f10q090107.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
Quarterly Period Ended November 30, 2008
Commission
file number - 001-10635
NIKE,
Inc.
(Exact
name of registrant as specified in its charter)
OREGON
|
93-0584541
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
One
Bowerman Drive, Beaverton, Oregon 97005-6453
(Address
of principal executive
offices) (Zip Code)
Registrant’s
telephone number, including area code (503) 671-6453
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ý No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in rule 12b-2 of the Exchange Act.
Large
accelerated filer ý Accelerated
filer ¨
Non-accelerated
filer ¨ Smaller
Reporting Company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes ¨No ý
Shares of
Common Stock outstanding as of November 30, 2008 were:
Class
A
|
|
|
96,077,844 |
|
Class
B
|
|
|
387,995,766 |
|
|
|
|
484,073,610 |
|
PART
1 - FINANCIAL INFORMATION
Item
1. FINANCIAL STATEMENTS
NIKE,
Inc.
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
November
30,
2008
|
|
|
May 31,
2008
|
|
|
|
(in
millions)
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
1,721.5 |
|
|
$ |
2,133.9 |
|
Short-term
investments
|
|
|
1,008.0 |
|
|
|
642.2 |
|
Accounts
receivable, net
|
|
|
2,737.2 |
|
|
|
2,795.3 |
|
Inventories
(Note 2)
|
|
|
2,419.1 |
|
|
|
2,438.4 |
|
Deferred
income taxes (Note 6)
|
|
|
89.7 |
|
|
|
227.2 |
|
Prepaid
expenses and other current assets
|
|
|
947.9 |
|
|
|
602.3 |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
8,923.4 |
|
|
|
8,839.3 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
4,109.4 |
|
|
|
4,103.0 |
|
Less
accumulated depreciation
|
|
|
2,208.5 |
|
|
|
2,211.9 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,900.9 |
|
|
|
1,891.1 |
|
|
|
|
|
|
|
|
|
|
Identifiable
intangible assets, net (Note 3)
|
|
|
650.2 |
|
|
|
743.1 |
|
Goodwill
(Note 3)
|
|
|
376.8 |
|
|
|
448.8 |
|
Deferred
income taxes and other long-term assets (Note 6)
|
|
|
783.4 |
|
|
|
520.4 |
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
12,634.7 |
|
|
$ |
12,442.7 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
32.4 |
|
|
$ |
6.3 |
|
Notes
payable
|
|
|
316.0 |
|
|
|
177.7 |
|
Accounts
payable
|
|
|
1,124.1 |
|
|
|
1,287.6 |
|
Accrued
liabilities (Note 4)
|
|
|
1,499.7 |
|
|
|
1,761.9 |
|
Income
taxes payable (Note 6)
|
|
|
117.4 |
|
|
|
88.0 |
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,089.6 |
|
|
|
3,321.5 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
445.5 |
|
|
|
441.1 |
|
Deferred
income taxes and other long-term liabilities (Note 6)
|
|
|
983.1 |
|
|
|
854.5 |
|
Commitments
and contingencies (Note 11)
|
|
|
-- |
|
|
|
-- |
|
Redeemable
preferred stock
|
|
|
0.3 |
|
|
|
0.3 |
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock at stated value:
|
|
|
|
|
|
|
|
|
Class
A convertible- 96.1 and 96.8 million shares outstanding
|
|
|
0.1 |
|
|
|
0.1 |
|
Class
B - 388.0 and 394.3 million shares outstanding
|
|
|
2.7 |
|
|
|
2.7 |
|
Capital
in excess of stated value
|
|
|
2,751.9 |
|
|
|
2,497.8 |
|
Accumulated
other comprehensive income (Note 7)
|
|
|
252.8 |
|
|
|
251.4 |
|
Retained
earnings
|
|
|
5,108.7 |
|
|
|
5,073.3 |
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
8,116.2 |
|
|
|
7,825.3 |
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
12,634.7 |
|
|
$ |
12,442.7 |
|
The
accompanying Notes to Unaudited Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE,
Inc.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
|
Three Months Ended
November 30,
|
|
|
Six Months Ended
November
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$ |
4,590.1 |
|
$ |
4,339.5 |
|
$ |
10,022.3 |
|
$ |
8,994.6 |
|
Cost
of sales
|
|
2,540.1 |
|
|
2,418.4 |
|
|
5,410.2 |
|
|
4,986.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
2,050.0 |
|
|
1,921.1 |
|
|
4,612.1 |
|
|
4,008.1 |
|
Selling
and administrative expense
|
|
1,546.8 |
|
|
1,429.5 |
|
|
3,403.2 |
|
|
2,864.2 |
|
Interest
income, net
|
|
5.0 |
|
|
23.1 |
|
|
15.1 |
|
|
47.7 |
|
Other
income (expense), net
|
|
12.4 |
|
|
0.9 |
|
|
10.8 |
|
|
(5.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
520.6 |
|
|
515.6 |
|
|
1,234.8 |
|
|
1,185.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes (Note 6)
|
|
129.6 |
|
|
156.2 |
|
|
333.3 |
|
|
256.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$ |
391.0 |
|
$ |
359.4 |
|
$ |
901.5 |
|
$ |
929.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share (Note 9)
|
$ |
0.81 |
|
$ |
0.72 |
|
$ |
1.86 |
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share (Note 9)
|
$ |
0.80
|
|
$ |
0.71 |
|
$ |
1.83 |
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
$ |
0.25 |
|
$ |
0.23 |
|
$ |
0.48 |
|
$ |
0.415 |
|
The
accompanying Notes to Unaudited Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Six Months Ended
November 30,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Cash
provided by operations:
|
|
|
|
|
|
|
Net
income
|
|
$ |
901.5 |
|
|
$ |
929.1 |
|
Income
charges (credits) not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
159.2 |
|
|
|
148.7 |
|
Deferred
income taxes
|
|
|
(39.1 |
) |
|
|
(108.4 |
) |
Stock-based
compensation
|
|
|
103.3 |
|
|
|
90.3 |
|
Amortization
and other
|
|
|
15.7 |
|
|
|
8.7 |
|
Changes
in certain working capital components and other
assets
and liabilities:
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(173.0 |
) |
|
|
(13.9 |
) |
Increase
in inventories
|
|
|
(126.0 |
) |
|
|
(27.9 |
) |
Decrease
(increase) in prepaid expenses and other
assets
|
|
|
25.6 |
|
|
|
(80.3 |
) |
(Decrease) increase in
accounts payable, accrued
liabilities
and income taxes payable
|
|
|
(228.9 |
) |
|
|
3.6 |
|
|
|
|
|
|
|
|
Cash
provided by operations
|
|
|
638.3 |
|
|
|
949.9 |
|
|
|
|
|
|
|
|
Cash
(used) provided by investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of investments
|
|
|
(1,398.5 |
) |
|
|
(678.8 |
) |
Maturities
of investments
|
|
|
438.1 |
|
|
|
1,081.1 |
|
Sales of
investments |
|
|
602.1 |
|
|
|
4.0 |
|
Additions
to property, plant and equipment
|
|
|
(224.9 |
) |
|
|
(201.9 |
) |
Proceeds
from the sale of property, plant and equipment
|
|
|
14.0 |
|
|
|
0.4 |
|
Increase
in other assets and liabilities, net
|
|
|
(26.3 |
) |
|
|
(10.4 |
) |
Settlement
of net investment hedges
|
|
|
185.4 |
|
|
|
-- |
|
|
|
|
|
|
|
|
Cash
(used) provided by investing activities
|
|
|
(410.1 |
) |
|
|
194.4 |
|
|
|
|
|
|
|
|
Cash
used by financing activities:
|
|
|
|
|
|
|
|
|
Reduction
in long-term debt, including current portion
|
|
|
(3.2 |
) |
|
|
(27.8 |
) |
Increase
in notes payable
|
|
|
153.7 |
|
|
|
7.3 |
|
Proceeds
from exercise of stock options and other
stock
issuances
|
|
|
139.6 |
|
|
|
211.6 |
|
Excess
tax benefits from share-based payment arrangements
|
|
|
21.4 |
|
|
|
29.2 |
|
Repurchase
of common stock
|
|
|
(649.2 |
) |
|
|
(606.8 |
) |
Dividends
on common stock
|
|
|
(224.6 |
) |
|
|
(185.1 |
) |
|
|
|
|
|
|
|
Cash
used by financing activities
|
|
|
(562.3 |
) |
|
|
(571.6 |
) |
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(78.3 |
) |
|
|
41.1 |
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and equivalents
|
|
|
(412.4 |
) |
|
|
613.8 |
|
Cash
and equivalents, beginning of period
|
|
|
2,133.9 |
|
|
|
1,856.7 |
|
|
|
|
|
|
|
|
Cash
and equivalents, end of period
|
|
$ |
1,721.5 |
|
|
$ |
2,470.5 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared and not paid
|
|
$ |
121.1 |
|
|
$ |
114.4 |
|
The
accompanying Notes to Unaudited Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE,
Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - Summary of
Significant Accounting Policies:
Basis
of presentation:
The
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair statement of the results of operations for
the interim period. The year-end condensed consolidated balance sheet
data as of May 31, 2008 was derived from audited financial statements, but does
not include all disclosures required by accounting principles generally accepted
in the United States of America. The interim financial information
and notes thereto should be read in conjunction with the Company’s latest Annual
Report on Form 10-K. The results of operations for the three and
six months ended November 30, 2008 are not necessarily indicative of
results to be expected for the entire year.
