the
adoption did not have an impact on the Company’s consolidated financial
position or results of operations. Further, this guidance required companies to
present reclassification adjustments out of accumulated other comprehensive
income by component in both the statement in which net income is
presented and the statement in which other comprehensive income is
presented. This requirement will be effective for the Company beginning
June 1, 2013. As this guidance only amends the presentation of the
components of comprehensive income, the Company does not anticipate the
adoption will have an impact on the Company’s consolidated financial
position or results of operations.
Recently Issued Accounting Standards
In December 2011, the FASB issued guidance enhancing disclosure
requirements surrounding the nature of an entity’s right to offset and related
arrangements associated with its financial instruments and derivative
instruments. This new guidance requires companies to disclose both gross
and net information about instruments and transactions eligible for offset in
the statement of financial position and instruments and transactions subject
to master netting arrangements. This new guidance is effective for the
Company beginning June 1, 2013. As this guidance only requires expanded
disclosures, the Company does not anticipate the adoption will have an
impact on its consolidated financial position or results of operations.
NOTE 2 — Inventories
Inventory balances of $3,434 million and $3,222 million at May 31, 2013 and 2012, respectively, were substantially all finished goods.
NOTE 3 — Property, Plant and Equipment
Property, plant and equipment included the following:
As of May 31,
(In millions) 2013 2012
Land $ 268 $ 252
Buildings 1,174 1,158
Machinery, equipment and internal-use software 2,985 2,654
Leasehold improvements 945 883
Construction in process 128 110
Total property, plant and equipment, gross 5,500 5,057
Less accumulated depreciation 3,048 2,848
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 2,452 $ 2,209
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Capitalized interest was not material for the years ended May 31, 2013, 2012, and 2011. The Company had $81 million in capital lease obligations as of May 31,
2013 included in machinery, equipment, and internal-use software; there were no capital lease obligations as of May 31, 2012.
NOTE 4 — Identifiable Intangible Assets and Goodwill
The following table summarizes the Company’s identifiable intangible asset balances as of May 31, 2013 and 2012:
As of May 31, 2013 As of May 31, 2012
(In millions)
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Amortized intangible assets:
Patents $ 119 $ (35) $ 84 $ 99 $ (29) $ 70
Trademarks 43 (32) 11 40 (26) 14
Other 20 (16) 4 19 (16) 3
TOTAL $ 182 $ (83) $ 99 $ 158 $ (71) $ 87
Unamortized intangible assets —
Trademarks 283 283
IDENTIFIABLE INTANGIBLE
ASSETS, NET $ 382 $ 370
Amortization expense, which is included in selling and administrative expense,
was $14 million, $14 million, and $13 million for the years ended May 31,
2013, 2012, and 2011, respectively. The estimated amortization expense for
intangible assets subject to amortization for each of the years ending May 31,
2014 through May 31, 2018 are as follows: 2014: $13 million; 2015: $9
million; 2016: $9 million; 2017: $7 million; 2018: $6 million.
Goodwill was $131 million at May 31, 2013 and May 31, 2012, respectively,
and is included in the Company’s “Other” category for segment reporting
purposes. There were no accumulated impairment balances for goodwill as
of either period end.
NOTE 5 — Accrued Liabilities
Accrued liabilities included the following:
As of May 31,
(In millions) 2013 2012
Compensation and benefits, excluding taxes $ 713 $ 691
Endorsement compensation 264 288
Taxes other than income taxes 192 169
Dividends payable 188 165
Import and logistics costs 111 133
Advertising and marketing 77 94
Fair value of derivatives 34 55
Other
(1)
407 346
TOTAL ACCRUED LIABILITIES $ 1,986 $ 1,941
(1) Other consists of various accrued expenses with no individual itemaccounting for more than 5%of the balance at May 31, 2013 and 2012.
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NOTE 6 — Fair Value Measurements
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of May 31, 2013 and
2012, and indicates 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, 2013
Fair Value
Measurements Using
Assets/Liabilities
at Fair Value (In millions) Level 1 Level 2 Level 3 Balance Sheet Classification
ASSETS
Derivatives:
Foreign exchange forwards and options $ — $ 278 $ — $ 278 Other current assets and other long-term assets
Interest rate swap contracts — 11 — 11 Other current assets and other long-term assets
Total derivatives — 289 — 289
Available-for-sale securities:
U.S. Treasury securities 425 — — 425 Cash and equivalents
U.S. Agency securities — 20 — 20 Cash and equivalents
Commercial paper and bonds — 1,035 — 1,035 Cash and equivalents
Money market funds — 836 — 836 Cash and equivalents
U.S. Treasury securities 1,583 — — 1,583 Short-term investments
U.S. Agency securities — 401 — 401 Short-term investments
Commercial paper and bonds — 644 — 644 Short-term investments
Non-marketable preferred stock — — 5 5 Other long-term assets
Total available-for-sale securities 2,008 2,936 5 4,949
TOTAL ASSETS $ 2,008 $ 3,225 $ 5 $ 5,238
LIABILITIES
Derivatives:
Foreign exchange forwards and options $ — $ 34 $ — $ 34 Accrued liabilities and other long-term liabilities
TOTAL LIABILITIES $ — $ 34 $ — $ 34
As of May 31, 2012
Fair Value
Measurements Using
Assets / Liabilities
at Fair Value (In millions) Level 1 Level 2 Level 3 Balance Sheet Classification
ASSETS
Derivatives:
Foreign exchange forwards and options $ — $ 265 $ — $ 265 Other current assets and other long-term assets
Embedded derivatives — 1 — 1 Other current assets
Interest rate swap contracts — 15 — 15 Other current assets and other long-term assets
Total derivatives — 281 — 281
Available-for-sale securities:
U.S. Treasury securities 226 — — 226 Cash and equivalents
U.S. Agency securities — 254 — 254 Cash and equivalents
Commercial paper and bonds — 159 — 159 Cash and equivalents
Money market funds — 770 — 770 Cash and equivalents
U.S. Treasury securities 927 — — 927 Short-term investments
U.S. Agency securities — 230 — 230 Short-term investments
Commercial paper and bonds — 283 — 283 Short-term investments
Non-marketable preferred stock — — 3 3 Other long-term assets
Total available-for-sale securities 1,153 1,696 3 2,852
TOTAL ASSETS $ 1,153 $ 1,977 $ 3 $ 3,133
LIABILITIES
Derivatives:
Foreign exchange forwards and options $ — $ 55 $ — $ 55 Accrued liabilities and other long-term liabilities
TOTAL LIABILITIES $ — $ 55 $ — $ 55
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Derivative financial instruments include foreign exchange forwards and
options, embedded derivatives and interest rate swap contracts. The fair
value of derivative contracts is determined using observable market inputs
such as the daily market foreign currency rates, forward pricing curves,
currency volatilities, currency correlations and interest rates, and considers
nonperformance risk of the Company and that of its counterparties.
Adjustments relating to these nonperformance risks were not material at
May 31, 2013 or 2012. Refer to Note 17 —Risk Management and Derivatives
for additional detail.
Available-for-sale securities comprise investments in U.S. Treasury and
Agency securities, money market funds, corporate commercial paper and
bonds. These securities are valued using market prices on both active
markets (Level 1) and less active markets (Level 2). Pricing vendors are utilized
for certain Level 1 or Level 2 investments. These vendors either provide a
quoted market price in an active market or use observable inputs without
applying significant adjustments in their pricing. Observable inputs include
broker quotes, interest rates and yield curves observable at commonly
quoted intervals, volatilities and credit risks. The carrying amounts reflected in
the consolidated balance sheets for short-term investments and cash and
equivalents approximate fair value.
The Company’s Level 3 assets comprise investments in certain non-
marketable preferred stock. These investments are valued using internally
developed models with unobservable inputs. These Level 3 investments are
an immaterial portion of our portfolio. Changes in Level 3 investment assets
were immaterial during the years ended May 31, 2013 and 2012.
No transfers among the levels within the fair value hierarchy occurred during
the years ended May 31, 2013 or 2012.
As of May 31, 2013 and 2012, the Company had no assets or liabilities that
were required to be measured at fair value on a non-recurring basis.
