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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

 

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.

Large accelerated filer	 	x	  	Accelerated filer	 	¨	
				
Non-accelerated filer	 	¨	  	Smaller Reporting Company	 	¨	
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	  	

 

Table of Contents
 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

							
ITEM 1.	    	Legal Proceedings	  	 	32	  	
ITEM 1A.	    	Risk Factors	  	 	32	  	
ITEM 2.	    	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	32	  	
ITEM 6.	    	Exhibits	  	 	32	  	
	    	Signatures	  	 	33	  	

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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.

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 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.

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 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.

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 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.

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 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	  	

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 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.

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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	  	  	 	

 
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 	  	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).

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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.

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 	  	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.	

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 	  	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	 	  		
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.

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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.

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 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.

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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	  	

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 	  	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.

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 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	% 	

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(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	  	

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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	  	

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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)	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.	
 
(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.

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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	  	  	$	        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 REVENUES	  	$	2,421	  	  	$	2,066	  	  	 	17	% 	 	 	17	% 	 	 	  	$	5,127	  	  	$	4,266	  	  	 	20	% 	 	 	20	% 	
Revenues by:	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Sales to Wholesale Customers	  	$	1,866	  	  	$	1,616	  	  	 	15	% 	 	 	15	% 	 	 	  	$	3,878	  	  	$	3,252	  	  	 	19	% 	 	 	19	% 	
Sales Direct to Consumer	  	 	555	  	  	 	450	  	  	 	23	% 	 	 	23	% 	 	 	  	 	1,249	  	  	 	1,014	  	  	 	23	% 	 	 	23	% 	
TOTAL REVENUES	  	$	2,421	  	  	$	2,066	  	  	 	17	% 	 	 	17	% 	 	 	  	$	5,127	  	  	$	4,266	  	  	 	20	% 	 	 	20	% 	
EARNINGS BEFORE INTEREST AND TAXES	  	$	556	  	  	$	426	  	  	 	31	% 	 	 	 	 	 	 	  	$	1,186	  	  	$	965	  	  	 	23	% 	 	 	 	 	
Revenues for North America increased 17% for the second quarter and 20% for the first six months of fiscal 2013, driven by growth in both wholesale and Direct to Consumer channels. Our category offense continued to deliver innovative products, deep brand connections and compelling retail experiences to consumers, driving demand for NIKE Brand products across most key categories, most notably Men’s Training, Basketball, and Running. Comparable store sales in our Direct to Consumer stores increased 18% for both the second quarter and year to date periods.
For the second quarter and first six months of fiscal 2013, footwear revenue in North America increased 13% and 17%, respectively, driven by higher demand in most key categories, most notably Running, Basketball and Sportswear. For the second quarter and first half of fiscal 2013, unit sales increased 7% and 10%, respectively, and average selling price per pair increased 6% and 7%, respectively, driven primarily by product price increases.
Apparel revenue in North America for the second quarter and first six months of fiscal 2013 increased 19% and 22%, respectively, driven by growth in Men’s Training, reflecting the addition of our new NFL licensed business, as well as Basketball, Women’s Training, and Running. Average selling price per unit for the second quarter and first half of fiscal 2013 increased 21% and 19%, respectively. Approximately 16% of the increase in both periods was primarily due to a larger mix of higher price-point products, specifically within Men’s Training, Basketball, and Brand Jordan, with the remaining increase due to an increase in average selling prices to offset higher product costs. Unit sales for the second quarter decreased 2%, largely driven by a decline in our Sportswear category, which more than offset growth in other categories. For the year to date period, units sold increased 3%.
North America EBIT increased 31% in the second quarter as revenue growth of 17%, gross margin improvement, and selling and administrative expense leverage all contributed to increased profitability. Gross margin increased 120 basis points, as the favorable impacts from product price increases and a lower mix of off-price sales more than offset higher product costs and higher royalties related to our NFL business. Compared to the same period last year, selling and administrative expense was a lower percentage of revenues despite increased demand creation spending and higher operating overhead costs to support the expansion of our Direct to Consumer business and overall growth of the business. For the year to date period, EBIT increased 23% as higher revenues and a 70 basis point expansion in gross margin were partially offset by an increase in selling and administrative expense. The gross margin increase for the first half of fiscal 2013 reflects the favorable impact of price increases, which more than offset higher product costs and royalties for our NFL business. The increase in selling and administrative expense was largely driven by higher demand creation expense supporting key product initiatives and the Olympics in the first quarter of fiscal 2013.

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Western Europe

 	  	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	  	$	            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 REVENUES	  	$	897	  	  	$	915	  	  	 	-2	% 	 	 	4	% 	 	 	  	$	2,064	  	  	$	2,143	  	  	 	-4	% 	 	 	6	% 	
Revenues by:	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Sales to Wholesale Customers	  	$	739	  	  	$	780	  	  	 	-5	% 	 	 	1	% 	 	 	  	$	1,737	  	  	$	1,850	  	  	 	-6	% 	 	 	3	% 	
Sales Direct to Consumer	  	 	158	  	  	 	135	  	  	 	17	% 	 	 	26	% 	 	 	  	 	327	  	  	 	293	  	  	 	12	% 	 	 	22	% 	
TOTAL REVENUES	  	$	897	  	  	$	915	  	  	 	-2	% 	 	 	4	% 	 	 	  	$	2,064	  	  	$	2,143	  	  	 	-4	% 	 	 	6	% 	
EARNINGS BEFORE INTEREST AND TAXES	  	$	113	  	  	$	92	  	  	 	23	% 	 	 	 	 	 	 	  	$	327	  	  	$	315	  	  	 	4	% 	 	 	 	 	
On a currency neutral basis, revenues for Western Europe increased 4% for the second quarter of fiscal 2013 and 6% for the first half of the year, despite poor economic conditions impacting our Southern European businesses. Most territories reported revenue growth for the quarter and year to date periods, which more than offset revenue declines of 9% and 14% in Italy and 23% and 11% in Iberia, respectively. Revenues for the United Kingdom & Ireland, the largest market in Western Europe, increased 5% for the second quarter and 8% for the first half of fiscal 2013. Western Europe’s Direct to Consumer revenues on a constant currency basis increased 26% for the second quarter and 22% for the first half of fiscal 2013, primarily driven by an increase in comparable store sales. On a category basis, Western Europe revenue growth for the second quarter and year to date period was driven largely by growth in our Running, Football (Soccer), and Basketball categories.
Excluding changes in currency exchange rates, footwear revenue in Western Europe increased 8% for the second quarter and 9% for the year to date period. The footwear revenue increase in the second quarter and first half of fiscal 2013 was primarily driven by growth in Running, Sportswear, and Basketball. Both unit sales and average selling price per pair increased 4% in the second quarter, the latter primarily the result of product price increases. For the first half of fiscal 2013, unit sales increased 5% and average selling price per pair increased 4%, primarily due to product price increases.
Excluding changes in currency exchange rates, apparel revenue in Western Europe decreased 1% for the second quarter of fiscal 2013. The overall decrease in apparel revenues for the second quarter was due to a decline in Sportswear, partially offset by growth in Football (Soccer) and Running. Year-over-year, second quarter unit sales decreased 6% and average selling price per unit increased 5%, primarily attributable to product price increases. For the first six months of fiscal 2013, apparel revenues in Western Europe increased 1% excluding changes in currency exchange rates, attributable to growth in Football (Soccer) and Running, which was partially offset by a decrease in Sportswear. For the year to date period, unit sales decreased 3% and average selling price per unit increased 4%, attributable to pricing actions.
On a reported basis, revenues for the second quarter and first half of fiscal 2013 for Western Europe decreased 2% and 4%, respectively, while EBIT increased 23% and 4%, respectively. Western Europe’s EBIT growth for the second quarter was primarily the result of higher gross margin and lower selling and administrative expense. Gross margin increased 240 basis points for both the second quarter and the first six months of fiscal 2013 primarily due to more favorable standard foreign currency exchange rates; higher selling prices were mostly offset by higher product costs. In the second quarter, selling and administrative expense declined due to lower personnel costs. For the year to date period, EBIT growth was primarily due to gross margin improvement, offset by higher selling and administrative expense largely as a result of demand creation spending for the Olympics and European Football Championships in the first quarter of fiscal 2013.
Central & Eastern Europe