Recently
Adopted Accounting Standards:
On June
1, 2008, the Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 157, "Fair Value Measurements" ("FAS 157") for financial assets and
liabilities, which clarifies the meaning of fair value, establishes a framework
for measuring fair value and expands disclosures about fair value
measurements. Fair value is defined under FAS 157 as the exchange
price that would be received for an asset or paid to transfer a liability in the
principal or most advantageous market for the assets or liabilities in an
orderly transaction between market participants on the measurement
date. Subsequent changes in fair value of these financial assets and
liabilities are recognized in earnings or other comprehensive income when they
occur. The effective date of the provisions of FAS 157 for non-financial assets
and liabilities, except for items recognized at fair value on a recurring basis,
was deferred by Financial Accounting Standards Board ("FASB") Staff Position FAS
157-2 ("FSP FAS 157-2") and are effective for the fiscal year beginning June 1,
2009. The Company is currently evaluating the impact of the
provisions for non-financial assets and liabilities. The adoption of
FAS 157 for financial assets and liabilities did not have an impact on the
Company's consolidated financial position or results of
operations. For additional information on the fair value of financial
assets and liabilities, see Note 5 – Fair Value Measurements.
Also
effective June 1, 2008, the Company adopted SFAS No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" ("FAS 159") which allows an
entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis. As of November 30, 2008, the Company has
not elected the fair value option for any additional financial assets and
liabilities beyond those already prescribed by accounting principles generally
accepted in the United States.
In
October 2008, the FASB issued Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active ("FSP FAS
157-3").” FSP FAS 157-3 clarifies the application of
FAS 157 in a market that is not active and defines
additional key criteria in determining the fair value of a financial asset when
the market for that financial asset is not active. FSP FAS
157-3 applies to financial assets within the scope of accounting pronouncements
that require or permit fair value measurements
in accordance with FAS 157. FSP FAS 157-3 was effective upon issuance
and the application of FSP FAS
157-3 did not have a material impact on our consolidated financial
statements.
Recently
Issued Accounting Standards:
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("FAS 141(R)") and SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("FAS 160"). These standards aim to improve,
simplify, and converge international standards of accounting for business
combinations and the reporting of noncontrolling interests in consolidated
financial statements. The provisions of FAS 141(R) and FAS 160 are
effective for the fiscal year beginning June 1, 2009. The Company is
currently evaluating the impact of the provisions of FAS 141(R) and FAS
160.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities” (“FAS 161”). FAS 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. The provisions of FAS 161 are effective for the quarter ending February
28, 2009. The Company does not expect that the adoption will have a
material impact on the Company’s consolidated financial position or results of
operations.
In April 2008, the FASB issued Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets. ("FSP FAS 142-3")”.
FSP FAS 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” The intent of the position is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period
of expected cash flows used to measure the fair value of the asset under
FAS 141(R), and other U.S. generally accepted accounting principles. The
provisions of FSP FAS 142-3 are effective for the fiscal year
beginning June 1, 2009. The Company is currently evaluating the impact of
the provisions of FSP FAS 142-3.
NOTE
2 - Inventories:
Inventory
balances of $2,419.1 million and $2,438.4 million at November 30, 2008 and May
31, 2008, respectively, were substantially all finished goods.
NOTE
3 - Identifiable
Intangible Assets and Goodwill:
The
following table summarizes the Company’s identifiable intangible assets and
goodwill balances as of November 30, 2008 and May 31, 2008.
|
|
November
30, 2008
|
|
|
May
31, 2008
|
|
|
|
_________________________
|
|
|
__________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$ |
52.4 |
|
|
$ |
(16.2 |
) |
|
$ |
36.2 |
|
|
$ |
47.5 |
|
|
$ |
(14.4 |
) |
|
$ |
33.1 |
|
Trademarks
|
|
|
13.7 |
|
|
|
(8.3 |
) |
|
|
5.4 |
|
|
|
13.2 |
|
|
|
(7.8 |
) |
|
|
5.4 |
|
Other
|
|
|
51.1 |
|
|
|
(16.1 |
) |
|
|
35.0 |
|
|
|
65.2 |
|
|
|
(19.7 |
) |
|
|
45.5 |
|
Total
|
|
$ |
117.2 |
|
|
$ |
(40.6 |
) |
|
$ |
76.6 |
|
|
$ |
125.9 |
|
|
$ |
(41.9 |
) |
|
$ |
84.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
intangible assets – Trademarks
|
|
|
$ |
573.6 |
|
|
|
|
|
|
|
|
|
|
$ |
659.1 |
|
Identifiable
intangible assets, net
|
|
|
$ |
650.2 |
|
|
|
|
|
|
|
|
|
|
$ |
743.1 |
|
Goodwill
|
|
|
$ |
376.8 |
|
|
|
|
|
|
|
|
|
|
$ |
448.8 |
|
The
effect of foreign exchange fluctuations for the six month period ended November
30, 2008 reduced goodwill and unamortized intangible
assets by approximately $72.0 million and $85.5 million,
respectively, resulting from the strengthening of the U.S. dollar in relation to
the British pound sterling.
Amortization
expense, which is included in selling and administrative expense, was $2.3
million and $2.4 million for the three month periods ended November 30,
2008 and 2007, respectively, and $4.5 million and $5.0 million for the six month
periods ended November 30, 2008 and 2007, respectively. The estimated
amortization expense for intangible assets subject to amortization for the
remainder of fiscal year 2009 and each of the years ending May 31, 2010 through
May 31, 2013 are as follows: 2009: $3.8 million; 2010: $8.4 million;
2011: $7.9 million; 2012: $7.3 million; 2013: $5.4 million.
NOTE
4 - Accrued
Liabilities:
Accrued
liabilities include the following:
|
|
November 30, 2008
|
|
|
May 31, 2008
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Compensation
and benefits, excluding taxes
|
$ |
396.1 |
|
$ |
538.0 |
|
Endorser
compensation
|
|
213.7 |
|
|
203.5 |
|
Taxes
other than income taxes
|
|
151.0 |
|
|
147.6 |
|
Advertising
and marketing
|
|
128.0 |
|
|
121.4 |
|
Dividends
payable
|
|
121.1 |
|
|
112.9 |
|
Fair
value of derivatives
|
|
68.1 |
|
|
173.3 |
|
Import
and logistics costs
|
|
52.4 |
|
|
78.8 |
|
Other1
|
|
369.3 |
|
|
386.4 |
|
Total
accrued liabilities
|
$ |
1,499.7 |
|
$ |
1,761.9 |
|
1 Other
consists of various accrued expenses and no individual item accounted for more
than 5% of the balance at November 30, 2008 and May 31, 2008.
NOTE
5 – Fair Value
Measurements:
Effective
June 1, 2008, the Company adopted FAS 157, "Fair Value
Measurements" for financial assets and liabilities. FAS 157
establishes a hierarchy that prioritizes fair value measurements based on the
types of inputs used for the various valuation techniques (market approach,
income approach, and cost approach). FAS 157 is applied under existing
accounting pronouncements that require or permit fair value measurements and,
accordingly, does not require any new fair value measurements.
The
levels of hierarchy are described below:
-
|
Level
1: Observable inputs such as quoted prices in active markets
for identical assets or liabilities.
|
-
|
Level
2: Inputs other than quoted prices that are observable for the
asset or liability, either directly or indirectly; these include quoted
prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are
not active.
|
-
|
Level
3: Unobservable inputs in which there is little or no market
data available, which require the reporting entity to develop its own
assumptions.
|
The
Company's assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the asset or liability. Financial assets and liabilities are
classified in their entirety based on the most stringent level of input that is
significant to the fair value measurement.
The
following table presents information about the Company's financial assets and
liabilities measured at fair value on a recurring basis as of November 30, 2008
and indicates the fair value hierarchy of the valuation techniques utilized by
the Company to determine such fair value.
November
30, 2008
|
|
Fair
Value Measurements Using
|
|
|
|
Level 1
|
Level 2
|
Level
3
|
Assets/Liabilities
at
Fair Value
|
Balance
Sheet Classification
|
(in
millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
--- |
|
|
$ |
835.8 |
|
|
$ |
--- |
|
|
$ |
835.8 |
|
Other
current assets and other long-term assets
|
Available-for-sale
securities
|
|
|
252.3 |
|
|
|
283.5 |
|
|
|
--- |
|
|
|
535.8 |
|
Cash
equivalents
|
Available-for-sale
securities
|
|
|
236.0 |
|
|
|
772.0 |
|
|
|
--- |
|
|
|
1,008.0 |
|
Short-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
488.3 |
|
|
$ |
1,891.3 |
|
|
$ |
--- |
|
|
$ |
2,379.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
--- |
|
|
$ |
68.8 |
|
|
$ |
--- |
|
|
$ |
68.8 |
|
Accrued
liabilities and other long-term liabilities
|
Total
Liabilities
|
|
$ |
--- |
|
|
$ |
68.8 |
|
|
$ |
--- |
|
|
$ |
68.8 |
|
|
Derivative financial instruments include foreign currency forwards, option
contracts and interest rate swaps. The fair value of these
derivatives contracts is determined using observable market inputs such as the
forward pricing curve, currency volatilities, currency correlations, and
interest rates, and considers nonperformance risk of the Company and that of its
counterparties. Adjustments relating to these risks were not material for the
period ending November 30, 2008.
Available-for-sale
securities are primarily comprised of investments in U.S. Treasury and agency
securities, corporate commercial paper and bonds. These securities
are valued using market prices on both active markets (level 1) and less active
markets (level 2). Level 1 instrument valuations are obtained from
real-time quotes for transactions in active exchange markets involving identical
assets. Level 2 instrument valuations are obtained from
readily-available pricing sources for comparable instruments.
The
Company had no material level three measurements as of November 30,
2008.
NOTE
6 – Income
Taxes:
The
effective tax rate for the six months ended November 30, 2008 was
27.0%. Reflected in the effective tax rate for the six month
period ended November 30, 2008 is a reduction attributable to a settlement
of prior year foreign taxes and the retroactive reinstatement of the research
and development tax credit. The Tax Extenders and Alternative Minimum
Tax Relief Act of 2008 which was signed into law during the current quarter
reinstated the U.S. federal research and development tax credit retroactive to
January 1, 2008. As a result, the effective tax rate includes a
retroactive tax benefit in the second quarter of fiscal 2009. Also
reflected in the effective tax rate for the six months ended November 30, 2008
is a reduction in our on-going effective tax rate resulting from our operations
outside of the United States; our tax rates on those operations are generally
lower than the U.S. statutory rate.
