NIKE, Inc. Reports Fiscal 2014 Third Quarter Results

• Revenues from continuing operations up 13 percent to $7.0 billion
• Diluted earnings per share from continuing operations up 4 percent to $0.76
• Worldwide futures orders up 12 percent, 14 percent growth excluding currency changes
• Inventories as of February 28, 2014 up 12 percent

BEAVERTON, Ore.---NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2014 third quarter ended February 28, 2014. Despite the negative impact of changes in foreign exchange rates, earnings per share for the quarter were up 4 percent due to higher revenues driven by strong demand for NIKE, Inc. brands, gross margin expansion, a lower tax rate and slightly lower average share count, partially offset by the impact of higher SG&A investments in NIKE, Inc. brands and business capabilities.

"Our strong Q3 results demonstrate our relentless focus on delivering innovations that resonate with consumers,” said Mark Parker, President and CEO of NIKE, Inc. “Despite macroeconomic challenges, NIKE delivers consistent results because we focus on the biggest opportunities for growth while we manage risk across our diverse global portfolio. This is how we continue to drive long-term value for our shareholders.”*

Third Quarter Continuing Operations Income Statement Review

• Revenues for NIKE, Inc. rose 13 percent to $7.0 billion, up 14 percent on a currency neutral basis.
  • Revenues for the NIKE Brand were $6.6 billion, up 14 percent on a currency neutral basis powered by growth in every geography and key category.
  • Revenues for Converse were $420 million, up 16 percent on a currency neutral basis, mainly driven by strong performance in our largest direct distribution markets: the United States, China and the United Kingdom.
• Gross margin expanded 30 basis points to 44.5 percent. Gross margin benefitted from higher average prices and continued growth in the higher margin Direct to Consumer business, partially offset by higher product input costs, unfavorable foreign exchange rates, and higher discounts, reflecting actions to clear excess inventory in select markets.
• Selling and administrative expense increased 16 percent to $2.2 billion. Demand creation expense was $733 million, up 18 percent, driven by marketing support for key product launches, the upcoming World Cup and investments in retail product presentation for wholesale accounts. Operating overhead expense increased 15 percent to $1.4 billion due to investments in infrastructure, digital innovations and higher Direct to Consumer costs driven by comparable store sales growth and new store openings.
• Other expense, net was $45 million, comprised primarily of foreign exchange losses. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other expense (income), net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $40 million.
• The effective tax rate was 22.4 percent, compared to 22.8 percent for the same period last year, an improvement primarily due to an increase in earnings from operations outside of the U.S., which are generally subject to a lower tax rate, partially offset by a benefit in the prior-year period from the retroactive reinstatement of the U.S. research and development credit.
• Net income increased 3 percent to $685 million while diluted earnings per share increased 4 percent to $0.76, reflecting a slight decline in the weighted average diluted common shares outstanding.

February 28, 2014 Balance Sheet Review for Continuing Operations

• Inventories for NIKE, Inc. were $3.8 billion, up 12 percent from February 28, 2013. NIKE Brand wholesale unit inventories increased 7 percent to support future demand. Changes in the average NIKE Brand wholesale product cost per unit, combined with the impact of changes in foreign currency exchange rates, drove approximately 5 percentage points of net inventory growth.
• Cash and short-term investments were $5.0 billion, $987 million higher than last year as a result of proceeds from the issuance of debt as well as higher net income.

Share Repurchases

During the third quarter, NIKE, Inc. repurchased a total of 10.4 million shares for approximately $788 million as part of the four-year, $8 billion program approved by the Board of Directors in September 2012. As of the end of the third quarter, a total of 39.6 million shares had been repurchased under this program at a cost of approximately $2.5 billion, an average cost of $63.21 per share.

Futures Orders

As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2014 through July 2014 totaled $10.9 billion, 12 percent higher than orders reported for the same period last year, and 14 percent higher on a currency neutral basis.*

Conference Call

NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on March 20, 2014, to review third quarter results. The conference call will be broadcast live over the Internet and can be accessed at http://investors.nikeinc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location through 9:00 p.m. PT, March 27, 2014.

About NIKE, Inc.

