Edgar Filing: NIKE INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended November 30, 2012

Commission file number-001-10635

LOGO

NIKE, Inc.

(Exact name of registrant as specified in its charter)


OREGON		93-0584541
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

Registrant’s telephone number, including area code: (503) 671-6453

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Shares of Common Stock outstanding as of November 30, 2012 were:


Class A			179,784,496
Class B			715,927,274

			895,711,770

NIKE, INC.

FORM 10-Q

Table of Contents

PART I — FINANCIAL INFORMATION


ITEM 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Income	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to the Unaudited Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	30
ITEM 4.	Controls and Procedures	30

PART II — OTHER INFORMATION

2 | P a g e

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions)	November 30, 2012		May 31, 2012
ASSETS
Current assets:
Cash and equivalents	$	2,291	$	2,317
Short-term investments (Note 5)		1,234		1,440
Accounts receivable, net		3,188		3,132
Inventories (Note 2)		3,318		3,222
Deferred income taxes (Note 6)		327		262
Prepaid expenses and other current assets (Notes 5 and 9)		733		857
Assets of discontinued operations (Note 10)		344		615
Total current assets		11,435		11,845
Property, plant and equipment		5,310		5,057
Less accumulated depreciation		3,052		2,848
Property, plant and equipment, net		2,258		2,209
Identifiable intangible assets, net (Note 3)		374		370
Goodwill (Note 3)		131		131
Deferred income taxes and other assets (Notes 5, 6 and 9)		973		910
TOTAL ASSETS	$	15,171	$	15,465
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	58	$	49
Notes payable		100		108
Accounts payable		1,519		1,548
Accrued liabilities (Notes 4 and 9)		1,879		1,941
Income taxes payable (Note 6)		45		65
Liabilities of discontinued operations (Note 10)		198		187
Total current liabilities		3,799		3,898
Long-term debt		170		228
Deferred income taxes and other liabilities (Notes 6 and 9)		1,188		958
Commitments and contingencies (Note 12)		-		-
Redeemable preferred stock		-		-
Shareholders’ equity:
Common stock at stated value:
Class A convertible — 180 and 180 shares outstanding		-		-
Class B — 716 and 738 shares outstanding		3		3
Capital in excess of stated value		4,844		4,641
Accumulated other comprehensive income		138		149
Retained earnings		5,029		5,588
Total shareholders’ equity		10,014		10,381
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	15,171	$	15,465

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

3 | P a g e

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended November 30,						Six Months Ended November 30,
(In millions, except per share data)	2012			2011			2012			2011
Income from continuing operations:
Revenues	$	5,955		$	5,546		$	12,429		$	11,439
Cost of sales		3,425			3,170			7,071			6,445
Gross profit		2,530			2,376			5,358			4,994
Demand creation expense		613			616			1,484			1,280
Operating overhead expense		1,223			1,115			2,411			2,181
Total selling and administrative expense		1,836			1,731			3,895			3,461
Interest (income) expense, net		(1	)		3			(4	)		3
Other (income) expense, net		(17	)		10			(45	)		27
Income before income taxes		712			632			1,512			1,503
Income tax expense (Note 6)		191			152			406			362
NET INCOME FROM CONTINUING OPERATIONS		521			480			1,106			1,141
NET LOSS FROM DISCONTINUED OPERATIONS		(137	)		(11	)		(155	)		(27	)
NET INCOME	$	384		$	469		$	951		$	1,114
Earnings per share from continuing operations:
Basic earnings per common share	$	0.58		$	0.52		$	1.23		$	1.23
Diluted earnings per common share	$	0.57		$	0.51		$	1.20		$	1.21
Earnings per share from discontinued operations:
Basic earnings per common share	$	(0.15	)	$	(0.01	)	$	(0.18	)	$	(0.02	)
Diluted earnings per common share	$	(0.15	)	$	(0.01	)	$	(0.16	)	$	(0.03	)
Dividends declared per common share	$	0.21		$	0.18		$	0.39		$	0.34

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

4 | P a g e

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended November 30,						Six Months Ended November 30,
(In millions)	2012			2011			2012			2011
Net income	$	384		$	469		$	951		$	1,114
Other comprehensive income (loss), net of tax:
Foreign currency translation and other⁽¹⁾		6			(146	)		30			(133	)
Net (loss) gain on cash flow hedges⁽²⁾		(14	)		195			(49	)		161
Net gain on net investment hedges ⁽³⁾		-			31			-			25
Reclassification to net income of previously deferred (gains) losses related to hedge derivative instruments⁽⁴⁾		(47	)		30			(74	)		67
Release of cumulative translation loss related to Umbro⁽⁵⁾ (Note 10)		82			-			82			-
Total other comprehensive income (loss), net of tax		27			110			(11	)		120
TOTAL COMPREHENSIVE INCOME	$	411		$	579		$	940		$	1,234

(1)

Net of tax (expense) benefit of $(16) million, $68 million, $(16) million and $66 million, respectively.

(2)

Net of tax (expense) benefit of $(3) million, $(14) million, $2 million and $(10) million, respectively.

(3)

Net of tax (expense) of $0 million, $(15) million, $0 million and $(12) million, respectively.

(4)

Net of tax (benefit) of $(1) million, $(5) million, $(2) million and $(12) million, respectively.

(5)

Net of tax (benefit) of $(47) million, $0 million, $(47) million and $0 million, respectively.