As of November 30, 2008, the total
gross unrecognized tax benefits, excluding related interest and penalties were
$283.1 million, $75.5 million of which would affect the Company’s effective tax
rate if recognized in future periods. Total gross unrecognized tax benefits,
excluding interest and penalties, as of May 31, 2008 was $251.1 million, $60.6
million of which would affect the Company’s effective tax rate if recognized in
future periods. The liability for payment of interest and penalties increased
$15.3 million during the six months ended November 30, 2008. As of November 30,
2008, accrued interest and penalties related to uncertain tax positions were
$88.5 million (excluding federal benefit).
The Company
is subject to taxation primarily in the U.S., China and the Netherlands as well
as various state and other foreign jurisdictions. While we believe we have
adequately provided for all tax positions, amounts asserted by tax authorities
could be greater or less than our accrued position. The Company has
concluded substantially all U.S. federal income tax matters through fiscal year
2004. The Company is currently under audit by the Internal Revenue Service for
the 2005, 2006 and 2007 tax years. The Company’s major foreign jurisdictions,
China and the Netherlands, have concluded substantially all income tax matters
through calendar year 1997 and fiscal year 2002, respectively. It is
reasonably possible that the Internal Revenue Service audit for the 2005 and
2006 tax years will be completed during the next twelve months, which could
result in a decrease in our balance of unrecognized tax benefits. We do not
anticipate that total gross unrecognized tax benefits will change significantly
as a result of full or partial settlement of audits within the next twelve
months.
NOTE
7 - Comprehensive
Income:
Comprehensive
income, net of taxes, is as follows:
|
|
Three Months Ended
November 30,
|
|
|
Six Months Ended
November
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$ |
391.0
|
|
$ |
359.4 |
|
$ |
901.5 |
|
$ |
929.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in cumulative translation adjustment and other
|
|
(640.0) |
|
|
111.9 |
|
|
(802.9) |
|
|
137.7 |
|
Changes
due to cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on
hedge derivatives
|
|
366.4 |
|
|
(100.5 |
) |
|
538.8 |
|
|
(113.7 |
) |
Reclassification to
net income of previously deferred
losses,
net related to hedge derivative instruments
|
|
8.7 |
|
|
13.4 |
|
|
45.8 |
|
|
27.6 |
|
Changes
due to net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Net gain in hedge
derivatives
|
|
156.7 |
|
|
-- |
|
|
219.7 |
|
|
-- |
|
Other
comprehensive income |
|
(108.2) |
|
|
24.8 |
|
|
1.4 |
|
|
51.6 |
|
Total
comprehensive income
|
$ |
282.8 |
|
$ |
384.2 |
|
$ |
902.9 |
|
$ |
980.7 |
|
NOTE
8 - Stock-Based
Compensation:
A
committee of the Board of Directors grants stock options and restricted stock
under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The committee
has granted substantially all stock options at 100% of the market price on the
date of grant. Substantially all stock option grants outstanding under the 1990
Plan were granted in the first quarter of each fiscal year, vest ratably over
four years, and expire 10 years from the date of grant. In addition
to the 1990 Plan, the Company gives employees the right to purchase shares at a
discount to the market price under employee stock purchase plans (“ESPPs”).
The
Company accounts for stock-based compensation in accordance with SFAS No. 123R
“Share-Based Payment” (“FAS 123R”). Under FAS 123R, the Company
estimates the fair value of options granted under the 1990 Plan and employees’
purchase rights under the ESPPs using the Black-Scholes option pricing
model. The Company recognizes this fair value as selling and
administrative expense over the vesting period using the straight-line
method.
The
following table summarizes the Company’s total stock-based compensation
expense:
|
|
Three Months Ended
November 30,
__________________
|
|
|
Six Months Ended
November 30,
__________________
|
|
|
|
2008
|
|
2007
|
|
|
2008
|
|
2007
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Stock
Options1
|
$ |
18.5 |
|
$ |
22.5 |
|
$ |
91.8 |
|
$ |
83.2 |
|
ESPPs
|
|
4.6 |
|
|
2.2 |
|
|
7.6 |
|
|
3.8 |
|
Restricted
Stock
|
|
2.0 |
|
|
1.8 |
|
|
3.9 |
|
|
3.3 |
|
Total
stock-based compensation expense
|
$ |
25.1 |
|
$ |
26.5 |
|
$ |
103.3 |
|
$ |
90.3 |
|
1 In
accordance with FAS 123R, accelerated stock option expense is recorded for
employees eligible for accelerated stock option vesting upon
retirement. Accelerated stock option expense was $0.3 million and
$0.7 million for the three months ended November 30, 2008 and 2007,
respectively, and $55.6 million and $39.2 million for the six months ended
November 30, 2008 and 2007, respectively.
As of
November 30, 2008, the Company had $118.1 million of unrecognized compensation
costs from stock options, net of estimated forfeitures, to be recognized as
selling and administrative expense over a weighted average period of 2.4
years.
The
weighted average fair value per share of the options granted during the six
months ended November 30, 2008 and 2007 as computed using the Black-Scholes
pricing model was $17.12 and $13.86, respectively. The weighted
average assumptions used to estimate these fair values are as
follows:
|
|
Six Months Ended
November 30,
__________________
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Dividend
yield
|
|
|
1.5 |
% |
|
|
1.4 |
% |
Expected
volatility
|
|
|
32.4 |
% |
|
|
20.4 |
% |
Weighted-average
expected life (in years)
|
|
|
5.0 |
|
|
|
5.0 |
|
Risk-free
interest rate
|
|
|
3.4 |
% |
|
|
4.8 |
% |
Expected volatility is estimated based
on the implied volatility in market traded options on the Company’s common stock
with a term greater than one year, along with other factors. The weighted
average expected life of options is based on an analysis of historical and
expected future exercise patterns. The interest rate is based on the
U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant
for periods corresponding with the expected term of the
options.
NOTE
9 - Earnings Per
Common Share:
The
following represents a reconciliation from basic earnings per share to diluted
earnings per share. Options to purchase an additional 13.9 million
and 6.8 million shares of common stock were outstanding for the three
months ended November 30, 2008 and 2007, respectively, and 13.8
million and 6.8 million shares of common stock were outstanding for the six
months ended November 30, 2008 and 2007, respectively, but were not included in
the computation of diluted earnings per share because the options were
antidilutive.
|
|
Three Months Ended
November
30,
__________________
|
|
|
Six Months Ended
November
30,
________________
|
|
|
|
2008
|
|
2007
|
|
|
2008
|
|
2007
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
Determination
of shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
483.7 |
|
|
497.6 |
|
|
485.5 |
|
|
498.5 |
|
Assumed
conversion of dilutive stock options and awards
|
|
6.1 |
|
|
8.6 |
|
|
6.9 |
|
|
8.3 |
|
Diluted
weighted average common shares outstanding
|
|
489.8 |
|
|
506.2 |
|
|
492.4 |
|
|
506.8 |
|
Basic
earnings per common share
|
$ |
0.81 |
|
$ |
0.72 |
|
$ |
1.86 |
|
$ |
1.86 |
|
Diluted
earnings per common share
|
$ |
0.80 |
|
$ |
0.71 |
|
$ |
1.83 |
|
$ |
1.83 |
|
NOTE
10 - Operating
Segments:
The
Company’s operating segments are evidence of the structure of the Company’s
internal organization. The major segments are defined by geographic regions for
operations participating in NIKE brand sales activity excluding NIKE Golf and
NIKE Bauer Hockey. Each NIKE brand geographic segment operates predominantly in
one industry: the design, production, marketing and selling of sports and
fitness footwear, apparel, and equipment. The “Other” category shown below
primarily consists of the activities of Cole Haan, Converse Inc., Hurley
International LLC, NIKE Golf and Umbro Ltd. in the three and six month periods
ended November 30, 2008 and Cole Haan, Converse Inc., Exeter Brands Group LLC
(whose primary business was the Starter brand business which was sold on
December 17, 2007), Hurley International LLC, NIKE Bauer Hockey (which was sold
on April 17, 2008) and NIKE Golf in the three and six month periods ended
November 30, 2007. Activities represented in the "Other" category are considered
immaterial for individual disclosure based on the aggregation criteria in SFAS
No. 131 “Disclosures about Segments of an Enterprise and Related
Information.”
Where
applicable, “Corporate” represents items necessary to reconcile to the
consolidated financial statements, which generally include corporate activity
and corporate eliminations.
Net
revenues, as shown below, represent sales to external customers for each
segment. Intercompany revenues have been eliminated and are
immaterial for separate disclosure. The Company evaluates performance
of individual operating segments based on pre-tax income. On a
consolidated basis, this amount represents income before income taxes as shown
in the Unaudited Condensed Consolidated Statements of
Income. Reconciling items for pre-tax income represent corporate
costs that are not allocated to the operating segments for management reporting
including corporate activity, stock-based compensation expense, certain currency
exchange rate gains and losses on transactions, and intercompany eliminations
for specific income statement items in the Unaudited Condensed Consolidated
Statements of Income.
Accounts
receivable, net, inventories and property, plant and equipment, net for
operating segments are regularly reviewed and therefore provided
below.
