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NIKE, Inc. Reports Second Quarter Earnings Per Share of $1.28

2006-12-21 08:25


-- Revenue up 10 percent; worldwide futures orders up 7 percent

-- Improved tax rate contributes $0.13 to earnings per share

BEAVERTON, Ore., Dec. 21 /Xinhua-PRNewswire/ -- NIKE, Inc. (NYSE: NKE)

today reported financial results for the second quarter ended November 30,

2006. For the quarter, revenue grew 10 percent to $3.8 billion, compared to

$3.5 billion for the same period last year. Changes in currency exchange

rates increased revenue growth by 1 percentage point for the quarter. Second

quarter net income grew 8 percent to $325.6 million, compared to $301.1

million in the prior year and diluted earnings per share increased 12 percent

to $1.28, versus $1.14 last year.

(Logo : http://www.newscom.com/cgi-bin/prnh/19990818/NIKELOGO )

During the quarter, the Company also finalized a new long-term tax

agreement with the Dutch government, which included a retroactive tax benefit

for fiscal 2006 and the first half of fiscal 2007, contributing $0.13 per

diluted share to results for the quarter.

Mark Parker, Nike, Inc. President and Chief Executive Officer, said, "The

Nike brand and our Nike Inc. portfolio continued to be strong worldwide,

driving double-digit top line growth for the quarter. Nike+, Lebron IV, Nike

Pro Revolution, Converse's Wade 1.3 and Cole Haan's Dress Air for women were

some of the product introductions creating consumer excitement and market

place energy. At the same time, we delivered strong earnings growth and a

significant 19 percent increase in our dividend for shareholders. Our brands

are strong, the Company is growing revenues and profits, and we are

delivering on our commitment to lead the industry with sharper focus, greater

competitiveness and deeper influence through ongoing product innovation and

consumer connections."*

Futures Orders

The Company reported worldwide futures orders for athletic footwear and

apparel, scheduled for delivery from December 2006 through April 2007,

totaling $5.6 billion, 7 percent higher than such orders reported for the

same period last year. Changes in currency exchange rates increased reported

orders growth by 2 percentage points.*

By region, futures orders for the U.S. increased 7 percent; Europe (which

includes the Middle East and Africa) increased 7 percent; Asia Pacific grew 9

percent; and the Americas increased 5 percent. Changes in currency exchange

rates increased the reported futures orders growth in Europe by 5 percentage

points; in Asia Pacific by 2 percentage points; and in the Americas region

decreased reported futures growth by 2 percentage points.*

Regional Highlights

U.S.

During the second quarter, U.S. revenues increased 8 percent to $1.4

billion versus $1.3 billion for the second quarter of fiscal 2006. U.S.

athletic footwear revenues increased 8 percent to $879.4 million; apparel

revenues increased 10 percent to $475.4 million; and equipment revenues

increased 2 percent to $63.2 million. U.S. pre-tax income increased slightly

to $266.0 million from $265.7 million a year ago.

Europe

Second quarter revenues for the European region grew 6 percent to $1.0

billion from $977.4 million for the same period last year. Changes in

currency exchange rates increased revenue growth by 3 percentage points.

Footwear revenues were up 2 percent to $541.4 million from $533.2 million

last year. Apparel revenues increased 11 percent to $421.0 million and

equipment revenues increased 14 percent to $73.8 million. Pre-tax income

declined 18 percent to $158.8 million, reflecting lower gross margins and

increased demand creation spending versus relatively low levels in the prior

year.

Asia Pacific

In the second quarter revenues in the Asia Pacific region grew 15 percent

to $578.2 million compared to $503.3 million a year ago. Changes in currency

exchange rates did not have a significant impact on revenue growth. Footwear

revenues were up 13 percent to $277.4 million, apparel revenues increased 17

percent to $250.6 million and equipment revenues grew 16 percent to $50.2

million. Pre-tax income increased 21 percent to $139.9 million.

Americas

Revenues in the Americas region increased 4 percent to $262.5 million, an

improvement from $252.1 million in the second quarter of fiscal 2006.

Currency exchange rates contributed 1 percentage point to this growth rate.

Footwear revenues were up 4 percent to $185.1 million, apparel revenues

increased 1 percent to $55.7 million and equipment revenues grew 17 percent

to $21.7 million. Pre-tax income was up 4 percent to $59.8 million.

Other Businesses

For the second quarter, Other business revenues, which are comprised of

results from Cole Haan Holdings Incorporated, Converse Inc., Exeter Brands

Group LLC, Hurley International LLC, NIKE Bauer Hockey Inc., and NIKE Golf

grew 21 percent to $526.8 million from $434.8 million last year. Pre-tax

income increased 136 percent to $54.3 million for the quarter.