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

5 | P a g e

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended November 30,
(In millions)	2012			2011
Cash provided by operations:
Net income	$	951		$	1,114
Income charges (credits) not affecting cash:
Depreciation		211			178
Deferred income taxes		(49	)		(1	)
Stock-based compensation		83			61
Amortization and other		55			20
Loss on sale of Umbro		107			-
Changes in certain working capital components and other assets and liabilities:
Decrease (increase) in accounts receivable		22			(91	)
(Increase) in inventories		(41	)		(555	)
(Increase) in prepaid expenses and other current assets		(33	)		(55	)
(Decrease) in accounts payable, accrued liabilities and income taxes payable		(61	)		(74	)
Cash provided by operations		1,245			597
Cash provided by investing activities:
Purchases of short-term investments		(1,379	)		(1,523	)
Maturities of short-term investments		672			1,582
Sales of short-term investments		904			1,076
Additions to property, plant and equipment		(250	)		(259	)
Disposals of property, plant and equipment		-			1
Proceeds from the sale of Umbro		225			-
(Increase) in other assets, net of other liabilities		(12	)		(37	)
Settlement of net investment hedges		-			(8	)
Cash provided by investing activities		160			832
Cash used by financing activities:
Reductions in long-term debt, including current portion		(45	)		(134	)
(Decrease) in notes payable		(10	)		(49	)
Proceeds from exercise of stock options and other stock issuances		116			284
Excess tax benefits from share-based payment arrangements		14			59
Repurchase of common stock		(1,179	)		(1,325	)
Dividends — common and preferred		(327	)		(289	)
Cash used by financing activities		(1,431	)		(1,454	)
Effect of exchange rate changes		-			(1	)
Net decrease in cash and equivalents		(26	)		(26	)
Cash and equivalents, beginning of period		2,317			1,955
CASH AND EQUIVALENTS, END OF PERIOD	$	2,291		$	1,929
Supplemental disclosure of cash flow information:
Dividends declared and not paid	$	188		$	165

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

6 | P a g e

Notes to Unaudited Condensed Consolidated Financial Statements


Note 1	Summary of Significant Accounting Policies	8
Note 2	Inventories	8
Note 3	Identifiable Intangible Assets and Goodwill	8
Note 4	Accrued Liabilities	9
Note 5	Fair Value Measurements	9
Note 6	Income Taxes	10
Note 7	Stock-Based Compensation	11
Note 8	Earnings Per Share	11
Note 9	Risk Management and Derivatives	12
Note 10	Discontinued Operations	15
Note 11	Operating Segments	15
Note 12	Commitments and Contingencies	17

7 | P a g e

NOTE 1 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements reflect all normal adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim period. The year-end condensed consolidated balance sheet data as of May 31, 2012 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The interim financial information and notes thereto should be read in conjunction with the Company’s latest Annual Report on Form 10-K. The results of operations for the three and six months ended November 30, 2012 are not necessarily indicative of results to be expected for the entire year.

The Company entered into an agreement to sell Cole Haan 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 loss from discontinued operations line in the condensed 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 condensed consolidated balance sheets (refer to Note 10 — Discontinued Operations). Unless otherwise indicated, the disclosures accompanying the condensed 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.

Recently Adopted Accounting Standards

In September 2011, the Financial Accounting Standards Board (“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 became effective for the Company beginning June 1, 2012. The adoption did not have a material effect on the Company’s 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 guidance also originally 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. However, in December 2011, the FASB issued guidance which indefinitely defers the requirement related to the presentation of reclassification adjustments. Both issuances on the presentation of comprehensive income are effective for the Company beginning June 1, 2012. As this guidance only amends 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.

Recently Issued Accounting Standards

In July 2012, the FASB issued an accounting standard 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 in the first quarter of fiscal 2014, and early adoption is permitted. The Company does not anticipate the adoption will have an impact on its consolidated financial position or results of operations.

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 $3,318 million and $3,222 million at November 30, 2012 and May 31, 2012, respectively, were substantially all finished goods.

NOTE 3 — Identifiable Intangible Assets and Goodwill

The following table summarizes the Company’s identifiable intangible asset balances at November 30, 2012 and May 31, 2012:


	November 30, 2012							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	$	107	$	(32	)	$	75	$	99	$	(29	)	$	70
Trademarks		42		(29	)		13		40		(26	)		14
Other		20		(17	)		3		19		(16	)		3
TOTAL	$	169	$	(78	)	$	91	$	158	$	(71	)	$	87
Unamortized intangible assets – Trademarks							283							283
IDENTIFIABLE INTANGIBLE ASSETS, NET						$	374						$	370

Amortization expense, which is included in selling and administrative expense, was $3 million and $4 million for each of the three month periods ended November 30, 2012 and 2011, respectively, and $7 million for both the six month periods ended November 30, 2012 and 2011, respectively. The estimated amortization expense for intangible assets subject to amortization for the remainder of fiscal year 2013 and each of the years ending May 31, 2014 through May 31, 2017 are as follows: remainder of 2013: $6 million; 2014: $9 million; 2015: $6 million; 2016: $5 million; 2017: $4 million.

8 | P a g e

Goodwill was $131 million at November 30, 2012 and May 31, 2012, respectively, and is included in the Company’s “Other Businesses” categories for segment reporting purposes. There were no accumulated impairment balances for goodwill as of either period.

NOTE 4 — Accrued Liabilities

Accrued liabilities included the following:


	November 30,		May 31,
(In millions)	2012		2012
Compensation and benefits, excluding taxes	$	502	$	691
Taxes other than income taxes		238		169
Endorsement compensation		212		288
Dividends payable		188		165
Advertising and marketing		137		94
Import and logistics costs		124		133
Fair value of derivatives		83		55
Other⁽¹⁾		395		346
TOTAL ACCRUED LIABILITIES	$	1,879	$	1,941

(1)

Other consists of various accrued expenses with no individual item accounting for more than 5% of the balance at November 30, 2012 and May 31, 2012.

NOTE 5 — 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 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.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of November 30, 2012 and May 31, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.


	November 30, 2012
	Fair Value Measurements Using						Assets / Liabilities at
(In millions)	Level 1		Level 2		Level 3		Fair Value		Balance Sheet Classification
ASSETS
Derivatives:
Foreign exchange forwards and options	$	-	$	116	$	-	$	116	Other current assets and other long-term assets
Interest rate swap contracts		-		13		-		13	Other long-term assets
Total derivatives		-		129		-		129
Available-for-sale securities:
U.S. Treasury securities		510		-		-		510	Cash and equivalents
Commercial paper and bonds		-		212		-		212	Cash and equivalents
Money market funds		-		492		-		492	Cash and equivalents
U.S. Treasury securities		707		-		-		707	Short-term investments
U.S. Agency securities		-		223		-		223	Short-term investments
Commercial paper and bonds		-		304		-		304	Short-term investments
Non-marketable preferred stock		-		-		5		5	Other long-term assets
Total available-for-sale securities		1,217		1,231		5		2,453
TOTAL ASSETS	$	1,217	$	1,360	$	5	$	2,582
LIABILITIES
Derivatives:
Embedded derivatives	$	-	$	1	$	-	$	1	Accrued liabilities
Foreign exchange forwards and options		-		82		-		82	Accrued liabilities and other long-term liabilities
TOTAL LIABILITIES	$	-	$	83	$	-	$	83

9 | P a g e


	May 31, 2012
	Fair Value Measurements Using						Assets / Liabilities at
(In millions)	Level 1		Level 2		Level 3		Fair Value		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

Derivative financial instruments include foreign exchange forwards, 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 November 30, 2012 or May 31, 2012. Refer to Note 9 — Risk Management and Derivatives for additional detail.