 	  	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	  	$	            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 REVENUES	  	$	266	  	  	$	261	  	  	 	2	% 	 	 	7	% 	 	 	  	$	608	  	  	$	595	  	  	 	2	% 	 	 	12	% 	
EARNINGS BEFORE INTEREST AND TAXES	  	$	43	  	  	$	33	  	  	 	30	% 	 	 	 	 	 	 	  	$	104	  	  	$	103	  	  	 	1	% 	 	 	 	 	
Excluding changes in currency exchange rates, revenues for Central & Eastern Europe increased 7% for the second quarter and 12% for the first half of fiscal 2013, driven by growth across most territories, particularly in Russia and Turkey, which more than offset lower revenues in Greece. Overall revenue growth in Central and Eastern Europe for the second quarter and year to date period was driven by growth in most key categories, most notably Running, Football (Soccer), and Sportswear.
Excluding changes in currency exchange rates, Central & Eastern Europe’s footwear revenue increased 4% and 9% for the second quarter year to date period, respectively. The overall increase in footwear revenues for both periods was primarily driven by growth in Running, partially off-set by lower revenues for Sportswear and Football (Soccer). In the second quarter, unit sales decreased 3% and average selling price per pair increased 7%, primarily reflective of product price increases. For the first six months of fiscal 2013, unit sales increased 4% and average selling price per pair increased 5%, attributable to product price increases.
Excluding changes in currency exchange rates, Central & Eastern Europe’s apparel revenues increased 10% for the second quarter mainly driven by growth in Football (Soccer) and Sportswear. In the second quarter of fiscal 2013, unit sales increased 6% and average selling price per unit increased 4%, reflective of product price increases. For the year to date period, apparel revenues increased 17%, driven by growth in most key categories, most notably Football (Soccer), Sportswear, and Running. For the first half of fiscal 2013, unit sales increased 13% and average selling price per unit increased 4%, reflective of product price increases.
On a reported basis, revenues for Central & Eastern Europe increased 2% for both the second quarter and first half of fiscal 2013, while EBIT grew 30% and 1%, respectively. The EBIT growth for the second quarter was primarily the result of higher revenues, gross margin improvement, and significant selling and administrative expense leverage. Gross margin for the second quarter and first half of fiscal 2013 increased 150 basis points and 120 basis points, respectively, primarily due to product price increases that more than offset higher product costs and more favorable standard foreign currency exchange rates. Selling and administrative expense decreased as a percentage of revenues for the second quarter, mainly due to higher advertising spending in the prior year, but increased for the first half of fiscal 2013 due to higher demand creation spending related to the Olympics and European Football Championships in the first quarter of fiscal 2013.

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Greater China

 	  	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	  	$	            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 REVENUES	  	$	577	  	  	$	650	  	  	 	-11	% 	 	 	-12	% 	 	 	  	$	1,149	  	  	$	1,178	  	  	 	-2	% 	 	 	-4	% 	
EARNINGS BEFORE INTEREST AND TAXES	  	$	185	  	  	$	220	  	  	 	-16	% 	 	 	 	 	 	 	  	$	349	  	  	$	391	  	  	 	-11	% 	 	 	 	 	
Excluding changes in currency exchange rates, Greater China revenues decreased 12% and 4% for the second quarter and first half of fiscal 2013, respectively, driven by lower futures orders and proactive order cancellations to manage the amount of new product flowing into the market, as well as increased sales related reserves for product returns and discounts. These drivers were partially offset by growth in our Direct to Consumer revenues, driven by comparable store sales growth of 10% and 8% for the second quarter and first six months of fiscal 2013, respectively. For both the second quarter and year to date period, revenues in most key categories were lower.
Excluding changes in currency exchange rates, Greater China footwear revenue declined 9% for the second quarter, primarily driven by lower sales across most key categories, most notably Sportswear, Basketball, and Men’s Training, and increased reserves for product returns and retailer discounts to help clear excess inventory at retail. For the second quarter of fiscal 2013, unit sales decreased 10% while the average selling price per pair increased 1%, primarily reflecting a favorable mix of higher priced products. For the year to date period, footwear revenues increased 1%, primarily driven by growth in Running, largely offset by lower revenues in Sportswear and Women’s Training. Average selling price per pair for the first six months of fiscal 2013 increased 3%, while unit sales were 2% lower. The increase in average selling price per pair for the first half of fiscal 2013 is reflective of product price increases, primarily benefitting the first quarter of fiscal 2013.
Excluding changes in currency exchange rates, apparel revenues for Greater China were 17% lower for the second quarter, largely driven by a decrease in Sportswear and Men’s Training revenues. Unit sales were 22% lower in the second quarter of fiscal 2013, due to lower demand and increased reserves for product returns and retailer discounts to clear excess inventory at retail, while the average selling price per unit increased 5%, primarily reflecting a favorable mix of higher priced performance products. Year to date apparel revenues declined 11%, primarily attributable to decreased Sportswear, Men’s Training, and Women’s Training revenues, partially offset by growth in Basketball. For the first six months of fiscal 2013, unit sales were 13% lower than the prior year period and average selling price per unit increased 2%, reflecting a favorable product mix.
On a reported basis, revenues for Greater China decreased 11% for the second quarter, while EBIT fell 16%, primarily driven by lower revenues and an increase in selling and administrative expense, partially offset by higher gross margin. Selling and administrative expense increased as a percentage of revenues, primarily driven by increased investment in our Direct to Consumer business and the decrease in revenues. Gross margin improved 90 basis points in the second quarter due to more favorable standard foreign currency exchange rates, partially offset by a higher mix of close-out sales.
For the first six months of fiscal 2013, revenues on a reported basis decreased 2% while EBIT decreased 11%, primarily driven by lower revenues and higher selling and administrative expense, offset partially by an increase in gross margin. Selling and administrative expense increased as a percentage of revenues, primarily driven by higher operational overhead reflecting investments in both wholesale and Direct to Consumer operations. Gross margin improved 50 basis points for the year to date period, due to more favorable standard foreign currency exchange rates, partially offset by a higher mix of close-out sales.
Despite the challenges we’ve seen in China, there are early indications that our strategies are taking hold in the marketplace. Comparable store sales are growing in both NIKE-owned Direct to Consumer and wholesale customer doors, inventory levels in the marketplace are beginning to decline, and apparel product sell-through is improving. However, we still expect lower year-on-year revenue and EBIT from Greater China over the next few quarters as we work to position this market to capture the tremendous long-term growth potential.
Japan