Short-Term Investments
As of May 31, 2013 and 2012, short-terminvestments consisted of available-
for-sale securities. As of May 31, 2013, the Company held $2,229 million of
available-for-sale securities with maturity dates within one year from the
purchase date and $399 million with maturity dates over one year and less
than five years from the purchase date within short-term investments. As of
May 31, 2012, the Company held $1,129 million of available-for-sale
securities with maturity dates within one year from purchase date and $311
million with maturity dates over one year and less than five years from
purchase date within short-terminvestments.
Short-terminvestments classified as available-for-sale consist of the following at fair value:
As of May 31,
(In millions) 2013 2012
Available-for-sale investments:
U.S. treasury and agencies $ 1,984 $ 1,157
Commercial paper and bonds 644 283
TOTAL AVAILABLE-FOR-SALE INVESTMENTS $ 2,628 $ 1,440
Included in interest (income) expense, net was interest income related to cash
and equivalents and short-term investments of $26 million, $27 million, and
$28 million for the years ended May 31, 2013, 2012, and 2011, respectively.
For fair value information regarding notes payable and long-termdebt, refer to
Note 7 —Short-TermBorrowings and Credit Lines and Note 8 —Long-Term
Debt.
NOTE 7 — Short-TermBorrowings and Credit Lines
Notes payable and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz America”) as of May 31, 2013 and 2012, are summarized below:
As of May 31,
2013 2012
(In millions) Borrowings Interest Rate Borrowings Interest Rate
Notes payable:
U.S. operations $ 20 0.00%
(1)
$ 30 5.50%
(1)
Non-U.S. operations 101 4.77%
(1)
78 9.46%
(1)
TOTAL NOTES PAYABLE $ 121 $ 108
Interest-Bearing Accounts Payable:
Sojitz America $ 55 0.99% $ 75 1.10%
(1) Weighted average interest rate includes non-interest bearing overdrafts.
The carrying amounts reflected in the consolidated balance sheets for notes
payable approximate fair value.
The Company purchases through Sojitz America certain athletic footwear,
apparel and equipment it acquires fromnon-U.S. suppliers. These purchases
are for the Company’s operations outside of the United States, Europe and
Japan. Accounts payable to Sojitz America are generally due up to 60 days
after shipment of goods from the foreign port. The interest rate on such
accounts payable is the 60-day London Interbank Offered Rate (“LIBOR”) as
of the beginning of the month of the invoice date, plus 0.75%.
As of May 31, 2013 and 2012, the Company had no amounts outstanding
under its commercial paper program.
In November 2011, the Company entered into a committed credit facility
agreement with a syndicate of banks which provides for up to $1 billion of
borrowings pursuant to a revolving credit facility with the option to increase
borrowings to $1.5 billion with lender approval. The facility matures on
November 1, 2016, with a one-year extension option prior to both the second
and third anniversary of the closing date, provided that extensions shall not
extend beyond November 1, 2018. Based on the Company’s current long-
term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s
Corporation and Moody’s Investor Services, respectively, the interest rate
charged on any outstanding borrowings would be the prevailing LIBOR plus
0.56%. The facility fee is 0.065% of the total commitment. Under this
committed credit facility, the Company must maintain, among other things,
certain minimum specified financial ratios with which the Company was in
compliance at May 31, 2013. No amounts were outstanding under this facility
as of May 31, 2013 or 2012.
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NOTE 8 — Long-TermDebt
Long-termdebt, net of unamortized premiums and discounts and swap fair value adjustments, comprises the following:
Book Value Outstanding
As of May 31,
Scheduled Maturity (Dollars in millions)
Original
Principal
Interest
Rate
Interest
Payments 2013 2012
Corporate Bond Payables:
(4)
July 23, 2012
(1)
$ 25 5.66% Semi-Annually $ — $ 25
August 7, 2012
(1)
$ 15 5.40% Semi-Annually — 15
October 1, 2013 $ 50 4.70% Semi-Annually 50 50
October 15, 2015
(1)
$ 100 5.15% Semi-Annually 111 115
May 1, 2023
(5)
$ 500 2.25% Semi-Annually 499 —
May 1, 2043
(5)
$ 500 3.63% Semi-Annually 499 —
Promissory Notes:
(2)
April 1, 2017 $ 40 6.20% Monthly 40 —
January 1, 2018 $ 19 6.79% Monthly 19 —
Japanese Yen Notes:
August 20, 2001 through November 20, 2020
(3)
¥ 9,000 2.60% Quarterly 34 50
August 20, 2001 through November 20, 2020
(3)
¥ 4,000 2.00% Quarterly 15 22
Total 1,267 277
Less current maturities 57 49
TOTAL LONG-TERM DEBT $ 1,210 $ 228
(1) The Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the note and pays variable interest payments
based on the six-month LIBOR plus a spread. The swaps have the same notional amount and maturity date as the corresponding note. At May 31, 2013, the interest rates payable on
these swap agreements ranged fromapproximately 0.3%to 0.4%.
(2) The Company assumed a total of $59 million in bonds payable on May 30, 2013 as part of its agreement to purchase certain Corporate properties, which was treated as a non-cash
financing transaction. The property serves as collateral for the debt. The purchase of these properties was accounted for as a business combination where the total consideration of $85
million was allocated to the land and buildings acquired; no other tangible or intangible assets or liabilities resulted from the purchase. The bonds mature in 2017 and 2018 and the
Company does not have the ability to re-negotiate the terms of the debt agreements and would incur significant financial penalties if the notes are paid off prior to maturity.
(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.
(4) Senior unsecured obligations rank equally with our other unsecured and unsubordinated indebtedness.
(5) The bonds carry a make whole call provision and are redeemable at any time prior to maturity. The bonds also feature a par call provision payable 3 months and 6 months prior to the
scheduled maturity date for the bonds maturing on May 1, 2023 and May 1, 2043, respectively.
The scheduled maturity of long-termdebt in each of the years ending May 31,
2014 through 2018 are $57 million, $7 million, $108 million, $45 million and
$25 million, respectively, at face value.
The fair value of the Company’s long-term debt, including the current portion,
was approximately $1,219 million at May 31, 2013 and $283 million at
May 31, 2012. The fair value of long-term debt is estimated based upon
quoted prices of similar instruments (level 2).
NOTE 9 — Income Taxes
Income before income taxes is as follows:
Year Ended May 31,
(In millions) 2013 2012 2011
Income before income taxes:
United States $ 1,240 $ 804 $ 1,040
Foreign 2,032 2,221 1,822
TOTAL INCOME BEFORE INCOME TAXES $ 3,272 $ 3,025 $ 2,862
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The provision for income taxes is as follows:
Year Ended May 31,
(In millions) 2013 2012 2011
Current:
United States
Federal $ 434 $ 289 $ 298
State 69 51 57
Foreign 398 488 435
Total 901 828 790
Deferred:
United States
Federal 1 (48) (62)
State (4) 5 —
Foreign (90) (29) (38)
Total (93) (72) (100)
TOTAL INCOME TAX EXPENSE $ 808 $ 756 $ 690
A reconciliation fromthe U.S. statutory federal income tax rate to the effective income tax rate is as follows:
Year Ended May 31,
2013 2012 2011
Federal income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 1.4% 1.3% 1.3%
Foreign earnings -11.8% -11.9% -11.4%
Other, net 0.1% 0.6% -0.8%
EFFECTIVE INCOME TAX RATE 24.7% 25.0% 24.1%
The effective tax rate from continuing operations for the year ended May 31,
2013 was 30 basis points lower than the effective tax rate from continuing
operations for the year ended May 31, 2012 primarily due to tax benefits
received from the intercompany sale of intellectual property rights outside of
the U.S., the retroactive reinstatement of the research and development credit
and the intra-period allocation of tax expense between continuing operations,
discontinued operations, and other comprehensive income. The decrease in
the effective tax rate was partially offset by a higher effective tax rate on
operations as a result of an increase in earnings in higher tax jurisdictions. The
effective tax rate from continuing operations for the year ended May 31, 2012
was 90 basis points higher than the effective tax rate from continuing
operations for the year ended May 31, 2011 primarily due to the changes in
uncertain tax positions partially offset by a reduction in the effective rate
related to a decrease in earnings in higher tax jurisdictions.