Certain
prior year amounts have been reclassified to conform to fiscal 2009
presentation.
|
|
Three Months Ended
November 30,
________________
|
|
|
Six Months Ended
November 30,
_________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
2008
|
|
2007
|
|
|
|
(in millions)
|
|
Net
Revenue
|
|
|
|
|
|
|
U.S.
|
$ |
1,513.4 |
|
$ |
1,529.6 |
|
$ |
3,295.3 |
|
$ |
3,175.0 |
|
EUROPE,
MIDDLE EAST, AFRICA
|
|
1,306.2 |
|
|
1,227.7 |
|
|
3,084.9 |
|
|
2,708.9 |
|
ASIA
PACIFIC
|
|
821.4 |
|
|
675.6 |
|
|
1,682.0 |
|
|
1,309.3 |
|
AMERICAS
|
|
384.6 |
|
|
316.9 |
|
|
740.3 |
|
|
598.9 |
|
OTHER
|
|
564.5 |
|
|
589.7 |
|
|
1,219.8 |
|
|
1,202.5 |
|
|
$ |
4,590.1 |
|
$ |
4,339.5 |
|
$ |
10,022.3 |
|
$ |
8,994.6 |
|
Pre-tax
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
253.3 |
|
$ |
308.0 |
|
|
605.2 |
|
$ |
656.2 |
|
EUROPE,
MIDDLE EAST, AFRICA
|
|
276.5 |
|
|
233.1 |
|
|
718.9 |
|
|
612.3 |
|
ASIA
PACIFIC
|
|
216.0 |
|
|
173.1 |
|
|
401.5 |
|
|
334.0 |
|
AMERICAS
|
|
93.1 |
|
|
69.4 |
|
|
162.2 |
|
|
128.2 |
|
OTHER
|
|
20.5 |
|
|
70.8 |
|
|
106.8 |
|
|
166.0 |
|
CORPORATE
|
|
(338.8) |
|
|
(338.8 |
) |
|
(759.8) |
|
|
(710.8 |
) |
|
$ |
520.6 |
|
$ |
515.6 |
|
$ |
1,234.8 |
|
$ |
1,185.9 |
|
|
|
November
30,
2008
|
|
|
May
31,
2008
|
|
|
|
(in millions)
|
|
Accounts
receivable, net
|
|
|
|
|
|
|
U.S.
|
|
$ |
864.3 |
|
|
$ |
823.9 |
|
EUROPE,
MIDDLE EAST, AFRICA
|
|
|
732.4 |
|
|
|
843.0 |
|
ASIA
PACIFIC
|
|
|
488.8 |
|
|
|
406.1 |
|
AMERICAS
|
|
|
269.5 |
|
|
|
246.0 |
|
OTHER
|
|
|
334.6 |
|
|
|
424.0 |
|
CORPORATE |
|
|
47.6 |
|
|
|
52.3 |
|
|
|
$ |
2,737.2 |
|
|
$ |
2,795.3 |
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
856.7 |
|
|
$ |
834.0 |
|
EUROPE,
MIDDLE EAST, AFRICA
|
|
|
583.6 |
|
|
|
705.7 |
|
ASIA
PACIFIC
|
|
|
330.9 |
|
|
|
280.9 |
|
AMERICAS
|
|
|
185.8 |
|
|
|
181.1 |
|
OTHER
|
|
|
433.2 |
|
|
|
396.6 |
|
CORPORATE |
|
|
28.9 |
|
|
|
40.1 |
|
|
|
$ |
2,419.1 |
|
|
$ |
2,438.4 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
358.2 |
|
|
$ |
318.4 |
|
EUROPE,
MIDDLE EAST, AFRICA
|
|
|
313.6 |
|
|
|
370.5 |
|
ASIA
PACIFIC
|
|
|
402.3 |
|
|
|
375.6 |
|
AMERICAS
|
|
|
15.8 |
|
|
|
20.4 |
|
OTHER
|
|
|
141.7 |
|
|
|
126.9 |
|
CORPORATE |
|
|
669.3 |
|
|
|
679.3 |
|
|
|
$ |
1,900.9 |
|
|
$ |
1,891.1 |
|
NOTE
11 - Commitments and
Contingencies:
At
November 30, 2008, the Company had letters of credit outstanding totaling $153.5
million. These letters of credit were issued primarily for the
purchase of inventory.
There
have been no other significant subsequent developments relating to the
commitments and contingencies reported on the Company’s latest Annual Report on
Form 10-K.
NOTE
12 — Acquisition and
Divestitures:
Acquisition:
On March
3, 2008, the Company completed its acquisition of 100% of the outstanding shares
of Umbro, a leading United Kingdom-based global soccer brand, for a purchase
price of 290.5 million British pounds sterling in cash (approximately $576.4
million), inclusive of direct transaction costs. The acquisition of Umbro was
accounted for as a purchase business combination in accordance with SFAS No. 141
“Business Combinations.” The purchase price was allocated to tangible
and identifiable intangible assets acquired and liabilities assumed based on
their respective estimated fair values on the date of acquisition, with the
remaining purchase price recorded as goodwill. The valuation of these tangible
and identifiable intangible assets and liabilities may be adjusted in future
periods, subject to the availability of additional information during the
allocation period regarding a pre-acquisition legal contingency.
Divestitures:
On
December 17, 2007, the Company completed the sale of the Starter brand business
to Iconix Brand Group, Inc. for $60.0 million in cash. This
transaction resulted in a gain of $28.6 million during the year ended May 31,
2008.
On April
17, 2008, the Company completed the sale of NIKE Bauer Hockey Corp. for $189.2
million in cash to a group of private investors (“the Buyer”). The
sale resulted in a net gain of $32.0 million recorded during the year ended May
31, 2008. This gain included the recognition of a $46.3 million
cumulative foreign currency translation adjustment previously included in
accumulated other comprehensive income. As part of the terms of the sale
agreement, the Company granted the Buyer a royalty free limited license for the
use of certain NIKE trademarks for a transitional period of approximately two
years. The Company deferred $41.0 million of the sale proceeds related to this
license agreement, to be recognized over the license period.
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
In the
second quarter of fiscal 2009, our revenues grew 6% to $4.6 billion, net income
increased 9% to $391.0 million and we delivered diluted earnings per share of
$0.80, a 13% increase compared to the second quarter of fiscal
2008.
Income
before income taxes grew 1% for the second quarter, as a result of revenue
growth and improved gross margins, offset by an increase in selling and
administrative expenses driven by investments in company owned retail, rapidly
growing emerging markets, non-NIKE branded businesses and normal wage
inflation. A decrease in interest income earned on cash and
short-term investments was also a factor in income before income taxes growing
at a slower rate than revenues.
Net
income and diluted earnings per share for the second quarter of fiscal 2009 were
positively affected by a year-over-year decrease in our effective tax rate from
30.3% to 24.9%. The effective tax rate for the second quarter of
fiscal 2009 reflects a reduction in the ongoing effective tax rate on operations
outside of the U.S., the receipt of a foreign tax settlement and
reinstatement of the U.S. research and development tax credit signed into law
during the second quarter of fiscal 2009.
The deteriorating macroeconomic environment has caused significant volatility in
global financial markets and has put significant pressure on discretionary
consumer spending worldwide. While we believe that our Company is
well positioned from a business and financial perspective, we are not immune to
global economic conditions. These conditions could affect our
business in a number of direct and indirect ways, including lower revenues from
slowing consumer/customer demand for our products, reduced profit margins and
/or increased costs, changes in interest and currency exchange rates, lack of
credit availability and business disruptions due to difficulties experienced by
suppliers and customers. We are taking steps we believe prudent and
necessary to identify and manage potential exposures over the short and long
term. These steps include reductions in planned selling and
administrative expenses, including the implementation of a hiring freeze
and reductions in planned spending for travel, meetings and demand creation, as
well as tighter inventory purchasing and working capital management. We
have also increased our focus on monitoring the financial health of suppliers
and customers. Notwithstanding these efforts, our future performance
is subject to the inherent uncertainty presented by the evolving
macroeconomic conditions and our continued actions to respond to these
conditions.
Results
of Operations
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$ |
4,590.1 |
|
$ |
4,339.5 |
|
6% |
$ |
10,022.3 |
|
$ |
8,994.6 |
|
11% |
Cost
of sales
|
|
2,540.1 |
|
|
2,418.4 |
|
5% |
|
5,410.2 |
|
|
4,986.5 |
|
8% |
Gross
margin
|
|
2,050.0 |
|
|
1,921.1 |
|
7% |
|
4,612.1 |
|
|
4,008.1 |
|
15% |
Gross
margin %
|
|
44.7 |
% |
|
44.3 |
% |
|
|
46.0 |
% |
|
44.6 |
% |
|
Selling
and administrative
|
|
1,546.8 |
|
|
1,429.5 |
|
8% |
|
3,403.2 |
|
|
2,864.2 |
|
19% |
%
of revenue
|
|
33.7 |
% |
|
32.9 |
% |
|
|
34.0 |
% |
|
31.8 |
% |
|
Income
before income taxes
|
|
520.6 |
|
|
515.6 |
|
1% |
|
1,234.8 |
|
|
1,185.9 |
|
4% |
Net
income
|
|
391.0 |
|
|
359.4 |
|
9% |
|
901.5 |
|
|
929.1 |
|
(3)% |
Diluted
earnings per share
|
|
0.80 |
|
|
0.71 |
|
13% |
|
1.83 |
|
|
1.83 |
|
0% |
Consolidated
Operating Results
Revenues
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$ |
4,590.1 |
|
$ |
4,339.5 |
|
6% |
$ |
10,022.3 |
|
$ |
8,994.6 |
|
11% |
Changes
in foreign currency exchange rates increased revenues by 1 percentage point
for the second quarter and 4 percentage points for the first six months of
fiscal 2009. Excluding the effects of changes in currency exchange rates,
all three of our international NIKE Brand regions delivered revenue growth in
the second quarter, while our NIKE Brand U.S. region and our businesses
classified as “Other” reported revenue declines. The NIKE
Brand footwear and apparel businesses grew for the quarter while revenues for
NIKE Brand equipment declined. For the NIKE Brand, all three product
groups and all four geographic regions delivered revenue growth in the
year-to-date-period. Our international regions contributed 5 and 6 percentage
points of the consolidated revenue growth in the second quarter and year-to-date
periods, respectively. Revenue in the U.S. Region decreased
consolidated revenue growth by less than 1 percentage point in the second
quarter, and the U.S. region contributed 1 percentage point of the
consolidated revenue growth for the year-to-date period. Other
businesses were comprised primarily of results from Cole Haan, Converse Inc.,
Hurley International LLC, NIKE Golf and Umbro Ltd. in fiscal 2009 and Cole Haan,
Converse Inc., Exeter Brands Group LLC (consisting primarily of the Starter
brand business which was sold on December 17, 2007), Hurley International LLC,
Nike Bauer Hockey Corp. (which was sold on April 17, 2008) and NIKE Golf
in fiscal 2008.
