NIKE, Inc. - FORM 8-K - EX-99.1 - EARNINGS RELEASE

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8-K - FORM 8-K Q2ER - NIKE, Inc.	f8k121220.htm

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Kelley Hall

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Kellie Leonard

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NIKE, INC. REPORTS FISCAL 2013 SECOND QUARTER RESULTS

·	Revenues from continuing operations up 7 percent to $6.0 billion, up 10 percent excluding currency changes

·	Diluted earnings per share from continuing operations up 11 percent to $1.14

·	Worldwide futures orders up 6 percent, 7 percent growth excluding currency changes

·	Inventories up 9 percent

BEAVERTON, Ore., Dec. 20, 2012 – NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2013 second quarter ended November 30, 2012. For continuing operations, strong demand for NIKE, Inc. brands propelled double-digit revenue growth on a currency neutral basis, and diluted earnings per share grew faster than revenue due to SG&A leverage, an increase in other income and a lower average share count, which more than offset the impact of a slightly lower gross margin and an increase in the effective tax rate.

“Our strong second quarter results show that our growth strategies are working, even under challenging macroeconomic conditions,” said Mark Parker, President and CEO, NIKE, Inc. “We have a focused and flexible portfolio that allows us to target the biggest growth opportunities at all levels – brand, category and product. We stay connected with our consumers and that enables us to deliver innovations that excite the marketplace, grow the business and deliver more value to shareholders."*

Second Quarter Continuing Operations Income Statement Review

•

Revenues for NIKE, Inc. increased 7 percent to $6.0 billion, up 10 percent on a currency-neutral basis. Excluding the impact of changes in foreign currency, NIKE Brand revenues rose 11 percent, with growth in all key categories, product types and geographies except Greater China. Revenues for Other Businesses increased 6 percent on a currency-neutral basis, as Converse, Hurley and NIKE Golf all increased revenues during the quarter.

•

Gross margin declined 30 basis points to 42.5 percent. Gross margin benefitted from pricing actions and easing material costs; however, these benefits were more than offset by higher labor costs and unfavorable changes in foreign exchange rates. Additionally, gross margin was negatively impacted by a shift in the mix of the Company’s revenues to lower margin products and businesses.

•

Selling and administrative expenses grew at a slower rate than revenue, up 6 percent to $1.8 billion. Demand creation expenses were $613 million, relatively unchanged from the prior year. Operating overhead expenses increased 10 percent to $1.2 billion due to additional investments made in the wholesale business to support growth initiatives and higher Direct to Consumer costs as a result of higher volume driven expenses in existing NIKE-owned stores and the cost of new stores opened in the last year.

•

Other income, net was $17 million, comprised primarily of foreign exchange gains and other non-operating items. For the quarter, the Company estimates the year-over-year change in currency related gains and losses included in other income, net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, increased pretax income by approximately $10 million.

•	The effective tax rate was 26.8 percent, compared to 24.1 percent for the same period last year. The increase was largely as a result of an increase in our effective tax rate on foreign operations.

•	Net income from continuing operations increased 9 percent to $521 million while diluted earnings per share increased 11 percent to $1.14, reflecting a 3 percent decline in the weighted average diluted common shares outstanding.

November 30, 2012 Balance Sheet Review for Continuing Operations

•

Inventories for NIKE, Inc. were $3.3 billion, up 9 percent from November 30, 2011. NIKE Brand inventories increased 8 percent; of which 6 percentage points of growth were due to higher NIKE Brand wholesale unit inventories to support future demand and 2 percentage points of growth were due to higher average product cost per unit.

•	Cash and short-term investments were $3.5 billion, $160 million higher than last year mainly as a result of higher net income and proceeds from the sale of the Umbro brand.

Share Repurchases

During the second quarter, NIKE, Inc. repurchased a total of 4.0 million shares for approximately $384 million and concluded the Company’s previous four-year, $5 billion share repurchase program approved by the Board of Directors in September 2008. During this program the Company purchased a total of 59.4 million shares at an average price of $84.16.