Income Statement Review

Gross margins were 43.4 percent during the second quarter compared to

43.5 percent for the same period in the prior year.

Selling and administrative expenses were 32.0 percent of second quarter

revenues, compared to 30.4 percent last year. Results for the second quarter

included an $18.8 million expense, net of taxes, related to the expensing of

stock options, which reduced diluted earnings per share by $0.08. Excluding

stock option expense second quarter net income increased 14 percent and

diluted earnings per share increased 19 percent to $1.36.

The effective tax rate for the second quarter declined significantly to

27.2 percent. During the second quarter, the Company finalized a tax

agreement with the Dutch government that is effective for fiscal years 2006

through 2015. As a result of this new agreement the Company realized a tax

benefit,which increased the Company's diluted earnings per share for the

second quarter by $0.13.

Balance Sheet Review

At quarter end, global inventories stood at $2.2 billion, an increase of

15 percent from November 30, 2005. Cash and short-term investments were $1.9

billion at the end of the quarter, compared to $2.1 billion last year.

Share Repurchase

During the second quarter, the Company purchased a total of 1,478,800

shares for approximately $126 million in conjunction with the Company's four-

year $3 billion share repurchase program approved by the Board of Directors

in June 2006.

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 subsidiaries include Cole Haan Holdings Incorporated, a leading

designer and marketer of luxury shoes, handbags, accessories and coats;

Converse Inc., which designs, markets and distributes athletic footwear,

apparel and accessories; Exeter Brands Group LLC, which designs and markets

athletic footwear and apparel for the value retail channel; Hurley

International LLC, which designs, markets and distributes action sports and

youth lifestyle footwear, apparel and accessories and NIKE Bauer Hockey Inc.,

a leading designer and distributor of hockey equipment.

NIKE's earnings releases and other financial information are available on

the Internet at www.nikebiz.com/invest.

* 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 and discounts, which may vary

significantly from quarter to quarter, and because a significant portion of

the business does not report futures orders.

NIKE, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2006

(In millions, except per share data)

QUARTER ENDED YEAR TO DATE ENDED

INCOME

STATEMENT 11/30/2006 11/30/2005 % Chg 11/30/2006 11/30/2005 % Chg

Revenues $3,821.7 $3,474.7 10% $8,015.8 $7,336.7 9%

Cost of sales 2,164.6 1,963.3 10% 4,509.5 4,077.2 11%

Gross margin 1,657.1 1,511.4 10% 3,506.3 3,259.5 8%

43.4% 43.5% 43.7% 44.4%

Selling and

administrative

expense 1,223.7 1,054.7 16% 2,513.4 2,159.1 16%

32.0% 30.4% 31.4% 29.4%

Interest income,

net (14.1) (5.7) 147% (27.2) (12.1) 125%

Other (income)

expense, net 0.2 (1.4) -114% (3.0) (11.3) -73%

Income before

income taxes 447.3 463.8 -4% 1,023.1 1,123.8 -9%

Income taxes 121.7 162.7 -25% 320.3 390.4 -18%

27.2% 35.1% 31.3% 34.7%

Net income $325.6 $301.1 8% $702.8 $733.4 -4%

Diluted EPS $1.28 $1.14 12% $2.76 $2.77 0%

Basic EPS $1.30 $1.16 12% $2.79 $2.82 -1%

Weighted Average

Common Shares

Outstanding:

Diluted 253.7 263.7 254.4 265.0

Basic 251.2 259.0 252.0 260.0

Dividends declared $0.37 $0.31 $0.68 $0.56

NIKE, Inc.

BALANCE SHEET * 11/30/2006 11/30/2005

ASSETS

Current assets:

Cash and equivalents $1,102.9 $1,134.5

Short-term investments 804.4 920.0

Accounts receivable, net 2,387.6 2,166.2

Inventories 2,167.2 1,892.7

Deferred income taxes 186.2 86.9

Prepaid expenses and other current assets 561.3 496.2

Total current assets 7,209.6 6,696.5

Property, plant and equipment 3,548.4 3,216.6

Less accumulated depreciation 1,875.4 1,630.8

Property, plant and equipment, net 1,673.0 1,585.8

Identifiable intangible assets, net 406.7 403.9

Goodwill 130.8 135.4

Deferred income taxes and other assets 402.1 322.5

Total assets $9,822.2 $9,144.1

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt $30.6 $254.5

Notes payable 59.2 79.2

Accounts payable 880.3 744.2

Accrued liabilities 1,244.1 1,012.1

Income taxes payable 71.0 71.1

Total current liabilities 2,285.2 2,161.1

Long-term debt 383.5 408.3

Deferred income taxes and other liabilities 615.1 492.9

Redeemable preferred stock 0.3 0.3

Shareholders' equity 6,538.1 6,081.5

Total liabilities and shareholders' equity $9,822.2 $9,144.1

* Certain prior year amounts have been reclassified to conform to fiscal

year 2007 presentation.