Deferred tax assets and (liabilities) comprise the following:
As of May 31,
(In millions) 2013 2012
Deferred tax assets:
Allowance for doubtful accounts $ 20 $ 17
Inventories 40 37
Sales return reserves 101 84
Deferred compensation 197 186
Stock-based compensation 140 126
Reserves and accrued liabilities 66 66
Foreign loss carry-forwards 19 35
Foreign tax credit carry-forwards 106 216
Undistributed earnings of foreign subsidiaries 162 82
Other 47 62
Total deferred tax assets 898 911
Valuation allowance (5) (27)
Total deferred tax assets after valuation allowance 893 884
Deferred tax liabilities:
Property, plant and equipment (241) (191)
Intangibles (96) (98)
Other (20) (22)
Total deferred tax liability (357) (311)
NET DEFERRED TAX ASSET $ 536 $ 573
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The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:
As of May 31,
(In millions) 2013 2012 2011
Unrecognized tax benefits, as of the beginning of the period $ 285 $ 212 $ 282
Gross increases related to prior period tax positions 77 48 13
Gross decreases related to prior period tax positions (3) (25) (98)
Gross increases related to current period tax positions 130 91 59
Gross decreases related to current period tax positions (9) (1) (6)
Settlements — (20) (43)
Lapse of statute of limitations (21) (9) (8)
Changes due to currency translation (12) (11) 13
UNRECOGNIZED TAX BENEFITS, AS OF THE END OF THE PERIOD $ 447 $ 285 $ 212
As of May 31, 2013, the total gross unrecognized tax benefits, excluding
related interest and penalties, were $447 million, $281 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
increased $4 million, $17 million, and $10 million during the years ended
May 31, 2013, 2012, and 2011, respectively. As of May 31, 2013 and 2012,
accrued interest and penalties related to uncertain tax positions was $112
million and $108 million, respectively (excluding federal benefit).
The Company is subject to taxation primarily in the U.S., China, the
Netherlands, and Brazil, as well as various state and other foreign
jurisdictions. The Company has concluded substantially all U.S. federal
income tax matters through fiscal 2010. The Company is currently under audit
by the Internal Revenue Service for the 2011 through 2013 tax years. Many
issues are at an advanced stage in the examination process, the most
significant of which includes the negotiation of a U.S. Unilateral Advanced
Pricing Agreement that covers intercompany transfer pricing issues for fiscal
years May 31, 2011 through May 31, 2015. In addition, the Company is in
appeals regarding the validation of foreign tax credits taken. The Company’s
major foreign jurisdictions, China, the Netherlands and Brazil, have concluded
substantially all income tax matters through calendar 2005, fiscal 2007 and
calendar 2006, 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 $86 million within the next 12 months.
We provide for United States income taxes on the undistributed earnings of
foreign subsidiaries unless they are considered indefinitely reinvested outside
the United States. At May 31, 2013, the indefinitely reinvested earnings in
foreign subsidiaries upon which United States income taxes have not been
provided was approximately $6.7 billion. If these undistributed earnings were
repatriated to the United States, or if the shares of the relevant foreign
subsidiaries were sold or otherwise transferred, they would generate foreign
tax credits that would reduce the federal tax liability associated with the
foreign dividend or the otherwise taxable transaction. Assuming a full
utilization of the foreign tax credits, the potential net deferred tax liability
associated with these temporary differences of undistributed earnings would
be approximately $2.2 billion at May 31, 2013.
A portion of the Company’s foreign operations are benefiting from a tax
holiday, which will phase out in 2019. This tax holiday may be extended when
certain conditions are met or may be terminated early if certain conditions are
not met. The impact of this tax holiday decreased foreign taxes by $108
million, $117 million, and $36 million for the fiscal years ended May 31, 2013,
2012, and 2011, respectively. The benefit of the tax holiday on net income per
share (diluted) was $0.12, $0.12, and $0.04 for the fiscal years ended
May 31, 2013, 2012, and 2011, respectively.
Deferred tax assets at May 31, 2013 and 2012 were reduced by a valuation
allowance relating to tax benefits of certain subsidiaries with operating losses.
The net change in the valuation allowance was a decrease of $22 million, an
increase of $23 million, and a decrease of $1 million for the years ended
May 31, 2013, 2012, and 2011, respectively.
The Company does not anticipate that any foreign tax credit carry-forwards
will expire unutilized.
The Company has available domestic and foreign loss carry-forwards of $58 million at May 31, 2013. Such losses will expire as follows:
Year Ending May 31,
(In millions) 2014 2015 2016 2017 2018-2032 Indefinite Total
Net Operating Losses $ — — 2 — 52 4 $ 58
During the years ended May 31, 2013, 2012, and 2011, income tax benefits attributable to employee stock-based compensation transactions of $76 million,
$120 million, and $68 million, respectively, were allocated to shareholders’ equity.
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, 2013, 2012, and 2011. 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.
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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 200 million and 1,200 million,
respectively. Each share of Class A Common Stock is convertible into one
share of Class BCommon Stock. Voting rights of Class BCommon 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 Class A and Class Bcommon shareholders.
In 1990, the Board of Directors adopted, and the shareholders approved, the
NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The 1990 Plan
provides for the issuance of up to 326 million previously unissued shares of
Class B Common Stock in connection with stock options and other awards
granted under the plan. The 1990 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 1990 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 1990 Plan were
granted in the first quarter of each fiscal year, vest ratably over four years, and
expire 10 years fromthe date of grant.
The following table summarizes the Company’s total stock-based compensation expense recognized in selling and administrative expense:
Year Ended May 31,
(In millions) 2013 2012 2011
Stock options
(1)
$ 123 $ 96 $ 77
ESPPs 19 16 14
Restricted stock 32 18 14
TOTAL STOCK-BASED COMPENSATION EXPENSE $ 174 $ 130 $ 105
(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 for years ended May 31, 2013, 2012, and 2011 was $22 million, $17 million, and $12 million, respectively.
As of May 31, 2013, the Company had $199 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized as
selling and administrative expense over a weighted average period of 2.3 years.
The weighted average fair value per share of the options granted during the years ended May 31, 2013, 2012, and 2011, as computed using the Black-Scholes
pricing model, was $12.71, $11.08, and $8.84, respectively. The weighted average assumptions used to estimate these fair values are as follows:
Year Ended May 31,
2013 2012 2011
Dividend yield 1.5% 1.4% 1.6%
Expected volatility 35.0% 29.5% 31.5%
Weighted average expected life (in years) 5.3 5.0 5.0
Risk-free interest rate 0.6% 1.4% 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 termof the options.
The following summarizes the stock option transactions under the plan discussed above:
Shares
(1)
Weighted Average
Option Price
(In millions)
Options outstanding May 31, 2010 72.2 $ 23.30
Exercised (14.0) 21.35
Forfeited (1.3) 29.03
Granted 12.7 34.60
Options outstanding May 31, 2011 69.6 $ 25.65
Exercised (18.0) 22.81
Forfeited (1.0) 35.61
Granted 13.7 45.87
Options outstanding May 31, 2012 64.3 $ 30.59
Exercised (9.9) 24.70
Forfeited (1.3) 40.14
Granted 14.6 46.55
Options outstanding May 31, 2013 67.7 $ 34.72
Options exercisable at May 31,
2011 40.1 $ 22.03
2012 33.9 24.38
2013 35.9 27.70
(1) Includes stock appreciation rights transactions.
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The weighted average contractual life remaining for options outstanding and
options exercisable at May 31, 2013 was 6.3 years and 4.7 years,
respectively. The aggregate intrinsic value for options outstanding and
exercisable at May 31, 2013 was $1,823 million and $1,218 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, 2013, 2012, and 2011 was $293 million, $453 million, and
$267 million, respectively.
In addition to the 1990 Plan, the Company gives employees the right to
purchase shares at a discount to the market price under employee stock
purchase plans (“ESPPs”). 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 1.6 million, 1.7 million, and 1.6 million shares during
each of the three years ended May 31, 2013, 2012 and 2011, respectively.
From time to time, the Company grants restricted stock units and restricted
stock to key employees under the 1990 Plan. The number of shares
underlying such awards granted to employees during the years ended
May 31, 2013, 2012, and 2011 were 1.6 million, 0.7 million, and 0.4 million
with weighted average values per share of $46.86, $49.49, and $35.11,
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, 2013, 2012, and 2011, the aggregate fair value of
restricted stock and restricted stock units vested was $25 million, $22 million,
and $15 million, respectively, determined as of the date of vesting.
NOTE 12 —Earnings Per Share
The following is a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an additional 0.1 million, 0.2 million, and
0.3 million shares of common stock were outstanding at May 31, 2013, 2012, and 2011 respectively, but were not included in the computation of diluted earnings
per share because the options were anti-dilutive.