 	  	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	  	$	            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 REVENUES	  	$	219	  	  	$	198	  	  	 	11	% 	 	 	13	% 	 	 	  	$	402	  	  	$	392	  	  	 	3	% 	 	 	3	% 	
EARNINGS BEFORE INTEREST AND TAXES	  	$	43	  	  	$	35	  	  	 	23	% 	 	 	 	 	 	 	  	$	67	  	  	$	69	  	  	 	-3	% 	 	 	 	 	
Excluding changes in currency exchange rates, revenues for Japan increased 13% for the second quarter driven by higher revenues in all but one category, including strong growth in Running, Men’s Training, and Football (Soccer). For the year to date period, constant currency growth of 3% was driven by higher revenues in Running and Football (Soccer).
On a reported basis, second quarter revenues for Japan increased 11% while EBIT increased 23% as a result of higher revenues and selling and administrative expense leverage. The decrease in selling and administrative expense as a percentage of revenues was primarily driven by lower sports marketing and digital demand creation spending. For the first half of fiscal 2013, reported revenue increased 3% while EBIT declined 3%. The decrease in EBIT was largely due to higher selling and administrative expense as a percentage of revenue due to higher demand creation spending around the Olympics in the first quarter of fiscal 2013.

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Emerging Markets

 	  	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	  	$	            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 REVENUES	  	$	1,052	  	  	$	948	  	  	 	11	% 	 	 	18	% 	 	 	  	$	1,919	  	  	$	1,748	  	  	 	10	% 	 	 	20	% 	
EARNINGS BEFORE INTEREST AND TAXES	  	$	305	  	  	$	247	  	  	 	23	% 	 	 	 	 	 	 	  	$	528	  	  	$	437	  	  	 	21	% 	 	 	 	 	
Excluding changes in currency exchange rates, revenues for the Emerging Markets increased 18% for the second quarter and 20% for the first half of fiscal 2013. For both periods, revenues were higher for every key category and territory, led by Brazil, Argentina, and Mexico.
Excluding changes in currency exchange rates, Emerging Markets footwear revenues grew 16% and 18% for the second quarter and first half of fiscal 2013, respectively, led by Running, Football (Soccer) and Men’s and Women’s Training. Unit sales increased approximately 11% and 13% for the second quarter and first half of fiscal 2013, respectively, while average selling price per pair increased approximately 5% for both periods, primarily reflective of product price increases.
Excluding changes in currency exchange rates, apparel revenues for the second quarter and year to date period were 24% and 27%, respectively, led by Football (Soccer), Running, and Sportswear. For the second quarter and first six months of fiscal 2013, apparel revenue was driven by approximately 14% and 20% growth in unit sales and approximately 10% and 7% growth in average selling price per unit, respectively. The increase in average selling price per unit for both periods was driven primarily by product price increases and to a lesser extent, a favorable mix of higher priced products.
On a reported basis, revenues for the Emerging Markets increased 11% and 10% for the second quarter and first half of fiscal 2013, respectively, while EBIT grew 23% and 21%, respectively, due largely to improved gross margins. Gross margin increased 300 basis points and 250 basis points for the second quarter and first half of fiscal 2013, primarily due to changes in standard foreign currency exchange rates, as well as the favorable impact from product price increases which more than offset higher product costs. As a percentage of revenues, selling and administrative expense was flat for both the second quarter and year to date period.
Global Brand Divisions

 	  	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	  	$	              27	  	 	$	              25	  	 	 	8	% 	 	 	15	% 	 		  	$	              54	  	 	$	              57	  	 	 	-5	% 	 	 	2	% 	
(Loss) Before Interest and Taxes	  	$	(324	) 	 	$	(281	) 	 	 	15	% 	 	 	 	 	 	 	  	$	(699	) 	 	$	(547	) 	 	 	28	% 	 	 	 	 	
Global Brand Divisions primarily represent demand creation and operating overhead expenses that are centrally managed for the NIKE Brand. Revenues for the Global Brand Divisions are attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment.
The increase in the loss for the second quarter and year to date period was primarily driven by increased investments and marketing support for our digital business and product creation initiatives. For the year to date period, a higher level of first quarter demand creation spending around the Olympics and European Football Championships also contributed to the increase.
Other Businesses

 	  	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	  	$	            518	  	  	$	            488	  	  	 	6	% 	 	 	6	% 	 		  	$	          1,153	  	  	$	          1,073	  	  	 	7	% 	 	 	8	% 	
Earnings Before Interest and Taxes	  	$	80	  	  	$	71	  	  	 	13	% 	 	 	 	 	 	 	  	$	201	  	  	$	176	  	  	 	14	% 	 	 	 	 	
Our Other Businesses comprise Converse, Hurley and NIKE Golf.
Excluding changes in currency exchange rates, revenues for our Other Businesses increased 6% in the second quarter, and 8% for the first half of fiscal 2013, reflecting growth across all businesses. Converse revenues grew 5% for the second quarter and 8% year to date, driven primarily by increased sales in the United Kingdom and China, as well as our North America Direct to Consumer business. NIKE Golf grew 10% for the second quarter and 8% for the first half of fiscal 2013.
On a reported basis, EBIT for our Other Businesses increased 13% for the second quarter and 14% year to date, driven by improved profits at Converse, NIKE Golf, and Hurley.
Corporate

 	  	Three Months Ended
November 30,	 	 	 	  	Six Months Ended
November 30,	 	
(Dollars in millions)	  	2012	 	 	2011	 	 	% Change	 	 	   	  	2012	 	 	2011	 	 	% Change	 	
Revenues	  	$	(22	) 	 	$	(5	) 	 	 	-  	  	 		  	$	            (47	) 	 	$	(13	) 	 	 	-  	  	
(Loss) Before Interest and Taxes	  	$	          (290	) 	 	$	(208	) 	 	 	39	% 	 	 	  	$	(555	) 	 	$	(403	) 	 	 	38	% 	

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Corporate consists largely of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; certain foreign currency gains and losses, including certain hedge gains and losses; intercompany eliminations; and other items.
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 Other Businesses but managed through our central foreign exchange risk management program.
In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results include all other foreign currency hedge gains and losses generated through our centrally managed foreign exchange risk management program, other conversion gains and losses arising from re-measurement of monetary assets and liabilities in non-functional currencies, and gains and losses resulting from the difference between actual foreign currency exchange rates and standard foreign currency exchange rates used to record non-functional currency denominated product purchases within the NIKE Brand geographic operating segments and Other Businesses.
Corporate loss increased by $82 million and $152 million for the second quarter and first six months of fiscal 2013, respectively. The increase is primarily comprised of the following:
 
• 	 	Higher foreign exchange losses included in gross margin of $86 million for the second quarter and $161 million for the first six months of fiscal 2013 related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Other Businesses, net of hedge gains,	
 
• 	 	Change in other foreign currency related results included in other (income) expense, net from net losses in the prior year to net gains in the current year of $39 million for the second quarter and $75 million for the first six months of fiscal 2013, and	
 
• 	 	Higher corporate overhead expense of $32 million and $69 million for the second quarter and first six months of fiscal 2013, respectively, primarily due to higher wage related expense.	
Foreign Currency Exposures and Hedging Practices
 
Overview
As a global company with significant operations outside the United States, in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows, such as the Euro and Chinese Renminbi, into U.S. Dollars.
Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks that are material to NIKE, Inc. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio, and where practical, by hedging a portion of the remaining material exposures using derivative instruments such as forward contracts and options. As described below, the implementation of our foreign currency adjustment program enhanced our ability to manage our foreign exchange risk on a portfolio basis by increasing the natural offsets and currency correlation benefits that exist within our portfolio of aggregate foreign exchange exposure. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where hedged, our program has the effect of delaying the impact of current market rates on our consolidated financial statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading purposes.
Transactional exposures
We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are:
 
• 	 	Product Costs — NIKE’s product costs are exposed to fluctuations in foreign currencies in the following ways:	
 
 	1 .	Non-functional currency denominated product purchases:	
 
 	a .	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.	
 
 	b .	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 both purchasing scenarios, a weaker U.S. Dollar reduces the inventory cost incurred by NIKE whereas a stronger U.S. Dollar increases its cost.	
 