These changes had no impact on previously reported results of operations

or shareholders' equity.

NIKE, Inc.

DIVISIONAL QUARTER ENDED YEAR TO DATE ENDED

REVENUES 11/30/2006 11/30/2005 % Chg 11/30/2006 11/30/2005 % Chg

U.S. Region

Footwear $879.4 $811.5 8% $1,958.5 $1,832.6 7%

Apparel 475.4 433.8 10% 906.9 829.3 9%

Equipment 63.2 61.8 2% 154.5 154.1 0%

Total 1,418.0 1,307.1 8% 3,019.9 2,816.0 7%

EMEA Region

Footwear 541.4 533.2 2% 1,220.9 1,218.3 0%

Apparel 421.0 379.6 11% 908.0 814.8 11%

Equipment 73.8 64.6 14% 178.2 161.8 10%

Total 1,036.2 977.4 6% 2,307.1 2,194.9 5%

Asia Pacific Region

Footwear 277.4 245.4 13% 543.4 482.8 13%

Apparel 250.6 214.6 17% 451.5 391.1 15%

Equipment 50.2 43.3 16% 101.7 89.0 14%

Total 578.2 503.3 15% 1,096.6 962.9 14%

Americas Region

Footwear 185.1 178.1 4% 357.4 335.0 7%

Apparel 55.7 55.4 1% 106.9 96.1 11%

Equipment 21.7 18.6 17% 40.7 34.7 17%

Total 262.5 252.1 4% 505.0 465.8 8%

3,294.9 3,039.9 8% 6,928.6 6,439.6 8%

Other 526.8 434.8 21% 1,087.2 897.1 21%

Total NIKE, Inc.

revenues $3,821.7 $3,474.7 10% $8,015.8 $7,336.7 9%

NIKE, Inc.

PRE-TAX QUARTER ENDED YEAR TO DATE ENDED

INCOME(1),* 11/30/2006 11/30/2005 % Chg 11/30/2006 11/30/2005 % Chg

U.S. Region $266.0 $265.7 0% $604.9 $610.9 -1%

EMEA Region 158.8 194.2 -18% 461.3 524.4 -12%

Asia Pacific

Region 139.9 115.2 21% 238.8 206.6 16%

Americas Region 59.8 57.4 4% 108.2 102.0 6%

Other 54.3 23.0 136% 142.2 63.0 126%

Corporate(2) (231.5) (191.7) -21% (532.3) (383.1) -39%

Total pre-tax

income(1) $447.3 $463.8 -4% $1,023.1 $1,123.8 -9%

(1) The Company evaluates performance of individual operating segments

based on pre-tax income.Total pre-tax income equals Income before income

taxes as shown on the Consolidated Income Statement.

(2) "Corporate" represents items necessary to reconcile to total pre-tax

income, which includes corporate costs that are not allocated to the

operating segments for management reporting and intercompany eliminations

for specific items in the Consolidated Income Statement.

NIKE, Inc.

NET INCOME AND DILUTED

EPS RECONCILIATION(1)

QUARTER ENDED YEAR TO DATE ENDED

11/30/ 11/30/ 11/30/ 11/30/

2006 2005 % Chg 2006 2005 % Chg

Net income, as reported $325.6 $301.1 8% $702.8 $733.4 -4%

Exclude: Stock-

based compensation

expense, net of tax(2) 18.8 - - 59.6 - -

Net income, excluding

stock-based compensation

expense(2) $344.4 $301.1 14% $762.4 $733.4 4%

Diluted EPS, as reported $1.28 $1.14 12% $2.76 $2.77 0%

Diluted EPS, excluding

stock-based compensation

expense(2) $1.36 $1.14 19% $3.00 $2.77 8%

(1) This schedule is intended to satisfy the quantitative reconciliation

for non-GAAP financial measures in accordance with Regulation G of the

Securities and Exchange Commission.

(2) This charge relates to stock-based compensation associated with stock

options and ESPP shares issued to employees and expensed in accordance

with SFAS 123(R) "Share Based Payment", which was adopted by the Company

during its first fiscal quarter ended August 31, 2006.

Source: NIKE, Inc.
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