Year Ended May 31,
(In millions, except per share data) 2013 2012 2011
Determination of shares:
Weighted average common shares outstanding 897.3 920.0 951.1
Assumed conversion of dilutive stock options and awards 19.1 19.6 20.2
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 916.4 939.6 971.3
Earnings per share from continuing operations:
Basic earnings per common share $ 2.75 $ 2.47 $ 2.28
Diluted earnings per common share $ 2.69 $ 2.42 $ 2.24
Earnings per share from discontinued operations:
Basic earnings per common share $ 0.02 $ (0.05) $ (0.04)
Diluted earnings per common share $ 0.02 $ (0.05) $ (0.04)
Basic earnings per common share for NIKE, Inc. $ 2.77 $ 2.42 $ 2.24
Diluted earnings per common share for NIKE, Inc. $ 2.71 $ 2.37 $ 2.20
NOTE 13 —Benefit Plans
The Company has a profit sharing plan available to most U.S.-based
employees. The terms of the plan call for annual contributions by the
Company as determined by the Board of Directors. A subsidiary of the
Company also had a profit sharing plan available to its U.S.-based employees
prior to fiscal 2012. The terms of the plan called for annual contributions as
determined by the subsidiary’s executive management. Contributions of $47
million, $40 million, and $39 million were made to the plans and are included
in selling and administrative expense for the years ended May 31, 2013,
2012, and 2011, respectively. The Company has various 401(k) employee
savings plans available to U.S.-based employees. The Company matches a
portion of employee contributions. Company contributions to the savings
plans were $46 million, $42 million, and $38 million for the years ended
May 31, 2013, 2012, and 2011, respectively, and are included in selling and
administrative expense.
The Company also has a Long-TermIncentive Plan (“LTIP”) that was adopted
by the Board of Directors and approved by shareholders in September 1997
and later amended in fiscal 2007. The Company recognized $50 million, $51
million, and $31 million of selling and administrative expense related to cash
awards under the LTIP during the years ended May 31, 2013, 2012, and
2011, respectively.
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 $104 million and $113 million at May 31, 2013 and May 31, 2012,
respectively, which was primarily classified as long-termin other liabilities.
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NOTE 14 —Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, are as follows:
May 31
(In millions) 2013 2012
Cumulative translation adjustment and other $ (14) $ (127)
Net deferred gain on cash flow hedge derivatives 193 181
Net deferred gain on net investment hedge derivatives 95 95
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 274 $ 149
Refer to Note 17 —Risk Management and Derivatives for more information on the Company’s risk management programand derivatives.
NOTE 15 —Discontinued Operations
The Company continually evaluates its existing portfolio of businesses to
ensure resources are invested in those businesses that are accretive to the
NIKE Brand and represent the largest growth potential and highest returns.
During the year, the Company divested of Umbro and Cole Haan, allowing it
to focus its resources on driving growth in the NIKE, Jordan, Converse and
Hurley brands.
On February 1, 2013, the Company completed the sale of Cole Haan to Apax
Partners for an agreed upon purchase price of $570 million and received at
closing $561 million, net of $9 million of purchase price adjustments. The
transaction resulted in a gain on sale of $231 million, net of $137 million in tax
expense; this gain is included in the net income (loss) from discontinued
operations line itemon the consolidated statements of income. There were no
adjustments to these recorded amounts as of May 31, 2013. Beginning
November 30, 2012, the Company classified the Cole Haan disposal group
as held-for-sale and presented the results of Cole Haan’s operations in the
net income (loss) from discontinued operations line item on the consolidated
statements of income. Fromthis date until the sale, the assets and liabilities of
Cole Haan were recorded in the assets of discontinued operations and
liabilities of discontinued operations line items on the consolidated balance
sheets, respectively. Previously, these amounts were reported in the
Company’s segment presentation as “Other Businesses.”
Under the sale agreement, the Company agreed to provide certain transition
services to Cole Haan for an expected period of 3 to 9 months from the date
of sale. The Company will also license NIKE proprietary Air and Lunar
technologies to Cole Haan for a transition period. The continuing cash flows
related to these items are not expected to be significant to Cole Haan and the
Company will have no significant continuing involvement with Cole Haan
beyond the transition services. Additionally, preexisting guarantees of certain
Cole Haan lease payments remain in place after the sale; the maximum
exposure under the guarantees is $44 million at May 31, 2013. The fair value
of the guarantees is not material.
On November 30, 2012, the Company completed the sale of certain assets of
Umbro to Iconix Brand Group (“Iconix”) for $225 million. The Umbro disposal
group was classified as held-for-sale as of November 30, 2012 and the
results of Umbro’s operations are presented in the net income (loss) from
discontinued operations line item on the consolidated statements of income.
The remaining liabilities of Umbro are recorded in the liabilities of discontinued
operations line items on the consolidated balance sheets. Previously, these
amounts were reported in the Company’s segment presentation as “Other
Businesses.” Upon meeting the held-for-sale criteria, the Company recorded
a loss of $107 million, net of tax, on the sale of Umbro and the loss is included
in the net income (loss) from discontinued operations line item on the
consolidated statements of income. The loss on sale was calculated as the
net sales price less Umbro assets of $248 million, including intangibles,
goodwill, and fixed assets, other miscellaneous charges of $22 million, and
the release of the associated cumulative translation adjustment of $129
million. The tax benefit on the loss was $67 million. There were no
adjustments to these recorded amounts as of May 31, 2013.
Under the sale agreement, the Company provided transition services to Iconix
while certain markets were transitioned to Iconix-designated licensees. These
transition services are complete and the Company has wound down the
remaining operations of Umbro.
For the year ended May 31, 2013, net income (loss) from discontinued
operations included, for both businesses, the net gain or loss on sale, net
operating losses, tax expenses, and approximately $20 million in wind down
costs.
Summarized results of the Company’s discontinued operations are as follows:
Year Ended May 31,
(In millions) 2013 2012 2011
Revenues $ 523 $ 796 $ 746
Income (loss) before income taxes 108 (43) (18)
Income tax expense (benefit) 87 3 21
Net income (loss) from discontinued operations $ 21 $ (46) $ (39)
As of May 31, 2013 and 2012, the aggregate components of assets and liabilities classified as discontinued operations and included in current assets and current
liabilities consisted of the following:
As of May 31,
(In millions) 2013 2012
Accounts Receivable, net $ — $ 148
Inventories — 128
Deferred income taxes and other assets — 35
Property, plant and equipment, net — 70
Identifiable intangible assets, net — 234
TOTAL ASSETS $ — $ 615
Accounts payable $ 1 $ 42
Accrued liabilities 17 112
Deferred income taxes and other liabilities — 16
TOTAL LIABILITIES $ 18 $ 170
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NOTE 16 —Commitments and Contingencies
The Company leases space for certain of its offices, warehouses and retail
stores under leases expiring from 1 to 21 years after May 31, 2013. Rent
expense was $482 million, $431 million, and $386 million for the years ended
May 31, 2013, 2012 and 2011, respectively. Amounts of minimum future
annual rental commitments under non-cancelable operating leases in each of
the five years ending May 31, 2014 through 2018 are $403 million, $340
million, $304 million, $272 million, $225 million, respectively, and $816 million
in later years. Amounts of minimum future annual commitments under non-
cancelable capital leases in each of the four years ending May 31, 2014
through 2017 are $23 million, $28 million, $21 million, and $9 million,
respectively; the Company has no capital lease obligations beyond the year
ending May 31, 2017.
As of May 31, 2013 and 2012, the Company had letters of credit outstanding
totaling $149 million and $137 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 indemnifications 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 that the fair value of such indemnifications 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 17 —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 objective and
strategy 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, 2013 are designated as
cash flow or fair value hedges. All derivatives are recognized on the balance
sheet at fair value and classified based on the instrument’s maturity date. The
total notional amount of outstanding derivatives as of May 31, 2013 was
approximately $9 billion, which primarily comprises cash flow hedges for
Euro/U.S. Dollar, British Pound/Euro, and Japanese Yen/U.S. Dollar currency
pairs. As of May 31, 2013, there were outstanding currency forward contracts
with maturities up to 24 months.