Following the completion of the previous program, the Company began repurchases under the four-year, $8 billion program approved in September 2012. Of the total shares repurchased during the second quarter, 3.1 million shares were purchased under this program at a cost of approximately $294 million.

Futures Orders

As of the end of the quarter worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from December 2012 through April 2013 totaled $9.3 billion, 6 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 7 percent.*

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 the Umbro and Cole Haan businesses, which will allow it to focus resources on driving growth in the NIKE, Jordan, Converse and Hurley brands.

On November 30, 2012, the Company completed the sale of certain assets of the Umbro brand to Iconix Brand Group for $225 million. For the second quarter ended November 30, 2012, the Company recorded a loss of $107 million, net of tax, on the sale of these assets, representing the sale price less the value of the Umbro assets sold, the release of the associated cumulative translation adjustment, and other miscellaneous charges, offset by a tax benefit on the loss. This loss is included in the Net Loss from Discontinued Operations.

On November 16, 2012, the Company announced it had reached a definitive agreement to sell Cole Haan to Apax Partners for $570 million. As of November 30, 2012, the Company classified Cole Haan as an asset held-for-sale and included the results of Cole Haan’s operations in the Net Loss from Discontinued Operations. The Company expects to complete the sale of Cole Haan in the third quarter of fiscal 2013, and to record a gain on the sale at that time.

For the second fiscal quarter of 2013, the Company’s Net Loss from Discontinued Operations was $137 million. This includes the loss recorded for the sale of the Umbro brand of $107 million, net of tax, in addition to net operating losses and divesture transaction costs for Umbro and Cole Haan during the period, net of tax.

Conference Call

NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on December 20, 2012, to review second quarter results. The conference call will be broadcast live over the Internet and can be accessed at http://investors.nikeinc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location through 9:00 p.m. PT, December 27, 2012.

About NIKE, Inc.

NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories and Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories. For more information, NIKE’s earnings releases and other financial information are available on the Internet at http://investors.nikeinc.com and individuals can follow @Nike.

The marked paragraphs contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed from time to time in reports filed by Nike with the S.E.C., including Forms 8-K, 10-Q, and 10-K. Some forward-looking statements in this release concern changes in futures orders that are not necessarily indicative of changes in total revenues for subsequent periods due to the mix of futures and “at once” orders, exchange rate fluctuations, order cancellations, discounts and returns, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.

(Additional Tables Follow)

NIKE, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the period ended November 30, 2012

	THREE MONTHS ENDED						%			SIX MONTHS ENDED						%
(Dollars in millions, except per share data)	11/30/2012			11/30/2011			Change			11/30/2012			11/30/2011			Change
Income from continuing operations:
Revenues	$	5,955		$	5,546			7	%	$	12,429		$	11,439			9	%
Cost of sales		3,425			3,170			8	%		7,071			6,445			10	%
Gross profit		2,530			2,376			6	%		5,358			4,994			7	%
Gross margin		42.5	%		42.8	%					43.1	%		43.7	%

Demand creation expense		613			616			0	%		1,484			1,280			16	%
Operating overhead expense		1,223			1,115			10	%		2,411			2,181			11	%
Total selling and administrative expense		1,836			1,731			6	%		3,895			3,461			13	%
% of revenue		30.8	%		31.2	%					31.3	%		30.3	%

Interest (income) expense, net		(1	)		3			-			(4	)		3			-
Other (income) expense, net		(17	)		10			-			(45	)		27			-
Income before income taxes		712			632			13	%		1,512			1,503			1	%
Income taxes		191			152			26	%		406			362			12	%
Effective tax rate		26.8	%		24.1	%					26.9	%		24.1	%

NET INCOME FROM CONTINUING OPERATIONS		521			480			9	%		1,106			1,141			-3	%
NET LOSS FROM DISCONTINUED OPERATIONS		(137	)		(11	)		-			(155	)		(27	)		-
NET INCOME	$	384		$	469			-18	%	$	951		$	1,114			-15	%

Earnings per share from continuing operations:
Basic earnings per common share	$	1.16		$	1.05			10	%	$	2.45		$	2.47			-1	%
Diluted earnings per common share	$	1.14		$	1.03			11	%	$	2.41		$	2.42			0	%