 	2 .	Factory input costs: In January 2012, NIKE implemented a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to our existing foreign currency exposures. Under this program, our payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated.	
 
 	    	For the currency within the factory currency exposure indices that is the local or functional currency of the factory, the currency rate fluctuation affecting the product cost is recorded within inventories and is recognized in cost of sales when the related product is sold to a third-party. All currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory are recognized as embedded derivatives and are recorded at fair value through other (income) expense, net. Refer to Note 9 — Risk Management and Derivatives for additional detail.	
 
 	    	As an offset to the impacts of the fluctuating U.S. Dollar on our non-functional currency denominated product purchases described above, a strengthening U.S. Dollar against the foreign currencies within the factory currency exposure indices decreases NIKE’s U.S. Dollar inventory cost. Conversely, a weakening U.S. Dollar against the indexed foreign currencies increases our inventory cost.	
 
• 	 	Non-Functional Currency Denominated External Sales — A portion of our Western Europe and Central & Eastern Europe geography revenues are earned in currencies other than the Euro (e.g. British Pound, Polish Zloty) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.	
 
• 	 	Other Costs — Non-functional currency denominated costs, such as endorsement contracts, intercompany royalties and other intercompany charges generate foreign currency risk to a lesser extent.	
 
• 	 	Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to re-measurement, which may create fluctuations in other (income) expense, net within our consolidated results of operations.	

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Managing transactional exposures
Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above. These are accounted for as cash flow hedges in accordance with the accounting standards for derivatives and hedging, except for hedges of the embedded derivatives component of the product cost exposure as discussed below. As of November 30, 2012, there were outstanding currency forward contracts with maturities up to 30 months. The fair value of outstanding currency forward contracts at November 30, 2012 and May 31, 2012 was $78 million and $183 million in assets and $39 million and $32 million in liabilities, respectively. The effective portion of the changes in fair value of these instruments is reported in other comprehensive income (“OCI”), a component of shareholders’ equity, and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect consolidated earnings. The ineffective portion is immediately recognized in earnings as a component of other (income) expense, net. Ineffectiveness was not material for the three and six months ended November 30, 2012 and 2011.
Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to re-measurement and the embedded derivative contracts discussed above are not formally designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, changes in fair value of these instruments are immediately recognized in other (income) expense, net and are intended to offset the foreign currency impact of the re-measurement of the related non-functional currency denominated asset or liability or the embedded derivative contract being hedged. The fair value of undesignated instruments was $26 million and $55 million in assets and $31 million and $20 million in liabilities at November 30, 2012 and May 31, 2012, respectively.
Refer to Note 5 — Fair Value Measurements and Note 9 – Risk Management and Derivatives in the accompanying notes to unaudited condensed consolidated financial statements for additional description of how the above financial instruments are valued and recorded.
Translational exposures
Many of our foreign subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries’ non-U.S. Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation adjustment to OCI within shareholders’ equity. In the translation of our consolidated statements of income, a weaker U.S. Dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a stronger U.S. Dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated revenues and income before income taxes was a net translation benefit (detriment) of approximately $(165) million and $(28) million, respectively, for the three months ended November 30, 2012 and approximately $98 million and $23 million, respectively, for the three months ended November 30, 2011. The impact of foreign exchange rate fluctuations on the translation of our consolidated revenues and income before income taxes was a net translation benefit (detriment) of approximately $(488) million and $(93) million, respectively, for the six months ended November 30, 2012 and approximately $416 million and $86 million, respectively, for the six months ended November 30, 2011.
Managing translational exposures
To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated securities at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under the accounting standards for derivatives and hedging. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. The combination of the purchase and sale of the U.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of available-for-sale investments are accounted for as cash flow hedges. The fair value of instruments used in this manner at November 30, 2012 and May 31, 2012 was $12 million and $27 million in assets and $12 million and $3 million in liabilities, respectively. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in other (income) expense, net in the period during which the hedged available-for-sale investment is sold and affects earnings. Any ineffective portion is immediately recognized in earnings as a component of other (income) expense, net. The impact of ineffective hedges was not material for any period presented.
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 on our income before income taxes of approximately $10 million for the three months ended November 30, 2012 and had an unfavorable impact of approximately $19 million for the six months ended November 30, 2012.
Refer to Note 5 — Fair Value Measurements and Note 9 — Risk Management and Derivatives in the accompanying notes to unaudited condensed consolidated financial statements for additional description of how the above financial instruments are valued and recorded.
Net investments in foreign subsidiaries
We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated in a currency other than the U.S. Dollar, which could adversely impact the U.S. Dollar value of these investments and therefore the value of future repatriated earnings. We have hedged and may, in the future, hedge net investment positions in certain foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on these net investments. In accordance with the accounting standards for derivatives and hedging, the effective portion of the change in fair value of the forward contracts designated as net investment hedges is recorded in the cumulative translation adjustment component of accumulated other comprehensive income. Any ineffective portion is immediately recognized in earnings as a component of other (income) expense, net. The impact of ineffective hedges was not material for any period presented. To minimize credit risk, we have structured these net investment hedges to be generally less than six months in duration. Upon maturity, the hedges are settled based on the current fair value of the forward contracts with the realized gain or loss remaining in OCI. As of November 30, 2012 and May 31, 2012 there were no outstanding net investment hedges. There were no cash flows from net investment hedge settlements for the six month period ended November 30, 2012. Cash flows from net investment hedge settlements totaled $(8) million for the six month period ended November 30, 2011.
Liquidity and Capital Resources
 
Cash Flow Activity
Our primary source of operating cash flow for the first six months of fiscal 2013 was net income of $951 million. Cash provided by operations was $1,245 million for the first six months of fiscal 2013 compared to $597 million for the first six months of fiscal 2012, driven largely by significantly smaller increases in working capital in the current year. For the first six months of fiscal 2013 changes in working capital resulted in a net cash outflow of $113 million compared to a net cash outflow of $775 million for the same period in fiscal 2012. This year-over-year change in cash invested in working capital was primarily driven by our continued focus on inventory management.
Cash provided by investing activities was $160 million during the first six months of fiscal 2013, compared to $832 million for the first six months of fiscal 2012. The year-over-year decrease was primarily due to lower net proceeds from short-term investments (sales and maturities, less purchases); net proceeds were $197 million in the first half of fiscal 2013 compared to net proceeds of $1,135 million in the first half of fiscal 2012. In fiscal 2013, the lower net proceeds from short-term investments were partially offset by $225 million in proceeds from the sale of Umbro.