The following table presents the fair values of derivative instruments included within the consolidated balance sheets as of May 31, 2013 and 2012:
Asset Derivatives Liability Derivatives
(In millions)
Balance Sheet
Location 2013 2012 Balance Sheet Location 2013 2012
Derivatives formally designated as
hedging instruments:
Foreign exchange forwards and
options
Prepaid expenses
and other
current assets $ 141 $ 203 Accrued liabilities $ 12 $ 35
Foreign exchange forwards and
options
Deferred income
taxes and other
long-term assets 79 7
Deferred income
taxes and other
long-term liabilities — —
Interest rate swap contracts Deferred income
taxes and other
long-term assets 11 15
Deferred income
taxes and other
long-term liabilities — —
Total derivatives formally designated as
hedging instruments $ 231 $ 225 $ 12 $ 35
Derivatives not designated as hedging
instruments:
Foreign exchange forwards and
options
Prepaid expenses
and other
current assets $ 58 $ 55 Accrued liabilities $ 22 $ 20
Embedded derivatives Prepaid expenses
and other
current assets — 1 Accrued liabilities — —
Total derivatives not designated as
hedging instruments 58 56 22 20
TOTAL DERIVATIVES $ 289 $ 281 $ 34 $ 55
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The following tables present the amounts affecting the consolidated statements of income for years ended May 31, 2013, 2012 and 2011:
(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
(1)
Year Ended May 31,
2013 2012 2011 2013 2012 2011
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options $ 42 $ (29) $ (87) Revenue $ (19) $ 5 $ (30)
Foreign exchange forwards and options 67 253 (152) Cost of sales 113 (57) 103
Foreign exchange forwards and options (3) 3 (4) Selling and administrative expense 2 (2) 1
Foreign exchange forwards and options 33 36 (65) Other (income) expense, net 9 (9) 34
Total designated cash flow hedges $ 139 $ 263 $ (308) $ 105 $ (63) $ 108
Derivatives designated as net investment hedges:
Foreign exchange forwards and options $ — $ 45 $ (85) Other (income) expense, net $ — $ — $ —
(1) For the years ended May 31, 2013, 2012, and 2011, the amounts recorded in other (income) expense, net as a result of hedge ineffectiveness and the discontinuance of cash flowhedges
because the forecasted transactions were no longer probable of occurring were immaterial.
Amount of Gain (Loss) Recognized in
Income on Derivatives
Location of Gain (Loss) Recognized
in Income on Derivatives
Year Ended May 31,
(In millions) 2013 2012 2011
Derivatives designated as fair value hedges:
Interest rate swaps
(1)
$ 5 $ 6 $ 6 Interest (income) expense, net
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options 51 64 (30) Other (income) expense, net
Embedded derivatives $ (4) $ 1 $ — Other (income) expense, net
(1) All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the
interest rate swap agreements are considered to exactly offset changes in the fair value of the underlying long-termdebt. Refer to “Fair Value Hedges” in this note for additional detail.
Refer to Note 5 — Accrued Liabilities for derivative instruments recorded in
accrued liabilities, Note 6 —Fair Value Measurements for a description of how
the above financial instruments are valued, Note 14 — Accumulated Other
Comprehensive Income and the consolidated statements of shareholders’
equity for additional information on changes in other comprehensive income
for the years ended May 31, 2013, 2012 and 2011.
Cash Flow Hedges
The purpose of the Company’s foreign currency hedging activities is to
protect the Company from the risk that the eventual cash flows resulting from
transactions in foreign currencies will be adversely affected by changes in
exchange rates. Foreign currency exposures that 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
products to NIKE entities in their respective functional currencies. When the
NTC sells to a NIKE entity with a different functional currency, the result is 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.
In January 2012, the Company implemented 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, 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 and their accounting treatment is described further
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. Hedged transactions are denominated primarily in
Euros, British Pounds and Japanese Yen. The Company may enter into
hedge contracts typically starting up to 12 to 18 months in advance of the
forecasted transaction and may place incremental hedges for up to 100% of
the exposure by the time the forecasted transaction occurs.
All changes in fair value of derivatives designated as cash flow hedges,
excluding any ineffective portion, are recorded in other comprehensive
income until net income is affected by the variability of cash flows of the
hedged transaction. In most cases, amounts recorded in other
comprehensive income will be released to net income some time after the
maturity of the related derivative. Effective hedge results are classified within
the consolidated statements of income in the same manner as the underlying
exposure, with the results of hedges of non-functional currency denominated
revenues and product cost exposures, excluding embedded derivatives as
described below, recorded in revenues or cost of sales, when the underlying
hedged transaction affects consolidated net income. Results of hedges of
selling and administrative expense are recorded together with those costs
when the related expense is recorded. Results of hedges of anticipated
purchases and sales of U.S. Dollar-denominated available-for-sale securities
are recorded in other (income) expense, net when the securities are sold.
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Results of hedges of certain anticipated intercompany transactions are
recorded in other (income) expense, net when the transaction occurs. The
Company classifies the cash flows at settlement from these designated cash
flowhedge derivatives in the same category as the cash flows fromthe related
hedged items, generally within the cash provided by operations component
of the cash flowstatement.
Premiums paid on options are initially recorded as deferred charges. The
Company assesses the effectiveness of options based on the total cash flows
method and records total changes in the options’ fair value to other
comprehensive income to the degree they are effective.
The Company formally assesses, both at a hedge’s inception and on an
ongoing basis, whether the derivatives that are used in the hedging
transaction have been highly effective in offsetting changes in the cash flows
of hedged items and whether those derivatives may be expected to remain
highly effective in future periods. Effectiveness for cash flow hedges is
assessed based on forward rates. Ineffectiveness was not material for the
years ended May 31, 2013, 2012 and 2011.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer highly effective in offsetting
changes in the cash flows of a hedged item (including hedged items such as
firm commitments or forecasted transactions); (2) the derivative expires or is
sold, terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; or (4) management determines that designating the
derivative as a hedging instrument is no longer appropriate.
When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, but is expected to occur within an additional two-month period of time
thereafter, the gain or loss on the derivative remains in accumulated other
comprehensive income and is reclassified to net income when the forecasted
transaction affects consolidated net income. However, if it is probable that a
forecasted transaction will not occur by the end of the originally specified time
period or within an additional two-month period of time thereafter, the gains
and losses that were accumulated in other comprehensive income will be
recognized immediately in other (income) expense, net. In all situations in
which hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing future changes in the fair value in other (income)
expense, net. For the years ended May 31, 2013, 2012 and 2011, the
amounts recorded in other (income) expense, net as a result of the
discontinuance of cash flowhedging because the forecasted transaction was
no longer probable of occurring were immaterial.
As of May 31, 2013, $132 million of deferred net gains (net of tax) on both
outstanding and matured derivatives accumulated in 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 that
are currently outstanding mature. As of May 31, 2013, the maximum term
over which the Company is hedging exposures to the variability of cash flows
for its forecasted transactions is 24 months.
Fair Value Hedges
The Company is also exposed to the risk of changes in the fair value of certain
fixed-rate debt attributable to changes in interest rates. Derivatives currently
used by the Company to hedge this risk are receive-fixed, pay-variable
interest rate swaps. As of May 31, 2013, all interest rate swap agreements are
designated as fair value hedges of the related long-term debt and meet the
shortcut method requirements under the accounting standards for derivatives
and hedging. Accordingly, changes in the fair values of the interest rate swap
agreements are considered to exactly offset changes in the fair value of the
underlying long-term debt. The cash flows associated with the Company’s
fair value hedges are periodic interest payments while the swaps are
outstanding, which are reflected within the cash provided by operations
component of the cash flow statement. The Company recorded no
ineffectiveness fromits interest rate swaps designated as fair value hedges for
the years ended May 31, 2013, 2012, or 2011.
Net Investment Hedges
The Company has 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 the cumulative
translation adjustment component of other comprehensive income along with
the foreign currency translation adjustments on those investments. The
Company classifies the cash flows at settlement of its net investment hedges
within the cash provided or used by investing component of the cash flow
statement. The Company assesses hedge effectiveness based on changes in
forward rates. The Company recorded no ineffectiveness from its net
investment hedges for the years ended May 31, 2013, 2012, or 2011.
Embedded Derivatives
As part of the foreign currency adjustment program described above,
currencies within the factory currency exposure indices that are neither the
U.S. Dollar nor 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 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 balance
sheet with their corresponding change in fair value recognized in other
(income) expense, net from the date a purchase order is accepted by a
factory through the date the purchase price is no longer subject to foreign
currency fluctuations. At May 31, 2013, the notional amount of embedded
derivatives was approximately $136 million.