Earnings per share from discontinued operations:
Basic earnings per common share	$	(0.30	)	$	(0.03	)		-		$	(0.34	)	$	(0.06	)		-
Diluted earnings per common share	$	(0.30	)	$	(0.03	)		-		$	(0.34	)	$	(0.06	)		-

Weighted Average Common Shares Outstanding:
Basic		448.5			459.2						450.7			462.1
Diluted		456.6			468.5						459.2			471.5

Dividends declared per common share	$	0.42		$	0.36					$	0.78		$	0.67

NIKE, Inc.
CONSOLIDATED BALANCE SHEETS
As of November 30, 2012

	November 30,		November 30,
(Dollars in millions)	2012		2011		% Change
ASSETS
Current assets:
Cash and equivalents	$	2,291	$	1,929		19	%
Short-term investments		1,234		1,436		-14	%
Accounts receivable, net		3,188		3,016		6	%
Inventories		3,318		3,035		9	%
Deferred income taxes		327		289		13	%
Prepaid expenses and other current assets		733		768		-5	%
Assets of discontinued operations		344		576		-40	%
Total current assets		11,435		11,049		3	%
Property, plant and equipment		5,310		4,883		9	%
Less accumulated depreciation		3,052		2,780		10	%
Property, plant and equipment, net		2,258		2,103		7	%
Identifiable intangible assets, net		374		364		3	%
Goodwill		131		131		0	%
Deferred income taxes and other assets		973		918		6	%
TOTAL ASSETS	$	15,171	$	14,565		4	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	58	$	114		-49	%
Notes payable		100		123		-19	%
Accounts payable		1,519		1,370		11	%
Accrued liabilities		1,879		1,727		9	%
Income taxes payable		45		81		-44	%
Liabilities of discontinued operations		198		181		9	%
Total current liabilities		3,799		3,596		6	%
Long-term debt		170		234		-27	%
Deferred income taxes and other liabilities		1,188		892		33	%
Redeemable preferred stock		-		-		-
Shareholders' equity		10,014		9,843		2	%
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	15,171	$	14,565		4	%

NIKE, Inc.
DIVISIONAL REVENUES1
For the period ended November 30, 2012



	THREE MONTHS ENDED												SIX MONTHS ENDED
(Dollars in millions)	11/30/2012			11/30/2011			% Change			% Change Excluding Currency Changes 2			11/30/2012			11/30/2011			% Change			% Change Excluding Currency Changes 2
North America
Footwear	$	1,471		$	1,305			13	%		13	%	$	3,203		$	2,749			17	%		17	%
Apparel		788			661			19	%		19	%		1,583			1,293			22	%		23	%
Equipment		162			100			62	%		61	%		341			224			52	%		52	%
Total		2,421			2,066			17	%		17	%		5,127			4,266			20	%		20	%
Western Europe
Footwear		545			538			1	%		8	%		1,259			1,269			-1	%		9	%
Apparel		301			324			-7	%		-1	%		683			740			-8	%		1	%
Equipment		51			53			-4	%		4	%		122			134			-9	%		-1	%
Total		897			915			-2	%		4	%		2,064			2,143			-4	%		6	%
Central & Eastern Europe
Footwear		134			135			-1	%		4	%		312			315			-1	%		9	%
Apparel		117			111			5	%		10	%		251			234			7	%		17	%
Equipment		15			15			0	%		5	%		45			46			-2	%		9	%
Total		266			261			2	%		7	%		608			595			2	%		12	%
Greater China
Footwear		324			353			-8	%		-9	%		680			667			2	%		1	%
Apparel		224			268			-16	%		-17	%		402			445			-10	%		-11	%
Equipment		29			29			0	%		-2	%		67			66			2	%		-1	%
Total		577			650			-11	%		-12	%		1,149			1,178			-2	%		-4	%
Japan
Footwear		107			100			7	%		10	%		213			203			5	%		6	%
Apparel		98			83			18	%		19	%		159			155			3	%		3	%
Equipment		14			15			-7	%		-6	%		30			34			-12	%		-12	%
Total		219			198			11	%		13	%		402			392			3	%		3	%
Emerging Markets
Footwear		718			660			9	%		16	%		1,322			1,227			8	%		18	%
Apparel		273			233			17	%		24	%		484			415			17	%		27	%
Equipment		61			55			11	%		16	%		113			106			7	%		16	%
Total		1,052			948			11	%		18	%		1,919			1,748			10	%		20	%
Global Brand Divisions3		27			25			8	%		15	%		54			57			-5	%		2	%
Total NIKE Brand		5,459			5,063			8	%		11	%		11,323			10,379			9	%		13	%
Other Businesses4		518			488			6	%		6	%		1,153			1,073			7	%		8	%
Corporate5		(22	)		(5	)		-			-			(47	)		(13	)		-			-
Total NIKE, Inc. Revenues From Continuing Operations	$	5,955		$	5,546			7	%		10	%	$	12,429		$	11,439			9	%		13	%

