Tuesday, March 26, 2013

Nike: Nookie, Cash, and Tax Shenanigans

Nike has been accused of having a history of using sweatshops and utilizing child and slave labor -- just like Apple and many other U.S. corporations do to manufacture and market their products in "emerging markets". Nike, like all others, has denied these charges and claims they have no control over these offshore factories. But this post is not about that; it's about Nike's manipulation of their stocks, the U.S. tax code, and our democratically elected politicians --- all to enrich Nike's corporate officers --- those who have no control over the sweatshop factories, but control almost everything else.

Nike's profits have recently leaped a whopping 55%, reporting a fiscal-third-quarter profit of $866 million --- compared to $560 million a year earlier. Nike had revenues in excess of $24.1 billion in its 2012 fiscal year (ending May 31, 2012).

The Wall Street Journal reports that Nike's growth was (again) impressive in the North American market, where sales have jumped 18%. Sales were also higher in Europe and emerging markets.

"The U.S. business [Nike] continues to be just phenomenal,” said Paul Swinand, a Morningstar analyst. But he added that “for real long-term growth to be solid, it has got to come from China and emerging markets.” As of last year, this multi-national corporation has been the "job creator" of more than 44,000 people - worldwide.

Last September Bloomberg reported Nike's announcement of an $8 billion, four-year program to repurchase shares of its class B common stock. The company already had a $5 billion share-buying authorization that was to be completed during the fiscal second quarter of 2013.

“Repurchasing our shares is a prudent use of our cash,” Nike's Chief Executive Officer Mark Parker said in a statement. “This new share repurchase program demonstrates our continued confidence in Nike’s strategy to generate long-term profitable growth and strong cash flow, and reflects our commitment to delivering value to our shareholders.”

It's worth noting that Nike's CEO is also a shareholder. Mark Parker's compensation totaled $35.2 million for Nike's 2012 fiscal year ending May 31 --- and was more than 200 percent higher than his $11 million compensation in fiscal year 2011.

Parker's compensation includes stock awards (the major boost in his salary). Some forms of these stock options are also tax deductible. Facebook will receive a tax refund of nearly $430 million as a result.

The Nike board of directors had granted Nike's CEO a $20 million restricted stock unit "retention" award, even though Mark Parker has already been "retained" (employed) at Nike since 1979.

Last November Nike raised its quarterly dividend on their stock by 17% and announced a two-for-one stock split. Nike has returned more than $14 billion to institutional shareholders (including Nike's corporate executives) through dividends and share buyback plans over the last 11 years.

Because a "share repurchase" (stock buyback) reduces the number of shares outstanding, it increases earnings per share and tends to elevate the market value of the remaining shares. When a company repurchases shares, it will usually say something along the lines of, "We find no better investment than our own company".

MarketWatch describes stock buybacks as "corporate givebacks" to shareholders, since the reduced supply of available shares can boost a stock’s price. They report that, so far this year, $69 billion worth of buyback authorizations are making this the third-best year for buybacks since 1999.

So when a CEO like Nike's Mark Parker says they're "delivering value to our shareholders", they are also delivering value to themselves. These corporations are cash mills for the executive officers, who often sit on multiple boards and move from one company to another --- successfully extracting money while legally avoiding taxes.

Even though Nike is already an extremely successful business, to create jobs in Oregon, it had to first be guaranteed by the state's politicians that it wouldn't change Nike's favorable corporate tax structure. Nike pressed for a 40-year tax deal, and Yahoo reported that Nike got a 30-year deal.

Economic blackmail is often used by major U.S. multi-national companies. They threaten to move their operations out of state, or even out of the country, if they don't get special tax breaks --- with domestic jobs always being held as the hostages. Patriotism has no borders for a multi-national company. Their CEOs and executives are loyal to no one.

A Citizens for Tax Justice report shows that ten companies (including Nike) indicated in their financial statements that most of their foreign earnings have never been taxedanywhere. The statements the companies filed with the SEC reveal that if they ever did bring their foreign profits back to the U.S., they would pay the full 35 percent U.S. tax rate, which is how we can surmise that no foreign taxes were ever paid, because they would have been offset any U.S. taxes.

Last June Nike reported that Nike's fiscal fourth quarter revenues were $6.5 billion, the largest revenue quarter in Nike’s entire history --- and their revenues for all of fiscal 2012 were up to $24.1 billion. Nike also reports their "effective" U.S. corporate tax rate as between 25.5 and 26.1 percent (not the statutory rate of 35 percent).

READ: Which Fortune 500 Companies Are Sheltering Income in Overseas Tax Havens

READ: Nike, Microsoft and Apple Admit to Offshore Tax Shenanigans

* Full Disclosure: I use the term "Nookie" in the title of this post for two reasons: to describe how the U.S. workers and taxpayers are getting screwed by companies like Nike, and to get the reader's attention. Yet people, even poor people, continue to spend too much money on these rubber-soled shoes , that only cost pennies to manufacture. Why? Are "status symbols" really worth so much? And are a pair of shoes worth killing for?

No comments:

Post a Comment