Available-for-sale securities comprise investments in U.S. Treasury and agency securities, money market funds, and corporate commercial paper and bonds. These securities are valued using market prices on both active markets (Level 1) and less active markets (Level 2).

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 six months ended November 30, 2012 and the year ended May 31, 2012.

No transfers among the levels within the fair value hierarchy occurred during the six months ended November 30, 2012 and the year ended May 31, 2012.

As of November 30, 2012 and May 31, 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 November 30, 2012 and May 31, 2012, short-term investments consisted of available-for-sale securities. As of November 30, 2012, the Company held $937 million of available-for-sale securities with maturity dates within one year from purchase date and $297 million with maturity dates over one year and less than five years from purchase date within short-term investments. As of May 31, 2012, the Company held $1,129 million of available-for-sale securities with maturity dates within one year from purchase date and $311 million with maturity dates over one year and less than five years from purchase date within short-term investments.

Short-term investments classified as available-for-sale consist of the following at fair value:


	November 30,		May 31,
(In millions)	2012		2012
Available-for-sale investments:
U.S. treasury and agencies	$	930	$	1,157
Commercial paper and bonds		304		283
TOTAL AVAILABLE-FOR-SALE INVESTMENTS	$	1,234	$	1,440

Interest income related to cash and equivalents and short-term investments included within interest (income) expense, net was $6 million and $7 million for each of the three month periods ended November 30, 2012 and 2011, respectively, and $14 million and $15 million for each of the six month periods ended November 30, 2012 and 2011, respectively.

Fair Value of Long-Term Debt and Notes Payable

The Company’s long-term debt is recorded at adjusted cost, net of amortized premiums and discounts and interest rate swap fair value adjustments. The fair value of long-term debt is estimated based upon quoted prices for similar instruments (Level 2). The fair value of the Company’s long-term debt, including the current portion, was approximately $237 million at November 30, 2012 and $283 million at May 31, 2012.

The carrying amounts reflected in the unaudited condensed consolidated balance sheets for notes payable approximate fair value.

NOTE 6 — Income Taxes

The effective tax rate on continuing operations was 26.9% and 24.1% for the six months ended November 30, 2012 and 2011, respectively. The increase in the Company’s effective tax rate was primarily driven by an increase in the effective tax rate on foreign operations and changes in uncertain tax positions.

As of November 30, 2012, total gross unrecognized tax benefits, excluding related interest and penalties, were $374 million, $191 million of which would affect the Company’s effective tax rate if recognized in future periods. As of May 31, 2012, total gross unrecognized tax benefits, excluding interest and penalties, were $285 million, $150 million of which would affect the Company’s effective tax rate if recognized in future periods. The gross liability for payment of interest and penalties increased $26 million during the six months ended November 30, 2012. As of November 30, 2012, accrued interest and penalties related to uncertain tax positions was $134 million (excluding federal benefit).

10 | P a g e

The Company is subject to taxation primarily in the United States, China, the Netherlands and Brazil as well as various other state and foreign jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal year 2010, and is currently under examination by the Internal Revenue Service (“IRS”) for the fiscal 2011 and 2012 tax years. The Company’s major foreign jurisdictions, China, the Netherlands, and Brazil have concluded substantially all income tax matters through calendar 2001, fiscal 2006, and calendar 2005, respectively. The Company estimates that it is reasonably possible that the total gross unrecognized tax benefits could decrease by up to $78 million within the next 12 months as a result of resolutions of global tax examinations and the expiration of applicable statutes of limitations.

NOTE 7 — Stock-Based Compensation

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 from the date of grant.

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.

The Company accounts for stock-based compensation by estimating the fair value of options granted under the 1990 Plan and employees’ purchase rights under the ESPPs using the Black-Scholes option pricing model. The Company recognizes this fair value as operating overhead expense over the vesting period using the straight-line method.

The following table summarizes the Company’s total stock-based compensation expense recognized in selling and administrative expense:


	Three Months Ended November 30,				Six Months Ended November 30,
(In millions)	2012		2011		2012		2011
Stock options⁽¹⁾	$	32	$	26	$	58	$	44
ESPPs		6		5		10		8
Restricted stock		8		5		15		9
TOTAL STOCK-BASED COMPENSATION EXPENSE	$	46	$	36	$	83	$	61

(1)

Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option expense was $6 million and $4 million for the three month periods ended November 30, 2012 and 2011, respectively, and $10 million and $8 million for the six month periods ended November 30, 2012 and 2011, respectively.

As of November 30, 2012, the Company had $264 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 2.8 years.

The weighted average fair value per share of the options granted during the six months ended November 30, 2012 and 2011, as computed using the Black-Scholes pricing model, was $12.71, and $11.06, respectively. The weighted average assumptions used to estimate these fair values are as follows:


	Six Months Ended November 30,
	2012			2011
Dividend yield		1.5	%		1.4	%
Expected volatility		35.0	%		29.5	%
Weighted average expected life (in years)		5.3			5.0
Risk-free interest rate		0.6	%		1.5	%

The Company estimates the expected volatility based on the implied volatility in market traded options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.

NOTE 8 — Earnings Per Share

The following is a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an additional 27.4 million and 13.6 million shares of common stock were outstanding for the three month periods ended November 30, 2012 and 2011, respectively, and 27.4 million and 13.7 million shares of common stock were outstanding for the six month periods ended November 30, 2012 and 2011, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

On November 15, 2012 the Company announced a two-for-one stock split of both NIKE Class A and Class B Common shares. 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.