By product group,
our NIKE Brand footwear business reported revenue growth of 8% and contributed
$168 million of incremental revenue for the second quarter of fiscal
2009. Our NIKE Brand apparel and equipment businesses grew
8% and 1%, respectively, during the second quarter of fiscal 2009, and combined
added $108 million of incremental revenue. For the first six months
of fiscal 2009, our NIKE Brand footwear business grew 14% and
contributed $627 million of incremental revenue, while our NIKE Brand
apparel and equipment businesses grew 13% and 8%, respectively, and combined
added $383 million of incremental revenue.
Gross
Margin
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
$ |
2,050.0 |
|
$ |
1,921.1 |
|
7% |
$ |
4,612.1 |
|
$ |
4,008.1 |
|
15% |
Gross
margin %
|
|
44.7 |
% |
|
44.3 |
% |
40 bps |
|
46.0% |
|
|
44.6 |
% |
140 bps |
For the second
quarter of fiscal 2009, the primary factors contributing to the increase in
gross margins versus the prior year period were improved year-on-year hedge
rates, most notably in the Europe, Middle East and Africa (“EMEA”)
region, partially offset by higher warehousing costs, increased discounts
on in-line product, primarily apparel, and increased inventory
obsolescence reserves. For the year-to-date period, the increase in
gross margins was primarily the result of improved year-on-year hedge rates,
primarily in the EMEA region, and an improved sales mix of higher margin
footwear products, most notably in the EMEA region, partially offset by higher
warehousing costs in the U.S.
Selling
and Administrative Expense
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
overhead expense
|
$ |
959.9 |
|
$ |
872.3 |
|
10% |
$ |
2,002.2 |
|
$ |
1,753.9 |
|
14% |
Demand
creation expense1
|
|
586.9 |
|
|
557.2 |
|
5% |
|
1,401.0 |
|
|
1,110.3 |
|
26% |
Selling
and administrative expense
|
$ |
1,546.8 |
|
$ |
1,429.5 |
|
8% |
$ |
3,403.2 |
|
$ |
2,864.2 |
|
19% |
%
of revenues
|
|
33.7 |
% |
|
32.9 |
% |
80 bps |
|
34.0 |
% |
|
31.8 |
% |
220
bps |
1 Demand
creation consists of advertising and promotion expenses, including costs of
endorsement contracts.
Changes
in foreign currency exchange rates had a minimal effect on selling and
administrative expenses in the second quarter and increased selling and
administrative expenses 3 percentage points for the first six months of
fiscal 2009.
Excluding
changes in exchange rates, operating overhead increased 10% and 12% during the
second quarter and first six months of fiscal 2009, respectively, versus the
comparable prior year periods. These increases were primarily attributable to
investments in growth drivers such as NIKE-owned retail primarily in the U.S.,
EMEA and Asia Pacific regions, infrastructure for emerging markets in the EMEA
and Asia Pacific regions and non-NIKE brand businesses. Normal wage
inflation also contributed to the growth across all regions.
On a
constant-currency basis, demand creation expense increased 4% and 22% during the
second quarter and first six months of fiscal 2009, respectively, compared to
the same periods in the prior year. The increase in the second quarter of fiscal
2009 was primarily attributable to an increase in investments in athlete and
team endorsements. The increase in the first six months of fiscal
2009 was primarily attributable to strategic investments in demand creation,
including first quarter spending around the 2008 Olympics in Beijing and the
European Football Championships, and increased investments in athlete and team
endorsements across all regions.
For the
third and fourth quarter of fiscal 2009, we will continue to take steps to
reduce selling and administrative spending levels while shifting resources to
fund initiatives that are critical to the achievement of our long-term growth
goals. We expect our selling and administrative expenses will grow at
a mid-single digit rate in the third quarter of fiscal 2009 as compared to the
same period in the prior year, and decline by a double digit percentage in the
fourth quarter of 2009 as compared to the same period in the prior year,
reflecting lower demand creation and operating overhead spending. Our
future selling and administrative expense levels may vary from our current
expectations due to changes in the rapidly evolving macroeconomic environment
and our reaction to those changes.
Other
Income (Expense), net
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
$ |
12.4 |
|
$ |
0.9 |
|
1278% |
$ |
10.8 |
|
$ |
(5.7 |
) |
289% |
Other
income (expense), net is comprised primarily of gains and losses associated with
the conversion of non-functional currency receivables and payables, the
re-measurement of foreign currency derivative instruments, disposals of fixed
assets, as well as other unusual or non-recurring transactions that are outside
the normal course of business. For both the second quarter and first six months
of fiscal 2009, other income (expense), net was primarily comprised of
recognition of the deferred gain on the sale of the NIKE Bauer Hockey business
and foreign currency hedge gains and losses.
Foreign
currency hedge gains and losses reported in other income (expense), net are
reflected in the Corporate line in our segment presentation of pre-tax income in
the Notes to Unaudited
Condensed Consolidated Financial Statements (Note 10 — Operating
Segments).
For the
second quarter and year-to-date periods of fiscal 2009, we estimate that the
combination of foreign currency hedge gains and losses in other income
(expense), net and the favorable translation of foreign currency-denominated
profits from our international businesses resulted in a year-over-year increase
in consolidated income before income taxes of approximately $25 million and $96
million, respectively.
Income
Taxes
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
24.9 |
% |
|
30.3 |
% |
(540 bps) |
|
27.0 |
% |
|
21.7 |
% |
530 bps |
Our effective tax rate for the second
quarter of fiscal 2009 was 5.4 percentage points lower than the prior year
period, due primarily to a reduction in the ongoing effective tax rate on
operations outside of the U.S., the receipt of a foreign
tax settlement and reinstatement of the U.S. research and development tax
credit signed into law during the second quarter of fiscal year
2009. We estimate that our effective tax rate for fiscal
year 2009 will be approximately 28%.
The
effective tax rate for the first six months of fiscal 2009 was 5.3
percentage points higher than the effective tax rate for the comparable
period in fiscal 2008, due primarily to a one-time tax benefit realized in the
first quarter of fiscal 2008. In the years prior to fiscal 2008,
several of our international entities generated losses for which we did not
recognize the corresponding tax benefits, as the realization of those benefits
was uncertain. In the first quarter of fiscal 2008, we took the steps
necessary to realize these benefits, resulting in a one-time tax benefit of
$105.4 million.
Futures Orders
Worldwide futures and advance
orders for NIKE Brand footwear and apparel, scheduled for delivery
from December 2008 through April 2009, were 1% lower than such orders reported
for the comparable period of fiscal 2008. This futures growth rate is
calculated based upon our forecasts of the actual exchange rates under which our
revenues will be translated during this period, which approximate current spot
rates. The net effect of changes in foreign currency exchange rates
contributed approximately 7 percentage points to the futures decline versus the
same period in the prior year. Excluding this currency impact, unit sales volume
increases for footwear were the primary growth driver in overall futures
and advance orders.
The reported futures and advance
orders growth rate is not necessarily indicative of our expectation of revenue
growth during this period. This is due to year-over-year changes in shipment
timing, and because the mix of orders can shift between advance/futures and
at-once orders. In addition, exchange rate fluctuations as well as differing
levels of order cancellations and discounts can cause differences in the
comparisons between advance/futures orders and actual revenues. Moreover, a
significant portion of our revenue is not derived from futures and advance
orders, including at-once and closeout sales of NIKE Brand footwear and
apparel, wholesale sales NIKE Brand of equipment, Cole Haan, Converse, Hurley,
NIKE Golf, Umbro and retail sales across all brands.
Operating
Segments
The
breakdown of revenues is as follows:
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
REGION
|
|
1,513.4 |
|
|
1,529.6 |
|
(1)% |
|
3,295.3 |
|
|
3,175.0 |
|
4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
REGION
|
|
1,306.2 |
|
|
1,227.7 |
|
6% |
|
3,084.9 |
|
|
2,708.9 |
|
14% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASIA
PACIFIC REGION
|
|
821.4 |
|
|
675.6 |
|
22% |
|
1,682.0 |
|
|
1,309.3 |
|
28% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAS
REGION
|
|
384.6 |
|
|
316.9 |
|
21% |
|
740.3 |
|
|
598.9 |
|
24% |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NIKE BRAND REVENUES
|
|
4,025.6 |
|
|
3,749.8 |
|
7% |
|
8,802.5 |
|
|
7,792.1 |
|
13% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
|
|
564.5 |
|
|
589.7 |
|
(4)% |
|
1,219.8 |
|
|
1,202.5 |
|
1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NIKE, INC. REVENUES
|
$ |
4,590.1 |
|
$ |
4,339.5 |
|
6% |
$ |
10,022.3 |
|
$ |
8,994.6 |
|
11% |
The
breakdown of income before income taxes (“pre-tax income”) is as
follows:
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Region
|
|
$253.3 |
|
|
$308.0 |
|
(18)% |
|
$605.2 |
|
|
$656.2 |
|
(8)% |
EMEA
Region
|
|
276.5 |
|
|
233.1 |
|
19% |
|
718.9 |
|
|
612.3 |
|
17% |
Asia
Pacific Region
|
|
216.0 |
|
|
173.1 |
|
25% |
|
401.5 |
|
|
334.0 |
|
20% |
Americas
Region
|
|
93.1 |
|
|
69.4 |
|
34% |
|
162.2 |
|
|
128.2 |
|
27% |
Other
|
|
20.5 |
|
|
70.8 |
|
(71)% |
|
106.8 |
|
|
166.0 |
|
(36)% |
Corporate
|
|
(338.8 |
) |
|
(338.8 |
) |
0% |
|
(759.8 |
) |
|
(710.8 |
) |
(7)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
pre-tax income
|
|
$520.6 |
|
|
$515.6 |
|
1% |
|
$1,234.8 |
|
|
$1,185.9 |
|
4% |
The
following discussion includes disclosure of pre-tax income for our operating
segments. We have reported pre-tax income for each of our operating segments in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” As
discussed in Note 10 —
Operating Segments in the accompanying Notes to Unaudited Condensed
Consolidated Financial Statements, certain corporate costs are not
included in pre-tax income of our operating segments.