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 balance sheet
and/or the embedded derivative contracts explained above. These forwards
are not designated as hedging instruments under the accounting standards for
derivatives and hedging. Accordingly, these undesignated instruments are
recorded at fair value as a derivative asset or liability on the balance sheet with
their corresponding change in fair value recognized in other (income) expense,
net, together with the re-measurement gain or loss from the hedged balance
sheet position or embedded derivative contract. The Company classifies the
cash flows at settlement from undesignated instruments in the same category
as the cash flows from the related hedged items, generally within the cash
provided by operations component of the cash flowstatement.
Credit Risk
The Company is exposed to credit-related losses in the event of non-
performance 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, 2013, the Company was in
compliance with all credit risk related contingent features and the fair value of its
derivative instruments with credit risk related contingent features in a net liability
position was insignificant. Accordingly, the Company was not required to post
any collateral as a result of these contingent features. Further, as of May 31,
2013 those counterparties which were required to post collateral complied with
such requirements. Given the considerations described above, the Company
considers the impact of the risk of counterparty default to be immaterial.
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PART II
NOTE 18 — Operating Segments and Related Information
Operating Segments. The Company’s operating segments are evidence of
the structure of the Company’s internal organization. The major segments are
defined by geographic regions for operations participating in NIKE Brand
sales activity excluding NIKE Golf. 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,
Western Europe, Central & Eastern Europe, Greater China, Japan, and
Emerging Markets. The Company’s NIKE Brand Direct to Consumer
operations are managed within each geographic segment.
The Company’s “Other” category is broken into two components for
presentation purposes to align with the way management views the
Company. The “Global Brand Divisions” category primarily represents NIKE
Brand licensing businesses that are not part of a geographic operating
segment, demand creation and operating overhead expenses that are
centrally managed for the NIKE Brand, and costs associated with product
development and supply chain operations. The “Other Businesses” category
consists of the activities of Converse Inc., Hurley International LLC, and NIKE
Golf. Activities represented in the “Other” category are considered immaterial
for individual disclosure.
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 and benefit programs, including stock-
based compensation, certain foreign currency gains and losses, including
certain hedge gains and losses, certain corporate eliminations and other
items.
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
(income) expense, net and income taxes in the consolidated statements of
income. Reconciling items for EBIT represent corporate expense items that
are not allocated to the operating segments for management reporting.
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 certain Other
Businesses. These rates are set approximately nine months in advance of the
future selling season 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 certain Other Businesses reflect 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 our
centrally managed foreign exchange risk management program and other
conversion gains and losses.
Accounts receivable, inventories and property, plant and equipment for
operating segments are regularly reviewed by management and are therefore
provided below. Additions to long-lived assets as presented in the following
table represent capital expenditures.
Certain prior year amounts have been reclassified to conform to fiscal 2013
presentation.
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Year Ended May 31,
(In millions) 2013 2012 2011
REVENUE
North America $ 10,387 $ 8,839 $ 7,579
Western Europe 4,128 4,144 3,868
Central & Eastern Europe 1,287 1,200 1,040
Greater China 2,453 2,539 2,060
Japan 791 835 773
Emerging Markets 3,718 3,411 2,737
Global Brand Divisions 117 111 96
Total NIKE Brand 22,881 21,079 18,153
Other Businesses 2,500 2,298 2,041
Corporate (68) (46) (77)
TOTAL NIKE CONSOLIDATED REVENUES $ 25,313 $ 23,331 $ 20,117
EARNINGS BEFORE INTEREST AND TAXES
North America $ 2,534 $ 2,030 $ 1,736
Western Europe 640 597 730
Central & Eastern Europe 259 234 244
Greater China 809 911 777
Japan 133 136 114
Emerging Markets 1,011 853 688
Global Brand Divisions (1,396) (1,200) (971)
Total NIKE Brand 3,990 3,561 3,318
Other Businesses 456 385 353
Corporate (1,177) (917) (805)
Total NIKE Consolidated Earnings Before Interest and Taxes 3,269 3,029 2,866
Interest (income) expense, net (3) 4 4
TOTAL NIKE CONSOLIDATED EARNINGS BEFORE TAXES $ 3,272 $ 3,025 $ 2,862
ADDITIONS TO LONG-LIVED ASSETS
North America $ 201 $ 131 $ 79
Western Europe 74 93 75
Central & Eastern Europe 22 20 5
Greater China 52 38 43
Japan 6 14 9
Emerging Markets 49 27 21
Global Brand Divisions 216 131 44
Total NIKE Brand 620 454 276
Other Businesses 29 24 27
Corporate 131 109 118
TOTAL ADDITIONS TO LONG-LIVED ASSETS $ 780 $ 587 $ 421
DEPRECIATION
North America $ 85 $ 78 $ 70
Western Europe 68 62 52
Central & Eastern Europe 9 6 4
Greater China 34 25 19
Japan 21 23 22
Emerging Markets 20 15 14
Global Brand Divisions 83 53 39
Total NIKE Brand 320 262 220
Other Businesses 24 25 24
Corporate 74 66 71
TOTAL DEPRECIATION $ 418 $ 353 $ 315
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PART II
As of May 31,
(In millions) 2013 2012
ACCOUNTS RECEIVABLE, NET
North America $ 1,214 $ 1,149
Western Europe 356 420
Central & Eastern Europe 301 261
Greater China 52 221
Japan 133 152
Emerging Markets 546 476
Global Brand Divisions 28 30
Total NIKE Brand 2,630 2,709
Other Businesses 436 401
Corporate 51 22
TOTAL ACCOUNTS RECEIVABLE, NET $ 3,117 $ 3,132
INVENTORIES
North America $ 1,435 $ 1,272
Western Europe 539 488
Central & Eastern Europe 207 180
Greater China 204 217
Japan 60 83
Emerging Markets 555 521
Global Brand Divisions 32 35
Total NIKE Brand 3,032 2,796
Other Businesses 400 384
Corporate 2 42
TOTAL INVENTORIES $ 3,434 $ 3,222
PROPERTY, PLANT AND EQUIPMENT, NET
North America $ 406 $ 378
Western Europe 326 314
Central & Eastern Europe 44 30
Greater China 213 191
Japan 269 359
Emerging Markets 89 59
Global Brand Divisions 353 205
Total NIKE Brand 1,700 1,536
Other Businesses 77 76
Corporate 675 597
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 2,452 $ 2,209
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Revenues by Major Product Lines. Revenues to external customers for NIKE Brand products are attributable to sales of footwear, apparel and equipment. Other
revenues to external customers primarily include external sales by Converse, Hurley, and NIKE Golf.
Year Ended May 31,
(In millions) 2013 2012 2011
Footwear $ 14,539 $ 13,428 $ 11,519
Apparel 6,820 6,336 5,516
Equipment 1,405 1,204 1,022
Other 2,549 2,363 2,060
TOTAL NIKE CONSOLIDATED REVENUES $ 25,313 $ 23,331 $ 20,117
Revenues and Long-Lived Assets by
Geographic Area
Geographical area information is similar to what is reflected above under
operating segments with the exception of the Other activity, which has been
allocated to the geographical areas based on the location where the sales
originated. Revenues derived in the United States were $11,385 million,
$9,793 million, and $8,467 million for the years ended May 31, 2013, 2012,
and 2011, 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 Japan,
Belgium and China. Long-lived assets attributable to operations in the
United States, which are primarily composed of net property, plant &
equipment, were $1,424 million, $1,204 million, and $1,056 million at May 31,
2013, 2012, and 2011, respectively. Long-lived assets attributable to
operations in Japan were $270 million, $360 million, and $361 million at
May 31, 2013, 2012, and 2011, respectively. Long-lived assets attributable to
operations in Belgium were $157 million, $164 million, and $182 million at
May 31, 2013, 2012, and 2011, respectively. Long-lived assets attributable to
operations in China were $212 million, $188 million, and $175 million at
May 31, 2013, 2012, and 2011, respectively.
Major Customers
No customer accounted for 10% or more of the Company’s net revenues
during the years ended May 31, 2013, 2012, and 2011.
ITEM9. 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.
ITEM9A. Controls and Procedures
We maintain disclosure controls and procedures that are 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
Securities and Exchange Commission’s rules and forms and that 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 that 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 on-going 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, 2013.