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

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

NIKE, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the period ended February 28, 2014
	THREE MONTHS ENDED						%		NINE MONTHS ENDED						%
(Dollars in millions, except per share data)		2/28/2014			2/28/2013		Change			2/28/2014			2/28/2013		Change
Income from continuing operations:
Revenues	$	6,972		$	6,187		13	%	$	20,374		$	18,616		9	%
Cost of sales		3,869			3,451		12	%		11,313			10,522		8	%
Gross profit		3,103			2,736		13	%		9,061			8,094		12	%
Gross margin		44.5	%		44.2	%				44.5	%		43.5	%
Demand creation expense		733			619		18	%		2,155			2,103		2	%
Operating overhead expense		1,433			1,244		15	%		4,155			3,655		14	%
Total selling and administrative expense		2,166			1,863		16	%		6,310			5,758		10	%
% of revenue		31.1	%		30.1	%				31.0	%		30.9	%
Interest expense (income), net		9			(2	)	-			25			(6	)	-
Other expense (income), net		45			17		-			86			(28	)	-
Income before income taxes		883			858		3	%		2,640			2,370		11	%
Income taxes		198			196		1	%		638			602		6	%
Effective tax rate		22.4	%		22.8	%				24.2	%		25.4	%
NET INCOME FROM CONTINUING OPERATIONS		685			662		3	%		2,002			1,768		13	%
NET INCOME FROM DISCONTINUED OPERATIONS		-			204		-			-			49		-
NET INCOME	$	685		$	866		-21	%	$	2,002		$	1,817		10	%
Earnings per share from continuing operations:
Basic earnings per common share	$	0.78		$	0.74		5	%	$	2.26		$	1.97		15	%
Diluted earnings per common share	$	0.76		$	0.73		4	%	$	2.20		$	1.93		14	%
Earnings per share from discontinued operations:
Basic earnings per common share	$	-		$	0.23		-		$	-		$	0.05		-
Diluted earnings per common share	$	-		$	0.22		-		$	-		$	0.05		-
Weighted average common shares outstanding:
Basic		882.3			893.9					886.6			898.9
Diluted		904.8			911.7					909.1			916.5
Dividends declared per common share	$	0.24		$	0.21				$	0.69		$	0.60

NIKE, Inc.
CONSOLIDATED BALANCE SHEETS
As of February 28, 2014
		February 28,			February 28,
(Dollars in millions)			2014			20131			% Change
ASSETS
Current assets:
Cash and equivalents		$	1,864		$	2,557			-27	%
Short-term investments			3,165			1,485			113	%
Accounts receivable, net			3,355			3,232			4	%
Inventories			3,825			3,424			12	%
Deferred income taxes			319			275			16	%
Prepaid expenses and other current assets			882			861			2	%
Assets of discontinued operations			-			29			-
Total current assets			13,410			11,863			13	%
Property, plant and equipment			6,073			5,370			13	%
Less accumulated depreciation			3,337			3,110			7	%
Property, plant and equipment, net			2,736			2,260			21	%
Identifiable intangible assets, net			386			376			3	%
Goodwill			131			131			0	%
Deferred income taxes and other assets			1,140			1,080			6	%
TOTAL ASSETS		$	17,803		$	15,710			13	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt		$	7		$	57			-88	%
Notes payable			119			85			40	%
Accounts payable			1,480			1,259			18	%
Accrued liabilities			2,303			1,994			15	%
Income taxes payable			45			138			-67	%
Liabilities of discontinued operations			-			62			-
Total current liabilities			3,954			3,595			10	%
Long-term debt			1,201			161			646	%
Deferred income taxes and other liabilities			1,515			1,287			18	%
Redeemable preferred stock			-			-			-
Shareholders' equity			11,133			10,667			4	%
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	17,803		$	15,710			13	%
1 Prior year inventories and accrued liabilities have been revised to recognize certain inventories held at third parties.