11 | P a g e


	Three Months Ended November 30,						Six Months Ended November 30,
(In millions, except per share data)	2012			2011			2012			2011
Determination of shares:
Weighted average common shares outstanding		897.0			918.5			901.4			924.2
Assumed conversion of dilutive stock options and awards		16.1			18.4			16.9			18.7
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		913.1			936.9			918.3			942.9
Earnings per share from continuing operations:
Basic earnings per common share	$	0.58		$	0.52		$	1.23		$	1.23
Diluted earnings per common share	$	0.57		$	0.51		$	1.20		$	1.21
Earnings per share from discontinued operations:
Basic earnings per common share	$	(0.15	)	$	(0.01	)	$	(0.18	)	$	(0.02	)
Diluted earnings per common share	$	(0.15	)	$	(0.01	)	$	(0.16	)	$	(0.03	)
Basic earnings per common share for NIKE, Inc.	$	0.43		$	0.51		$	1.05		$	1.21
Diluted earnings per common share for NIKE, Inc.	$	0.42		$	0.50		$	1.04		$	1.18

NOTE 9 — 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 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 November 30, 2012 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 November 30, 2012 was approximately $8 billion, which is primarily comprised of cash flow hedges for Euro/U.S. Dollar, British Pound/Euro, and Japanese Yen/U.S. Dollar currency pairs.

The following table presents the fair values of derivative instruments included within the consolidated balance sheets as of November 30, 2012 and May 31, 2012:


	Asset Derivatives					Liability Derivatives
(In millions)	Balance Sheet Location	November 30, 2012		May 31, 2012		Balance Sheet Location	November 30, 2012		May 31, 2012
Derivatives formally designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets	$	69	$	203	Accrued liabilities	$	51	$	35
Foreign exchange forwards and options	Deferred income taxes and other long-term assets		21		7	Deferred income taxes and other long-term liabilities		-		-
Interest rate swap contracts	Deferred income taxes and other long-term assets		13		15	Deferred income taxes and other long-term liabilities		-		-
Total derivatives formally designated as hedging instruments			103		225			51		35
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	Prepaid expenses and other current assets		26		55	Accrued liabilities		31		20
Embedded derivatives	Prepaid expenses and other current assets		-		1	Accrued liabilities		1		-
Total derivatives not designated as hedging instruments			26		56			32		20
TOTAL DERIVATIVES		$	129	$	281		$	83	$	55

The following tables present the amounts affecting the consolidated statements of income for the three and six months ended November 30, 2012 and 2011:


	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⁾
	Three Months Ended November 30,			Six Months Ended November 30,			Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income Into Income	Three Months Ended November 30,			Six Months Ended November 30,
(In millions)	2012			2012				2012			2012
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options	$	13		$	4		Revenue	$	(11	)	$	(25	)
Foreign exchange forwards and options		(19	)		(43	)	Cost of sales		51			83
Foreign exchange forwards and options		(3	)		(2	)	Selling and administrative expense		1			1
Foreign exchange forwards and options		(2	)		(10	)	Other (income) expense, net		5			13
Total designated cash flow hedges	$	(11	)	$	(51	)		$	46		$	72
Derivatives designated as net investment hedges:
Foreign exchange forwards and options	$	-		$	-		Other (income) expense, net	$	-		$	-

(1)

For the three and six months ended November 30, 2012, the amounts recorded in other (income) expense, net as a result of hedge ineffectiveness and the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.

12 | P a g e


	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⁾
	Three Months Ended November 30,			Six Months Ended November 30,		Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income Into Income	Three Months November 30,			Six Months Ended November 30,
(In millions)	2011			2011			2011			2011
Derivatives designated as cash flow hedges:
Foreign exchange forwards and options	$	(4	)	$	17	Revenue	$	7		$	14
Foreign exchange forwards and options		186			143	Cost of sales		(34	)		(73	)
Foreign exchange forwards and options		2			-	Selling and administrative expense		(1	)		(2	)
Foreign exchange forwards and options		25			11	Other (income) expense, net		(7	)		(18	)
Total designated cash flow hedges	$	209		$	171		$	(35	)	$	(79	)
Derivatives designated as net investment hedges:
Foreign exchange forwards and options	$	46		$	37	Other (income) expense, net	$	-		$	-

(1)

For the three and six months ended November 30, 2012 and 2011, the amounts recorded in other (income) expense, net as a result of hedge ineffectiveness and the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial.


	Amount of Gain (Loss) Recognized in Income on Derivatives
	Three Months Ended November 30,					Six Months Ended November 30,					Location of Gain (Loss) Recognized in Income on Derivatives
(In millions)	2012			2011		2012			2011		Location of Gain (Loss) Recognized in Income on Derivatives
Derivatives designated as fair value hedges:
Interest rate swaps⁽¹⁾	$	1		$	2	$	3		$	4	Interest (income) expense, net
Derivatives not designated as hedging instruments:
Foreign exchange forwards and options	$	(22	)	$	26	$	(51	)	$	3	Other (income) expense, net
Embedded derivatives	$	(3	)	$	-	$	(3	)	$	-	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-term debt. Refer to “Fair Value Hedges” in this note for additional detail.

Refer to Note 4 — Accrued Liabilities for derivative instruments recorded in accrued liabilities, and Note 5 — Fair Value Measurements for a description of how the above financial instruments are valued.

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 centralized sourcing hub that buys NIKE branded products from external 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; and 2) Other NIKE entities purchase product directly from external 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 is created upon the factory’s acceptance of NIKE’s purchase order. Embedded derivatives 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 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. 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 flow hedge derivatives in the same category as the cash flows from the related hedged items, generally within the cash provided by operations component of the cash flow statement.

13 | P a g e

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 three and six month periods ended November 30, 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 three and six month periods ended November 30, 2012 and 2011, the amounts recorded in other (income) expense, net as a result of the discontinuance of cash flow hedging because the forecasted transaction was no longer probable of occurring were immaterial.

As of November 30, 2012, $36 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 November 30, 2012, the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted transactions is 30 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 November 30, 2012, 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 from its interest rate swaps designated as fair value hedges for the three and six month period ended November 30, 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 three and six months ended November 30, 2012 or 2011.

Embedded Derivatives

As described above, for 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 is created upon the factory’s acceptance of NIKE’s purchase order. Embedded derivatives 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 November 30, 2012, the notional amount of embedded derivatives was approximately $129 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 flow statement.