“Management’s Annual Report on Internal Control Over Financial Reporting”
is included in Item8 of this Report.
There has been no change in our internal control over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonable likely to materially affect, our internal control over financial
reporting.
ITEM9B. Other Information
No disclosure is required under this Item.
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PART III
PART III
ITEM10. 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
2013 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 2013 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 2013 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 Committee of
the Board of Directors is included under “Corporate Governance — Board
Committees” in the definitive Proxy Statement for our 2013 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM11. 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 2013,” “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
2013 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM12. 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 2013 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
2013 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM13. 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 2013 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM14. 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 2013 Annual Meeting of Shareholders and is incorporated herein by reference.
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PART IV
ITEM15. 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 88
Consolidated Statements of Income for each of the three years ended May 31, 2013, May 31, 2012
and May 31, 2011
89
Consolidated Statements of Comprehensive Income for each of the three years ended May 31,
2013, May 31, 2012, and May 31, 2011.
90
Consolidated Balance Sheets at May 31, 2013 and May 31, 2012 91
Consolidated Statements of Cash Flows for each of the three years ended May 31, 2013, May 31,
2012 and May 31, 2011
92
Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31,
2013, May 31, 2012 and May 31, 2011
93
Notes to Consolidated Financial Statements 94
2. Financial Statement Schedule:
II — Valuation and Qualifying Accounts 119
All other schedules are omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
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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, 2012).
3.2 Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed
June 21, 2013).
4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
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 Non-Statutory Stock Option Agreement for options granted to executives after May 31, 2010 under the 1990 Stock
Incentive Plan.*
10.5 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).*
10.6 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
on September 24, 2010).*
10.7 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).*
10.8 NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on September 26, 2012).*
10.9 NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective April 1, 2013).*
10.10 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).*
10.11 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).*
10.12 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).*
10.13 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).*
10.14 Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson
dated July 24, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 24, 2008).*
10.15 Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan for awards prior to May 31, 2010 (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 21, 2005).*
10.16 Form of Restricted Stock Agreement under the 1990 Stock Incentive Plan for awards after May 31, 2010.*
10.17 Form of Restricted Stock Unit Agreement under the 1990 Stock Incentive Plan.*
10.18 Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999
(incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
2006).*
10.19 Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Eric D. Sprunk dated April 18, 2001
(incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
2010).*
10.2 Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Trevor A. Edwards dated November 14, 2002
(incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
2008).*
10.21 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).*
10.22 Credit Agreement dated as of November 1, 2011 among NIKE, Inc., Bank of America, N.A., individually and as Agent and the other
banks party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 2,
2011).
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.
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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 Item601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SECupon 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 $.10 per page, which represents our reasonable expenses in furnishing Exhibits.
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SCHEDULE II — Valuation and qualifying accounts
(In millions)
Balance at
Beginning of Period
Charged to Costs
and Expenses
Charged to
Other Accounts Write-Offs, Net
Balance at End
of Period
Sales returns reserve
For the year ended May 31, 2011 $ 141 $ 354 $ 1 $ (345) $ 151
For the year ended May 31, 2012 151 401 (3) (376) 173
For the year ended May 31, 2013 173 538 1 (471) 241
Allowance for doubtful accounts
(1)
For the year ended May 31, 2011 $ 109 $ 28 $ 14 $ (31) $ 120
For the year ended May 31, 2012 120 21 (9) (41) 91
For the year ended May 31, 2013 91 31 1 (19) 104
(1) Includes both current and non-current portions of the allowance for doubtful accounts. The non-current portion is classified in deferred income taxes and other assets on the consolidated
balance sheets.
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Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on FormS-3 (No. 333-188072) and FormS-8 (Nos. 033-63995, 333-63581,
333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, 333-133360, 333-164248, 333-171647, and 333-173727) of NIKE, Inc. of our
report dated July 23, 2013 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which
appears in this Form10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
July 23, 2013
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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/ MARKG. PARKER
Mark G. Parker
Chief Executive Officer and President
Date: July 23, 2013
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 Director, Chief Executive Officer and President July 23, 2013
PRINCIPAL FINANCIAL OFFICER:
/s/ DONALD W. BLAIR
Donald W. Blair Chief Financial Officer July 23, 2013
PRINCIPAL ACCOUNTING OFFICER:
/s/ BERNARD F. PLISKA
Bernard F. Pliska Corporate Controller July 23, 2013
DIRECTORS:
/s/ PHILIP H. KNIGHT
Philip H. Knight Director, Chairman of the Board July 23, 2013
/s/ ELIZABETH J. COMSTOCK
Elizabeth J. Comstock Director July 23, 2013
/s/ JOHN G. CONNORS
John G. Connors Director July 23, 2013
/s/ TIMOTHY D. COOK
Timothy D. Cook Director July 23, 2013
/s/ ALAN B. GRAF, JR.
Alan B. Graf, Jr. Director July 23, 2013
/s/ DOUGLAS G. HOUSER
Douglas G. Houser Director July 23, 2013
/s/ JOHN C. LECHLEITER
John C. Lechleiter Director July 23, 2013
/s/ JOHNATHAN A. RODGERS
Johnathan A. Rodgers Director July 23, 2013
/s/ ORIN C. SMITH
Orin C. Smith Director July 23, 2013
/s/ JOHN R. THOMPSON, JR.
John R. Thompson, Jr. Director July 23, 2013
/s/ PHYLLIS M. WISE
Phyllis M. Wise Director July 23, 2013
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EXHIBIT 12.1 NIKE, Inc. Computation of Ratio of Earnings to Fixed Charges
The following disclosure reflects the company’s continuing operations:
Year Ended May 31,
(in millions) 2013 2012 2011 2010 2009
Net income from continuing operations 2,464 2,269 2,172 1,923 1,754
Income taxes 808 756 690 614 652
Income before income taxes 3,272 3,025 2,862 2,537 2,406
Add fixed charges
Interest expense
(1)
23 31 32 33 39
Interest component of leases
(2)
48 42 39 36 34
TOTAL FIXED CHARGES 71 73 71 69 73
Earnings before income taxes and fixed charges
(3)
3,343 3,098 2,933 2,606 2,479
Ratio of earnings to total fixed charges 47.1 42.4 41.3 37.8 34.0
(1) Interest expense includes interest both expensed and capitalized.
(2) Interest component of leases includes one-tenth of rental expense which approximates the interest component of operating leases.
(3) Earnings before income taxes and fixed charges are exclusive of capitalized interest.