U.S. Region
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$ |
993.5 |
|
$ |
983.3 |
|
1% |
$ |
2,213.3 |
|
$ |
2,103.2 |
|
5% |
Apparel
|
|
449.8 |
|
|
461.4 |
|
(3)% |
|
914.2 |
|
|
889.4 |
|
3% |
Equipment
|
|
70.1 |
|
|
84.9 |
|
(17)% |
|
167.8 |
|
|
182.4 |
|
(8)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$ |
1,513.4 |
|
$ |
1,529.6 |
|
(1)% |
$ |
3,295.3 |
|
$ |
3,175.0 |
|
4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
$ |
253.3 |
|
$ |
308.0 |
|
(18)% |
$ |
605.2 |
|
$ |
656.2 |
|
(8)% |
For the
second quarter and the first six months of fiscal 2009, the increase in U.S.
footwear revenue was primarily attributable to low-single digit percentage
growth in average selling price per pair compared to the same periods in the
prior year. The increase in average selling price per pair was attributable to
strategic price increases, increased sales mix of higher priced NIKE brand
sportswear, running and Brand Jordan products, and improved pricing on close-out
products.
Average
selling price per unit for U.S. apparel declined in both the second quarter and
first six months of fiscal 2009 as compared to the same periods in the prior
year, primarily as the result of a higher mix of close-out sales. Unit
sales also decreased slightly in the second quarter of fiscal 2009 reflecting a
more challenging retail environment, resulting in a decrease in the U.S. apparel
revenues in the second quarter. For the first six months of fiscal 2009,
the increase in unit sales more than offset the decrease in average selling
price per unit, resulting in a year-over-year increase in U.S. apparel
revenues.
Pre-tax
income for the U.S. Region declined in both the second quarter and first
six months of fiscal 2009. In the second quarter of fiscal 2009, the
decline was primarily the result of lower gross margins, principally for
apparel, and higher operating overhead expenses, due largely to the
expansion of NIKE-owned retail. In addition to these factors,
profitability for the first six months of fiscal 2009 also reflected higher
demand creation spending.
EMEA
Region
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$ |
688.3 |
|
$ |
646.7 |
|
6% |
$ |
1,670.7 |
|
$ |
1,438.6 |
|
16% |
Apparel
|
|
521.6 |
|
|
485.9 |
|
7% |
|
1,171.3 |
|
|
1,052.9 |
|
11% |
Equipment
|
|
96.3 |
|
|
95.1 |
|
1% |
|
242.9 |
|
|
217.4 |
|
12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$ |
1,306.2 |
|
$ |
1,227.7 |
|
6% |
$ |
3,084.9 |
|
$ |
2,708.9 |
|
14% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
$ |
276.5 |
|
$ |
233.1 |
|
19% |
$ |
718.9 |
|
$ |
612.3 |
|
17% |
For the
EMEA Region, changes in currency exchange rates contributed 2 and 10
percentage points of the revenue growth during the second quarter and first six
months of fiscal 2009, respectively. Excluding changes in currency exchange
rates, most markets within the region increased revenues during the quarter and
year-to-date period. The U.K. grew 2% and 4% for the second quarter
and year-to date period, respectively, while the emerging markets in the region
grew 21% and 30% for the second quarter and year-to-date period respectively,
driven by strong results in Russia. These results more than
offset lower revenues in Southern Europe.
Excluding
changes in exchange rates, footwear revenues increased 4% and 7% during the
second quarter and first six months of fiscal 2009 compared to the same periods
in the prior year. The increase in footwear revenue was attributable to high
single-digit percentage growth in unit sales, partially offset by a slight
decrease in average selling price per pair. The increase in unit
sales was primarily driven by higher demand for our NIKE brand sportswear and
kids products. The slight decrease in average selling price per pair resulted
from a shift in product mix from higher priced to lower priced models, most
notably within kids and NIKE brand sportswear products.
Excluding
changes in exchange rates, apparel revenues increased 4% and 2% for the second
quarter and first six months of fiscal 2009 compared to the same periods in the
prior year due to double-digit increases in unit sales partially offset by lower
average selling prices as a result of a higher mix of close-out
sales.
In the
second quarter and first six months of fiscal 2009, pre-tax income for EMEA grew
at a faster rate than revenue, as favorable foreign currency
translation and higher gross margins more than offset higher selling and
administrative expenses.
Asia
Pacific Region
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$ |
400.1 |
|
$ |
334.1 |
|
20% |
$ |
854.1 |
|
$ |
666.2 |
|
28% |
Apparel
|
|
356.9 |
|
|
289.2 |
|
23% |
|
689.6 |
|
|
529.7 |
|
30% |
Equipment
|
|
64.4 |
|
|
52.3 |
|
23% |
|
138.3 |
|
|
113.4 |
|
22% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$ |
821.4 |
|
$ |
675.6 |
|
22% |
$ |
1,682.0 |
|
$ |
1,309.3 |
|
28% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
$ |
216.0 |
|
$ |
173.1 |
|
25% |
$ |
401.5 |
|
$ |
334.0 |
|
20% |
In the
Asia Pacific Region, changes in currency exchange rates contributed 5
and 7 percentage points of revenue growth for the second quarter and first
six months of fiscal 2009, respectively. While nearly all countries within the
region reported revenue growth on a currency-neutral basis for both the quarter
and year-to-date period, China continues to be the primary driver of growth, as
revenues increased 27% and 40% on a currency-neutral basis for the second
quarter and first six months of fiscal 2009, respectively. The revenue growth in
China was primarily due to expansion in both the number of stores selling NIKE
products and sales through existing retail stores. On a currency
neutral basis, revenue in Japan was up 7% and 5% for the second quarter and
year-to-date period respectively, versus the similar periods in the prior
year.
Footwear
and apparel revenue growth for both the second quarter and first six months of
fiscal 2009 were driven largely by increased unit sales, most notably in China,
slightly offset by mid-single digit reductions in average selling prices
resulting primarily from increased discounts on in-line products.
The
increase in Asia Pacific pre-tax income during the second quarter and first six
months of fiscal 2009 was the result of revenue growth, expanding gross margins
and favorable foreign currency translation, which more than offset higher
selling and administrative expenses.
Americas
Region
|
|
Three
Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$ |
264.1 |
|
$ |
214.3 |
|
23% |
$ |
509.9 |
|
$ |
412.7 |
|
24% |
Apparel
|
|
88.2 |
|
|
73.2 |
|
20% |
|
167.6 |
|
|
131.5 |
|
27% |
Equipment
|
|
32.3 |
|
|
29.4 |
|
10% |
|
62.8 |
|
|
54.7 |
|
15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$ |
384.6 |
|
$ |
316.9 |
|
21% |
$ |
740.3 |
|
$ |
598.9 |
|
24% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
$ |
93.1 |
|
$ |
69.4 |
|
34% |
$ |
162.2 |
|
$ |
128.2 |
|
27% |
In the
Americas Region, changes in currency exchange rates negatively impacted revenue
growth by approximately 2 percentage points in the second quarter of fiscal
2009 and contributed 3 percentage points of revenue growth for the first
six months of fiscal 2009. Excluding the changes in foreign currency
exchange rates, all markets in the region reported revenue growth in both the
second quarter and year-to-date period, led by Brazil, Argentina and
Mexico.
The
increase in pre-tax income versus the second quarter and first six months of
fiscal 2008 was primarily the result of higher revenues and selling and
administrative expense leverage.
Other
Businesses
|
|
Three Months Ended
November 30,
___________________
|
|
Six Months Ended
November 30,
___________________
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$ |
564.5 |
|
$ |
589.7 |
|
(4)% |
$ |
1,219.8 |
|
$ |
1,202.5 |
|
1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
|
20.5 |
|
|
70.8 |
|
(71)% |
|
106.8 |
|
|
166.0 |
|
(36)% |
For
the first six months of fiscal 2009, our Other businesses were
primarily comprised of Cole Haan, Converse, Hurley, NIKE Golf and
Umbro (which was acquired on March 3, 2008). For the first six months of fiscal
2008, our Other businesses were primarily comprised of Cole Haan, Converse,
Exeter (whose primary business was the Starter brand business which was sold on
December 17, 2007), Hurley, NIKE Bauer Hockey Corp. (which was sold on April 17,
2008) and NIKE Golf.
The
decrease in Other business revenues for the second quarter of fiscal 2009 was
primarily attributable to the loss of revenue from NIKE Bauer Hockey and the
Starter brand business, partially offset by growth at Converse and Hurley
and the addition of Umbro. Revenue for Cole Haan and NIKE Golf
decreased for the second quarter of fiscal 2009, driven by the overall weakness
of these categories. For the year-to-date period, revenue growth at Converse,
Hurley and Cole Haan and the addition of Umbro more than offset the
loss of revenue from NIKE Bauer Hockey and the Starter brand
businesses.