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 and managed according to prescribed guidelines. The Company also utilizes a portfolio of financial institutions either headquartered or operating in the same countries in which the Company conducts its business.

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 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 November 30, 2012, the Company was in compliance with all credit risk related contingent features and the aggregate fair value of derivative instruments with credit risk related contingent features that were in a net liability position was $33 million. Accordingly, the Company was not required to post any collateral as a result of these contingent features. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial.

14 | P a g e

NOTE 10 — 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, which allows it to focus its 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 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 loss from discontinued operations line item on the condensed consolidated statements of income. The remaining assets and liabilities of Umbro are recorded in the assets of discontinued operations and liabilities of discontinued operations line items on the condensed consolidated balance sheets, respectively. Previously, these amounts were reported in the Company’s segment presentation as “Businesses to be Divested.” 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 loss from discontinued operations line item on the condensed 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.

Under the sale agreement, the Company will provide transition services to Iconix while certain markets are converted and transitioned to Iconix-designated licensees. These transition services are expected to be completed by May 31, 2013. The Company expects to substantially wind down the remaining operations of Umbro over the remainder of fiscal 2013. The continuing operating cash flows are not expected to be significant to the Umbro business and the Company will have no significant continuing involvement with Umbro beyond the transition period.

On November 16, 2012, the Company reached a definitive agreement to sell Cole Haan to Apax Partners for $570 million. The transaction is expected to be completed in the third fiscal quarter of 2013. At November 30, 2012, the Company has classified the Cole Haan disposal group as held-for-sale and presented the results of Cole Haan’s operations in the net loss from discontinued operations line item on the condensed consolidated statements of income. The assets and liabilities of Cole Haan are recorded in the assets of discontinued operations and liabilities of discontinued operations line items on the condensed consolidated balance sheets, respectively. Previously, these amounts were reported in the Company’s segment presentation as “Businesses to be Divested.” The Company is expecting to record a gain on the sale of Cole Haan that will be recognized when the transaction closes. The transition services associated with this transaction are immaterial.

Summarized results of the Company’s results from discontinued operations are as follows:


	Three Months Ended November 30,						Six Months Ended November 30,
(In millions)	2012			2011			2012			2011
Revenues	$	186		$	185		$	381		$	373
Loss before income taxes		(220	)		(14	)		(238	)		(33	)
Income tax benefit		83			3			83			6
Net loss from discontinued operations	$	(137	)	$	(11	)	$	(155	)	$	(27	)

As of November 30, 2012 and May 31, 2012, the aggregate components of assets and liabilities classified as discontinued operations and included in current assets and current liabilities consisted of the following:


	November 30,		May 31,
(In millions)	2012		2012
Accounts Receivable, net	$	129	$	148
Inventories		130		128
Deferred income taxes and other assets		32		35
Property, plant and equipment, net		53		70
Identifiable intangible assets, net		-		234
TOTAL ASSETS	$	344	$	615
Accounts Payable		39		42
Accrued liabilities		127		112
Deferred income taxes and other liabilities		32		33
TOTAL LIABILITIES	$	198	$	187

NOTE 11 — 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 of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company’s headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; certain foreign currency gains and losses, including certain hedge gains and losses; 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 the Company’s centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in 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 the Company’s centrally managed foreign exchange risk management program and other conversion gains and losses.

15 | P a g e

Accounts receivable, inventories and property, plant and equipment for operating segments are regularly reviewed by management and are therefore provided below.

Certain prior year amounts have been reclassified to conform to fiscal 2013 presentation.


	Three Months Ended November 30,						Six Months Ended November 30,
(In millions)	2012			2011			2012			2011
REVENUE
North America	$	2,421		$	2,066		$	5,127		$	4,266
Western Europe		897			915			2,064			2,143
Central & Eastern Europe		266			261			608			595
Greater China		577			650			1,149			1,178
Japan		219			198			402			392
Emerging Markets		1,052			948			1,919			1,748
Global Brand Divisions		27			25			54			57
Total NIKE Brand		5,459			5,063			11,323			10,379
Other Businesses		518			488			1,153			1,073
Corporate		(22	)		(5	)		(47	)		(13	)
TOTAL NIKE CONSOLIDATED REVENUES	$	5,955		$	5,546		$	12,429		$	11,439

EARNINGS BEFORE INTEREST AND TAXES
North America	$	556		$	426		$	1,186		$	965
Western Europe		113			92			327			315
Central & Eastern Europe		43			33			104			103
Greater China		185			220			349			391
Japan		43			35			67			69
Emerging Markets		305			247			528			437
Global Brand Divisions		(324	)		(281	)		(699	)		(547	)
Total NIKE Brand		921			772			1,862			1,733
Other Businesses		80			71			201			176
Corporate		(290	)		(208	)		(555	)		(403	)
Total NIKE Consolidated Earnings Before Interest and Taxes		711			635			1,508			1,506
Interest (income) expense, net		(1	)		3			(4	)		3
TOTAL NIKE CONSOLIDATED EARNINGS BEFORE TAXES	$	712		$	632		$	1,512		$	1,503

16 | P a g e


	November 30,		May 31,
(In millions)	2012		2012
ACCOUNTS RECEIVABLE, NET
North America	$	1,286	$	1,149
Western Europe		362		420
Central & Eastern Europe		273		261
Greater China		102		221
Japan		139		152
Emerging Markets		639		476
Global Brand Divisions		28		30
Total NIKE Brand		2,829		2,709
Other Businesses		329		401
Corporate		30		22
TOTAL ACCOUNTS RECEIVABLE, NET	$	3,188	$	3,132

INVENTORIES
North America	$	1,328	$	1,272
Western Europe		510		488
Central & Eastern Europe		161		180
Greater China		260		217
Japan		87		83
Emerging Markets		530		521
Global Brand Divisions		43		35
Total NIKE Brand		2,919		2,796
Other Businesses		382		384
Corporate		17		42
TOTAL INVENTORIES	$	3,318	$	3,222

PROPERTY, PLANT AND EQUIPMENT, NET
North America	$	383	$	378
Western Europe		323		314
Central & Eastern Europe		38		30
Greater China		204		191
Japan		336		359
Emerging Markets		74		59
Global Brand Divisions		220		205
Total NIKE Brand		1,578		1,536
Other Businesses		74		76
Corporate		606		597
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET	$	2,258	$	2,209

NOTE 12 — Commitments and Contingencies

At November 30, 2012, the Company had letters of credit outstanding totaling $114 million. These letters of credit were issued primarily for the purchase of inventory and guarantees of the Company’s performance under certain self-insurance and other programs.

