Nike 2013 Annual Report Download - page 32

PART II
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, revenues for our Other Businesses increased 12%, reflecting
growth across most businesses, led by Converse. The revenue growth at
Converse was primarily driven by increased sales in North America and China,
as well as increased revenues in the U.K. as we transitioned that market to
direct distribution in the second half of fiscal 2011. Excluding changes in
currency exchange rates, revenues for NIKE Golf increased 9% for fiscal
2012, driven by double-digit percentage growth in our apparel business,
partially offset by a single-digit percentage decline in our club business.
On a reported basis, revenues for our Other Businesses increased 13% for
fiscal 2012, while EBIT grew 9%, as earnings growth at Converse was
partially off-set by losses at Hurley. Higher selling and administrative expense
as a percentage of revenues negatively affected profitability and lower gross
margins contributed to the decline in Hurley’s earnings.
Corporate
(Dollars in millions) Fiscal 2013 Fiscal 2012
FY13 vs. FY12
% Change Fiscal 2011
FY12 vs. FY11
% Change
Revenues $ (68) $ (46) — $ (77) —
(Loss) Before Interest and Taxes (1,177) (917) 28% (805) 14%
Corporate revenues primarily consist of certain intercompany revenue
eliminations and foreign currency hedge gains and losses related to revenues
generated by entities within the NIKE Brand geographic operating segments
and certain Other Businesses but managed through our central foreign
exchange risk management program.
Corporate loss before interest and taxes consists largely of unallocated
general and administrative expenses, including expenses associated with
centrally managed departments; depreciation and amortization related to our
corporate headquarters; unallocated insurance, benefit and compensation
programs, including stock-based compensation; certain foreign currency
gains and losses, including certain hedge gains and losses; certain
intercompany eliminations and other items.
In addition to the foreign currency gains and losses recognized in Corporate
revenues, foreign currency results included in gross margin are gains and
losses resulting from the difference between actual foreign currency rates and
standard rates used to record non-functional currency denominated product
purchases within the NIKE Brand geographic operating segments and certain
Other Businesses and related foreign currency hedge results. All other foreign
currency related results, including conversion gains and losses arising from
re-measurement of monetary assets and liabilities in non-functional
currencies and certain foreign currency derivative instruments, are included in
other (income) expense, net.
Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, Corporate’s loss before interest and taxes increased by $260
million primarily due to the following:
• A $165 million increase in foreign exchange losses related to the difference
between actual foreign currency exchange rates and standard foreign
currency exchange rates assigned to the NIKE Brand geographic operating
segments and certain Other Businesses, net of hedge gains; these losses
are reported as a component of consolidated gross margin.
• A $48 million decrease in foreign currency net losses, reported as a
component of consolidated other (income) expense, net.
• A $143 million increase in corporate overhead expense related to corporate
initiatives to support the growth of the business and performance-based
compensation.
Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, Corporate’s loss before interest and taxes grew $112 million,
mainly due to an increase of $49 million in performance-based compensation
and a year-over-year net increase of $73 million from foreign currency
impacts. These foreign currency impacts were driven by a year-over-year
increase in foreign currency net losses, arising from certain Euro/U.S. Dollar
foreign currency hedges and the re-measurement of monetary assets and
liabilities in various non-functional currencies, net of related undesignated
forward instruments, as a variety of foreign currencies weakened against the
U.S. Dollar year-over-year. The above impacts were partially offset by a slight
decrease in centrally managed operating overhead expenses.
Foreign Currency Exposures and Hedging Practices
Overview
As a global company with significant operations outside the United States, in
the normal course of business we are exposed to risk arising 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 into U.S. Dollars.
Our foreign exchange risk management program is intended to lessen both
the positive and negative effects of currency fluctuations on our consolidated
results of operations, financial position and cash flows. We manage global
foreign exchange risk centrally on a portfolio basis to address those risks that
are material to NIKE, Inc. We manage these exposures by taking advantage
of natural offsets and currency correlations that exist within the portfolio and
where practical and material, by hedging a portion of the remaining exposures
using derivative instruments such as forward contracts and options. As
described below, the implementation of the NIKE Trading Company (“NTC”)
and our foreign currency adjustment program enhanced our ability to manage
our foreign exchange risk by increasing the natural offsets and currency
correlation benefits that exist within our portfolio of foreign exchange
exposures. Our hedging policy is designed to partially or entirely offset the
impact of exchange rate changes on the underlying net exposures being
hedged. Where exposures are hedged, our program has the effect of
delaying the impact of exchange rate movements on our consolidated
financial statements; the length of the delay is dependent upon hedge
horizons. We do not hold or issue derivative instruments for trading or
speculative purposes.
NIKE, INC. 2013 Annual Report and Notice of Annual Meeting 77
FORM 10-K