Pre-tax income for Other businesses declined for both the second quarter and
first six months of fiscal 2009. For the second quarter of fiscal 2009,
the decline was primarily attributable to the decrease in pre-tax operating
results from NIKE Golf and Cole Haan as well as net loss from Umbro. For
the first six months of fiscal 2009, the decline is primarily due to the loss of
profits from NIKE Bauer Hockey.
Liquidity
and Capital Resources
Cash
Flow Activity
Cash provided by operations was $638.3 million for
the first six months of fiscal 2009, compared to $949.9 million for the first
six months of fiscal 2008. Our primary source of operating cash flow for the
first six months of fiscal 2009 was net income of $901.5 million offset by
investments in working capital to support the growth in the
business. Our investments in working capital increased during the
first six months of fiscal 2009 as compared to the same period in the prior year
primarily due to an increase in accounts receivable as a result of higher sales
revenue in fiscal 2009 and an increase in inventory receipts to support the
continued growth of the business.
Cash
used by investing activities was $410.1 million for the first six months of
fiscal 2009, compared to cash provided by investing activities of $194.4 million
for the first six months of fiscal 2008. The
year-over-year change was primarily due to a net purchase of short-term
investments of $358.3 million (purchases net of sales and maturities) in the
first six months of fiscal 2009, compared to net sales and maturities of $406.3
million in short-term investments during the first six months of fiscal 2008,
partially offset by an increase from the proceeds of net investment hedge
settlements. During the second half of fiscal 2008, we began to use net
investment hedges to mitigate the risk of variablitity in
foreign-currency-denominated net investments held
by wholly-owned foreign operations.
Cash
used in financing activities was $562.3 million for the first six months of
fiscal 2009, compared to $571.6 million used in the first six months of fiscal
2008. The decrease over the fiscal 2009 amount was primarily due to
the increase in notes payable offset by an increase in dividends and share
repurchases, as discussed below.
In
the first six months of fiscal 2009, we purchased 10.6
million shares of NIKE’s Class B common stock for $639.0 million. As
of November 30, 2008, we have now repurchased 49.2 million shares for $2.7
billion under the $3 billion program approved by our Board of Directors in June
2006. In September 2008, our Board of Directors approved a new $5 billion share
repurchase program. The new program will commence upon completion of
our current $3 billion share repurchase program. We expect to fund share
repurchases from operating cash flow, excess cash, and/or debt. The timing and
the amount of shares purchased will be dictated by our capital needs and stock
market conditions.
Dividends
declared per share of common stock for the second quarter of fiscal 2009 were
$0.25, compared to $0.23 in the second quarter of fiscal 2008.
Contractual
Obligations
There
have been no significant changes to the contractual obligations reported in our
Annual Report on Form 10-K as of May 31, 2008 except as follows:
The total
liability for uncertain tax positions was $283.1 million, excluding related
interest and penalties, at November 30, 2008. It is reasonably possible that the
Internal Revenue Service audit for the 2005 and 2006 tax years will be completed
during the next twelve months, however, we are unable to make a reliable
estimate of the eventual cash flows that may be required to settle these
matters. In addition, we are not able to reasonably estimate when or if
cash payments of the long-term liability for uncertain tax positions will
occur.
Capital
Resources
In October 2001, we filed a shelf registration statement with the Securities and
Exchange Commission for $1 billion. In May 2002, we commenced a
medium-term note program under the shelf registration that allowed us to issue
up to $500 million in medium-term notes, as our capital needs dictate. Under
this program, we have issued $240 million of medium-term notes, of which $215
million in principal amount remains outstanding at November 30, 2008. Pursuant
to Securities and Exchange Commission rules, this shelf registration has now
expired. In December 2008, we filed a new shelf registration statement with the
Securities and Exchange Commission for the $760 million of securities remaining
to be issued under the previous shelf registration statement.
We also have
a committed $1.0 billion revolving credit facility in place with a group of
banks that is scheduled to mature in December 2012. As of November
30, 2008, no amounts were outstanding under this facility.
Our
long-term senior unsecured debt ratings remain at A+ and A1 from Standard and
Poor's Corporation and Moody's Investor Services, respectively.
Liquidity
is also provided by our $1 billion commercial paper program. As of
November 30, 2008, $175 million was outstanding under our commercial paper
program at a weighted average interest rate of 1.74%. No amount was
outstanding under the program at May 31, 2008.
We
currently have short-term debt ratings of A1 and P1 from Standard and Poor's
Corporation and Moody's Investor Services, respectively.
During
the second quarter, one of the Company’s Japanese subsidiaries entered into 5.8
billion yen (approximately $60.7 million) in short-term loans to meet general
operating needs. As of November 30, 2008, 5.3 billion yen
(approximately $55.5 million) in short-term loans remained
outstanding. The interest rates on the loans are based on the
prevailing Tokyo Interbank Offer Rate of our election plus a spread, resulting
in a weighted average all-in rate of 0.89% at November 30, 2008.
The
credit markets, including the commercial paper markets in the United States,
have continued to experience adverse conditions. While we have not experienced
higher interest costs or difficulty accessing the credit markets to
date, continuing volatility in the capital markets may increase costs associated
with issuing commercial paper or other debt instruments or affect our ability to
access those markets. Notwithstanding these adverse market conditions, we
currently believe that current cash and short-term investment balances and cash
generated by operations, together with access to external sources of funds as
described above and in our Annual Report on Form 10-K for the fiscal year ended
May 31, 2008, will be sufficient to meet our operating and capital needs in the
foreseeable future.
Recently Adopted Accounting
Standards:
On June
1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("FAS 157")
for financial assets and liabilities, which clarifies the meaning of fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Fair value is defined under FAS 157 as the
exchange price that would be received for an asset or paid to transfer a
liability in the principal or most advantageous market for the assets or
liability in an orderly transaction between market participants on the
measurement date. Subsequent changes in fair value of these financial
assets and liabilities are recognized in earnings or other comprehensive income
when they occur. The effective date of the provisions of FAS 157 for
non-financial assets and liabilities, except for items recognized at fair value
on a recurring basis, was deferred by FASB Staff Position FAS 157-2 ("FSP FAS
157-2") and are effective for the fiscal year beginning June 1,
2009. The Company is currently evaluating the impact of the
provisions for non-financial assets and liabilities. The adoption of
FAS 157 for financial assets and liabilities did not have an impact on the
Company's consolidated financial position or results of
operations. See Note 5 in the accompanying Notes to Unaudited
Condensed Consolidated Financial Statements for further discussion.
Also
effective June 1, 2008, the Company adopted SFAS No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" ("FAS 159") which allows an
entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis. As of August 31, 2008, the company has
not elected the fair value option for any additional financial assets and
liabilities beyond those already prescribed by accounting principles generally
accepted in the United States.
In
October 2008, the FASB issued Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” ("FSP
FAS 157-3"). FSP FAS 157-3 clarifies the application of
FAS 157 in a market that is not
active and defines
additional key criteria in determining the fair value of a financial asset when
the market for that financial asset is not active. FSP FAS
157-3 applies to financial assets within the scope of accounting pronouncements
that require or permit fair value measurements
in accordance with FAS 157. FSP FAS 157-3 was effective upon
issuance and the application of FSP FAS
157-3 did not have a material impact on our consolidated financial
statements.
Recently
Issued Accounting Standards:
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("FAS 141(R)") and SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("FAS 160"). These standards aim to improve,
simplify, and converge international standards of accounting for business
combinations and the reporting of noncontrolling interests in consolidated
financial statements. The provisions of FAS 141(R) and FAS 160 are
effective for the fiscal year beginning June 1, 2009. The Company is
currently evaluating the impact of the provisions of FAS 141(R) and FAS
160.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities” (“FAS 161”). FAS 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on and entity's financial position, financial performance, and cash
flows. The provisions of FAS 161 are effective for the quarter ending February
28, 2009. The Company does not expect that the adoption will have a
material impact on the Company’s consolidated financial position or results of
operations.
In April
2008, the FASB issued Staff Position No. FAS 142-3, “Determination of
the Useful Life of Intangible Assets” ("FSP FAS 142-3"). FSP FAS
142-3 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The
intent of the position is to improve the consistency between the useful life of
a recognized intangible asset under SFAS No. 142 and the period of expected cash
flows used to measure the fair value of the asset under FAS 141(R), and
other U.S. generally accepted accounting principles. The provisions of
FSP FAS 142-3 are effective for fiscal year beginning June 1, 2009. The
Company is currently evaluating the impact of the provisions of FSP FAS
142-3.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities.
We
believe that the estimates, assumptions and judgments involved in the accounting
policies described in the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section of our most recent Annual Report on
Form 10-K have the greatest potential impact on our financial statements, so we
consider these to be our critical accounting policies. Actual results could
differ from the estimates we use in applying our critical accounting policies.
We are not currently aware of any reasonably likely events or circumstances that
would result in materially different amounts being reported.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There
have been no material changes from the information previously reported under
Item 7A of our Annual Report on Form 10-K for the fiscal year ended May 31,
2008.
Item
4. CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
We carry
out a variety of on-going procedures under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, to evaluate the effectiveness of the design and operation of
our disclosure controls and procedures. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of
November 30, 2008.