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Cash used by financing activities was $1,431 million for the first six months of fiscal 2013 compared to $1,454 million for the first six months of fiscal 2012. The decrease in cash used by financing activities was primarily due to lower common stock repurchases combined with a decrease in long-term debt maturities, which together more than offset lower proceeds from stock option exercises compared to the same prior year period.
In the first six months of fiscal 2013, we purchased 24.4 million shares of NIKE’s class B common stock for $1,162 million and concluded the Company’s four-year, $5 billion share repurchase program approved by the Board of Directors in September 2008. Under this program the Company purchased a total of 118.8 million shares at an average price of $42.08. Following the completion of this program, the Company began repurchases under a four-year, $8 billion program approved by the NIKE, Inc. Board of Directors in September 2012. Of the total shares repurchased during the second quarter, 6.2 million shares were purchased under this program at a cost of approximately $294 million. We continue to expect funding of share repurchases will come from operating cash flow, excess cash, and/or debt. The timing and the amount of shares purchased will be dictated by our capital needs and stock market conditions.
Capital Resources
On November 1, 2011, we entered into a committed credit facility agreement with a syndicate of banks which provides for up to $1 billion of borrowings with the option to increase borrowings to $1.5 billion with lender approval. The facility matures November 1, 2016, with a one-year extension option prior to both the second and third anniversary of the closing date, provided that extensions shall not extend beyond November 1, 2018. As of and for the quarter ended November 30, 2012, we had no amounts outstanding under our committed credit facility.
We currently have long-term debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. If our long-term debt rating were to decline, the facility fee and interest rate under our committed credit facility would increase. Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt rating would not trigger acceleration of maturity of any then-outstanding borrowings or any future borrowings under the committed credit facility. Under this committed revolving credit facility, we have agreed to various covenants. These covenants include limits on our disposal of fixed assets, the amount of debt secured by liens we may incur, as well as a minimum capitalization ratio. In the event we were to have any borrowings outstanding under this facility and failed to meet any covenant, and were unable to obtain a waiver from a majority of the banks in the syndicate, any borrowings would become immediately due and payable. As of November 30, 2012, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future.
Liquidity is also provided by our $1 billion commercial paper program. During the three months ended November 30, 2012, we issued commercial paper and repaid borrowings totaling $305 million. As of November 30, 2012, no amounts were outstanding under this program. We may continue to issue commercial paper from time to time during fiscal 2013 depending on general corporate needs. We currently have short-term debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively.
As of November 30, 2012, we had cash, cash equivalents and short-term investments totaling $3.5 billion, of which $3.0 billion was held by our foreign subsidiaries. Cash equivalents and short-term investments consist primarily of deposits held at major banks, money market funds, Tier-1 commercial paper, corporate notes, U.S. Treasury obligations, U.S. government sponsored enterprise obligations, and other investment grade fixed income securities. Our fixed income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our credit risk. While individual securities have varying durations, the average duration of our entire cash equivalents and short-term investment portfolio is less than 116 days as of November 30, 2012.
Despite recent uncertainties in the financial markets, to date we have not experienced difficulty accessing the credit markets or incurred higher interest costs. Future volatility in the capital markets, however, may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.
We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We routinely repatriate a portion of our foreign earnings for which U.S. taxes have previously been provided. We also indefinitely reinvest a significant portion of our foreign earnings, and our current plans do not demonstrate a need to repatriate these earnings. Should we require additional capital in the U.S., we may elect to repatriate indefinitely reinvested foreign funds or raise capital in the U.S. through debt. If we were to repatriate indefinitely reinvested foreign funds, we would be required to accrue and pay additional U.S. taxes less applicable foreign tax credits. If we elect to raise capital in the U.S. through debt, we would incur additional interest expense.
Contractual Obligations
There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.
The total liability for uncertain tax positions was $374 million, excluding related interest and penalties, at November 30, 2012. We estimate 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.
Recently Adopted Accounting Standards
 
In September 2011, the FASB issued updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance became effective for us beginning June 1, 2012. The adoption did not have a material effect on our consolidated financial position or results of operations.
In June 2011, the FASB issued guidance on the presentation of comprehensive income. This new guidance eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity. Companies will now be 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 originally also 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 became effective for us 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 our 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 us beginning in the first quarter of fiscal 2014, and early adoption is permitted. We do not anticipate the adoption will have an impact on our consolidated financial position or results of operations.

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In December 2011, the FASB issued guidance enhancing disclosure requirements surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to master netting arrangements. This new guidance is effective for us beginning June 1, 2013. As this guidance only requires expanded disclosures, we do not anticipate the adoption will have an impact on our consolidated financial position or results of operations.
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

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 ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
There have been no material changes from the information previously reported under Item 7A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.
 
 ITEM 4.	CONTROLS AND PROCEDURES	
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act of 1934, as amended (“the Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We carry out a variety of on-going procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of November 30, 2012.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Special Note Regarding Forward-Looking
Statements and Analyst Reports
Certain written and oral statements, other than purely historical information, including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the Securities and Exchange Commission, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel, and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products, and the various market factors described above; difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without limitation, the systems related to demand and supply planning, and inventory control; interruptions in data and information technology systems; data security; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to changes in shipment timing, the changing mix of futures and at-once orders, and discounts, order cancellations, and returns; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials and energy used to manufacture products, new product development and introduction; the ability to secure and protect trademarks, patents, and other intellectual property; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; the impact of, including business and legal developments relating to, climate change; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; the effects of our decision to divest of the Cole Haan and Umbro businesses; and other factors referenced or incorporated by reference in this report and other reports.
The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We do not undertake to update our forward-looking statements unless required by law.
Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of NIKE.

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PART II – OTHER INFORMATION
 
 ITEM 1.	LEGAL PROCEEDINGS	
There have been no material developments with respect to the information previously reported under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.
 
 ITEM 1A.	RISK FACTORS	
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended May 31, 2012.
 
 ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	
During the three months ended November 30, 2012, the Company concluded the 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 118.8 million shares at an average price of $42.08 per share. Following the completion of this program, the Company began repurchases under the new four-year, $8 billion program approved by the Board of Directors in September 2012.
The following table presents a summary of share repurchases made by NIKE under the purchase programs during the quarter ended November 30, 2012.

Period	  	Total Number of Shares
Purchased	 	  	Average Price
Paid per Share	 	  	Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs	 	  	Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs
(In Millions) 	 	
September 1 — September 30, 2012	  	 	2,815,400	  	  	$	            48.74	  	  	 	2,815,400	  	  	$	            7,952	  	
October 1 — October 31, 2012	  	 	2,854,956	  	  	$	47.27	  	  	 	2,854,956	  	  	$	7,817	  	
November 1 — November 30, 2012	  	 	2,368,718	  	  	$	47.00	  	  	 	2,368,718	  	  	$	7,706	  	
 	  	 	8,039,074	  	  	$	47.71	  	  	 	8,039,074	  	  	 	 	 	
 
 ITEM 6.	EXHIBITS	
(a) EXHIBITS:

    3.1†	  	Restated Articles of Incorporation, as amended.	
    3.2	  	Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 16, 2007).	
    4.1	  	Restated Articles of Incorporation, as amended (see Exhibit 3.1).	
    4.2	  	Third Restated Bylaws, as amended (see Exhibit 3.2).	
  10.8*	  	NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 25, 2012).	
  31.1	  	Rule 13(a)-14(a) Certification of Chief Executive Officer.	
  31.2	  	Rule 13(a)-14(a) Certification of Chief Financial Officer.	
  32.1†	  	Section 1350 Certificate of Chief Executive Officer.	
  32.2†	  	Section 1350 Certificate of Chief Financial Officer.	
101.INS	  	XBRL Instance Document.	
101.SCH	  	XBRL Taxonomy Extension Schema Document.	
101.CAL	  	XBRL Taxonomy Extension Calculation Linkbase Document.	
101.DEF	  	XBRL Taxonomy Extension Definition Linkbase Document.	
101.LAB	  	XBRL Taxonomy Extension Label Linkbase Document.	
101.PRE	  	XBRL Taxonomy Extension Presentation Linkbase Document.	
 