There have been no other significant subsequent developments relating to the commitments and contingencies reported on the Company’s latest Annual Report on Form 10-K.

17 | P a g e

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

On November 15, 2012, we announced a two-for-one split of both NIKE Class A and Class B Common shares. The stock split was in the form of 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.

In the second quarter of fiscal 2013, our revenues from continuing operations increased 7% to $6.0 billion. Excluding the impact of currency exchange rates, revenues from continuing operations would have grown 10%. We delivered net income from continuing operations of $521 million and diluted earnings per share from continuing operations of $0.57, 9% and 12% above the second quarter of fiscal 2012, respectively.

Income before income taxes from continuing operations increased 13% compared to the second quarter of the prior year due to an increase in revenues, selling and administrative expense leverage, and an increase in other (income) expense, net, that more than offset the decline in gross margin. The decline in gross margin was primarily driven by higher product costs, unfavorable currency exchange rates, and an increase in third party royalties, which more than offset the positive impact of higher average product selling prices. The NIKE Brand, which represents over 90% of NIKE, Inc. revenues, delivered constant currency revenue growth in all geographies except China and across all product types and categories. Brand strength, innovative products and strong category retail presentation continue to fuel the demand for NIKE Brand products. Revenue from our Other Businesses also grew, reflecting growth in every business, led by Converse and NIKE Golf.

Our second quarter net income and diluted earnings per share from continuing operations were negatively impacted by a year-on-year increase in our effective tax rate of 270 basis points; however diluted earnings per share benefited from a decline in the weighted average number of diluted common shares outstanding, driven by our share repurchase program.

We continually evaluate our existing portfolio of businesses to ensure resources are invested in those businesses that are accretive to the NIKE Brand, and have the greatest potential to deliver profitable growth and high returns on capital. During the fourth quarter of fiscal 2012, we announced our intention to divest of Cole Haan and Umbro, allowing us to focus our resources on driving growth in the NIKE, Jordan, Converse and Hurley brands. On November 30, 2012, we completed the sale of Umbro to Iconix Brand Group for $225 million, recognizing an after tax loss on sale of $107 million. For the second quarter ended November 30, 2012 the results of Umbro’s operations and financial position are presented as discontinued operations.

On November 16, 2012, we reached a definitive agreement to sell Cole Haan to Apax Partners for $570 million. For the quarter ended November 30, 2012, the Company has classified Cole Haan as held-for-sale and presented the results of Cole Haan’s operations and financial position as discontinued operations. We expect to recognize a gain on the sale of Cole Haan when the transaction closes.

Results of Operations


	Three Months Ended November 30,									Six Months Ended November 30,
(Dollars in millions, except per share data)	2012			2011			% Change			2012			2011			% Change
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 Revenues		30.8	%		31.2	%					31.3	%		30.3	%
Income before income taxes		712			632			13	%		1,512			1,503			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	%
Diluted earnings per share — Continuing Operations	$	0.57		$	0.51			12	%	$	1.20		$	1.21			-1	%
Diluted earnings per share — Discontinued Operations	$	(0.15	)	$	(0.01	)		-		$	(0.16	)	$	(0.03	)		-

Consolidated Operating Results

Revenues


	Three Months Ended November 30,												Six Months Ended November 30,
(Dollars in millions)	2012			2011			% Change			% Change Excluding Currency Changes⁽¹⁾			2012			2011			% Change			% Change Excluding Currency Changes⁽¹⁾
*NIKE Brand Revenues by:*
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 Divisions		27			25			8	%		15	%		54			57			-5	%		2	%
Total NIKE Brand		5,459			5,063			8	%		11	%		11,323			10,379			9	%		13	%
Other Businesses		518			488			6	%		6	%		1,153			1,073			7	%		8	%
Corporate⁽²⁾		(22	)		(5	)		-			-			(47	)		(13	)		-			-
TOTAL NIKE, INC. REVENUES FROM CONTINUING OPERATIONS	$	5,955		$	5,546			7	%		10	%	$	12,429		$	11,439			9	%		13	%
*Supplemental NIKE Brand Revenues Details by:*
Sales to Wholesale Customers	$	4,467		$	4,263			5	%		8	%	$	9,207		$	8,638			7	%		11	%
Sales Direct to Consumer		965			775			25	%		27	%		2,062			1,684			22	%		25	%
Global Brand Divisions		27			25			8	%		15	%		54			57			-5	%		2	%
TOTAL NIKE BRAND REVENUES	$	5,459		$	5,063			8	%		11	%	$	11,323		$	10,379			9	%		13	%

18 | P a g e

(1)

Results have been restated using actual currency exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations.

(2)

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.

Excluding the effects of changes in currency exchange rates, revenues for NIKE, Inc.’s continuing operations increased 10% for the second quarter and 13% for the first six months of fiscal 2013, driven by increases in both the NIKE Brand and our Other Businesses. On a currency neutral basis, revenues for the NIKE Brand increased 11% and 13% for the second quarter and year to date period, respectively, while revenues for our Other Businesses increased 6% and 8% for the same periods, respectively. For both the second quarter and first six months of fiscal 2013, every NIKE Brand geography except Greater China delivered higher revenues. North America contributed approximately 7 and 8 percentage points to the NIKE Brand revenue increase for the second quarter and first six months of fiscal 2013, respectively, while Emerging Markets contributed approximately 3 percentage points for both respective periods. China’s results negatively impacted NIKE Brand revenue growth by approximately 2 percentage points for the second quarter and by less than 1 percentage point for the year to date period, respectively.