There has
been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Special
Note Regarding Forward-Looking Statements
and
Analyst Reports
Certain
written and oral statements, other than purely historical information including
estimates, projections, statements relating to NIKE’s business plans, objectives
and expected operating results, and the assumptions upon which those statements
are based, made or incorporated by reference from time to time by NIKE or its
representatives in this report, other reports, filings with the Securities and
Exchange Commission, press releases, conferences, or otherwise, are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements include, without limitation, any
statement that may predict, forecast, indicate, or imply future results,
performance, or achievements, and may contain the words “believe,” “anticipate,”
“expect,” “estimate,” “project,” “will be,” “will continue,” “will likely
result,” or words or phrases of similar meaning. Forward-looking statements
involve risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. The risks and uncertainties are
detailed from time to time in reports filed by NIKE with the Securities and
Exchange Commission, including Forms 8-K, 10-Q, and 10-K, and include, among
others, the following: international, national and local general economic and
market conditions; the size and growth of the overall athletic footwear,
apparel, and equipment markets; intense competition among designers, marketers,
distributors and sellers of athletic footwear, apparel, and equipment for
consumers and endorsers; demographic changes; changes in consumer preferences;
popularity of particular designs, categories of products, and sports; seasonal
and geographic demand for NIKE products; difficulties in anticipating or
forecasting changes in consumer preferences, consumer demand for NIKE products,
and the various market factors described above; difficulties in implementing,
operating, and maintaining NIKE’s increasingly complex information systems and
controls, including, without limitation, the systems related to demand and
supply planning, and inventory control; fluctuations and difficulty in
forecasting operating results, including, without limitation, the fact that
advance “futures” orders may not be indicative of future revenues due to changes
in shipment timing, and the changing mix of futures and at-once orders; the
ability of NIKE to sustain, manage or forecast its growth and inventories; the
size, timing and mix of purchases of NIKE’s products; new product development
and introduction; the ability to secure and protect trademarks, patents, and
other intellectual property performance and reliability of products; customer
service; adverse publicity; the loss of significant customers or suppliers;
dependence on distributors; business disruptions; increased costs of freight and
transportation to meet delivery deadlines; changes in business strategy or
development plans; general risks associated with doing business outside the
United States, including, without limitation, exchange rate fluctuations, import
duties, tariffs, quotas and political and economic instability; changes in
government regulations; liability and other claims asserted against NIKE; the
ability to attract and retain qualified personnel; and other factors referenced
or incorporated by reference in this report and other reports.
The risks
included here are not exhaustive. Other sections of this report may include
additional factors which could adversely affect NIKE’s business and financial
performance. Moreover, NIKE operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all such risk factors, nor can it assess the impact of
all such risk factors on NIKE’s business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Investors
should also be aware that while NIKE does, from time to time, communicate with
securities analysts, it is against NIKE’s policy to disclose to them any
material non-public information or other confidential commercial information.
Accordingly, shareholders should not assume that NIKE agrees with any statement
or report issued by any analyst irrespective of the content of the statement or
report. Furthermore, NIKE has a policy against issuing or confirming financial
forecasts or projections issued by others. Thus, to the extent that reports
issued by securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of NIKE.
Part
II - Other Information
Item
1. Legal Proceedings
There
have been no material developments with respect to the information previously
reported under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal
year ended May 31, 2008.
Item
1A. Risk Factors
Our
Annual Report on Form 10-K for the fiscal year ended May 31, 2008 contains
a detailed discussion of certain risk factors that could materially adversely
affect our business, our operating results, or our financial
condition. The risk factor described below is an addition to those
risk factors.
Global
capital and credit market conditions, and resulting declines in consumer
confidence and spending, could have a material adverse effect on our business,
operating results, and financial condition.
Volatility and disruption in the global
capital and credit markets in 2008 have led to a tightening of business credit
and liquidity, a contraction of consumer credit, business failures, higher
unemployment, and declines in consumer confidence and spending in the United
States and internationally. If global economic and financial market
conditions deteriorate or remain weak for an extended period of time, the
following factors could have a material adverse effect on our business,
operating results, and financial condition:
·
|
Slower
consumer spending may result in reduced demand for our products, reduced
orders from retailers for our products, order cancellations, lower
revenues, increased inventories, and lower gross
margins.
|
·
|
We
may be unable to find suitable investments that are safe, liquid, and
provide a reasonable return. This could result in lower
interest income or longer investment horizons. Disruptions to
capital markets or the banking system may also impair the value
investments or bank deposits we currently consider safe or
liquid.
|
·
|
We
may be unable to access financing in the credit and capital markets at
reasonable rates in the event we find it desirable to do
so.
|
·
|
The
failure of financial institution counterparties to honor their obligations
to us under credit and derivative instruments could jeopardize our ability
to rely on and benefit from those instruments. Our ability to
replace those instruments on the same or similar terms may be limited
under poor market conditions.
|
·
|
We conduct
transactions in various currencies, which increases our exposure to
fluctuations in foreign currency exchange rates relative to the U.S.
dollar. Continued volatility in the markets and exchange rates
for foreign currencies and contracts in foreign currencies could have a
significant impact on our reported financial results and
condition.
|
·
|
Continued
volatility in the markets and prices for commodities and raw materials we
use in our products and in our supply chain (such as petroleum) could have
a material adverse effect on our costs, gross margins, and
profitability.
|
·
|
If
retailers of our products experience declining revenues, or retailers
experience difficulty obtaining financing in the capital and credit
markets to purchase our products, this could result in reduced orders for
our products, order cancellations, inability of retailers to timely meet
their payment obligations to us, extended payment terms, higher accounts
receivable, reduced cash flows, greater expense associated with collection
efforts, and increased bad debt
expense.
|
·
|
If
retailers of our products experience severe financial difficulty, some may
become insolvent and cease business operations, which could reduce the
availability of our products to
consumers.
|
·
|
If
contract manufacturers of our products or other participants in our supply
chain experience difficulty obtaining financing in the capital and credit
markets to purchase raw materials or to finance general working capital
needs, it may result in delays or non-delivery of shipments of our
products.
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table presents a summary of share repurchases made by NIKE during the
quarter ended November 30, 2008.
Period
_______
|
Total
Number of Shares Purchased
_____________
|
Average
Price Paid Per Share
_____________
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs1
_______________
|
Maximum
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs
______________
|
|
|
|
|
(in millions)
|
September
1 – 30, 2008
|
|
2,242,600 |
|
|
$61.61 |
|
2,242,600 |
|
$371.3 |
|
October 1
– 31, 2008
|
|
1,254,500 |
|
|
$56.68 |
|
1,254,500 |
|
$300.2 |
|
November
1 – 30, 2008
|
|
--- |
|
|
--- |
|
--- |
|
$300.2 |
|
Total
|
|
3,497,100 |
|
|
$59.85 |
|
3,497,100 |
|
|
|
1 On June
19, 2006 we announced a program to repurchase up to $3 billion of our Class B
Common Stock over a period of up to four years. These shares were
purchased under this program. On September 22, 2008, we announced a
program to repurchase up to $5 billion of our Class B Common Stock over a period
of up to four years, which will commence upon completion of the current $3
billion share repurchase program.
Item
4. Submission of Matters to a Vote of Security Holders
The
Company's annual meeting of shareholders was held on Monday, September 22, 2008,
in Beaverton, Oregon. The following matters were submitted to a vote
of the shareholders, the results of which were as follows:
Proposal
1 - Election of Directors.
Directors
Elected by holders of Class A Common Stock:
|
|
Votes Cast
For
|
|
|
Votes
Withheld
|
|
|
|
|
|
|
|
|
John
G. Connors
|
|
|
93,111,782 |
|
|
|
-0- |
|
Timothy
D. Cook
|
|
|
93,111,782 |
|
|
|
-0- |
|
Ralph
D. DeNunzio
|
|
|
93,111,782 |
|
|
|
-0- |
|
Douglas
G. Houser
|
|
|
93,111,782 |
|
|
|
-0- |
|
Philip
H. Knight
|
|
|
93,111,782 |
|
|
|
-0- |
|
Mark
G. Parker
|
|
|
93,111,782 |
|
|
|
-0- |
|
Johnathan
A. Rodgers
|
|
|
93,111,782 |
|
|
|
-0- |
|
Orin
C. Smith
|
|
|
93,111,782 |
|
|
|
-0- |
|
John
R. Thompson, Jr.
|
|
|
93,111,782 |
|
|
|
-0- |
|
Directors
Elected by holders of Class B Common Stock:
|
|
Votes Cast
For
|
|
|
Votes
Withheld
|
|
|
|
|
|
|
|
|
Jill
K. Conway
|
|
|
341,708,006 |
|
|
|
6,637,747 |
|
Alan
B. Graf, Jr.
|
|
|
345,328,573 |
|
|
|
3,017,180 |
|
Jeanne
P. Jackson
|
|
|
343,761,260 |
|
|
|
4,584,493 |
|
Proposal
2 - Ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent registered public accounting firm for fiscal year 2009.
Class
A and Class B Common Stock Voting Together:
For
|
|
|
Against
|
|
|
Abstain
|
|
|
431,979,349
|
|
|
|
6,860,885 |
|
|
|
2,611,900 |
|
Item
6. Exhibits
(a) EXHIBITS:
|
3.1
|
Restated
Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2005).
|
|
3.2
|
Third
Restated Bylaws, as amended (incorporated by reference from Exhibit 3.2 to
the Company’s Current Report on Form 8-K filed February 16,
2007).
|
|
4.1
|
Restated
Articles of Incorporation, as amended (see Exhibit
3.1).
|
|
4.2
|
Third
Restated Bylaws, as amended (see Exhibit
3.2).
|
|
10.1
|
NIKE,
Inc. Foreign Subsidiary Employee Stock Purchase Plan, as amended on
November 20, 2008.*
|
|
31.1
|
Rule
13(a)-14(a) Certification of Chief Executive
Officer.
|
|
31.2
|
Rule
13(a)-14(a) Certification of Chief Financial
Officer.
|
|
32.1
|
Section
1350 Certificate of Chief Executive
Officer.
|
|
32.2
|
Section
1350 Certificate of Chief Financial
Officer.
|
_______________________
* Management
contract or compensatory plan or arrangement.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
NIKE,
Inc.
an Oregon
Corporation
/s/ Donald W.
Blair
________________________
Donald W.
Blair
Chief Financial
Officer
DATED: January
7, 2009