†	Furnished herewith	
*	Management contract or compensatory plan or arrangement.	

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 SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NIKE, Inc.
an Oregon Corporation	
	
/S/    DONALD W. BLAIR	
Donald W. Blair
Chief Financial Officer	
DATED: January 9, 2013

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Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
NIKE, INC.
(as amended as of October 1, 2012)
The following version of the Restated Articles of Incorporation of NIKE, Inc., an Oregon corporation (the “Corporation”), filed with the Oregon Secretary of State on November 26, 1980, has been prepared for and filed with the Securities and Exchange Commission and includes the amendments reflected in Articles of Amendment filed with the Oregon Secretary of State on October 3, 1983, November 5, 1986, October 15, 1987, September 24, 1990, October 10, 1995, September 23, 2005 and October 1, 2012:
ARTICLE I
These Restated Articles of Incorporation supersede the previously existing Articles of Incorporation of NIKE, Inc. and all amendments thereto.
ARTICLE II
The name of this Corporation is NIKE, Inc. and its duration shall be perpetual.
ARTICLE III
The purposes for which this Corporation is organized are to engage in any lawful activity for which corporations may be organized under ORS Chapter 57.
ARTICLE IV
The aggregate number of shares which the Corporation shall have the authority to issue is divided as follows:
 
 	A.	200,000,000 shares of Class A Common Stock, no par value;	
 
 	B.	1,200,000,000 shares of Class B Common Stock, no par value; and	
 
 	C.	300,000 shares of Preferred Stock, $1.00 par value.	
 
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Immediately upon the filing of these Restated Articles of Incorporation with the Corporation Commissioner for the State of Oregon, each share of the Corporation’s Common Stock, without par value, outstanding immediately prior to such filing shall become, without further action and without the necessity of transfer or exchange of any share certificates, 30 shares of the Corporation’s Class A Common Stock, without par value, and the holders thereof shall be entitled to all of the rights and preferences of such class of stock as set forth in these Restated Articles of Incorporation.
The Class A Common Stock and the Class B Common Stock are sometimes collectively referred to herein as the “Common Stock.” The designations, preferences, limitations and relative rights granted to or imposed upon the respective classes of the shares of capital stock and the holders thereof are as follows:
A. Preferred Stock, $1.00 par value
1. Dividends . The holders of Preferred Stock shall be entitled to receive dividends at the rate of $.10 per share per annum payable annually on May 31. Dividends shall be cumulative. Computation of the amount of dividends accrued in respect of a fraction of a year shall be on the basis of a 365-day year. In case dividends for any period are not paid in full, all shares of Preferred Stock shall participate ratably in the payment of dividends for such period in proportion to the full amount of such dividends for such period to which they are entitled. Unpaid dividends shall bear interest at the rate of 12 percent per annum. No dividend shall be declared or paid or set apart for payment in any fiscal year on the Common Stock or on any class of stock of the Corporation ranking as to dividends subordinate to the Preferred Stock, until all dividends for such fiscal year for all outstanding shares of Preferred Stock have been declared and paid, or set apart for payment, in full.
2. Voting Rights . Except as otherwise expressly required by law, shares of Preferred Stock shall not be entitled to vote on any matter submitted to shareholders, other than matters listed below:
(a) Sale of all or substantially all of the assets of the Corporation or any of its subsidiaries.
 
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(b) Merger, consolidation, liquidation or dissolution of the Corporation.
(c) Sale or assignment of the “NIKE” trademark for athletic shoes sold in the United States.
On any of the foregoing matters or on any matters as to which voting of the Preferred Stock shall be expressly required by law, such stock shall be entitled to one vote per share, and it shall vote as a separate class.
If any such matter is submitted for approval by Preferred Shareholders and is not approved by the holders of more than 66-2/3 percent of the shares of Preferred Stock outstanding, the Corporation and the holders of Preferred Stock shall have the following rights and obligations:
(a) Holders of Preferred Stock voting against the action may require the Corporation to redeem all of its shares of Preferred Stock by giving written notice to the Corporation and stating that the shares of Preferred Stock shall be redeemed by the Corporation on a specified date, which may not be less than 60 days from the date of the notice. The redemption price shall be $1.00 per share, plus accrued dividends and interest, if any.
(b) The Corporation may redeem any or all of the shares of Preferred Stock voting against the action by giving written notice to the holders of Preferred Stock and stating in such notice that the shares of Preferred Stock shall be redeemed by the Corporation on a specified date, which may not be more than 60 days from the date the notice is given. The redemption price shall be $1.00 per share, plus accrued dividends and interest, if any.
3. Liquidation . The holders of Preferred Stock shall be entitled to receive, before any payment or distribution of the assets of the Corporation, whether capital or surplus, shall be made to or set apart for the holders of the Common Stock or any other series or class of stock ranking junior to such Preferred Stock as to rights upon liquidation, dissolution or winding up of the affairs of the Corporation, voluntarily or involuntarily, $1.00 per share, together with all dividends declared and unpaid thereon to the date of final distribution, and no more. If, upon liquidation, dissolution or winding up of the Corporation, the assets of the Corporation distributable among the holders of
 
3

Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid, then such assets shall be distributed among such holders ratably in proportion to the full amounts which would be payable on said shares if all amounts payable thereon were paid in full. Neither the merger nor consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor a sale, transfer or lease of all or any part of the assets of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph.
4. Redemption by the Corporation . The Corporation, at its option, may redeem shares of Preferred Stock in any one or more of the following situations:
(a) The Corporation may redeem all, but not less than all, of the shares of Preferred Stock by giving written notice to the holders of Preferred Stock and stating in such notice that the shares of Preferred Stock shall be redeemed by the Corporation on a specified date which shall not be more than 90 days from the date the notice is given. The redemption price shall be $1.00 per share, plus accrued dividends and interest, if any. At the time of any redemption under this paragraph A.4.(a) of Article IV, in addition to paying the redemption price, the Corporation shall repay the entire indebtedness owed by the Corporation to the holders of Preferred Stock.
(b) If a holder of Preferred Stock desires to sell or transfer the Preferred Stock (to any person other than Nissho Iwai Co., Ltd. or one of its subsidiaries), the Corporation may redeem the Preferred Stock proposed for sale. The redemption price shall be $1.00 per share, plus accrued dividends and interest, if any.
(i) In the event of a proposed sale or transfer, the holder of Preferred Stock shall notify the Corporation of its intention to sell or transfer the Preferred Stock and provide the Corporation with the name of the proposed transferee and the terms of the transfer. If the Corporation chooses to exercise its right to redeem, the Corporation shall give the holder of Preferred Stock written notice of its intention to redeem within 15 days from the date the Corporation receives notice of the holder’s proposed sale or transfer. Any such redemption notice by the Corporation will provide for redemption no more than 60 days from the time such redemption notice is given by the Corporation to the holder of Preferred Stock.
 