Excluding the effects of changes in currency exchange rates, NIKE Brand footwear and apparel revenues each increased 10% for the second quarter, while NIKE Brand equipment revenues increased 27%. For the first six months of fiscal 2013, NIKE Brand footwear and apparel revenues increased 13% and 12%, respectively, while NIKE Brand equipment revenues increased 22%. The increase in footwear revenue for both the second quarter and first six months of fiscal 2013 was attributable to growth across our Running, Basketball, and Sportswear categories, primarily reflective of increased demand for our performance products, most notably those utilizing NIKE Free and Lunar technologies. For the second quarter of fiscal 2013, unit sales increased approximately 6% and average selling price per pair increased approximately 4%. For the first half of fiscal 2013, unit sales increased approximately 8% and the average selling price per pair increased approximately 5%. The growth in average selling price per pair for the second quarter and year to date period primarily reflected the impact of product price increases.

The increase in NIKE Brand apparel revenue for both the second quarter and year to date period of fiscal 2013 was driven primarily by our Men’s Training category, which includes our new NFL licensed business, while strong demand for Football (Soccer), Running, and Basketball products also contributed positively. For the second quarter of fiscal 2013, average selling price per unit increased approximately 11% and unit sales decreased approximately 1%. The decrease in unit sales for the second quarter was primarily driven by lower unit sales in Sportswear, largely offset by higher unit sales in Men’s Training, Basketball, and Running. For the year to date period, average selling price increased approximately 9%, while units sold increased approximately 3%. The increase in average selling price per unit for the second quarter and year to date period was driven approximately equally by product price increases and a shift in mix to higher priced products such as our performance Running, Basketball and NFL licensed apparel.

While wholesale revenues remain the largest component of overall NIKE Brand revenues, we continue to expand Direct to Consumer revenues through a growing network of NIKE owned in-line and factory stores, as well as online sales through NIKE owned websites. For both the second quarter and first six months of fiscal 2013, Direct to Consumer revenues represented approximately 18% of our total NIKE Brand revenues, compared to 15% and 16% for the second quarter and first half of fiscal 2012, respectively. Excluding changes in currency exchange rates, Direct to Consumer revenues increased 27% and 25% for the second quarter and first six months of fiscal 2013, respectively, as comparable store sales increased 16% and 15% over the same respective periods. Comparable store sales include revenues from NIKE owned in-line and factory stores for which all three of the following requirements have been met: the store has been open at least one year, square footage has not changed by more than 15% within the past year, and the store has not been permanently repositioned within the past year.

Revenues for our Other Businesses consist of results from Converse, Hurley and NIKE Golf. Excluding the impact of currency changes, total revenues for these businesses increased by 6% and 8% in the second quarter and first half of fiscal 2013, respectively, reflecting growth across all businesses.

Futures Orders

Futures orders for NIKE Brand footwear and apparel scheduled for delivery from December 2012 through April 2013 were 6% 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 increased 7%, as unit orders contributed approximately 4 percentage points of the growth and average selling price per unit contributed approximately 3 percentage points.

By geography, futures orders growth was as follows:


	Reported Futures Orders Growth	Futures Orders Excluding Currency Changes⁽¹⁾
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 FUTURES ORDERS	6%	7%

(1)

Growth rates have been restated using constant currency exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding changes in foreign currency exchange rates.

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, the mix of orders which can shift between futures and at-once orders, and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, currency exchange rate fluctuations as well as differing levels of order cancellations, discounts and returns 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 from our Other Businesses.

Gross Margin


	Three Months Ended November 30,									Six Months Ended November 30,
(Dollars in millions)	2012			2011			% Change			2012			2011			% Change
Gross Profit	$	2,530		$	2,376			6	%	$	5,358		$	4,994			7	%
Gross Margin %		42.5	%		42.8	%		(30) bps			43.1	%		43.7	%		(60) bps

19 | P a g e

For the second quarter and first six months of fiscal 2013, our consolidated gross margin was 30 and 60 basis points lower than the respective prior year periods. For the second quarter, the decrease in margin was largely attributable to the following:

•

Higher product costs, driven mainly by factory labor cost increases at our manufacturers, decreased our gross margin approximately 110 basis points;

•

Unfavorable foreign currency exchange rates decreased our gross margin approximately 70 basis points;

•

Higher third party royalties, primarily resulting from NFL licensed product sales in North America, decreased our gross margin approximately 50 basis points;

•

Other less significant factors, primarily due to additional investments in digital products and capabilities and higher inventory obsolescence, contributed another approximate 60 basis point decline to our gross margin.

•

These factors more than offset the favorable 260 basis point impact to gross margin due to higher net average selling price per unit, driven primarily by product price increases.

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 downward effect on our consolidated gross margin.

For the first six months of fiscal 2013, increases in selling prices contributed a benefit of 280 basis points to our gross margin, which were more than offset by higher product costs that negatively impacted gross margin by approximately 260 basis points, higher third party royalties negatively impacting gross margin by approximately 40 basis points, and unfavorable foreign currency exchange rates, reducing our year to date gross margin by approximately 40 basis points.

We expect that full year gross margin will be essentially flat compared to the prior year as currency headwinds and actions to clear inventory in China will offset gross margin expansion.

Selling and Administrative Expense


	Three Months Ended November 30,									Six Months Ended November 30,
(Dollars in millions)	2012			2011			% Change			2012			2011			% Change
Demand creation expense⁽¹⁾	$	613		$	616			0	%	$	1,484		$	1,280			16	%
Operating overhead expense		1,223			1,115			10	%		2,411			2,181			11	%
Selling and administrative expense	$	1,836		$	1,731			6	%	$	3,895		$	3,461			13	%
% of Revenues		30.8	%		31.2	%		(40) bps			31.3	%		30.3	%		100 bps

(1)

Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts.

Demand creation expense was flat in the second quarter and increased 16% during the first six months of fiscal 2013 compared to the same periods in the prior year. Excluding the effects of changes in currency exchange rates, demand creation for the second quarter of fiscal 2013 increased 3% primarily attributable to higher sports marketing expense, as we spent less on advertising and other marketing activities in the second quarter following our high level of brand event investments in the first quarter of fiscal 2013. For the six months ended November 30, 2012, demand creation expense was 21% higher than the prior year on a currency neutral basis, largely driven by higher spending around the Olympics and European Football Championships in the first quarter of fiscal 2013.

Operating overhead expense increased 10% and 11% during the second quarter and first six months of fiscal 2013, respectively. Changes in currency exchange rates decreased the growth in operating overhead expense by 2 percentage points for both periods. The increase for both the quarter and year to date periods was primarily attributable to higher wage related costs and performance-based compensation to support the growth of our overall business as well as increased investments in our expanding Direct to Consumer business.