NIKE, Inc.
DIVISIONAL REVENUES1
For the period ended February 28, 2014
	THREE MONTHS ENDED									% Change Excluding		NINE MONTHS ENDED								% Change Excluding
(Dollars in millions)		2/28/2014			2/28/2013		% Change			Currency Changes 2			2/28/2014		2/28/2013		% Change			Currency Changes 2
North America
Footwear	$	1,928		$	1,708		13	%		13	%	$	5,459	$	4,933		11	%		11	%
Apparel		925			830		11	%		12	%		2,920		2,657		10	%		10	%
Equipment		216			199		9	%		9	%		626		577		8	%		9	%
Total		3,069			2,737		12	%		12	%		9,005		8,167		10	%		10	%
Western Europe
Footwear		891			695		28	%		24	%		2,415		1,958		23	%		19	%
Apparel		338			305		11	%		8	%		1,061		999		6	%		3	%
Equipment		63			57		11	%		7	%		191		184		4	%		0	%
Total		1,292			1,057		22	%		19	%		3,667		3,141		17	%		13	%
Central & Eastern Europe
Footwear		207			168		23	%		27	%		544		460		18	%		19	%
Apparel		129			115		12	%		17	%		403		358		13	%		14	%
Equipment		20			20		0	%		9	%		70		64		9	%		11	%
Total		356			303		17	%		22	%		1,017		882		15	%		16	%
Greater China
Footwear		467			410		14	%		12	%		1,166		1,091		7	%		5	%
Apparel		199			199		0	%		-2	%		641		608		5	%		3	%
Equipment		31			32		-3	%		-7	%		93		101		-8	%		-11	%
Total		697			641		9	%		7	%		1,900		1,800		6	%		3	%
Japan
Footwear		92			98		-6	%		14	%		281		315		-11	%		10	%
Apparel		59			70		-16	%		4	%		201		247		-19	%		1	%
Equipment		26			27		-4	%		11	%		63		70		-10	%		10	%
Total		177			195		-9	%		10	%		545		632		-14	%		7	%
Emerging Markets
Footwear		631			603		5	%		15	%		1,941		1,948		0	%		7	%
Apparel		243			206		18	%		31	%		748		713		5	%		13	%
Equipment		63			58		9	%		19	%		180		177		2	%		9	%
Total		937			867		8	%		19	%		2,869		2,838		1	%		9	%
Global Brand Divisions3		26			29		-10	%		-13	%		89		84		6	%		4	%
Total NIKE Brand		6,554			5,829		12	%		14	%		19,092		17,544		9	%		10	%
Converse		420			361		16	%		16	%		1,274		1,095		16	%		15	%
Corporate4		(2	)		(3	)	-			-			8		(23	)	-			-
Total NIKE, Inc. Revenues From Continuing Operations	$	6,972		$	6,187		13	%		14	%	$	20,374	$	18,616		9	%		10	%
Total NIKE Brand
Footwear	$	4,216		$	3,682		15	%		16	%	$	11,806	$	10,705		10	%		11	%
Apparel		1,893			1,725		10	%		12	%		5,974		5,582		7	%		8	%
Equipment		419			393		7	%		9	%		1,223		1,173		4	%		6	%
Global Brand Divisions3		26			29		-10	%		-13	%		89		84		6	%		4	%
1 Certain prior year amounts have been reclassified to conform to fiscal year 2014 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
2 Fiscal 2014 results have been restated using fiscal 2013 exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.
3 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment.
4 Corporate revenues primarily consist of foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and Converse through our centrally managed foreign exchange risk management program.

NIKE, Inc.
EARNINGS BEFORE INTEREST AND TAXES1,2
For the period ended February 28, 2014
	THREE MONTHS ENDED						%		NINE MONTHS ENDED						%
(Dollars in millions)		2/28/2014			2/28/2013		Change			2/28/2014			2/28/2013		Change
North America	$	726		$	653		11	%	$	2,188		$	1,863		17	%
Western Europe		275			179		54	%		663			501		32	%
Central & Eastern Europe		79			64		23	%		208			155		34	%
Greater China		234			218		7	%		601			570		5	%
Japan		21			24		-13	%		92			92		0	%
Emerging Markets		229			216		6	%		682			735		-7	%
Global Brand Divisions3		(533	)		(414	)	-29	%		(1,461	)		(1,280	)	-14	%
TOTAL NIKE BRAND		1,031			940		10	%		2,973			2,636		13	%
Converse		133			121		10	%		402			336		20	%
Corporate4		(272	)		(205	)	-33	%		(710	)		(608	)	-17	%
TOTAL EARNINGS BEFORE INTEREST AND TAXES	$	892		$	856		4	%	$	2,665		$	2,364		13	%
1 The Company evaluates performance of individual operating segments based on earnings before interest and taxes (also commonly referred to as “EBIT”), which represents net income before interest expense (income), net, and income taxes.
2 Certain prior year amounts have been reclassified to conform to fiscal year 2014 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
3 Global Brand Divisions primarily represent demand creation, operating overhead, information technology, and product creation and design expenses that are centrally managed for the NIKE Brand. Revenues for Global Brand Divisions are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment.
4 Corporate consists of unallocated general and administrative expenses, which includes expenses associated with centrally managed departments, depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, certain foreign currency gains and losses, including certain hedge gains and losses, corporate eliminations and other items.

NIKE, Inc.
NIKE BRAND REPORTED FUTURES GROWTH BY GEOGRAPHY1
As of February 28, 2014
	Reported Futures Orders	Excluding Currency Changes 2
North America	9%	9%
Western Europe	33%	30%
Central & Eastern Europe	7%	13%
Greater China	-1%	-3%
Japan	-6%	-1%
Emerging Markets	12%	24%
Total NIKE Brand Reported Futures	12%	14%
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2014 through July 2014, excluding NIKE Golf and Hurley.
The reported futures and advance orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing and because the mix of orders can shift between advance/futures and at-once orders and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, exchange rate fluctuations as well as differing levels of order cancellations, discounts and returns can cause differences in the comparisons between advance/futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from certain of our Direct to Consumer operations, and sales from Converse, NIKE Golf and Hurley.
2 Reported futures have been restated using prior year exchange rates to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

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