4

(ii) If a holder of Preferred Stock sells or transfers Preferred Stock, any transferee shall be subject to the redemption rights set forth in these Articles.
(c) In the event that the Supply Agreement executed by the Corporation and Nissho Iwai American Corporation on October 7, 1976, is terminated by either party, the Corporation may redeem by giving written notice to the holders of the Preferred Stock and stating in such notice that the shares of Preferred Stock shall be redeemed on a specified date which shall not be more than 60 days from the date such notice is given. The redemption price shall be $1.00 per share, plus accrued dividends and interest, if any.
Notice of any proposed redemption of shares of Preferred Stock shall be given by the Corporation by mailing a copy of such notice to the holders of record of the shares to be redeemed, at their respective addresses as appearing on the books of the Corporation.
5. Redemption by Holder . In the event that the Supply Agreement executed by the Corporation and Nissho Iwai American Corporation on October 7, 1976, is terminated by either party, the holders of the Preferred Stock may redeem by giving written notice to the Corporation and stating in such notice that the shares shall be redeemed on a specified date which shall not be less than 60 days from the date such notice is given. The redemption price shall be $1.00 per share, plus accrued dividends and interest, if any.
B. Class A Common Stock and Class B Common Stock .
1. Voting Rights . Subject to the rights granted herein to the Preferred Stock, the holders of the Common Stock shall possess all of the voting power of the capital stock of this Corporation. All such shares shall have one vote per share and shall vote together as one class except as provided in this Article IV, Section B, subsection 1, or as may otherwise be required by law.
At any time that the number of outstanding shares of the Class B Common Stock shall equal or exceed 25 percent of the total outstanding shares of Common Stock, determined as of the record date established for the purpose of determining shareholders entitled to vote, the shares of the Class A and Class B Common Stock shall vote separately for the purpose of electing directors. At any such time, the holders of the
 
5

Class B Common Stock, voting as a separate class, shall be entitled to elect a number of directors equal to 25 percent (rounded up to the nearest whole number) of the total number of authorized directors. The holders of the Class A Common Stock, voting as a separate class, shall elect all remaining members of the Board of Directors. The two classes shall continue to vote separately for the election of directors as long as the outstanding shares of the Class B Common Stock represent 25 percent or more of the total outstanding Common Stock.
Without regard to the above provisions relating to class voting for directors, if at any time the number of outstanding shares of the Class A Common Stock shall be less than 12.5 percent of the total outstanding Common Stock, the holders of the Class B Common Stock shall continue to elect, voting as a separate class, 25 percent (rounded up to the nearest whole number) of the total number of authorized directors, and the holders of the Class A Common Stock and the holders of the Class B Common Stock shall elect all remaining members of the Board of Directors, voting together as a single class.
In any vote for the removal of a director from office, the shares of the Class A and Class B Common Stock shall vote together and as one class, except that a director elected by the vote of either the Class A Common Stock or the Class B Common Stock, voting separately as a class, or a director appointed to fill the vacancy left by a director who was elected by separate class vote, may be removed from office only upon the affirmative vote of the holders of a majority of the outstanding shares of the class which elected him or his predecessor.
Nothing within this Article IV concerning voting rights is intended to modify or otherwise affect the voting provisions which are contained in Article VI of these Restated Articles of Incorporation, as amended.
2. Conversion Rights of the Class A Common Stock .
Subject to the following terms and conditions, each share of Class A Common Stock shall be convertible into a fully paid and nonassessable share of the Class B Common Stock. At the option of the respective holders, up to 1,017,000 shares of Class A Common Stock which will be outstanding upon the filing with the Oregon Corporation Commissioner of these Restated Articles of Incorporation shall be convertible at any time, and all remaining shares shall be convertible at any time from
 
6

and after the 90th day following the effective date under the Securities Act of 1933 of the Corporation’s Registration Statement filed with the Securities and Exchange Commission in October 1980. The conversion ratio shall be one share of Class B Common Stock for each share of Class A Common Stock surrendered for conversion. Such conversion rights shall include and be subject to the following:
(a) Conversion may be affected as to all or any whole number of shares evidenced by any certificate for shares of Class A Common Stock upon surrender of such certificate to the Corporation at its principal office or to such agent or agents as may be designated by the Board of Directors. Shares so surrendered for conversion shall be accompanied by written evidence of the holder’s election to convert such shares and (if so requested by the Corporation) accompanied by an instrument of transfer, in form satisfactory to the Corporation, duly executed by the holder of his duly authorized attorney.
(b) As promptly as practicable after the surrender of the shares for conversion in the manner herein provided, the Corporation shall deliver or cause to be delivered to the holder of the shares so surrendered, certificates representing the number of fully paid and nonassessable shares of the Class B Common Stock of the Corporation into which such shares of Class A may be converted together with (if the certificate for the shares of Class A surrendered includes shares which are not being converted) certificates representing the number of shares of Class A Common Stock not then being so converted. Such conversion shall be deemed to have been made as soon as the shares of the Class A Common have been surrendered for conversion in the manner herein provided, so that the rights of the holder of the shares of Class A Common so surrendered shall cease at such time and the person entitled to receive the Class B Common Stock upon such conversion shall be treated for all purposes as having become the record holder of such shares of Class B Common Stock at such time; provided, however, that no such surrender on any date when the stock transfer books of the Corporation shall be closed or after the record date shall have been set shall be effective to constitute the person or persons entitled to receive the shares of Class B Common Stock upon conversion of their shares of Class A Common Stock as the record holder or holder of such shares of Class B Common Stock on such date, but rather such shares shall retain the rights of Class A Common Stock until after the event for which the record date was set or the transfer books were closed.
 
7

(c) The Corporation shall at all times reserve and keep available for issue upon the conversion of the Class A Common Stock such number of its authorized but unissued shares of Class B Common Stock as will be sufficient to permit the conversion of all outstanding shares of the Class A Common Stock.
(d) In the case of any reclassification of the outstanding shares of the Class B Common Stock, or in the case of any consolidation or merger of the Corporation with or into another corporation, the result of which is that shares of Class B Common Stock become convertible into or entitled to receive securities or other property different from that which shares of Class A Common Stock then outstanding shall have the right thereafter to convert any of such shares into the kind and amount of shares of stock and other securities which a holder of that number of shares of the Class B Common Stock into which such shares are convertible received or is entitled to receive.
(e) At no time shall the record date be set for any vote by the shareholders of the Corporation upon any merger, consolidation, sale of substantially all of the assets of the Corporation or any other event which under the Oregon Business Corporation Act is required to be submitted to the shareholders for a vote without first providing not less than 10 days’ prior written notice of such date and event to the registered holders of the Class A Common Stock as shown on the books of the Corporation, if as a part of such transaction the shares of the Class B Common Stock are to be treated differently or to be entitled to different rights than the shares of the Class A Common Stock.
3. Other Rights . All rights to which holders of capital stock are entitled and which are not expressly granted to the Preferred Stock under this Article are reserved to and vested in the Common Stock. In all respects other than voting, which rights are set forth hereinabove, the shares of the Class A and the Class B Common Stock shall have identical rights, provided that no stock dividend, stock split or other issuance of shares by the Corporation without consideration shall without express authorization of the Board of Directors result in the shares of one class of stock becoming entitled to receive shares of the other. No stock dividend, stock split or other issuance of shares without consideration shall be effected by the Corporation with respect to either class of Common Stock except such action as shall affect both classes of stock ratably on a share-for-share basis. There shall be no preference between shares of Class A Common Stock and shares of Class B Common Stock with respect to dividends or the rights to proceeds upon liquidation, dissolution or the winding up of the affairs of the Corporation.
 