For the full fiscal year, we anticipate selling and administrative expense to grow at a high-single to low-double-digit rate as we continue to make investments in our brands and growth initiatives while we anniversary demand creation investments made in the fourth quarter of fiscal 2012 for the Olympics and European Football Championships.

Other (Income) Expense, net


	Three Months Ended November 30,					Six Months Ended November 30,
(Dollars in millions)	2012			2011		2012			2011
Other (income) expense, net	$	(17	)	$	10	$	(45	)	$	27

Other (income) expense, net comprises 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.

For the second quarter of fiscal 2013, other (income) expense, net increased $27 million compared to the prior year. This change was primarily driven by a $39 million change from foreign currency net losses in the prior year to net gains in the current year. These impacts were partially offset by changes in other non-operating net gains and losses. For the first six months of fiscal 2013, other (income) expense, net increased $72 million compared to the prior year, primarily due to a $75 million change from foreign currency net losses in the prior year to net gains in the current year.

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 a favorable impact of approximately $10 million on our income before income taxes for the second quarter of fiscal 2013, and an unfavorable impact of $19 million for the first six months of fiscal 2013.

Income Taxes


	Three Months Ended November 30,								Six Months Ended November 30,
	2012			2011			% Change		2012			2011			% Change
Effective tax rate		26.8	%		24.1	%		270 bps		26.9	%		24.1	%		280 bps

20 | P a g e

Our effective tax rate on continuing operations for the second quarter and first six months of fiscal 2013 was 270 and 280 basis points higher than the effective tax rate on continuing operations for the respective prior year periods. The increase in our effective tax rate was primarily driven by changes in uncertain tax positions and an increase in the effective tax rate on foreign operations.

We anticipate the effective tax rate for the full fiscal year will be approximately 26.5%.

Discontinued Operations

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 condensed consolidated statements of income and balance sheets, respectively. Previously, these amounts were reported in our segment presentation as “Businesses to be Divested.” 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, the release of the associated cumulative translation adjustment of $129 million, offset by a tax benefit on the loss of $67 million. Previously, we disclosed the potential for certain tax balances to be written off as a result of the sale of Umbro. However, upon determining the final transaction structure, we determined that those amounts remain realizable and therefore were not part of the loss on sale of Umbro.

Under the sale agreement, we will provide transition services to Iconix while certain markets are converted and transitioned to Iconix-designated licensees. These transition services are expected to be completed by May 31, 2013. We also expect to wind down the remaining operations of Umbro over the remainder of fiscal 2013 and incur approximately $30 million of additional exit and disposal costs related to this transaction. The continuing operating cash flows are not expected to be significant to the Umbro business and we will have no significant continuing involvement with Umbro beyond the transition period.

On November 16, 2012, we reached a definitive agreement to sell Cole Haan to Apax Partners for $570 million. The transaction is expected to be completed in the third fiscal quarter of 2013. At 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 loss from discontinued operations line item on the condensed consolidated statements of income. Previously, these amounts were reported in our segment presentation as “Businesses to be Divested.” We are expecting a gain on the sale of Cole Haan that will be recognized when the transaction closes. The transition services associated with this transaction are immaterial.

Operating Segments

Reportable operating segments are based on our internal geographic organization. Each of the NIKE Brand geographies operate 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 exchange 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 foreign currency exchange rates to record non-functional currency product purchases into the entity’s functional currency. Differences between assigned standard foreign currency exchange 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.

The breakdown of revenues follows:


	Three Months Ended November 30,												Six Months Ended November 30,
(Dollars in millions)	2012			2011⁽¹⁾			% Change			% Change Excluding Currency Changes⁽²⁾			2012			2011⁽¹⁾			% Change			% Change Excluding Currency Changes⁽²⁾
North America	$	2,421		$	2,066			17	%		17	%	$	5,127		$	4,266			20	%		20	%
Western Europe		897			915			-2	%		4	%		2,064			2,143			-4	%		6	%
Central & Eastern Europe		266			261			2	%		7	%		608			595			2	%		12	%
Greater China		577			650			-11	%		-12	%		1,149			1,178			-2	%		-4	%
Japan		219			198			11	%		13	%		402			392			3	%		3	%
Emerging Markets		1,052			948			11	%		18	%		1,919			1,748			10	%		20	%
Global Brand Divisions		27			25			8	%		15	%		54			57			-5	%		2	%
Total NIKE Brand Revenues		5,459			5,063			8	%		11	%		11,323			10,379			9	%		13	%
Other Businesses		518			488			6	%		6	%		1,153			1,073			7	%		8	%
Corporate⁽³⁾		(22	)		(5	)		-			-			(47	)		(13	)		-			-
TOTAL NIKE, INC. REVENUES	$	5,955		$	5,546			7	%		10	%	$	12,429		$	11,439			9	%		13	%

(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)

(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 we use to evaluate the 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 Condensed consolidated statements of income. As discussed in Note 11 — Operating Segments in the accompanying notes to unaudited condensed consolidated financial statements, certain corporate costs are not included in EBIT of our operating segments.

21 | P a g e

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


	Three Months Ended November 30,									Six Months Ended November 30,
(Dollars in millions)	2012			2011⁽¹⁾			% Change			2012			2011⁽¹⁾			% 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 Divisions		(324	)		(281	)		-15	%		(699	)		(547	)		-28	%
Total NIKE Brand		921			772			19	%		1,862			1,733			7	%
Other Businesses		80			71			13	%		201			176			14	%
Corporate		(290	)		(208	)		-39	%		(555	)		(403	)		-38	%
TOTAL CONSOLIDATED EARNINGS BEFORE INTEREST AND TAXES	$	711		$	635			12	%	$	1,508		$	1,506			0	%
Interest (income) expense, net		(1	)		3			-			(4	)		3			-
TOTAL CONSOLIDATED INCOME BEFORE INCOME TAXES	$	712		$	632			13	%	$	1,512		$	1,503			1	%

(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.

North America

Three Months Ended

November 30,

Six Months Ended

November 30,

(Dollars in millions)

2012

2011

% Change

% Change
Excluding
Currency
Changes

2012

2011

% Change

% Change
Excluding
Currency
Changes

Revenues by:

Footwear

1,471