Discontinued Operations

9 Months Ended

Feb. 28, 2013

Discontinued Operations

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, allowing it to focus its resources on driving growth in the NIKE, Jordan, Converse and Hurley brands.

On February 1, 2013, the Company completed the sale of Cole Haan to Apax Partners for an agreed upon purchase price of $570 million and received at closing $561 million, net of $9 million of purchase price adjustments. The transaction resulted in a gain on sale of $231 million, net of $137 million tax; this gain is included in the net income (loss) from discontinued operations line item on the condensed consolidated statements of income. Beginning November 30, 2012, the Company classified the Cole Haan disposal group as held-for-sale and presented the results of Cole Haan’s operations in the net income (loss) from discontinued operations line item on the condensed consolidated statements of income. Prior to the sale, the assets and liabilities of Cole Haan were 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.”

Under the sale agreement, the Company will provide certain transition services to Cole Haan for an expected period of 3 to 9 months from the date of sale. The company will also license NIKE proprietary Air and Lunar technologies to Cole Haan for a transition period. The continuing cash flows related to these items are not expected to be significant to Cole Haan and the Company will have no significant continuing involvement with Cole Haan beyond the transition services. Additionally, preexisting guarantees of certain Cole Haan lease payments remain in place after the sale; the maximum exposure under the guarantees is $47 million. The fair value of the guarantees is not material.

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 income (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 income (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. There were no adjustments to these recorded amounts as of February 28, 2013.

Under the sale agreement, the Company continues to 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 the Umbro business beyond the transition period. For the quarter ended February 28, 2013, the Company recognized $18 million in wind down costs.

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

	Three Months Ended					Nine Months Ended
	February 28 and 29,					February 28 and 29,
(In millions)	2013		2012			2013		2012
Revenues	$	132	$	190		$	513	$	563
Income (loss) before income taxes		345		(17	)		107		(50	)
Income tax expense (benefit)		141		(8	)		58		(14	)
Net income (loss) from discontinued operations	$	204	$	(9	)	$	49	$	(36	)

As of February 28, 2013 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:

	February 28,		May 31,
(In millions)	2013		2012
Accounts Receivable, net	$	25	$	148
Inventories		1		128
Deferred income taxes and other assets		3		35
Property, plant and equipment, net		0		70
Identifiable intangible assets, net		0		234
TOTAL ASSETS	$	29	$	615
Accounts Payable		4		42
Accrued liabilities		58		112
Deferred income taxes and other liabilities		0		33
TOTAL LIABILITIES	$	62	$	187