8

ARTICLE V
The authorized number of directors of the Corporation shall be seven, provided that such number may be increased (or decreased to not less than 5) by resolution of the Board of Directors. Vacancies on the Board may be filled by the affirmative vote of the remaining directors, including any vacancy created by an increase in the number of directors, provided that no vacancy created by the resignation, removal from office or death of a director who was elected by a separate class vote of the Common Stock shall be filled by the Board of Directors, except upon the affirmative vote of a majority of the remaining directors similarly elected by such class. If none shall be remaining, the vacancy shall be filled by the remainder of the directors.
ARTICLE VI
A. The affirmative vote of the holders of not less than 80 percent of all outstanding Common Stock, voting as one class, shall be required for the approval or authorization of any “business combination” (as hereafter defined) with any person or entity which, as of the record date for the determination of the shareholders entitled to notice thereof and to vote thereon, is the beneficial owner of 10 percent or more of the outstanding Common Stock of the Corporation. Any such 80 percent vote in order to constitute due and valid authorization under this Article must include not less than 50 percent of the Common Stock held by persons other than the person or entity interested in such transaction.
B. The term “business combination” shall mean
1. any merger or consolidation of the Corporation or any subsidiary of the Corporation with or into any other person or entity;
2. the sale of substantially all of the assets of the Corporation to any other person or entity; or
3. any other transaction with such person or entity for which approval of the shareholders of this Corporation is required by law or by any agreement between the Corporation and any national securities exchange.
C. The foregoing voting requirements shall not be applicable to any business combination approved by resolution of the Board of Directors prior to any such
 
9

shareholder vote, provided that the resolution received the affirmative vote of a majority of the directors elected at the most recent annual meeting of shareholders (including any replacements for such directors who were appointed by the board), or to any business combination solely between the Corporation and any other corporation or entity in which 50 percent or more of the voting stock or interest is owned by the Corporation.
D. Beneficial ownership for purposes of this Section shall be deemed to include all shares which would be determined to be beneficially owned (whether directly by such person or entity or indirectly through any affiliate or otherwise) under Rule 13d-3 of the Securities and Exchange Commission as in effect on the date of filing of these Restated Articles of Incorporation with the Oregon Corporation Commissioner as well as all shares of the Corporation which the other entity has the right to acquire, pursuant to any agreement or otherwise.
E. The determination of whether a proposed business combination is within the scope of this Article VI, including without limitation, the determination of whether such other party beneficially owns 10 percent or more of the outstanding Common Stock of the Corporation for purposes of this Article VI, shall be made by the Board of Directors. Such determination shall, if made in good faith, be binding upon all parties.
F. The shareholder vote, if any, required for any business combination not expressly subject to the supermajority voting provisions of this Article VI shall be such vote as may otherwise be required by applicable law.
ARTICLE VII
Articles V and VI, and this Article VII, of these Restated Articles of Incorporation may not be amended except upon the affirmative vote of 80 percent of the outstanding Common Stock.
ARTICLE VIII
A. The Corporation shall have the power to indemnify to the fullest extent not prohibited by law any person who is made or threatened to be made a party to, witness in, or otherwise involved in, any action, suit or proceeding, whether civil, criminal, administrative, investigative, legislative, formal or informal, internal or external or otherwise (including an action, suit or proceeding by or in the right of the Corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation or a fiduciary within the meaning of the Employee Retirement Income
 
10

Security Act of 1974 with respect to any employee benefit plan of the Corporation, or serves or served at the request of the Corporation as a director, officer, employee or agent or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust, or other enterprise. Any indemnification provided pursuant to this Article VIII shall not be exclusive of any rights to which the person indemnified may otherwise be entitled under any articles of incorporation, bylaw, agreement, statute, policy of insurance, vote of shareholders or Board of Directors, or otherwise, which exists at or subsequent to the time such person incurs or becomes subject to such liability and expense.
B. To the fullest extent not prohibited by law, no director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for conduct as a director. No amendment or repeal of this Article VIII, nor the adoption of any provision of these Restated Articles of Incorporation inconsistent with this Article VIII, nor a change in the law, shall adversely affect any right or protection that is based upon this Paragraph B and pertains to conduct that occurred prior to the time of such amendment, repeal, adoption or change. No change in the law shall reduce or eliminate the rights and protections set forth in this Paragraph B unless the change in the law specifically requires such reduction or elimination. If the Oregon Business Corporation Act is amended after this Article VIII becomes effective to authorize corporate action further eliminating or limiting the personal liability of directors of the Corporation, then the liability of directors of the Corporation shall be eliminated or limited to the fullest extent not prohibited by the Oregon Business Corporation Act as so amended.
ARTICLE IX
(1) No contract or other transaction between the Corporation and one or more of its directors or any other corporation, firm, association or entity in which one or more of its directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose, if:
(a) The fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; or
 
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(b) The fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the Corporation.
(2) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes or ratifies such contract or transaction.
This Article shall not invalidate any contract or other transaction which would otherwise be valid under applicable law.
ARTICLE X
No holder of any class of stock of the Corporation now or hereafter authorized shall have any preemptive or preferential right of subscription to or otherwise be entitled to acquire any shares of any class of stock of the Corporation, whether now or hereafter authorized, or to any obligation convertible or exchangeable into stock of the Corporation, or any right, option or warrant of subscription to any of the foregoing, other than such, if any, as may be specifically authorized by, pursuant to the authority hereby given, the Board of Directors.
ARTICLE XI
The stated capital of the Corporation at the time of the adoption of these Restated Articles of Incorporation is $489,000.
 
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark G. Parker, certify that:
 
1.	I have reviewed this quarterly report on Form 10-Q of NIKE, Inc.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: January 9, 2013

	
/S/    MARK G. PARKER        	
Mark G. Parker
Chief Executive Officer	

Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Donald W. Blair, certify that:
 
1.	I have reviewed this quarterly report on Form 10-Q of NIKE, Inc.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: January 9, 2013

	
/S/    DONALD W. BLAIR        	
Donald W. Blair
Chief Financial Officer	

Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the following certification is being made to accompany the Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2012 (the “Report”) of NIKE, Inc. (the “Company”) and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates by reference.
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the Company hereby certifies, to such officer’s knowledge, that:
 
 	(i)	the Report of the Company fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and	
 
 	(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
Date: January 9, 2013

	
/S/    MARK G. PARKER        	
Mark G. Parker
Chief Executive Officer	
A signed original of this written statement required by Section 906 has been provided to NIKE, Inc. and will be retained by NIKE, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the following certification is being made to accompany the Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2012 (the “Report”) of NIKE, Inc. (the “Company”) and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates by reference.
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the Company hereby certifies, to such officer’s knowledge, that:
 
 	(i)	the Report of the Company fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and	
 
 	(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
Date: January 9, 2013

	
/S/    DONALD W. BLAIR        	
Donald W. Blair
Chief Financial Officer	
A signed original of this written statement required by Section 906 has been provided to NIKE, Inc. and will be retained by NIKE, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.