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PART IV
EXHIBIT 21
Entity Name Jurisdiction of Formation
Air Max Limited Bermuda
All Star C.V. Netherlands
American NIKE S.L. Spain
BRS NIKE Taiwan Inc. Taiwan
Converse (Asia Pacific) Limited Hong Kong
Converse Canada Corp. Canada
Converse Canada Holding B.V. Netherlands
Converse Europe Limited United Kingdom
Converse Footwear Technical Service (Zhongshan) Co., Ltd. People’s Republic of China
Converse Holdings LLC Delaware
Converse Hong Kong Holding Company Limited Hong Kong
Converse Hong Kong Limited Hong Kong
Converse Inc. Delaware
Converse Netherlands B.V. Netherlands
Converse Sporting Goods (China) Co., Ltd. People’s Republic of China
Converse Trading Company B.V. Netherlands
Exeter Brands Group LLC Oregon
French Football Merchandising S.A.S. France
Futbol Club Barcelona Merchandising, S.L. Spain
Hurley 999, S.L.U. Spain
Hurley Australia Pty. Ltd. Australia
Hurley International Holdings B.V. Netherlands
Hurley International LLC Oregon
Hurley Phantom C.V. Netherlands
Juventus Merchandising S.r.l. Italy
LATAM Servicos de Licenciamento Esportivo Ltda. Brazil
Manchester United Merchandising Limited United Kingdom
NIKE 360 Holding B.V. Netherlands
NIKE Argentina S.R.L. Argentina
NIKE Asia Holding B.V. Netherlands
NIKE Australia Holding B.V. Netherlands
NIKE Australia Pty. Ltd. Australia
NIKE CA LLC Delaware
NIKE Canada Corp. Canada
NIKE Canada Holding B.V. Netherlands
NIKE Chile B.V. Netherlands
NIKE China Holding HK Limited Hong Kong
NIKE Commercial (China) Co., Ltd. China
NIKE Cortez Bermuda
NIKE Costa Rica, SRL Costa Rica
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 Drive B.V. Netherlands
NIKE Dunk Holding B.V. Netherlands
NIKE Europe Holding B.V. Netherlands
NIKE European Operations Netherlands B.V. Netherlands
NIKE Finance Ltd. Bermuda
NIKE Finland OY Finland
NIKE Flight Bermuda
NIKE Force Bermuda
NIKE France S.A.S. France
NIKE Fuel B.V. Netherlands
NIKE Galaxy Holding B.V. Netherlands
NIKE Gesellschaft m.b.H. Austria
NIKE Glide C.V. Netherlands
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Entity Name Jurisdiction of Formation
NIKE Global Holding B.V. Netherlands
NIKE GLOBAL SERVICES PTE. LTD. Singapore
NIKE GLOBAL TRADING PTE. LTD. Singapore
NIKE Group Holding B.V. Netherlands
NIKE Hellas EPE Greece
NIKE Holding, LLC Delaware
NIKE Hong Kong Limited Hong Kong
NIKE Huarache Bermuda
NIKE Hungary LLC Hungary
NIKE Ignite LLC Delaware
NIKE IHM, Inc. Missouri
NIKE India Holding B.V. Netherlands
NIKE India Private Limited India
NIKE International Holding B.V. Netherlands
NIKE International Holding, Inc. Delaware
NIKE International LLC Delaware
NIKE International Ltd. Bermuda
NIKE Israel Ltd. Israel
NIKE Italy S.R.L. Italy
NIKE Japan Corp. Japan
NIKE Japan Group LLC Japan
NIKE Jump Ltd. Bermuda
NIKE Korea LLC Korea
NIKE Laser Holding B.V. Netherlands
NIKE Lavadome Bermuda
NIKE Licenciamentos Ltda. Brazil
NIKE Logistics Yugen Kaisha Japan
NIKE Max LLC Delaware
NIKE Mercurial Corp. Delaware
NIKE Mercurial Finance Limited United Kingdom
NIKE Mercurial Licensing Limited United Kingdom
NIKE Mercurial Ltd. United Kingdom
NIKE Mercurial I Limited United Kingdom
NIKE Mercurial II 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 Pegasus Bermuda
NIKE Philippines, Inc. Philippines
NIKE Poland Sp.zo.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 Russia LLC Russia
NIKE SALES (MALAYSIA) SDN. BHD. Malaysia
NIKE Servicios de Mexico S. de R.L. de C.V. Mexico
NIKE SINGAPORE PTE LTD Singapore
NIKE Slovakia s.r.o. Slovakia
NIKE Sourcing India Private Limited India
NIKE Sourcing (Guangzhou) Co., Ltd. China
NIKE South Africa (Proprietary) Limited South Africa
NIKE South Africa Holdings LLC Delaware
NIKE Sphere C.V. Netherlands
NIKE Sports (China) Company, Ltd. People’s Republic of China
NIKE Sports Korea Co., Ltd. South Korea
NIKE Suzhou Holding HK Limited Hong Kong
NIKE (Suzhou) Sports Company, Ltd. People’s Republic of China
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PART IV
Entity Name Jurisdiction of Formation
NIKE Sweden AB Sweden
NIKE (Switzerland) GmbH Switzerland
NIKE Tailwind Bermuda
NIKE Taiwan Limited Taiwan
NIKE (Thailand) Limited Thailand
NIKE TN, Inc. Oregon
NIKE Trading Company B.V. Netherlands
NIKE trgovina na debelo d.o.o. Slovenia
NIKE UK Holding B.V. Netherlands
NIKE (UK) Limited United Kingdom
NIKE USA, Inc. Oregon
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 Waffle Bermuda
NIKE Wholesale LLC Slovenia
NIKE Woodside I, LLC Oregon
NIKE Woodside II, LLC Oregon
NIKE Woodside I Holdings, Inc. Oregon
NIKE Woodside II Holdings, Inc. Oregon
NIKE Zoom LLC Delaware
PT Hurley Indonesia Indonesia
PT NIKE Indonesia Indonesia
Savier, Inc. Oregon
Triax Insurance, Inc. Hawaii
Twin Dragons Global Limited Hong Kong
Twin Dragons Holding B.V. Netherlands
Umbro Asia Sourcing Limited Hong Kong
Umbro Hong Kong Limited Hong Kong
Umbro International JV Delaware
Umbro JV Limited United Kingdom
Umbro Schweiz Limited United Kingdom
Umbro Sportwear Limited United Kingdom
Umbro Worldwide Limited United Kingdom
Umbro.com United Kingdom
Yugen Kaisha Hurley Japan Japan
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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
Elizabeth J. Comstock
(3)(4)
Senior Vice President & Chief Marketing Officer
General Electric Company
Fairfield, Connecticut
John G. Connors
(2)(3)
Partner
Ignition Partners LLC
Bellevue, Washington
Timothy D. Cook
(4)(6)
Chief Executive Officer
Apple Inc.
Cupertino, California
Alan B. Graf, Jr.
(2)(6)
Executive Vice President & Chief Financial Officer,
FedEx Corporation
Memphis, Tennessee
Douglas G. Houser
(1)(5)(6)
Senior Partner
Bullivant, Houser, Bailey, P.C., Attorneys
Portland, Oregon
Philip H. Knight
(1)
Chairman of the Board
NIKE, Inc.
Beaverton, Oregon
John C. Lechleiter
(4)(5)
Chairman of the Board, President & Chief Executive Officer
Eli Lilly and Company
Indianapolis, Indiana
Mark G. Parker
(1)
Chief Executive Officer & President
NIKE, Inc.
Beaverton, Oregon
Johnathan A. Rodgers
(4)(5)
President & Chief Executive Officer (Retired)
TV One, LLC
Silver Springs, Maryland
Orin C. Smith
(2)(3)
President and Chief Executive Officer (Retired)
Starbucks Corporation
Seattle, Washington
John R. Thompson, Jr.
(5)
Assistant to the President of Georgetown University for Urban Affairs
Georgetown University
Washington, D.C.
Phyllis M. Wise
(5)(6)
Chancellor
University of Illinois, at Urbana-Champaign
Urbana, Illinois
Philip H. Knight
Chairman of the Board of Directors
Mark G. Parker
President & Chief Executive Officer
David J. Ayre
Executive Vice President, Global Human Resources
Donald W. Blair
Executive Vice President & Chief Financial Officer
Trevor A. Edwards
President, NIKE Brand
Jeanne P. Jackson
President, Product and Merchandising
Hilary K. Krane
Executive Vice President, Chief Administrative Officer and General
Counsel
John F. Slusher
Executive Vice President, Global Sports Marketing
Eric D. Sprunk
Chief Operating Officer
Kelley K. Hall
Vice President, Treasurer & Investor Relations
John F. Coburn III
Vice President & Corporate Secretary
Peter H. Koehler, Jr.
Vice President, Legal & Assistant Secretary
Jeanine Hayes
Vice President, Intellectual Property & Assistant Secretary
Evan S. Reynolds
Assistant General Counsel & Assistant Secretary
(1) Member — Executive Committee
(2) Member — Audit Committee
(3) Member — Finance Committee
(4) Member — Compensation Committee
(5) Member — Corporate Responsibility Committee
(6) Member — Nominating and Corporate Governance Committee
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S U B S I D I A R I E S L O C A T I O N S
James A. Calhoun Jr.
Chief Executive Officer
Robert Hurley
President & Chief Executive Officer
WORLD HEADQUARTERS
One Bowerman Drive
Beaverton, Oregon 97005-6453
EUROPEAN HEADQUARTERS
Colosseum 1
1213 NL Hilversum
The Netherlands
CONVERSE INC.
One High Street
North Andover, Massachusetts 01845-2601
HURLEY INTERNATIONAL LLC
1945 Placentia Avenue
Costa Mesa,
California 92627
S H A R E H O L D E R I N F O R MA 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
1300 SWFifth Avenue, Suite 3100
Portland, Oregon 97201
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 43078
Providence, RI 02940-3078
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-Qreports filed with the Securities and Exchange Commission are available fromthe 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.nikeinc.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.nikeinc.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 trademarks of NIKE, Inc.
NIKE, INC.
One Bowerman Drive
Beaverton, OR97005-6453
www.nike.com
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