Natasha Chou Spring 2013 Student Managed Investment Fund

Agenda Our Recommendation: HOLD Business Description Industry Overview Competitive Positioning Revenue and Margin Drivers Valuation Financial Analysis Investment Risks Q&A Session

Business Description Founding and History Management Founded in 1964 as Blue Ribbon sports - originally a distributor Became “Nike” in 1978 – now a global iconic brand Ever since Nike was established, innovation has been a key driver to the company’s success Management

Business Description Leader in Innovation Nike Sports Watch Nike Plus Fuel Band iPod Nike app Shox Dri-Fit

Product Mix Corporate restructuring Sold Umbro and Cole Haan in 4Q 2012 to refocus business model Focus on Jordan, Converse, NIKE brands Expected: Increased profit margins and dividends

Sales Mix

Growth Strategy Focus on China Utilizing Basketball and NBA Players to raise awareness Targeting the youth market 17% Growth from FY 2010 to FY 2011 23% Growth from FY 2011 to FY 2012

Industry Overview Nike is the leading player in the athletic footwear industry Company Market Cap. NIKE (NYSE) $54.82 billion Adidas (FWB) $16.6 billion Under Armour (NYSE) $5.87 billion Asics (TYO) $3.60 billion Sketchers (NYSE) $1.13 billion

Adidas Group (includes Reebok) Industry Overview Company Fiscal 2010 Fiscal 2011 Fiscal 2012 CAGR (2010-2012) Nike $10,301 $11,518 $13,426 14.2% Adidas Group (includes Reebok) $7,021 (€5,389) $8,132 (€6,242) $9,018 (€6,922) 13.3% Puma $1,856 (€1,425) $2,006 (€1,540) $2,078 (€1,595) 5.8% Asics $1,759 (¥165,808) $1,857 (¥175,057) $1,940 (¥182,807) 5.0%

SWOT Analysis Strengths Opportunities Weaknesses Threats Global Market Leader with Iconic Brand Name Heavy emphasis in R&D Share buyback program will restore shareholders’ confidence in company Opportunities Potential to penetrate relatively unsaturated emerging markets Product Development – Nike is arguably a fashion brand and has potential to market to fashion forward youth culture Weaknesses Labor and factory conditions has hurt the company’s publicity Nike has wasted resources in the past few years by investing in a fashion focused company Threats Fierce sponsorship competition from Adidas and other well known brands Possibility of having unforeseen losses due to currency fluctuation

Porter’s Five Forces Factor Score Description Buyer’s Power Neutral Buyers have many different options when it comes to which brand they choose. However, they have very little influence over prices. Supplier’s Power Weak Suppliers have very little power since they are supplying raw materials and there is no differentiation from one supplier to another. Industry Rivalry Intense There are many different brands with similar products offered at similar prices. Threat of Substitution High There is little differentiation between products of one brand and products of another. Barriers to Entry Brands that are already in the market have built brand equity that can be difficult to challenge.

Valuation DCF: $48.91 to $57.29 Key assumptions Valuation Date Revenue Growth Terminal Value

Valuation Comparable Model: $38.82 to $62.31 Competitors PE TEV/EBITDA TEV/REVENUE Residual Income: $49.91 to $79.19 LT Growth of 1.5%

Valuation - Final Price Range $49.91 to $57.29 - Market Price at Valuation Date: $59.53

Revenue and Margin Drivers Revenue Drivers Focus on the consumer Research and Development Margin Drivers Low Manufacturing Cost Adapting to global economies

Financial Analysis Revenue, Net income and Profit margin

Sale of Umbro to Iconix (December 2012) EBT Excl. Unusual Items 2,442.3 2,553.0 2,517.0 2,844.0 3,007.0 3,087.0 Restructuring Charges - (195.0) (24.0) Impairment of Goodwill (199.0) Gain (Loss) On Sale Of Assets 60.6 Asset Writedown (202.0) Other Unusual Items EBT Incl. Unusual Items 2,502.9 1,957.0 2,983.0 3,063.0

Working capital and Free cash flow Working capital decreased by $782 million from $3,377 million in 2009 to $2,595 million in 2010 because of the increase of cash and cash equivalents

Investment Risks Financial results may be adversely affected if substantial investments fail to produce expected returns Risks associated with overseas sourcing, manufacturing, and financing Concentration of retail market share among a few retailers may increase Nike’s credit risk and ability to sell their products

Conclusion Our Recommendation: HOLD A global iconic brand name Penetrating relatively unsaturated markets globally Refocusing its business model on its core competency Steady increase in dividends Stock buyback program will restore shareholder confidence

Q&A Session

Appendix

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