Total NIKE Brand
Footwear	$	3,299		$	3,091			7	%		10	%	$	6,989		$	6,430			9	%		13	%
Apparel		1,801			1,680			7	%		10	%		3,562			3,282			9	%		12	%
Equipment		332			267			24	%		27	%		718			610			18	%		22	%
Global Brand Divisions3		27			25			8	%		15	%		54			57			-5	%		2	%

1 Certain prior year amounts have been reclassified to conform to fiscal year 2013 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
2 Fiscal 2013 results have been restated using fiscal 2012 exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.
3 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment.
4 Other businesses represent activities of Converse, Hurley, and NIKE Golf.
5 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.

NIKE, Inc.
EARNINGS BEFORE INTEREST AND TAXES1,2
For the period ended November 30, 2012

	THREE MONTHS ENDED						%			SIX MONTHS ENDED						%
(Dollars in millions)	11/30/2012			11/30/2011			Change			11/30/2012			11/30/2011			Change
North America	$	556		$	426			31	%	$	1,186		$	965			23	%
Western Europe		113			92			23	%		327			315			4	%
Central & Eastern Europe		43			33			30	%		104			103			1	%
Greater China		185			220			-16	%		349			391			-11	%
Japan		43			35			23	%		67			69			-3	%
Emerging Markets		305			247			23	%		528			437			21	%
Global Brand Divisions3		(324	)		(281	)		-15	%		(699	)		(547	)		-28	%
TOTAL NIKE BRAND		921			772			19	%		1,862			1,733			7	%
Other Businesses4		80			71			13	%		201			176			14	%
Corporate5		(290	)		(208	)		-39	%		(555	)		(403	)		-38	%
TOTAL EARNINGS BEFORE INTEREST AND TAXES	$	711		$	635			12	%	$	1,508		$	1,506			0	%

1 The Company evaluates performance of individual operating segments based on earnings before interest and taxes (also commonly referred to as “EBIT”), which represents net income before interest expense, net, and income taxes.

2 Certain prior year amounts have been reclassified to conform to fiscal year 2013 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.

3 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment and selling general and administrative expenses that are centrally managed for the NIKE Brand.

4 Other Businesses represent activities of Converse, Hurley, and NIKE Golf.

5 Corporate consists of unallocated general and administrative expenses, which includes expenses associated with centrally managed departments, depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, certain foreign currency gains and losses, including certain hedge gains and losses, corporate eliminations and other items.

NIKE, Inc.
NIKE BRAND REPORTED FUTURES GROWTH BY GEOGRAPHY1
As of November 30, 2012

	Reported Futures Orders			Excluding Currency Changes 2

North America		14	%		14	%
Western Europe		-1	%		0	%
Central & Eastern Europe		10	%		11	%
Greater China		-6	%		-7	%
Japan		-3	%		4	%
Emerging Markets		7	%		11	%
Total NIKE Brand Reported Futures		6	%		7	%
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from December 2012 through April 2013.
The reported futures and advance 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 and because the mix of orders can shift between advance/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 advance/futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from certain of our Direct to Consumer operations, and sales from our Other Businesses.
2 Reported futures restated using prior year exchange rates to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

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